Supreme Court clarifies: Loan-security GPAs do not automatically invalidate sale deeds

The Supreme Court in Mallika Vs R. Nallathambi & Ors. has delivered a significant ruling on disputes involving General Power of Attorney (GPA), alleged money lending transactions, and subsequent sale deeds. The Court upheld a chain of registered sale transactions executed through GPAs, rejecting the plea that those GPAs were only given as collateral for loans and had been misused fraudulently.

This decision is crucial for parties dealing with GPA-based conveyances, especially where one side, after a long delay, seeks to challenge registered sales on the ground that the real transaction was a loan and not an outright sale.

Factual background of the dispute

Initial land purchase

The litigation related to two agricultural land parcels in Kalapatty Village, Coimbatore Taluk. These were purchased by the appellant in 1996 through registered instruments:

  • Item No. 1 – Punja Acre 1.66 (Doc. No. 6369/1996, Ex. A1/B2)
  • Item No. 2 – Punja Acre 0.37 1/2 (Doc. No. 6370/1996, Ex. A2/B3)

The appellant asserted absolute ownership over a total of about 2.03 1/2 acres in S.F. Nos. 437/2B and 438/3B.

Execution of GPAs and alleged loan transactions

According to the appellant, in the years 1997 and 1998, she executed two registered GPAs:

  • Doc. No. 416/1997, Ex. A3/B5
  • Doc. No. 465/1998, Ex. A4/B4

These were given in favour of Respondent Nos. 1 and 2, who are brothers. The appellant’s version was that:

  • The GPAs were not intended to transfer title.
  • They were allegedly issued only as security for loans – one of ₹2 lakh and another of ₹5 lakh – bearing 18% interest.
  • Original title deeds were also deposited merely as collateral.

The appellant further contended that Respondent Nos. 1 and 2 were professional moneylenders who routinely insisted on registered documents and signed blank papers as part of their lending operations.

Alleged misuse of GPAs and subsequent sale deeds

The appellant alleged that the GPA holders:

  • Wrongfully used the GPAs to execute registered sale deeds:
    • Doc. No. 29/1998, Ex. A5/B8
    • Doc. No. 3189/1998, Ex. A6/B6
  • These conveyances were made in favour of close relatives and family members of Respondent Nos. 1 and 2.

The receipts acknowledging consideration, namely Ex. B7 and Ex. B9, were attacked by the appellant on the grounds that:

  • They did not mention the consideration amount.
  • Attesting witnesses were not examined.
  • The language was standard and repetitive, allegedly suggesting use of signed blank papers.

The properties thereafter moved through several intra-family and related transfers under Ex. A7/B11, Ex. A8/B13 and Ex. A9, ultimately ending up with members of the respondents’ family and later third parties.

Appellant’s claims of repayment and continued possession

The appellant’s stand was that:

  • The entire alleged loan was repaid through monthly interest and annual principal instalments.
  • Despite repeated requests, the respondents neither cancelled the GPAs nor returned the original title deeds.
  • She only became aware of the sale deeds and subsequent conveyances on inspecting records at the Sub-Registrar’s office in 2008.
  • When respondents and some men allegedly tried to take forcible possession, she and her neighbours resisted them.

Respondents’ defence

Respondent Nos. 1 and 2 disputed the loan-security theory and maintained that:

  • The GPAs were voluntarily executed with full authority to sell.
  • Possession of the land was handed over to them.
  • Genuine sale deeds were executed under the GPAs.
  • Full sale consideration was paid, which the appellant acknowledged through Ex. B7 and Ex. B9.
  • Subsequent transfers in 2006 and 2007 through further GPAs and sale deeds only continued this valid chain of title.

Procedural journey through the courts

Suit before the Trial Court

In August 2008, the appellant instituted O.S. No. 472 of 2008 before the Principal Subordinate Court, Coimbatore, seeking:

  1. A declaration that the sale deeds under Ex. A5 to Ex. A9 were null, void and not binding on her.
  2. A permanent injunction restraining further alienation and protecting her alleged possession.

Her central plea was that the GPAs had been executed purely as security for loans and were wrongfully misused to convey the properties to the respondents’ relatives and associates.

The respondents contested the suit, asserting:

  • The transactions were genuine sales for valid consideration.
  • Possession was delivered to purchasers.
  • The suit was barred by limitation.
  • The appellant had not proved that any loan was discharged or that she continued in possession.

Trial Court’s decision

By judgment dated 22.03.2012, the Trial Court:

  • Accepted the appellant’s version that the GPAs were only loan security.
  • Disbelieved the respondents’ reliance on Ex. B7 and Ex. B9.
  • Declared all five sale deeds (Ex. A5 to Ex. A9) null and void.
  • Granted permanent injunction.

First appeal before the District Court