Bona Fide Purchaser for Value: Exception to the General Rule: ‘Caveat Emptor’. Such a Claimant Deserves Stronger Equity than a Prior Contract Holder

Saji Koduvath, Advocate, Kottayam.

Abstract

•• [1] Protection to a bona fide purchaser for value, under the principles of equity.
•• [2] It is an exception to the general rule: ‘caveat emptor’— buyer beware.
•• [3] The law safeguards a purchaser who has acquired property – in good faith, for valuable consideration, and without notice of any prior claims or defects in title.
•• [4] The courts look — who has the stronger equity and who acted in ‘good faith’.
•• [5] The adverse effect from nemo dat quod non habet and from inadmissible documents (e.g., unregistered or unstamped deeds) may not be saved always by the doctrine, Bona Fide Purchaser for Value .
•• [6] In the claim of ‘bona fide purchaser for value’ – the onus is on the claimant. .
•• [7] Wilful abstention to enquire into the presence of a tenant: our Apex Court did not invoke this equitable principle.

Introduction

The general rule in property transactions is ‘caveat emptor’—buyer beware.

  • That is, the law does not extend its protection to those who fail to exercise due diligence when entering into contracts or dealing with property.

However, there exists a well-recognised exception—protection to a bona fide purchaser for value. The law safeguards, shielding from adverse consequences, such a purchaser who has acquired property –

  • in good faith,
  • for valuable consideration, and
  • without notice of any prior claims or defects in title.

Application of this Principle in Enacted Law

The doctrine, bona fide purchaser for value, is explicitly recognised in the following statutory provisions:

1. Section 19(b), Specific Relief Act, 1963

  • This provision exempts a subsequent bona fide purchaser for value without notice from the enforcement of a decree for specific performance of a prior contract. Section 19 of the Specific Relief Act, 1963, reads as under:
    • “19. Relief against parties and persons claiming under them by subsequent title—Except as otherwise provided by this Chapter, specific performance of a contract may be enforced against—
    • (a) either party thereto;
    • (b) any other person claiming under him by a title arising subsequently to the contract, except a transferee for value who has paid his money in good faith and without notice of the original contract ;
    • (c)-(d)-(e)….”

2. Section 27(b), Specific Relief Act, 1963

  • Under this section, a contract cannot be rescinded if the property has already been acquired by a third party who acted in good faith, paid valuable consideration, and had no notice of the original rights.

3. Section 41, Transfer of Property Act, 1882 – Transfer by Ostensible Owner

  • This section guards against defeating a transfer obtained by a transferee, in good faith, for value, and after taking reasonable care to verify the transferor’s competency.

4. Section 53, Transfer of Property Act, 1882 – Fraudulent Transfers

  • A transfer made with the intent to defeat or delay creditors is voidable at the option of such creditors. However, this does not affect the rights of a transferee who has received the property in good faith, for consideration, and without notice of the fraudulent intent.

“Mere Equities” and “Equitable Interests“

When the doctrine, bona fide purchaser for value without notice, is discussed, in Ram Niwas v. Bano, 2000-6 SCC 685, our Apex Court qualified the right of the purchaser as a ‘legal right‘ and the right of the prior claimant (tenant) as an ‘equitable right‘.

A critical distinction also emerges – between ‘mere equities’ and ‘equitable interests’. The person contracted had “mere equities” alone, and “equitable interests” remain with with bona fide purchaser (See: Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265, High Court of Australia, the Apex Court of the Australian legal system).

The Supreme Court decision in Gowtham Chand  v. G. Shivakumar (Civil Appeal No. of 2025, decided on: 18-07-2025), 2025 Supreme(Online)(SC) 7082, arose from a sale deed executed while a partition suit was pending. The agreement was made earlier. There was no bar to alienation during the suit. Hence, the Apex Court extended the principle of ‘bona fide purchaser for value without notice‘ as the claimant was a bona fide purchaser.

Who Has the Stronger Equity?

Equity favous whom — the person who (merely) contracted earlier, or the bona fide purchaser for value without notice of that earlier contract?

