Agreement to Sell an Immovable Property

An agreement to sell is not a sale. It is less than a sale. It cannot be treated as a complete transfer or conveyances. Upon the execution of an agreement to sell, the ownership of the immovable property does not pass on to the buyer. An agreement to sell is said to have been executed, when a proposed seller enters into an agreement with a proposed buyer for the sale of an immovable property.

An agreement to sell broadly records the terms of the sale of immovable property such as consideration, description of property, details of buyer and seller, etc. The purpose of executing an agreement to sell is to crystallise the terms of the deal and binds the proposed buyer and seller to the commitment of transfer of immovable property pending execution of sale deed.

An agreement to sell is a binding contract and can be specifically enforced, in the event of default by either party, through the process of law. That is to say, where the proposed seller refuses to sell the property after execution of an agreement to sell or where the proposed buyer refuses to make the payment of balance consideration, a court may, on an application of the aggrieved party in a fit case, order the defaulting party to perform its duties under the agreement to sell.

Execution Of An Agreement To Sell

A contract/agreement for sale is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property.

An agreement to sell could be executed either in writing or orally. However, existence of oral agreement is an exception and written agreement is a rule. The determining factor for the mode of execution is the consideration value of the immovable property. Oral agreement is permissible in regard to such immovable property, the consideration value of which is less than one hundred rupees only. Where, however the consideration value is more than one hundred rupees, an agreement to sell has to be in writing.

Execution Of Incidental Documents

Since the agreement to sell does not transfer the ownership of the immovable property in favour of the Vendee, certain incidental documents are executed by the vendor in favour of the vendee to secure the transaction. The following documents are required to be executed when the property is not transferred by a sale deed:

1. Agreement to Sell;
2. Power of attorney by the vendor in favour of nominee of vendee;
3. Receipts of payments made by the vendor.
4. Will by the vendor in favour of the vendee;

An agreement to sell only gives a right to institute a suit for specific performance to the vendee.

A power of attorney authorises the nominee of the vendee to execute the sale deed in favour of the vendee without the presence of the vendor. Such an attorney gives immense security to the vendee that a sale deed could be executed in its favour at an appropriate time, to his convenience. The attorney would be authorised to present the documents for execution and registration of sale deed in favour of the vendor only if it is recognisable under Section 33 of Registration Act.

The following power of attorneys shall alone be recognised for presenting the documents for registration, namely:

1. If the vendee at the time of executing the power of attorney resides in India, the power of attorney is executed before and authenticated by the Registrar or sub-registrar within whose district or sub-district the vendee resides;
2. If the vendee at the time of executing the power of attorney does not reside in India, the power of attorney is executed and authenticated by a notary public, or any Court, judge, Magistrate, Indian Consul or Vice Consul or representative of the Central Government.

A power of attorney does not require to be registered; however, it requires that it be executed and authenticated before the sub- registrar. There may be technical distinction between registration of the documents before the registrar and execution and authentication of documents before the registrar, the net effect is that the party/ vendee and the nominee of the vendor have to visit the office of sub- registrar. It is advisable that the power of attorney is appropriately stamped and registered.

A power of attorney remains in force till the time the person who grants the attorney or the person in whose favour the attorney is granted is living. Upon the death of either of them, the power of attorney ceases to authorise the nominee of the vendee to act for and on behalf of the vendor.

A Will, executed by the vendor in favour of the vendee, comes into effect upon the death of the vendor. In other words, it comes into effect when the power of attorney becomes ineffective. The vendee may seek a probate/letters of administration on the strength of the Will, if the property has since then not been transferred by way of a sale.

A Will is not required in law to be registered. It is however highly recommended that the Will be also registered. A Will requires to be attested by at least two witnesses who must have seen the testator (the person making the Will) sign or affix his signature. The witnesses must also sign in presence of the testator. In other words, the testator and the witnesses should sign the Will in presence of each other.

The vendee has to be conscious about the quality of the witness; whose details like address etc. should be known to the vendee. A Will is proved in the Court through the witnesses; hence, it is absolutely necessary that the witnesses should be known and appear before the Court, as and when required.

The Hon'ble Supreme Court in the matter of Suraj Lamp and Industries Private Limited has disapproved the practice of transfer of immovable property by way of agreement to sell and incidental documents like power of attorney (GPA)/Will. This judgment reiterated that the combination of Agreement to sell/GPA/Will does not convey any title nor create any interest in an immovable property. Further an immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance. It was directed that courts will not treat such transactions as completed or concluded transfer. The combination

of Agreement to sell/GPA/Will can continue to be treated as existing agreement of sale and can be used to obtain specific performance or to defend possession under Section 53A of the Transfer of Property Act.

