Supreme Court Upholds Bona Fide Purchaser Rights, Dismisses Suit Based on Collusive Decree: Rajpal Singh vs. Saroj (2022) INSC 500

Date of the Judgment: 18 May 2022

Citation: (2022) INSC 500

Judges: M.R. Shah, J. and B.V. Nagarathna, J.

Can a collusive decree, obtained without a genuine contest, invalidate a subsequent sale to a bona fide purchaser? The Supreme Court of India addressed this critical question in a recent case concerning a property dispute rooted in a family arrangement and a subsequent sale. This judgment clarifies the importance of limitation periods in property disputes and protects the rights of bona fide purchasers. The bench comprised of Justice M.R. Shah and Justice B.V. Nagarathna, with the judgment authored by Justice M.R. Shah.

Case Background

The case revolves around a property dispute concerning agricultural land. The original owner, Defendant No. 2, entered into an agreement to sell the land to the Appellant, Defendant No. 1, on April 4, 1993, for Rs. 115,000. The time for executing the sale deed was extended twice at the request of the original owner. Subsequently, the original owner’s wife, the original Plaintiff, filed a collusive suit against her husband, claiming the property based on an alleged family settlement. This suit was decreed in her favor on February 1, 1995, without any contest from her husband. The decree was not registered, nor were any changes made in the revenue records. Later, on April 19, 1996, the original owner executed a registered sale deed in favor of the Appellant, who was unaware of the collusive decree. The Appellant took possession of the land, and his name was entered into the revenue records on May 31, 1996. Almost five years later, in 2001, the original Plaintiff filed a suit seeking cancellation of the sale deed and possession of the property.

Timeline

Course of Proceedings

The Trial Court decreed the suit in favor of the original Plaintiff, holding that the original owner had no title at the time of executing the sale deed in favor of the Appellant due to the prior collusive decree. The First Appellate Court reversed this decision, finding the suit to be barred by limitation and noting that the Appellant was a bona fide purchaser. The High Court, in a second appeal, overturned the First Appellate Court’s decision and restored the Trial Court’s decree, holding that the sale deed in favor of the appellant was a nullity. The Supreme Court heard the appeal against the High Court’s decision.

Legal Framework

The judgment primarily deals with the concept of limitation under the Limitation Act, 1963, specifically concerning the cancellation of sale deeds. The court also touches upon the concept of a bona fide purchaser and the validity of collusive decrees.

The relevant provision discussed is the limitation period for filing a suit for cancellation of a sale deed. The court noted that such a suit must be filed within three years from the date of knowledge of the sale deed. The court also considered the effect of a collusive decree on the rights of third parties.

Arguments

Appellant’s Arguments:

• The Appellant argued that he was a victim of fraud perpetrated by the original Plaintiff and Defendant No. 2.
• The collusive decree obtained by the original Plaintiff was without any genuine contest and was based on a non-existent family settlement.
• The decree was neither registered nor mutated in the revenue records.
• The original owner executed the sale deed in favor of the Appellant after receiving the full sale consideration without disclosing the collusive decree.
• The Appellant was put in possession of the land, and his name was entered into the revenue records immediately.
• The suit was filed after a period of five years, which was beyond the limitation period of three years.
• The First Appellate Court had rightly set aside the Trial Court’s decree after appreciating the evidence.

Respondents’ Arguments:

• The Respondents argued that the High Court was correct in restoring the Trial Court’s decree.
• The original owner had no valid title at the time of executing the sale deed in favor of the Appellant due to the decree passed in favor of the original Plaintiff.
• The sale deed in favor of the Appellant was a nullity as it was executed by a person without title.
• The suit was filed within the limitation period of twelve years as it also included a prayer for possession.

The innovativeness of the argument lies in the appellant’s emphasis on the collusive nature of the decree and the fact that the suit was barred by limitation. The appellant highlighted that the plaintiff’s claim was based on a decree obtained through fraud and collusion, which should not affect the rights of a bona fide purchaser.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the following issues were discernible from the judgment:

1. Whether the suit filed by the original plaintiff was barred by limitation.
2. Whether the High Court was justified in setting aside the judgment of the First Appellate Court.
3. Whether the decree obtained by the original plaintiff in Civil Suit No. 1643 of 1994 was a collusive decree.
4. Whether the appellant was a bona fide purchaser.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issues:

Authorities

The court did not explicitly cite any cases or books in the judgment. However, the following legal provisions were considered:

• Limitation Act, 1963: The court discussed the limitation period for filing a suit for cancellation of a sale deed.

