A Division Bench of the Supreme Court comprising Justice J.B. Pardiwala and Justice R. Mahadevan held that a suit for injunction filed by an agreement holder is not maintainable against third parties in possession of a property. The Court allowed the appeal filed by RBANMS Educational Institution and rejected the suit filed against it, holding that an agreement to sell does not confer enforceable rights against persons who are not parties to the agreement. The Court also strongly cautioned against fictitious and abusive litigation practices.
Background
The case arose from a suit filed by B. Gunashekar and another before the XIII Additional City Civil and Sessions Judge, Bengaluru, seeking a permanent injunction against RBANMS Educational Institution. The plaintiffs had based their claim on an agreement to sell dated April 10, 2018, allegedly executed between them and private individuals (who were not parties to the suit) for a sale consideration of ₹9 crore, of which ₹75 lakh was purportedly paid in cash.
The appellant trust, established in 1873 and in possession of the suit property since 1905, sought rejection of the suit under Order VII Rule 11(a) and (d) of the Code of Civil Procedure, 1908. Their application was rejected by both the Trial Court and the High Court of Karnataka. The present appeal challenged those orders.
Arguments
For the Appellant (RBANMS Educational Institution):
- The agreement to sell did not create any legal interest in the property under Section 54 of the Transfer of Property Act, 1882.
- The plaintiffs had no privity of contract with the appellant and therefore lacked locus standi to seek an injunction.
- The suit was an abuse of process, aimed at harassing a charitable institution with fictitious claims.
- The claim of having paid ₹75 lakh in cash without documentary proof raised suspicion and violated Section 269ST of the Income Tax Act.
For the Respondents (Plaintiffs):
- At the stage of Order VII Rule 11 CPC, only the averments in the plaint should be considered.
- The agreement to sell, though not creating title, gave them a legitimate basis to protect their interest against apprehended alienation.
- The rejection of the plaint would amount to prematurely terminating their right to be heard on merits.
Court’s Analysis and Findings
The Supreme Court examined the scope of Order VII Rule 11 CPC and reiterated that suits lacking a cause of action or barred by law must be rejected at the threshold. Citing established precedents including Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra [(2004) 8 SCC 614] and Suraj Lamp & Industries v. State of Haryana [(2012) 1 SCC 656], the Court held:
“An agreement for sale does not confer any right to the purchaser to file a suit against a third party who is either the owner or in possession, or who claims to be the owner and to be in possession.”
It also observed:
“Since the respondents are not divested any right by virtue of the agreement, they cannot sustain the suit as they would not have any locus.”
Further, the Court noted that the plaintiffs admitted the possession of the appellant institution since 1905, and no registered sale deed existed in favour of the plaintiffs. Their remedy, the Court said, lies only against the vendors by filing a suit for specific performance.
The Court also found the transaction suspicious, as it allegedly involved a cash payment of ₹75,00,000/- despite legal restrictions under Section 269ST of the Income Tax Act. Referring to this, the Court issued wide-ranging directions to prevent such violations in litigation (see below).
Directions on Cash Transactions in Litigation
The Court issued the following mandatory directions in Paragraph 18.1 of the judgment:
- Courts must inform the jurisdictional Income Tax Department whenever a suit claims cash payments of ₹2,00,000 or more.
- Income Tax Authorities must initiate appropriate action if such cases come to their notice.
- Sub-Registrars must report cash transactions over ₹2 lakh in property registrations to the Income Tax Department.
- Disciplinary action must be taken against registration officers who fail to report such transactions.
Final Order
The Supreme Court allowed the appeal and passed the following orders:
- Set aside the High Court order dated June 2, 2022, and the Trial Court order dated June 11, 2021.
- Allowed the application under Order VII Rule 11(a) and (d) CPC.
- Rejected the plaint in O.S. No. 25968 of 2018 filed before the City Civil Court, Bengaluru.
- Directed circulation of the judgment to all High Courts, State Chief Secretaries, and Principal Chief Commissioners of Income Tax.
Citation: Civil Appeal No. 5200 of 2025 (Arising from SLP (C) No. 13679 of 2022)
Case Title: The Correspondence, RBANMS Educational Institution vs. B. Gunashekar & Another
