Unregistered Agreement Does Not Create Ownership; Buyer Has No Legal Title: Karnataka High Court Upholds ED’s Attachment of Flat in Kingfisher Towers as Proceeds of Crime

“A mere agreement to sell, even if followed by payment, does not confer ownership; title remains with seller until execution of registered sale deed” –  In a landmark ruling reinforcing the doctrinal limits of ownership rights under Indian property law and the rigour of anti-money laundering statutes, the Karnataka High Court allowed an appeal filed by the Enforcement Directorate (ED) under Section 42 of the Prevention of Money Laundering Act, 2002 (PMLA), setting aside the Appellate Tribunal’s decision that had quashed the ED’s attachment order of a luxury flat in Kingfisher Towers, Bengaluru.

Division Bench of Justice D.K. Singh and Justice Venkatesh Naik T held that the Flat No. 7A, purportedly purchased by the respondent through an unregistered agreement to sell, continued to vest with United Breweries (Holdings) Ltd., and was thus validly attached as “proceeds of crime” under Section 2(1)(u) of the PMLA.

“Transaction Void Ab Initio – Agreement Entered After Winding-Up Petition Is Legally Non-Est”

The High Court delivered a stinging rebuke to the Tribunal’s approach, holding that the agreement entered into by Respondent No.1 after a winding-up petition was filed against UBHL without leave of the Company Court was in clear contravention of Section 536(2) of the Companies Act, 1956, and therefore void.

“Despite the winding-up petition being filed on 26.03.2012 and being widely advertised, the respondent entered into the alleged unregistered agreement to sell dated 21.05.2012 without any leave from the Company Court. Therefore, even otherwise, the said agreement is a void transaction.”

Further, the Court expressed grave doubt over the bona fides of the respondent's actions, noting that nearly the entire consideration was allegedly paid before even the execution of the agreement, raising suspicions of collusive and colourable dealings aimed at shielding the asset from lawful recovery.

“Ownership Doesn’t Flow from Payment Alone – Without Registered Deed, No Title Transfers”

At the heart of the controversy was whether the unregistered agreement to sell Flat No. 7A in 2012 could vest title in the respondent, thereby shielding it from attachment as proceeds of crime.

The Court ruled unequivocally in the negative:

“A mere agreement to sell does not pass title or ownership. It only creates a right to seek specific performance of the contract while title remains with the seller until a registered sale deed is executed and registered.”

Citing Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana [(2012) 1 SCC 656], the Bench reiterated:

“Transfer of immovable property by way of sale can only be by a deed of conveyance (duly stamped and registered) as required by law. Without registration of the sale deed, no right, title, or interest in the immovable property can be transferred.”

The Court emphasized that Section 54 of the Transfer of Property Act, 1882 was decisive in this regard. The respondent's reliance on the letter of allotment and payments made before construction began were held to be irrelevant in law for determining ownership.

“Provisional Attachment Was Procedurally Sound; Tribunal Misapplied Law on Ownership and Bona Fide Purchaser”

The Court found that the ED had adhered to the procedural requirements under Sections 5 and 8 of PMLA, and rejected the Tribunal’s interpretation that the respondent was a bona fide purchaser.

The Bench held that the concept of “bona fide purchaser for value without notice” cannot apply where the transaction itself is void due to statutory bar under company law and the absence of valid title transfer.

The Court also rejected the respondent's claim that the transaction was unrelated to any criminal offence, noting that the property was held by UBHL, the corporate guarantor for loans extended to Kingfisher Airlines, which were subsequently found to be diverted — forming the proceeds of crime under PMLA.

“Tribunal Ignored Overriding Effect of PMLA” – High Court Upholds Attachment under Section 2(1)(u)

The High Court held that the Tribunal erred in relying on civil law precedents in relation to attachment and ownership, without appreciating that PMLA is a special statute with overriding effect under Section 71.

“The Tribunal erred in relying upon Vannarakkal Kallalathil Sreedharan v. Chandramaath Balakrishnan which dealt with attachment under the CPC, whereas the present attachment is under a special statute dealing with proceeds of crime.”

Importantly, the Court clarified that ownership of the property remained with UBHL, which was directly controlled by Dr. Vijay Mallya, and that the ED was well within its powers under Section 5 of the PMLA to attach the property.

“Suppression of PMLA Proceedings During Sale Registration Invalidates Entire Transaction”

One of the most critical findings was that the respondent suppressed the pendency of PMLA proceedings while approaching the Company Court for registration of the sale deed. Despite an ongoing appeal and restoration proceedings under PMLA, the Official Liquidator gave a No Objection Certificate, without disclosing the context or seeking leave of the PMLA Court.

The sale deed was executed on 05.02.2021, but the Court held this was done in complete disregard of judicial oversight, undermining both company law and anti-money laundering procedures.

“No objection of the official liquidator for registration of the sale deed despite pendency of restoration proceedings and this appeal was not a bona fide act.”

Restoration to Public Sector Banks Upheld – ED and Banks Acted within Law

The Court took note of the Special PMLA Court’s restoration order dated 01.06.2021, which directed that the attached assets, including Flat No. 7A, be restored to the consortium of public sector banks through the Recovery Officer, DRT, subject to execution of undertakings under Rule 3A(2) of the PMLA (Restoration of Property) Rules, 2016.

The banks had extended loans to Kingfisher Airlines and were held to have cleared the stringent requirements under Section 8(7) of the PMLA. The Restoration was thus lawful and enforceable.

Title Never Passed – ED Lawfully Attached Flat as Proceeds of Crime

Summing up, the High Court held:

“Respondent No.1 did not have any title over Flat No.7A, Kingfisher Towers. The property was of UBHL and not of the respondent. The transactions were not bona fide. The ED was well within its power to attach the property under Section 2(1)(u) of PMLA.”

Accordingly, the appeal was allowed, the impugned Tribunal order set aside, and the attachment of Flat No. 7A upheld as valid.

Date of Decision: 14 November 2025