The Supreme Court dismissed a Special Leave Petition challenging a High Court order that upheld a Small Causes Court decree for possession of a shop. The Court clarified that the mere execution of an agreement to sell, even with part payment, does not by itself terminate a landlord-tenant relationship; an express or implied surrender under Section 111 of the Transfer of Property Act, 1882 is essential.
Background & Facts
The Dispute
The petitioner, Nazim Shaikh Hasan, occupied a ground-floor shop (200 sq.ft., House No. 3031, S.No. 51, Mitha Nagar, Pune) as a tenant paying Rs 1,500 per month. While tenancy subsisted, the landlord-tenant’s predecessor, Jainbi Mushtaq Shaikh, agreed to sell the shop to the petitioner. The agreement to sell was dated 21 September 2004. The petitioner paid Rs 40,000 as part consideration of the total Rs 1,90,000 and was to pay the balance of Rs 1,50,000 within three months.
Key Facts
- 21-09-2004: Agreement to sell executed; Rs 40,000 paid; balance Rs 1,50,000 due within three months.
- 19-09-2015: Small Causes Court upheld landlord’s claim for possession, holding that tenancy continued despite the agreement.
- 24-11-2023: First Appellate Court dismissed the petitioner’s appeal against the Small Causes Court order.
- 01-04-2026: Bombay High Court dismissed Civil Revision Application No. 280/2024, affirming the lower courts.
- 13-08-2026: Supreme Court dismissed Special Leave Petition No. 17699/2026, upholding the High Court’s decision.
- The agreement contained a clause that if a bank loan was not sanctioned, the agreement would be cancelled and the petitioner would return possession of the shop in its prior condition.
Procedural History
- Civil Suit No. 384/2010: Landlord filed suit for possession of the shop.
- Small Causes Court (judgment dated 19 September 2015): Decreed possession in favour of landlord.
- First Appellate Court (judgment dated 24 November 2023): Dismissed petitioner's appeal.
- Bombay High Court (judgment dated 01 April 2026): Dismissed Civil Revision Application No. 280/2024.
- Supreme Court (Special Leave Petition No. 17699/2026, judgment dated 13 August 2026): Dismissed petition.
Parties' Positions
- Petitioner argued that the execution of the agreement to sell and receipt of part consideration transformed the relationship into that of vendor-vendee, thereby extinguishing the tenancy and rendering the rent claim untenable.
- Respondents contended that the tenancy persisted because the agreement contained no express surrender clause, the consideration paid was insufficient to indicate transfer of possession, and the unregistered agreement could not invoke protection under Section 53A of the Transfer of Property Act.
Relief Sought
The petitioner sought a reversal of the High Court’s order, claiming that the tenancy had ceased upon execution of the agreement to sell and that he should be treated as a purchaser-vendee, thereby invalidating the possession decree.
The Legal Issue
Whether the execution of an agreement to sell between a landlord and a tenant, coupled with receipt of part consideration, automatically terminates the existing landlord-tenant relationship and creates a purchaser-vendee relationship under Section 111 of the Transfer of Property Act, 1882, or whether an express or implied surrender is required for the lease to be determined.
Arguments Presented
For the Petitioner
- Relied on R. Kanthimathi v. Beatrice Xavier (Mrs.) (2000) 9 SCC 339, asserting that substantial payment and a clause indicating surrender of possession effect a change in the jural relationship.
- Cited Arjunlal Bhatt Mall Gothani v. Girish Chandra Dutta (1973) 2 SCC 197, arguing that the agreement to sell superseded the tenancy.
- Submitted that the agreement’s receipt of Rs 40,000 demonstrated the landlord’s intention to transfer ownership, thereby ending the lease.
For the Respondent
- Emphasised the statutory scheme of Section 111(e) and (f), distinguishing express surrender (mutual agreement) from implied surrender (conduct inconsistent with tenancy).
