Proposed Purchaser Under Agreement To Sell Can't Sue Third Party Who Claims Title & Possession Of Property : Supreme Court

The Supreme Court recently held that a proposed purchaser under an agreement to sell cannot file a suit for a permanent injunction seeking the protection of the vendor's interest in the property against a third party with whom there exists no privity of contract.

The Court clarified that only the vendor has the right to seek protection of their interest in the property, as an agreement to sell does not confer any proprietary rights on the proposed purchaser. Since no legal interest in the property is transferred through such an agreement, the purchaser lacks the locus to initiate 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.

The Case

The bench comprising Justices JB Pardiwala and R Mahadevan heard the case where the Respondent had entered into an agreement to sell with the vendor for the suit property which was under the possession of the Appellant-trust. The Respondent filed a suit seeking a permanent injunction against the Appellant to protect the vendor's interest in the property and not create any third-party rights over the suit property.

Ironically, the vendor was not made a party to the Respondent's suit, claiming to have been filed to protect the vendor's interest.

In response to the Respondent's suit seeking a permanent injunction against them, the Appellant filed an application under Order VII Rule 11 CPC seeking rejection of the plaint.

The trial court dismissed the Appellant's application to reject the suit, which was upheld by the High Court, prompting the Appellant to approach the Supreme Court.

Issue

The question before the Supreme Court was whether, by way of impugned findings, the Courts below have erred in not rejecting the Respondent's suit seeking a permanent injunction against the Appellant despite having no cause of action.

Decision

Setting aside the impugned findings, the judgment authored by Justice Mahadevan held that the courts below had erred in concluding that the "agreement to sell" conferred an enforceable right upon the Respondent to file a suit against the Appellant, despite the absence of any privity of contract between them.

“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.

Resultantly, the Court allowed the appeal.

Also From Judgment: Courts & SROs Must Report To Income Tax Authorities If Suits/Deeds Mention Cash Transactions Above ₹2 Lakh: Supreme Court

Case Title: The Correspondence RBANMS Educational Institution VERSUS B. Gunashekar & Another

Citation : 2025 LiveLaw (SC) 429

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