Fraud Allegation Alone Cannot Shift Burden Without Foundational Evidence, Supreme Court Holds
A Division Bench dismisses a decade-old land dispute, holding that a party alleging GPA misuse must first establish foundational facts before the burden shifts to the other side.
The Supreme Court has dismissed a civil appeal arising from a dispute over approximately 2.03½ acres of agricultural land in Kalapatty Village, Coimbatore, holding that a party who alleges fraud and fiduciary misuse of a General Power of Attorney must first produce foundational evidence before the burden can shift to the beneficiary of the transaction.
A Division Bench of Justice Ujjal Bhuyan and Justice Vipul M. Pancholi, deciding Civil Appeal No. 9837 of 2017 on 22 May 2026, affirmed the Madras High Court’s refusal to interfere with the First Appellate Court’s reversal of the Trial Court decree. The judgment addresses the interplay between the burden of proof in fraud cases, the evidentiary consequences of a party abstaining from the witness box, and the limits of second-appeal jurisdiction under Section 100 of the Code of Civil Procedure, 1908.
How the Dispute Reached the Supreme Court
The appellant, Mallika, purchased two items of agricultural land in Kalapatty Village, Coimbatore Taluk, in 1996 through registered sale deeds, Item No. 1 measuring Punja Acre 1.66 and Item No. 2 measuring Punja Acre 0.37½.
According to the appellant, in 1997 and 1998 she executed two registered General Powers of Attorney in favour of Respondent Nos. 1 and 2, who are brothers, solely as security for loans of Rs. 2 lakhs and Rs. 5 lakhs carrying 18% interest. She stated that the original title deeds were handed over only as collateral. The respondents, she alleged, misused the GPAs to execute sale deeds in favour of close relatives and family members. The suit properties were then transferred repeatedly within the respondents’ family circle through a chain of registered documents.
The appellant claimed she repaid the loans in full through monthly interest and yearly principal instalments, but the respondents neither cancelled the GPAs nor returned the title deeds. She stated she discovered the transactions only in 2008 after inspecting records at the Sub-Registrar’s office, and that the respondents had also attempted to forcibly enter the properties.
The respondents denied all of this. Their case was that the GPAs were genuine, that possession had been handed over, that full sale consideration had been paid and acknowledged by the appellant through two receipts (Exs. B7 and B9), and that the subsequent transactions among family members were valid.
In August 2008, the appellant filed Original Suit No. 472 of 2008 before the Principal Subordinate Court, Coimbatore, seeking a declaration that the five sale deeds executed pursuant to the GPAs (Exs. A5 to A9) were null and void, along with a permanent injunction. The Trial Court decreed the suit on 22 March 2012, holding that the GPAs had been executed only as security for loans and that the respondents had failed to satisfactorily establish the receipts.
The First Appellate Court, the IVth Additional District Judge, Coimbatore, reversed that decree on 8 March 2016 in Appeal Suit No. 52 of 2012. It held that the burden had been wrongly cast upon the respondents, that the appellant had failed to prove loan repayment or continued possession, and that mutation entries and revenue records stood in the names of the respondents and purchasers. The Madras High Court dismissed the second appeal on 3 January 2017, finding no substantial question of law. The appellant then approached the Supreme Court.
Order XLI Rule 31: Substantial Compliance Sufficient
The appellant’s first ground was that the First Appellate Court had violated the mandatory requirements of Order XLI Rule 31 of the CPC by failing to frame proper points for determination. The appellate court’s paragraph 7 had framed three points, but the appellant argued these merely reproduced the reliefs sought in the suit rather than identifying the real issues in controversy.
The Court acknowledged that compliance with Order XLI Rule 31 is mandatory and that the First Appellate Court, as the final court on facts, must independently assess evidence and assign reasons when reversing a Trial Court decree. It referred to H. Siddiqui (dead) by LRs v. A. Ramalingam, (2011) 4 SCC 240, for this proposition.
