The Legal Distinction Between Genuine and Nominal Sale Deeds in Indian Law

Introduction

In the realm of Indian property law, the execution of a sale deed is a fundamental act signifying the transfer of ownership. However, not all instruments styled as sale deeds genuinely intend to convey title. The concept of a "nominal" or "sham" sale deed refers to a transaction where, despite the formal execution of a document purporting to be a sale, the parties do not intend for title to pass from the ostensible vendor to the ostensible vendee. Distinguishing a genuine sale deed from a nominal one is of paramount importance, as it impacts the determination of true ownership, the rights of creditors, the incidence of taxation, and the overall sanctity of property transactions. This article undertakes a scholarly analysis of the legal principles and judicial tests applied in India to differentiate between genuine and nominal sale deeds, drawing upon statutory provisions and a wide array of case law.

Defining a Nominal Sale Deed

A nominal sale deed is one where the apparent transaction is not the real transaction. It is a facade, created for an ulterior purpose, without any intention that the ownership should be transferred as per the terms of the document. The Supreme Court of India and various High Courts have elaborated on the nature of such transactions. In M. Govindarajan And Ors. v. The Indian Overseas Bank, Pondicherry By Its Accountant (Madras High Court, 1992), the court, referencing earlier Supreme Court decisions, noted that the term 'benami' (often used interchangeably with nominal in certain contexts) can denote two classes of transactions. One is where a person buys property in the name of another, with the latter being a mere name-lender (a true benami transaction, now largely regulated by the Prohibition of Benami Property Transactions Act, 1988). The other, more pertinent to the concept of a nominal sale, is a sham transaction where A purports to sell his property to B without intending that his title should cease or pass to B. In such cases, the transferor continues to retain title.

The Supreme Court in Thakur Bhim Singh (Dead) By Lrs And Another v. Thakur Kan Singh (1980 SCC 3 72) also discussed two kinds of benami transactions, one of which aligns with the idea of a sham or nominal sale where the transfer is not intended to be operative. Often, such nominal deeds are executed as a security for a loan, to shield property from creditors, or for other collateral purposes. For instance, in C.S. Venkatesh v. A.S.C. Murthy (Dead) By Legal Representatives And Others (2020 SCC 3 280), it was alleged that a sale deed was executed nominally as security for a loan and to ensure prompt payment of interest. Conversely, courts may uphold a sale as genuine if the evidence does not support the claim of it being nominal, as seen in Purushottam Singh Thakur v. Chandra Shekhar (2020 SCC ONLINE CHH 241), where the High Court affirmed findings that the sale deed was real and not executed for loan security.

Factors Determining the True Nature of a Sale Deed

The determination of whether a sale deed is genuine or nominal is a question of fact, to be decided based on the evidence and circumstances of each case. Indian courts have identified several key factors that are weighed in this assessment.

1. Intention of the Parties

The paramount consideration is the intention of the parties at the time of executing the document. This intention is to be gathered from the terms of the deed itself, the surrounding circumstances, and the subsequent conduct of the parties. As affirmed in Sukra Munda & Another v. Raju Khalkho & Others S (Jharkhand High Court, 2009) and M.D. ASHIF MEMON v. NOOR BEGAM (Chhattisgarh High Court, 2024), both citing Kaliaperumal v. Rajagopal ((2009) 4 SCC 193), the true test of the passing of property is the intention of the parties. While registration is prima facie proof of an intention to transfer property, it is not conclusive if other evidence points to a contrary intention.

In Thakur Bhim Singh (1980 SCC 3 72), the Supreme Court meticulously examined the intention behind the issuance of a patta to determine rightful ownership and negate a benami claim. The admissibility of oral evidence to prove that a document was never intended to be operative, despite its formal execution, is crucial. The Supreme Court in Gangabai v. Chhabubai (1982 SCC 1 4) held that Section 92 of the Indian Evidence Act, 1872, does not bar the introduction of oral evidence to show that a document, such as a sale deed, was a sham and not intended to transfer title. This principle was reiterated in Roop Kumar v. Mohan Thedani (2003 SCC 6 595), clarifying that oral evidence is permissible under Proviso (1) to Section 92 to establish that a document is a sham. The Karnataka High Court in B. Jayashankarappa And Others v. D.S Gulwadi (Karnataka High Court, 2000), citing P. L. Bapuswami v. N. Pattay Gounder (AIR 1966 SC 902), also emphasized that intention is gathered from the language of the deed interpreted in light of surrounding circumstances.

