Unregistered Agreement to Sell Admissible for Specific Performance Under Section 49 Proviso; Stamp Deficiency Curable With 10x Penalty : Delhi HC

The Delhi High Court has clarified that an unregistered agreement to sell, though insufficiently stamped, can form the basis of a suit for specific performance under the proviso to Section 49 of the Registration Act, 1908, and that stamp deficiency is curable before the court itself without mandating rejection under Order VII Rule 11(d) of the CPC. The Court set aside a trial court order rejecting the plaint, directed payment of deficit stamp duty of Rs. 59,950 and penalty of Rs. 5,99,500, and remanded the suit for adjudication on merits.

Background & Facts

The Dispute

The appellants, Dharmendra Singh and another, entered into an Agreement to Sell (ATS) dated 10.05.2019 with the respondent, Fazl U Rehman, for a shop bearing No. 113, admeasuring 16 sq. yds., situated at Sabzi Mandi, Okhla, New Delhi, for a total consideration of Rs. 12,00,000. Pursuant to the ATS, a General Power of Attorney, Will, Possession Letter and Receipt were also executed on the same date. The entire sale consideration was paid and possession of the suit property was delivered to the appellants. Simultaneously, the parties executed a Rent Agreement dated 10.05.2019, inducting the respondent as a tenant for 11 months from 11.05.2019 at a monthly rent of Rs. 10,000 with a 10% enhancement clause upon renewal. Physical possession remained with the respondent in his capacity as tenant.

Key Facts

• The respondent initially paid rent but discontinued payment from May 2020 due to the COVID-19 lockdown
• Rent payments resumed at the existing rate but the respondent declined to execute a fresh rent agreement or accept the proposed enhancement
• Payment of rent was again discontinued from December 2021
• The appellants terminated the tenancy by notices dated 14.03.2022 and 05.04.2022
• The respondent then denied the appellants' title and disputed the efficacy of the documents executed on 10.05.2019, particularly the ATS
• The appellants instituted a suit seeking specific performance of the ATS, possession of the suit property, and recovery of arrears of rent/use and occupation charges
• The respondent admitted his signatures on the documents dated 10.05.2019 but disputed any right or title of the appellants

Procedural History

• The learned District Judge (LDJ), Saket Courts, Delhi framed a preliminary issue: "Whether the agreement to sell dated 10.5.2019 relied upon by the plaintiffs cannot be looked into for want of registration and insufficiency of stamp? If yes, whether the entire claim of the plaintiffs fails?"
• 09.05.2023: LDJ rejected the plaint under Order VII Rule 11(d) CPC, holding the ATS inadmissible for want of registration and insufficient stamping, and barred by Section 53-A of the Transfer of Property Act, 1882 and Section 17(1-A) read with proviso to Section 49 of the Registration Act, 1908
• 2023: Present Regular First Appeal (Commercial) No. 134/2023 filed before the High Court of Delhi
• 31.08.2026: Order reserved
• 08.09.2026: Order pronounced and uploaded

Relief Sought

The appellants sought setting aside of the impugned judgment dated 09.05.2023, restoration of the suit, and adjudication on merits for specific performance of the ATS, possession of the suit property, and recovery of arrears of rent.

The Legal Issue

The central questions were: (1) whether an unregistered agreement to sell, accompanied by delivery of possession and payment of full consideration, can form the basis of a suit for specific performance despite non-registration under Section 17(1-A) of the Registration Act, 1908 read with Section 53-A of the Transfer of Property Act, 1882; (2) whether insufficiency of stamp duty constitutes a ground for rejection of plaint under Order VII Rule 11(d) CPC; and (3) the applicable stamp duty and penalty for an agreement to sell in the nature of part performance.

Arguments Presented

For the Appellant

Learned counsel argued that the LDJ erred in applying Section 17(1-A) of the Registration Act read with Section 53-A of the Transfer of Property Act, as these provisions protect a transferee already in possession in part performance, whereas the appellants were seeking possession, not claiming protection. It was urged that the proviso to Section 49 of the Registration Act expressly permits an unregistered document to be received in evidence in a suit for specific performance as evidence of part performance under Section 53-A or for a collateral transaction, making registration not a mandatory pre-condition. Counsel further contended that rejection under Order VII Rule 11(d) was erroneous as the objection related only to admissibility of evidence, not a statutory bar to the suit, citing Section 9 CPC. The respondent's admission of signatures shifted the onus to him to prove they were signed in blank, a disputed issue unsuitable for threshold determination. Lastly, reliance was placed on Section 3 of the NCT of Delhi (Recognition of Property Rights of Residents in Unauthorized Colonies) Act, 2019, recognizing documents such as ATS, GPA and Will as conferring valid title notwithstanding the Registration Act or Stamp Act.

For the Respondent

Written submissions filed on 01.05.2024 contended that the appellants took mutually inconsistent pleas: claiming ownership and delivery of possession under the ATS while simultaneously claiming the respondent was a tenant liable to be evicted, amounting to "blowing hot and cold" and estoppel by election. It was argued that the ATS, being unregistered and insufficiently stamped, required registration under Section 17(1-A) of the Registration Act, particularly since the appellants pleaded delivery of possession thereunder, and the LDJ rightly impounded the ATS under Section 33(1) of the Stamp Act, 1899 for adjudication. Lastly, it was urged that Section 53-A operates only as a defence creating no independent enforceable right, and under Section 17(1-A) a document relied upon for Section 53-A must be registered; an unregistered document has no effect for such purposes.