  • The law naturally favours the latter.

However, three important points must be noted:

1. Doctrine of Lis Pendens:

  • The doctrine of lis pendens is laid down in Section 52 of the Transfer of Property Act, 1882. It renders transfer of property, during the pendency of a legal dispute, subject to the outcome of that litigation. Therefore, the doctrine of bona fide purchaser for value without notice does not, usually, override this statutory mandate.

2. Seller’s Fraud: He may be liable; he cannot rely on the protection of the purchaser.

  • If the seller has acted fraudulently — for instance, by concealing the earlier contract — he may be held liable both civilly and criminally. In such cases, the seller cannot seek refuge behind the bona fide status of the purchaser.

3. Inadmissible Documents and Equitable Principles

  • The equitable principles will not be applied to defeat certain mandatory requirements as to the admissibility of documents (e.g., unregistered or unstamped deeds).

4. The Maxim Nemo dat quod non habet Applies

  • The maxim nemo dat quod non habet expresses the fundamental proposition that no one can pass a higher right than that which he possesses. The doctrine of bona fide purchaser for value without notice, in certain cases, override this statutory principle.

5. Burden of Proof:

  • It is the responsibility of the bona fide purchaser to prove that the purchase was made in good faith, for value, and without notice of the earlier claim. (See: Manjit Singh v. Darshana Devi, 2024 SCC OnLine SC 895; (2024) 4 CurCC (SC) 360)

Bona Fide Purchaser for Value – Onus on Claimant  

It is often difficult to establish that one is truly a bona fide purchaser for value without notice of any prior claim. It comes with a heavy evidentiary burden. The law places the entire onus on the claimant to establish that the purchase was made:

  • For value, in good faith, and without notice of any prior claim.

See:

Manjit Singh v. Darshana Devi, 2024-4 CurCC (SC) 360; 2024 INSC 895.

  • The Supreme Court emphasised that the plea of bona fide purchaser is a matter of evidence and cannot be presumed.

R.K. Mohammed Ubaidullah v. Hajee C. Abdul Wahab, (2000) 6 SCC 402

  • The Court held that a purchaser who fails to conduct reasonable due diligence cannot later claim protection under the doctrine.

D. Kamalavathi v. P. Balasundaram, (2011) 3 CTC 205 (Madras HC)

  • In this case, it was observed that when a person is already in possession of the property, it casts a duty on the purchaser to inquire into that person’s rights or authority. Failure to do so precludes the purchaser from being treated as a bona fide purchaser without notice of the fraudulent intent.

Notice of the Earlier Contract
In the case of Ram Niwas v. Bano , (2000) 6 SCC 685, our Apex Court set out three factors that a subsequent transferee must show to fall within the excluded class:

  • .(a) he has purchased for value the property, which is the subject matter of the suit for specific performance;
  • (b) he has paid his money to the vendor in good faith and
  • (c) he had no notice of the earlier contract for sale specific performance of which is sought to be enforced against him.

The court observed that “notice” can be

  • .(i) actual notice or
  • (ii) constructive notice, or
  • (iii) imputed notice.

As per Section 3 of Transfer of Property Act, 1882, a person is said to have notice of a fact when he actually knows that fact or when but for wilful abstention from inquiry or search which he ought to have made, or gross negligence, he would have known it.

The relevant observation in Ram Niwas v. Bano , (2000) 6 SCC 685, reads as under:

