Supreme Court Upholds Sale Deed, Rejects ‘Sham Transaction’ Claim: Damodhar Narayan Sawale vs. Tejrao Bajirao Mhaske (2023)

LEGAL ISSUE: Whether a registered sale deed can be deemed a sham transaction and void based on claims of it being a collateral security for a loan, and the applicability of the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947. CASE TYPE: Civil Property Law. Case Name: Damodhar Narayan Sawale (D) through LRs. vs. Shri Tejrao Bajirao Mhaske & Ors. [Judgment Date]: May 4, 2023

Date of the Judgment: May 4, 2023
Citation: Civil Appeal No. 930 of 2023 (@ Special Leave Petition (C) No. 10747 of 2016)
Judges: M.R. Shah, J. and C.T. Ravikumar, J.
Can a registered sale deed be dismissed as a sham transaction simply because the seller claims it was intended as collateral for a loan? The Supreme Court of India recently addressed this critical question in a property dispute, examining the validity of a sale deed and the implications of the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947. The Court had to determine if the High Court erred in reversing the First Appellate Court’s decision, which had upheld the sale deed. The bench comprised Justices M.R. Shah and C.T. Ravikumar, with the majority opinion authored by Justice C.T. Ravikumar.

Case Background

The case revolves around a land dispute in Buldana, Maharashtra. The original plaintiff, Damodhar Narayan Sawale, claimed ownership of a field (3 acres and 20 guntas) based on a registered sale deed dated April 21, 1979. The sellers were the original defendants, Ramakrishna Ganpat Mhaske and Tejrao Bajirao Mhaske. Damodhar claimed he was put in possession of the land immediately after the sale, but Tejrao started disturbing his possession. The suit was filed on May 21, 1979, seeking possession based on the registered sale deed.

The first defendant, Ramakrishna, supported Damodhar’s claim, stating that he and Tejrao had handed over possession after the sale. However, Tejrao contested the suit, claiming the sale deed was a sham document, meant only as collateral for a loan of Rs. 1,000, with a promise to repay Rs. 1,500 within 12 months. He also claimed a previous sale deed to Ramakrishna was of the same nature. Tejrao further argued that the sale was invalid under the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947, and the Bombay Money Lenders Act, 1946.

Timeline

Course of Proceedings

The trial court dismissed Damodhar’s suit, agreeing with Tejrao that the sale deed was a sham document and a collateral security for a loan. The First Appellate Court reversed this decision, focusing on the legal impact of the registered sale deed and the notice issued by Tejrao. The First Appellate Court held that Tejrao failed to prove the sale was a money-lending transaction. The High Court, however, reversed the First Appellate Court’s decision, restoring the trial court’s dismissal of the suit. The High Court reframed the substantial questions of law, focusing on whether the plaintiff had established his entitlement for a decree of possession, whether the sale deed was nominal, and whether the lower appellate court had ignored the trial court’s findings.

Legal Framework

The Supreme Court considered several key legal provisions:

• Section 5 of the Transfer of Property Act, 1882: Defines “transfer of property” as an act by which a living person conveys property to another. The Court noted, “In the following sections “transfer of property” means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself, [or it himself] and one or more other living persons; and “to transfer property” is to perform such act.”
• Section 54 of the Transfer of Property Act, 1882: Defines “sale” as a transfer of ownership in exchange for a price paid or promised. The Court quoted, “Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.
• Section 17 of the Indian Registration Act, 1908: Mandates that transfer of ownership of any land worth more than Rs. 100 shall be effected by a registered deed.
• Section 92 of the Indian Evidence Act, 1872: Deals with the exclusion of oral evidence when a contract has been reduced to writing.
• Section 9(1) of the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947: Makes void any transfer or partition of land contrary to the provisions of the Act.
• Section 36A of the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947: Bars civil courts from deciding matters under the Act. The Court noted, “No Civil Court or Mamlatdar’s Court shall have jurisdiction to settle, decide or deal with any question which is by or under this Act required to be settled, decided or dealt with by the State Government or any officer or authority.”
• Section 36B of the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947: Requires civil courts to stay suits involving issues under the Act and refer them to the competent authority. The Court observed, “If any suit instituted in any Civil Court or Mamlatdar’s Court involves any issues which are required to be settled, decided or dealt with by any authority competent to settle, decide or deal with such issues under this Act (hereinafter referred to as the ‘competent authority’) the Civil Court or Mamlatdar’s Court shall stay the suit and refer such issues to such competent authority for determination.”
• Section 9 of the Code of Civil Procedure, 1908: Confers jurisdiction upon civil courts to determine all disputes of civil nature, unless barred by statute.

