Burden To Prove GPA Transactions Were Loan Security, Not Sale, On Plaintiff; Mere Fraud Allegations Insufficient : Supreme Court

The Supreme Court has held that a person claiming that property transactions executed through General Powers of Attorney (GPAs) were merely security arrangements for loans, and not genuine sale transactions, bears the burden of proving that claim with credible evidence, ruling that mere allegations of fraud or fiduciary misuse are insufficient.

“Burden of establishing that the transactions were not genuine sale transactions, but merely security arrangements for loans, rested upon the appellant and mere allegations of fraud or misuse of fiduciary position are not sufficient unless supported by reliable and cogent evidence,” the Court observed while dismissing an appeal arising from a property dispute in Tamil Nadu.

A Bench of Justice Ujjal Bhuyan and Justice Vipul M. Pancholi upheld the Madras High Court's judgment refusing to interfere with the reversal of a trial court decree that had favoured the plaintiff.

The dispute concerned over two acres of agricultural land in Coimbatore purchased by the appellant in 1996. The appellant claimed that in 1997 and 1998, she borrowed Rs 2 lakh and Rs 5 lakh from two brothers and executed registered GPAs in their favour solely as collateral security, handing over original title deeds as part of the arrangement. According to her, the respondents later misused the GPAs to execute sale deeds in favour of close relatives and orchestrated subsequent transfers to defeat her ownership rights.

The respondents denied this version, maintaining that the transactions were genuine sale arrangements, that full consideration had been paid, and that possession had also been handed over.

The trial court had accepted the appellant's case and declared the impugned sale deeds void. However, the first appellate court reversed that decision, holding that the plaintiff failed to prove repayment of the alleged loans or establish that the GPAs were executed only as security instruments. The Madras High Court declined to interfere in second appeal.

Before the Supreme Court, the appellant argued that the respondents, as GPA holders occupying a fiduciary position, should bear the burden of proving the bona fides of the transactions, particularly in light of allegations of fraud and misuse of authority.

The Supreme Court, however, held that while the legal principle regarding fiduciary scrutiny is well established, the burden does not automatically shift merely because such allegations are made.

“Before the burden can shift upon the respondents, the appellant was required to first establish foundational facts constituting fraud or fiduciary misuse. In the absence of such foundational evidence, the initial burden continued to remain upon the appellant,” the Court said.

The Bench noted that the appellant failed to produce documentary proof of the alleged loan transactions, interest payments, or repayment of principal amounts. It also pointed out that even the trial court had recorded a finding that repayment had not been proved.

A key factor weighing against the appellant was her failure to personally enter the witness box despite making serious allegations of fraud, forgery, and misuse of signed blank papers. The Court endorsed the adverse inference drawn by the lower courts on this aspect.

The Court also found it significant that the appellant waited nearly ten years before approaching the court, despite the sale deeds having been executed in 1998 and mutation entries remaining in the names of purchasers for years.

“Such conduct is inconsistent with the conduct normally expected from a person alleging fraudulent and unauthorized alienation of immovable property,” the Bench observed.

The Court further clarified that while mutation entries by themselves do not confer title, long-standing revenue records supported by registered transactions and left unchallenged for years are relevant circumstances in assessing possession and conduct.

Rejecting the appellant's procedural challenge to the first appellate court's judgment under Order XLI Rule 31 of the Code of Civil Procedure, the Supreme Court held that substantial compliance with the provision was sufficient where the appellate court had meaningfully reappreciated the evidence and assigned reasons.

Finding no substantial question of law or perversity in the concurrent appellate findings, the Supreme Court dismissed the appeal.

Headnote

Civil Procedure Code, 1908 – Order XLI Rule 31 – Requirement of framing points for determination by the First Appellate Court – Nature of compliance – Held, compliance with Order XLI Rule 31 is mandatory, and the appellate court must formulate points for determination and record findings thereon supported by reasons - the requirement is one of substantial compliance and not one of mere technical formality - The substance of the judgment and the manner in which the appellate court has dealt with the controversy are of greater significance than the form in which points are framed - Where the First Appellate Court has undertaken a detailed reappreciation of oral and documentary evidence and recorded independent findings while reversing the trial court decree, the judgment is not liable to be set aside solely on the ground of non-compliance with the form of Order XLI Rule 31. [Paras 40, 41, 42]

Evidence Act, 1872 – Section 101 & 102 – Burden of Proof – Allegation of fraud and misuse of fiduciary position – Power of Attorney – Held, the burden of establishing that transactions executed under registered General Powers of Attorney (GPAs) were not genuine sale transactions, but merely security arrangements for loans, rests upon the plaintiff/appellant - Mere allegations of fraud or misuse of fiduciary position are not sufficient unless supported by reliable and cogent evidence - Before the burden can shift onto the beneficiaries/respondents to establish their bona fides, the plaintiff is required to first establish foundational facts constituting fraud or fiduciary misuse - In the absence of documentary material substantiating the alleged loan transactions or repayment/discharge, the initial burden continues to remain upon the plaintiff. [Paras 45, 46]

Evidence Act, 1872 – Section 114(g) – Adverse Inference – Non-examination of a party – Held, where serious allegations of fraud, forgery of receipts, misuse of signed blank papers, and collusive transfers are levelled, and the party possessing special knowledge of facts fails to enter the witness box, an adverse inference may legitimately be drawn against such party. [Paras 48, 49]

Property Law / Land Revenue Records – Evidentiary value of mutation entries regarding possession – Held, while mutation entries alone do not create or transfer ownership rights, when such revenue records continue for many years, are supported by registered sale transactions, and remain unchallenged for a long period (a decade in the present case), they become relevant factors while considering possession and the conduct of the parties. [Paras 45 - 53]

Equity and Limitation – Delay and Laches – Unexplained delay of nearly ten years in instituting the suit challenging sale deeds executed under GPAs – Held, leaving GPAs uncancelled, allowing mutation entries to continue in the names of purchasers, and permitting subsequent sales to take place for almost a decade without objection is inconsistent with the conduct normally expected from a person alleging fraudulent and unauthorized alienation of immovable property - Prolonged silence and inaction for almost ten years are critical factors in assessing the credibility of the plaintiff's case. [Relied on H. Siddiqui (dead) by LRs v. A. Ramalingam, 2011 (4) SCC 240; Subhra Mukerjee v. Bharat Coking Coal Ltd., (2000) 3 SCC 312; Vidhyadhar v. Manikrao, (1999) 3 SCC 573; Para 54]

Case : Mallika v. R. Nallathambi & Ors

Citation : 2026 LiveLaw (SC) 534

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