The combination of the above mentioned documents can be relied upon to apply for regularization of allotment/lease, provided these documents were executed before the date of passing of this judgment

i.e 11th October, 2011. The effect of this judgment is that henceforth, no transfer by way of combination of Agreement to sell/GPA/Will (GPA Sale) can be relied upon or made the basis for mutations in Municipal or revenue records. These restrictions will apply both to free hold property and lease hold property.

These restrictions will however, not apply to "genuine transactions". The illustrations given by the Supreme Court for the "genuine transactions" are where the power of attorney is given to one' spouse, son, daughter, brother, sister or a relative to manage his affairs or to execute a deed of conveyance. It will also not apply to where the power of attorney is given to a person, who is developing the property and is empowered to execute agreements of sale or conveyance in regard to individual plots of land relating to apartments in favour of prospective purchasers. It seems the idea of the Supreme Court was to prohibit transfer of property, without payment of stamp duty and without going through the process of registration.

Registration Of Agreement To Sell

The Registration Act, 1908, was  amended  by  inserting  a  new Section 17(1-A) in the Registration Act. The amendment was made effective from 24th September, 2001. The effect of the amendment is that an agreement to sell has now been made compulsorily registrable, in all cases where possession of the immovable property has been handed over to the vendee/buyer. Where however, the possession remains with the vendor/seller, the agreement to sell does not require compulsory registration. The amendment is prospective and does not affect any transaction executed before the date of the amendment.

Consequences Of Non-Registration

The consequences for non-registration of an agreement to sell, executed after 24th September, 2001, have been dealt with in two different

provisions of the Registration Act. The general effect of a non-registration of a document which requires compulsory registration is provided in Section 493 of the Registration Act. Specific handicap of non-registration of an agreement to  sell  for  the  purpose  of Section 53A of the Transfer of Property Act has been provided in Section 17(1-A) of the Registration Act.

Section 49 of the Registration Act inter alia states that it shall not affect any immovable property comprised therein, which means,  in the absence of registration of an agreement to sell, the right and interest in the immovable property which are intended to be  passed on by the proposed seller to the proposed buyer through the agreement to sell would not so pass. Thus, the proposed seller would continue to be the owner of the property and the proposed buyer would not become the owner thereof. Non-registration of an agreement to sell, therefore, imposes a severe limitation on the transaction and practically makes it redundant.

The other consequence of non-registration of an  agreement  to sell is that it shall not be received as evidence of any transaction affecting such property. The importance of this consequence is felt when a matter is brought to a court for adjudication of disputes between the proposed seller and the proposed buyer. The meaning of the expression ‘shall not be received as evidence’ is that, the document will not be looked into by the court, if the document has been filed in any court. However, an exception has been provided in amended Section 49 by allowing an unregistered agreement to sell to be looked into as evidence in a suit for specific performance. The agreement to sell could however be looked into for collateral purposes.

The consequence of non-registration as provided in Section 17(1-A) of the Registration Act is that benefits of Section 53A of the Transfer of Property Act would not be available to the proposed buyer if the document is not registered. The benefits of Section 53A have been discussed later in this chapter under the heading “Doctrine of Part Performance”.

Stamp Duty Payable On Agreement To Sell

Article 23A4 of the Indian Stamp Act provides for imposition of stamp duty payable on agreement to sell. In transactions in which possession has been handed over to the vendee/buyer, the prescribed stamp duty is 90 per cent of the duty as is imposed on a conveyance. Each State has its own set of duties payable on conveyance. Where the possession remains with the vendor/seller the stamp duty is payable marginally and not in accordance with the value of the transaction.

Suit For Specific Performance Of An Agreement To Sell

Specific performance of an immovable property is governed by the Specific Relief Act, 1963. If a party to an agreement to sell defaults or refuses to perform in terms of the agreement, the aggrieved party may approach a court for specific performance of the contract. The power of the court in granting specific performance is discretionary; the court is free to decline specific performance even if the plaintiff is able to establish a case for grant of specific performance. It is also well settled that it is not always necessary to grant specific performance simply for the reason that it is legal to do so. However, the court in its discretion can impose any reasonable condition including payment of an additional amount by one party to the other while granting or refusing decree of specific performance.

The courts should keep in view the hardship which is likely to cause to the other party while exercising this discretionary power;6 but this discretion shall not be exercised in an arbitrary or unreasonable manner. If under the terms of the contract the plaintiff gets an unfair advantage over the defendant, the court may not exercise its discretion in favour of the plaintiff. So also, specific relief may not be granted if the defendant would be put to undue hardship which he did not foresee at the time of agreement. If it is inequitable to grant specific relief, the court would also desist from granting a decree to the plaintiff.

