The Supreme Court has reaffirmed that a registered sale deed carries a formidable presumption of validity and cannot be declared a sham without cogent, material evidence. This judgment clarifies the high threshold for challenging registered property transactions and reinforces the sanctity of documented title transfers under Indian property law.
Background & Facts
The Dispute
The dispute centers on a registered Sale Deed dated 12th November 1971, executed by Tukaram and his family in favor of Smt. Hemalatha, wife of Bharatraj, for a consideration of ₹10,000. The property, a house in Bidar, had previously been mortgaged to Sadanand Garje for ₹8,000. The Sale Deed recited that the purchaser paid ₹8,000 to redeem the mortgage and ₹2,000 in cash to the vendor. Simultaneously, a registered Rental Agreement was executed, leasing the same property back to the vendors for ₹200 per month.
Procedural History
The case progressed through multiple forums:
- 1977: Respondent-Plaintiff Tukaram filed O.S. No. 39 of 1977 seeking declaration that the Sale Deed was sham and nominal, and injunction against eviction.
- 1986: Trial Court decreed the suit, holding the transaction was a mortgage by conditional sale disguised as a sale.
- 1999: First Appellate Court reversed the trial court, holding the Sale Deed was genuine and enforceable.
- 2010: High Court restored the trial court’s judgment, relying on Gangabai v. Chhabubai to permit oral evidence contradicting the Sale Deed.
- 2026: Supreme Court allowed the appeal, setting aside the High Court’s judgment and restoring the First Appellate Court’s decision.
Relief Sought
The Respondent-Plaintiff sought a declaration that the Sale Deed was sham and not to be acted upon, and a perpetual injunction against eviction proceedings initiated by the Appellants under the Karnataka Rent Control Act.
The Legal Issue
The central question was whether a registered Sale Deed, clear and unambiguous on its face, can be set aside as a sham transaction based solely on oral evidence and circumstantial allegations, without proving fraud, coercion, or absence of consideration.
Arguments Presented
For the Appellant/Petitioner
The Appellants contended that the Sale Deed and Rental Agreement were both registered, creating a strong presumption of validity under Section 91 and Section 92 of the Indian Evidence Act, 1872. They argued that the Respondent failed to prove fraud, lack of capacity, or absence of consideration. The recitals in the Sale Deed were clear: an outright sale with redemption of mortgage and symbolic possession. The Respondent’s failure to challenge the Rental Agreement or raise the sham defense in his reply to the legal notice undermined his credibility. The Appellants relied on Prem Singh v. Birbal, Jamila Begum v. Shami Mohd., and Rattan Singh v. Nirmal Gill to establish that the burden of disproving a registered document lies heavily on the challenger.
For the Respondent/State
The Respondent argued that the transaction was a mortgage by conditional sale disguised as a sale, relying on Gangabai v. Chhabubai and Ishwar Dass Jain v. Sohan Lal. He contended that the consideration of ₹10,000 was inadequate for a property valued at ₹50,000, and that he never received any proceeds from the sale. He further claimed that possession was never transferred, taxes were paid by him, and his signature on the reply to the legal notice was obtained without understanding its contents. He asserted that oral evidence was admissible to prove the true intention behind the transaction.
The Court's Analysis
The Supreme Court emphasized that registration is not a mere formality but a solemn act that imparts sanctity to the document. The Court reiterated the settled principle that a registered document is presumed valid and genuine, and the burden to displace this presumption rests heavily on the challenger.
"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 examined the Sale Deed and found no ambiguity in its language. Crucially, it noted the absence of any condition in the deed that would bring it within the definition of mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882. The proviso to Section 58(c) mandates that any condition for reconveyance must be embodied in the same document - a condition wholly absent here.
The Court distinguished Gangabai on facts, noting that in that case, the transaction was clearly a mortgage with rent paid as interest, whereas here, the parties executed two distinct, registered documents - a sale and a lease - indicating a clear intent to transfer ownership. The Court also rejected the argument that inadequacy of consideration rendered the deed void, citing Explanation 2 to Section 25 of the Indian Contract Act, 1872, which states that inadequacy alone does not invalidate a contract.
The Court found the Respondent’s conduct inconsistent with his claim. He paid rent for 15 months, admitted liability in his reply to the legal notice, and failed to raise the sham defense until three years later. The payment of ₹8,426 to a third party (Defendant No.7) was not proven to be towards the Appellants, and the Respondent’s own witness, PW-5, testified that the sale was made to redeem the mortgage.
The Court further held that non-mutation of records and payment of taxes after litigation commenced were irrelevant, as revenue records do not prove ownership. The Respondent’s claim of illiteracy and lack of understanding was contradicted by evidence showing he ran a business and had previously executed a mortgage deed.
The Verdict
The Appellants won. The Supreme Court held that a registered sale deed cannot be declared sham without cogent, material evidence of fraud, coercion, or absence of consideration. The burden of proof lies heavily on the challenger, and mere allegations of inadequacy, non-mutation, or subsequent conduct are insufficient. The High Court’s judgment was set aside, and the First Appellate Court’s decree upholding the Sale Deed was restored.
What This Means For Similar Cases
Registration Creates a Presumption That Must Be Rebutted with Substance
- Practitioners must now demonstrate material particulars - not just suspicion - to challenge a registered deed as sham.
- Oral evidence alone, without corroborating documentary proof of fraud or coercion, will not suffice.
- Courts will scrutinize the timing and consistency of claims; delayed assertions in litigation are viewed with skepticism.
Procedural Conduct Matters More Than Alleged Intent
- A party’s conduct - such as paying rent, acknowledging liability, or failing to raise a defense in early correspondence - will be weighed heavily against later claims of sham.
- A reply to a legal notice admitting liability cannot be later disowned without credible evidence of coercion or misunderstanding.
- Courts will not permit litigants to use the doctrine of sham transactions as a tactical tool to defeat eviction or recovery proceedings.
Section 58(c) of the Transfer of Property Act Is a Strict Statutory Test
- To claim a transaction is a mortgage by conditional sale, the condition for reconveyance must be embedded in the sale deed itself.
- Separate oral agreements or subsequent conduct cannot convert a sale into a mortgage.
- Lawyers must carefully draft documents to ensure compliance with Section 58(c) if a conditional sale is intended - otherwise, courts will treat the transaction as absolute.
