Supreme Court overturns concurrent findings on loan disguised as sale agreement: Lakha Singh vs. Balwinder Singh (2024) INSC 744 (27 September 2024)

Date of the Judgment: 27 September 2024
Citation: 2024 INSC 744
Judges: Pamidighantam Sri Narasimha, J., Sandeep Mehta, J.
Can a court overturn concurrent findings of lower courts? The Supreme Court of India recently addressed this question in a case where a purported agreement to sell was deemed to be a loan transaction. The Court examined whether the lower courts had overlooked crucial evidence leading to a flawed conclusion. This judgment highlights the Supreme Court’s power to correct manifest errors in lower court rulings, particularly when vital evidence is ignored. The bench comprised Justices Pamidighantam Sri Narasimha and Sandeep Mehta, with the judgment authored by Justice Mehta.

Case Background

The case revolves around a dispute over an agreement to sell dated 7th May 2007, concerning an agricultural plot of land in Village Amrike, Punjab. Balwinder Singh (the respondent-plaintiff) claimed that Lakha Singh (the appellant-defendant) agreed to sell the land for ₹5,00,000 per Killa. The agreement stipulated that Lakha Singh received ₹16,00,000 as earnest money, with the sale deed to be executed on 19th September 2008. Balwinder Singh also sought a permanent injunction to prevent Lakha Singh from alienating the land. In the alternative, Balwinder Singh sought recovery of ₹19,00,000, including damages. Lakha Singh denied the agreement, alleging it was fraudulent, and claimed the land was his only source of livelihood.

Timeline

Course of Proceedings

The trial court partly allowed Balwinder Singh’s suit, rejecting the plea for specific performance but ordering Lakha Singh to refund the earnest money of ₹16,00,000 with interest. The trial court concluded that the transaction was a loan, not a sale. Lakha Singh’s appeal to the First Appellate Court was dismissed, which affirmed the trial court’s decision. The High Court of Punjab and Haryana also dismissed Lakha Singh’s second appeal, upholding the lower courts’ findings. Lakha Singh then appealed to the Supreme Court of India.

Legal Framework

The judgment primarily deals with the interpretation of evidence and the nature of the transaction between the parties. There are no specific sections of statutes quoted in the judgment. The Supreme Court’s analysis focuses on the factual matrix and whether the lower courts correctly interpreted the evidence presented. The court also considers the scope of its power under Article 136 of the Constitution of India to interfere with concurrent findings of fact.

Arguments

Appellant (Lakha Singh)’s Arguments:

• Lakha Singh contended that the lower courts’ findings were perverse and based on a misreading of the evidence.
• He argued that the agreement was a result of fraud and misrepresentation by Balwinder Singh, who was a police officer.
• Lakha Singh claimed that he never received the earnest money of ₹16,00,000.
• He pointed out that the stamp papers for the agreement were not purchased by him, but by Balwinder Singh’s brother.
• He highlighted that the agreement was typed on blank stamp papers where his thumb impression was taken.
• Lakha Singh emphasized that the land was his only source of livelihood and it was unlikely he would sell it for half the market rate.
• He argued that Balwinder Singh did not seek permission from his department to purchase the property, which is required for government employees.
• He also highlighted that Balwinder Singh did not show the amount of ₹16,00,000 in his income tax returns.

Respondent (Balwinder Singh)’s Arguments:

• Balwinder Singh argued that the lower courts had correctly appreciated the evidence and concluded that the transaction was a loan.
• He contended that the courts below had rightly held Lakha Singh liable to refund the loan amount.
• He asserted that the Supreme Court should not interfere with the concurrent findings of fact by the lower courts.

[TABLE] of Submissions

Innovativeness of the argument: Lakha Singh’s argument that the agreement was prepared on a blank stamp paper where his thumb impression was taken, was an innovative argument, which was considered by the Supreme Court.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the Court was:

1. Whether the concurrent findings of the lower courts were perverse and based on a misreading or omission of vital evidence, warranting interference by the Supreme Court under Article 136 of the Constitution of India.

The sub-issue that the court dealt with was whether the transaction was a loan or an agreement to sell.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court relied on the following authorities:

Cases:

• Sukhbiri Devi v. Union of India, 2022 SCC OnLine SC 1322, Supreme Court of India: This case was cited to reiterate the settled position that the Supreme Court should sparingly interfere with concurrent findings of fact unless the judgment is absolutely perverse.
• State of Rajasthan v. Shiv Dayal, (2019) 8 SCC 637, Supreme Court of India: This case was referred to in Sukhbiri Devi v. Union of India, emphasizing that a concurrent finding of fact is binding unless it is infected with perversity.
• Mekala Sivaiah v. State of A.P., (2022) 8 SCC 253, Supreme Court of India: This case was cited to highlight that the Supreme Court can interfere with concurrent findings if there is a grave miscarriage of justice due to misreading or ignoring material evidence.
• Bharwada Bhoginbhai Hirjibhai v. State of Gujarat, (1983) 3 SCC 217, Supreme Court of India: This case was cited in Mekala Sivaiah v. State of A.P., outlining the circumstances under which the Supreme Court can interfere with concurrent findings of fact.

