Court Fees Ad Valorem to Be Paid Only on Earnest Money, Not Full Sale Consideration: Punjab & Haryana High Court

In a landmark ruling on January 31, 2025, the Punjab & Haryana High Court held that a plaintiff seeking rescission of an agreement to sell under Section 27 of the Specific Relief Act, 1963, is not liable to pay ad valorem court fees on the total sale consideration. Instead, the court ruled that such fees should be calculated only on the earnest money sought to be forfeited. The judgment overruled the trial court's decision that required ad valorem court fees on the entire sale amount.

A division bench comprising Justice Sureshwar Thakur and Justice Sudepti Sharma clarified that an agreement to sell does not confer ownership rights and, therefore, should not be treated the same as a registered sale deed for the purposes of court fees. The ruling provides much-needed clarity on the issue, which had seen conflicting judgments from various High Courts.

Rescission of an Agreement to Sell – No Ad Valorem Court Fees on Full Sale Consideration
The petitioners, Anil Kumar and Others, had executed an agreement to sell their property to the respondent, Maninderbir Singh, for ₹79,40,000. The agreement required the respondent to pay earnest money, which he did partially. However, the sale was not completed due to the respondent’s alleged failure to fulfill his obligations. The petitioners sought rescission of the agreement and forfeiture of the earnest money in a suit before the trial court.

The trial court directed the petitioners to pay ad valorem court fees on the full sale consideration of ₹79,40,000. The petitioners challenged this order before the High Court, arguing that they were not seeking title cancellation but only rescission, which should attract court fees on the forfeited earnest money alone.

Reversing the trial court’s order, the High Court held: "A plaintiff seeking rescission of an agreement to sell is required to pay ad valorem court fees only on the forfeited earnest money, not the total sale consideration. Since an agreement to sell does not transfer ownership, the obligation to pay court fees on the full sale amount does not arise."

Agreement to Sell vs. Registered Sale Deed – Key Distinction in Court Fees
The court emphasized that an agreement to sell merely creates a contractual obligation but does not transfer ownership. Unlike a registered sale deed, which confers title, an agreement to sell is an executory contract. The ruling referred to Suhrid Singh @ Sardool Singh v. Randhir Singh (2010), where the Supreme Court held that a plaintiff seeking cancellation of an agreement to sell need not pay court fees on the entire sale consideration.

The High Court noted: "An agreement to sell does not confer title, and therefore, a suit seeking its rescission cannot be equated with a suit for cancellation of a registered sale deed. Only a registered sale deed creates ownership rights, and cancellation of such a document attracts ad valorem court fees on the full sale consideration. However, in the case of an agreement to sell, only the earnest money forms the subject matter of the dispute."

Defendant's Failure to Seek Specific Performance – No Right to Demand Ad Valorem Fees from Plaintiff
The respondent-defendant argued that he was ready and willing to complete the sale, and therefore, the plaintiffs’ suit should be treated as a cancellation suit requiring full ad valorem court fees. However, the High Court rejected this contention, noting that:

The defendant never filed a suit for specific performance within the limitation period, which indicates his lack of real intent to complete the sale.
The plaintiffs were not seeking cancellation of title, as title had not transferred.
The plaintiffs retained possession of the property, making ad valorem court fees on the total sale amount unnecessary.
The court ruled: "The defendant is estopped from contesting the rescission when he himself failed to enforce the contract through a suit for specific performance. The plaintiffs cannot be forced to pay ad valorem court fees on the full sale consideration when they are merely seeking to rescind an unexecuted contract and forfeit earnest money."

Larger Bench Interpretation – Resolving Conflicting High Court Views
The High Court acknowledged that there were conflicting judgments on whether ad valorem court fees should apply to suits seeking rescission of an agreement to sell. Various benches had ruled differently in cases such as N.N. Estate Private Limited v. Surinder Goyal (2012), Raj Singh v. Deepak Kumar (1988), and Himat Singh v. Om Parkash (2008).

To resolve these contradictions, the High Court examined legal precedents and statutory provisions, concluding:

•    If a plaintiff seeks cancellation of a registered sale deed, they must pay ad valorem court fees on the full sale consideration.
•    If a plaintiff only seeks rescission of an agreement to sell, they need to pay ad valorem court fees only on the earnest money received.
•    If the plaintiff is not in possession of the property and seeks a declaration and possession, ad valorem fees on market value may be required.
•    If the defendant had filed a suit for specific performance, he would have had to pay ad valorem fees on the total sale consideration.
The court observed: "The correct position is that ad valorem court fees apply only to the forfeited earnest money, not the total sale consideration. The trial court order requiring full ad valorem fees is legally unsustainable."

Conclusion – Plaintiffs Need to Pay Court Fees Only on Earnest Money
Setting aside the trial court's order, the High Court ruled: "Since the plaintiffs are merely seeking rescission of an unexecuted agreement and forfeiture of earnest money, they are only liable to pay ad valorem court fees on the forfeited amount, not the full sale consideration. The trial court’s order directing otherwise is quashed."
The matter was remitted back to the trial court for further proceedings in line with this ruling.
 

Date of Decision: January 31, 2025