2025 (4) TMI 1313 - SC - Indian Laws

Rejection of application filed under Order VII Rule 11(a) and (d) of the Code of Civil Procedure - plaint filed based on an agreement to sell discloses a cause of action under Order VII Rule 11(a) of the Code of Civil Procedure 1908 (CPC) or not - interest in the suit schedule property as per Section 54 of the Transfer of Property Act 1882 - HELD THAT - Order VII Rule 11 CPC serves as a crucial filter in civil litigation enabling courts to terminate proceedings at the threshold where the plaintiff s case even if accepted in its entirety fails to disclose any cause of action or is barred by law either express or by implication. The scope of Order VII Rule 11 CPC and the authority of the courts is well settled in law. There is a bounden duty on the Court to discern and identify fictitious suit which on the face of it would be barred but for the clever pleadings disclosing a cause of action that is surreal. Generally sub-clauses (a) and (d) are stand alone grounds that can be raised by the defendant in a suit. However it cannot be ruled out that under certain circumstances clauses (a) and (d) can be mutually inclusive. For instances when clever drafting veils the implied bar to disclose the cause of action; it then becomes the duty of the Court to lift the veil and expose the bar to reject the suit at the threshold. The power to reject a plaint under this provision is not merely procedural but substantive aimed at preventing abuse of the judicial process and ensuring that court time is not wasted on fictitious claims failing to disclose any cause of action to sustain the suit or barred by law. Therefore the appeal requires careful consideration of the scope of rejection of the plaint under Order VII Rule 11 CPC particularly in the context of the suit filed based on an agreement to sell against third parties in possession. Undoubtedly a sale deed which amounts to conveyance has to be a registered document as mandated under Section 17 of the Registration Act 1908. On the other hand an agreement for sale which also requires to be registered does not amount to a conveyance as it is merely a contractual document by which one party namely the vendor agrees or assures or promises to convey the property described in the schedule of such agreement to the other party namely the purchaser upon the latter performing his part of the obligation under the agreement fully and in time. Section 54 of the Transfer of Property Act 1882 explicitly lays down that a contract for sale will not confer any right or interest - The protection under Section 53-A is not available against a third party who may have an adversarial claim against the vendor. Therefore unless and until the sale deed is executed the purchaser is not vested with any right title or interest in the property except to the limited extent of seeking specific performance from his vendor. An agreement for sale does not confer any right to the purchaser to file a suit against a third party who is either the owner or in possession or who claims to be the owner and to be in possession. In such cases the vendor will have to approach the court and not the proposed transferee. In the instant case admittedly no sale was originally effected and only part consideration was made which was not even to the appellant but rather to a third party. Upon discovering that the property did not belong to the third party the respondents instituted a suit. It must be noted that the appellant has been in possession of the suit schedule property for several decades - The public interest implications of this case are significant consideration. Such institutions must be protected from speculative litigation that can drain their resources and impede their charitable work. Moreover allowing suits like the present one to proceed to trial would not only waste judicial time and resources but also encourage similar speculative and extortionate litigations. Hence this is a fit case for the imposition of costs on the respondents under Section 35A of the Civil Procedure Code 1908. Conclusion - The plaint ought to have been rejected under Order VII Rule 11(a) and (d) CPC. Hence the orders passed by the High Court as well as the trial Court rejecting the application filed by the appellant cannot be sustained in law and deserve to be set aside. The impugned judgment of the High Court dated 02.06.2022 and the order of the trial Court dated 11.06.2021 are set aside - the application filed under Order VII Rule 11(a) and (d) CPC is allowed - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

(a) Whether the plaint filed based on an agreement to sell discloses a cause of action under Order VII Rule 11(a) of the Code of Civil Procedure, 1908 (CPC).

(b) Whether the suit is barred by law under Order VII Rule 11(d) CPC, particularly in light of the provisions of Section 54 and Section 53-A of the Transfer of Property Act, 1882, and the requirement of registration under the Registration Act, 1908.

(c) Whether an agreement to sell confers any transferable interest or right in immovable property enforceable against third parties in possession or ownership.

(d) Whether a suit for injunction without seeking declaration of title is maintainable when title is disputed.

(e) The applicability and scope of rejection of plaint under Order VII Rule 11 CPC, including the principles governing such rejection and the extent to which courts can examine pleadings and documents at this stage.

(f) The legal and evidentiary implications of alleged cash payment of a large sum as consideration in the context of the Income Tax Act, 1961, specifically Section 269ST and Section 271DA, and the consequent directions for judicial and administrative authorities.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Whether the plaint discloses a cause of action under Order VII Rule 11(a) CPC

The Court examined the scope of Order VII Rule 11(a), which mandates rejection of the plaint if it does not disclose a cause of action. The Court reiterated that "cause of action" means every fact which the plaintiff must prove to support the right to judgment, consisting of a bundle of material facts. The Court emphasized that the plaint must disclose a legal right to sue and not merely state facts.

Relevant precedents such as Dahiben v. Arvindbhai Kalyanji Bhanusali, Liverpool & London S.P. & I Assn. Ltd. v. M.V. Sea Success I, and T. Arivandandam v. T.V. Satyapal were relied upon to clarify that the court must take the averments in the plaint as true but can reject a plaint if it is manifestly vexatious, meritless, or does not disclose a clear right to sue.

Applying these principles, the Court found that the plaint based solely on an agreement to sell did not disclose a cause of action because such an agreement does not create any transferable interest or title in immovable property under Section 54 of the Transfer of Property Act, 1882. The respondents, being agreement holders without a registered sale deed, lacked any enforceable right against the appellant, a third party in possession.

