Refund claims under sale agreements face a three-year limitation, not the 12-year period for charged property: Madras High Court

The respondents/plaintiffs instituted O.S. No. 317 of 2019 seeking refund of amounts paid under an agreement of sale dated 15 September 2012, creation of a charge over the suit property, and a permanent injunction restraining alienation or encumbrance of the property.

Under the agreement, the defendant allegedly received an advance of ₹23,25,000 and a further sum of ₹75,000, agreeing to convey the property within one month.

After the defendant allegedly failed to execute the sale deed, a legal notice was issued on 5 November 2012.

The defendant disputed the sale transaction, characterised it as a loan transaction, and allegedly agreed to settle the amount within four months with interest at 24% per annum, but failed to repay it.

The petitioner/defendant filed an application under Order VII Rule 11 CPC seeking rejection of the plaint on the ground that the suit was barred by limitation on its own averments.

The trial court dismissed the application, holding that limitation involved disputed questions of fact requiring adjudication at trial.

The defendant challenged that order under Article 227 of the Constitution.

1. Whether a suit seeking only refund of advance money paid under an agreement of sale is governed by Article 62 of the Limitation Act, 1963, on the ground that the amount is secured by a charge over immovable property, or by the residuary Article 113.

2. Whether Section 55(6)(b) of the Transfer of Property Act, 1882 automatically creates a charge over the property in favour of an agreement holder who seeks refund of advance money without seeking specific performance.

3. Whether the plaint was liable to be rejected under Order VII Rule 11 CPC as being ex facie barred by limitation.

The Court applied Order VII Rule 11 CPC, under which a plaint may be rejected where the suit appears from the statements in the plaint to be barred by law.

Section 54 of the Transfer of Property Act provides that a contract for sale does not, by itself, create any interest in or charge on the property.

Section 55(6)(b) recognises a buyer’s charge for purchase money properly paid in anticipation of delivery, but the Court held that it does not automatically create a proprietary security immediately upon execution of an agreement of sale.

Article 62 of the Limitation Act, prescribing twelve years for enforcing money secured by a mortgage or otherwise charged upon immovable property, presupposes an already existing charge and does not govern a purely contractual claim for refund.

A claim for specific performance is governed by Article 54, while a suit seeking only refund of advance money, in the absence of a specific limitation provision, is governed by Article 113 and must be instituted within three years from accrual of the right to sue.

The Court also relied on the reasoning in A.S. No. 801 of 2012, decided by a Division Bench on 7 April 2026, concerning the interaction between Sections 54 and 55(6)(b) of the Transfer of Property Act and Articles 54 and 62 of the Limitation Act.

The Court treated the plaintiffs’ claim, based on the plaint averments, as contractual in nature because it arose from the alleged failure to perform an agreement of sale and the consequent non-refund of the advance.

Since the agreement of sale did not itself create any interest or charge under Section 54 of the Transfer of Property Act, the plaintiffs could not invoke the twelve-year limitation period under Article 62 merely by claiming that a charge should be created over the property.

Section 55(6)(b) was held not to confer an automatic proprietary security at the agreement stage.

The right to sue for refund accrued when the contractual arrangement failed and repayment was not made; the Court held that the three-year period under Article 113 consequently applied.

As the agreement was dated 15 September 2012 and the suit was filed only in 2019, the plaint disclosed a claim ex facie barred by limitation, making a trial on disputed facts unnecessary.

The trial court therefore erred in refusing to reject the plaint.

The agreement of sale did not automatically create a charge under Sections 54 or 55(6)(b) of the Transfer of Property Act.

As the suit filed in 2019 was beyond the applicable three-year limitation period, the plaint was liable to be rejected under Order VII Rule 11 CPC.

The order dated 20 April 2023 in I.A. No. 2 of 2019 in O.S. No. 317 of 2019 was set aside, the civil revision petition was allowed, and the connected miscellaneous petition was closed; no order as to costs was made.