A significant ruling from the Madras High Court clarifies that while dual sale agreements executed to evade stamp duty are void under Section 23 of the Indian Contract Act, 1872, the payments made under such agreements remain recoverable to prevent unjust enrichment. The judgment affirms that contractual illegality does not automatically extinguish the right to restitution of consideration paid.
Background & Facts
The Dispute
The dispute arose from two sale agreements executed on the same day, 06.01.2003, concerning eight acres of land owned by R. Veeran in Salem District. One agreement (Ex-A.1) was registered and stipulated a sale price of Rs. 50,000 per acre (total Rs. 4,00,000). The other (Ex-A.2), unregistered, fixed the price at Rs. 2,82,000 per acre (total Rs. 22,56,000). The parties admitted that the higher price reflected the true intention, and the registered agreement was executed solely to reduce stamp duty and registration charges.
Key Facts
- On 06.01.2003, Sivaraman paid Rs. 2,00,000 as advance under both agreements.
- On 05.02.2003, Sivaraman paid Rs. 6,00,000 to R. Veeran, evidenced by Ex-A.3 (receipt with thumb impression and signature).
- On 03.04.2003, Sivaraman paid Rs. 9,00,000 to R. Veeran, evidenced by Ex-A.4 (receipt with thumb impression, signature, and witness attestations).
- On 21.04.2003, Sivaraman assigned all rights under both agreements and the payment receipts to the plaintiff, M. Sathish Kumar, who paid Rs. 17,00,000 to Sivaraman.
- Possession of the land was delivered to Sivaraman on 21.04.2003 and subsequently to the plaintiff.
- The plaintiff issued a legal notice on 30.04.2003 demanding execution of the sale deed, which was ignored.
- R. Veeran died on 26.12.2010 during litigation; his legal heirs (defendants 2 - 5) were brought on record via court orders dated 05.01.2012 and 18.06.2013.
Procedural History
- 06.01.2003: Execution of registered (Ex-A.1) and unregistered (Ex-A.2) sale agreements.
- 05.02.2003: Payment of Rs. 6,00,000 under Ex-A.3.
- 03.04.2003: Payment of Rs. 9,00,000 under Ex-A.4.
- 21.04.2003: Assignment of rights to plaintiff; possession transferred.
- 30.04.2003: Legal notice issued to R. Veeran.
- 04.05.2004: Original Suit (O.S. No. 163 of 2004) filed for specific performance and injunction.
- 16.08.2018: Trial Court dismissed specific performance, granted refund of Rs. 2,00,000 with interest.
- 12.06.2019: Appeal Suit (A.S. No. 603 of 2019) filed before Madras High Court.
- 22.08.2025: Judgment reserved.
- 10.04.2026: Judgment pronounced.
The Parties' Positions
Plaintiff (Appellant): Argued that Ex-A.2 reflected the true agreement; payments of Rs. 6,00,000 and Rs. 9,00,000 were genuine and supported by attested receipts; assignment was valid; he was ready and willing to perform.
Defendants (Respondents): Denied receipt of Rs. 6,00,000 and Rs. 9,00,000; claimed the receipts were fabricated from blank signed papers obtained during a 1996 loan transaction with the plaintiff’s father; alleged the agreements were security for a loan, not sale contracts.
Relief Sought
The plaintiff sought: (1) specific performance of the unregistered sale agreement (Ex-A.2); (2) permanent injunction restraining defendants from interfering with possession; (3) alternatively, refund of Rs. 17,00,000 with interest.
The Legal Issue
The central questions were: (1) whether an assignee can enforce a contract against the original party despite the contract’s illegality under Section 23 of the Indian Contract Act; (2) whether payments made under a void contract for the purpose of evading statutory duties are recoverable; and (3) whether the trial court erred in rejecting the genuineness of payment receipts.