  • “3. Section 19 provides the categories of persons against whom specific performance of a contract may be enforced. Among them is included, under clause (b), any transferee claiming under the vendor by a title arising subsequently to the contract of which specific performance is sought. However, a transferee for value, who has paid his money in good faith and without notice of the original contract, is excluded from the purview of the said clause. To fall within the excluded class, a transferee must show that:
  • .(a) he has purchased for value the property (which is the subject- matter of the suit for specific performance of the contract).
  • (b) he has paid his money to the vendor in good faith.
  • (c) he had no notice of the earlier contract for sale (specific performance of which is sought to be enforced against him).
  • 4. The said provision is based on the principle of English law which fixes priority between a legal right and an equitable right. If ‘A’ purchases any property from ‘B’ and thereafter ‘B’ sells the same to ‘C’ the sale in favour of ‘A’ being prior in time, prevails over the sale in favour of ‘C’ as both ‘A’ and ‘C’ acquired legal rights. But where one is a legal right and the other is an equitable right “a bona fide purchaser for valuable consideration who obtains a legal estate at the time of his purchase without notice of a prior equitable right is entitled to priority in equity as well as at law.” (Snell’s Equity -13th Edn., p. 48.)
  • This principle is embodied in Section 19(b) of the SPECIFIC RELIEF ACT .
  • 5. It may be noted here that “notice” may be (i) actual, (ii) constructive, or (iii) imputed.” (Quoted by the Supreme Court in K.S. Manjunath v. Moorasavirappa @ Muttanna Chennappa Batil, 2025 6 CTC 411; 2025 KHC(Online) 6927)

‘Good Faith’

In  Jammula Rama Rao v. Merla Krishnaveni , 2002 SCC Online A.P. 646, the Andhra Pradesh High Court while holding that honesty is the essential condition in ‘good faith’ observed that when subsequent purchasers were informed about the existence of the agreement in favour of the prior vendee, then the subsequent purchasers should have made enquiries from the prior vendee to satisfy themselves whether the agreement in favour of prior vendee is only a nominal one as alleged by the vendors. The court held that the failure on the part of the subsequent purchasers in not conducting such an enquiry with the prior vendee would render them susceptible to the complaint that subsequent purchasers had not acted honestly and in good faith.

The relevant observation reads as under:

  • “7. In view of the language employed in Sec. 19(b) of Specific Relief Act, the subsequent purchaser has to establish that he paid money in good faith, without notice of the original contract. Since ‘good faith’ is not defined in Specific Relief Act, its meaning has to be understood from the definition of ‘good faith’ in General Clauses Act, 1897, Sub-sec. 22 of Sec. 3 of General Clauses Act, defined ‘good faith’ as “a thing shall be deemed to be done in ‘good faith’ if it is done honestly.”
  • So, honesty is the essential condition in ‘good faith’. When appellants, were informed about the existence of the suit agreement in favour of the 1st respondent, appellants should have made enquiries from the 1st respondent to satisfy themselves whether the agreement in favour of 1st respondent is only a nominal one, as alleged by respondents 2 to 5. If they have not done so, it cannot be said that they acted honestly, and consequently it cannot be said that appellants acted in good faith.” (Quoted by the Supreme Court in K.S. Manjunath v. Moorasavirappa @ Muttanna Chennappa Batil, 2025 6 CTC 411; 2025 KHC(Online) 6927)

‘Good faith’ in General Clauses Act

Section 3(22) of the General Clauses Act defines ‘good faith’ as under:

  • “3(22). A thing shall be deemed to be done in good faith where it is in fact done honestly, whether it is done negligently or not.”

Section 2(11) of the Bhartiya Nyaya Sanhita, 2023 defines “good faith”, as under:

  • “2(11). “Good faith– Nothing is said to be done or believed in “good faith” which is done or believed without due care and attention;”

In Manjit Singh v. Darshana Devi, 2024-4 CurCC(SC) 360; 2024 INSC 895, 2024 SCC Online 3431, it is pointed out that the definition of the Penal Code, 1860, emphasises due care and attention, whereas the General Clauses Act emphasises honesty. It construed the usage of the term “good faith” under Section 19(b) of the Act of 1963 and observed as under:

