Validity Of An Unregistered Sale Agreement

Coverage of this Article

Introduction

-A Sale Agreement constitutes all the terms and conditions of the sale of a property (movable or immovable) to the buyer. 

Validity of the Unregistered Sale Agreement

-Unregistered Sale Agreement is enforceable in Law, and any shortage of stamp charges can be paid through the Court’s order.

Conclusion

-Earlier, the industry practice was that in case of absence of the legal provision, an Agreement to Sale of an immovable property, which is executed between the individuals that may be developers or allotters, was not registered.

Validity of the Unregistered Sale Agreement

Unregistered Sale Agreement is enforceable in Law, and any shortage of stamp charges can be paid through the Court’s order. Such an agreement will be valid for three years from the execution date. In case of a negative clause in the agreement, for instance, it is mentioned in the agreement that the buyer has to get the property registered within three months,then the limitation period is extended by such a period. It is in the party’s interest to comply with the following negative clauses that may favour him in the agreement:

• In an unregistered saledeed, the party has to issue a revocation notice for cancellation of agreement despite the agreement being cancelled because of flux in time to cancel the agreement validly.
• This depends on the clauses framed in the agreement, but it is advisable to refund the advance taken.

In case a document is not accompanied by delivery of possession but is executed for the sole purpose of conveying the property, it is necessary that the document is registered since a registered document is not compulsory to be accompanied by the delivery of possession. Here the question arises, in the case where there is an unregistered instrument and delivery of possession, whether the transferee who is claiming to refer to both will not fall back on that delivery of possession. The purchaser might have his claim on the title, preceding the execution of the oral agreement to sale, which is unregistered, and the delivery of possession. Since the delivery of possession is considered part of the sale transaction, the registered sale deed can be a surplus, and the delivery of possession will be sufficient to confer the title.

Therefore, the conditions mentioned under Section 54 must be fulfilled if the delivery of property takes place. The formalities stated under Section 54 are:

• During the sale of an immovable property, whose value is Rs.One hundred or above, the sale deed has to be registered.
• If the value is less than Rs. 100, this may be either by a registered deed or by delivery of property because the aim is to give publicity to the respective transaction.

There should be no vitiation of the transaction, on the sole ground that there was no proof of oral agreement, which was accompanied by the delivery of possession preceding the execution of the unregistered sale deed where the property is delivered. If the oral sale is there along with the delivery of possession, then the transaction is regarded as complete.

In the case of 'MahomedYaouoob Ally v. ChhoteyLal', AIR 1939 Pat 218, it was held that the sale of an immovable property whose value is below Rs. 100, through an unregistered sale deed, it is not mandatory that the delivery of possession be co-existent with the execution of the sale deed. Thus, the sale would be valid even if delivery of possession of the property is in pursuance of the sale deed after its execution. Even in the case cited, 'AIR 1937 Mad 265', it was held that if the sale is for less than Rs. 100, the non-registration will not be consequential to the validity of the transfer if the transferee is able to set up an oral sale, and the delivery of possession will be in fulfilment thereof. Therefore it can be regarded as independent of the other. Consequently, it is necessary to file a suit to get the deed registered through court. 

Recently, the Supreme Court upheld a Trial Court order that allowed the plaintiff to file the suit on evidence of the insufficiently stamped and unregistered agreement of sale for the recovery of money that has to be paid by him during the execution of the Agreement for Sale.

The major issue before the Supreme Court was whether an unregistered sale agreement could be viewed for collateral purposes under Section 49 of the Registration Act of 1908. The bench was considered the appeal against the High Court of Madhya Pradesh, which set aside the order by the Trial Court, referring to Avinash Kumar Chauhan v. Vijay Krishna Mishra judgment.

Justice Navin Sinha and Justice BR Gavai, in Prakash SahuvsSaulal, noted that the Trial Court had referred to the judgment in S. Kaladevivs V.R. Somasundaram to allow the plaintiff to lead evidence on an insufficiently stamped document. In this judgment, it was held that:

• A document necessary to be registered, if it is unregistered,will not be admissible as evidence as per Section 49 of the 1908 Act.
• Such an unregistered agreement can still be used as evidence for collateral purposes as per the proviso mentioned under Section 49 of the Registration Act of 1908.
• The collateral transaction must be independent of the transaction to give effect to the law that is required to be registered.
• A collateral transaction should be a transaction that is not itself required to be effected by a registered document but is a transaction that creates any right, or title or interest in the immovable property of value of one hundred rupees or above.
• If a document is inadmissible as evidence for want of registration, then none of its terms can be admitted as evidence, and to use a document for proving an important clause will not be used as a collateral purpose.
• An agreement required to be registered, if it is unregistered, can be admitted as evidence of the contract for a suit of specific performance.

Conclusion

Earlier, the industry practice was that in case of absence of the legal provision, an Agreement to Sale of an immovable property, which is executed between the individuals that may be developers or allotters, was not registered. Since there was no mandate by the law for registration, the Agreement to Sales also did not face the consequences, according to Section 49 of the Registration Act. But, subsequently, the courts, especially the consumer foram, gave effect to such an unregistered Agreement to Sales.  

However, as per the current legal scenario, a non-registered document that is mandatory to be registered has serious consequences since the party seeking its enforcement will not be able to rely on the document to prove its contents. This process may deprive the party of enforcing their contract.