The Supreme Court has held that the mere execution of an agreement to sell between a landlord and an existing tenant does not, by itself, terminate the landlord-tenant relationship.
The bench of Justice Prashant Kumar Mishra and Justice N.V. Anjaria ruled that a tenancy can come to an end only where the terms of the agreement or the unequivocal conduct of the parties establish an express or implied surrender of the tenancy under Section 111(e) or Section 111(f) of the Transfer of Property Act, 1882.
The dispute concerned a 200 sq. ft. shop situated at Mitha Nagar, Kondhwa Khurd, Pune. The premises had been let out to the petitioner at a monthly rent of Rs.1,500. While the tenancy was continuing, the landlord agreed to sell the shop to the tenant through an agreement to sell dated September 21, 2004.
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The total sale consideration was fixed at Rs.1.90 lakh. At the time of execution of the agreement, the tenant paid Rs.40,000, while the balance amount of Rs.1.50 lakh was to be paid within three months. The agreement further contemplated that the purchaser would arrange the balance amount through a bank loan.
According to the landlord, the tenant failed to fulfil the conditions of the agreement, resulting in the proposed sale not materialising. The tenant consequently continued to occupy the premises as a tenant.
The landlord subsequently instituted Civil Suit No.384 of 2010 seeking possession on grounds including alleged rent default, change in the use of the premises and bona fide requirement. The tenant, however, argued that the landlord-tenant relationship had come to an end upon execution of the agreement to sell. He also claimed to have paid Rs.90,000 towards the sale consideration and expressed readiness to pay the balance.
The Small Causes Court, after examining the oral and documentary evidence, rejected the tenant’s contention. By judgment dated September 19, 2015, it held that the landlord’s bona fide requirement was established and that the landlord-tenant relationship continued notwithstanding the agreement to sell.
The tenant’s appeal was dismissed by the First Appellate Court on November 24, 2023. The tenant thereafter approached the Bombay High Court in revision, but the High Court dismissed the revision application on April 1, 2026, thereby affirming the orders directing him to hand over possession.
The matter then reached the Supreme Court.
The principal question before the Court was whether execution of an agreement to sell by a landlord in favour of an existing tenant, coupled with receipt of part of the sale consideration, automatically brings the landlord-tenant relationship to an end and creates a new relationship of vendor and purchaser.
The Court noted that the issue required examination particularly in light of Section 111 of the Transfer of Property Act, which provides different modes by which a lease may be determined. Section 111(e) deals with express surrender, while Section 111(f) deals with implied surrender.
The tenant relied upon the Supreme Court’s earlier decision in R. Kanthimathi and Another v. Beatrice Xavier (Mrs.), where the Court had held, on the facts of that case, that the relationship of landlord and tenant had changed after an agreement to sell was executed and a substantial portion of the sale consideration was accepted.
In that case, the agreement contained language indicating that possession of the property had already been surrendered in the context of the proposed sale. The purchaser had also paid a substantial portion of the consideration, leaving only a comparatively small balance payable at the time of registration.
The Supreme Court in the present case, however, emphasised that R. Kanthimathi turned on its specific facts. In particular, the agreement there contained express language indicating an intention to alter the existing jural relationship, coupled with near-complete payment of the consideration.
The Supreme Court found a significant distinction between the earlier precedent and the agreement involved in the present case.
The agreement before the Court merely recorded that the seller had agreed to sell the shop for Rs.1.90 lakh, acknowledged receipt of Rs.40,000 and required payment of the balance within three months. Crucially, there was no clause stating that the tenant’s possession thereafter would be referable to the agreement to sell rather than to the existing tenancy.
Nor did the agreement provide for cessation of the tenant’s obligation to pay rent or otherwise indicate that the landlord-tenant relationship had been replaced by a vendor-purchaser relationship.
The Court therefore held that the execution of the agreement and receipt of Rs.40,000 out of the total consideration of Rs.1.90 lakh could not, by themselves, be treated as determination of the tenancy.
The Court attached particular importance to Clause 4 of the agreement to sell.
Under that clause, if the purchaser’s bank loan was not sanctioned within the stipulated period, the agreement would stand cancelled and the seller would refund the Rs.40,000 received. The purchaser would then have to hand over possession of the shop back in its previous condition.
According to the Supreme Court, this clause was inconsistent with the argument that the tenant’s possession had already changed into possession as a prospective purchaser. Rather, it proceeded on the basis that the existing possession was referable to the tenancy and that, if the proposed sale failed, the parties would revert to the previous position.