  • “13. Section 3(2) of the General Clauses Act defines ‘good faith’ as follows:
    • 3(22). A thing shall be deemed to be done in good faith where it is in fact done honestly whether it is done negligently or not.
  • 14. Section 2(11) of the Bhartiya Nyaya Sanhita, 2023 defines “good faith” as follows:
    • 2(11). “Good faith- Nothing is said to be done or believed in “good faith” which is done or believed without due care and attention;
  • 15. The abovesaid definitions and the meaning of the term ‘good faith” indicate that in order to come to a conclusion that an act was done in good faith it must have been done with due care and attention and there should not be any negligence or dishonesty. Each aspect is a complement to the other and not an exclusion of the other. The definition of the Penal Code, 1860 emphasises due care and attention whereas GENERAL CLAUSES ACT emphasises honesty.
  • 16. The effect of abstention on the part of a subsequent purchaser, to make enquiries with regard to the possession of a tenant, was considered in Ram Niwas vs. Bano , (2000) 6 SCC 685.
  • 17. In the case reported in Kailas Sizing, Works vs. Municipality, B. & N. 1968 Bombay Law Reporter 554, the Bombay High Court observed as follows:
  • A person cannot be said to act honestly unless he acts with fairness and uprightness. A person who acts in a particular manner in the discharge of his duties in spite of the knowledge and consciousness that injury to someone or group of persons is likely to result from his act or omission or acts with wanton or wilful negligence in spite of such knowledge or consciousness cannot be said to act with fairness or uprightness and, therefore, he cannot be said to act with honesty or in good faith. Whether in a particular case a person acted with honesty or not will depend on the facts of each case. Good faith implies upright mental attitude and clear conscience. It contemplates an honest effort to ascertain the facts upon which the exercise of the power must rest. It is an honest determination from ascertained facts. Good faith precludes pretence, deceit or lack of fairness and uprightness and also precludes wanton or wilful negligence.”  (Quoted by the Supreme Court in K.S. Manjunath v. Moorasavirappa @ Muttanna Chennappa Batil, 2025 6 CTC 411; 2025 KHC(Online) 6927)

The Maxim Nemo dat quod non habet Applies

The maxim nemo dat quod non habet expresses the fundamental proposition that no one can pass a higher right than that which he possesses (Bishopsgate Motor Finance Corporation Ltd v. Transport Brakes Ltd [1949] 1 KB 322 as per Denning LJ).

In Morvi Mercantile Bank Ltd. v. Union of India, AIR 1965 SC 1954; 1965-3 SCR 254, it is pointed out as under:

  • “The general rule is expressed by the maxim nemo dat quod non habet, i.e., no one can convey a better title than what he had. To this maxim, to facilitate mercantile transactions, the Indian law has grafted some exceptions, in favour of bona fide pledges by transfer of documents of title from persons, whether owners of goods or their mercantile agents who do not possess the full bundle of rights of ownership at the time the pledges are made. To confer a right to effect a valid pledge by transfer of documents of title relating to goods on owners of the goods with defects in title and mercantile agents and to deny it to the full owners thereof is to introduce an incongruity into the Act by construction. On the other hand, the real intention of the Legislature will be carried out if the said right is conceded to the full owner of goods and extended by construction to owners with defects in title or their mercantile agents.”

It does not ordinarily operate as an independent source of title. To avail the benefit of the principle ‘bona fide purchaser for value without notice‘, the purchaser must first establish that the person from whom he acquired the property had valid title or authority capable of being transferred. It does not ordinarily operate as an independent source of title. He must have taken possession in good faith, and he must not have had notice of the earlier equitable and subsisting interests over that property.

Bona fide Purchase Without Notice: Exemption to Nemo dat quod non habet.

In V. Chandrasekharan v. Administrative Officer, (2012)12 SCC 133, it is held as under

