Seller's Fraudulent Conduct & Non-Disclosure Of Mortgage Justify Refund Of Advance Sale Consideration: Kerala High Court

"When both sides have adduced evidence, the question of burden of proof dwindles into insignificance. The defense contention of having affixed signatures on blank papers is found to be improbable," Kerala High Court, in a significant ruling, held that a purchaser is entitled to the return of advance sale consideration when the seller engages in fraudulent conduct, such as concealing existing mortgages or executing settlement deeds in favor of relatives to defeat the purchaser's rights.

A bench of Justice Sathish Ninan and Justice P. Krishna Kumar observed that once both parties have led evidence, technical arguments regarding the burden of proof become secondary to the factual reality established before the court.

The dispute arose from a sale agreement (Ext.A1) dated October 12, 2009, where the first defendant (appellant) agreed to sell 8.722 cents of property to the plaintiff (respondent) for ₹50 lakhs. The plaintiff paid a total advance of ₹40 lakhs over two installments, but later discovered that the defendant had fraudulently executed a settlement deed in favor of his brother and concealed a subsisting mortgage with Federal Bank. The trial court decreed the suit for the return of the advance amount with 12% interest, leading to the present appeal by the first defendant.

The primary question before the court was whether the sale agreement (Ext.A1) was a genuine document or a fabricated one involving blank signed papers given for a loan. The court was also called upon to determine if the plaintiff was entitled to the return of the advance consideration and whether the 12% interest rate awarded by the trial court was legally sustainable.

Court’s Observations On Genuineness Of Agreement And Signature Admission

The Court noted that while the first defendant initially denied the execution of the agreement, he eventually admitted his signature on the document. The defendant’s primary defense was that he had availed a loan of ₹20 lakhs and provided blank signed papers as security, which were later fabricated into the sale agreement. However, the bench found this explanation lacked evidentiary support, noting that the defendant remained silent on when the alleged loan was taken or how the repayment was structured.

Admission Of Signature Negates Plea Of Fabrication

The bench emphasized that the signature of the first defendant on the agreement was admitted, and a bare perusal of the endorsements on the reverse side left no room for doubt. The court held that the defendant's attempt to amend his pleadings to admit the signature, after an initial denial, reinforced the genuineness of the plaintiff's claim.

Burden Of Proof Dwindles Once Evidence Is Adduced By Both Parties

Responding to the appellant’s reliance on precedents regarding the burden of proof in non-negotiable instruments, the court clarified the shifting nature of evidence. The bench observed that when both the plaintiff and the defendant have produced their respective evidence and witnesses, the abstract question of who bears the burden of proof loses its significance.

Court Analyzes Practical Evidence Over Technical Presumptions

The court stated that in the present case, sufficient materials and circumstances were available to justify the trial court's decision. It held that the defense contention of signatures being affixed to blank papers was highly improbable given the surrounding facts, including the testimony of the scribe and witnesses who vouched for the transaction.

Fraudulent Settlement Of Property To Relatives Fortifies Buyer's Claim

A crucial factor in the court's reasoning was the conduct of the first defendant during the subsistence of the agreement. The bench took serious note of the fact that the defendant executed a settlement deed in favor of his brother to defeat the plaintiff’s rights and failed to disclose a mortgage liability to the Federal Bank.

Seller’s Conduct Indicates Intent To Defraud

The court remarked that such conduct "looms large" and serves as strong circumstantial evidence against the defendant. It noted that the property was eventually sold by the mortgagee bank in an auction, where the plaintiff himself had to purchase it to protect his interests, further validating the necessity for a refund of the original advance paid.

Interest Rate Refixed At 6% Considering Prevalent Banking Rates

While upholding the decree for the return of the advance amount, the High Court found the 12% interest rate awarded by the trial court to be "exorbitant." The bench held that the rate of interest must be just and reasonable, reflecting the economic realities of the banking sector.

Interest Reduced To Align With Commercial Standards

The court exercised its discretion to refix the interest at 6% per annum from the date of the suit until realization. The bench ordered that the balance amount deposited in the bank after the auction sale should be adjusted towards the decree, and the first defendant would be liable only for the remaining balance.

The High Court partly allowed the appeal, refixing the interest rate at 6% while affirming the trial court's decree in all other respects. The court concluded that the fraudulent actions of a seller, including the concealment of encumbrances and sham transfers to kin, provide a solid legal ground for the buyer to seek a full refund of the sale consideration.

Date of Decision: 23 June 2026