Agreement Holders Does Not Have Right To Seek Injunction Against Third Party Possessor

The Supreme Court allowed the appeal filed by RBANMS Educational Institution, setting aside the orders of the High Court of Karnataka and the trial court that had rejected the appellant's application for the rejection of the plaint. The apex court held that the suit filed by the respondents, seeking a permanent injunction against the appellant based on an alleged agreement to sell with third parties, was not maintainable and deserved to be dismissed under Order VII Rule 11(a) and (d) of the Code of Civil Procedure, 1908 (CPC). The Court directed the rejection of the plaint pending before the City Civil Court in Bengaluru.

The appellant, RBANMS Educational Institution, a public charitable trust established in 1873, has been in possession of the suit property in Bengaluru since 1905, with formal conveyance in 1929, utilizing it for educational purposes. The respondents filed a suit in 2018 seeking a permanent injunction restraining the appellant from creating any third-party interest in the property, based on an alleged agreement to sell executed in their favor by certain individuals (not party to the suit) in respect of the said property.

The appellant filed an application under Order VII Rule 11(a) and (d) CPC for rejection of the plaint, arguing that the respondents, being mere agreement holders, had no right or interest in the property to seek such an injunction against the appellant. This application was rejected by both the trial court and the High Court, leading to the present appeal before the Supreme Court.

The primary legal issue before the Supreme Court was whether the plaint filed by the respondents, who claimed a right based on a mere agreement to sell with third parties, disclosed a valid cause of action against the appellant (a third party in possession) seeking a permanent injunction, or if the suit was barred by law, particularly in light of Section 54 of the Transfer of Property Act, 1882.

The Apex Court reiterated the settled legal position that a mere agreement to sell does not create any interest in or charge on immovable property as per Section 54 of the Transfer of Property Act, 1882. Such an agreement at best confers a personal right enforceable against the vendor.

The Apex Court emphasized that there was no privity of contract between the respondents and the appellant. As the respondents were merely agreement holders with third parties (who were not even made parties to the suit), they lacked the locus standi to seek an injunction against the appellant, a third party in possession claiming independent title.

The Supreme Court held that the plaint was liable to be rejected under Order VII Rule 11(a) of CPC as it did not disclose a valid cause of action against the appellant, and under Order VII Rule 11(d) as the suit appeared to be barred by Section 54 of the Transfer of Property Act, 1882. The power under Order VII Rule 11 CPC is intended to terminate sham litigation at the threshold.

Referring to previous judgments, the Court reiterated that when the title to a property is in dispute and the plaintiff is not in possession, a suit for a bare injunction is not maintainable without seeking a declaratory relief. Section 41(j) of the Specific Relief Act, 1963, also prohibits the grant of an injunction when the plaintiff has no personal interest in the matter, which in this context means a legally enforceable right.

The Apex Court noted the suspicious circumstances surrounding the alleged agreement to sell, including the non-joinder of the purported vendors, the absence of their addresses in the plaint, and the claim of a substantial cash payment of ₹75,00,000 without any documentary proof, especially after the introduction of restrictions on cash transactions under the Income Tax Act.

The Apex Court issued significant directions regarding cash transactions of ₹2,00,000 and above in property transactions. It mandated that courts must inform the jurisdictional Income Tax Department whenever such claims are made in a suit. Similarly, Sub-Registrars are directed to intimate the Income Tax Authority about such cash transactions during registration. The Income Tax Authorities are directed to take appropriate action in such cases.

Coram: Justice J.B. Pardiwala & Justice R. Mahadevan