The Court also noted the absence of the vendors (the purported owners under the agreement) as parties to the suit, which further undermined the maintainability of the suit. The respondents' claim was held to be based on clever drafting creating an illusion of a cause of action, which the Court must nip in the bud to prevent abuse of process.

(b) Whether the suit is barred by law under Order VII Rule 11(d) CPC

The Court considered whether the plaint was barred by law, particularly under Section 54 of the Transfer of Property Act, which requires a registered sale deed to convey title in immovable property. The Court reiterated that an agreement to sell, registered or not, does not itself create any interest or charge on the property, conferring only a personal right enforceable against the vendor.

Section 53-A of the Transfer of Property Act was discussed, which protects a transferee in possession against the transferor but does not confer rights against third parties. The Court held that since the respondents were not in possession and had no privity of contract with the appellant, Section 53-A was inapplicable against the appellant.

The Court also referred to the Registration Act, 1908, emphasizing that a sale deed must be registered to confer title, and unregistered agreements to sell do not confer any right to sue third parties claiming ownership or possession.

The Court found the suit barred by law because the respondents lacked any legally enforceable right against the appellant, and the plaint did not disclose a valid cause of action as required under Order VII Rule 11(d).

(c) Whether an agreement to sell confers any transferable interest enforceable against third parties

The Court extensively analyzed the legal effect of an agreement to sell, relying on authoritative precedents including Rambhau Namdeo Gajre, Suraj Lamp & Industries, and Cosmos Co-operative Bank Ltd. It was held that:

• An agreement to sell is a contract evidencing an intention to sell but does not itself transfer ownership or any interest in immovable property.
• Only a registered sale deed can transfer title as mandated by Section 54 of the Transfer of Property Act and the Registration Act.
• Section 53-A protects a transferee in possession against the vendor but not against third parties who claim independent title or possession.
• Therefore, an agreement to sell does not confer any right to sue third parties in possession or ownership.

The Court found that the respondents, being agreement holders without possession or registered sale deed, could not maintain a suit against the appellant, who was in continuous possession since 1905.

(d) Maintainability of a suit for injunction without declaration of title when title is disputed

The Court addressed the contention regarding the propriety of a suit for injunction without seeking declaration of title. Citing Jharkhand State Housing Board v. Didar Singh, the Court held that when there is a cloud over the title, a suit for mere injunction is not maintainable. A declaratory relief affirming title is necessary to sustain such a suit.

In the present case, the respondents sought only permanent injunction restraining alienation by the appellant without seeking declaration of title or possession, which was held to be improper and barred under Section 41(j) of the Specific Relief Act, 1963, which prohibits injunction when the plaintiff has no personal interest enforceable against the defendant.

(e) Scope and principles governing rejection of plaint under Order VII Rule 11 CPC

The Court reiterated that rejection of plaint under Order VII Rule 11 CPC is a drastic remedy to be exercised sparingly but necessarily when the plaint does not disclose a cause of action or is barred by law. The Court emphasized that the plaint and documents annexed thereto must be read meaningfully and holistically, and that courts should not permit clever drafting to create an illusion of cause of action.

The Court clarified that while the defendant's defense cannot be considered at this stage, courts must not ignore settled legal principles or allow patently untenable claims to proceed to trial, as this would amount to abuse of process and waste judicial time.

In the present case, the Court found the plaint to be fictitious, lacking legal foundation, and barred by law, justifying rejection at the threshold.

(f) Legal and evidentiary implications of alleged cash payment and directions under Income Tax Act

The Court observed that the respondents claimed to have paid Rs. 75,00,000/- in cash as advance consideration, which raised suspicion due to the statutory restrictions under Section 269ST of the Income Tax Act, 1961, which prohibits cash receipts above Rs. 2,00,000/- in certain transactions to curb black money.

The Court noted the legislative intent as reflected in the Budget Speech and Finance Bill, 2017, emphasizing promotion of digital economy and curbing of unaccounted cash transactions.

Accordingly, the Court issued directions for judicial and administrative authorities, including:

• Courts must inform the jurisdictional Income Tax Department whenever a suit involves claims of cash payments exceeding Rs. 2,00,000/-.
• Income Tax authorities must take appropriate legal steps upon receiving such information.
• Sub-Registrars must notify Income Tax authorities of registration documents involving such cash payments.
• Disciplinary action must be initiated against registration officials failing to notify such transactions.

3. SIGNIFICANT HOLDINGS

The Court made the following crucial legal determinations:

"The agreement to sell does not create an interest of the proposed vendee in the suit property. As per Section 54 of the Act, the title in immovable property valued at more than Rs 100 can be conveyed only by executing a registered sale deed."

"Section 53-A of the Transfer of Property Act provides a shield of protection to the proposed transferee against the transferor only, and has nothing to do with the ownership of the proposed transferor who remains full owner of the said lands till legally conveyed by registered sale deed."

"An agreement for sale does not confer any right to the purchaser to file a suit against a third party who is either the owner or in possession, or who claims to be the owner and to be in possession."

"Where the plaint is manifestly vexatious and meritless, courts should exercise their power under Order VII Rule 11 CPC to reject the plaint at the threshold and not waste judicial time on legally barred and frivolous claims."

"A suit for mere injunction is not maintainable when the defendant raises a genuine dispute with regard to title and raises a cloud over the title of the plaintiff."

"Courts must be vigilant against clever drafting that creates an illusion of cause of action and must nip such litigation in the bud."

"Claims of cash payment exceeding Rs. 2,00,000/- in suits must be reported to the Income Tax authorities for appropriate action under the Income Tax Act."

The Court concluded by allowing the appeal, setting aside the orders of the trial Court and High Court, allowing the application under Order VII Rule 11(a) and (d) CPC, and rejecting the plaint. The Court also issued directions for communication of its judgment and the implementation of the Income Tax Act-related directions to relevant authorities.