This judgment concerns an appeal challenging an order from the High Court of Karnataka at Bengaluru, which had dismissed an application to reject a plaint. The case involves an educational institution (appellant) in long-standing possession of property, against whom respondents filed a suit seeking an injunction based on an alleged agreement to sell the property to a third party. The judgment examines the legal principles surrounding the rejection of plaints under Order VII Rule 11 of the Code of Civil Procedure, 1908, particularly whether an agreement to sell creates sufficient interest to sustain a suit against a third party. Ultimately, the court allows the appeal, setting aside the lower courts’ orders and rejecting the respondents’ plaint due to a lack of a clear cause of action and being barred by law, with further directions regarding cash transactions and income tax implications.
(A) Civil Procedure Code, 1908, Order 7 Rule 11(a) and (d) – Rejection of plaint – Lifting the Veil – Held that generally, sub-clauses (a) and (d) are standalone grounds, that can be raised by the defendant in a suit – However, it cannot be ruled out that under certain circumstances, clauses (a) and (d) can be mutually inclusive – For instances, when clever drafting veils the implied bar to disclose the cause of action; it then becomes the duty of the Court to lift the veil and expose the bar to reject the suit at the threshold – The power to reject a plaint under this provision is not merely procedural but substantive, aimed at preventing abuse of the judicial process and ensuring that court time is not wasted on fictitious claims failing to disclose any cause of action to sustain the suit or barred by law.
(Para 14.1)
(B) Civil Procedure Code, 1908, Order 7 Rule 11(a) and (d) – Transfer of Property Act, 1882, Section , 53A, 54 – Registration Act, 1908, Section 17 – Specific Relief Act, 1963, Section 41(j) – Agreement to sell – Suit for permanent injunction – Cause of action – Rejection of plaint – There is no privity between the respondents and the appellant – The agreement to sell, is not between the parties to the suit – Respondents have no legal right that can be enforced against the appellant as their claim is impliedly barred by virtue of Section 54 of the Act, 1882 – Their remedy, if any, lies against their proposed vendors – The plaint averments remain silent regarding the execution of a registered sale deed in favour of the respondents, which alone can confer a valid right on them to file a suit against the appellant – Another, remedy available to them is to institute a suit against the vendors for specific performance – Respondents are not in possession of the property – Whereas, the appellant’s possession since 1905 is admitted in the plaint itself – In such circumstances, where the plaintiffs are not in possession and the defendant is in settled possession for over a century, a suit for bare injunction by a proposed transferee is clearly not maintainable – Section 41(j) of the Act, 1963 prohibits grant of injunction when the plaintiff has no personal interest in the matter -Respondents, being mere agreement holders, have no personal interest in the suit schedule property that can be enforced against third parties. – The “personal interest” is to be understood in the context of a legally enforceable right, as when there is a bar in law, the mere existence of an interest in the outcome cannot give a right to sue – Held that plaint ought to have been rejected under Order 7 Rule 11(a) and (d) CPC – Hence, the orders passed by the High Court as well as the trial Court rejecting the application filed by the appellant, cannot be sustained in law and deserve to be set aside – Plaint pending on the file of XIII Additional City Civil and Sessions Judge liable to be rejected.