Arguments

Arguments of the Appellants (Damodhar Narayan Sawale’s Legal Representatives):

• The appellants argued that the registered sale deed (Exhibit 128) was valid and transferred ownership of the land to Damodhar.
• They contended that the High Court erred in not considering the legal impact of the registered sale deed.
• The appellants highlighted that the trial court and High Court failed to consider the legal effect and impact of execution and registration of the sale deed in view of the provisions under the Transfer of Property Act, 1882 and the Registration Act, 1908.
• They argued that the trial court failed to consider the relevance and application of Section 92 of the Indian Evidence Act, 1872 while appreciating the oral evidence against Exhibit 128.
• They also contended that the High Court had ignored the statutory bar of jurisdiction under Section 36A of the Fragmentation Act.
• The appellants argued that the High Court erred by considering the validity of the sale deed dated 04.07.1978 when it was not a question that could be raised in the subject suit.

Arguments of the Respondents (Tejrao Bajirao Mhaske and Others):

• The respondents argued that the sale deed (Exhibit 128) was a sham document, executed only as collateral security for a loan.
• They claimed that the sale transaction was hit by the provisions of the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947.
• The respondents contended that the First Appellate Court failed to consider the voidness of the sale transaction of 2 acres and 20 guntas between the original defendants and its impact on the sale of one acre.
• They argued that the sale deed dated 04.07.1978 was also a sham transaction and created a ‘fragment’ in violation of the Fragmentation Act.
• The respondents contended that the High Court was correct in restoring the decree of the trial court.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section but addressed the following questions based on the High Court’s reframed questions:

1. Whether the plaintiff has established his entitlement for a decree of possession of the suit property based on the sale deed dated 21.04.1979 (Exhibit 128).
2. Whether the defendant No. 2 has established that the sale deed (Exhibit 128) was nominal and by way of collateral security, and whether the transaction was hit by the provisions of Section 8 of the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act.
3. Whether the lower appellate court ignored the findings recorded by the trial court on the material facts in the light of undisputed factual position while reversing the findings recorded by the trial court.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• Charanjit & Ors. v. State of Punjab & Anr. [(2013) 11 SCC 163]* and Adambai Sulemanbhai Ajmeri & Ors. v. State of Gujarat [(2014) 7 SCC 716]*: These cases were cited to justify the Supreme Court’s intervention in reversing concurrent findings of fact by lower courts when there is a grave miscarriage of justice. The Court emphasized that if relevant materials were not considered by the High Court despite due consideration by the First Appellate Court, the Supreme Court has to consider the same.
• Jag Mohan Chawla and Anr. v. Dera Radha Swami Satsang & Ors. [(1996) 4 SCC 699]*: This case was used to explain the scope of counter-claims under Order VIII Rule 6A of the Code of Civil Procedure, 1908. The Court highlighted that a defendant’s counter-claim must be against the plaintiff and not against a co-defendant. The Court also explained that the cause of action from which the counter-claim arises need not necessarily arise from or have any nexus with the cause of action of the plaintiff.
• Rohit Singh and Ors. v. State of Bihar [(2006) 12 SCC 734]*: This case was cited to emphasize that a defendant cannot raise a counter-claim against a co-defendant. The Court reiterated that under Order VIII Rule 6A, CPC, a counter-claim can only be raised by a defendant against the claim of the plaintiff.

What weighed in the mind of the Court?

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

• The legal impact of a registered sale deed under the Transfer of Property Act, 1882 and the Indian Registration Act, 1908.
• The statutory bar of jurisdiction under Section 36A of the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947.
• The fact that the respondent’s claim of the sale deed being a sham document was not supported by sufficient evidence.
• The principle that a defendant cannot raise a counter-claim against a co-defendant.
• The need to uphold the legal sanctity of registered sale deeds.