- Relied on Shah Mathuradas Maganlal & Co. v. Nagappa Shankarappa Malage and Vayyaeti Srinivasarao v. Gaineedi Jagajyothi, holding that without clear surrender the lease continues.
- Highlighted that an agreement to sell does not create title under Section 54 of the Transfer of Property Act and, being unregistered, cannot invoke Section 53A per Section 17(1A) of the Registration Act, 1908.
- Pointed out the petitioner’s failure to sue for specific performance, indicating no intention to treat the agreement as a transfer of ownership.
The Court's Analysis
The Court began by noting that the central question was whether the execution of the agreement to sell and receipt of part consideration automatically altered the parties’ legal relationship. It observed that the Kanthimathi precedent was fact-specific, hinging on an express clause stating that possession had already been surrendered and that a substantial sum (Rs 20,000 of Rs 25,000) had been paid. In the present case, the agreement to sell contained no such clause; instead, Clause 4 expressly provided for cancellation and restoration of possession if the loan was not sanctioned.
"The mere execution of the agreement to sell coupled with payment of Rs 40,000/- out of the agreed consideration of Rs 1,90,000/- cannot be treated as determining the tenancy."
The Court reiterated the statutory framework of Section 111. It explained that express surrender requires a mutual agreement to yield the lease, while implied surrender is inferred from conduct that makes the continuation of the lease untenable. The Court found no evidence of either: the tenant continued to occupy the shop, paid rent, and made no overt declaration of relinquishing his leasehold.
Reference was made to Shah Mathuradas and Vayyaeti Srinivasarao, which clarified that implied surrender may arise from a new lease, relinquishment of possession, or acceptance of a sub-tenant, none of which occurred here. The Court also stressed that Section 53A protects a transferee only when the transferee’s possession is directly linked to the agreement to sell; mere continuation of tenancy does not satisfy this requirement.
Further, the Court examined the registration requirement under Section 17(1A) of the Registration Act. Since the agreement to sell was executed on 21 September 2004 - well after the amendment came into force - it required registration to have any effect for the purposes of Section 53A. The agreement remained unregistered; consequently, it could not confer any protective rights.
The Court dismissed the petitioner’s reliance on Arjunlal Bhatt Mall as misplaced because that case involved an agreement that expressly displaced the tenancy, unlike the present agreement which preserved the tenancy’s status quo.
Finally, the Court observed that the petitioner’s inaction in filing a suit for specific performance further undermined the claim that the parties intended to convert the lease into a sale.
The Verdict
The Supreme Court dismissed the Special Leave Petition, affirming the Bombay High Court’s order dated 01 April 2026. The petitioner's claim that the agreement to sell terminated the tenancy was rejected. No monetary or injunctive relief was granted; the decree for possession in favour of the respondent-landlord remains operative.
What This Means For Similar Cases
Execution of Agreement to Sell Is Not Sufficient to End a Lease
- Parties must include an explicit surrender clause or demonstrate conduct that unequivocally shows the lease has been abandoned.
- Courts will scrutinise the terms of the agreement and the parties’ behaviour before deeming the tenancy terminated.
Unregistered Sale Agreements Cannot Invoke Section 53A Protection
- Any agreement to sell executed after 24 September 2001 must be registered; otherwise, it has no effect for the purposes of Section 53A.
- Practitioners should ensure registration of sale agreements when the buyer seeks protection of possession under the TP Act.
Evidence of Surrender Must Be Clear and Consistent
- Payment of a portion of consideration alone does not amount to surrender.
- Evidence such as a clause stating surrender of possession, relinquishment of rent, or acceptance of a new tenant is required to establish implied surrender.
Practical Takeaways
- Draft agreements with a clear express surrender provision if the intention is to terminate the lease.
- Advise clients to register sale agreements promptly to avoid statutory invalidity.
- When defending possession claims, focus on the absence of express/implied surrender rather than merely on the existence of a sale agreement.
