Concealment of Mortgage Is Fraud, Not a Technical Omission: Supreme Court Restores Refund Decree, Slams High Court’s Remand

“Stray Admission Cannot Defeat Admitted Facts and Documentary Evidence” – In a significant ruling strengthening the doctrine of contractual good faith, the Supreme Court held that a vendor's failure to disclose an existing mortgage over the property amounted to a fraudulent breach of contract, entitling the buyer to a full refund with interest.

Setting aside the Kerala High Court’s remand order, the Supreme Court restored the Trial Court's decree, observing that the plaintiff-buyer was “misled into executing the agreement” and that the High Court's reliance on a single statement in cross-examination was “totally misplaced and uncalled for.”

“The fact that the property was being sold to clear the liability to the bank does not find mention in the agreement. The defendant accepted money after the contractual period but did not use the same to repay the bank. This reflects his culpable intent in concealing the mortgage.”

“Remand Cannot Be Used to Reopen Closed Claims or Rescue Dishonest Vendors”

The respondent-vendor had failed to disclose that the land he agreed to sell for ₹4.45 crores was under an equitable mortgage with the Federal Bank. The buyer, who had paid ₹55 lakhs in advance, discovered this only later, and withheld further payment in justified suspicion of fraud.

The Trial Court had decreed refund with interest at 13% per annum, holding that the vendor’s suppression of the mortgage amounted to deceit and that his counter-claim for set-off of losses from a later sale was both time-barred and legally unsustainable.

The High Court reversed this finding and remanded the matter to examine if the vendor had suffered compensable losses due to the alleged breach by the buyer. But the Supreme Court categorically held this reasoning was untenable:

“The High Court committed grave error in law and fact by treating a solitary sentence in cross-examination as determinative, while ignoring the respondent’s admissions and conduct.”

“Admissions in Cross Not Gospel When Contradicted by Other Evidence” – SC Emphasises Contextual Reading

The High Court had latched onto a stray remark during cross-examination suggesting that the buyer knew of the mortgage on 25 August 2008. But the Supreme Court demolished this as factually impossible:

“The parties had no interaction prior to September 2008. Thus, imputing prior knowledge (on 25 August) to the plaintiff-appellant is uncalled for… This was clearly an inadvertent anomaly.”

Moreover, the seller had not even pleaded that the buyer was informed of the encumbrance before the agreement. Instead, the record revealed damning admissions:

“The money received from the plaintiff-appellant was not used to repay the bank. A legal notice alleging suppression of mortgage was never replied to.”

“Buyer Was Justified in Withholding Further Payment — Seller’s Conduct Proves Fraudulent Intent”

The Court found that the seller, even after agreeing to sell the property, neither cleared the mortgage nor used the received money for repayment. Instead, after the buyer’s refusal to proceed further, he sold the land to a third party at a lower price and then sought to hold the buyer liable for the difference, claiming ₹77.5 lakhs in losses.

The Court dismissed this claim outright:

“The set-off claim was not only an afterthought but barred by limitation and devoid of merit. The buyer was under no obligation to perform a contract marred by concealment and deception.”

“Remand Cannot Be a Tool to Resurrect Legally Dead Claims”: SC Restores Trial Court’s Refund Decree

Restoring the Trial Court’s decree in full, the Court upheld the buyer’s entitlement to:

• ₹65,43,750 with 13% interest per annum from the date of the suit until realisation;
• Full litigation costs to be recovered from the respondent’s assets.

“There was nothing unnatural in the explanation offered by the buyer for relying on the seller’s assurance that title deeds would be shown at the time of sale deed execution… His conduct was consistent with market practice and reasonable faith.”

High Court Set Aside, Trial Court Decree Reinstated

The Supreme Court allowed the appeal in full, issuing the following conclusion:

“The impugned judgment rendered by the High Court does not stand to scrutiny and is, thus, hereby set aside, and the judgment of the trial Court is restored.”

Date of Decision: December 15, 2025