NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN

LAW, RANCHI

"Beyond Market Value: Unveiling the Truth Behind Property

Transactions"
(Project submission towards the completion of end-term assessment in the subject of
Property Law)

SUBMITTED TO SUBMITTED BY
Dr. Utkarsh Verma Aakriti Ojha
Assistant Professor Semester V (B)
Property Law Roll No. 1271

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TABLE OF CONTENTS
INTRODUCTION TO THE LEGAL PRINCIPLE ........................................................... 3

LEGAL FOUNDATION BACKING THE PRINCIPLE ................................................... 4

COMMON SITUATIONS AND IMPACT ......................................................................... 4

RELEVANT STATUTORY PROVISIONS .................................................................... 5

JUDICIAL INTERPRETATION ........................................................................................ 7

FACTORS CONSIDERED BY COURTS .......................................................................... 8

ONGOING LEGAL DEBATES .......................................................................................... 9

FUTURE IMPLICATIONS .............................................................................................. 10

RECOMMENDATIONS................................................................................................... 11

CONCLUSION ................................................................................................................. 12

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INTRODUCTION TO THE LEGAL PRINCIPLE

The principle that a genuine transaction cannot be deemed a sham solely due to a price lower
than market value holds significant importance within property laws in India. In essence, this
principle delineates that the veracity of a property transaction is not determined solely by the
price paid; rather, it rests on the intention of the parties involved and the actual substance of
the transaction.1 Within Indian property laws, this principle is rooted in various legal doctrines
and precedents established by the judiciary. Courts in India have consistently emphasized the
importance of looking beyond the monetary value exchanged in a property transaction. Instead,
they delve into the intent of the parties, the bona fide nature of the transaction, and whether it
represents a genuine transfer of property rights.2

This principle is particularly relevant in cases of family arrangements, gifts, transfers among
relatives, or transactions with emotional considerations where the transfer might occur at a
price lower than market value. Courts assess the validity of such transactions by considering
various elements, including emphasizing upon the actual intent behind the transaction and
evaluating its substance to determine if it genuinely transfers property rights, differentiating
between genuine transactions conducted in good faith, even if at an undervalued price, and
those specifically intended to deceive or defraud. And lastly focusing on whether the transfer
effectively conveys property rights despite the monetary consideration being lower than market
value.

In Indian property law, this principle aligns with the essence of upholding the sanctity of
transactions and emphasizes substance over form. It ensures that the law does not unjustly
penalize legitimate transfers merely due to variations in the monetary value exchanged. Courts
in India, through various judgments, have consistently upheld the validity of transactions where
the underlying intent was genuine, irrespective of the price being below market value.
Understanding this principle is crucial within the Indian legal landscape as it safeguards
genuine property transfers while discouraging fraudulent or sham transactions, ultimately
ensuring fairness and justice in property dealings. The primary objective of this project is to
comprehensively analyse and elucidate the legal framework governing property transactions
where the price paid is less than the market value in the context of Indian property laws. The

1
Sanat Kumar Chakravarty v. Krishnadhan Mazumdar, (1952) 1 SCC 127
2
Anonymously Authored, SCC OnLine, August 27,2023, (Accessed on 14 November,2023, 10 pm),
https://www.scconline.com/blog/post/2023/08/27/sc-price-paid-less-than-market-value-not-necessarily-a-sham-
transaction-legal-news/

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study aims to provide a nuanced understanding of the principles, doctrines, and judicial
interpretations that guide such transactions.

LEGAL FOUNDATION BACKING THE PRINCIPLE

1. Doctrine of Valuable Consideration: Under Indian law, a contract is valid if there is a

consideration, and the adequacy of consideration is not typically questioned. This principle
aligns with the doctrine that a transaction isn't invalidated merely due to inadequate
consideration.

