Registration Of Consent Decrees/Orders In Immovable Property Transactions

1. In India, while litigation remains a common route for dispute resolution, the substantial time consumed in such dispute proceedings and procedural complexities have led to an increasing number of disputing parties arriving at negotiated settlements. The negotiated settlements arrived at are then reduced to writing and are taken on record by the court in the form of a consent order or decree.

2. While conducting title diligence of real estate, the legal ownership of immovable property is verified and examined to identify any defects, encumbrances or irregularities in the chain of title. During the diligence process, it is important to assess whether documents forming part of the title chain conform to applicable legal requirements, including those under the Transfer of Property Act, 1882 and the Registration Act, 1908 ("RegistrationAct").

3. The Registration Act is a central litigation that categorizes documents into three broad categories– those that are compulsorily registrable, those that are not compulsorily registrable and those that may be registered at the option of the parties. For documents that fall in the compulsorily registrable category, non-registration can render them legally ineffective for certain purposes, including their admissibility in evidence or their ability to affect the title to, or rights in, the immovable property.¹

4. In case of properties that have been the subject matter of a dispute, consent decrees and orders frequently surface as key title documents, as parties may derive title from them or have their pre-existing rights recognized, continued, or modified through the settlement. In such cases, it becomes critical to evaluate whether the consent decree/order is compulsorily registrable and if it is, whether it was registered in accordance with applicable law.

5. Clauses (b) and (c) of Section 17(1) of the Registration Act mandate registration of non-testamentary documents that create, declare, assign, limit or extinguish any right, title or interest in immovable property of the value of one hundred rupees or upwards or that record the payment or receipt of consideration relating to such rights. However, from the date of inception of the Registration Act, all decrees and orders passed by a court were treated as documents not requiring compulsory registration owing to the exception carved out under clause (vi) of Section 17(2).²

6. However, this position was altered by the Transfer of Property (Amendment) Supplementary Act, 1929 which narrowed the scope of the exception under clause (vi) of Section 17(2) ("1929 Amendment"). The 1929 Amendment was enacted with effect from 1^st April 1930 as a direct response to the Privy Council's ruling in Hemanta Kumari Debi v. Midnapur Zamindari Co. Ltd.,³ wherein it was held that a compromise decree dealing with immovable property not originally the subject matter of the suit required compulsory registration under Section 17(1)(b) of the Registration Act. This ruling highlighted a legislative lacuna, which was being used to circumvent registration requirements by introducing immovable property that was not the subject matter of the suit in compromise decrees, without registering the underlying instruments. The Court found that such a decree, though embodied in a court order, could not escape the statutory requirement of registration. To address this mischief, the legislature amended clause (vi) of Section 17(2) through the 1929 Amendment, thereby expressly limiting the exemption from registration to decrees or orders that dealt with immovable property which was the subject matter of the suit or proceeding. As a result of this amendment, a consent decree/order affecting property that was not the subject matter of the dispute was excluded from the exception and was rendered compulsorily registrable while a consent decree/order affecting property which was the subject matter of the dispute continued to benefit from the exemption.

7. On a plain reading of clause (vi) of Section 17(2) of the Registration Act as amended by the 1929 Amendment, the following appears to be the legal position as regards registration of a consent decree/ order passed in relation to immovable property:

• If the immovable property affected by the consent decree/order is the subject of the dispute, then the same is not compulsorily registrable, and

• If the immovable property affected by the consent decree/order is not the subject of the dispute, then the same is compulsorily registrable.

