Supreme Court settles dispute over sale deed and agreement to sell: K.N. Nagarajappa & Ors. vs. H. Narasimha Reddy (2021)

Date of the Judgment: 09 September 2021
Citation: 2021 INSC 616
Judges: L. Nageswara Rao, J., S. Ravindra Bhat, J.
Can a High Court interfere with the factual findings of a lower appellate court in a second appeal? The Supreme Court of India addressed this question in a case involving a dispute over a sale deed and an agreement to sell. The court ultimately upheld the trial court’s decision, emphasizing the importance of considering all evidence and the limitations of appellate review. This judgment, authored by Justice S. Ravindra Bhat, clarifies the scope of a High Court’s power in second appeals under Section 100 of the Code of Civil Procedure (CPC).

Case Background

The case involves a dispute over land that was the subject of a registered sale deed executed on May 28, 1973. On this day, a sale deed (Ex-1) was executed for three parcels of land: survey no. 36/1 (28 guntas), survey no. 37 (1 acre 30 guntas), and survey no. 28/2 (13 guntas). The purchaser, H. Narasimha Reddy (the respondent), filed a suit (OS No.20/1985) for declaration of title, recovery of possession, and mesne profits, claiming that the sellers, K.N. Nagarajappa and others (the appellants), had dispossessed him after initially putting him in possession.

The appellants, on the other hand, filed a separate suit (OS 22/1985) claiming that the sale deed (Ex-1) was nominal and executed only as security for a loan. They claimed that the respondent had agreed to reconvey the property upon repayment of ₹9,000 within three years, as per an agreement of sale. The appellants alleged that they had repaid the amount along with 15% interest but the respondent failed to execute the sale deed.

Timeline

Course of Proceedings

The Trial Court, after considering the evidence, ruled in favor of the respondent, declaring him the absolute owner of the suit properties. It also found that the appellants were in illegal possession and dismissed their claim for specific performance of the alleged agreement to sell. The First Appellate Court, however, reversed the trial court’s decision, holding that the sale deed was nominal and that the appellants were entitled to specific performance. The High Court, in second appeal, reversed the first appellate court’s decision, restoring the trial court’s decree.

Legal Framework

The Supreme Court discussed the following provisions:

• Section 100 of the Code of Civil Procedure (CPC): This section defines the scope of a second appeal to the High Court, stating that it can only be entertained on a substantial question of law.
• Section 103 of the Code of Civil Procedure (CPC): This section empowers the High Court to determine issues of fact in a second appeal under specific circumstances, such as when the lower courts have not determined an issue or have wrongly determined it due to a legal error. The section reads as follows:

  “103. Power of High Court to determine issues of fact In any second appeal, the High Court may, if the evidence on the record is sufficient, determine any issue necessary for the disposal of the appeal, – (a) which has not been determined by the lower Appellate Court or both by the Court of first instance and the lower Appellate Court, or (b) which has been wrongly determined by such Court or Courts reason of a decision on such question of law as is referred to in section 100.”

Arguments

Appellants’ Arguments:

• The High Court exceeded its jurisdiction under Section 100 of the CPC by re-appreciating the evidence and differing with the factual findings of the first appellate court, which is the final court of facts.
• The examination of the agreement to sell (Ex.D-3) was a factual matter, not a legal issue, and therefore not within the scope of a second appeal.
• The sale deed (Ex.P-1) was nominal and executed only as security for a loan.
• The respondent had agreed to reconvey the property upon repayment of ₹9,000, as per the agreement to sell.

Respondent’s Arguments:

• The High Court correctly endorsed the findings of the trial court, which were based on law and evidence.
• The agreement to sell (Ex.D-3) was suspicious due to the lack of details about the land, absence of any mention of interest, and contradictions with other evidence.
• The trial court had correctly assessed the evidence and found the agreement to sell to be unreliable.
• The registered sale deed (Ex.P-1) was valid, and the respondent was the rightful owner.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section, but the main issue before the court was:

1. Whether the High Court was justified in interfering with the first appellate court’s decree in a second appeal under Section 100 of the Code of Civil Procedure (CPC), specifically regarding the interpretation of the agreement to sell (Ex.D-3).

