Legal provisions involved: Sections 17 and 18 of the Indian Contract Act, 1872

Judgement by: Supreme Court of India

Judge/Bench: Justice Vikram Nath and Justice Sandeep Mehta

Facts

The buyer paid ₹50 lakh as advance to purchase a property for ₹4.45 crore, believing it was free from encumbrances. He later discovered that the seller had already mortgaged the property. Despite assurances and a reduced sale price, the seller failed to clear the loan. Feeling cheated, the buyer stopped arranging funds and sought a refund through court.

Key legal provisions

Sections 17 and 18 of the Indian Contract Act, 1872

Issues raised

• Whether the buyer was entitled to a refund because the seller had hidden the mortgage?
• Whether the buyer could be treated as being in breach of the agreement?

Arguments of the case

The buyer said he was misled into signing the agreement as the mortgage was concealed. The seller claimed that the buyer knew about the loan and failed to complete the sale.

Observation of the Supreme Court

“Moreover, the fact that before instituting the suit, the plaintiff-appellant sent a notice to the defendant-respondent specifically mentioning about the concealment of the mortgage, to which the defendant-respondent chose not to furnish any reply, clearly establishes that the case projected in the set-off, that the plaintiff-appellant was aware of the encumbrance on the suit schedule property from the inception, was nothing but an afterthought, devised solely to defeat the plaintiff-appellant’s legitimate claim for refund.”

Judgement

The Supreme Court held that the seller had acted dishonestly by hiding the mortgage. It restored the Trial Court’s order directing refund of the buyer’s money with interest and set aside the High Court’s decision.

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