This article is written by Kritika Khanijo, who is currently working as a Law Clerk-cum-Research Assistant at Supreme Court of India. 

Imagine a group housing project, in which mostly collaboration agreements are entered into between the developer and owner of the land. The developer on the basis of the agreement to sell enters into buyer agreements with the purchasers for allotment of flats/villas in the group housing project. However the sale deed is not executed between the developer and the owner as some consideration  was pending as per the agreement to sell. Even after the entire consideration is paid the owner does not execute a sale deed. On assurances advanced by the owner that the sale deed would be executed on the completion of the project, the developer continues with the construction. However on completion of the project and at the point when possession needs to be handed over to the buyers, the owner evades execution of the sale deed (a registered sale deed is necessary for transfer of title).

Precious time is lost in filing a suit for specific performance of the agreement and the Court adjudicates that the suit filed was barred by limitation. The buyers who have bought houses in the project are sent into a tizzy because they cannot be given title over their apartments, as the Developer himself does not have any title over the land. Welcome to the real estate tamasha of India!

This article deals with a scenario wherein the transferee (i.e. a developer in this situation) initially pays the earnest money stipulated under an agreement to sell (this is not a sale deed causing the transfer but a document stating that transfer will take effect in future) and subsequently possession of the property is handed over on that basis. A certain timeframe is agreed upon for the payment of remaining consideration and execution of the sale deed. Upon assurances by the transferor with respect to execution of the sale deed, the transferee pays the remaining consideration money. However despite the assurance of the transferor the sale deed is not executed. Thereafter the transferee files a suit to enforce the agreement to sell, called a suit for specific performance.

Interestingly, the time period for filing such a suit is 3 years from the time that the right to enforce the contract first accrued. This date is typically the date which is stipulated under the agreement to sell for the execution of the sale deed. If a specific date is not mentioned in the agreement to sell, the time period starts ticking from the time when the dispute over execution of sale deed first arises. If it is delayed, there are high chances that such a suit will be barred under law. The Court will typically decide that even though the agreement executed was valid and the possession was transferred to the transferee, the suit filed was barred by limitation.

A lot of these transactions are entered into by medium/small scale builders based on a certain level of trust. However one must be wary of the time limit in which they can legally enforce their rights.

What can developers do in such a situation?

One thing for sure is in their favour – they have possession. To legally recover possession the owner will have to file a suit. (This is very different from the suit of specific performance that would have been filed by the developer to compel the owner to legally effect the transfer of property). If such a suit is filed, the developer has an interesting option. As  Section 53A of the Transfer of Property Act, 1882, as interpreted by various court decisions, the law provides a shield to the developer to remain in possession of the land against the owner.

The word stated in the provision is that of transferee, as it was not the intention of the legislature to discriminate between a plaintiff and defendant. The Supreme Court in Shrimant Shamrao Suryavanshi and Anr. v. Pralhad Bhairoba Suryavanshi by Lrs and Ors.[1] adjudicated upon whether a transferee was entitled to protect possession of a suit property obtained pursuant to the part performance of an agreement even if a suit for its specific performance was barred by limitation. The Court held that the Limitation Act would not extinguish the defense provided under Section 53A of the Transfer of Property Act and it was open for the transferee to take a plea of part performance in a suit for recovery of possession, though he may not be able to enforce that right through a suit or action. Even though the Supreme Court observed that the defense of part performance would be an empty vessel without the right to enforce that action, no attempt has been made to pour some logic into it.  This makes the position in law incompatible as on one hand the protection of the transferee is protected under the plea of part performance while on the other hand the suit for specific performance is barred and therefore the lawful title vests with the transferor.

The Bombay High Court went further in one of its judgments,[2] where it held that a suit for perpetual injunction may be filed by the developer for protecting its possession, in case it cannot file a suit for specific performance. The suit for perpetual injunction permanently bars the owner from taking possession, irrespective of ownership status.

Ironically, there is no way in which lawful title to the land can also be taken. It’s almost like telling a child to keep a chocolate but never eat it. The Courts need to delve further and stich together this incongruous position in law.

Dealing in real estate? What other issues do you face? Feel free to write to us.

[1] 2002 (3) SCC 676

[2] Sadashiv Chander Bhamgare v. Eknath Pandharinath Nangude AIR 2004 Bom 378