The Supreme Court of India has refused to enforce a two-decade-old property sale agreement after concluding that the document was not a genuine sale transaction but merely a security for a loan.
A bench comprising Justices Prashant Kumar Mishra and Prasanna B. Varale dismissed the appeal filed by the plaintiff, affirming the High Court’s finding that the agreement of sale was a “sham and nominal” document.
The Court held that in a suit seeking specific performance-a court order directing a party to complete a contract-the conduct of the parties and the surrounding circumstances are crucial in deciding whether such equitable relief should be granted.
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Background of the Case
The dispute arose from an agreement dated 4 June 2002 concerning a house property located at Medchal Village in Ranga Reddy District. The property was allegedly agreed to be sold for ₹13 lakh, out of which ₹6 lakh was paid as advance at the time of signing the agreement.
According to the plaintiff, the remaining ₹7 lakh was to be paid when the sale deed was executed within 11 months of the agreement. He claimed he was always ready to pay the balance amount but the defendants avoided completing the transaction.
After the defendants allegedly failed to execute the sale deed despite receiving a legal notice in April 2003, the plaintiff filed a civil suit seeking specific performance of the agreement.
The Trial Court accepted the plaintiff’s case and decreed the suit, directing execution of the sale deed.
However, the High Court later set aside the decree, concluding that the agreement was not a genuine sale transaction. This led the plaintiff to approach the Supreme Court.
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Defendants’ Version: Loan Transaction, Not Sale
The defendants presented a completely different narrative before the courts.
They argued that the plaintiff was an unlicensed money lender who had advanced ₹6 lakh as a loan. According to them, the agreement of sale was executed merely as security for repayment of that loan.
They relied on a Memorandum of Understanding (MoU) executed on the same day as the sale agreement. The MoU stated that the defendants could repay the loan within twelve months and reclaim their title documents. Only if they failed to repay would the property be transferred to the plaintiff at the prevailing market value.
The defendants also claimed that they had repaid part of the loan and insisted that the sale agreement was never intended to operate as an actual sale.
Evidence Before the Court
During the trial, the plaintiff relied on several documents, including:
- The registered agreement of sale dated 4 June 2002
- A no-objection letter executed by the defendant’s sons
- A legal notice issued in April 2003
- A bank statement showing his financial capacity to pay the remaining amount.
On the other hand, the defendants relied heavily on the Memorandum of Understanding (MoU) signed on the same day as the sale agreement.
The MoU suggested that the property agreement was connected to a loan transaction rather than a genuine sale.
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Supreme Court’s Observations
The Supreme Court closely examined the documents and circumstances surrounding the agreement.
It noted that the MoU and the sale agreement were executed on the same day, purchased from the same stamp vendor, and witnessed by the same individuals. These factors strengthened the defendants’ claim that the agreement was linked to a loan transaction.
The bench observed that the MoU created a strong probability that the sale agreement was not a genuine sale document but a security arrangement.
Importantly, the Court also pointed out that the plaintiff did not disclose the MoU in his plaint, even though it was directly related to the transaction.
The judgment stated:
“In a suit for specific performance, the conduct of the parties is significant… Even a slight doubt that the plaintiff was not acting bona fide would justify denial of equitable relief.”
The Court further emphasized that a party seeking such discretionary relief must approach the court with clean hands and full disclosure of material facts.
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Court’s Decision
After reviewing the evidence, the Supreme Court concluded that the High Court was correct in holding that the agreement of sale was a sham and nominal document executed as security for a loan.
The bench ruled that the plaintiff had suppressed a crucial document-the MoU-and therefore was not entitled to the equitable relief of specific performance.
Accordingly, the Court dismissed the appeal and upheld the High Court’s judgment.
The Court held that there was no merit in the appeal, and therefore the challenge to the High Court’s decision could not succeed.
Case Title: Muddam Raju Yadav v. B. Raja Shanker (Deceased) through LRs & Others
Case No.: Civil Appeal No. 3255 of 2026 (arising out of SLP (C) No. 6453 of 2024)
Decision Date: 10 March 2026