  • “23. The general rule of law is undoubted, that no one can transfer a better title than he himself possesses; nemo dat quod non habet. However, this Rule has certain exceptions and one of them is, that the transfer must be in good faith for value, and there must be no misrepresentation or fraud, which would render the transactions as void and also that the property is purchased after taking reasonable care to ascertain that the transferee has the requisite power to transfer the said land, and finally that, the parties have acted in good faith, as is required under Section 41** of the Transfer of Property Act, 1882. (Vide: 
    • Asa Ram & Anr. v. Mst. Ram Kali & Anr., AIR 1958 SC 183; 
    • State Bank of India v. Rajendra Kumar Singh & Ors., AIR 1969 SC 401,
    • Controller of Estate Duty, Lucknow v. Aloke Mitra, AIR 1981 SC 102; 
    • Hanumant Kumar Talesara v. Mohal Lal, AIR 1988 SC 299; and 
    • State of Punjab v. Surjit Kaur (Dead) through LRs., JT (2001) 10 SC 42).”
  • **Section 41 in The Transfer Of Property Act, 1882, reads as under:
  • 41. Transfer by ostensible owner— Where, with the consent, express or implied, of the persons interested in immoveable property, a person is the ostensible owner of such property and transfers the same for consideration, the transfer shall not be voidable on the ground that the transferor was not authorised to make it: provided that the transferee, after taking reasonable care to ascertain that the transferor had power to make the transfer, has acted in good faith.

Equity in favour of Bona Fide Purchaser – Common Instances

Courts have consistently applied the principle of equity in favour of the ‘bona fide purchaser for value without notice’ in several circumstances. The following are the important instances:

  • 1. Seller had obtained the title through fraud (Frazer v Walker,  (1967) 1 AC 569: Privy Council – New Zealand).
  • 2. Party with whom a contract for sale of property was made earlier, blacked out. The owner sold it to another, a bona fide purchaser. The equities stand in favour of the purchaser (Bunny Industries Ltd v FSW Enterprises Pty Ltd., (1982) 7 ACLR 481: The Supreme Court of Queensland, the highest court in the Australian State of Queensland)
  • 3.  Where an ostensible (apparent) owner transfers property for consideration to a bona fide purchaser, the (apparent) owner cannot contend subsequently that he was not authorised to make the transfer at the time it was made (Section 41 of the Transfer of Property Act).

Supreme Court Decisions

In Municipality of Bhiwandi and Nizampur v. Kailash Sizing Works, 1974 (2) SCC 596, the Supreme Court held as under:

  • “15. …This legal presumption is drawn through the well- known hypothetical reasonable man. Reckless disregard of consequences and mala fides stand equal, where the actual state of mind of the actor is relevant. This is so in the eye of law, even if there might be variations in the degree of moral reproach deserved by recklessness and mala fides.
  • 16. The Bombay, as also, the Central, General Clauses Acts, help only in so far as they lay down that negligence does not necessarily mean mala fides. Something more than negligence is necessary. But these Acts say “honestly” and so, for the interpretation of that word, we have explained the legal meanings above.” (Quoted in: Manjit Singh v. Darshana Devi, 2024-4 CurCC(SC) 360; 2024 INSC 895)

In R.K. Mohammed Ubaidullah v. Hajee C. Abdul Wahab, 2000-6 SCC 402, after quoting Section 19 of the Specific Relief Act, it was held as under:

  • “14. ….  As can be seen from Sections 19(a) and (b) extracted above specific performance of a contract can be enforced against (a) either party thereto; and (b) any person claiming under him by a title arising subsequent to the contract, except a transferee for value who has paid his money in good faith and without notice of the original contract. Section 19(b) protects the bona fide purchaser in good faith for value without notice of the original contract. This protection is in the nature of exception to the general rule. Hence, the onus of proof of good faith is on the purchaser who takes the plea that he is an innocent purchaser. Good faith is a question of fact to be considered and decided on the facts of each case. Section 52 of the Penal Code emphasises due care and attention in relation to good faith. In the General Clauses Act emphasis is laid on honesty.
  • 15. Notice is defined in Section 3 of the Transfer of Property Act. It may be actual where the party has actual knowledge of the fact or constructive. “A person is said not have notice” of a fact when he actually knows that fact, or when, but for wilful abstention from an inquiry or search which he ought to have made, or gross negligence, he would have known it.
  • Explanation II of said Section 3 reads:
  • “Explanation II-Any person acquiring any immovable property or any share or interest in any such property shall be deemed to have notice of the title if any, of any person who is for the time being in actual possession thereof.”
  • xxx
  • Hence, with reference to subsequent purchaser it is essential that he should make an inquiry as to the title or interest of the person in actual possession as on the date when the sale transaction was made in his favour. The actual possession of a person itself is deemed or constructive notice of the title if any, of a person who is for the time being in actual possession thereof. A subsequent purchaser has to make inquiry as to further interest, nature of possession and title under which the person was continuing in possession on the date of purchase of the property.” (Quoted in: Manjit Singh v. Darshana Devi, 2024-4 CurCC(SC) 360; 2024 INSC 895; Referred to in: Har Narain v. Mam Chand, 2010-13 SCC 128).

