Recently, the Supreme Court of India held that, an agreement to sell does not constitute a conveyance and therefore does not result in the transfer of ownership rights or the granting of any title.

The bench headed by Justices Vikram Nath and Rajesh Bindal granted permission for Munishamappa's appeal against the Karnataka High Court's decision. The High Court had previously dismissed the suit regarding specific performance of a contract in the second appeal brought by respondents M Rama Reddy and others.

According to the case details, on September 25, 1990, the appellant and the respondents entered into an agreement to sell concerning a specific property. An entire consideration of Rs 23,000 was paid, and possession of the property was also transferred as part of the agreement.

The execution of the agreement to sell was necessitated due to the prohibition on direct sale imposed by the restriction outlined in Section 5 of the Karnataka Prevention of Fragmentation and Consolidation of Holdings Act, 1996.

When the agreement to sell was made, there was a strong possibility of the Fragmentation Act being repealed, which eventually happened on February 05, 1991. Following the repeal, the appellant requested the respondents to finalize the sale deed. However, on August 28, 2001, the respondents refused to execute the sale deed.

Following the respondents' refusal to execute the sale deed, the appellant initiated a suit for specific performance on October 01, 2001. Initially, the trial court dismissed the suit on September 28, 2004, citing doubts about the execution of the agreement to sell and considering it filed beyond the limitation period. However, in the first appeal, the suit was decreed as it was deemed within the limitation period and the appellant successfully demonstrated the execution of the agreement to sell. Subsequently, in a second appeal, the High Court on November 10, 2010, declared the agreement to sell void due to its violation of the Fragmentation Act.

"Thus, in the absence of any issue framed, and given that neither party has pleaded any violation of Section 5 of the Fragmentation Act, the High Court apparently fell in error in holding that agreement to sell was in violation of Section 5 of the Fragmentation Act," the bench said.

Holding that the agreement to sell is not a conveyance; it does not transfer ownership rights or confers any title, the bench said, " What is prohibited or barred under the Fragmentation Act was the lease/sale/conveyance or transfer of rights. Therefore, the agreement to sell cannot be said to be barred under the Fragmentation Act."

Further, the Court mentioned that the appellant filed the suit for specific performance after the repeal of the Fragmentation Act and the suit could have been decreed without there being any violation to the law once the Fragmentation Act itself had been repealed in February 1991. 

"Further, the High Court did not hold that the suit was barred by Section 5 of the Limitation Act. The First Appeal Court had considered this aspect and having decided the said issue in favour of the appellant, we need not go into that question at this stage," the bench said. 

The bench also pointed out what is further noticeable is that the respondents received the full consideration and had also transferred the possession of the property in question, as such other defences may not be available to them. Even the issue of readiness and willingness on the part of the appellant would not be relevant, the court added.

Therefore, the Bench set aside the judgement of the High Court.