The Court's Analysis

The Court held that both limbs of the LDJ's reasoning - non-registration and insufficiency of stamping - do not withstand scrutiny. On non-registration, the Court relied on the Division Bench judgment of the Punjab and Haryana High Court in Ram Kishan and Anr. v. Bijendra Mann alias Vijendra Mann and Ors., which held that following the Registration and Other Related Laws (Amendment) Act, 2001, an agreement falling within Section 53-A of the Transfer of Property Act is compulsorily registrable under Section 17(1-A) of the Registration Act, and an unregistered agreement cannot be relied upon to claim protection of part performance under Section 53-A. However, the Court clarified:

"Thus, while an unregistered agreement cannot be relied upon to claim the protection under Section 53-A, it may nevertheless form the basis of a suit for specific performance and be received in evidence for proving the contract."

Accordingly, non-registration does not bar a suit for specific performance; the proviso to Section 49 of the Registration Act, introduced by the Amendment Act of 2001, expressly permits an unregistered document to be received in evidence as proof of a contract in a suit for specific performance.

On insufficiency of stamping, the Court held that the LDJ conflated three distinct concepts: admissibility of an instrument in evidence, curability of stamp duty defect, and maintainability of the suit. Insufficiency of stamping, by itself, cannot furnish a ground for rejection of plaint under Order VII Rule 11(d) CPC. The LDJ's reliance on State of A.P. v. P. Laxmi Devi was misplaced, as that case concerned mandatory impounding, not mandatory payment of stamp duty. The appropriate course was to direct payment of deficit stamp duty and penalty as a condition for admissibility under proviso (a) to Section 35 of the Stamp Act, which constitutes the court as competent authority to receive the instrument upon payment. The Court cited Avinash Kumar Chauhan v. Vijay Krishna Mishra and Omprakash v. Laxminarayan, recognizing that the requirement of instruments being duly stamped can be satisfied by payment before the court itself.

For quantum determination, the Court held the ATS falls within Article 23-A of Schedule-I to the Stamp Act (as applicable to Union Territories) - "Conveyance in the nature of part performance" - attracting 90% of the duty payable on a conveyance under Article 23. Since the appellants are a male and female jointly, the concessional rate applies only to the woman's share. With equal shares (50% each), duty is chargeable at 3% on the male share and 2% on the female share, totalling 5%. On Rs. 12,00,000 consideration, stamp duty payable is Rs. 60,000; only Rs. 50 was affixed, leaving a deficiency of Rs. 59,950. Penalty is fixed at ten times the deficient stamp duty (Rs. 5,99,500) per Peteti Subba Rao v. Anumala S. Narendra, which holds the court has no discretion to reduce penalty under Section 35. However, the appellants may apply to the Collector for refund of any part of the penalty under Section 40(1)(b) per H.C. Dhanda Trust v. State of Madhya Pradesh, which recognizes the Collector's discretion to impose penalty not exceeding ten times the deficient duty.

The Verdict

The appellants succeeded. The Court set aside the impugned judgment and decree dated 09.05.2023, allowed the appeal, restored the suit to its original number, and remanded it to the LDJ for disposal in accordance with law. All contentions on merits were left open. The appellants are directed to deposit the deficient stamp duty of Rs. 59,950 together with a penalty of Rs. 5,99,500 before the LDJ within one month from 08.09.2026, whereupon the ATS shall stand admitted in evidence and the suit shall proceed. The matter shall also be forwarded to the Competent Collector for determination of the appellants' entitlement to refund of any part of the penalty under Section 40 of the Stamp Act. The appellants' counsel is directed to appear before the LDJ within two weeks for further proceedings.

What This Means For Similar Cases

Unregistered Agreement Not a Bar to Specific Performance

An unregistered agreement to sell, even if it contemplates delivery of possession and falls within Section 53-A of the Transfer of Property Act, can form the basis of a suit for specific performance and be admitted in evidence under the proviso to Section 49 of the Registration Act. The protection of part performance under Section 53-A remains unavailable, but the remedy of specific performance is not extinguished. Practitioners should:

• Plead specific performance based on the unregistered agreement without invoking Section 53-A protection
• Rely on the proviso to Section 49 Registration Act for admissibility
• Ensure the agreement is produced in court for payment of deficit stamp duty

Stamp Deficiency Curable Before Court - No Automatic Rejection

Insufficiency of stamp duty does not warrant rejection of plaint under Order VII Rule 11(d) CPC. The court itself is competent under proviso (a) to Section 35 of the Stamp Act to receive the instrument upon payment of deficit duty and penalty. Practitioners should:

• Oppose rejection applications by offering to pay deficit duty and penalty before the court
• Cite Avinash Kumar Chauhan and Omprakash for the court's authority to adjudicate stamp deficiency
• Avoid the delay of external adjudication under Section 33(1) Stamp Act

Article 23-A Stamp Duty and Penalty Calculation

For agreements to sell evidencing delivery of possession (part performance), Article 23-A attracts 90% of conveyance duty. In Delhi, jointly held property by a man and woman attracts 3% on the male share and 2% on the female share (5% total). Penalty is mandatorily 10 times the deficient duty, but the Collector retains discretion under Section 40(1)(b) to refund excess penalty. Practitioners must:

• Calculate duty at 90% of applicable conveyance rate
• Apply concessional rates correctly based on gender and shareholding
• Budget for 10x penalty as pre-condition for admissibility
• Advise clients to file refund application before Collector post-deposit