Arguments Presented
For the Appellant
The appellant’s counsel, Mr. T. Murugamanickam, argued that the assignment of rights under Ex-A.1 and Ex-A.2 was valid under Section 15 of the Specific Relief Act, 1963, as there was no express or implied prohibition against assignment. He relied on Habiba Khatoon v. Ubaidul Huq and Sinnakaruppa Gounder v. M. Karuppuswami Gounder to establish that assignees may enforce contracts unless personal qualifications are material. He contended that Ex-A.3 and Ex-A.4 were duly attested, stamped, and corroborated by witness testimony (P.W.1, P.W.2, P.W.3), and the defendants failed to prove the alleged loan transaction or fabrication. He emphasized that illegality of purpose does not invalidate the underlying money transaction.
For the Respondent
The respondents did not appear before the High Court. Their written statements, adopted by the legal heirs, alleged fabrication of receipts using blank signed papers obtained during a 1996 loan. They claimed the agreements were security documents, not sale contracts, and that the plaintiff was not in lawful possession. They argued that the plaintiff could not enforce a contract void under Section 23 and that the refund should be limited to the admitted Rs. 2,00,000.
The Court's Analysis
The Court first affirmed that the assignment of rights by Sivaraman to the plaintiff was valid. The contracts contained no clause prohibiting assignment, and the terms permitted execution of the sale deed in favor of Sivaraman’s nominees. Citing Habiba Khatoon v. Ubaidul Huq, the Court held that the benefit of a contract not personal in nature may be assigned unless expressly prohibited.
The Court then addressed the validity of Ex-A.2. It found that the dual agreements were intentionally structured to evade stamp duty and registration charges, thereby defeating statutory provisions under Section 23 of the Indian Contract Act. The Court quoted the judgment:
"The object / intention being to evade stamp duty, registration charges and other revenues to the Government, if permitted they would defeat the provisions of law and cause loss to the exchequer. Hence, both the Sale Agreements are against public policy and therefore, they are void."
Thus, specific performance was rightly denied. However, the Court drew a critical distinction: while the contract was void, the payments made were not tainted by illegality. The Court held:
"The money transactions of Rs. 2,00,000, Rs. 6,00,000 and Rs. 9,00,000, totally Rs. 17,00,000 towards part payment of the sale consideration are not tainted by illegality."
The Court found the defendants’ claim of fabrication unsubstantiated. The receipts bore thumb impressions, signatures, and witness attestations. The defendants failed to produce evidence of the alleged 1996 loan or the blank papers. The trial court’s rejection of Ex-A.3 and Ex-A.4 was therefore erroneous.
The Court concluded that denying recovery of Rs. 17,00,000 would result in unjust enrichment of the defendants. Equity and restitution principles compelled the grant of a money decree.
The Verdict
The appeal was allowed in part. The plaintiff was denied specific performance and injunction. However, he was granted a money decree for Rs. 17,00,000 with simple interest at 6% per annum from the date of filing the suit (04.05.2004) until realization, recoverable from the properties left by the deceased defendant. No costs were awarded in either the original suit or the appeal.
What This Means For Similar Cases
Payments Under Void Contracts Are Recoverable
- Practitioners must now argue that while contracts void under Section 23 cannot be specifically enforced, the consideration paid remains recoverable under principles of unjust enrichment.
- This applies to cases involving tax evasion through under-stamping, under-reporting, or dual documentation.
Assignment of Rights in Property Contracts Is Valid Unless Personal
- Where a contract permits performance to a nominee or contains no anti-assignment clause, assignees may enforce rights even if the contract is void for illegality.
- This strengthens the position of buyers who acquire rights from original vendees in property transactions.
Burden of Proof for Fabrication Lies Heavily on the Denying Party
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Allegations of forgery based on blank signed papers require concrete evidence of the original transaction and the misuse.
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Mere assertion without documentary or witness corroboration will not defeat attested receipts.
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Always seek restitution of payments made under void contracts, even if specific performance is barred.
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In property disputes, ensure all payment receipts are attested, stamped, and supported by witness testimony.
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When drafting sale agreements, avoid dual documentation - even if intended for tax efficiency, it invites litigation and loss of specific performance remedy.