2. Judicial Precedents: Landmark cases in Indian jurisprudence, such as Sri Krishna Das v.
Nathi Bai, have upheld this principle. The Supreme Court highlighted that the validity of a
transaction shouldn't be solely based on the adequacy of consideration but on the actual
intention of the parties involved.

3. Family Arrangements: In numerous cases involving family arrangements or transactions

among relatives, courts have reiterated that such transfers, even at nominal values, aren't
necessarily sham transactions if they are supported by underlying family arrangements or
obligations.

4. Property Transfer Laws: Provisions within property transfer laws, including the Transfer
of Property Act, 1882, emphasize the importance of the intention of the parties and the
substance of the transaction over the monetary value exchanged.

COMMON SITUATIONS AND IMPACT

The principle is frequently invoked in cases involving family arrangements or transfers among
relatives where the transaction value might not reflect market rates. Courts often recognize
these transactions, provided they align with familial obligations or agreements. Transactions
involving gifts or acts of benevolence where the consideration is nominal or non-existent are
often assessed under this principle. If the intention behind the transfer is genuine, it might be
deemed valid despite the apparent disparity in value. Instances where property rights are
transferred at a value lower than market rates due to specific arrangements or agreements might
be subject to scrutiny. However, if the transaction's authenticity is established, it might still be
upheld.

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Understanding and applying this principle within property law safeguard genuine transactions
from unwarranted challenges merely based on the discrepancy between the transaction value
and market rates. It offers a level of protection to parties engaging in bona fide property
transactions, ensuring that legitimate agreements are not unjustly invalidated solely due to the
price consideration. This interpretation and application are crucial in maintaining the fairness
and legitimacy of property transactions within India's legal framework, fostering confidence in
the validity of genuine agreements while deterring fraudulent or sham dealings. In the Indian
legal framework, several statutory provisions and laws govern property transactions where the
price paid is below market value. Understanding these provisions is essential to grasp the legal
underpinnings concerning such transactions and the principle that a genuine transaction isn't
invalidated solely due to a lower price.

RELEVANT STATUTORY PROVISIONS

1. Registration Act, 19083: Section 17 of the Registration Act pertains to the registration
of documents. While it doesn't directly address the concept of inadequate consideration,
it mandates the registration of transactions involving immovable property, regardless
of the consideration, to establish legal validity.
2. Indian Contract Act, 18724: While not specific to property transactions, this Act outlines
the principles of contracts. It emphasizes that a contract's validity doesn't depend on the
adequacy of consideration, reinforcing the notion that an agreement is binding if made
with free consent and lawful consideration.
3. The Transfer of Property Act, 18825, contains several provisions that are relevant to the
principle that a genuine transaction cannot be invalidated merely because the price paid
is less than the market value. Although the Act does not explicitly mention this
principle, certain sections indirectly support and reinforce this notion:

➢ Section 236: Consideration or object forbidden by law-This section specifies

that any consideration or object of a transfer which goes against the law or is
fraudulent is invalid. However, if the transaction itself is legal and genuine, the
mere fact that the price paid is less than market value does not make it unlawful
or fraudulent.

3
The Registration Act, 1908, Section 17.
4
The Indian Contract Act, 1872.
5
The Transfer of Property Act, 1882.
6
The Transfer of Property Act, 1882, Section 23.

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 ➢ Section 527: It specifies the doctrine of lis pendens and prohibits or restrict any
transfer, alienation, or disposition of the immovable till the suit is pending or
until the judgment is passed by the Court of competent jurisdiction.
➢ Section 538: This deals with fraudulent transfer and applies to such transfer
which is done to defraud its creditor in a manner that they are defeated or
delayed.9
➢ Section 5410: It defines a sale as a transfer of ownership in exchange for a price
paid or promised or part-paid and part-promised. This section doesn't
specifically address the market value aspect but lays down the conditions for a
valid sale.
➢ Section 5511: Rights and liabilities of buyer and seller- This section elucidates
the rights and obligations of both parties in a property transaction, emphasizing
that the sale deed should not have any defect impairing the title of the seller. If
the transfer is genuine, the inadequacy of consideration (price) does not
necessarily invalidate the transaction.
➢ Section 5812: While not directly related to sale transactions, this section
specifies that a mortgage by conditional sale should not be presumed to be a
mortgage merely because the price paid is inadequate.

