Specific Performance Denied When Sale Agreement Found Sham Security for Loan: Supreme Court Upholds High Court

Case Name: Muddam Raju Yadav v. B. Raja Shanker (Dead) through LRs. & Others

Citation: 2026 INSC 214; Civil Appeal No. 3255 of 2026 (Arising out of SLP (C) No. 6453 of 2024)

Date of Judgment/Order: 10 March 2026

Bench: Hon’ble Mr. Justice Prashant Kumar Mishra and Hon’ble Mr. Justice Prasanna B. Varale

Held: The Supreme Court held that a decree for specific performance cannot be granted where the alleged agreement of sale is proved to be a sham or nominal document executed merely as security for a loan transaction. Since the remedy of specific performance is discretionary and equitable in nature, the court must deny relief where the plaintiff suppresses material facts or approaches the court without bona fide conduct. If surrounding documents and conduct of the parties create serious doubt about the genuineness of the sale agreement, the court is justified in refusing the relief.

Summary: The dispute arose from an agreement of sale dated 4 June 2002 concerning a residential property in Medchal Village, Ranga Reddy District, for a total consideration of INR 13,00,000, out of which INR 6,00,000 was allegedly paid as advance. The plaintiff filed a suit for specific performance asserting that he was always ready and willing to pay the remaining consideration of INR 7,00,000 but the defendants failed to execute the sale deed. The defendants contested the suit contending that the plaintiff was an unlicensed money lender and the agreement of sale had been executed merely as security for a loan of INR 6,00,000 advanced by the plaintiff. They relied on a Memorandum of Understanding executed on the same day as the agreement of sale which recorded that the defendants would repay the loan within a stipulated period and that the property would be transferred only if the loan remained unpaid. The trial court decreed the suit for specific performance, primarily relying on the registered sale agreement and the plaintiff’s bank statement showing availability of funds. However, the High Court reversed the decree after examining the MoU and surrounding circumstances, holding that the sale agreement was not a genuine transaction but a document executed as security for a loan. Before the Supreme Court, the plaintiff challenged the High Court’s findings. The Court examined the MoU, the identical witnesses and stamp papers used for both documents, and the conduct of the parties, particularly the plaintiff’s failure to disclose the MoU in the plaint. The Court held that these circumstances strongly supported the defence that the agreement of sale was only a sham and nominal document intended as loan security. It further observed that suppression of such a material document by the plaintiff undermined his claim for equitable relief.

Decision: The Supreme Court dismissed the appeal, affirmed the High Court’s judgment setting aside the trial court decree for specific performance, and held that the plaintiff was not entitled to the discretionary relief as the agreement of sale was found to be a sham document executed as security for a loan transaction.