A "sham and nominal" transaction is void ab initio, rendering a prayer for its cancellation superfluous and making the standard limitation period for voidable instruments inapplicable. Whether a transaction is sham constitutes a triable issue that cannot be summarily decided under Order 7 Rule 11 of the C.P.C.

Headnote:(A) Civil Procedure Code, 1908 - Order 7 Rule 11 - Rejection of Plaint - Limitation Act, 1963 - Article 59 - Sham and nominal transaction - Whether a document labeled as "sham and nominal" is void ab initio and requires formal cancellation - If a transaction is void, the prayer for its cancellation is superfluous, and the limitation period for challenging a voidable instrument does not apply - Dismissal of a suit under Order 7 Rule 11 based on limitation is improper where the nature of the document involves triable issues of fact concerning intent and secret arrangements. (Paras 24, 26, 28, 32-34)

Facts of the case:
The appellant sought a declaration that a sale deed was null and void, asserting that it was executed as a "sham and nominal" instrument solely to facilitate a loan application, with no actual transfer of title or consideration. The respondents filed an application for rejection of the plaint, arguing that the suit was barred by the three-year period of limitation under the law. The trial court upheld this contention and rejected the plaint. The appellant challenged this order in the appellate court.

Issues: The main issue was whether a court is justified in summarily rejecting a plaint under Order 7 Rule 11 of the C.P.C. on the basis of limitation when the plaintiff alleges that the instrument in question is a "sham and nominal" document, rendering it void ab initio.

Findings of Court:
The court held that allegations concerning sham and nominal transactions are essentially matters of evidence that must be adjudicated during trial. It determined that a transaction alleged to be void ab initio does not mandate a formal prayer for cancellation, as such a prayer is often superfluous. Consequently, the automatic application of the limitation period typically reserved for voidable instruments is not warranted without first establishing the nature of the transaction at trial.

Ratio Decidendi: A document alleged to be a sham and nominal instrument is void ab initio. Because no right, title, or interest passes under such an arrangement, a prayer for its set-aside is not strictly necessary. Therefore, the limitation period governing the cancellation of instruments does not apply to transactions of this nature. The determination of whether a document is truly sham is a triable issue that cannot be strictly decided at the threshold stage of plaint rejection.

Result: Appeal allowed; the order rejecting the plaint is set aside, and the matter is remitted to the trial court for adjudication on the merits.

JUDGMENT

(Made by R.VIJAYAKUMAR,J.)

The plaintiff in O.S.No.162 of 2018 on the file of the I Additional District Court, Madurai has preferred the present first appeal challenging the rejection of plaint.

(A).Factual Matrix:

2.The appellant herein as plaintiff has filed the above said suit for the relief of declaration that the sale deed dated 28.03.2014 executed by her husband in favour of the defendants 1 and 2 in respect of the suit schedule property is null and void. A consequential prayer for permanent injunction restraining the defendants from dispossessing the plaintiff's peaceful possession in the suit schedule property has also been prayed for.

3.As per plaint averment, the plaintiff's husband L.C.Benjamin is the absolute owner of the property. Due to old age, he was suffering from certain ailments and to meet out his medical expenses, he had approached the Indian Bank for availing loan by mortgaging the suit schedule property. Since he was aged about 75 years, the Bank had rejected his request.

4.It is further contended in the plaint that the first defendant who was the auditor of the plaintiff's husband has approached him and requested him to transfer the property in his name so that he could avail the Bank loan. He further stated that he needs Rs.9,00,000/- for his personal expenses. In case, if the Bank sanctions the loan of Rs.18,00,000/-, the same could be shared between the plaintiff's husband and his auditor. The equated monthly instalments between the plaintiff's husband and his auditor could also be shared. On repayment of the entire loan, the auditor, namely the 1st defendant had agreed to re-transfer the property.

5. It is further contended in the plaint that the plaintiff's husband and the 1st defendant entered into a promissory declaration on 18.01.2014 wherein the above said agreement was recorded. On the basis of the above said promissory declaration, an unregistered sale agreement was entered into between the plaintiff's husband and the defendants 1 and 2 on 04.03.2014. Based upon the said agreement, a sale deed was executed by the plaintiff's husband in favour of the 1st defendant on 28.03.2014 wherein it is recorded that out of the total sale consideration of Rs.25,00,000/-, Rs.7,00,000/- was paid as advance. However, no such amount was paid by the 1st defendant. It is further contended in the plaint that based upon the sale deed, housing loan was sanctioned by the 3rd defendant Bank on 28.03.2014 to a tune of Rs.16,75,000/-. The 1st defendant had given two cheques to the plaintiff to a tune of about Rs.9,62,000/- and Rs.2,50,000/- and another cheque on 04.04.2014 to a tune of Rs.7,12,000/- as agreed in the promissory declaration. In turn, the plaintiff's husband had transferred a sum of Rs.9,62,000/- vide two cheques to the credit of the 1st defendant.

6.According to the plaint averments, the plaintiff's husband was regularly paying the monthly instalment for his part of the loan to the defendants 1 and 2 and defendants 1 and 2 paid the monthly EMI including their part of loan for a certain period. But later defaulted to pay EMI regularly to the defendant Bank. On 15.08.2016, the defendants have issued a legal notice to the plaintiff's husband requesting him to handover possession of the house property. A reply was sent by the plaintiff's husband on 20.12.2016 contending that the sale deed was not executed to be acted upon. The plaintiff's husband has lodged a police complaint on 31.12.2016. Before filing of the suit, the plaintiff's husband had passed away on 29.01.2017. The plaintiff has also lodged a police complaint on 04.04.2017 and the police officials have directed the parties to approach the competent civil Court.

7.It is further contended in the plaint that the plaintiff and her husband never received any advance for sale and sale consideration as expressed in the sale agreement is not true. It is further contended that the plaintiff's husband acted only believing the trustworthy words of the defend

Click Here to Read the rest of this document

2025 Supreme(Online)(Mad) 71091

Cases Referred (4)