Mere non-payment of sale consideration not ground to cancel registered sale deed: Delhi High Court

The Delhi High Court recently reiterated that non-payment of sale consideration, by itself, cannot be a ground to cancel a registered sale deed [Akhilesh Gupta Vs Rajwans Vadhera].

Relying on the Supreme Court ruling in Dahiben v. Arvindbhai Kalyanji Bhanusalii (2020), Justice Neena Bansal Krishna observed,

"The mere non-payment of sale consideration cannot be a ground for cancellation of Sale Deed."

The High Court added that where there is a non-payment of the sale consideration, the appropriate remedy for the property seller is to seek the recovery of such consideration and not to avoid the sale deed altogether.

"It is abundantly clear when there is a deficit or non-payment of sale consideration, the appropriate remedy...was to seek recovery of the sale consideration and not seek avoidance of the Sale Deed," it said.

The Court passed the ruling in a dispute concerning the ownership and possession of a shop in Chawri Bazar, Delhi. The plaintiff (property seller) had agreed to sell the property to his neighbours (defendants).

The plaintiff claimed that although a sale deed dated October 7, 2016, recorded payment of ₹7.25 lakh through two cheques, no such payment was actually made.

He alleged that when the sale deed was being registered, the defendants expressed their inability to deliver the cheques, but assured that the payments would be made in due course.

Since the parties knew each other and shared a cordial relationship, the plaintiff said that he agreed to register the sale deed without the payments coming through. The defendants allegedly assured the plaintiff that they would take possession of the property only after they delivered the cheques.

However, the plaintiff claimed that the payment never came. Rather, the defendants sent a notice claiming that the plaintiff did not encash the cheques they had sent, and then allegedly took control of the property by force.

The plaintiff then approached a trial court to declare the sale deed void. The trial court ruled in the plaintiff's favour and cancelled the sale deed. The trial court held that the defendants had failed to prove delivery of the cheques and found that the sale consideration had not been paid.

The trial court verdict was then challenged by the defendants before the High Court.

They argued that the plaintiff's civil suit was a counterblast to the defendants' refusal to be witnesses in another case involving the plaintiff. They maintained that they had handed over cheques with the sale consideration before the sale deed was registered, and that the plaintiff had not encashed these cheques for reasons best known to him.

The defendants also offered to hand over fresh cheques to the plaintiff, which he refused.

The High Court framed the core issue as whether non-payment of sale consideration could justify cancellation of a registered sale deed.

“The sole question for determination is, whether non-payment / non-receipt of sale consideration is a circumstance which can lead to avoidance / cancellation of the Sale Deed.”

The Court relied on settled law under the Transfer of Property Act and Supreme Court precedents to answer this question in the negative.

“Even if the whole of the price is not paid, but the document is executed and thereafter registered, the sale would be complete and the title would pass on to the transferee under the transaction. Non-payment of part of sale price would not affect the validity of the sale," the High Court noted, relying on the Supreme Court ruling in Vidyadhar vs. Manikrao and Anr.

The Court also rejected the trial court’s reliance on Section 25 (agreement without consideration is void, unless it is in writing and registered, or there is a promise to compensate for something done, or a promise to pay a debt barred by limitation law) of the Indian Contract Act

“(In this case), it (the agreement) cannot be said that it was an Agreement without any consideration or void under Section 25 of Indian Contract Act,1872," the Court said.

The High Court proceeded to set aside the trial court judgment. At the same time, it protected the seller’s monetary claim.

“The Defendants / Appellants shall pay / deposit the amount of Rs.7,25,000/- along with interest @ 12% per annum from the date of Sale Deed, till the amount is fully paid to the Plaintiff," the Court ordered.

The appellants/ defendants (property purchasers) were represented by Advocate Yugansh Mittal.

The respondent (property seller) was represented by Advocates Sidharth Chaudhary and Rinku Yadav.

[Read Judgment]