Judgment

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

How each authority was viewed by the Court?

The court did not cite any specific authorities. However, the court’s reasoning was based on the principles of limitation and the protection of bona fide purchasers.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The suit was clearly barred by limitation. The court emphasized that the substantive relief sought was the cancellation of the sale deed, which had a limitation period of three years from the date of knowledge.
• The appellant was a bona fide purchaser who had paid full consideration and was unaware of the collusive decree. The court highlighted that the appellant was a victim of fraud.
• The decree obtained by the original plaintiff was collusive and without any genuine contest. The court noted that the decree was based on an alleged family settlement that was never produced before the court.
• The High Court had erred in not considering the limitation period and the fact that the appellant was a bona fide purchaser.

Fact:Law

The court’s reasoning was influenced more by the factual aspects of the case, such as the collusive nature of the decree and the bona fide status of the purchaser, than by legal principles alone. The court emphasized the need to protect the rights of bona fide purchasers and to ensure that collusive decrees do not undermine legitimate transactions.

Logical Reasoning:

The court considered the argument that the suit was filed for possession, which has a limitation period of twelve years. However, the court rejected this argument, stating that the substantive relief was the cancellation of the sale deed, and the prayer for possession was merely consequential. The court also considered the fact that the original plaintiff had obtained a collusive decree without any genuine contest. The court ultimately concluded that the suit was barred by limitation and that the appellant was a bona fide purchaser whose rights needed to be protected.

The court quoted the following from the judgment:

“Therefore, the subsequent present suit filed by the original plaintiff in Civil Suit No. 419/2007 can be said to be clearly barred by the law of limitation.”

“Even the High Court has also not properly appreciated and considered the fact that the appellant herein – original defendant No.1 can be said to be a bona fide purchaser and that the decree obtained by the original plaintiff in the earlier Civil Suit No.1643 of 1994 was a collusive decree and everything was done behind the back of the appellant herein – original defendant No.1.”

“Under the circumstances, the impugned judgment and order passed by the High Court is unsustainable and the same deserves to be quashed and set aside.”

There were no minority opinions in this case. The bench was unanimous in its decision.

Key Takeaways

• A suit for cancellation of a sale deed must be filed within three years from the date of knowledge of the sale deed.
• A bona fide purchaser’s rights are protected against collusive decrees.
• Collusive decrees obtained without any genuine contest are not valid and cannot be used to defeat the rights of third parties.
• Courts must consider the limitation period and the bona fide status of the purchaser in property disputes.
• The substantive relief sought in a composite suit determines the applicable limitation period.

This judgment has significant implications for future cases involving property disputes, particularly those involving collusive decrees and bona fide purchasers. It reinforces the importance of limitation periods and the protection of the rights of those who purchase property in good faith.

Directions

The Supreme Court set aside the High Court’s judgment and restored the First Appellate Court’s decision, dismissing the original suit.

Development of Law

The ratio decidendi of this case is that a suit for cancellation of a sale deed is barred by limitation if not filed within three years from the date of knowledge of the sale deed, and that a bona fide purchaser’s rights are protected against collusive decrees. This judgment reinforces the existing legal principles regarding limitation and bona fide purchasers but clarifies their application in cases involving collusive decrees.

Conclusion

The Supreme Court’s decision in Rajpal Singh vs. Saroj (Deceased) Through LRs and Anr. underscores the importance of limitation periods in property disputes and protects the rights of bona fide purchasers. The court held that the suit for cancellation of the sale deed was barred by limitation and that the appellant was a bona fide purchaser who had paid full consideration and was unaware of the collusive decree. The judgment sets aside the High Court’s decision and restores the First Appellate Court’s order, dismissing the suit. This case serves as a reminder that collusive decrees cannot be used to defeat the rights of third parties who have acted in good faith.