Section 128 of the Specific Relief Act, 1963, provides that the court shall not direct the specific performance of a part of a contract unless necessary ingredients have been made out. Thus, the ingredients which would attract specific performance of the part of the contract are:

• if a party to an agreement is unable to perform a part of the contract, he is to be treated as defaulting party to that extent and
• the other party to an agreement must, in a suit for such specific performance, either pay or has paid the whole of the agreed amount, for that part of the contract which is capable of being performed by the defaulting party and also relinquishes his claim in respect of the other part of the contract which the defaulting party is not capable to perform and relinquishes the claim of compensation in respect of loss sustained by him.

If such ingredients are satisfied, the discretionary relief of specific performance is ordinarily granted unless there is delay or latches or any other disability on the part of other party.

Limitation For Institution Of Suit Of Specific Performance

Article 5410 of Schedule I of the Limitation Act prescribes the period of limitation for bringing in a suit for specific performance as three years from the date fixed for the performance, or, if no such date is fixed, when the plaintiff has noticed that performance is refused.11 Thus, the limitation may begin to run from two different dates. Where contract provides for a date by which the sale deed must be executed, the period for limitation would begin to run from the date mentioned in the agreement to sell. Where however the agreement to sell does not mention the date for performance of the contract, the point of limitation would begin to run only from the time the plaintiff demands the specific performance and his request is turned down.

The established rule of limitation is that law of limitation is not applicable to a plea taken in defence unless a provision is expressly made in the statute. What the Limitation Act does is to take away the remedy of a plaintiff to enforce his rights by bringing an action in a court of law, but it does not place any restriction on a defendant to put forward any defence though such defence as a claim made by him may be barred by limitation and cannot be enforced in a court of law. On the said principle, a defendant in a suit can put forward any defence though such defence may not be enforceable in a court of law, being barred by limitation.

Whether Time Is An Essence Of Contract In Sale Of Immovable Property

In the matter of enforcement of the agreement for sale of immovable property, time is not always the essence of the contract.13 In fact

there is a presumption against time being the essence of the contract. Time would be the essence of the contract if the terms of the agreement specifically stipulate so and there are special facts and circumstances in support of time being the essence of the contract. An intention to make time the essence of the contract must be expressed in unequivocal language. However, mere incorporation in the written agreement of a clause imposing penalty in case of default does not by itself evidence an intention to make time the essence.14 Even where time is not of the essence of the contract, the plaintiff must perform his part of the contract within a reasonable time and reasonable time should be determined by looking at all the surrounding circumstances including the express terms of the contract and the

nature of the property.15

The word ‘reasonable’ has in law prima facie meaning of reasonable in regard to those circumstances of which the person concerned, who is called upon to act reasonably, knows or ought to know as to what was reasonable. It may be unreasonable to give an exact definition of the word ‘reasonable’. The reason varies in its conclusion according to idiosyncrasy of the individual and the time and circumstances in which he thinks. The dictionary meaning of the ‘reasonable time’ is to be so much time as is necessary, under the circumstances, to do conveniently what the contract or duty requires should be done in a particular case. In other words it means, as soon as circumstances permit.16

It will be clear from the aforesaid statement of law that  even where the parties have expressly provided that time is the essence of the contract, such a stipulation will have to be read along with other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental. For instance, if the contract were to include causes providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract, such clauses would be construed as rendering ineffective the express provision relating to the time being the essence of contract.

The aspects of delay which are relevant in a case of specific performance of contract for sale of immovable property are:

(a) delay running beyond the period prescribed under the Limitation Act;

(b) delay in cases where though the suit is within the period of limitation, yet

(i) due to delay, third parties have acquired rights in the subject-matter of the suit,

(ii) in the facts and circumstances of the case, delay may give rise to plea of waiver or otherwise it will be inequitable to grant a discretionary relief.

What information does an agreement to sell contain?

Since the registered document will have legal sanctity, certain clauses mutually agreed upon, are mentioned in the contract. These clauses are usually about the penalty for dishonouring the agreement and the right to call off the deal. The agreement also states the names and contact details of the parties, the size of the property (carpet area, super built-up area, etc.), and its address. The property type, freehold or leasehold, is also mentioned. The terms and conditions in the case of mortgaged or leasehold properties will be noted.

There is also a clause stating that the seller promises to give the property to the buyer free from encumbrances. In addition, the amount of token money, which is usually 10-20 percent of the total deal value, is paid when signing the agreement to sell, and the same is mentioned in the contract.

Lastly, unless otherwise specified in the contract, an agreement to sell must be executed at the specified future date. Sale agreements cannot cover sales that have already taken place. And thus, the deadlines are based on a specific future date and conditions.

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