2. Payment and Adequacy of Consideration

Section 54 of the Transfer of Property Act, 1882, defines 'sale' as a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. While complete payment of consideration is not a sine qua non for the validity of a sale deed if title was intended to pass, the fact of payment and the adequacy of consideration are significant factors in assessing the genuineness of the transaction.

In Vidhyadhar v. Manikrao And Another (1999 SCC 3 573), the Supreme Court noted that even partial payment does not invalidate a sale, but rather may create a statutory charge on the property for the unpaid amount under Section 55(4)(b) of the Transfer of Property Act. In that case, the admission of full consideration by the vendor validated the sale. However, grossly inadequate consideration can be an indicator of a nominal transaction. In Thulasidhara And Another v. Narayanappa And Others (2019 SCC 6 409), the sale of property for Rs. 200, which had been purchased for Rs. 400 sixteen years earlier, was deemed highly improbable and supported the conclusion that the sale deed was nominal. Similarly, in PRAKASH (DEAD) BY LR. v. G.ARADHYA (Supreme Court Of India, 2023), a purported sale of property worth Rs. 700 for Rs. 400, among other circumstances, led the court to hold the sale deed as not conveying title.

It is important to note, as held in KAUSHIK PREMKUMAR MISHRA v. KANJI RAVARIA @ KANJI (Supreme Court Of India, 2024) and M.D. ASHIF MEMON v. NOOR BEGAM (Chhattisgarh High Court, 2024), that non-payment or part-payment of consideration does not automatically render a duly executed and registered sale deed void or nominal if the intention to transfer title is otherwise clear. The remedy for unpaid consideration is typically a suit for recovery of the amount, not necessarily cancellation of the deed, unless payment was an explicit condition precedent for the passing of title (Kaliaperumal v. Rajagopal). The Bombay High Court in Padma Nair v. Deputy Collector, Valuation And Stamp Duty And Another (Bombay High Court, 1993) observed that an agreement for sale, even with possession and consideration, does not itself transfer title; a further document of sale is required.

3. Possession of Property

The status of possession of the property post-execution of the sale deed is a vital clue. If the vendor continues to remain in possession and enjoys the usufruct of the property without any change, it may suggest that the sale was not genuine. In Thakur Bhim Singh (1980 SCC 3 72), the dispute centrally involved possession. Conversely, transfer of possession to the vendee supports the genuineness of the sale.

However, as observed in Narayan v. Trimbakrao Gopalrao Bagde And Others (Bombay High Court, 1987), delivery of possession is not necessarily an integral part of the sale of immovable property valued above Rs. 100, which requires a registered instrument. In cases like SIDDALINGAPPAGOUDA v. JAGADEVAPPA S/O SHIVAYOGAPPA PATIL (Karnataka High Court, 2023) and SMT. PARVATI W/O REVAGONDAPPA BIRADAR v. SRI JAGADEVAPPA (2023 KHC 6512, Karnataka High Court, 2023), the plaintiffs contended that possession was not handed over as the sale deeds were nominal and executed as security for loan transactions. The Karnataka High Court in SMT SUNANDA RAGHUPATI HEGDE v. SMT BHAGIRATI (Karnataka High Court, 2023) and the Bombay High Court in SANTOSH GAJANAN VAIBHASE Vs VILASRAO SADHURAO GHUGE (Bombay High Court, 2023) noted that continued possession by the plaintiff post-execution supported the claim of the sale deed being nominal.

4. Conduct of Parties

The subsequent conduct of the parties, such as who pays property taxes, who applies for mutation of names in revenue records, and who deals with the property as owner, provides valuable insight. In Narayan v. Trimbakrao Gopalrao Bagde (Bombay High Court, 1987), the fact that revenue authorities were informed and the sale was recorded in revenue records indicated that the sale was acted upon. Similarly, in Purushottam Singh Thakur v. Chandra Shekhar (2020 SCC ONLINE CHH 241), the mutation of the defendant's name in revenue records in the presence of the plaintiff supported the finding that the sale was genuine.