These statutes, while not explicitly stating the principle in question, indirectly support its
premise. They emphasize the intent and consent of parties rather than the monetary
consideration. They establish the legality and validity of transactions based on the genuineness
of the agreement rather than the adequacy of consideration.

7
The Transfer of Property Act, 1882, Section 52.
8
The Transfer of Property Act, 1882, Section 53.
9
Pushkar G, Doctrine of Fraudulent Transfer under Section 53 of TPA, Accessed on 14 November 2023, 10:30
pm, https://www.legalserviceindia.com/legal/article-4978-doctrine-of-fraudulent-transfer-under-section-53-of-
tpa.html
10
The Transfer of Property Act, 1882, Section 54.
11
The Transfer of Property Act, 1882, Section 55.
12
The Transfer of Property Act, 1882, Section 58.

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JUDICIAL INTERPRETATION

Sri Krishna Das v. Nathi Bai13 highlighted the importance of parties' intentions and the
absence of any improper conduct in determining the validity of a transaction, rather than solely
relying on the adequacy of consideration. The case involved a dispute over the sale of a
property between the appellant, Sri Krishna Das, and the respondent, Nathi Bai. The property
in question was sold for a considerably lower price compared to its market value. The appellant
contended that the sale was invalid due to the inadequacy of the consideration (the selling
price). The primary issue before the court was whether a transaction could be declared invalid
solely based on the inadequacy of the consideration, especially when the sale price was
significantly lower than the market value. The Supreme Court held that the adequacy of
consideration is not a material factor in determining the validity of a transaction. The Court
emphasized that the essential criterion for validating a transaction is the bona fides or the good
faith of the parties involved. It was highlighted that a transaction cannot be invalidated merely
because the price agreed upon is inadequate compared to the market value of the property. The
Court stressed that as long as the transaction was entered into by the parties in good faith,
without any coercion, fraud, or misrepresentation, the adequacy of consideration does not
render the transaction void. The judgment in Sri Krishna Das v. Nathi Bai clarified that in the
absence of any evidence of fraud, coercion, or unfair dealing, a transaction's validity should
not be questioned solely based on the disparity between the agreed-upon price and the market
value of the property. The emphasis on the bona fides of the transaction shifted the focus from
the quantum of consideration to the intention and good faith of the parties involved. This ruling
established an important precedent in Indian contract law, emphasizing that the courts should
not interfere with transactions entered into willingly and in good faith between competent
parties, even if the consideration seems inadequate in hindsight.

The next case the case of Bhag Singh v. Commissioner of Income Tax14 (AIR 1965 SC 83)
revolved around a transaction involving the sale of shares at a value lower than their market
price. Bhag Singh, the appellant, had sold shares to a family member at a price significantly

13
Sri Krishna Das v. Nathi Bai, AIR 1959 SC 144.
14
Bhag Singh v. Commissioner of Income Tax, AIR 1965 SC 83.

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below the market value. The Income Tax Department questioned the transaction, suspecting it
to be a means of avoiding tax liability. The primary issue was whether the transaction could be
disregarded merely because the consideration (the sale price) was lower than the prevailing
market value of the shares. The focus was on determining whether the transaction was genuine
or if it was a sham devised to avoid tax liabilities. The Supreme Court reiterated the principle
that a transaction should not be disregarded solely due to the consideration being less than the
property's market value. The crucial test, according to the Court, was to determine the
genuineness of the transaction. If the transaction was found to be genuine and not a facade or
sham to cloak another underlying transaction, it should be upheld. The Court emphasized that
it is not the inadequacy of consideration that renders a transaction void but rather the absence
of genuineness or authenticity that could potentially make a transaction invalid. In this
particular case, after examining the circumstances, the Court found that the transaction was
genuine and not a cover-up for any other undisclosed transaction. Consequently, the sale of
shares at a price lower than their market value was upheld as a genuine transaction. The
judgment emphasized that transactions should be evaluated on their genuineness and not on
the basis of the monetary value involved. As long as a transaction is found to be bona fide and
not intended to disguise another transaction or evade taxes, the consideration being less than
market value alone cannot invalidate it. This case established a precedent highlighting the
importance of looking beyond the apparent inadequacy of consideration and delving into the
true nature and authenticity of transactions to determine their validity.

