Agreement to Sell Was Only a Mask for Recovering Loans: Bombay High Court Cancels Specific Performance Decree After Class-I Heirs Back Out

“Once Class-I heirs cancel the agreement, a Class-II heir cannot carry forward the torch of specific performance alone” — Bombay High Court, through Justice Gauri Godse, delivered a landmark judgment , setting aside a decree of specific performance on the ground that the underlying sale agreement was not a real sale but merely a mechanism to secure repayment of old hand loans.

The Court’s ruling struck at the heart of a registered agreement for sale dated 27th May 1977, which had been litigated for nearly five decades. By concluding that the transaction was "a mere cloak for money lending" and that the "decree was improperly granted despite the plaintiffs losing their legal standing," the Court set a powerful precedent on Section 20 of the Specific Relief Act, equitable relief, and the rights of heirs in contractual enforcement.

“Not Every Registered Document is a Contract for Sale”: The Court Discards the Facade of Formality to Uphold Substance

The legal battle stemmed from an alleged registered agreement between the defendants—Mahadeo Sitaram Navale and his wife—and Ankush Navale, the now-deceased son of plaintiff No. 1. The plaintiffs claimed to have paid ₹3,900 of the ₹4,000 consideration and demanded execution of the sale deed over Gat No. 497, an agricultural land parcel.

But Justice Godse pierced through the paperwork. “The suit agreement cannot be viewed in isolation. It must be read in conjunction with a series of money lending transactions, decrees, and recovery proceedings that preceded and followed it.”

In fact, the record revealed that even before the agreement, plaintiff No. 1 had filed multiple suits to recover unsecured loans from the defendants. These cases culminated in attachment orders, and the property that later became the subject of the alleged sale was one such attached asset.

Justice Godse remarked: “It is difficult to accept the suit agreement independently of these other transactions. The entire sequence leads one to conclude that the agreement was executed only as security—not for sale.”

“Relinquishment by Class-I Heirs Leaves the Contract Lifeless”: Court Upholds Validity of Cancellation Deed

The most critical blow to the plaintiffs’ case, however, came from within their own camp. The widow and children of Ankush—his Class-I heirs—voluntarily executed a registered deed of cancellation of the agreement on 23rd January 2020. This document was brought before the Court as additional evidence and marked Exhibit X1.

Respondent No. 1 (father of Ankush) tried to hold on to the claim, but the Court was unrelenting: “The father is a Class-II heir. Once the Class-I heirs cancelled the agreement, he stands in no position to claim specific performance of a contract that no longer survives.”

Arguments that the cancellation was fraudulent or violative of Section 52 of the Transfer of Property Act were firmly rejected. The Court clarified that:

“Relinquishment by heirs is not a transfer of interest that attracts the bar of lis pendens. There was no third-party prejudice and no clandestine transaction. Section 52 is not attracted.”

“Plaintiff No. 1 Never Entered the Witness Box – Silence That Speaks Volumes”: Court Applies Adverse Inference Against Moneylender Father

Another damning factor was the conspicuous absence of Plaintiff No. 1, the father of Ankush and the alleged financier behind the transaction.

“The plaintiff did not enter the witness box. When a party with personal knowledge of transactions refuses to be cross-examined, the presumption is that their version is unworthy of belief.”

The Court applied the ratio from Vidhyadhar v. Manikrao [(1999) 3 SCC 573], holding that the testimony of Plaintiff No.1’s son, acting through power of attorney, could not substitute for the father’s direct evidence.

“The very foundation of the plaintiffs’ case—payments, agreement, intention—rested on Plaintiff No. 1’s conduct. His silence crushed whatever support the agreement could have mustered.”

“Discretion Must Be Anchored in Equity”: Court Slams First Appellate Court for Ignoring Section 20 of Specific Relief Act

The judgment is equally scathing about the First Appellate Court, which had reversed the trial court’s dismissal and granted specific performance.

Justice Godse held: “The First Appellate Court committed grave error by treating the registered agreement as a conclusive sale contract. It ignored the equitable requirement under Section 20 of the Specific Relief Act that courts must consider fairness, intent, and legal capacity.”

The Court emphasised that since the land was ancestral, and since the joint family’s legal necessity was not proved, granting specific performance would have been inequitable.

“Specific performance is not a matter of right. It is a matter of discretion, and that discretion must be exercised judiciously—not blindly in favour of paper documents.”

“The Torch Has Been Passed, Then Extinguished”: Bombay High Court Declares the Agreement Dead and Buried

Concluding the 30-year-old litigation, the High Court quashed the decree of the Appellate Court, restored the trial court’s dismissal, and declared the agreement to sell as unenforceable in law and equity.

“By relinquishing their claims, the Class-I heirs have extinguished the contract. A shadow cannot ask for performance when the source of the shadow is gone.”

The Bombay High Court passed the following: “The judgment and decree dated 24th August 1993 passed in R.C.A. No. 618 of 1987 is quashed. The decree of the Trial Court dismissing RCS No. 103 of 1980 is restored. There shall be no order as to costs.”

Date of Judgment: 8th September 2025