Madhya Pradesh High Court: a prior agreement to sell defeats a later compromise, and flags cash deals to Income Tax

Hearing a second appeal arising from a suit for specific performance, the Madhya Pradesh High Court's Gwalior Bench refused to let the original parties dispose of the case by a compromise under Order XXIII Rule 3 of the Code of Civil Procedure, 1908, after third parties were impleaded on the strength of a later agreement to sell the same land in their favour. The Court held that once a person acquires rights under an agreement to sell — even short of ownership — a compromise between the original litigants cannot be used to defeat those rights, following its own earlier ruling in Dharamsingh Manrakhan Singh and distinguishing the Supreme Court's observations in Suraj Lamp & Industries on the limited effect of powers of attorney in property transactions. The applicants claiming under the later agreements were allowed to be added as respondents, and the compromise application was rejected as impermissible in law.

Separately, the Court noted that two of the agreements placed on record disclosed cash payments of Rs. 15 lakh and Rs. 35 lakh respectively. Applying the Supreme Court's directions in The Correspondent, RBANMS Educational Institution v. B. Gunashekar, which require courts to report any claimed cash payment of Rs. 2 lakh or more towards immovable property to the Income Tax Department, the Registrar was directed to refer both agreements for verification of a possible violation of Section 269ST of the Income Tax Act, 1961.