8. The scope of the exception under clause (vi) of Section 17(2) was narrowed further by the judgment passed by the Supreme Court of India in Bhoop Singh vs. Ram Singh Major and Ors.⁴ ("Bhoop Singh's Case") on 11^th September 1995, wherein the apex court held that the exception carved out under clause (vi) of Section 17(2) was only meant to cover that decree or order of a court that merely declared a pre-existing right and did not by itself create a new right, title or interest in praesenti in immovable property of the value of one hundred rupees or upwards. The apex court was of the opinion that taking any other view would lead to mischief of avoidance of registration and held that it would be the duty of the court, in each case, to examine whether the parties have a pre-existing right to the immovable property, or whether under the order or decree of the court one party agreed or suffered to extinguish their right, title or interest in favour of the other party for the first time, either by compromise or pretended consent.

9. The legal position laid down by the apex court qua clause (vi) of Section 17(2) may be summarized as follows:

• A compromise decree/order if bona fidee. the compromise is not a device to obviate payment of stamp duty and frustrate the law relating to registration, would not require registration.

• A compromise decree/order if mala fidee. the compromise is a device to obviate payment of stamp duty and frustrate the law relating to registration, would require registration.

• If the compromise decree/order purported to create a right, title or interest in immovable property of the value of one hundred rupees or upwards in favour of any party to the suit for the first time, the decree or order would require registration.

• If the compromise decree/order merely declared a pre-existing right and did not by itself create a new right, title or interest in praesenti in immovable property of the value of one hundred rupees of upwards it would not require registration.

• If the decree/order were not to attract any of the clauses of Section 17(1), the decree would not require registration.

In addition to the above, the court also reaffirmed that if the property dealt with by the decree/order is not the subject matter of the suit or proceeding, clause (vi) of Section 17(2) would not operate, because of the 1929 Amendment.

10. Although Bhoop Singh's Case has been relied upon by various courts including the apex court in recent judgments such as Som Dev and Ors.⁵ Rati Ram and Ors. and Khushi Ram and Ors. vs. Nawal Singh and Ors.⁶, the principles laid down therein have not been expressly incorporated in the Registration Act by way of subsequent amendment.

11. Therefore, to arrive at the correct legal position, it is necessary to look beyond what is expressly set out in the Registration Act and take into consideration the principles laid down in Bhoop Singh's Case, as a plain reading of clause (vi) of Section 17(2) of the Registration Act does not by itself give a clear indication as regards which consent decree / order of a court is compulsorily registrable, and which is not.

12. It can thus be concluded that when a consent decree / order is a key title document in the chain of title to immovable property, the following steps should be taken in order to determine whether the decree/order was compulsorily registrable or not:

• Step 1 - Determine whether or not the decree/order creates new rights in property: If it does, then the decree/order is compulsorily registrable and if it doesn't, proceed to Step 2.

• Step 2 - Determine whether or not the property is the subject matter of the proceedings: If it is, then the decree/order is not compulsorily registrable. If it isn't, proceed to Step 3.

• Step 3 - Determine the date of the decree/order: If the consent decree/order is dated prior to the date of commencement of the 1929 Amendment i.e. 1^st April 1930, then the decree/order is not compulsorily registrable. However, if the consent decree/order is not dated prior to the date of commencement of the 1929 Amendment i.e. 1^st April 1930, then the decree/order is compulsorily registrable.

13. In all cases where a decree/order is found to be compulsorily registrable, one has to consider whether or not the property is relevant to the diligence exercise. If it is and the decree/order was not registered within the prescribed timelines, then the fact of non-registration should be flagged as a title defect or issue in the diligence exercise. However, if it isn't, then the omission to register the decree/order will not impact the title to the property under review and need not be raised as a title concern in that diligence report and can be highlighted to the client separately.

Footnotes

1. S.49 of the Registration Act.

2. Section 17 sub-section (2) - "Nothing in clauses (b) and (c) of sub-section (1) applies to—

...

(vi) any decree or order of a Court except a decree or order expressed to be made on a compromise and comprising immovable property other than that which is the subject-matter of the suit or proceeding;..."

3. (1919) ILR 46 Cal 938 (PC).

4. (1995) 5 SCC 709.

5. MANU/SC/4269/2006.

6. MANU/SC/0104/2021.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.