Bona Fide Purchaser for Value Deserves Stronger Equity than a Prior Contract Holder

Saji Koduvath, Advocate, Kottayam.

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  • Under this section, a contract cannot be rescinded if the property has already been acquired by a third party who acted in good faith, paid valuable consideration, and had no notice of the original rights.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

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. 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)

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. 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.

Good faith

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, it is pointed out that the definition of the Penal Code, 1860, emphasises due care and attention, whereas the General Clauses Act emphasises honesty.

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.

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).

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)

Recent Apex Court Decision

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’.

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 possessionthat 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)

How to Subscribe ‘IndianLawLive’? Click here – “How to Subscribe free 

Read in this cluster (Click on the topic):

Civil Suits: Procedure & Principles

Book No, 1 – Civil Procedure Code

Principles and Procedure

PROPERTY LAW

Title, ownership and Possession

Adverse Possession

Land LawsTransfer of Property Act

Land Reform Laws

Power of attorney

Evidence Act – General

Sec. 65B

Admission, Relevancy and Proof

Law on Documents

Documents – Proof and Presumption

Interpretation

Contract Act

Law on Damages

Easement

Stamp Act & Registration

Divorce/Marriage

Negotiable Instruments Act

Criminal

Arbitration

Will

Book No. 2: A Handbook on Constitutional Issues

Religious issues

Book No. 3: Common Law of CLUBS and SOCIETIES in India

Book No. 4: Common Law of TRUSTS in India

Can an Unregistered Sale Agreement be Used for Specific Performance

Saji Koduvath, Advocate, Kottayam.

Contents in Nutshell.

  • Can an Unregistered Sale Agreement be Used for Specific Performance?
    • The Answer is, Yes.
  • Because, under proviso to Sec. 49 Registration Act, 1908, as held by our Apex Court, in  S. Kaladevi v. V.R. Somasundaram, (2010) 5 SCC 401, a document required to be registered, if unregistered, can still be admitted as evidence of a contract in a suit for specific performance. (Followed in: Ameer Minhaj v. Dierdre Elizabeth (Wright) Issar, 2018 (7) SCC  639.)

Relevant Provisions in the Registration Act

Sec. 17(1) (g) and 49 are the relevant provisions. They read as under:

  • “17. Documents of which registration is  compulsory- (1) The following documents shall be registered, …, namely:
  • (State Amendment -AP) Agreement of sale of immovable property of the value of one hundred rupee and upwards.
  • (Similar State Amendment in Tamil Nadu and Kerala also)
  • “49. Effect of non-registration of documents required to be  registered.– No document required by section 17 …. to be registered shall-
  • (a) affect any immovable property comprised therein
  • (b) ….
  • (c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered:
    • Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (3 of 1877), or as evidence of any collateral transaction not required to be effected by registered instrument.”

Relevant Supreme  Court Decisions:

  • S. Kaladevi Vs. V.R. Somasundaram, (2010) 5 SCC 401.
  • Ameer Minhaj v. Dierdre Elizabeth (Wright) Issar, 2018 (7) SCC  639.

Unregistered Agreemet can be used in Specific performance of Contract

In S. Kaladevi Vs. V.R. Somasundaram, (2010) 5 SCC 401, Our Apex Court held as under:

  • “11. The main provision in Section 49 provides that any document which is required to be registered, shall not affect any immovable property comprised therein nor such document shall be received as evidence of any transaction affecting such property. The proviso, however, would show that an unregistered document affecting immovable property and required by the 1908 Act or the Transfer of Property Act, 1882 to be registered may be received as an evidence to the contract in a suit for specific performance or as evidence of any collateral transaction not required to be affected by registered instrument. By virtue of the proviso, therefore, an unregistered sale deed of an immovable property of the value of Rs.100 and more could be admitted in evidence as evidence of a contract in a suit for specific performance of the contract. Such an unregistered sale deed can also be admitted in evidence as an evidence of any collateral transaction not required to be effected by registered document. When an unregistered sale deed is tendered in evidence, not as evidence of a completed sale, but as proof of an oral agreement of sale, the deed can be received in evidence making an endorsement that it is received only as evidence of an oral agreement of sale under the proviso to Section 49 of the 1908, Act.”
  • 12. Recently in the case of K.B. Sahaand Sons Private Limited v. Development Consultant Limited ,(2008) 8 SCC 564, this Court noticed the following statement of Mulla in his Indian Registration Act, 7th Edition, at page 189:
    • “……The High Courts of Calcutta, Bombay, Allahabad, Madras, Patna, Lahore, Assam, Nagpur, Pepsu, Rajasthan, Orissa, Rangoon and Jammu & Kashmir; the former Chief Court of Oudh; the Judicial Commissioner’s Court at Peshawar, Ajmer and Himachal Pradesh and the Supreme Court have held that a document which requires registration under Section 17 and which is not admissible for want of registration to prove a gift or mortgage or sale or lease is nevertheless admissible to prove the character of the possession of the person who holds under it……”
  • “This Court then culled out the following principles: (K.B. Saha case, SCC p.577, para 334)
    • “1. A document required to be registered, if unregistered is not admissible into evidence under Section 49 of the Registration Act.
    • 2. Such unregistered document can however be used as an evidence of collateral purpose as provided in the proviso to Section 49 of the Registration Act.
    • 3. A collateral transaction must be independent of, or divisible from, the transaction to effect which the law required registration.
    • 4. A collateral transaction must be a transaction not itself required to be effected by a registered document, that is, a transaction creating, etc. any right, title or interest in immovable property of the value of one hundred rupees and upwards.
    • 5. If a document is inadmissible in evidence for want of registration, none of its terms can be admitted in evidence and that to use a document for the purpose of proving an important clause would not be using it as a collateral purpose.
  • To the aforesaid principles, one more principle may be added, namely, that a document required to be registered, if unregistered, can be admitted in evidence as evidence of a contract in a suit for specific performance.”