5. Relationship Between Parties and Motive

While a close relationship between the parties (e.g., family members) might sometimes be a factor, it is not conclusive. The motive behind the transaction is often more telling. If the vendor executed the deed to shield the property from creditors or merely as a security device, it points towards a nominal transaction. In C.S. Venkatesh (2020 SCC 3 280), the alleged motive was to provide security for a loan. In PRAKASH (DEAD) BY LR. (Supreme Court Of India, 2023), the sale deed was found to be by way of surety. Conversely, if the vendor had a genuine reason for selling, as in Suraj Narain Kapoor And Others (S) v. Pradeep Kumar And Others (S) (Supreme Court Of India, 2017), where the vendor recited selling the property to finance the purchase of a motor vehicle, it supports the genuineness of the sale.

6. Existence of a Reconveyance Agreement

The presence of a contemporaneous agreement for reconveyance of the property can suggest that the transaction was intended to be a mortgage or a nominal sale. However, as the Supreme Court stated in PRAKASH (DEAD) BY LR. (Supreme Court Of India, 2023), an "agreement to reconvey the property will not ipso facto lead to the conclusion that the sale is nominal." Each case depends on its specific facts. In Narayan v. Trimbakrao Gopalrao Bagde (Bombay High Court, 1987), despite a contemporaneous 'kararnama' for reconveyance, the court upheld the initial sale deed as an absolute transfer based on its recitals. The case of C.S. Venkatesh (2020 SCC 3 280) involved a suit for specific performance of an agreement of reconveyance, alternatively seeking a declaration that the sale deed was nominal. The interpretation of such arrangements is critical, as discussed in B. Jayashankarappa And Others v. D.S Gulwadi (Karnataka High Court, 2000).

Burden of Proof

There is a strong presumption in favour of the genuineness of a registered sale deed. Consequently, the party alleging that such a deed is nominal, sham, or not intended to be operative bears a heavy burden of proof. This was affirmed in Thakur Bhim Singh (1980 SCC 3 72), where the onus was placed on the defendant to prove that the transaction was benami. The principle enshrined in Section 101 of the Indian Evidence Act, 1872, that whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts, must prove that those facts exist, is pertinent. In Rangammal v. Kuppuswami And Another (2011 SCC 12 220), the Supreme Court emphasized that the party asserting the validity and legality of a transaction (in that case, a sale by a de facto guardian) bears the burden of proof. While the context was different, the underlying principle regarding the onus of proof is relevant. Failure of a party to appear as a witness to substantiate their claims can also lead to adverse inferences, as noted in Vidhyadhar v. Manikrao And Another (1999 SCC 3 573).

Admissibility of Evidence: Sections 91 and 92 of the Indian Evidence Act, 1872

Sections 91 and 92 of the Indian Evidence Act, 1872, play a crucial role in disputes concerning the nature of sale deeds. Section 91 mandates that when the terms of a contract, grant, or other disposition of property have been reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant, or other disposition of property, or of such matter, except the document itself, or secondary evidence of its contents where admissible. Section 92 excludes evidence of any oral agreement or statement for the purpose of contradicting, varying, adding to, or subtracting from the terms of any such written instrument, as between the parties to any such instrument or their representatives in interest.

However, Proviso (1) to Section 92 allows any fact to be proved which would invalidate any document, or which would entitle any person to any decree or order relating thereto; such as fraud, intimidation, illegality, want of due execution, want of capacity in any contracting party, want or failure of consideration, or mistake in fact or law. Crucially, this proviso permits evidence to show that a document, though executed, was never intended to be operative and was merely a sham. As established in Gangabai v. Chhabubai (1982 SCC 1 4) and reiterated in Roop Kumar v. Mohan Thedani (2003 SCC 6 595), oral evidence is admissible to prove that a written agreement was a sham or not intended to be the real agreement between the parties. This allows courts to look beyond the formal recitals of a sale deed to ascertain the true intention.

