Proceedings Can Be Terminated U/S 32(2)(C) Of A&C Act When Underlying Contract Is Unenforceable: Delhi High Court

The Delhi High Court upheld an arbitral award terminating proceedings under section 32(2)(c) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) on the ground that an agreement to sell (ATS) between the parties was unforceable for being unregistered and unstamped under Uttar Pradesh law. Justice Amit Bansal held that an agreement concerning transfer of sub-leasedhold rights in immovable property situated in Uttar Pradesh constituted a contract of sale under the section 54 of the Transfer of Property Act and therefore must be registered in accordance with provisions of the Registration Act. “The ATS in question is a contract for sale of immovable property which mandatorily requires registration and stamping. The present ATS, being neither registered nor stamped, cannot be specifically enforced in view of the bar under Section 49 of the Registration Act read with Section 54 of the Transfer of Property Act,” the Court said. Background: The dispute arose between seller and purchaser regarding transfer of subleasedhold rights in a residential unit. The total consideration was Rs. 5 crore out of which Rs. 50000 had been paid. The agreement stipulated that the respondent was required to obtain permission from Jaypee Infratech and Yamuna Expressway Industrial Development Authority (YEIDA) before the execution of sale deed. However, the agreement was terminated by the petitioner. Subsequently, the arbitration was invoked under clause 14 of the agreement. The respondent filed an application before the arbitrator stating that the agreement was unforceable and void for being unregistered and therefore the proceedings must be terminated. The Tribunal allowed the application and the proceedings were terminated. “Transfer or sale of leasehold or sub-leasehold rights without reserving any right by the respondent would amount to 'sale' within the meaning of Section 54 of the TPA. Any such contract must be executed by a registered instrument,” the arbitrator had held. The Petitioner submitted that the agreement did not lead to transfer of ownership but merely dealt with the transfer of subleasedhold rights subject to further permissions and therefore did not require registration. Per contra, the respondent submitted that after amendment in 1976 in the Registration Act in UP, all agreement to sell relating to immovable property requires registration. Findings: The court agreed with the view taken by the tribunal that the agreement clearly reflected an intention to sell the property and therefore amounted to a contract of sale. “A holistic reading of the ATS shows that the intent of the parties was to carry out a sale transaction in respect of the subject property,” the Court said, rejecting the petitioner's argument that clauses 5, 9, and 10 of the agreement made it conditional. The court relied on the Allahabad High Court's judgment in Vijay Kumar Sharma where it was held that an unregistered agreement to sell in Uttar Pradesh is not admissible in evidence and cannot be enforced. “Even transfer or sale of leasehold or sub-leasehold rights by a party without reserving any right would amount to 'sale' and would require registration under Section 17(1)(f) of the Registration Act as amended in U.P.,” the court opined. The court further held that since the underlying contract was unforceable, the tribunal was justified in terminating the arbitration proceedings. The court concluded that “the present ATS being neither registered nor stamped is not a valid and enforceable contract in law. No interference is warranted under Section 34 of the Arbitration Act”. Accordingly, the present petition was dismissed. Case Title: GAURAV AGGARWAL versus RICHA GUPTA Citation: 2025 LiveLaw (Del) 1335 Case Number:O.M.P. 1/2025 & I.A. 4139/2025 Judgment Date: 15/10/2025 Click Here To Read/Download The Order

Proceedings Can Be Terminated U/S 32(2)(C) Of A&C Act When Underlying Contract Is Unenforceable: Delhi High Court

Mohd Malik Chauhan

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