The Supreme Court has held that a vendor’s suppression of a subsisting mortgage on a property at the time of executing a sale agreement amounts to deceit, entitling the purchaser to a refund of the advance money. Setting aside a Kerala High Court judgment that had faulted the purchaser for not verifying original title deeds, the Apex Court observed that relying on a vendor’s assurance that deeds are in a bank locker is a “reasonable and justified” explanation.
The Bench of Justice Vikram Nath and Justice Sandeep Mehta restored the decree of the Trial Court which had ordered the refund of the advance amount paid by the appellant, Moideenkutty, holding that the vendor (respondent) had committed a breach of contract by concealing material facts.
Background of the Case
The dispute arose from an agreement for sale (Exh. A-1) executed on September 10, 2008. The respondent, Abraham George, agreed to sell land admeasuring 77 Acres and 26 Cents to the appellant for a total consideration of Rs. 4,45,00,000. The agreement specifically recited that the property was free from all liabilities and encumbrances.
Pursuant to the agreement, the appellant paid an advance of Rs. 50,00,000 in two instalments. Subsequently, the appellant discovered that the respondent had created an equitable mortgage over the property to avail a loan from the Federal Bank, a fact suppressed during the agreement. Upon being confronted, the respondent agreed to reduce the sale consideration by Rs. 35,00,000 to compensate for the delay and inconvenience. Based on this assurance, the appellant paid a further sum of Rs. 5,00,000 and issued a post-dated cheque for the balance.
However, realising that the respondent had not taken effective measures to redeem the mortgage, the appellant withheld further payments, leading to the dishonour of the post-dated cheque. The appellant subsequently filed a suit (OS No. 34 of 2010) seeking a refund of the advance amount of Rs. 55,00,000 with interest.
The respondent contested the suit, claiming the appellant was informed of the loan liability from the outset. He further alleged that due to the appellant’s failure to pay the balance, he was forced to sell the property to a third party at a reduced price, suffering a loss of Rs. 77,50,000, which he sought to set off against the appellant’s claim.
Decisions of the Lower Courts
The Subordinate Judge, Manjeri (Trial Court) decreed the suit in favour of the appellant on November 27, 2013, holding that the respondent had suppressed the subsisting mortgage and that the appellant was justified in withholding payments.
On appeal, the Kerala High Court, vide judgment dated March 11, 2022, reversed the Trial Court’s decree. The High Court relied heavily on a statement in the appellant’s cross-examination where he purportedly admitted to knowing about the bank liability on August 25, 2008—prior to the agreement. The High Court also held that “no ordinarily prudent purchaser” would enter a transaction of such magnitude without verifying original title deeds, thereby rejecting the plea of deception. The matter was remanded to the Trial Court to determine the damages payable to the respondent.
Arguments Before the Supreme Court
Senior Advocate Raghenth Basant, appearing for the appellant, argued that the High Court erred by relying on an “abstract admission” regarding the date August 25, 2008. He pointed out that the respondent himself admitted that the parties first met on September 5, 2008, making prior knowledge impossible. He further submitted that the reduction of the sale price by Rs. 35,00,000 was evidence of the respondent’s guilt regarding the non-disclosure.
Senior Advocate V. Chitambaresh, representing the respondent, contended that the appellant’s admission in cross-examination regarding prior knowledge must be read against him. He supported the High Court’s view that the appellant failed to act as a prudent purchaser.
Court’s Analysis
The Supreme Court rejected the High Court’s reasoning, terming the reliance on the solitary admission regarding the date “totally misplaced and uncalled for.” The Court noted that the respondent never asserted in his pleadings or evidence that he had met the appellant before September 2008.
On Suppression of Material Facts: The Court observed that the respondent’s subsequent agreement to reduce the sale consideration by Rs. 35,00,000 “unmistakably reflects his culpable intent in concealing the material factum of encumbrance on the suit schedule property.”
Justice Mehta, writing for the Bench, noted:
“It stands to reason that, upon being exposed, the defendant-respondent was compelled to offer a substantial reduction in the agreed sale price, which unmistakably reflects his culpable intent in concealing the material factum of encumbrance on the suit schedule property.”
On Verification of Title Deeds: The Apex Court disagreed with the High Court’s finding that the appellant was negligent for not inspecting original title deeds. The Court validated the appellant’s explanation that he relied on the respondent’s statement that the deeds were in a bank locker.
“It is a common practice for landowners to keep original title deeds in the bank lockers for security purposes. Hence, the explanation offered by the plaintiff-appellant for not insisting on the inspection of the original title deeds, at the time of entering into the agreement, was reasonable and justified.”
On the Set-Off Claim: The Court highlighted the respondent’s admission that he did not reply to the legal notice sent by the appellant alleging suppression of facts. The Court held that the respondent’s claim of the appellant having prior knowledge was “nothing but an afterthought, devised solely to defeat the plaintiff-appellant’s legitimate claim for refund.”
Decision
The Supreme Court allowed the appeal, setting aside the judgment of the Kerala High Court and restoring the judgment and decree of the Trial Court. The Court held that the Trial Court had committed no error in decreeing the suit for the refund of the advance amount.
Case Details:
- Case Name: Moideenkutty vs. Abraham George
- Case No.: Civil Appeal No(s). 5405 of 2023
- Citation: 2025 INSC 1428
- Coram: Justice Vikram Nath and Justice Sandeep Mehta