Distinction from Mortgage by Conditional Sale

A transaction ostensibly a sale may sometimes be contended to be a mortgage by conditional sale, as defined under Section 58(c) of the Transfer of Property Act, 1882. Such a mortgage is one where the mortgagor ostensibly sells the mortgaged property on condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller. A crucial requirement, introduced by an amendment in 1929, is that the condition embodying the mortgage must be contained in the document which effects or purports to effect the sale.

In Vidhyadhar v. Manikrao And Another (1999 SCC 3 573), the court found the document to be a mortgage by conditional sale because the repurchase condition was embedded within the sale document itself. The Supreme Court in Indira Kaur (Smt) And Others v. Sheo Lal Kapoor (1988 SCC 2 488) identified a transaction as essentially a mortgage rather than an outright sale based on its terms and surrounding circumstances. Conversely, in Purushottam Singh Thakur v. Chandra Shekhar (2020 SCC ONLINE CHH 241), the absence of any stipulation in the sale deed indicating it was a mortgage transaction, as required by Section 58(c), led the court to hold it as a real sale. The Karnataka High Court in B. Jayashankarappa And Others v. D.S Gulwadi (Karnataka High Court, 2000) and Madappa v. Sonavva And Others* (Karnataka High Court, 2001) also delved into the distinctions and the importance of the parties' intentions.

Consequences of a Sale Deed Being Held Nominal

If a court concludes that a sale deed is nominal or sham, the legal consequence is that no title passes from the purported vendor to the purported vendee. The transferor remains the true owner of the property. This has significant implications for the rights of the parties, their creditors, and any third parties who might have dealt with the property based on the ostensible title. Interestingly, some High Courts have opined that a sham or nominal sale deed, being void ab initio, need not be formally set aside or cancelled. For instance, the Karnataka High Court in SMT SUNANDA RAGHUPATI HEGDE v. SMT BHAGIRATI (Karnataka High Court, 2023) and the Bombay High Court in SANTOSH GAJANAN VAIBHASE Vs VILASRAO SADHURAO GHUGE (Bombay High Court, 2023), relying on Supreme Court precedents, held that a plaintiff can file a suit for a declaration that such a deed is nominal and not binding, without necessarily seeking its cancellation if it is a void transaction.

The Importance of Registration and Recitals

The registration of a sale deed under the Registration Act, 1908, lends it a degree of solemnity and a presumption of due execution and genuineness. Clear and unambiguous recitals in the deed detailing the intention to sell, receipt of consideration, and transfer of possession further strengthen this presumption. The Supreme Court in Suraj Lamp And Industries Private Limited (2) Through Director v. State Of Haryana And Another (Supreme Court Of India, 2011), while dealing with SA/GPA/Will transactions, underscored the importance of registered conveyance deeds for ensuring clear and marketable title.

The evidentiary value of admitted documents is also significant, as highlighted in Narbada Devi Gupta v. Birendra Kumar Jaiswal And Another (2003 SCC 8 745), where admitted rent receipts were held to establish tenancy. While registration and recitals create a strong presumption, they are not conclusive. Courts are empowered to delve deeper if substantial evidence is presented to show that the transaction was, in reality, nominal. Procedural aspects, such as the requirements for signatures on a sale deed (as discussed in KAUSHIK PREMKUMAR MISHRA v. KANJI RAVARIA @ KANJI (Supreme Court Of India, 2024) concerning pre-2001 requirements under the Registration Act), are also considered, though the substantive intention remains key.

Conclusion

The distinction between a genuine sale deed and a nominal one is a critical aspect of Indian property law, pivotal for upholding the true intentions of parties and preventing the misuse of legal instruments. Ascertaining whether a sale deed is "not a nominal sale deed" involves a meticulous, fact-intensive inquiry by the courts. The judiciary looks beyond the mere form of the document to its substance, guided by a confluence of factors including the intention of the parties, payment and adequacy of consideration, possession of the property, subsequent conduct, motive, and any contemporaneous agreements. While a registered sale deed carries a presumption of genuineness, this presumption is rebuttable. The party alleging that a transaction is nominal bears a heavy burden of proof, and the provisions of the Indian Evidence Act, particularly Sections 91 and 92, allow for the admission of evidence to unveil the true nature of the transaction. Ultimately, the courts strive to ensure that the legal recognition of a sale aligns with the genuine will of the transacting parties, thereby fostering certainty and fairness in property dealings.