Unregistered Agreement to Sell

Transfer relating to immovable property is governed by Transfer of Property Act – it is defined under Section 54 of transfer of Property Act, 1882 that Sale is a transfer of ownership in exchange for price paid or promised to or part  paid and part promised.  And a Contract for sale for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties. On the other hand, registration of documents is governed by The Registration Act, 1908.

According to Section 17(1) of The Registration Act, 1908, certain documents must be registered to protect the interests of all parties of property transactions. Means thereby, this provision provides for mandatory registration of certain documents in the interests of all parties involved in transactions.  Section 49 of The Registration Act, 1908 generally states that unregistered documents cannot be used as evidence. However, the proviso to Section 49 of The Registration Act, 1908 allows unregistered agreements to sell to be used as evidence in lawsuits seeking specific performance under the Specific Relief Act, 1877.

It will be relevant to mention here Summary of a important Case of R. Hemlatha v. Kashthuri. [ SUPREME COURT OF INDIA, CIVIL APPEAL NO. 2535/2023 (@SLP (C) No. 14884/2022), R. HEMALATHA …APPELLANT(S) VERSUS KASHTHURI …RESPONDENT(S) ] R_Hemalatha_vs_Kashthuri_on_10_April_2023 (1)

 The entire case goes around a dispute concerning Admissibility & Enforceability of an unregistered Agreement to Sell. The appellant, R. Hemalatha, challenged the admissibility of this agreement as evidence in a suit for specific performance filed by the respondent Kashthuri. Wherein the Supreme Court of India has overruled the concept of mandatory registration. The Supreme Court has held the admissibility of  an unregistered agreement to sell  in the suit  for a relief to be granted by a court against a person to fulfil his / her contractual obligations under the law of specific performance.

Fact of case is that- That “Kashthuri” instituted civil suit against “R. Hemlatha”  for specific performance of the Agreement to Sell dated 10.09.2013, being O.S. No.199 of 2014 , relying upon Section 49 of the Act, it was submitted that an unregistered Agreement to Sell can be admitted as evidence of a contract in a suit for specific performance. On the other side, the defendant R. HEMALATHA, pleaded that in view of  the Indian Registration Act  and the Tamil Nadu Amendment Act No.29 of 2012 to the Indian Registration Act, under which the instruments of agreement relating to sale of immovable property of the value of Rs.100/− and upwards is compulsorily required to be registered, the said unregistered document shall be inadmissible in evidence. Kashthuri argued that, despite the lack of registration, the agreement could be used as evidence under the proviso to Section 49 of the Indian Registration Act. Hemlatha countered that recent amendments in Tamil Nadu required registration of such agreements, and thus, the unregistered agreement should not be admissible.

The District Court agreed with Hemlatha, ruling that the agreement was inadmissible. Kashthuri appealed, and the Madras High Court ruled in her favour, stating that unregistered agreements could be used in specific performance cases. Hemlatha then appealed to the Supreme Court.

The Supreme Court upheld the Madras High Court’s decision, ruling that the unregistered agreement was admissible as evidence in a specific performance suit.  The Court also discussed Section 17(1A) of the Registration Act, noting that this provision requires registration for certain documents but does not affect the admissibility of other unregistered agreements under the proviso to Section 49.

The Supreme Court’s decision has significant implications for the admissibility of unregistered Agreements to Sell in suits for specific performance. It confirms that the proviso to Section 49 of the Registration Act provides an exception to the compulsory registration requirement for such documents.

This judgment reinforces the principle that the substance of a transaction should be considered rather than merely relying on the form of the document. In this case, the court recognized that the unregistered Agreement to Sell was essentially a contract for the sale of immovable property and that its admissibility should not be solely determined by its registration status.

The Supreme Court’s decision clarifies that unregistered agreements for the sale of property can be admitted as evidence in specific performance cases. While this ruling supports the use of such agreements in court, it is still advisable to register agreements to ensure legal validity and avoid future disputes. It’s always wise to register such agreements. Registration ensures that the agreement complies with the law and gives it legal validity and enforceability, helping to prevent potential complications or disputes in the future.

Disclaimer – This summary is for informational purposes only and does not constitutes legal advice.