In Standard Chartered Bank vs Andhra Bank Financial Services Ltd., 2006 AIR(SC) 3626; 22006-6 SCC 94, our Apex Court pointed out that if there is no evidence to show that ‘any consideration was paid by the claimant’ of this principle (purchaser for value), he would not be entitled to get its benefit.

Recent Apex Court Decision: Bona fide Purchaser without notice of Charge

The Supreme Court (Ahsanuddin Amanullah, Sudhanshu Dhulia, JJ.), in Machhindranath v. Ramchandra Gangadhar Dhamne,2025 INSC 795, applied the doctrine  – ‘bona fide purchaser for value without notice of any subsisting charge’.

Brief Facts

  • The plaintiff took a loan from a co-operative society. He had created a charge on the suit property. Thereafter, he executed a registered sale deed in favour of his son-in-law and simultaneously wrote an unregistered “Ram-Ram Patra” promising reconveyance upon payment of ₹5,000. Later, the son-in-law sold a part of the land to another for ₹30,000. The loan was closed. The society released the charge. The plaintiff sued his son-in-law for re-conveyance, alleging that the two sale deeds were void. The Trial Court decreed the suit. The appeal was allowed by the  Bombay High Court. The plaintiff approached the Supreme Court.

The Supreme Court dismissed the appeal, holding, inter alia, that (i) the unregistered “Ram-Ram Patra” could not invalidate the duly registered sale deed (C.S. Venkatesh v. A.S.C. Murthy, (2020) 3 SCC 280, referred to) and (ii) the subsequent purchaser was protected as a ‘bona fide purchaser for value without notice of any subsisting charge’.

In a recent decision of the High Court Malaya, Johor Bahru, Kulai Farm Sdn Bhd v. Lim Jit Kou,  2026 MarsdenLR 113588, it is observed:

  •  “[112] The 45th Defendant submits that he paid valuable consideration, took possession in good faith and had no notice of any competing claim. The doctrine of a bona fide purchaser for value without notice ordinarily protects a person who has acquired a legal estate or interest against an earlier equitable interest of which he had no notice.
  •  [113] It does not ordinarily operate as an independent source of title. A purchaser must first establish that the person from whom he acquired the property had title or authority capable of being transferred.
  • [114] The maxim nemo dat quod non habet expresses the fundamental proposition that no person can transfer a greater right than that which he possesses.
  •  [115] In Sia Hiong Tee & Ors v. Chong Su Kong & Ors; [2015] 4 MLJ 188; [2015] 8 CLJ 1173; [2015] 4 AMR 31, the Federal Court held that a mere claim to be a bona fide purchaser for value without notice does not, by itself, overcome the absence of a valid title in the transferor.”
  • “[122]  The plea of bona fide purchase cannot fill the evidential gap concerning the title and authority of the persons from whom the Swamp Area was allegedly acquired.”

Suit For Specific Performance: Plaintiff Must Act Bonafidely

In Muddam Raju Yadav v. B. Raja Shaker, 10 March, 2026, 2026 INSC 214, our Apex Court (Prashant Kumar Mishra, Prasanna B. Varale, JJ.) held as under:

  • “12. In a suit for specific performance, the conduct of the parties is significant as it assists the Court in evaluating the evidence to find out the bona fides of the parties at the time of execution of the agreement. Even a slight doubt in the mind of the Court that the plaintiff was not acting bonafidely and that the material facts, having bearing on the agreement, have been withheld in the agreement itself and from the Court also, the equitable and discretionary relief has to be denied. A plaintiff approaching the Court with uncleaned hands, like in the present case—the plaintiff having withheld the document i.e., MoU (Exhibit B-2), as the same was nowhere mentioned in the plaint, the present was a fit case for denial of relief of specific performance and the High Court has rightly allowed the appeal preferred by the respondent(s)/defendant(s) to set aside the judgment and decree passed by the Trial Court.”