(Para 15 to 18 and 20)
(C) Income Tax Act, 1961, Section 27, 269ST – Income Tax – Payment for Conveyance of immovable property in cash – Permissible limit in the amendment to the IT Act was capped under Rupees Two Lakhs, instead of the proposed Rupees Three Lakhs – When a suit is filed claiming Rs.75,00,000/- paid by cash, not only does is create a suspicion on the transaction, but also displays, a violation of law – Though the amendment has come into effect from 01.04.2017, and from the present litigation that the same has not brought the desired change – When there is a law in place, the same has to be enforced – Most times, such transactions go unnoticed or not brought to the knowledge of the income tax authorities – It is settled position that ignorance in fact is excusable but not the ignorance in law – Held that deem it necessary to issue the following directions:
(a) Whenever, a suit is filed with a claim that Rs. 2,00,000/- and above is paid by cash towards any transaction, the courts must intimate the same to the jurisdictional Income Tax Department to verify the transaction and the violation of Section 269ST of the Income Tax Act, if any,
(b) Whenever, any such information is received either from the court or otherwise, the Jurisdictional Income Tax authority shall take appropriate steps by following the due process in law,
(c) Whenever, a sum of Rs. 2,00,000/- and above is claimed to be paid by cash towards consideration for conveyance of any immovable property in a document presented for registration, the jurisdictional Sub-Registrar shall intimate the same to the jurisdictional Income Tax Authority who shall follow the due process in law before taking any action,
(d)Whenever, it comes to the knowledge of any Income Tax Authority that a sum of Rs. 2,00,000/- or above has been paid by way of consideration in any transaction relating to any immovable property from any other source or during the course of search or assessment proceedings, the failure of the registering authority shall be brought to the knowledge of the Chief Secretary of the State/UT for initiating appropriate disciplinary action against such officer who failed to intimate the transactions.
(Para 18)
(D) Civil Procedure Code, 1908, Order 7 Rule 11(a) and (d) – Transfer of Property Act, 1882, Section , 53A, 54 – Registration Act, 1908, Section 17 – Agreement to sell – Cause of action – Rejection of plaint – Respondents’ claim based on an agreement to sell – The legal effect of such an agreement must be examined in light of Section 54 of the Act, 1882, which explicitly states that a contract for the sale of immovable property does not, of itself, create any interest in or charge on such property – Undoubtedly, a sale deed, which amounts to conveyance, has to be a registered document, as mandated under Section 17 of the Act, 1908 – On the other hand, an agreement for sale, which also requires to be registered, does not amount to a conveyance as it is merely a contractual document, by which one party, namely the vendor, agrees or assures or promises to convey the property described in the schedule of such agreement to the other party, namely the purchaser, upon the latter performing his part of the obligation under the agreement fully and in time – Section 54 of the Act, 1882 explicitly lays down that a contract for sale will not confer any right or interest – Section 53-A of the Act, 1882 offers protection only to a proposed transferee who has part performed his part of the promise and has been put into possession, against the actions of transferor, acting against the interest of the transferee – For the proposed transferee to seek any protection against the transferor, he must have either performed his part of obligation in full or in part.
(Para 15.1)
(E) Transfer of Property Act, 1882, Section , 53A – Specific Relief Act, 1963 – Transfer of Property – Lis pendens – The applicability of Section 53-A of the Act, 1882 is subject to certain conditions viz., (a) the agreement must be in writing with the owner of the property or in other words, the transferor must be either the owner or his authorised representative, (b) the transferee must have been put into possession or must have acted in furtherance of the agreement and made some developments, (c) the protection under Section 53-A is not an exemption to Section 52 of the Act, 1882 or in other words, a transferee, put into possession with the knowledge of a pending lis, is not entitled to any protection, (d) the transferee must be in possession when the lis is initiated against his transferor and must be willing to perform the remaining part of his obligation, (e) the transferee must be entitled to seek specific performance or in other words, must not be barred by any of the provisions of the Specific Relief Act, 1963 from seeking such performance – The protection under Section 53-A is not available against a third party who may have an adversarial claim against the vendor – Therefore, unless and until the sale deed is executed, the purchaser is not vested with any right, title or interest in the property except to the limited extent of seeking specific performance from his vendor – An agreement for sale does not confer any right to the purchaser to file a suit against a third party who is either the owner or in possession, or who claims to be the owner and to be in possession – In such cases, the vendor will have to approach the court and not the proposed transferee.
(Para 15.1)
The Correspondence, Rbanms Educational Institution V. B.Gunashekar & Another
Supreme Court: 2025 INSC 490: (DoJ 16-04-2025)
