Allegations Of Fraud Or Misuse In Registered Transactions Require Foundational Proof First Before Burden Shifts To The Other Party

The Supreme Court upheld the Madras High Court’s judgment that when a party alleges fiduciary misuse in property transactions executed through a General Power of Attorney (‘GPA’), that party must first prove the basic facts showing such fraud. The burden does not shift to the beneficiaries unless and until such foundational evidence is placed on record.

The appellant had purchased agricultural land in Coimbatore in 1966. She claimed that in 1997 and 1988 she borrowed money from two brothers and executed registered GPAs in their favour solely as collateral security for the said loans, also handing over her original title deeds. She alleged that the respondents subsequently misused the GPAs to execute sale deeds. The respondents maintained that the transactions were genuine sales, with full consideration paid and possession handed over. The trial court decreed in favour of the appellant, declaring the sale deeds void. The first appellate court reversed this finding, holding that she had failed to prove repayment of the loans and that these GPAs had been executed solely as security. The Madras High Court declined to interfere in second appeal and the matter came before the Hon’ble Supreme Court.

The Supreme Court in Mallika v. R. Nallathambi [2026 INSC 529] upheld the concurrent findings of the First Appellate Court and the High Court. It held that the burden of establishing that the transactions were not genuine sales but merely security arrangements for loans rested upon the appellant, and that mere allegations of fraud or fiduciary misuse were insufficient unless supported by reliable and cogent evidence. Though the principle is that the beneficiaries of transactions must establish their bona fides in cases of alleged fraud and fiduciary misuse, the Hon’ble Supreme Court held that this burden could shift to the respondents only after the appellant had first established the foundational facts constituting fraud. In the absence of such foundational evidence, the initial burden continued to remain upon the appellant. 

On the question of possession, the Apex Court affirmed that while mutation entries alone do not create or transfer ownership rights, revenue records that continue for many years, are supported by registered sale transactions, and remain unchallenged for a prolonged period constitute relevant circumstances to be considered in assessing possession and the conduct of the parties. The High Court's reliance upon such mutation entries as one of several relevant circumstances was accordingly found to be unexceptionable. The Court found no perversity in the findings of the lower courts and concluded that no substantial question of law arose, thereby affirming the validity of the sale deeds and the judgments of the appellate courts.

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