Agreement To Sell Does Not Convey Title; Stamp Duty Payable Only If Possession Is Acquired Pursuant To Agreement Under AP Stamp Act: Supreme Court

The Court was hearing civil appeals arising from orders of the High Court of Andhra Pradesh, which had upheld the trial court’s direction to impound an agreement to sell and require payment of stamp duty and penalty by treating it as a deemed conveyance.

A Bench comprising Justice B.V. Nagarathna and Justice R. Mahadevan set aside the impugned orders and held: “…the possession of the schedule property by the appellant herein was not following the agreement to sell nor was delivery of possession pursuant to the execution of the agreement to sell as stipulated under the A.P. Stamp Act. It is only when the possession is acquired in relation to the execution of the agreement to sell, that it would be a deemed conveyance and stamp duty has to be levied as conveyance”.

The appellant was represented by Advocate M. Srinivas R. Rao, while the respondent was represented by Anuj Kapoor, AOR.

Background

The appellant had been in possession of the suit property as a tenant for nearly five decades. An agreement to sell was executed between the parties in 2009, under which the appellant agreed to purchase the property and paid a substantial advance. The agreement recorded that the appellant was already in possession of the property.

Subsequently, disputes arose between the parties, leading to the filing of a suit for specific performance by the appellant and eviction proceedings by the respondent. During the trial of the suit for specific performance, the respondent objected to the marking of the agreement to sell on the ground that it was insufficiently stamped and amounted to a conveyance.

The trial court upheld the objection and directed payment of stamp duty and penalty by treating the agreement as a conveyance. The High Court affirmed this view, holding that possession was “intimately connected” with the agreement to sell. These findings were challenged before the Supreme Court.

Court’s Observation

The Supreme Court examined the nature of an agreement to sell under Section 54 of the Transfer of Property Act, 1882, and reiterated that such an agreement only creates a right to obtain another document and does not, by itself, transfer title or create any interest in immovable property.

It further noted that by virtue of Section 47 of the Registration Act, 1908, an agreement to sell, which merely creates a right to seek execution of a sale deed, is not compulsorily registrable and cannot be equated with a conveyance.

The Court emphasised that an agreement to sell gives only a contractual right to compel execution of a sale deed and does not constitute a transfer of ownership. Consequently, it cannot be treated as a conveyance unless the statutory conditions for a deemed conveyance are satisfied.

Interpreting Explanation I to Article 47A of Schedule I-A of the Andhra Pradesh Stamp Act, the Court held that stamp duty as a sale is leviable only where delivery of possession follows the agreement to sell or where delivery of possession is evidenced in the agreement itself.

The Court drew a distinction between possession held independently of the agreement and possession delivered pursuant to the agreement. It noted that in the present case, the appellant was already in possession as a tenant long prior to the execution of the agreement, and such possession had no nexus with the agreement to sell.

The Court observed that there was neither express nor implied surrender of tenancy, and the landlord-tenant relationship continued even after execution of the agreement, as evidenced by the subsequent eviction order passed against the appellant.

The Bench clarified that only when possession is acquired in relation to the execution of an agreement to sell does it assume the character of a deemed conveyance attracting stamp duty as a sale. Where possession pre-exists independently, the agreement remains an agreement to sell simpliciter.

The Court distinguished earlier decisions where agreements were held to be deemed conveyances on the ground that, in those cases, possession was either transferred or expressly linked to the agreement itself.

The Trial Court failed to notice this aspect of the matter and simply directed the appellant herein to pay the stamp duty as if it were a conveyance or sale and there was a transfer of title from the respondent to the appellant herein, …the High Court in fact misdirected itself in assuming that there was in fact a deemed conveyance between the respondent and the appellant herein.”, the Court concluded.

Conclusion

Holding the appellant not liable to pay any additional duty and penalty on the agreement to sell, and the said instrument as not liable to be impounded for payment of duty and penalty, the Supreme Court set aside the orders of the High Court and the trial court and directed that the agreement be marked in evidence.

The Court allowed the appeals and directed the trial court to proceed with the suit for specific performance expeditiously.

Cause Title: Vayyaeti Srinivasarao v. Gaineedi Jagajyothi (Neutral Citation: 2026 INSC 59)

Appearances

Appellant: Advocoates M. Srinivas R. Rao, Parva Rajkumar, Abid Ali Beeran P., AOR
Saswat Adhyapak, Namita Kumari

Respondent: Anuj Kapoor, AOR

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