FACTORS CONSIDERED BY COURTS

Courts consider a number of factors when assessing as to whether a property transaction is a

genuine one or not. Some of them being:

1.Intention of Parties: Courts analyse the parties' intent to ascertain if there was a genuine
intention to transfer ownership or if the transaction was a colourable device.

2.Complete and Genuine Agreement: Examination of the completeness and genuineness of

the agreement, ensuring it embodies the complete terms and conditions agreed upon by the
parties.

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3.Actual Payment and Consideration: While the consideration's adequacy is not
determinative, courts evaluate if some consideration was genuinely exchanged to solidify the
transaction.

4.Market Conditions: Assessing the prevailing market conditions, evaluating whether the
price paid was reasonable in the context of those conditions.

5.Timing and Circumstances: Scrutinizing the timing of the transaction and the
circumstances surrounding it to determine if there was any hidden agenda or arrangement.

Courts focus on deciphering the actual essence of the transaction, aiming to identify the real
intent behind it rather than merely relying on its superficial appearance. Emphasizing the
validity and enforceability of a transaction based on its genuine intent, ensuring that legal
formalities don’t overshadow the substantial rights and obligations of the parties involved.
Courts follow the doctrine of substance over form, emphasizing the substance of an
arrangement rather than its form. This doctrine ensures that the real nature of the transaction
prevails over its outward appearance. Evaluating the purpose behind the transaction, courts
analyse whether the parties intended to genuinely transfer property rights or if the transaction
was a mere façade to cover another arrangement.

In the context of property laws in India, transactions involving prices below market value have
implications on property rights and conveyancing processes. Despite a transaction occurring at
a price lower than market value, the transfer of property rights can still be legally recognized.
The key factor remains the legal validity of the transaction, not necessarily the price paid. The
validity of the transfer is contingent upon the genuineness and legality of the transaction itself,
not solely on the discrepancy between the price paid and the market value. Even if a property
is transferred at a lower price, it's imperative to adhere to proper registration and documentation
procedures as mandated by law. This ensures the legal sanctity of the transfer. Transactions
below market value might attract scrutiny concerning stamp duty, and authorities may assess
duty based on the property's market value rather than the price stated in the transaction.

ONGOING LEGAL DEBATES

In the realm of property laws in India, transactions with undervalued prices have sparked
ongoing legal debates and discussions, leading to evolving interpretations and controversies.

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Let us discuss some of these points that time and again become the centre of attraction for
difference of legal opinion.

1.Avoidance of Transactions: There is a debate on the extent to which transactions

undervalued for various reasons, such as tax evasion or concealment of assets, should be
avoided or declared voidable.

2.Defining 'Market Value': Debates exist regarding the precise definition and determination
of 'market value' concerning properties, especially in cases where properties have unique
characteristics or limited comparable sales.

3.Stamp Duty and Valuation: The assessment of stamp duty concerning transactions
undervalued below market rates is a topic of contention, often leading to disputes between
taxpayers and revenue authorities.

4.Enforcement Challenges: Enforcing provisions or challenging transactions based on

undervaluation involves complexities and challenges in providing substantial evidence of
intent or proving the transaction's actual market worth.

FUTURE IMPLICATIONS

The future implications surrounding transactions with undervalued prices in property law in
India necessitate proactive measures, including regulatory reforms, technological integration,
and legal adaptations.