Bona fide Purchaser is a Necessary Party

In Seethakathi Trust Madras v. Krishnaveni (17 January, 2022) M.M. Sundresh, Sanjay Kishan Kaul, JJ. held that a decree of specific performance was vitiated for the purchaser of the property, who had paid money in good faith and without notice of the original contract, being deliberately not impleaded in the suit.

Wilful Abstention to Enquire Presence of a Tenant

The leading case on the subject, relied on in a number of Indian decisions is — ‘Daniels v. Davison’ [(1809) 16 Ves Jun 249: 33 ER 978]. The Lord Chancellor held as under:

  • “Where there is a tenant in possession under a lease, or an agreement, a person purchasing part of the estate must be bound to inquire on what terms that person is in possession … that a tenant being in possession under a lease, with an agreement in his pocket to become the purchaser, those circumstances altogether give him an equity repelling the claim of a subsequent purchaser who made no inquiry as to the nature of his possession.” (Quoted in: Manjit Singh v. Darshana Devi, 2024-4 CurCC(SC) 360; 2024 INSC 895)

In Ram Niwas v. Bano, 2000-6 SCC 685, our Apex Court considered the effect of abstention on the part of a subsequent purchaser, to make enquiries about the real nature of the possession of the tenant (holding under a registered deed), and held that the purchaser cannot escape from the consequences of the deemed notice under Explanation II to Section 3 of the Transfer of Property Act. The Court said as under:

  • “… the Defendants 4 and 5 had a duty cast upon them to make a search or enquiry about the nature of such a claim. Their failure to do so, amounted to wilful abstention leading to constructive notice.” (Quoted in: Manjit Singh v. Darshana Devi, 2024-4 CurCC(SC) 360; 2024 INSC 895)

Contract Holder Entitled Damages (If Right of Bona Fide Purchaser is Protected)

If the right of a bona fide purchaser is protected under the doctrine, ‘bona fide purchaser for value‘, the prior contract holder is entitled to damages or compensation.

The relevant enacted provisions are the following:

  • 1. Sections 64 and 65 of the  Indian Contract Act. If the contract is voidable, or discovered to be or becomes void, the affected party can claim damages.
  • 2. Section 21(5) of the Specific Relief Act. It allows compensation where specific performance is refused, on equitable grounds.

What is the Effect – If the Purchaser had Knowledge of Prior Contract

Section 91 of the Indian Trusts Act, 1882, lays down that where a person acquires property with notice that another person has entered into an existing contract affecting that property, the former must hold the property for the benefit of the latter to the extent necessary to give effect to the contract. (See: Vasantha Viswanathan v.V.K. Elayalwar, 2001-8 SCC 133: Quoted in: Jayeshkumar Mathurbai Patel v. Mukeshbhai Vershibhai Desai, AIR 2022 Guj-NOC 514)

Charge under S. 55(6)(b), TP Act and protection as Bona fide Purchaser

In Sabu Thomas v. N. Narayanan Namboothiri, 2025 KER 58837; 2025-7 KHC 437; 2025 KHC(Online) 858; 2025 KLT(Online) 2595, it is held that a statutory charge under Section 55(6)(b) of the Transfer of Property Act is enforceable against a bona fide purchaser for value, despite their claim to protection under the Specific Relief Act.

