Possession Alone Isn't Ownership: SC Ruling on Property Sale Agreements

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The Supreme Court of India has reaffirmed that mere possession of an immovable property under an agreement to sell does not confer ownership rights unless a sale deed is duly registered under the Indian Registration Act, 1908. The ruling, delivered by a bench comprising Justice Abhay S Oka and Justice Ujjal Bhuyan, emphasizes the necessity of formal registration for valid transfer of title.

Key Observations by the Supreme Court

• The Court reiterated that "an agreement for sale in respect of an immovable property does not transfer title in favour of the purchaser."
• Citing Section 54 of the Transfer of Property Act, 1882, the bench emphasized that "an agreement for sale does not create any interest in the property."
• The only legally recognized method for transferring immovable property worth more than Rs.100 is through a registered sale deed.

Background of the Case

• The case involved a dispute concerning the ownership and possession of a property.
• An agreement to sell was executed in favor of a company by the original owner, Shri M.A. Shanmugam, in exchange for shares of the company.
• The company claimed possession of the property as part performance of the contract.
• However, after the owner's demise, his legal heirs executed the sale deed in favor of a third party, which led to the legal dispute.

NCLAT's Decision and Supreme Court's Ruling

• The National Company Law Appellate Tribunal (NCLAT) had ruled that the sale deed executed by the legal heirs was not binding on the company, citing its possession.
• The Supreme Court overturned this decision, stating that possession alone does not establish ownership in the absence of a registered sale deed.
• The Court observed that "so long as the original owner had not sold the property by execution of a registered sale deed, he continued to be the legal owner."
• The company did not file a suit for specific performance against the legal heirs, weakening its claim.

Supreme Court's Verdict

• The appeal was allowed, with the Supreme Court ruling that the NCLAT's findings were erroneous, as mere possession through part performance does not override the legal requirement for registration.
• The Court stated: "The NCLAT, in its limited jurisdiction, could not have held the sale deed dated 31st October 2011 as non-binding."

Legal Implications

• This judgment clarifies that:
  • Possession under an agreement to sell does not equate to ownership.
  • Registration of a sale deed is a mandatory legal requirement to establish ownership.
  • Companies and individuals should ensure proper legal compliance to avoid disputes.

Case Title: INDIAN OVERSEAS BANK Vs. M.A.S SUBRAMANIAN & ORS.

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