The Court observed that the clause therefore reinforced the conclusion that there had been no change in the jural relationship between the parties.
The Supreme Court relied upon its earlier decision in Shah Mathuradas Maganlal & Co. v. Nagappa Shankarappa Malage, explaining that surrender involves the lessee yielding his interest to the lessor by mutual agreement.
An express surrender involves an agreement between the parties by which the lessee gives up his interest in the premises. Implied surrender, on the other hand, may arise from circumstances and conduct demonstrating that the earlier landlord-tenant relationship can no longer continue.
The Court also referred to Vayyaeti Srinivasarao v. Gaineedi Jagajyothi, which explained that implied surrender can arise through the creation of a new relationship or through relinquishment of possession. The critical consideration is whether the conduct of the parties is inconsistent with continuation of the existing tenancy.
Thus, an agreement to sell is not enough in isolation. The agreement must contain terms, or the parties must engage in conduct, which unequivocally demonstrates that the existing tenancy has been surrendered.
The Supreme Court further reiterated the settled principle that an agreement to sell does not, by itself, create any title or interest in immovable property.
Referring to Suraj Lamp and Industries Private Limited (2) v. State of Haryana, the Court noted that Section 54 of the Transfer of Property Act makes it clear that a contract for sale does not itself create an interest or charge in the property. Transfer of ownership in immovable property takes place through a legally valid deed of conveyance.
The Court accordingly reiterated that an agreement to sell, whether accompanied by possession or not, is not itself a conveyance and does not transfer title in the property.
The Court distilled the governing principles into four propositions.
First, the mere execution of an agreement to sell between a landlord and tenant does not automatically determine the subsisting tenancy.
Second, the tenancy comes to an end only where the terms of the agreement or the unequivocal conduct of the parties establishes an express or implied surrender under Section 111(e) or Section 111(f) of the Transfer of Property Act.
Third, continued possession of a tenant after execution of an agreement to sell does not by itself amount to part performance under Section 53A. The tenant must establish that the possession is directly referable to and flows from the agreement to sell.
Fourth, an agreement to sell which is not a registered deed of conveyance does not itself confer title or interest in the property.
The Court rejected the argument that continued occupation of the shop after execution of the agreement to sell transformed the tenant into a prospective purchaser in possession under Section 53A.
Referring to the decision in Vayyaeti Srinivasarao, the Court reiterated that where a person is already in possession of property in one capacity and subsequently enters into a contract to purchase it, mere continuation of that possession does not establish possession in part performance.
The Court noted that possession already held by a tenant would constitute possession pursuant to the sale agreement only where there is material demonstrating that the nature of possession had actually changed. The fact that the tenant remained in the premises after signing the agreement was insufficient by itself.
The Court further relied upon D.S. Parvathamma v. A. Srinivasan, observing that a person who entered possession as a tenant and continued to remain in possession in that capacity cannot subsequently contend, merely because an agreement to sell was executed, that his possession was no longer that of a tenant.
The Supreme Court also rejected the tenant’s alternative claim for protection under Section 53A on the ground that the agreement to sell was unregistered.
The Court pointed out that Section 17(1A) of the Registration Act, introduced with effect from September 24, 2001, requires documents containing contracts to transfer immovable property for consideration, when relied upon for the purposes of Section 53A of the Transfer of Property Act, to be registered.
If such a document is not registered, it has no effect for the purposes of Section 53A.
The agreement in the present case was executed on September 21, 2004—well after the 2001 amendment—and was admittedly unregistered. Consequently, the Court held that it could not be used to claim the statutory protection under Section 53A. The Court also relied upon its earlier decision in Ameer Minhaj v. Dierdre Elizabeth (Wright) Issar.
The Supreme Court additionally noted that the tenant had not instituted a suit seeking specific performance of the agreement to sell.
The Court held that this conduct further weakened the argument that the relationship between the parties had transformed from landlord-tenant into vendor-purchaser merely upon execution of the agreement.
The Court also rejected the contention that the agreement should have been impounded for insufficient stamp duty and non-registration before being considered. It held that even if the agreement were rendered admissible after payment of the requisite duty and penalty, that would not cure the absence of registration or permit the tenant to invoke Section 53A in view of Section 17(1A) of the Registration Act.
The Supreme Court found no error in the concurrent findings of the Small Causes Court, the First Appellate Court and the Bombay High Court.
The Court held that the agreement to sell did not determine the existing tenancy and that the tenant was not entitled to invoke Section 53A of the Transfer of Property Act on the basis of the unregistered agreement.
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