The Madras High Court has reaffirmed that transactions involving immovable property during the pendency of litigation challenging the legality of the underlying title are voidable at the final adjudication. In a significant ruling affecting property buyers in government allotment schemes, the Court held that sale deeds executed after a discretionary allotment was challenged in writ proceedings cannot survive when the original allotment is struck down.
Background & Facts
The Dispute
The three writ petitions arose from the cancellation of shop allotments made under the Chairman’s discretionary quota of the Chennai Metropolitan Development Authority (CMDA). Between 2009 and 2010, several shops in Koyambedu Wholesale Market were allotted to private individuals through a non-transparent, non-public process reserved for 15% of the total stock. These allotments were challenged in multiple writ petitions filed between 2009 and 2010, culminating in a landmark order by a Division Bench on 15 December 2014, which declared the discretionary quota system illegal and directed a fresh public auction.
Procedural History
- 2009 - 2010: Multiple writ petitions filed challenging CMDA’s 15% discretionary quota system.
- 15.12.2014: Division Bench of Madras High Court quashed all discretionary allotments and ordered fresh public auction by 31.03.2015.
- 2015: Review petitions filed by original allottees (including vendors of petitioners) seeking to revive allotments on grounds of third-party rights; all dismissed.
- 10.06.2015: CMDA issued notices to original allottees demanding surrender of shops and refund of amounts.
- 2015 - 2018: Petitioners - purchasers of shops from original allottees - filed writ petitions seeking protection of their possession, citing registered sale deeds and long-term business operations.
- 06.10.2025: R. Ayyanar, a long-time rental tenant, was impleaded as fifth respondent seeking enforcement of the 2014 auction order.
Relief Sought
The petitioners sought quashing of CMDA’s 10.06.2015 notice, recognition of their ownership rights based on registered sale deeds, and continuation of possession. They argued that since they were innocent buyers who paid fair market value and had been operating businesses for over a decade, their rights should be protected despite the invalidity of the original allotment.
The Legal Issue
The central question was whether Section 52 of the Transfer of Property Act, 1882 applies to writ proceedings challenging the legality of government allotments, and whether a sale deed executed during the pendency of such proceedings can survive when the underlying allotment is later declared void.
Arguments Presented
For the Petitioner
The petitioners, represented by senior counsel, contended that:
- The sale deeds executed in their favour were registered and absolute, converting mere allotment rights into vested property rights.
- They were bona fide purchasers unaware of the litigation, having relied on CMDA’s issuance of sale deeds and market licenses.
- They cited B. Gnanasekaran v. CMDA to argue that once an allotment crystallizes into a sale deed, it cannot be unilaterally cancelled.
- They invoked ITC Ltd. v. State of Uttar Pradesh to assert that where public interest is unaffected and no loss to the exchequer occurred, technical violations should not invalidate transfers.
- They offered to pay any shortfall in consideration to retain possession.
For the Respondent/State
The State, through the Additional Advocate General, countered that:
- The original allotments were illegal from inception and void ab initio under the doctrine of ultra vires.
- The petitioners’ vendors were parties to the 2009 - 2010 writ petitions and had been served notices; thus, the petitioners were bound by the doctrine of lis pendens.
- Clause 10 of the sale deeds explicitly prohibited transfer without CMDA’s prior written consent, which was never obtained.
- The review petitions had already rejected the argument of third-party rights, making it res judicata.
- The Supreme Court had previously overturned similar preferential treatment in P. Chennammal v. Bhakthavatchalu & Co., reinforcing that illegal allotments cannot be sanctified by subsequent transactions.
The Court's Analysis
The Court undertook a rigorous analysis of Section 52 of the Transfer of Property Act, which bars transfer of property during the pendency of litigation in which a right to immovable property is directly and specifically in question. The Court held that the term "proceeding" in Section 52 includes writ petitions under Article 226, citing Goudappa Appayya Patil v. Shivari Bimappa Pattar and M/s. Chetak Electric v. Rajasthan Finance Corporation.
"The litigating parties are exempted from the necessity of taking any notice of a title, so acquired. As to them, it is as if no such title existed. Otherwise suits would be indeterminable."
The Court emphasized that the doctrine of lis pendens does not render the transfer void ab initio, but subordinates it to the outcome of the litigation. Since the original allotments were directly challenged in writ petitions filed in 2009, and the sale deeds were executed between 2009 and 2011, the transfers were subject to the final outcome of those proceedings.
The Court further held that the petitioners’ reliance on B. Gnanasekaran was misplaced, as that case involved an allotment that had not been challenged for over a decade before the writ petition was filed. Here, the challenge was contemporaneous with the sale deeds.
The Court also rejected the argument that a license issued by the Market Management Committee under the Tamil Nadu Specified Commodities Markets Act, 1996, conferred any legal right to ownership. The license permitted business operations, not transfer of title, which required CMDA’s consent under the sale deed terms.
"The principle that this maxim informs us is that if the initial basis for a legal proceeding is declared invalid, then all the subsequent actions and proceedings arising therefrom are equally invalid."
The Court invoked the Latin maxim sublato fundamento cadit opus - "when the foundation is removed, the structure falls" - to affirm that the sale deeds, being derivative of an illegal allotment, could not stand.
Additionally, the Court held that the rejection of third-party rights in the review petitions operated as res judicata, barring re-litigation of the same issue. The petitioners’ prior PIL, dismissed as an abuse of process, further undermined their claim of innocence.
The Verdict
The petitioners’ writ petitions were dismissed. The Court held that sale deeds executed during the pendency of litigation challenging the legality of the underlying allotment are subject to the final outcome of such proceedings. The petitioners were granted three months to vacate the premises, with CMDA directed to refund the amounts paid by their vendors, along with 7.5% annual interest. No costs were imposed.
What This Means For Similar Cases
Transfer During Pendency Is Not Protected
- Practitioners must advise clients that purchasing property during pending litigation - even with a registered sale deed - does not confer immunity from adverse judgments.
- Buyers must conduct due diligence to ascertain whether any writ or civil suit is pending over the property’s title.
- Registration under the Registration Act does not override the doctrine of lis pendens.
Consent Clauses in Government Contracts Are Binding
- Government allotment documents often contain clauses prohibiting transfer without prior approval; non-compliance renders transfers voidable.
- License issuance for business operations cannot substitute for formal consent to transfer title.
- Courts will strictly enforce such conditions, especially in public asset transactions.
Res Judicata Bars Re-litigation of Rejected Claims
- If a legal argument (e.g., third-party rights) is rejected in a review petition or earlier proceeding, it cannot be revived in a subsequent writ petition.
- Petitioners cannot circumvent final orders by filing new petitions under different legal theories.
- The principle of res judicata applies fully to writ jurisdiction under Article 226.
