The Supreme Court of India has clarified that a person who enters into an agreement to sell a property does not have the right to sue a third party claiming ownership or possession of the same property. The court stated that only the rightful owner, or vendor, can take legal action to protect the interest in such property.
“An agreement to sell does not confer any right on the proposed purchaser under the agreement,” the court observed. “Any legal right will vest only with the owner until the sale deed is executed.”
This decision came in the case The Correspondence, RBANMS Educational Institution vs B. Gunashekar & Another, where the respondents filed a suit seeking permanent injunction against RBANMS, alleging that they had entered into an agreement to purchase the property and had paid ₹75 lakh in cash as an advance. However, the vendors were not made parties to the suit.
The trial court and the High Court had earlier rejected the appellant institution’s application under Order VII Rule 11 CPC, which sought rejection of the plaint. The Supreme Court overturned those rulings.
“They cannot seek any declaration in respect of the title of the vendors,” the Court held. “The suit at the instance of the respondents is not maintainable.”
Justice R. Mahadevan, who authored the judgment, emphasized that under Section 54 of the Transfer of Property Act, 1882, an agreement to sell does not create any ownership rights. The Court explained that the law allows protection only against the vendor—not against a third party who is not part of the contract.
In this case, the appellant institution had been in lawful possession of the property since 1905. The court also noted that the respondents had suspiciously claimed a huge cash transaction of ₹75 lakh without any documentary evidence, in violation of Section 269ST of the Income Tax Act, which limits cash transactions.
“The plaintiffs have no legal standing, as there is no privity of contract between them and the appellant,” the Court stated.
The judgment also directed all courts and authorities to report any case where ₹2 lakh or more is paid in cash in property deals to the income tax department. This directive aims to prevent the misuse of the judicial process and promote transparency.
“Litigation that lacks bona fide claims and is based on speculative agreements cannot be allowed to misuse the legal system,” the Court concluded.
The Supreme Court allowed the appeal and dismissed the respondent's suit, emphasizing that only a registered sale deed can transfer legal title. Until such a document exists, the purchaser cannot claim rights against any third party.
