In a case where there was a concealment of the fact of a mortgage pertaining to a property which was contracted to be sold, the Supreme Court has restored the order entitling the buyer to realise the paid amount from the seller. The Apex Court found that the seller’s culpable intent was reflected in concealing the material factum of encumbrance on the suit schedule property.

The Apex Court was considering an appeal challenging the judgment passed by the Kerala High Court holding that the appellant was in breach of the agreement and remanding the matter to the trial Court for the limited purpose of examining whether the defendant-respondent had suffered any compensable loss.

The Division Bench of Justice Vikram Nath and Justice Sandeep Mehta held, “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.”

“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”, it added.

Senior Advocate Raghenth Basanth represented the Appellant while Senior Advocate V. Chitambaresh represented the Respondent.

Factual Background

The defendant-respondent entered into an agreement for sale, undertaking to convey the land to the plaintiff-appellant for a total consideration of Rs 4,45,00,000. In due deference to the contractual stipulation regarding earnest money, the plaintiff-appellant paid the sum of Rs 50,00,000. The balance sale consideration was agreed to be tendered in two further tranches. Later, the plaintiff-appellant claimed to have received information that the defendant-respondent had availed a substantial loan from the Federal Bank by creating an equitable mortgage over the suit schedule property, a fact which, according to the plaintiff-appellant, was deliberately suppressed by the defendant-respondent, contradicting the specific recital in the agreement affirming that the property was free from all liabilities and encumbrances.

Upon being confronted with this anomaly, the defendant respondent assured the plaintiff-appellant that requisite steps were being taken to discharge the outstanding debt. The defendant-respondent also agreed to reduce the sale consideration by Rs 35,00,000 from the originally agreed amount of Rs 4,45,00,000. Acting upon such assurances and understanding, the plaintiff-appellant paid a further sum of Rs 5,00,000 in cash and also handed over a post-dated cheque for Rs 3,55,00,000 to the defendant-respondent.

The plaintiff-appellant came to know that the defendant-respondent had not taken any effective measures to redeem the mortgage and perceived that he was being deceived. Hence, the plaintiff-appellant did not arrange funds for encashment of the post-dated cheque, which consequently came to be dishonoured for insufficiency of funds. The plaintiff-appellant asserted that he had always been ready and willing to fulfil his obligations under the contract and that the defendant-respondent had committed breach by his fraudulent conduct. Accordingly, the plaintiff-appellant instituted the suit seeking a refund of the advance amount of Rs 55,00,000 together with interest and further prayed that the costs be recovered from the defendant-respondent and his assets by creation of a charge over the property. The trial Court found merit in the plaintiff-appellant’s case that he had been misled into executing the agreement. The Trial Court held that the plaintiff was entitled to realise an amount of Rs. 65,43,750 with interest from the date of suit till realisation from the defendant and his assets.

The High Court remanded the matter to the trial Court for the limited purpose of examining whether the defendant respondent had suffered any compensable loss and whether such loss could be set off against the plaintiff-appellant’s claim.

Reasoning

On a perusal of the case, the Bench noted that the defendant-respondent did not set up a case either in his set-off claim or in his evidence that he had provided the information of the prior mortgage/encumbrance on the suit schedule property to the plaintiff-appellant.

“Thus, the undue emphasis laid by the High Court on an abstract sentence appearing in the cross-examination of the plaintiff-appellant,suggesting prior knowledge of the bank liability over the suit schedule property, was totally misplaced and uncalled for. The High Court ignored the vital admissions as appearing in the version of the defendant-respondent that the contents of the agreement (Exh. A-1) were unquestionable and correct in their entirety”, it added.

As per the Bench, there was nothing unnatural in the explanation offered by the plaintiff-appellant that he relied on the assurance of the defendant-respondent that the original title deeds would be handed over at the time of execution of the sale deed. It was noticed that the advance amount paid by the plaintiff-appellant was around 10% of the total sale consideration and thus, it could not be said that the plaintiff-appellant would not have entered into the agreement without having a look at the original title deeds.

“It is a common practice for landowners to keep original title deeds in the bank lockers for security purposes. Hence, the explanation offered by the plaintiff-appellant for not insisting on the inspection of the original title deeds, at the time of entering into the agreement, was reasonable and justified”, it added.

Thus, holding that the Trial Court committed no error whatsoever in decreeing the suit filed by the plaintiff-appellant, the Bench restored the judgment of the trial Court and allowed the appeal.

Cause Title: Moideenkutty v. Abraham George (Neutral Citation: 2025 INSC 1428)

Appearance

Appellant: Senior Advocate Raghenth Basanth, Advocate Kaushitaki Sharma, AOR Sonakshi Malhan, Advocates Roopali Lakhotia, Adithya S Nair

Respondent: Senior Advocate V. Chitambaresh, AOR John Mathew, AOR

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Tulip Kanth

Assistant Editor

Tulip Kanth is an Assistant Editor at Verdictum having over 5 years of experience in the field of legal journalism and editing. She extensively covers judgments of the Supreme Court, High Courts as well as Tribunals. She has previously worked with a legal publishing website where she oversaw the work of other editors and has also created updates on notifications of different Government Ministries. She holds an English Honours Degree from SGTB Khalsa College, Delhi University and has completed her LLB course with specialisation in Corporate Law from Amity University.