A registered sale agreement was called 'sham' by the seller's own uncle. The Supreme Court said: evidence allowed.
Sections 91-92 of Evidence Act don't bar proof that a written contract was never meant to be acted upon. But the twist? The uncle was also a plaintiff.
43
years.
Sections 91-92 of Evidence Act don't bar proof that a written contract was never meant to be acted upon. But the twist? The uncle was also a plaintiff.
His uncle signed the agreement as co-purchaser. Then in court, he called it a sham. On a December day in 1981, two men walked into a registration office to seal a deal for 2.90 acres of agricultural land. The price: Rs. 20,300. The advance: Rs. 7,000. The buyer on paper was the seller's own uncle. Forty-three years later, the Supreme Court had to decide whether a registered document could be proved a lie — and whether the man who signed it could be the one to tell that lie.
The question that hung over the case was deceptively simple: When the law says you cannot use oral evidence to contradict a written contract, does that mean you cannot prove the contract was never meant to be performed at all?
When the uncle turned hostile
The first defendant — the seller — owned agricultural land. In December 1981, he executed a registered agreement to sell that land to two plaintiffs: the first plaintiff, who was unrelated to him, and the second plaintiff, who was his uncle. The agreement recorded that Rs. 7,000 had been paid as advance. The balance was to follow, and the sale deed was to be executed.
But the seller never completed the sale. Instead, in 1983, he sold portions of the same land to third parties — the second, third, and fourth defendants — through two separate sale deeds. Within days of the second sale, the first plaintiff filed a suit for specific performance (a court order forcing the seller to complete the sale as agreed).
Then came the twist. The second plaintiff — the seller's uncle, who had signed the agreement as co-purchaser — took the witness stand. The courtroom fell silent as he testified that the entire agreement was a sham. It was never meant to be acted upon, he said. It was only a device to deter the seller from squandering his property due to bad habits. The uncle’s demeanor, shifting from co-purchaser to accuser, left the room in a tense stillness.
The evidentiary puzzle: Sections 91 and 92
The core legal question turned on Sections 91 and 92 of the Indian Evidence Act, 1872. Section 91 says that when the terms of a contract have been reduced to writing, no other evidence of those terms is admissible. Section 92 says that oral evidence cannot be given to contradict, vary, add to, or subtract from the terms of a written document.
The subsequent purchasers wanted to lead evidence that the registered agreement was a sham — that the parties never intended to act on it. The plaintiffs who sought specific performance argued that Sections 91 and 92 barred such evidence entirely. A registered document, they said, could not be challenged by oral testimony.
The Supreme Court disagreed. The bench — Justice Abhay S. Oka and Justice Sanjay Karol — held that Sections 91 and 92 exclude oral evidence only of the terms of a document. They do not prevent a party from adducing evidence on a different question: whether the parties to the document had actually agreed to contract on those terms at all. Evidence that a document was a sham — never intended to be acted upon — goes to the very existence of the contract, not to its terms. Such evidence is admissible.
The court cited the Privy Council decision in Tyagaraja Mudaliyar v. Vedathanni (1936), which had drawn the same distinction. A written document may record terms, but if the parties never intended to be bound by those terms, the document is a nullity. Oral evidence can prove that nullity.
The bench anchored its reasoning with a direct observation from the judgment: the provisions of the Evidence Act do not "prevent parties from adducing evidence on whether the parties to the document had agreed to contract on the terms set forth therein, including evidence that the document was sham and not intended to be acted upon." This single line cut through the fog of legal argument, clarifying that the existence of a contract — not just its terms — could be challenged.
Why the uncle's testimony mattered
This ruling meant the uncle's hostile testimony was admissible. The trial court and the High Court had both considered it and still decreed specific performance. The Supreme Court examined the evidence and found that the uncle's claim of a sham agreement was not supported by any other material. The agreement was registered. The advance was paid. The first plaintiff had filed suit within days of the second sale — conduct consistent with a genuine purchaser, not a party to a sham.
The court held that the concurrent findings of fact — that the agreement was genuine and intended to be performed — could not be disturbed. The uncle's testimony, standing alone, was insufficient to overturn those findings. The courtroom, which had hung on his every word, ultimately found his story unconvincing without corroboration.
Constructive notice and the subsequent purchasers
The subsequent purchasers argued that they were bona fide purchasers without notice of the earlier agreement. The Supreme Court rejected this argument by applying Explanation 1 to Section 3 of the Transfer of Property Act, 1882. That provision defines "constructive notice" — a legal rule that a person is deemed to have notice of any fact that would come to their attention if they made reasonable inquiries.
Under the UP amendment to the Registration Act, 1908, an agreement for sale of immovable property worth more than Rs. 100 was compulsorily registrable. The agreement in this case was registered. Registration is a public record. The subsequent purchasers were deemed to have constructive notice of the registered agreement, and could not claim to be bona fide purchasers without notice.
The court also held that under Section 19(b) of the Specific Relief Act, 1963, a decree for specific performance can be passed against subsequent transferees who are not bona fide purchasers without notice. Those transferees can be directed to join in the conveyance. No separate prayer for cancellation of their sale deeds is necessary.
The binding precedent problem
The subsequent purchasers relied on a 2018 Supreme Court decision, B. Vijaya Bharathi v. P. Savitri, which had held that a decree for specific performance could not be passed without seeking cancellation of subsequent sale deeds. The bench in the present case noted that the 2018 decision was rendered by a two-judge bench that was not shown an earlier three-judge bench decision — Lala Durga Prasad v. Lala Deep Chand (1953) — which held the opposite. A two-judge bench cannot overrule a three-judge bench. The 2018 decision was therefore not a binding precedent on this point.
The agricultural land restriction
One final complication: Section 154-B of the UP Zamindari Abolition and Land Reforms Act, 1950 (as adapted in Uttarakhand) restricts the sale of agricultural land to non-agriculturists. The first plaintiff was a non-agriculturist. The subsequent purchasers argued that this barred the decree entirely.
The Supreme Court held that Section 154-B does not prohibit the execution of an agreement for sale. It only restricts the transfer of title. A decree for specific performance could be passed, but its execution would be contingent upon the first plaintiff obtaining the necessary statutory permission. The court read into the agreement an implied covenant on the vendor to do all things necessary to effectuate the sale, including seeking permission.
The final decree: one plaintiff, half the land
The second plaintiff — the uncle who had called the agreement a sham — had not supported the suit. The agreement did not specify the shares of the two plaintiffs. The Supreme Court held that in such a case, the shares are presumed to be equal. Since the second plaintiff had effectively abandoned the claim, the decree for specific performance was restricted to the first plaintiff's undivided one-half share.
The appeal was partly allowed. The decree was modified to direct execution of a sale deed for an undivided one-half share in favour of the first plaintiff alone, contingent upon obtaining permission under Section 154-B. The suit was dismissed qua the second plaintiff.
THE PLAY: To prove a registered document is a sham, you must lead independent evidence — the party who signed it cannot simply change their story on the witness stand and expect the court to believe them.
The uncle signed the agreement. Then he called it a lie. The court believed the document.