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.

Case : Mallika v. R. Nallathambi & Ors

Citation : 2026 LiveLaw (SC) 534

Click here to read the judgment