The Delhi High Court dismissed a suit seeking refund of Rs. 6.93 crore paid for a commercial property, holding the plaintiff's awareness of an existing mortgage defeated his fraud claim against the seller's relatives. The court found the plaintiff, by his own admissions, knew the title deeds were with HDFC Bank yet proceeded with the transaction, invoking the doctrine of caveat emptor. The suit was deemed vexatious given the plaintiff's subsequent dealings with the property through a company promoted by his family.
Background & Facts
The Dispute
The plaintiff, Anil Kumar Agrawal, a resident of Patna, Bihar, agreed to purchase Shop No. N-4 measuring approximately 1165 square feet on the ground floor with an inside mezzanine and balcony of 800 square feet at Connaught Place, New Delhi from defendant No. 1, Nasira Begum. The total consideration was Rs. 7,00,00,000/-.
Key Facts
- The plaintiff paid the entire consideration of Rs. 6,93,00,000/- to defendant No. 1 in four bank tranches in July 2018 after deducting TDS of Rs. 7,00,000/-
- An agreement to sell (2018 ATS) was executed on 01.08.2018 recording the terms of sale
- Symbolic possession was handed over to the plaintiff via letter dated 01.08.2018
- Defendant No. 1 issued an attornment letter dated 01.08.2018 to the tenant directing future rent payments to the plaintiff
- The chain of title for the property comprised four documents: Certificate of Sale dated 05.09.1986, sale deed dated 25.02.2002, sale deed dated 23.12.2009, and sale deed dated 13.12.2011
- In March 2019, upon physical inspection, the plaintiff learned HDFC Bank had issued a notice under Section 13(2) of the SARFAESI Act, 2002 revealing the property was mortgaged
- The plaintiff issued a legal notice dated 20.07.2021 calling upon defendants to refund the principal amount of Rs. 6,93,00,000/- along with interest
- A criminal complaint was filed with the Economic Offence Wing, New Delhi on 28.10.2021 alleging fraud by defendants
- The original plaint was filed in March 2022 seeking refund of Rs. 6,93,00,000/- with pre-suit interest at 12% from 01.08.2018 to 01.03.2022 and pendente lite interest
- The plaintiff sought exclusion of the period 15.03.2020 to 28.02.2022 for limitation computation due to the COVID pandemic
Procedural History
- 22.03.2022: Original plaint filed
- 2022: Defendant Nos. 2, 3, and 5 filed I.A. No. 1021/2022 seeking deletion from array of parties
- 2022: Defendant No. 4 filed I.A. No. 10197/2022 seeking deletion
- 2022: Defendant Nos. 6 and 7 filed I.A. No. 11515/2022 seeking deletion
- 08.04.2025: M/s Exclusive Stores Pvt. Ltd. impleaded as defendant No. 8
- 07.04.2025: Plaintiff filed amended plaint incorporating paragraph 34(h) reserving right to seek cancellation of sale deed dated 07.01.2021
- 24.07.2026: Judgment reserved
- 16.10.2026: Judgment delivered
Relief Sought
The plaintiff sought refund of the principal sum of Rs. 6,93,00,000/- paid to defendant No. 1 along with interest, claiming he was defrauded as defendants failed to disclose the mortgage with HDFC Bank.
The Legal Issue
The central question was whether the plaint disclosed a valid cause of action for fraud against defendant Nos. 2 to 7 under Section 19 of the Indian Contract Act, 1872, given the plaintiff's alleged lack of knowledge about the mortgage on the suit property with HDFC Bank, and whether defendant Nos. 2 to 7 were necessary or proper parties to the suit.
Arguments Presented
For the Plaintiff
The plaintiff, through counsel Mr. Ravi Gupta and Mr. Akshat Nayyar, argued that defendant Nos. 2 to 7 were necessary and proper parties as their presence was essential for effectual adjudication. He contended the cause of action arose when these defendants falsely represented the suit property was free from encumbrances, inducing him to execute the 2018 ATS and part with consideration. The plaintiff asserted these defendants received cash payments from other defendants for the transaction and were jointly and severally liable to refund the consideration with interest at 12% per annum. He relied on the registration of FIR No. 1/2022 under Sections 420, 406, and 120B of the IPC against all defendants to substantiate his fraud claim.
For the Defendants
Counsel for defendant Nos. 2, 3, and 5 (Mr. Anuj Handa) argued the 2018 ATS was executed solely between plaintiff and defendant No. 1, with the applicants neither parties to the agreement nor recipients of any consideration. He emphasized defendant Nos. 2 and 3 signed only as attesting witnesses, while defendant No. 5 was not even an attesting witness, citing Kasturi v. Iyyamperumal to assert they were neither necessary nor proper parties. Counsel for defendant No. 4 (Mr. Samar Khan) invoked the doctrine of privity of contract, stating no relief could be sought against a stranger to the contract, noting the plaint lacked specific averments against defendant No. 4. Counsel for defendant Nos. 6 and 7 (Mr. Nikhil Rohatgi) asserted the entire consideration was paid directly to defendant No. 1, with no amount paid to them, and argued the plaintiff's claim was vexatious as he acquired the property through defendant No. 8, citing bank transfers from his proprietorship concern to defendant No. 8 for property purchase.
