Tenant’s Possession After Agreement To Sell Is Not Part Performance Unless Traceable To Agreement: Supreme Court

The Court also rejected the argument that execution of an agreement to sell, by itself, changes the relationship between the parties from landlord-tenant to vendor-vendee so as to oust the jurisdiction of the Small Causes Court.

A Bench of Justice Prashant Kumar Mishra and Justice N.V. Anjaria observed: “the continuous possession of a tenant even after the execution of an agreement to sell does not amount to part performance under Section 53A of the TP Act unless such possession is shown to be directly relatable to and flowing from the agreement to sell.”

The Bench further observed: “it was contended that upon execution of the agreement to sell, the jural relationship between the parties stood altered from that of landlord and tenant to that of vendor and vendee, thereby excluding the jurisdiction of the Small Causes Court, …. this contention proceeds on an erroneous assumption that the mere execution of the agreement to sell determined the tenancy, a contention which already stands negatived as discussed in the preceding paragraphs hereinabove.”

Advocate Abhay Anil Anturkar appeared for the petitioner.

Background

The Court was hearing a special leave petition filed by a tenant against concurrent orders directing him to vacate and hand over possession of a shop. The landlord had filed a suit for possession before the Small Causes Court on grounds including default in rent, change of user and bona fide requirement.

The tenant resisted the suit by contending that once the landlord executed an agreement to sell in his favour, the tenancy came to an end and the parties thereafter stood in the relationship of vendor and vendee. It was also argued that he had paid part consideration and remained ready to pay the balance.

The Small Causes Court held that the landlord-tenant relationship continued despite the agreement to sell and decreed the suit. The appellate court and the Bombay High Court affirmed that view, after which the tenant approached the Supreme Court.

Court’s Observations

The Court examined whether the execution of an agreement to sell by a landlord in favour of a tenant, along with receipt of part consideration, by itself terminates the tenancy.

Distinguishing earlier precedents where the terms of the agreement clearly showed that possession was thereafter referable to the sale arrangement, the Court noted that the present agreement contained no such stipulation.

The Bench observed: “A plain reading of the aforesaid recitals makes it evident that the agreement to sell executed in the present case contains no stipulation indicating that the possession of the petitioner/defendant thereafter would be referable to the agreement to sell, nor does it provide for cessation of the obligation to pay rent or otherwise evince an intention to alter the subsisting landlord-tenant relationship.”

The Court held that tenancy can be treated as determined only where the terms of the agreement or the unequivocal conduct of the parties disclose express or implied surrender under Section 111(e) or 111(f) of the TP Act.

Applying the law on surrender of tenancy, the Court held that neither the agreement nor the conduct of the parties showed that the tenant had surrendered his leasehold status.

The Court observed: “The mere execution of the agreement to sell coupled with payment of Rs.40,000/- out of the agreed consideration of Rs.1,90,000/-, cannot be treated as determining the tenancy.”

It further noted that the agreement itself contemplated cancellation if the loan was not sanctioned and restoration of possession “as it was in the previous condition,” which reinforced the continuance of the tenancy.

The Court added: “This recital is wholly consistent with the continuance of the tenancy and, in fact, proceeds on the clear premise that the existing possession of the petitioner/defendant was referable to the tenancy and not to the agreement to sell.”

On the tenant’s claim that his possession after the agreement to sell was protected under Section 53A of the TP Act, the Court held that a person already in possession as tenant must show that his possession thereafter became referable to the contract of sale.

The Bench noted that the tenant had not shown that his possession as lessee ceased and possession as transferee commenced. It observed that his continued occupation was inconsistent with the plea of part performance.

The Court also held that the agreement to sell was executed after the insertion of Section 17(1A) of the Registration Act and was admittedly unregistered. Therefore, it could not be relied upon for claiming protection under Section 53A.

The Court observed: “The agreement to sell, being admittedly unregistered, can have no effect for the purposes of Section 53A by virtue of the express mandate of Section 17(1A) of the Registration Act.”

The Court rejected the argument that the agreement to sell converted the legal relationship into one of vendor and vendee and therefore excluded the jurisdiction of the Small Causes Court.

It also rejected the contention that impounding the agreement for insufficient stamp duty would assist the tenant, holding that even if the document were impounded and admitted after payment of duty and penalty, that would not cure the absence of registration or enable invocation of Section 53A.

Conclusion

The Supreme Court found no infirmity in the concurrent judgments of the courts below and dismissed the special leave petition. The direction requiring the tenant to vacate and hand over possession therefore stood undisturbed.

Cause Title: Nazim Shaikh Hasan v. Nasir Mushtaq Shaikh And Others (Neutral Citation: 2026 INSC 853)

Appearances

Petitioner: Advocates Abhay Anil Anturkar, Dhruv Tank, Sarthak Mehrotra, Uday Gautam, Aradhya Srivastava and Nakul Patwardhan, with Surbhi Kapoor, AOR

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