Why a Registered Agreement for Sale Does Not Guarantee Property Security for Buyers

Introduction

For most homebuyers in India, purchasing a property is a dream come true. The assumption is that once a registered agreement for sale is executed, the buyer’s rights are secured. However, a recent case from Rajkot’s Infinity House project exposes the alarming reality—a buyer can lose their property due to the builder’s financial troubles, despite having a legally registered agreement.
This case serves as a cautionary tale, showing how regulatory and revenue laws prioritize the builder’s liabilities over the interests of genuine buyers.

The Case Study: How a Buyer Lost His Property despite a Registered Agreement

Facts of the Case

  • The Project Was Already Mortgaged Before Sales Began
    • In 2016, the builder of Infinity House mortgaged the entire project to Rajkot Commercial Co-op Bank to secure a loan.
  • Buyers Entered Into Registered Agreements Believing Their Ownership Was Secure
    • In 2017, a buyer entered into a registered agreement for sale with the builder for Flat No. 401 and paid the full amount.
    • The buyer took a home loan from Aditya Birla Housing Finance Ltd. to finance the purchase.
    • Similarly, in 2018, another buyer booked Flat No. 301, executed a registered agreement, and secured a home loan from ICICI Bank.
  • Builder Committed Fraudulent Resale of a Flat
    • In 2021, the builder fraudulently resold Flat No. 301 to another party, violating the original agreement.
    • The original buyer of Flat No. 301 filed a case before RERA, seeking a refund of all payments with interest.
  • RERA’s Order Against the Builder Affects an Unrelated Buyer
    • In December 2021, RERA passed an order against the builder, directing him to refund ₹1.28 crore plus interest to the aggrieved buyer of Flat No. 301.
    • The builder failed to comply with the RERA order.
  • RERA’s Execution Action Led to Arbitrary Property Attachment
    • In 2022, RERA issued a recovery certificate against the builder under the Gujarat Land Revenue Code to enforce the payment.
    • The Collector and Mamlatdar of Rajkot attached and sealed Flat No. 401 for recovery—despite the fact that it had been legally sold to another buyer.
    • The buyer of Flat No. 401 objected, arguing that he had legally paid for the property and was not involved in the dispute.
  • Revenue Authorities Rejected the Buyer’s Objection
    • The Mamlatdar refused to remove the attachment, ruling that the buyer was not the legal owner since a sale deed had never been executed.
    • This decision left the buyer in a legal limbo, despite making full payment and securing a home loan.

The Legal Loophole: Agreement for Sale vs. Actual Ownership

This case exposes a serious flaw in India’s real estate legal system—a buyer with a registered agreement does not automatically become the legal owner.
  • greement for Sale (Sec. 54, Transfer of Property Act, 1882):
    • This document only gives the buyer the right to purchase the property.
    • It does not transfer legal ownership.
  • Sale Deed:
    • Ownership is transferred only when a sale deed is registered, which happens after all payments and legal formalities are completed.
    • Until a sale deed is executed, the property is still considered the builder’s asset, making it vulnerable to legal claims.
In this case, since the sale deed was never executed, authorities treated Flat No. 401 as the builder’s property and attached it for recovering the debt owed to another buyer (Flat No. 301).

The Hard Truth: Why Buyers Are Not Safe Even After a Registered Agreement

Hidden Builder Liabilities Can Affect Your Property
  • Even if a buyer has a registered agreement for sale, the property can still be seized if the builder has outstanding debts, loans, or legal disputes.
  • Builders often take loans against entire projects, and buyers rarely check for pre-existing mortgages or legal claims.

RERA’s Execution Powers Can Override Buyer Rights

  • Under Section 40 of RERA, the authority can treat unpaid refunds as arrears of land revenue, allowing authorities to attach the builder’s assets—even flats already sold under registered agreements.
  • RERA prioritizes compensating aggrieved buyers over investigating third-party claims on attached properties.
Land Revenue Laws Do Not Protect Agreement Buyers
  • Under the Gujarat Land Revenue Code, 1879, the state has the power to attach any property still registered under the builder’s name.
  • Since Flat No. 401’s sale deed was never executed, authorities ignored the buyer’s registered agreement and proceeded with the attachment.
Banks Recognize Agreement Buyers, but Revenue Authorities Do Not
  • Banks approve home loans based on registered agreements, treating buyers as legitimate owners.
  • However, revenue authorities and courts require a sale deed before recognizing ownership rights.
Lessons for Homebuyers: How to Protect Yourself
Check for Mortgages and Encumbrances Before Buying
  • Obtain a Title Search Report from the sub-registrar and revenue office.
  • Verify whether the project has any mortgages, unpaid loans, or legal disputes.
Insist on Immediate Execution of the Sale Deed
  • Do not delay the execution of a sale deed after making full payment.
  • If the builder refuses, immediately take legal action to avoid complications.
Ensure a No-Due Certificate from Banks and Authorities
  • Before paying, demand a No-Due Certificate from banks and statutory bodies confirming that the builder has cleared all loans and debts.
Buy Only RERA-Approved and Title-Cleared Projects
  • Ensure the builder is RERA-registered and the project has a clean legal history.
  • Choose projects where OC (Occupancy Certificate) and CC (Completion Certificate) are already issued.

Conclusion: The Urgent Need for Legal Reforms

The Infinity House case is a wake-up call for homebuyers—a registered agreement for sale is not enough to guarantee property security. Until a sale deed is executed, the property remains at risk of being attached for the builder’s liabilities.
This case also highlights the urgent need for stronger consumer protection laws, including:
  • Stricter enforcement of builder disclosures regarding mortgages and encumbrances.
  • A legal framework to protect agreement buyers from arbitrary attachment orders.
Until such reforms take place, homebuyers must take extra legal precautions to safeguard their investments—because in India’s current real estate system, even fully paid properties are not truly safe.
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