Supreme Court Rules Tenancy Continues Despite Agreement to Sell in Nazim Shaikh Hasan Case

In a significant ruling that clarifies the interplay between tenancy and agreements to sell, the Supreme Court of India has held that a subsisting tenancy does not ipso facto come to an end merely because a landlord and tenant execute an agreement to sell. The Bench of Justices Prashant Kumar Mishra and N.V. Anjaria dismissed a Special Leave Petition filed by a tenant, upholding concurrent findings of eviction by the lower courts.

The Dispute and Background

The case arose from a shop in Pune, owned by one Jainbi Mushtaq Shaikh. The appellant, Nazim Shaikh Hasan, was a tenant in the premises at a monthly rent of ₹1,500. On September 21, 2004, the landlord agreed to sell the property to the tenant for ₹1,90,000, with an initial payment of ₹40,000 and the balance of ₹1,50,000 to be paid within three months. The tenant failed to pay the remaining amount, and the landlord subsequently filed a civil suit for eviction citing default in rent, change in use, and bona fide need.

The tenant resisted the suit, arguing that the landlord-tenant relationship had been replaced by a vendor-vendee relationship upon execution of the agreement to sell. He claimed protection under Section 53A of the Transfer of Property Act as a prospective purchaser in part performance.

The Tenant's Contention

The tenant’s primary argument was that the mere execution of the agreement to sell, coupled with the payment of a part of the consideration, had altered the jural relationship between the parties. He maintained that his continued possession of the shop should be attributed to the agreement to sell, not to the erstwhile tenancy, and that the Small Causes Court lacked jurisdiction to entertain the eviction suit.

The Landlord's Position

The landlord, now represented by the respondents, asserted that the tenancy had never been terminated. The agreement to sell itself—clause 4 provided that if the tenant’s loan was not sanctioned within three months, the agreement would stand cancelled and the tenant would have to hand over possession “as it was in the previous condition.” This indicated, the landlord argued, that the parties always intended the tenancy to continue unless the sale was completed.

Supreme Court's Reasoning

The Supreme Court undertook a detailed analysis of the legal principles governing surrender of tenancy under Section 111(e) and (f) of the Transfer of Property Act. The Court distinguished its earlier decision in R. Kanthimathi v. Beatrice Xavier , where the agreement to sell had expressly stated that possession had been “surrendered” and nearly the entire consideration had been paid. In the present case, no such clause existed, and only a fraction of the sale price had been advanced.

Writing the judgment, Justice Mishra observed:

“The mere execution of an agreement to sell between a landlord and tenant does not ipso facto bring about a determination of the subsisting tenancy. It is only when the terms of the agreement or the unequivocal conduct of the parties, inconsistent with the continuance of the existing tenancy, disclose either an express or implied surrender within the meaning of Section 111(e) or (f) of the TP Act, that the lease can be said to have been determined.”

The Court further noted that the tenant’s continuous possession, even after the agreement to sell, did not amount to part performance under Section 53A, as the possession was originally that of a tenant and never changed character. Moreover, the agreement to sell was unregistered, and with the introduction of Section 17(1A) of the Registration Act effective from September 24, 2001, such an agreement could not be used to claim the benefit of Section 53A.

Key Principles Established

The Court laid down four guiding propositions for determining whether a tenancy continues after an agreement to sell:

The mere execution of an agreement to sell between a landlord and tenant does not automatically determine the tenancy.
A lease can be said to have been determined only if the terms of the agreement or the conduct of the parties discloses an express or implied surrender under Section 111(e) or (f) of the Transfer of Property Act.
The continuous possession of a tenant after an agreement to sell does not constitute part performance under Section 53A unless it is shown that the possession is directly relatable to and flowing from the agreement.
An agreement to sell, not being a registered deed of conveyance, does not by itself confer any title or interest in the property.

The Verdict

Finding no merit in the tenant’s appeal, the Supreme Court dismissed the Special Leave Petition. The Court noted that the tenant had also not filed a suit for specific performance, which further negated his claim of having assumed the role of a purchaser. The eviction order passed by the Small Causes Court and affirmed by the First Appellate Court and the Bombay High Court was thus upheld.

The decision reinforces that a tenant cannot unilaterally change his status by entering into a failed sale agreement and must honour the terms of the original lease unless there is clear evidence of a conscious surrender of tenancy rights. The ruling provides much-needed clarity for courts dealing with possession disputes arising from incomplete agreements to sell between landlords and tenants.