Srinagar, July 23, KDC: The High Court of Jammu and Kashmir and Ladakh has held that courts and Lok Adalats cannot legitimise fraudulent property transfers through compromise settlements, observing that reckless decrees permitting such transfers have the effect of defrauding the public exchequer on a large scale. The Division Bench held that a Lok Adalat award cannot be used as a substitute for a registered sale deed to transfer ownership of immovable property or to avoid payment of stamp duty and registration charges.
A Division Bench comprising Acting Chief Justice Sanjeev Kumar and Justice Mohd Yousuf Wani made the observations while dismissing an appeal against a single bench judgment that had set aside a National Lok Adalat award declaring a woman owner of more than 147 kanals of land in Ganderbal. The Bench upheld the finding that the award was collusive, opposed to public policy and legally unsustainable, though it modified the writ court’s direction regarding impleadment of private respondents in the pending civil suit.
The dispute arose from a civil suit filed by the appellant on the basis of an agreement to sell executed in 2010. Instead of seeking specific performance of the contract against the alleged vendor, she sought a declaration of ownership and mandatory injunction against revenue officials and the alleged attorney holder. The matter ended before a National Lok Adalat, which declared her owner in possession of more than 147 kanals of land on the basis of a compromise. The award was later challenged by local residents, who alleged that it had been obtained through collusion and fraud.
The High Court found that the appellant had never obtained a registered sale deed and that the alleged vendor had not even been impleaded as a party to the suit. It observed that the only remedy available on the basis of an agreement to sell was a suit for specific performance or, alternatively, damages, and not a declaration conferring ownership over immovable property. The Bench further noted that the attorney holder alone had been arrayed as a defendant and had chosen not to contest the proceedings, enabling the dispute to be quietly settled before the Lok Adalat.
Reaffirming settled law, the Court held that an agreement to sell does not confer title or transfer any interest in immovable property. It observed that while a compromise recognising pre existing rights may not require registration, a compromise creating new rights or effecting a transfer of ownership cannot be used to bypass the mandatory requirements of the Transfer of Property Act, the Registration Act and the Stamp Act. Such a decree, the Bench said, would be hit by Section 23 of the Contract Act, opposed to public policy and therefore void.
The Court also relied on Supreme Court precedent explaining that collusion in judicial proceedings involves a secret arrangement to obtain a judicial order for a dishonest purpose, resulting in a decree that merely carries the appearance of a genuine adjudication while being intended to mislead third parties. Applying that principle, the Bench concluded that the suit and the Lok Adalat award could not withstand judicial scrutiny.
In one of the observations in the judgment, the Division Bench said that neither a civil court nor a Lok Adalat can pass a decree that is opposed to public policy or ratifies fraud. It cautioned that reckless passing of such decrees has the effect of defrauding the public exchequer immensely by facilitating transfer of landed properties without execution of sale deeds, compliance with registration laws or payment of stamp duty, after which revenue mutations are secured on the strength of such decrees.
The Bench ultimately upheld the writ court’s decision declaring the National Lok Adalat award dated December 6, 2014 null and void. However, it modified the judgment to the limited extent of leaving it open to the private respondents to seek impleadment before the trial court, which would consider any such application independently and in accordance with law.
The appellant was represented by Advocates J. P. Gandhi and Ajay Singh, while the contesting respondents were represented by Advocate G. M. Bhat. (KDC)
