SC: BUYER UNDER SALE AGREEMENT CAN'T SUE THIRD PARTY CLAIMING OWNERSHIP & POSSESSION

The Supreme Court recently ruled that a prospective buyer under an agreement to sell cannot file a suit for permanent injunction to safeguard the seller’s interest in a property against a third party with whom the buyer has no contractual relationship.

The Court emphasized that only the seller holds the right to protect their interest in the property, as an agreement to sell does not grant any ownership rights to the prospective buyer. Without any legal title or interest being transferred, the buyer lacks the standing to take legal action to protect the property.

“We have already held that an agreement to sell does not confer any right on the proposed purchaser under the agreement. Therefore, as a natural corollary, any right, until the sale deed is executed, will vest only with the owner, or in other words, the vendor to take necessary action to protect his interest in the property. According to the respondents, the property belongs to the vendors and according to the appellant, the property vests in them. Since the respondents are not divested any right by virtue of the agreement, they cannot sustain the suit as they would not have any locus. Consequently, they also cannot seek any declaration in respect of the title of the vendors.” the court observed.

A bench comprising Justices JB Pardiwala and R Mahadevan delivered the judgment while hearing a case involving a dispute over a suit property under the possession of a trust (Appellant). In this case, the Respondent had entered into an agreement to purchase the property from the vendor. Despite not having possession or ownership rights, the Respondent filed a suit for a permanent injunction against the Appellant, seeking to prevent them from creating any third-party rights over the property. Notably, the vendor was not even made a party to the suit, although the Respondent claimed the legal action was aimed at protecting the vendor’s interest.

The Appellant challenged the suit by filing an application under Order VII Rule 11 of the Civil Procedure Code (CPC), seeking rejection of the plaint on the ground of lack of cause of action. However, the trial court dismissed the application, and the decision was upheld by the High Court. Aggrieved, the Appellant approached the Supreme Court.

The key legal issue before the apex court was whether the lower courts had erred in not rejecting the Respondent’s suit, considering the absence of any legal right or privity of contract between the Respondent and the Appellant.

In its decision, the Supreme Court set aside the findings of the lower courts. Authoring the judgment, Justice R Mahadevan held that an "agreement to sell" does not confer proprietary rights or an enforceable legal claim against third parties on the purchaser. As there was no privity of contract between the Respondent and the Appellant, and no legal interest in the property had been transferred, the Respondent lacked the locus standi to initiate the suit.

The Court reaffirmed that only the vendor, as the rightful owner, could have sought legal protection over the property.

“Though an agreement to sell creates certain rights, these rights are purely personal between the parties to the agreement and can only be enforced against the vendors or, in limited circumstances, under Section 53A of the Transfer of Property Act, 1882, against a subsequent transferee with notice, as held by us above. They cannot be enforced against third parties who claim independent title and possession. Therefore, the High Court's observation that an agreement to sell creates an "enforceable right" cannot be countenanced by us.”, the court said. 

“Therefore, the suit at the instance of the respondents/plaintiffs is not maintainable and only the vendors could have approached the court for a relief of declaration. In the present case, strangely, the vendors are not arrayed as parties to even support any semblance of right sought by the respondents/plaintiffs, which we found not to be in existence.”, the court added.