The Supreme Court has held that the mere execution of an agreement to sell between a landlord and a tenant, even if accompanied by payment of part consideration, does not ipso facto determine the subsisting tenancy. The tenancy will stand determined only where the terms of the agreement or the unequivocal conduct of the parties establishes an express or implied surrender under Sections 111(e) or 111(f) of the Transfer of Property Act, 1882.

Factual Background
The Respondents’ predecessor was the owner of a shop admeasuring 200 sq. ft. situated at Kondhwa Khurd, Pune. The shop had been let to the Petitioner at a monthly rent of Rs. 1,500.

During the subsistence of the tenancy, the landlady agreed to sell the premises to the Petitioner for a consideration of Rs. 1,90,000 under an agreement to sell dated 21st September 2004. The Petitioner paid Rs. 40,000 towards the consideration and agreed to pay the balance amount of Rs. 1,50,000 within three months. The agreement provided that the balance consideration would be paid upon the sanction of a bank loan. It further provided that if the loan was not sanctioned within the stipulated period, the agreement would stand cancelled, the amount of Rs. 40,000 would be refunded and possession of the shop would be restored to its previous condition.

The proposed sale did not materialise. The landlady thereafter instituted Civil Suit No. 384 of 2010, seeking possession of the premises on the grounds of default in payment of rent, change of user and bona fide requirement.

The Petitioner resisted the Suit on the ground that the landlord-tenant relationship had ceased upon the execution of the agreement to sell. The Petitioner also claimed to have paid Rs. 90,000 towards the consideration and expressed readiness to pay the balance amount.

By a judgment dated 19th September 2015, the Small Causes Court held that the landlord-tenant relationship continued notwithstanding the agreement to sell. The Suit was decreed on the ground of bona fide requirement and the Petitioner was directed to hand over possession of the premises.

The First Appellate Court dismissed the Petitioner’s Appeal by a judgment dated 24th November 2023. The Bombay High Court thereafter dismissed Civil Revision Application No. 280 of 2024 by an order dated 1st April 2026. The Petitioner challenged these concurrent findings before the Supreme Court.

Issue
The issue before the Supreme Court was whether the execution of an agreement to sell by a landlord in favour of an existing tenant, coupled with the receipt of part consideration, terminates the landlord-tenant relationship and creates fresh rights and obligations flowing exclusively from the agreement to sell.

Decision of the Supreme Court
The Supreme Court answered the issue in the negative and dismissed the Special Leave Petition. The Court observed that Section 111 of the Transfer of Property Act recognises different modes by which a lease may be determined. Section 111(e) deals with express surrender, while Section 111(f) deals with implied surrender.

An express surrender involves the tenant yielding the leasehold interest to the landlord by mutual agreement. An implied surrender may arise from the creation and acceptance of a new relationship or from conduct that is unequivocally inconsistent with the continuance of the existing tenancy.

The mere execution of an agreement to sell does not amount to either form of surrender. The intention to determine the tenancy must be evident from the terms of the agreement or the conduct of the parties.

In the present case, the agreement did not provide that the Petitioner’s possession would thereafter be referable to the agreement to sell. It did not terminate the Petitioner’s obligation to pay rent or otherwise indicate that the parties intended to alter the subsisting landlord-tenant relationship.

The Court placed particular reliance on the clause which provided that, upon cancellation of the agreement, possession of the shop would be restored to its previous condition. According to the Court, this clause contemplated a return to the status quo ante upon the failure of the proposed sale. It did not establish that the Petitioner’s possession as a tenant had ceased upon the execution of the agreement.

The payment of Rs. 40,000 out of the total consideration of Rs. 1,90,000 was also insufficient to establish that the tenancy had been determined.

Distinction from Earlier Decisions
The Petitioner relied upon R. Kanthimathi and Another v. Beatrice Xavier (Mrs.), (2000) 9 SCC 339, in which the Supreme Court held that the parties’ relationship had changed from that of landlord and tenant to that of vendor and purchaser.

The Court distinguished R. Kanthimathi on the ground that the agreement considered in that case expressly recorded that possession had been surrendered pursuant to the proposed sale. Further, the tenant had paid Rs. 20,000 out of the total consideration of Rs. 25,000. The terms of that agreement and the near-complete payment of consideration disclosed a clear intention to alter the parties’ legal relationship.

The Court also distinguished Arjunlal Bhatt Mall Gothani and Others v. Girish Chandra Dutta and Another, (1973) 2 SCC 197. In that case, the eviction proceedings had been withdrawn after the execution of the agreement to sell and the agreement thereafter exclusively governed the parties’ rights and obligations. The agreement in the present case contained no comparable provision substituting the tenancy with a new legal relationship.

Protection Under Section 53A
The Petitioner contended that his possession after the execution of the agreement was protected under Section 53A of the Transfer of Property Act.

The Court rejected this contention. Where a person is already in possession as a tenant, the mere continuation of that possession after the execution of an agreement to sell does not constitute part performance. The tenant must establish that the earlier possession as a tenant ceased and that the subsequent possession was directly referable to the agreement to sell.

In the present case, the Petitioner neither pleaded nor established any act demonstrating that his possession as a tenant had ceased and that he continued in possession as a proposed purchaser.

The Court further noted that the agreement dated 21st September 2004 was unregistered. Section 17(1A) of the Registration Act, 1908 requires the registration of documents containing contracts to transfer immovable property if they are to be relied upon for the purposes of Section 53A. This requirement applies to documents executed on or after 24th September 2001.

Since the agreement was executed after the amendment and was admittedly unregistered, it could have no effect for the purposes of Section 53A. The Court also held that impounding the agreement and paying the requisite stamp duty and penalty would not cure the absence of registration.

The Court further took note of the fact that the Petitioner had not instituted a Suit for specific performance. This conduct was inconsistent with his contention that the parties’ relationship had changed from that of landlord and tenant to that of vendor and purchaser.

Ratio of the Judgment
The mere execution of an agreement to sell between a landlord and a tenant, even if accompanied by payment of part consideration, does not ipso facto determine the subsisting tenancy. The lease will stand determined only where the terms of the agreement or the unequivocal conduct of the parties establishes an express or implied surrender under Sections 111(e) or 111(f) of the Transfer of Property Act, 1882. The continued possession of a tenant after the execution of an agreement to sell does not amount to part performance under Section 53A unless such possession is shown to be directly referable to and flowing from the agreement to sell. Further, an unregistered agreement executed after 24th September 2001 cannot be relied upon for protection under Section 53A in view of Section 17(1A) of the Registration Act, 1908. An agreement to sell, not being a registered deed of conveyance, does not by itself create any right, title or interest in immovable property¹.

By - Chaitanyaa Bhandarkar