It is held in Ameer Minhaj v. Dierdre Elizabeth (Wright) Issar, 2018 (7) SCC  639, after quoting Sec. 17 Registration Act, as under:

  • 10. On a plain reading of this provision, it is amply clear that the document containing contract to transfer the right, title or interest in an immovable property for consideration is required to be registered, if the party wants to rely on the same for the purposes of Section 53A of the 1882 Act to protect its possession over the stated property. If it is not a registered document, the only consequence provided in this provision is to declare that such document shall have no effect for the purposes of the said Section 53A of the 1882 Act.
  • The issue, in our opinion, is no more res integra. In S. Kaladevi Vs. V.R. Somasundaram and Ors., (2010) 5 SCC 401, this Court has restated the legal position that when an unregistered sale deed is tendered in evidence, not as evidence of a completed sale, but as proof of an oral agreement of sale, the deed can be received as evidence making an endorsement that it is received only as evidence of an oral agreement of sale under the proviso to Section 49 of the 1908 Act. 

After quoting Sec. 49 Registration Act it is observed by the Apex Court as under:

  • 11. In the reported decision (i.e. S. Kaladevi Vs. V.R. Somasundaram, (2010) 5 SCC 401), this Court has adverted to  the principles delineated in K.B. Saha and Sons Private Limited  v. Development Consultant Limited, (2008) 8 SCC 564 and has added one more principle  thereto that a document is required to be registered, but  if unregistered, can still be admitted as evidence of a contract in a suit for specific performance. In view of this exposition, the conclusion recorded by the High Court in the impugned judgment that the sale agreement dated 9th July, 2003 is inadmissible in evidence, will have to be understood to mean that the document though exhibited, will bear an endorsement that it is admissible only as evidence of the agreement to sell under the proviso to Section 49 of the 1908  Act and shall not have any effect for the purposes of  Section 53A of the 1882 Act. In that, it is received as evidence of a contract in a suit for specific performance and nothing more. The genuineness, validity and binding nature of the document or the fact that it is hit by the provisions of the 1882 Act or the 1899 Act, as the case may be, will have to be adjudicated at the appropriate stage as noted by the Trial Court after the parties adduce oral and documentary evidence.”

Basis of the Erudite Decision In S Kaladevi (as stated in Para 11 of the decision)

  1. Proviso in Section 49:
    • “The proviso, however, would show that an unregistered document affecting immovable property and a document ‘required to be registered, but  if unregistered’, may, still, be received as an evidence to the contract in a suit for specific performance …. “
  2. Admitted as proof of an oral agreement of sale
    • “Such an unregistered sale deed … can be received in evidence ….. as evidence of an oral agreement of sale.”

Unregistered Agreemet can be used in Specific performance Even After the Amendment on Sec. 17

In C.  Ramya Vs. C.  Ganambal, 2020-5 Mad LJ 416 the Madras Court pointed out that the Madras and Andhra High Courts took the view that even after the amendment on Sec. 17 (Agreement of sale of immovable property is a compulsorily registrable document), non-registration of an agreement of sale does not operate as a total bar to look into the contract, since proviso to Section 49 has carved out two exceptions –

  • (i) a document ‘required to be registered, but  if unregistered,’ may, still, be received as an evidence to the contract in a suit for specific performance, and
  • (ii) it can be used for any ‘collateral purpose‘.

The following are the cases referred to by the Madras High Court:

  • G. Veeramani Vs. N. Soundaramoorthy, 2019(6) CTC 580;
  • D. Devarajan v. Alphonsa Mary, 2019 (2) CTC 290;
  • Minor Ravi Bharathi Vs. P. Balasubramani, 2014(3) MWN (Civil) 578.

See blog: Unstamped & Unregistered Documents and Collateral Purpose



Read in this Cluster (Click on the Topic):

Book No. 1.   Handbook of a Civil Lawyer

Civil Procedure Code

Power of attorney

Evidence Act – General

Book No. 4: Common Law of TRUSTS in India