The Court's Analysis
The court first examined the relationship between plaintiff and defendant No. 8, noting defendant No. 1's written statement dated 23.07.2022 asserting the suit property was sold to defendant No. 8 via 2019 ATS dated 24.07.2019 on plaintiff's instructions. The court found plaintiff admitted awareness of the encumbrance and participation in negotiations with HDFC Bank for mortgage release, with payment arranged through defendant No. 8. The court held the 2019 ATS and subsequent sale deed dated 07.01.2021 constituted a single transaction continuation of the 2018 ATS.
Turning to the fraud allegation, the court applied the doctrine of caveat emptor, referencing Commissioner of Customs v. Aafloat Textiles India Private Limited and Rajendra Kumar Barjatya v. U.P. Avas Evam Vikas Parishad. It emphasized that a buyer must exercise due diligence to ascertain the seller's title and property defects, and cannot avoid a contract on misrepresentation allegations if means of discovering truth existed with ordinary diligence. The court stated: "The Plaintiff, on his own admission, is a man of means who regularly sells and buys immovable property and is therefore well aware of the due diligence required to be followed by a buyer in such transactions."
The court found plaintiff's claim of being unaware of the mortgage was "prima facie implausible" given he admitted receipt of title documents from defendant No. 1 under clause 18 of the 2018 ATS, and the chain of title showed four title deeds deposited with HDFC Bank. It held: "This lends credence to the submissions of Defendant No. 1 that the Plaintiff was aware of the title deeds being deposited with HDFC Bank. The plea set up by the Plaintiff in the plaint that it was defrauded by Defendant No. 1 and not informed that the title deeds were deposited with HDFC Bank for mortgage is not borne out from the record."
Regarding defendant Nos. 2 to 7, the court found no legal obligation existed for them to make representations about encumbrances, and plaintiff admitted paying no money to them, thus lacking privity of contract. It cited Bishundeo Narain v. Seegeni Rai and Ranganayakamma and Another v. K.S. Prakash (Dead) by LRs to stress that vague fraud allegations without specific particulars under Order VI Rule 4 of CPC are insufficient. The court concluded: "The plaint does not set out such particulars and rests on a general allegation of fraud. Such an allegation cannot be treated as a substantive cause of action merely by use of the expression fraud."
Finally, the court deemed the plaint vexatious, noting plaintiff's failure to pursue specific performance or cancellation of the sale deed to defendant No. 8 despite knowing about the 2019 ATS since 2021, and his delay in approaching court despite paying full consideration in 2018. It stated: "The Plaintiff's action of not immediately approaching the Court in the year 2021 when it allegedly learnt about the sale of the suit property in favour of Defendant No. 8... does not stand to reason and is contrary to the ordinary course which an aggrieved party would have adopted."
The Verdict
The court allowed the deletion applications filed by defendant Nos. 2, 3, 4, 5, 6, and 7 (I.A. Nos. 1021/2022, 10197/2022, and 11515/2022), directing their removal from the array of parties. The plaintiff was directed to pay costs of Rs. 50,000/- to each of these defendants. The court dismissed the chamber appeal (O.A. 77/2024) challenging the deletion of Mr. Abhinandan Kumar Jain and the delay condonation application (I.A. 9121/2024) as devoid of merit. The suit was not granted any refund or interest relief, as the plaint was found vexatious and devoid of a valid cause of action.
What This Means For Similar Cases
Due Diligence Is Non-Negotiable
Practitioners must advise buyers to rigorously verify title documents before property transactions, as courts will not entertain fraud claims where buyers had means to discover encumbrances through ordinary diligence. The judgment reinforces that receipt of title documents under an agreement to sell constitutes notice of potential defects, invoking caveat emptor. Buyers cannot rely on seller's representations without independent verification, especially when dealing with high-value properties.
Vague Fraud Allegations Will Fail
Plaintiffs must plead fraud with specific particulars under Order VI Rule 4 CPC, including nature of representation, maker, recipient, time, place, and circumstances. General averments like "defendants misrepresented property was free from encumbrances" are insufficient. The judgment stresses that merely labeling acts as "fraudulent" without evidentiary foundation cannot sustain a cause of action, requiring plaintiffs to substantiate claims with concrete details.
Unclean Hands Bar Relief
Courts will dismiss suits where plaintiffs approach litigation with unclean hands, particularly when they continue beneficial transactions related to the disputed property. Here, the plaintiff's dealings with defendant No. 8 (a family-promoted entity) regarding the same property undermined his fraud claim. Practitioners should scrutinize clients' post-transaction conduct for inconsistencies that may defeat claims, as courts view such behavior as indicative of mala fide.