In Delhi Development Authority v. Skipper Construction Co.(P) Ltd., (2000) 10 SCC 130, the Supreme Court, while evaluating the charge available to a purchaser under Section 55 (6)(b) of the Transfer of Property Act held as under:

  • “29. Points 1 and 2 These points depend upon the effect of the provisions in sub-s.(6) of S.55 of the Transfer of Property Act. That section starts with the words: “In the absence of a contract to the contrary”, and reads thus (insofar as it is material for our purpose):
    • “55. (6)(b) The buyer is entitled –(a) x x x x x x x x x x x x
    • (b) unless he has improperly declined to accept delivery of the property to a charge on the property, as against the seller and all persons claiming under him, to the extent of the seller’s interest in the property, for the amount of any purchase money property paid by the buyer in anticipation of the delivery and for interest on such amount; and, when he properly declines to accept the delivery, also for the earnest (if any) and for the costs (if any) awarded to him of a suit to compel specific performance of the contract or to obtain a decree for its rescission.”
  • It is plain from the above provision that, in the absence of a contract to the contrary, the buyer will have a charge on the seller’s interest in the property which is the subject matter of the sale agreement insofar as the purchase money and interest on such amount are concerned, unless the buyer has improperly declined to accept delivery. The charge is available against the seller and all persons claiming under him. This charge in favour of the buyer is the converse of the seller’s charge under S.55(4)(b). The buyer’s charge under this section is a statutory charge and differs from a contractual charge which a buyer may be entitled to claim under a separate contract (MMRM Chettiar Firm v. SRMSL Chettiar Firm, AIR 1941 PC 47 : 46 CWN 57). No charge is available unless the agreement is genuine (Trimbak Narayan Hardas v. Babulal Motaji , 1973 (2) SCC 154: AIR 1973 SC 1363).
  • As pointed out in Mulla’s Commentary on Transfer of Property Act, 8th Edn. (p. 411), the charge on the property under S.55(6)(b) is enforceable not only against the seller but against all persons claiming under him. Before the amending Act of 1929, the words “with notice of payment” occurred after the words “all the persons claiming under him”. These words were omitted as they allowed a transferee without notice to escape. After the amendment of 1929, notice to the purchaser has now become irrelevant.” (Quoted in: Sabu Thomas v. N. Narayanan Namboothiri, 2025 KER 58837; 2025-7 KHC 437; 2025 KHC(Online) 858; 2025 KLT(Online) 2595).

In Gopinathan Nair v. Purushothaman Nair, 2024 KER 28829, it was argued before the High Court Of Kerala that the appellent is a bona fide purchaser for value under SARFAESI Act without notice of the charge created on the said property as per the award of the Lok Adalat, and hence the attachment over the said property is liable to be lifted. The High court found that the appellant’s purchase of the property under the SARFAESI Act granted him rights superior to those created by the Lok Adalat award, necessitating a reevaluation of the attachment.

The High Court relied on sub-section (2) and sub-section (13) of Section 13 of the SARFAESI Act which reads as under :

  • “13. Enforcement of security interest (1) xxx xxx xxx (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non- performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4):  (3) xxx xxx xxx xxx xxx xxx
  • (13) No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.”

Thereafter the High Court held as under:

  • “It is clear from the aforesaid provision that once the notice as contemplated under sub-section (2) has been received by the borrower, then the borrower cannot transfer by way sale, lease or by way of any other transaction the secured asset which is being proceeded against under the provisions of the SARFAESI Act. Going by the relevant provisions of Section 13 of the SARFAESI Act extracted hereinabove, the 2nd respondent has no manner of right to concede for the appropriation of the plaint schedule property in the said suit at the instance of the 1st respondent for the realisation of the amount covered by the Lok Adalat, if he had received the notice as provided under sub-section (2) of of the SARFAESI Act. It is also pertinent to note here that if the plaint schedule property in O.S. No.150 of 2006 of the Sub Court, Mavelikkara was mortgaged in favour of the secured creditor, i.e., the Punjab National Bank, long before the award of the Lok Adalat, then the entire right and authority of the said Bank over the abovesaid property, which has been mortgaged in their favour, gets transferred to the purchaser once the Sale Certificate is issued under the relevant provisions of the SARFAESI Act. To put it otherwise, the purchaser of the property who gets right over the said property by virtue of the Sale Certificate issued under the SARFAESI Act, stands in the same footing as that of the Bank once the Sale Certificate is issued transferring the property in favour of the said person. 

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