1. Legal Amendments: Potential amendments or refinements in property laws to address

loopholes or ambiguities concerning undervalued transactions, aiming for clarity and better
enforceability.

2. Enhanced Scrutiny: Anticipated increased scrutiny by revenue authorities on transactions

to mitigate undervaluation, ensuring accurate assessment and collection of stamp duty.

3. Judicial Precedents: Anticipated development of more judicial precedents and guidelines

to handle undervalued transactions, establishing clearer parameters for determining the
legitimacy of such deals.

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4. Stricter Compliance Measures: There might be a shift toward stricter compliance measures
and enhanced transparency requirements to prevent undervaluation, possibly involving
improved property valuation mechanisms.

5. Digital Innovation: The integration of technology, such as blockchain or digitization of

property records, may streamline valuation processes, enhancing transparency and reducing
the scope for undervalued transactions.

6. Legal Clarity and Guidance: Future implications could involve the need for clearer legal
guidance and provisions specifically addressing undervaluation, aiming to prevent disputes and
offering a standardized approach for assessments.

7. Taxation Reforms: Potential reforms in taxation laws might aim to deter undervaluation by
imposing penalties or creating disincentives for transactions recorded below market value.

RECOMMENDATIONS

While this principle has substantial legal backing, it requires periodic review and adaptation to
align with evolving market dynamics, technological advancements, and changing legal
interpretations. Recommendations emphasizing transparency, compliance, and legal clarity are
vital for future implementations.

1. Regular Valuation Reviews: Implementing periodic property valuation reviews to ensure

market value conformity, especially for high-value properties or areas prone to undervaluation.

2. Enhanced Reporting Requirements: Introducing stringent reporting requirements

mandating comprehensive disclosures in property transactions, ensuring transparency and
aiding in fair valuation assessments.

3. Specialized Tribunals or Panels: Establishing specialized tribunals or expert panels

dedicated to adjudicating disputes related to undervalued transactions, offering nuanced
understanding and expedited resolution.

4. Awareness and Education: Conducting awareness campaigns or educational initiatives to

inform stakeholders about the legal and financial implications of undervalued transactions,
promoting compliance and ethical practices.

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5. Adaptive Legislative Amendments: Regular review and adaptive amendments to property
laws to reflect evolving market dynamics, ensuring that legislation remains effective in
preventing undervaluation loopholes.

CONCLUSION

In conclusion, the exploration into the nexus between a genuine transaction and the perceived
inadequacy of consideration in property law reveals a critical distinction. The judiciary's stance,
as highlighted through various legal precedents and scholarly opinions, unequivocally asserts
that the mere disparity between the transaction price and the property's market value cannot
serve as the sole determinant of a transaction's genuineness or legitimacy. The essence of a
transaction's authenticity hinges upon the bona fides and true intent of the involved parties,
rather than solely on the monetary value exchanged. Courts have consistently emphasized the
paramount importance of assessing the transaction's underlying purpose, absence of coercion
or deceit, and the parties' genuine consent to discern its legitimacy.

This research underscores the judicial philosophy that while market value is a relevant factor
in property transactions, it does not eclipse the significance of good faith dealings and the
absence of ulterior motives. Hence, a transaction with consideration lower than market value
is not automatically labelled as a sham, provided it manifests authenticity, transparency, and
fairness in its execution. The jurisprudential evolution in property law unequivocally
establishes that the validity of a transaction should not be undermined based solely on the
apparent financial disparity between the agreed price and market value. Instead, the focus
remains on unravelling the transaction's true nature, ensuring that it stands on the pillars of
genuineness and honesty rather than being deemed a sham merely due to price divergence. As
property laws continue to evolve, this research reinforces the pivotal role of intention, fairness,
and transparency in adjudicating the authenticity of property transactions, marking a crucial
paradigm shift in legal understanding.

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