Vendor Executing Agreement To Sell Pendente Lite Precluded From Compromising Appeal Prejudicially; Intending Purchasers Entitled To Impleadment Under Order 1 Rule 10 CPC: Madhya Pradesh High Court

 "The respondents, having entered into an agreement for sale, are now precluded from entering into any compromise with the appellant which is prejudicial to the interest of applicants. It is true that the applicants, being intending purchasers, have no title over the suit land merely on the basis of agreement; however, they have a right to get the agreements performed in case the appeal is decided in favour of respondents."

GWALIOR: The Madhya Pradesh High Court has ruled that a litigant who executes an agreement to sell suit property and accepts advance consideration during the pendency of proceedings cannot subsequently enter into a compromise under Order 23 Rule 3 of the Code of Civil Procedure (CPC) to concede title and extinguish the claims of intending purchasers. Justice Ashish Shroti observed on November 6, 2026, that executing an agreement for sale creates equitable rights that prevent the vendor from colluding with an adversary, thereby entitling the intending purchasers to impleadment under Order 1 Rule 10 CPC to contest the litigation on its merits.

The dispute originated from a declaration and injunction suit filed by Chunni Khan in respect of suit lands in Shivpuri, which was dismissed by the trial court but subsequently decreed in his favour by the first appellate court. During the pendency of the defendant's second appeal, the parties filed a joint compromise application under Order 23 Rule 3 CPC, wherein the respondents conceded the appellant's ownership and relinquished all claims. However, several third-party applicants intervened under Order 1 Rule 10 CPC, objecting to the compromise on the ground that the respondents had already executed agreements to sell in their favour after accepting substantial advance sale consideration.

Whether a litigant who has executed an agreement for sale pendente lite and pocketed substantial consideration can lawfully enter into a compromise under Order 23 Rule 3 CPC admitting the opponent's title?

Whether intending purchasers under an unperformed agreement for sale executed pendente lite are proper parties entitled to impleadment under Order 1 Rule 10 CPC to prevent a collusive decree?

Rejecting the compromise application, the High Court held that entering into a settlement to concede title after taking money from intending purchasers constitutes a fraudulent act designed to frustrate contractual commitments.

Parting With Interest Precludes Subsequent Collusive Admissions

Drawing support from the precedent in Dharamsingh Manrakhan Singh v. Jalima Hariya, the court reiterated that principles of equity and fairness forbid a party from divesting accrued rights by making subsequent admissions. The court observed that although an agreement to sell does not convey proprietary title, it undeniably generates an enforceable right to seek performance if the appeal succeeds.

The bench stressed that permitting a party to unilaterally compromise the suit after executing sale agreements would defeat the bona fide expectations of the intending purchasers. Justice Shroti observed that the intention behind the compromise was transparently mala fide, as the respondents, having pocketed money from the applicants, were seeking to nullify the transactions by conceding the appeal.

Intending Transferees Pendente Lite Have Substantial Interest Under Order 1 Rule 10 CPC

Addressing the maintainability of the impleadment applications, the court placed reliance on the Supreme Court's ruling in Amit Kumar Shaw v. Farida Khatoon. The court held that where an alienee or an intending transferee pendente lite acquires a substantial interest in the subject matter, judicial discretion must be exercised to join them as proper parties.

The court noted that because the respondents appeared to be hand in glove with the appellant, they were unlikely to defend the appeal effectively. Consequently, the intending purchasers were entitled to step into the shoes of their vendors to ensure a fair adjudication on merits, even though they possessed no independent title outside of their vendor's rights.

Judicial Precedents On Specific Performance And Registered Deeds Distinguished

The court distinguished the appellant's reliance on Gurmit Singh Bhatia v. Kiran Kant Robinson, clarifying that while third parties may not be necessary in a pure suit for specific performance, different considerations arise when collusive compromises are deployed in title appeals to defeat pendente lite transactions.

Similarly, the court held that while the principle in Suraj Lamp & Industries (P) Ltd. (2) v. State of Haryana rightly mandates registered conveyances for title transfer, it cannot be weaponized by dishonest vendors to validate collusive settlements entered in bad faith under Order 23 Rule 3 CPC.

Mandatory Scrutiny Of Large Cash Considerations Under Income Tax Act

Noticing that two of the agreements reflected substantial cash payments of fifteen lakh rupees and thirty-five lakh rupees, the court invoked the Supreme Court's binding directives in The Correspondence, RBANMS Educational Institution v. B. Gunashekar. The bench observed that courts are obligated to intimate cash payments of two lakh rupees and above to tax authorities to identify potential breaches of statutory tax frameworks.

The High Court accordingly rejected the compromise application filed under Order 23 Rule 3 CPC and allowed the impleadment applications under Order 1 Rule 10 CPC, directing that the intending purchasers be arrayed as respondents to contest the second appeal on merits. The court further directed the Principal Registrar to remit copies of the agreements involving cash considerations above two lakh rupees to the jurisdictional Income Tax Department for verification under Section 269ST of the Income Tax Act.

Date of Decision: November 6, 2026