2025 (2) TMI 796 - SC - Indian Laws

Immovable property over Rs. 100 requires registered sale deed under Section 54 for valid transfer

SANJAY SHARMA Versus KOTAK MAHINDRA BANK LTD. & ORS.

The SC held that ownership of immovable property valued over Rs. 100 cannot transfer without a registered sale deed under Section 54 of the Transfer of ... Validity of auction conducted by respondent No.1 (Bank) for the sale of the secured asset - right of redemption of the secured asset by respondent No.2 under Section 13(8) of the SARFAESI Act - HELD THAT:- Section 54 of the Transfer of Property Act, 1882, defines a “sale” as the transfer of ownership in exchange for a price that is either paid, promised, or part-paid and part-promised. This provision further describes the manner in which a sale is effected. It stipulates that, in the case of tangible immovable property valued at one hundred rupees or more, the transfer can be made only through a registered instrument. The use of the term “only” signifies that, for tangible immovable property valued at one hundred rupees or more, a sale becomes lawful only when it is executed through a registered instrument. Where the sale deed requires registration, ownership does not pass until the deed is registered, even if possession is transferred, and consideration is paid without such registration. The registration of the sale deed for an immovable property is essential to complete and validate the transfer. Until registration is effected, ownership is not transferred. In the present case, the original owner/borrower, Champa Ben Kundia, ‘sold’ the secured asset to her son, Chandu Bhai by an unregistered sale deed dated 28.04.2000. Subsequently, the basement of the secured asset was “transferred” to Satnam Singh and Surinder Wadhwa through another unregistered sale deed dated 30.03.2001. Further, an unregistered agreement to sell, dated 23.04.2001, allegedly transferred the basement of the secured asset to respondent No.2. Therefore, all the documents relied upon by respondent No.2 to claim ownership of the basement of the secured asset are unregistered documents and fail to meet the requirements of a valid sale under Section 54 of the Transfer of Property Act. This Court in Babasheb Dhondiba Kute vs. Radhu Vithoba Barde [2024 (2) TMI 1516 - SUPREME COURT] held that the conveyance by way of sale would take place only at the time of registration of a sale deed in accordance with Section 17 of the Registration Act, 2008. Till then, there is no conveyance in the eyes of law. It is now a well-settled principle that a sale by way of public auction cannot be set aside until there is any material irregularity and/or illegality committed in holding the auction or if such auction was vitiated by any fraud or collusion. This Court in V.S. Palanivel vs. P. Sriram [2024 (9) TMI 625 - SUPREME COURT] held that unless there are some serious flaws in the conduct of the auction as for example perpetration of a fraud/collusion, grave irregularities that go to the root of such an auction, courts must ordinarily refrain from setting them aside keeping in mind the domino effect such an order would have. Conclusion - i) The Ownership does not pass until the deed is registered, even if possession is transferred, and consideration is paid without such registration. ii) A public auction sale cannot be set aside without evidence of 'material irregularity and/or illegality committed in holding the auction or if such auction was vitiated by any fraud or collusion. The impugned order of the High Court is set aside - Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include: Whether the auction conducted by respondent No.1 (Bank) for the sale of the secured asset was valid under the SARFAESI Act. The legal standing and rights of respondent No.2 concerning the secured asset based on unregistered documents. The right of redemption of the secured asset by respondent No.2 under Section 13(8) of the SARFAESI Act. The impact of unregistered sale deeds and agreements on the transfer of ownership under the Transfer of Property Act, 1882. The validity of the High Court's decision to set aside the auction sale and the sale certificate issued to the appellant.ISSUE-WISE DETAILED ANALYSIS1. Validity of the Auction Conducted by Respondent No.1 under the SARFAESI Act- Legal Framework and Precedents: The SARFAESI Act provides a mechanism for banks and financial institutions to recover debts by auctioning secured assets. Sections 13 and 14 of the Act were particularly relevant.- Court's Interpretation and Reasoning: The Court noted that the auction was conducted in compliance with the SARFAESI Act, following due process after the borrower failed to repay the loan.- Key Evidence and Findings: The auction notice was published, and the appellant was the highest bidder. A sale certificate was issued, confirming the auction's validity.- Application of Law to Facts: The Court found that the auction was lawful, as the Bank followed statutory requirements to recover the outstanding debt.- Conclusions: The auction was valid, and the sale certificate issued to the appellant was legitimate.2. Legal Standing and Rights of Respondent No.2- Legal Framework and Precedents: Section 54 of the Transfer of Property Act, 1882, requires registration for the transfer of ownership of tangible immovable property.- Court's Interpretation and Reasoning: The Court emphasized that unregistered sale deeds and agreements do not confer ownership rights.- Key Evidence and Findings: Respondent No.2's claim was based on unregistered documents, which did not meet legal requirements for a valid transfer.- Application of Law to Facts: The Court concluded that respondent No.2 had no legal title to the secured asset due to the lack of registration.- Conclusions: Respondent No.2's claim to ownership was invalid, as the documents relied upon were unregistered.3. Right of Redemption under Section 13(8) of the SARFAESI Act- Legal Framework and Precedents: The right of redemption allows a borrower to reclaim the secured asset by repaying the debt before the auction is finalized.- Court's Interpretation and Reasoning: The Court noted that respondent No.2 failed to exercise this right within the prescribed time frame.- Key Evidence and Findings: Multiple opportunities were given to respondent No.2 to redeem the asset, but these were not utilized.- Application of Law to Facts: The Court found that respondent No.2's right of redemption had lapsed due to inaction.- Conclusions: The right of redemption was not exercised in a timely manner, and the auction sale was valid.4. Impact of Unregistered Documents on Ownership Transfer- Legal Framework and Precedents: Section 54 of the Transfer of Property Act and Section 17 of the Registration Act mandate registration for valid ownership transfer.- Court's Interpretation and Reasoning: The Court held that unregistered documents do not effectuate a legal transfer of ownership.- Key Evidence and Findings: The transactions involving the secured asset were based on unregistered deeds, rendering them legally ineffective.- Application of Law to Facts: The Court applied the statutory requirements to determine that respondent No.2 had no legal claim to the asset.- Conclusions: The lack of registration invalidated any claim of ownership by respondent No.2.5. Validity of the High Court's Decision- Legal Framework and Precedents: The principles governing judicial review of auction sales and the conditions under which they may be set aside.- Court's Interpretation and Reasoning: The Court found that the High Court erred in setting aside the auction without evidence of irregularity or fraud.- Key Evidence and Findings: The auction process was conducted lawfully, and no substantial injury or procedural error was identified.- Application of Law to Facts: The Court determined that the High Court's decision was unjustified and reinstated the Appellate Tribunal's order.- Conclusions: The High Court's decision was overturned, and the auction sale was upheld.SIGNIFICANT HOLDINGS- The Court emphasized the necessity of registration for the transfer of ownership of immovable property, stating, 'Ownership does not pass until the deed is registered, even if possession is transferred, and consideration is paid without such registration.'- The Court clarified that a public auction sale cannot be set aside without evidence of 'material irregularity and/or illegality committed in holding the auction or if such auction was vitiated by any fraud or collusion.'- The final determination was to set aside the High Court's order, reinstate the Appellate Tribunal's decision, and uphold the validity of the auction sale and the sale certificate issued to the appellant.