UNREGISTERED AGREEMENT TO SELL CAN STILL BE ADMITTED AS EVIDENCE: SC

The Registration Act, 1908 (Registration Act) plays an important role when it comes to dealing with and managing information related to land and immovable property. Section 17(1) of the Registration Act provides for mandatory registration of certain documents. This mandatory registration safeguards the interests of all parties involved in property transactions.

It establishes a foundation of trust and reliability, as those dealing with the property can place full confidence in the registered documents. On the other hand, if such documents are not registered, then by virtue of Section 49 of the Registration Act, generally the documents in question cannot be submitted as evidence.

In a recent judgment of R. Hemlatha v. Kashthuri (Hemlatha Case), the Supreme Court of India has shed light on an important exception to the rule of mandatory registration. The Supreme Court has held that an unregistered agreement to sell can still be admitted as evidence where the suit is for a relief to be granted by a court against a person to fulfill his / her contractual obligations (specific performance).

Facts of the case

In 2013, Kashthuri and Hemlatha entered into an agreement to sell (Agreement) for the purchase of a property by Kashthuri. As per Section 17 of the Registration Act, registering the Agreement was mandatory since it concerned immovable property. Notably, Hemlatha willingly accepted the responsibility of registering the Agreement after receiving the agreed-upon payment. Despite receiving the payment, Hemlatha did not sell the property and she did not register the Agreement.

Aggrieved, Kashthuri filed a suit before the District Court seeking specific performance of the Agreement. Kashthuri argued that she had always been ready and willing to proceed with the Agreement, but Hemlatha had failed to fulfill her contractual obligations. Kashthuri contended that the unregistered Agreement can be presented as evidence in a suit seeking specific performance, relying on the proviso to Section 49. The said provisio states that an unregistered document related to immovable property, which ought to have been registered, can be used as evidence in a suit for specific performance.

On the contrary, Hemlatha argued that the state of Tamil Nadu amended Section 17 of Registration Act vide Tamil Nadu Amendment Act, 2012 and inserted Section 17(1)(g) which mandatorily requires compulsory registration of agreements relating to the sale of immovable property valued at INR. 100 or above. Further, the explanation to Section 17(2) which provided that a document to effect sale of immovable property would not require registration was also deleted. Therefore, according to Hemlatha, in light of Section 17(1)(g) of the Registration Act as amended by the state of Tamil Nadu, the unregistered Agreement is not admissible as evidence in the state of Tamil Nadu. The District Court ruled that the unregistered Agreement was inadmissible as evidence due to its non-registration. This decision was challenged by Kashthuri before the Madras High Court.

In the appeal, the Madras High Court ruled that the proviso to Section 49 of the Registration Act was aimed to ensure that the non-registration of a document should not hinder the court from granting equitable relief, particularly in cases of specific performance of contracts. Consequently, the Madras High Court held that the unregistered Agreement could be admitted as evidence, considering the nature of the suit seeking specific performance. Aggrieved by the judgment of the Madras High Court, Hemlatha preferred an appeal before the Supreme Court.

Supreme Court’s Verdict

At the outset, the Supreme Court noted that although the State of Tamil Nadu had introduced Section 17(1)(g) to the Registration Act, no corresponding amendment had been made to Section 49. The Court emphasized that Section 49 was inserted in 1929 and stands unamended. Taking this into consideration, the Supreme Court concluded that the unregistered document at hand, namely the unregistered Agreement, would be admissible as evidence in a suit for specific performance. As a result, the Supreme Court dismissed the appeal and upheld the order passed by the Madras High Court.

The Supreme Court also discussed Section 17(1A) of the Registration Act, which deals with contracts for transferring immovable property as per Section 53-A of the Transfer of Property Act, 1882. It states that such documents must be registered if executed after the commencement of the Registration and Other Related Laws (Amendment) Act, 2001. If not registered, they won’t be effective for the purposes of Section 53-A. In context, Section 53-A of the Transfer of Property Act, 1882 prevents one party from ousting another party who is in possession of a property when there’s a contract in place. This applies if the party in possession is willing to carry out the contract or has already started doing so.

The Supreme Court pointed out that Section 17(1A) is the only exception to the proviso in Section 49 of the Registration Act. For all other documents not covered by Section 17(1A), the proviso in Section 49 applies.

Our thoughts

The judgment by the Supreme Court in Hemlatha Case clarifies a significant aspect regarding the admissibility of unregistered agreements in suits seeking specific performance. The Supreme Court has established a broader proposition that unregistered agreements for the sale of immovable property may indeed be admitted as evidence in suits for specific performance under the Specific Relief Act, 1877. While it is important to recognize that, as per the Transfer of Property Act, 1882, an agreement to sell alone cannot legally effect transfer of property, the Court has emphasized on the significance of the proviso to Section 49 of the Registration Act. This provision allows the admission of unregistered agreements for sale as evidence, recognizing the equitable nature of specific relief.

The Supreme Court’s decision is in line with the principles of equity and ensures that registration alone would not be an insurmountable barrier for those seeking specific performance. However, it is essential to note that while this judgment provides clarity and allows for the admission of unregistered agreements to sell as evidence, it is always prudent to register such agreements. Registration ensures compliance with the law and provides legal validity and enforceability to the agreement, minimizing any potential complications or disputes that may arise in the future.

Authors: Renjith Nair and Altamash Qureshi

Here are some cases related to unregistered sale deeds in India:
Tribhovan Hargovan vs Shankar Desai
In this 1943 case, the court ruled that an unregistered sale deed could be used as evidence of a collateral transaction that didn’t need to be registered. The court also found that the defendant had been in possession of the property since 1936 and had purchased it from Azamkhan for Rs. 75.
Supreme Court
The Supreme Court has ruled that an unregistered agreement to sell can be used as evidence in a case where a court is being asked to grant relief to someone who is not fulfilling their contractual obligations. The court also ruled that a property can be transferred under an unregistered sale deed if it is accompanied by certain conditions.