The Supreme Court held that keeping original title deeds in bank lockers is a common practice and does not show buyer’s fault. Finding deliberate concealment of mortgage by the seller, the Court restored the order allowing the buyer to recover the paid amount.
New Delhi: The Supreme Court of India has restored a trial court order which allowed a property buyer to recover the money paid to the seller, after finding that the seller had deliberately hidden the fact that the property was mortgaged to a bank.
The Apex Court held that the seller acted dishonestly by concealing an important fact relating to an encumbrance on the property that was agreed to be sold.
The Bench of Justice Vikram Nath and Justice Sandeep Mehta was hearing an appeal against a Kerala High Court judgment which had earlier held the buyer to be in breach of the agreement.
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The High Court had remanded the matter back to the trial court only to check whether the seller had suffered any financial loss that could be adjusted against the buyer’s claim.
While overturning the High Court’s decision, the Supreme Court observed,
“Moreover, the fact that before instituting the suit, the plaintiff-appellant sent a notice to the defendant-respondent specifically mentioning about the concealment of the mortgage, to which the defendant-respondent chose not to furnish any reply, clearly establishes that the case projected in the set-off, that the plaintiff-appellant was aware of the encumbrance on the suit schedule property from the inception, was nothing but an afterthought, devised solely to defeat the plaintiff-appellant’s legitimate claim for refund.”
The Court further emphasised the conduct of the seller by noting,
“Furthermore, the fact that pursuant to the plaintiff-appellant raising this issue with the defendant-respondent, he agreed to reduce the sale consideration by a sum of Rs.35,00,000/- is also a significant fact reflecting on the conduct of the defendant-respondent which convinces us about the deceit practiced by him upon the plaintiff-appellant. It stands to reason that, upon being exposed, the defendant-respondent was compelled to offer a substantial reduction in the agreed sale price, which unmistakably reflects his culpable intent in concealing the material factum of encumbrance on the suit schedule property”.
The case relates to an agreement for sale entered into between the parties, under which the seller agreed to sell a property to the buyer for a total consideration of Rs 4.45 crore.
As part of the agreement, the buyer paid Rs 50 lakh as advance money. The remaining amount was to be paid in two instalments as per the agreed terms.
Later, the buyer came to know that the seller had taken a large loan from Federal Bank by creating an equitable mortgage over the same property.
This was a serious issue because the agreement clearly stated that the property was free from all liabilities and encumbrances. The buyer claimed that this crucial fact was deliberately hidden by the seller at the time of entering into the agreement.
When the buyer raised this issue, the seller assured him that the loan would be cleared soon. To further reassure the buyer, the seller agreed to reduce the sale price by Rs 35 lakh.
Trusting these assurances, the buyer paid an additional Rs 5 lakh in cash and also gave a post-dated cheque of Rs 3.55 crore.
However, the buyer later realised that no genuine steps were taken by the seller to clear the bank loan. Feeling cheated, the buyer decided not to arrange funds for the post-dated cheque.
As a result, the cheque was dishonoured due to insufficient funds. The buyer maintained that he was always ready and willing to complete the transaction, but it was the seller’s dishonest conduct that forced him to withdraw.
The buyer then filed a suit seeking a refund of Rs 55 lakh along with interest. He also requested that the amount be recovered from the seller and his assets by creating a charge on the property.
The trial court accepted the buyer’s case and held that he was misled into entering the agreement. It ordered the seller to pay Rs 65,43,750 along with interest from the date of filing the suit until full recovery.
However, the Kerala High Court interfered with this finding and remanded the case back to the trial court to examine whether the seller had suffered any loss and whether such loss could be adjusted against the buyer’s claim.
Disagreeing with the High Court, the Supreme Court noted that the seller never claimed, either in his pleadings or evidence, that he had informed the buyer about the mortgage.
The Bench observed that the High Court wrongly relied on a single line from the buyer’s cross-examination and ignored clear admissions made by the seller that the agreement’s contents were correct and binding.
The Supreme Court also accepted the buyer’s explanation that he relied on the seller’s promise that original title deeds would be handed over at the time of executing the sale deed.
The Court found nothing unusual in this conduct, especially since the advance amount paid was only around 10% of the total sale consideration.
The Bench explained that it is common practice in India for property owners to keep original title deeds with banks as security. Therefore, the buyer’s decision not to insist on inspecting the original documents at the time of signing the agreement was found to be reasonable and justified.
After analysing the entire material on record, the Supreme Court concluded that the trial court had committed no error in granting relief to the buyer. It set aside the High Court’s order, restored the trial court’s judgment, and allowed the appeal.
Senior Advocate Raghenth Basanth appeared for the appellant along with Advocate Kaushitaki Sharma, AOR Sonakshi Malhan, and Advocates Roopali Lakhotia and Adithya S Nair.
Senior Advocate V. Chitambaresh represented the respondent along with AOR John Mathew.
Case Title:
Moideenkutty v. Abraham George
2025 INSC 1428.
Read Judgement:
