Registered sale deed cannot be branded as ‘sham’ casually: Supreme Court calls for digitisation of documents

The Supreme Court on Thursday cautioned courts against readily branding registered sale deeds as “sham” [Hemlatha vs Tukaram].

A Bench of Justices Rajesh Bindal and Manmohan held that courts must guard against a growing tendency to assail registered instruments without firm factual foundations, warning that such an approach undermines certainty in property transactions.

Registration imparts a strong presumption of validity and genuineness that cannot be diluted by routine or loosely pleaded challenges, the Bench underlined.

“A registered sale deed carries with it a formidable presumption of validity and genuineness. Registration is not a mere procedural formality but a solemn act that imparts high degree of sanctity to the document. Consequently, a Court must not lightly or casually declare a registered instrument as a ‘sham’," the Court said.

Thus, the Court called for digitisation of registered documents and land records to prevent repeated disputes over the authenticity of documents.

The Court also flagged the systemic consequences of diluting the sanctity of registered documents.

“This Court must caution against the growing tendency to challenge registered instruments ‘at the drop of a hat’. If the sanctity of registered documents is diluted, it would erode public confidence in property transactions and jeopardize the security of titles. In a society governed by the Rule of Law, registered documents must inspire certainty; they cannot be rendered precarious by frivolous litigation.”

The case arose from a dispute over a registered sale deed and a registered rental agreement both executed on the same day. Under the same, the respondent Tukaram sold his house in Bidar to one Hemalatha and thereafter, continued to occupy the premises as a tenant.

After rent defaults, eviction proceedings were initiated in 1975, following which Tukaram filed a civil suit in 1977 seeking a declaration that the sale deed and lease were nominal and sham. While the trial court decreed the suit in favour of Tukaram, the first appellate court reversed the finding.

The Karnataka High Court, in second appeal, restored the trial court’s decree, leading to the present appeal before the top court by Hemalatha.

The apex court held that a person alleging that a registered deed is sham must plead with precision and material particulars, and cannot rely on vague assertions or clever drafting.

“The person alleging that a registered Deed is a sham must satisfy a rigorous standard of pleading by making clear, cogent, convincing averments and provide material particulars in his pleadings and evidence. This Court is of the view that the test akin to a test under Order VI Rule 4 CPC is applicable to such a pleading and clever drafting creating illusion of cause of action would not be permitted and a clear right to sue would have to be shown in the plaint," the Court held.

The judgment emphasised that mere use of labels such as 'fraud' or 'sham' is insufficient to dislodge the statutory presumption attached to registered instruments.

“The ritual of repeating a word like ‘fraud’ or creation of an illusion in the plaint can certainly be unraveled and exposed by the Court at the nascent stage of litigation without waiting for a full trial. Mere suspicion or nebulous averments without material particulars would not be sufficient to dislodge the presumption under Sections 91 and 92 of the Indian Evidence Act, 1872,” the judgment said.

Even where a suit proceeds to trial, the Court made it clear that the evidentiary burden remains exceptionally high.

The Supreme Court also used the judgment to flag the need for systemic reforms in land and registration systems and digitisation of registered documents and land records.

Persistent disputes over registered instruments impose a heavy burden on courts and undermine transactional certainty, the Bench stated.

"This court seems it necessary to suggest to the Union and State Governments the urgent need for the digitization of registered documents and land records using secure, tamper-proof technologies such as Blockchain. Many experts believe that Blockchain, a shared, digital record book (ledger) system would ensure that once a transaction of a sale or mortgage or like nature is recorded, it becomes immutable and cryptographically secured," the Court stated.

Such reforms would curb forgery, reduce frivolous challenges to registered deeds, and unclog the judicial system, the Bench opined.

It linked the integrity of registration mechanisms to economic efficiency and investor confidence, particularly in property transactions.

In view of the above, it allowed the appeal and held that the respondent's conduct, including payment of rent under a registered lease, failure to raise any “sham” defence in reply to the eviction notice, and institution of the suit only after eviction proceedings, fatally undermined his case.

Hence, it set aside the High Court’s judgment, restored the first appellate court’s decision and dismissed the suit with costs.

[Read Judgment]