Defective title relaized after exectio of agreement for sale

Querist : Anonymous (Querist) 17 March 2010 This query is : Resolved
This query is with respect to an “agreement for sale”.

A party X and another party Y (the owner of an individual house) entered in to an agreement for sale on Nov 12 ,2009 with respect to the sale of a semi-finished individual house. Under this Agreement, X paid the advance amount of Rs. 1,00,000/- in consideration of the sale and agreed to pay the remaining amount o consideration within 15 days from the date of this Sale Agreement. Y agreed to hand over vacant and peaceful possession of the property after receiving the balance sale consideration. (this agreement for sale is not registered).

Meanwhile, X applied to a bank for loan. The bank reviewed the documents of the property. The bank issued a sanction letter to X granting loan in favor of X. The cheque is not yet granted. Thereafter, the lawyers of the bank realized that the documents related to the property are not establishing proper link and the bank gave a remark on the file saying the same. X realized that the title of the property is defective as the documents available are ot able to establish the link and thereby not establishing the title. Hence, X desired to cancel the deal and called for the same. Y then orally admitted saying, “Yes Sir. All the properties in this area are like this. They do not have proper documents. And I cannot do anything about it. I had given all the documents of the property that are available and are in my possession.” Thereafter, relying on this, X asked Y for cancellation of the deal and refund of the advance amount. Y does not have any issues to cancel the deal but is reluctant to refund the advance amount.

X is not in default in this case. He entered into the Agreement for sale believing the property to be genuine and free from any encumbrances.

Now the queries are:
Whether X has reasonable ground to cancel the deal and ask for refund?
If he can, then what is the procedure?
If Y does not refund the advance amount then what shall be done? Can X sue Y? If He can, then what is the limitation period applicable in this case?

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Raj Kumar Makkad (Expert) 17 March 2010
1. Yes. The Y is fully responsible for the clear title of the property under consideration and if at any stage any defect is detected by X, he can get it cancelled legally.

2. He should issue a legal notice intimating him cancellation of the deal and should demand refund of double of the advance amount deposited by him within a specified date failing which a threatening should also be made to file criminal as well as civil suit.

3. X can file criminal complaint under section 420 IPC as well as civil suit for specific performance or suit for recovery. within 3 years of date of knowledge.