Treatment of the Issue by the Court

Authorities

The following authorities were considered by the Supreme Court:

• Municipal Committee, Hoshiarpur v. Punjab State Electricity Board [2010] 13 SCC 216 (Supreme Court of India): This case clarified the scope and application of Section 103 of the CPC, emphasizing that the High Court can exercise its power under this section when the findings of fact by lower courts are vitiated by perversity or non-consideration of relevant evidence.
• Narayan Sitaramji Badwaik (Dead) Through Lrs. v Bisaram & Ors [2021] SCC OnLine SC 319 (Supreme Court of India): This recent judgment reiterated the circumstances under which a High Court can decide an issue of fact under Section 103 of the CPC, specifically when the lower courts have wrongly determined an issue due to a legal error.

Judgment

How each authority was viewed by the Court?

• Municipal Committee, Hoshiarpur v. Punjab State Electricity Board [2010] 13 SCC 216*: The Supreme Court relied on this case to emphasize that Section 103 of the CPC allows the High Court to interfere with factual findings of lower courts if they are perverse or based on overlooking material evidence.
• Narayan Sitaramji Badwaik (Dead) Through Lrs. v Bisaram & Ors [2021] SCC OnLine SC 319*: The Court cited this case to support its view that the High Court can decide an issue of fact under Section 103 of the CPC when the lower courts have wrongly determined an issue due to a legal error.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors, primarily focusing on the evidence and the conduct of the parties. The Court emphasized the following:

• The discrepancies and lack of details in the agreement to sell (Ex.D-3) compared to the registered sale deed (Ex.P-1).
• The appellants’ admission in their application to the Land Tribunal that the respondents were the owners of the suit lands.
• The failure of the appellants to produce evidence of repayment of the loan and interest.
• The overall conduct of the appellants, which suggested that the sale deed was not a nominal document.

The Court’s reasoning was primarily fact-based, focusing on the inconsistencies in the appellants’ claims and the evidence presented. The Court also emphasized the legal principles governing second appeals and the limitations on interfering with factual findings, while also highlighting the exceptions where such interference is necessary.

The Supreme Court’s decision was based on a thorough analysis of the evidence and the legal principles involved. The Court emphasized that the High Court’s interference was justified because the first appellate court had overlooked material facts and evidence. The Court also highlighted the importance of considering the overall conduct of the parties and the discrepancies in their claims.

The court observed that: “…the High Court recorded sound and convincing reasons why the first appellate court’s judgment required interference. These were entirely based upon the evidence led by the parties on the record.”

The Court also noted that: “…the appreciation of evidence by the first appellate court was on the basis of it having overlooked material facts, such as appreciation of documentary and oral evidence led before the trial court, that the execution of Ex.D -3 was denied.”

Finally, the Court concluded that: “In the circumstances of the case, it is evident that the High Court exercised the power in the light of that provision. Furthermore, we are also of the opinion that having regard to the overall circumstances, the impugned judgment does not call for interference in exercise of special leave jurisdiction…”

The Supreme Court’s decision is a reaffirmation of the principle that appellate courts should be cautious in interfering with factual findings of lower courts, but they can intervene when such findings are based on an erroneous appreciation of evidence or an oversight of material facts.

Key Takeaways

• High Courts can interfere with factual findings of lower appellate courts in second appeals under Section 103 of the CPC if the findings are perverse or based on overlooking material evidence.
• Courts must carefully examine all evidence, including documentary and oral evidence, when deciding on factual issues.
• Discrepancies in documents and inconsistencies in the conduct of parties can be crucial factors in determining the outcome of a case.
• The burden of proof lies on the party claiming that a registered sale deed is nominal.

Directions

No specific directions were given by the Supreme Court, other than dismissing the appeals.

Development of Law

The ratio decidendi of the case is that a High Court, in a second appeal, can interfere with the factual findings of the first appellate court if such findings are based on a misappreciation of evidence, oversight of material facts, or are otherwise perverse. This judgment reinforces the interpretation of Section 103 of the CPC and clarifies the circumstances under which a High Court can exercise its power to review factual issues.

Conclusion

The Supreme Court dismissed the appeals, upholding the High Court’s decision that the trial court’s judgment was correct. The Court emphasized that the High Court was justified in interfering with the first appellate court’s decision because it had overlooked material facts and evidence. The judgment clarifies the scope of a High Court’s power under Section 103 of the CPC in second appeals, highlighting that while factual findings are generally binding, they can be reviewed if they are based on an erroneous appreciation of facts or an oversight of material evidence.