Legal Provisions:

• Article 136 of the Constitution of India: This provision was discussed in the context of the Supreme Court’s power to interfere with the judgments of lower courts.

[TABLE] of Authorities

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Sukhbiri Devi v. Union of India [2022 SCC OnLine SC 1322]*: The Court acknowledged the principle that it should sparingly interfere with concurrent findings but found that the present case warranted interference due to perversity.
• State of Rajasthan v. Shiv Dayal [(2019) 8 SCC 637]*: The Court noted that while concurrent findings are binding, they can be overturned if they are perverse, which was the case here.
• Mekala Sivaiah v. State of A.P. [(2022) 8 SCC 253]*: The Court applied the principle that it can interfere if there is a grave miscarriage of justice due to misreading or ignoring material evidence, which it found to be present here.
• Bharwada Bhoginbhai Hirjibhai v. State of Gujarat [(1983) 3 SCC 217]*: The Court used the principles laid down in this case to justify its interference with the concurrent findings of the lower courts.

What weighed in the mind of the Court?

The Supreme Court was primarily influenced by the suspicious nature of the agreement and the conduct of Balwinder Singh. The Court found that the lower courts had failed to consider the following:

• The agreement was prepared on a blank stamp paper where Lakha Singh’s thumb impression was taken beforehand.
• The significant blank spaces on the first two pages of the agreement.
• Balwinder Singh did not seek permission from his department to purchase the property.
• Balwinder Singh did not show the amount in his income tax returns.
• The improbability of a police constable giving a large sum of money as a loan without any security.
• The fact that the land was being sold for half of its market value.

[TABLE] of Sentiment Analysis of Reasons

“Fact:Law” Ratio Table

The Court’s reasoning was heavily based on the factual aspects of the case, with a lesser emphasis on specific legal provisions. The Court focused on the implausibility of the transaction as a sale agreement, given the circumstances.

Logical Reasoning

The Court considered the alternative interpretation that the transaction was a genuine sale agreement but rejected it due to the overwhelming evidence suggesting fraud and misrepresentation. The Court concluded that the lower courts had overlooked vital evidence, leading to a perverse finding.

The Supreme Court held that the lower courts had erred in treating the transaction as an agreement for sale and that the transaction was more likely a loan. The Court emphasized that the agreement was suspicious, the conduct of Balwinder Singh was questionable, and the improbability of the transaction pointed towards a loan. The Court set aside the judgments of the lower courts and dismissed the suit.

The majority opinion was delivered by Justice Sandeep Mehta, with Justice Pamidighantam Sri Narasimha concurring. There were no dissenting opinions.

“It is trite law that jurisdiction under Article 136 of the Constitution of India should not be exercised unless the findings on facts recorded by the Courts below suffer from perversity or are based on omission to consider vital evidence available on record.”

“The circumstances noted above, the evidence of the respondent -plaintiff; the disputed agreement and the plaint clearly indicates that the disputed agreement seems to have been prepared on a blank stamp paper on which, the thumb impressions of the illiterate appellant -defendant had been taken prior to its transcription.”

“These vital factual aspects were totally glossed over by the Courts below while deciding the suit, the first appeal and the second appeal.”

Key Takeaways

• The Supreme Court can and will interfere with concurrent findings of lower courts if they are found to be perverse or based on a misreading of evidence.
• Transactions disguised as agreements to sell can be scrutinized and re-characterized if the circumstances suggest a different intention, such as a loan.
• Courts will consider the conduct of parties, the nature of the transaction, and the surrounding circumstances when interpreting agreements.
• Government employees must seek permission from their departments before entering into property transactions.
• Individuals must ensure that transactions are properly documented and that all relevant details are recorded in their income tax returns.

This judgment reinforces the Supreme Court’s role as a final arbiter of justice, capable of correcting errors made by lower courts. It also highlights the importance of thorough scrutiny of evidence and the need for courts to consider all relevant factors before arriving at a decision. This case may have implications for future cases involving similar disputes, where transactions are disguised to conceal their true nature.

Directions

The Supreme Court quashed and set aside the judgments of the trial court, the First Appellate Court, and the High Court. The suit filed by Balwinder Singh was dismissed. No specific directions were given, other than the decree to be prepared accordingly.

Development of Law

The ratio decidendi of this case is that the Supreme Court can interfere with concurrent findings of fact by lower courts if such findings are based on a misreading of evidence or an omission to consider vital evidence, leading to a perverse conclusion. The case also highlights that a transaction documented as an agreement to sell can be re-characterized as a loan if the circumstances indicate that the parties intended a loan rather than a sale. This decision reinforces the principle that the courts must look beyond the form of a transaction to its substance.

Conclusion

In conclusion, the Supreme Court allowed the appeal of Lakha Singh, setting aside the judgments of the lower courts. The Court found that the transaction, presented as an agreement to sell, was likely a loan transaction disguised as a sale. The Court emphasized that the lower courts had overlooked crucial evidence, leading to a perverse conclusion. This case underscores the Supreme Court’s power to correct errors in lower court rulings and highlights the importance of scrutinizing the true nature of transactions.