Juris Prime Law Services | View firm profile
By Aparajita H Mannava (Associate, Real Estate and Corporate Practice)
Despite the legal requirement to register Agreements to sell (“ATS(s)”), it is often seen in practice that ATSs are left unregistered for various reasons, including but not limited to (a) avoiding stamp and registration charges, (b) being unaware of the requirement to register ATSs or the significance thereof. Nonetheless, can such an unregistered ATS still confer some rights to the purchaser akin to contractual obligations?
- WHY REGISTER AN ATS?
As per section 53A of the Transfer of Property Act, 1882 (“TOPA”), where transfer has not been completed in the manner prescribed by law under an instrument, and the transferee has performed or is willing to perform his part of the contract, then the transferor is debarred from enforcing against the transferee any right in respect of the immoveable property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract.
In turn, contracts referred to in section 53A of TOPA are required to be registered under the Registration Act, 1908 (“Registration Act”)[1]. The Supreme Court has upheld this principle.[2], and as such, unregistered ATSs do not validly transfer the intended rights or title pertaining to the property. However, having paid the agreed consideration to the vendor, purchaser is at the risk of not being able to exercise their rights effectively.
- ADMISSIBILITY OF AN UNREGISTERED ATS AS EVIDENCE
As per the Indian Stamp Act, 1899 (“Stamp Act”)[3], instruments not duly stamped cannot be admitted in evidence until proper stamp duty and penalties are paid. Although an unregistered ATS is inadmissible in evidence under the Stamp Act[4], it is not void[5]. Penalties for insufficient stamp duty can be up to ten times the duty payable on the consideration or market value, whichever is higher. Documents requiring both stamp duty and registration must meet these requirements to be admissible as evidence. An instrument, when certified by endorsement that proper duty and penalty have been levied and paid under the Stamp Act[6], such ATS is capable of being acted upon as if duly stamped[7].
- SPECIFIC RELIEF
Registration Act[8] provides that while a document that requires to be registered cannot be received in evidence unless it is registered, an unregistered document affecting the transfer of immovable property and required to be registered may be received as evidence of a contract in a suit for specific performance under the Specific Relief Act, 1877 or 1963 or as evidence of any collateral transaction not required to be effected by a registered instrument[9].
Further, the Supreme Court has held that once ATS is executed and the payment/receipt of advance sale consideration was admitted by the vendor, nothing further was necessary to prove by purchaser.[10].
The Supreme Court has held that.[11], [12], [13]:
- Subsistence of the contract is an essential precondition;
(Note: This is also provided under the Contract Act[14], wherein:
- In contracts where time is of essence, and a party has failed to perform its obligations in the stipulated timeline, the contract, or such portion thereof, becomes voidable at the opinion of the promisee; and
- Vendors are responsible to notify the Purchaser their intent, if any, to discontinue the ATS.
Subject to the limitation period prescribed under the Limitation Act[15], which mandates that a suit for specific performance must be filed within three years from the date fixed for performance or from the time when the performance is refused.)
- Relief of specific performance cannot be granted in case of failure to comply with the stipulated timelines of the contract, and termination of the said contract.
- Readiness and willingness to perform the plaintiff’s part of the essential terms of the agreement are essential[16],
- When ATS is terminated for non-performance on part of the purchaser, they are no longer a bona fide purchaser.
- CONCLUSION
An unregistered ATS cannot legally transfer any property, and cannot be enforced to the fullest extent. However, the Purchaser can sue the vendor for specific performance, and is entitled to a refund of the monies paid to the vendor. Purchaser must, however, (a) be mindful of the limitation period, and (b) must demonstrate willingness and ability to pay and perform his obligations in a timely manner.
[1] Section 17 (1A) of the Registration Act.
[2] As held by the Supreme Court in Shakeel Ahmed v. Syed Akhlaq Hussain [2023 SCC OnLine SC 1526].
[3] Sections 33 and 35 of the Stamp Act.
[4] Section 35 of the Stamp Act.
[5] As held by the Supreme Court in Jupudi Kesava Rao v. Pulavarthi Venkata Subbarao and others [1971 AIR 1070].
[6] Sections 35, 40 or 41 of the Stamp Act.
[7] This principle has been upheld by (a) the High Court of (United) Andhra Pradesh in Linkwell Electronics Limited v. AP Electronics Development Corporation Limited [1997(3) ALD 336], and (b) by the Supreme Court In RE: Interplay Between Arbitration Agreements Under The Arbitration and Conciliation Act 1996 and The Indian Stamp Act 1899, in Curative Petition (C) No. 44 of 2023 in Review Petition (C) No. 704 of 2021 in Civil Appeal No. 1599 of 2020, and with Arbitration Petition No. 25 of 2023.
[8] Section 49 of the Registration Act.
[9]As also held by the Supreme Court of India on April 10, 2023 in R. Hemalatha v. Kashthuri [(2023) 10 SCC 725].
[10] Section 49 of the Registration Act.
[11] P. Ramasubbamma v. V. Vijayalakshmi [(2022) 7 SCC 384].
[12] As held by the Supreme Court on August 10, 2023 in Alagammal and others. v. Ganesan and another [2024 SCC Online SC 30].
[13] As held by the Supreme Court in I.S. Sikandar (deceased) (represented by legal representatives). & others v. K. Subramani & others [AIRONLINE 2013 SC 32]; As also held by the Supreme Court of India in Sabbir (deceased) (through legal representatives) v. Anjuman (since deceased) (through legal representatives) [2023 SCC Online SC 1292].
[14] Section 55 of the Contract Act.
[15] Article 54 of the Schedule of the Limitation Act.
[16] As also provided under (a) section 16 of the Specific Relief Act, 1963 and (b) section 53A of TOPA