Logical Reasoning:

The Court considered the arguments that the sale deed was a sham transaction, but found them to be unsubstantiated. The Court also considered the applicability of the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947, but found that the trial court and the High Court lacked jurisdiction to decide on the matter. The Court also considered the fact that the respondent was trying to raise a counter-claim against a co-defendant, which is not permissible under the Code of Civil Procedure, 1908. The Court concluded that the High Court had committed a serious error in setting aside the judgment and decree of the First Appellate Court.

The Supreme Court’s decision was based on the principle that a registered sale deed carries a presumption of validity, and the burden of proof lies on the party challenging it. The Court also emphasized the importance of adhering to the legal framework and the statutory bar of jurisdiction. The Court held that the High Court had erred in reversing the First Appellate Court’s decision and restored the First Appellate Court’s judgment.

The Court quoted from the judgment, “The very object of the mandate for registration of transfer of an immovable property worth more than Rs. 100/ – under Section 54 of the Transfer of Property Act, 1882 , read with Section 17 of the Indian Registration Act, is primarily to give certainty to title.” The Court also stated, “There can be no reason to disbelieve a recital contained in a registered sale deed regarding payment of consideration , executed by the vendor.” And further, “Certainly, parol evidence is admissible to show that a contract embodied in a document was never intended to be acted upon but was made for some collateral purpose.”

There were no dissenting opinions in this case.

Key Takeaways

• A registered sale deed carries a strong presumption of validity and transfer of ownership.
• The burden of proof lies on the party challenging a registered sale deed to prove it is a sham transaction.
• Oral evidence cannot override a registered sale deed unless there is clear evidence of a collateral purpose.
• Civil courts cannot decide on matters that fall under the jurisdiction of the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947.
• A defendant cannot raise a counter-claim against a co-defendant in a civil suit.

Directions

The Supreme Court set aside the judgment of the High Court and restored the judgment and decree of the First Appellate Court, which had decreed the suit in favor of the plaintiff.

Development of Law

The ratio decidendi of the case is that a registered sale deed carries a strong presumption of validity, and the burden of proof lies on the party challenging it. The Court also reiterated that civil courts cannot decide on matters that fall under the jurisdiction of the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947. This decision reinforces the legal sanctity of registered sale deeds and clarifies the limitations of civil court jurisdiction in matters related to land fragmentation.

Conclusion

The Supreme Court allowed the appeal, setting aside the High Court’s judgment and restoring the First Appellate Court’s decision. The Court emphasized the importance of registered sale deeds and the limitations on civil courts’ jurisdiction under the Fragmentation Act. This judgment reinforces the legal sanctity of registered sale deeds and clarifies the limitations of civil court jurisdiction in matters related to land fragmentation. The Supreme Court held that the High Court had committed a serious error in setting aside the judgment and decree of the First Appellate Court and in restoring the decree of dismissal of the suit of the trial Court.

Category

Parent Category: Property Law

Child Categories:

• Sale Deed
• Registered Document
• Transfer of Property Act, 1882
• Indian Registration Act, 1908
• Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947
• Code of Civil Procedure, 1908
• Section 5, Transfer of Property Act, 1882
• Section 54, Transfer of Property Act, 1882
• Section 17, Indian Registration Act, 1908
• Section 92, Indian Evidence Act, 1872
• Section 9(1), Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947
• Section 36A, Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947
• Section 36B, Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947
• Section 9, Code of Civil Procedure, 1908

FAQ

Q: What does this judgment mean for property owners?
A: This judgment reinforces the importance of registered sale deeds. If you have a registered sale deed, it is considered a strong proof of ownership, and the burden of proof lies on anyone who challenges it.

Q: Can someone claim a registered sale deed is a sham transaction?
A: Yes, but they must provide strong evidence to prove it. Simply claiming it was for collateral security is not enough.

Q: What is the Maharashtra Prevention of Fragmentation and Consolidation of Holdings Act, 1947?
A: It is a state law aimed at preventing the fragmentation of agricultural holdings and promoting consolidation for better cultivation. Civil courts do not have jurisdiction to decide on matters under this Act.

Q: Can a defendant raise a claim against a co-defendant in a civil suit?
A: No, a defendant can only raise a counter-claim against the plaintiff, not against a co-defendant.

Q: What happens if a court does not have jurisdiction to decide a matter?
A: If a court does not have jurisdiction, its decision is considered invalid. The matter should be referred to the appropriate authority.