Contract Act, 1872 — Ss. 17, 18, 19 — Agreement for sale — Suppression of material encumbrance — Refund of advance — Readiness and willingness — Set-off — Limitation — Vendor executing agreement affirming property free from encumbrance — Sub­sisting equitable mortgage with bank suppressed — Purchaser justified in withholding further payment — Trial Court decreeing refund of advance with interest — High Court reversing decree relying on isolated admission in cross-examination and remanding matter on set-off — Supreme Court holding undue reliance on stray admission impermissible — Vendor’s admissions and conduct establishing concealment — Claim of set-off held unsustainable — Trial Court decree restored — Appeal allowed.

Contract Act, 1872 — Ss. 17, 18, 19 — Agreement for sale — Suppression of material encumbrance — Refund of advance — Readiness and willingness — Set-off — Limitation — Vendor executing agreement affirming property free from encumbrance — Sub­sisting equitable mortgage with bank suppressed — Purchaser justified in withholding further payment — Trial Court decreeing refund of advance with interest — High Court reversing decree relying on isolated admission in cross-examination and remanding matter on set-off — Supreme Court holding undue reliance on stray admission impermissible — Vendor’s admissions and conduct establishing concealment — Claim of set-off held unsustainable — Trial Court decree restored — Appeal allowed.

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B. ANALYSIS OF FACTS

1. The defendant-respondent executed an agreement for sale (Exh. A-1) dated 10.09.2008 agreeing to sell 77 Acres 26 Cents of land to the plaintiff-appellant for a consideration of Rs.4,45,00,000/-.

2. The plaintiff-appellant paid Rs.50,00,000/- as advance in two instalments, with the balance consideration payable in tranches, the final date for execution being 26.12.2008.

3. The plaintiff-appellant later discovered that the suit schedule property was subject to an equitable mortgage with the Federal Bank, contrary to the recital in Exh. A-1 stating that the property was free from encumbrances.

4. The defendant-respondent assured redemption of the mortgage and later agreed to reduce the sale consideration by Rs.35,00,000/-, pursuant to which the plaintiff-appellant paid an additional Rs.5,00,000/- and issued a post-dated cheque for Rs.3,55,00,000/-.

5. Upon realising that no steps were taken to redeem the mortgage, the plaintiff-appellant did not fund the cheque, which was dishonoured.

6. The plaintiff-appellant filed OS No.34 of 2010 seeking refund of the advance amount with interest.

7. The trial Court decreed the suit, holding that the defendant-respondent had suppressed the subsisting mortgage and that the plaintiff-appellant was justified in withholding further payment. The defendant-respondent’s claim of loss and set-off was rejected.

8. The High Court reversed the decree, placing reliance on a solitary admission in the cross-examination of the plaintiff-appellant suggesting prior knowledge of the mortgage, and remanded the matter on the issue of set-off.

9. The plaintiff-appellant challenged the High Court’s judgment before the Supreme Court.

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C. ANALYSIS OF LAW

1. Evidentiary Value of Isolated Admissions

The Court held that:

• Undue reliance on a stray sentence in cross-examination, divorced from the overall evidence and admitted facts, is impermissible.

• Such an abstract admission cannot override categorical pleadings, documentary evidence, and consistent conduct of parties.

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2. Suppression of Encumbrance and Fraud

The Court noted that:

• The defendant-respondent admitted the correctness of Exh. A-1, which contained a clear recital that the property was free from encumbrances.

• The defendant-respondent also admitted that:

  • The loan existed at the time of execution of Exh. A-1;

  • The amounts received from the plaintiff-appellant were not used to discharge the bank liability;

  • The fact that the sale was intended to clear bank dues was not mentioned in the agreement.

These admissions conclusively established concealment of a material fact.

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3. Conduct of Parties

The Court held that:

• The defendant-respondent’s agreement to reduce the sale consideration by Rs.35,00,000/- after the mortgage issue surfaced strongly corroborated the plaintiff-appellant’s case of deception.

• Non-reply to the legal notice alleging suppression further weakened the defence.

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4. Set-off Claim

The Court affirmed the trial Court’s view that:

• The alleged loss arising from a subsequent sale to a third party did not constitute a legally sustainable set-off.

• The High Court erred in reopening this issue by remand when the trial Court had already correctly adjudicated the same.

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D. DECISION / OPERATIVE PART

1. The Supreme Court held that the High Court committed a grave error in reversing the well-reasoned judgment of the trial Court and in remanding the matter.

2. It was held that:

   • The defendant-respondent had suppressed the subsisting mortgage over the suit schedule property.

   • The plaintiff-appellant was justified in withholding further payments and entitled to refund of the advance.

3. The impugned judgment of the High Court dated 11.03.2022 was set aside.

4. The judgment and decree of the trial Court were restored.

5. The appeal was allowed, with no order as to costs.