Vide agreement to sell A agreed to sell her house to B for Rs. 20 lakh and received a sum of Rs. 10,000/- as earnest money. B filed suit against 'A' for specific performance on the ground that A had avoided to perform her part of agreement. In trial, A contended that receipt/agreement could not have been exhibited nor relied upon because it was not a registered document, as by this document parties created right, title and interest and passed on consideration regarding an immovable property, value of which was more than Rs. 100. Determine the contention and give your decision.

An agreement to sell, even though it relates to immovable property valued far in excess of Rs 100 and contains a recital of part-payment of earnest money, does not require registration under the Registration Act, 1908 — it falls squarely within the exemption carved out by Section 17(2)(v), which excludes from compulsory registration any document that "merely creates a right to obtain another document" of transfer. B's unregistered agreement is therefore fully admissible and can be relied upon to found a suit for specific performance.

The Governing Provision — Section 17(2)(v)

Section 17(2)(v) of the Registration Act, 1908 provides that nothing in clauses (b) and (c) of Section 17(1) — the clauses that otherwise render instruments affecting immovable property of value Rs 100 and upwards compulsorily registrable — applies to "any document not itself creating, declaring, assigning, limiting or extinguishing any right, title or interest of the value of one hundred rupees and upwards to or in immovable property, but merely creating a right to obtain another document which will, when executed, create, declare, assign, limit or extinguish any such right, title or interest." An agreement to sell is the paradigm example of precisely such a document.

Why an Agreement to Sell Does Not "Create" Title

The reasoning underlying this exemption rests on a settled and important conceptual distinction, drawn as far back as Section 54 of the Transfer of Property Act, 1882, which itself provides that "a contract for sale... does not, of itself, create any interest in or charge on such property." An agreement to sell is a mere executory contract — it binds the vendor to convey the property at a future point in time, upon fulfilment of the agreed terms, but it does not, by its own operation, transfer or vest any right, title, or interest in the immovable property in the purchaser. That transfer occurs only upon execution (and, where required, registration) of the actual sale deed, which is the "other document" contemplated by Section 17(2)(v). Since the agreement to sell merely creates a personal right in B to compel A, through the machinery of a court decree if necessary, to execute a proper conveyance in his favour — and does not itself operate as that conveyance — it falls entirely outside the class of instruments Section 17(1)(b) is designed to catch.

The Recital of Earnest Money Does Not Change This Position

A's argument places emphasis on the fact that consideration — in the form of Rs 10,000 as earnest money — passed under the agreement, suggesting that this converts the document into one that itself creates rights in immovable property. This argument is squarely answered by the Explanation appended to Section 17, which provides that the mere recital of the payment or receipt of the whole or part of the consideration money for a document, or in the case of a mortgage, of the receipt of principal or interest, does not, by itself, amount to a document creating, declaring, assigning, limiting, or extinguishing any right, title, or interest within Section 17(1)(b) or (c). A recital of earnest money, even where the sum is substantial, remains merely incidental to the primary transaction — namely, the executory contract for future sale — and does not transform an agreement to sell into a transfer or conveyance requiring registration. The passing of earnest money serves as security for due performance and part-payment of the purchase price; it does not operate to vest any right, title, or interest in the property in the purchaser.

Section 17(1A) — The 2001 Amendment Does Not Alter This Position Here

It should be noted that the Registration and Other Related Laws (Amendment) Act, 2001 inserted Section 17(1A), which makes agreements of the kind falling under Section 53A of the Transfer of Property Act, 1882 — that is, agreements accompanied by delivery of possession and part-performance — compulsorily registrable for the limited purpose of claiming protection under Section 53A. However, this amendment has no bearing on a straightforward suit for specific performance under the Specific Relief Act, 1963, where the purchaser is not seeking to resist dispossession on the strength of part-performance, but is instead seeking a decree directing execution of a registered conveyance. The Supreme Court has clarified that the insertion of Section 17(1A) does not affect the well-established rule that an unregistered agreement to sell can be relied upon and admitted as evidence of the contract for the purpose of a suit for specific performance; the proviso to Section 49 of the Registration Act specifically preserves this right by permitting an unregistered document, otherwise required to be registered, to be received as evidence "of a contract in a suit for specific performance."

The Proviso to Section 49 — Direct Statutory Sanction

Even assuming, for argument's sake, that some doubt existed as to whether the agreement fell within Section 17(1)(b), the proviso to Section 49 of the Registration Act removes any such doubt conclusively for the purposes of a specific performance suit. Section 49 provides that a document required to be registered under Section 17 shall not, unless registered, be received as evidence of any transaction affecting immovable property comprised in it — but the proviso to that section expressly carves out an exception, permitting such an unregistered document to be received "as evidence of any contract in a suit for specific performance... or as evidence of part performance." This proviso exists precisely to ensure that a purchaser is never left without a remedy simply because the preliminary agreement of sale, which by its very nature precedes and is distinct from the final conveyance, was not registered.

Illustration

If A agrees, by an unregistered instrument, to sell her house worth Rs 20 lakh to B, and receives Rs 10,000 as earnest money at the time of executing the agreement, and A subsequently refuses to complete the sale, B may institute a suit for specific performance and rely upon this unregistered agreement as evidence of the contract, notwithstanding that the property's value far exceeds Rs 100 and that consideration passed under the document. The agreement does not itself transfer any interest in the house to B — that transfer would occur only upon execution of the sale deed pursuant to a decree — and the mere recital of the earnest money paid does not convert the agreement into an instrument of transfer requiring registration.

Reasons and Conclusion

A's contention must fail for the following reasons: first, an agreement to sell is expressly exempted from compulsory registration under Section 17(2)(v), since it merely creates a right to obtain a future conveyance rather than itself operating as a transfer; second, the recital of receipt of earnest money does not alter this position, by virtue of the Explanation to Section 17, which excludes mere recitals of consideration from the ambit of clauses (b) and (c); third, even if any doubt existed, the proviso to Section 49 expressly permits an unregistered document of this kind to be received as evidence of the contract in a suit for specific performance; and fourth, the value of the property, however high, is immaterial to this analysis, since the exemption under Section 17(2)(v) does not turn upon value but upon the essential character of the document as one creating a mere right to obtain another document. B's agreement is therefore validly exhibited and relied upon, and the suit for specific performance is maintainable on its basis.

Comparative Summary