In a significant ruling, a Larger Bench of the Allahabad High Court has held that an agreement to sell is an “instrument securing money or other property” and that any lawsuit seeking its cancellation must be valued for court fees on an ad valorem basis under Section 7(iv-A) of the Court Fees Act, 1870, as applicable in Uttar Pradesh.
The Bench, comprising Chief Justice Arun Bhansali and Justice Jaspreet Singh, settled a key legal question that had led to conflicting judicial opinions. The court overruled previous single-judge bench decisions in Altaf Husain v. VIth Additional District Judge, Saharanpur (2013) and Suman Lata Agrawal v. Uttar Pradesh State Industrial Development Corporation (2020), which had held that such suits would be governed by the fixed-fee provision under Article 17(iii) of the Second Schedule of the Act.
Shri Pritish Kumar, Shri S.M.S. Royekwar, Shri Ayush Tandon and Shri Reshu Sharma, Advocates advanced their submissions on behalf of the Bar. Shri Anand Singh, standing counsel for the State.
Background of the Case
The matter came before the Larger Bench via a reference from a learned Single Judge in the case of Surendra Kumar v. Shanti Devi. The Single Judge expressed doubt over the correctness of the view taken in the Altaf Husain and Suman Lata Agrawal cases. Those decisions had relied on a Full Bench ruling in Smt. Bibbi and another v. Sugan Chand and others (1968), which pertained to sale deeds, not agreements to sell.
Observing this “dichotomy,” the Single Judge referred two questions for determination by a Larger Bench:
- Whether a duly registered agreement to sell would amount to an “instrument securing the money or other property” as used in Section 7(iv-A) of the Court Fees Act as applicable in the State of Uttar Pradesh?
- Whether the court fees paid on a suit for cancellation of an agreement to sell would be governed by Section 7(iv-A) of the Court Fees Act or under Article 17(iii) of the Second Schedule of the Court Fees Act?
Arguments of the Parties
Counsel for the Petitioner: The petitioner argued that an agreement to sell does not secure any property or money. Therefore, a suit for its cancellation would not fall under Section 7(iv-A) but would be covered by Article 17(iii) of the Second Schedule, which prescribes a fixed court fee. This position was supported by several members of the Bar who were invited to assist the court.
Counsel for the Respondents and the State: Conversely, counsel for the private respondent and the standing counsel for the State of U.P. argued that an agreement to sell is an instrument that secures both property and money. They contended that a suit for its cancellation would squarely fall within the ambit of Section 7(iv-A), necessitating the payment of ad valorem court fees based on the value of the subject matter. They emphasized that Article 17 of the Second Schedule is a residuary provision and cannot be invoked when a specific provision like Section 7(iv-A) applies.
Court’s Analysis and Findings
The Larger Bench, in a judgment authored by Justice Jaspreet Singh, undertook a detailed analysis of the statutory provisions and legal principles involved.
1. Is an Agreement to Sell an ‘Instrument’?
The court first addressed whether an agreement to sell qualifies as an “instrument.” Noting that the term is not defined in the Court Fees Act, the Bench looked at its definition in other statutes. It referred to the Transfer of Property Act, 1882, and the Indian Stamp Act, 1899, where ‘instrument’ is defined broadly. The court observed that Article 5 of Schedule-I B of the Stamp Act (U.P. Amendment) specifically covers agreements to sell. Citing Supreme Court precedents, the Bench concluded, “there can be no doubt that an agreement to sell is definitely an instrument and it can so be held even for the purposes of the Court Fees Act.”
2. Does an Agreement to Sell ‘Secure’ Money or Property?
The central issue was the interpretation of the word “securing.” The petitioner argued that since Section 54 of the Transfer of Property Act states that a contract for sale “does not, of itself, create any interest in or charge on such property,” it cannot be said to ‘secure’ the property.
The High Court rejected this narrow interpretation. It held that the Court Fees Act, being a fiscal statute, must be interpreted based on the natural meaning of the words used, keeping the object of the Act in mind. The Bench referred to legal dictionaries and prior judgments to hold that the word ‘secure’ has a wide meaning, including “to make certain; to put beyond hazard” or “to make safe.”
The court reasoned that while an agreement to sell may not transfer ownership immediately, it “acts as vital preliminary document that secures and makes certain, the obligations and the transactions relating to the property and the money or consideration involved.” It provides a “robust contractual framework that protects the interest of both the contracting parties” by creating enforceable rights and obligations. For the buyer, it secures the promise to sell, and for the seller, it secures the consideration.
The judgment stated, “The seller in law, is deemed to hold the property in trust for the purchaser and the purchaser who has parted with part consideration is also assured that within the time frame as agreed and upon making the payment of the balance consideration as per the agreement, to the seller, he will be entitled to have the property.”
3. Overruling of Precedent
The Bench found that the decision in Altaf Husain was based on the incorrect premise that an agreement to sell does not assure the vesting of title. The court clarified that the context of Section 54 of the T.P. Act, which deals with the creation of title in immovable property, cannot be imported to restrict the meaning of terms in the Court Fees Act, which covers all types of suits and properties (movable, immovable, tangible, and intangible).
The court held, “it cannot be said that an agreement to sell does not secure either the money or property for the purposes of the Court Fees Act, hence, this Court is of the opinion that the decision of Altaf Husain (supra) does not lay down the correct proposition.” Consequently, the decision in Suman Lata Agrawal (supra), which followed Altaf Husain, was also held to be incorrect.
Decision of the Court
Answering the referred questions, the Larger Bench held:
- On Question 1: “An ‘agreement to sell’ will fall within the meaning of the word ‘instrument’ ‘securing money or other property’ having such value for the purposes of Section 7(iv-A) of the Court Fees Act.”
- On Question 2: A suit seeking cancellation of an agreement to sell is governed by Section 7(iv-A) of the Court Fees Act. The court fee payable would be on an ad valorem basis as per the explanation to Section 7(iv-A), which refers to the valuation method in Section 7(v), and not the fixed fee under Article 17(iii) of the Second Schedule.
In its final conclusion, the court declared: “This Court holds that an agreement to sell is an ‘instrument securing money or other property’ for the purposes of Section 7(iv-A) of the Court Fees Act. A fortiori in a suit seeking cancellation of an agreement to sell, the court fee payable would be in terms of Section 7(iv-A) and its explanation… and not in terms of Article 17(iii) of the Second Schedule of the Court Fees Act.”
The Bench formally overruled the judgments in Altaf Husain and Suman Lata Agrawal and directed that the original petition be placed before the appropriate court for a decision on its merits in light of this ruling.
