Subsequent Buyers Can’t Claim Innocence When They Chose Not to Inquire: Supreme Court Highlights Duty to Investigate Prior Transactions

“A purchaser who has documents revealing an earlier agreement, but makes no inquiry, cannot claim to be a bona fide buyer” – Supreme Court on Section 19(b) of Specific Relief Act. In a significant aspect of its ruling on 10 November 2025 Supreme Court of India clarified the scope of protection available to subsequent purchasers under Section 19(b) of the Specific Relief Act, 1963. The Court held that a subsequent purchaser who fails to make even basic inquiries into a prior agreement mentioned in documents they possess cannot claim to be a bona fide purchaser for value without notice.

This part of the decision reinforces the principle that good faith in property transactions is not a mere assertion but a positive obligation to exercise due care. The Court emphasized that failure to act diligently can amount to constructive notice, making subsequent buyers bound by the earlier agreement, especially when they had the opportunity to discover the prior rights.

“Possessing the Termination Notice That Refers to Prior Agreement Is Constructive Notice”: Court Rejects Defense of Innocence

The crux of the issue was that the subsequent purchasers in 2007 sought protection from enforcement of the earlier 2000 agreement between the original sellers and the plaintiffs, claiming they were unaware of it.

However, the Court noted that these buyers had in their possession a termination notice issued in 2003, which specifically referred to the earlier Agreement to Sell, mentioned the names and addresses of the plaintiffs (original buyers), and stated that the contract was being terminated.

Instead of contacting the plaintiffs or making further inquiry, the purchasers chose to remain silent, relying only on the seller’s version that the contract was cancelled.

The Court strongly rejected this approach and observed:

“Despite possessing the notice and full particulars of the vendees, the subsequent purchasers failed to make a single enquiry with the original vendees.”

Citing the principle laid down in Ram Niwas v. Bano [(2000) 6 SCC 685], the bench reiterated that notice includes actual, constructive, and implied notice, and where facts exist that would prompt a reasonable person to inquire, a failure to do so amounts to constructive notice in law.

“Good Faith Means More Than Just Belief – It Requires Due Care”: Court Interprets General Clauses Act and Nyaya Sanhita

The Court took a broader view of the concept of good faith, noting that both the General Clauses Act and Section 2(22) of the Bharatiya Nyaya Sanhita, 2023 define it not merely as an absence of ill motive, but as an act done with due care and attention.

The Court observed:

“Good faith implies upright mental attitude and clear conscience. It precludes wanton or wilful negligence.”

It added that a buyer who holds a document that contains a direct reference to an earlier transaction, but still chooses not to inquire further, cannot be considered to have acted in good faith, especially when the sellers themselves had failed to return the earnest money or obtained any declaratory relief in court regarding cancellation.

The Court remarked that:

“Equity ought not assist a transferee who deliberately avoids the truth that lies open to discovery.”

Thus, the Court concluded that the subsequent purchasers could not qualify under Section 19(b), and were not shielded from specific performance of the prior contract.

“Section 19(b) Is Not a Blanket Protection – Purchasers Must Act With Prudence”: Supreme Court Sets High Standard for Bona Fide Claims

Rejecting the argument that mere lack of actual knowledge is enough, the Court clarified that Section 19(b) of the Specific Relief Act only protects those who pay consideration and act without notice—and notice includes all forms where information could or should have been known through ordinary diligence.

It stated:

“To invoke Section 19(b), the transferee must prove that they were bona fide purchasers for value and without notice. Possession of a document referring to the earlier agreement itself rebuts that claim.”

The ruling creates a binding precedent for future property disputes, emphasizing that subsequent buyers must be vigilant, and any failure to investigate even obvious red flags in the title can lead to loss of protection under the law.

The Court held that since the termination notice was ambiguous, never accepted by the buyers, and the purchasers never verified the facts, they had constructive notice and could not claim good faith. Consequently, they were bound by the prior agreement and ordered to execute the sale deed in favour of the original buyers.

This portion of the ruling underlines a fundamental legal doctrine: silence in the face of obvious clues is not innocence—it’s negligence. The Supreme Court has reaffirmed that in real estate law, good faith is not a passive claim but a proactive duty.

Date of Decision: 10 November 2025