Agreement to Sell During Non-Alienation Period is Valid if Sale is Postponed till Expiry of Bar: Karnataka High Court - 2025-07-01

Sale Agreement During Non-Alienation Period Enforceable if Transfer is Postponed: Karnataka HC

Bengaluru, Karnataka: The Karnataka High Court, in a significant ruling, has held that an agreement to sell a granted property, executed during a statutory non-alienation period, is valid and enforceable if the contract explicitly postpones the execution of the sale deed until after the prohibitory period expires.

Justice H.P. Sandesh , allowing a second appeal, set aside the concurrent findings of two lower courts and decreed a suit for specific performance. The Court clarified that such an agreement does not constitute a "transfer" under Section 61 of the Karnataka Land Reforms Act, 1961, and is not void under Section 23 of the Indian Contract Act, 1872.

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Case Background

The dispute centered on an agreement dated April 29, 2000, between the plaintiff, Sri. B.S. Lakshman, and the defendant, Sri. Puttashetty (and his family). The defendant, who was granted the land in 1997, was barred from alienating it for 15 years. For family necessities, he agreed to sell the property to the plaintiff for ₹1,06,000, which was paid in full. Crucially, the agreement stipulated that the final sale deed would be executed after the 15-year non-alienation period ended.

After the period expired, the plaintiff sent a legal notice requesting the execution of the sale deed. The defendants replied by denying the agreement altogether, prompting the plaintiff to file a suit for specific performance.

The Trial Court dismissed the suit, and while the First Appellate Court reversed some findings in the plaintiff's favour, it ultimately upheld the dismissal, concluding that the agreement was hit by Section 61 of the Karnataka Land Reforms Act.

Arguments Presented

Appellant's (Plaintiff) Arguments: The appellant’s counsel argued that the agreement was not a "transfer" but merely a promise to transfer property in the future, a fact acknowledged within the contract itself. He contended that since the suit was filed after the non-alienation period had lapsed, there was no breach of the grant's conditions. Citing precedents, he argued the agreement was not void and the lower courts erred in their interpretation.

Respondents' (Defendants) Arguments: The respondents contended that the agreement was illegal and void ab initio as it was executed during the prohibitory period, making it unenforceable under Section 23 of the Contract Act. They argued that the contract was hit by the non-obstante clause in Section 61 of the Land Reforms Act, which invalidates any transfer made in contravention of its terms.

Court's Analysis and Key Findings

Justice Sandesh systematically dismantled the lower courts' reasoning. The High Court first clarified that both lower courts had erred by incorrectly applying the provisions of the PTCL Act, as the land grant was made under the Land Revenue Act.

The central issue was the interpretation of Section 61 of the Karnataka Land Reforms Act, which restricts the "transfer" of granted land. The Court made a pivotal distinction between an 'agreement to sell' and a 'sale'.

"An agreement for sale in respect of an immovable property does not transfer title in favour of the purchaser under the agreement... An agreement to sell is not a conveyance. It is not a document of title or a deed of transfer of property and does not confer ownership right or title," the Court observed, referencing Supreme Court judgments.

The judgment heavily relied on a Division Bench ruling in SYED ZAHEER AND OTHERS vs C V SIDDVEERAPPA , which held that an agreement of sale that explicitly postpones the final deed until after the non-alienation period is not void or hit by Section 23 of the Contract Act.

The Court held:

"Having considered the principles laid down in the judgment of the Division Bench, the very facts and circumstances is fit into the case on hand and though there was a grant and non-alienation clause of 15 years, it has to be noted that the specific term was made in the sale agreement that sale deed would be executed after the completion of 15 years. When such condition is not violated, the said sale agreement is not null and void and not hit by Section 23 of the Contract Act."

The Court also took a dim view of the defendants' conduct, noting they had received the full sale consideration and then attempted to renege on their promise by denying the very existence of the agreement.

Final Verdict

Concluding that the agreement did not amount to a prohibited transfer and was thus valid and enforceable, the High Court allowed the appeal. The judgments of the Trial Court and the First Appellate Court were set aside.

The Court decreed the suit for specific performance, directing the respondents to execute the sale deed in favour of the appellant within two months, failing which the appellant could obtain the deed through the court.