However, the Court held that the requirement is one of substantial compliance, not mere technical formality. The substance of the judgment and the manner in which the appellate court dealt with the controversy matter more than the precise form in which points are framed. In this case, the First Appellate Court had undertaken detailed reappreciation of oral and documentary evidence, examined the loan transactions, the evidentiary value of the receipts, possession, mutation entries, limitation and the conduct of the parties, and recorded independent findings. The Court therefore declined to set aside the First Appellate Court judgment on this ground alone.
Foundational Evidence Must Precede Any Shift in Burden
The more substantial issue was whether the GPAs had been executed as genuine sale transactions or merely as security for loans. The Court identified the core legal question: before the burden can shift to the GPA holders to establish bona fides, the party alleging fraud must first establish the foundational facts constituting fraud or fiduciary misuse.
The appellant had relied on Subhra Mukerjee v. Bharat Coking Coal Ltd., (2000) 3 SCC 312, for the proposition that where fraud and fiduciary abuse are alleged, the burden lies heavily upon the beneficiary of the transaction to establish bona fides. The Court accepted the principle as well settled. But it held that the principle is triggered only after foundational facts are established by the party making the allegation.
In this case, the appellant produced no documentary material substantiating the alleged loan transactions, payment of interest, or repayment of principal amounts. The Court pointed to a specific finding of the Trial Court itself, a finding the appellant had not challenged before the appellate courts, that neither repayment nor discharge of the alleged loans had been proved. The Trial Court had noted that the appellant did not produce any evidence of interest or principal payment, did not take steps to direct the respondents to produce the pocket notebook allegedly maintained by them, and did not herself enter the witness box to depose on repayment.
Because the appellant failed to establish these foundational facts, the initial burden never shifted to the respondents. The Court held that the appellant had consequently failed to establish that the GPAs were executed merely as security for loans.
Adverse Inference from Abstaining the Witness Box
A separate and significant strand of the Court’s reasoning concerned the appellant’s decision not to enter the witness box. Despite levelling serious allegations of fraud, forgery of receipts, misuse of signed blank papers, and collusive transfers, the appellant did not examine herself. Her husband appeared as PW-1 and a neighbour as PW-2, but the appellant herself abstained.
The Court relied on Vidhyadhar v. Manikrao, (1999) 3 SCC 573, which holds that where a party possessing special knowledge of facts fails to enter the witness box, an adverse inference may legitimately be drawn. The Court found the adverse inference drawn by the First Appellate Court and the High Court to be justified on the facts.
The Court also addressed the appellant’s challenge to the receipts Exs. B7 and B9. The appellant had argued that neither receipt mentioned the exact amount paid, that attesting witnesses were never examined, and that both receipts contained identical stereotyped language suggesting they were created from signed blank papers. The Court acknowledged that the receipts may not represent ideal documentary evidence, but held they could not be examined in isolation.
The appellant had admittedly executed the GPAs; registered sale deeds followed in 1998; mutation entries stood in favour of purchasers for several years; multiple subsequent transactions were entered into openly through registered documents. Against this backdrop, the appellant neither entered the witness box to substantiate forgery allegations nor examined the attesting witnesses to the receipts and GPAs, who were admittedly her own relatives. No expert evidence was adduced to establish forgery or interpolation. The forgery contention therefore could not be accepted.
Mutation Entries, Possession, and a Decade of Silence
The Court addressed the appellant’s argument that mutation entries, patta, chitta and adangal records do not confer title and are relevant only for fiscal purposes. The Court accepted this as a correct statement of law. However, it held that when revenue records continue for many years, are supported by registered sale transactions, and remain unchallenged for a long period, a decade in this case, they become relevant factors in considering possession and the conduct of the parties. The High Court’s reliance on mutation entries as one important circumstance was therefore not an error.
The Trial Court had relied on PW-2’s testimony to hold that possession remained with the appellant. The First Appellate Court, upon reappreciation, found PW-2’s testimony unreliable, noting that PW-2 did not even know the survey numbers of the suit properties. The respondents had produced revenue records (Exs. B14 to B23) which the First Appellate Court rightly relied upon.
The Court also treated the unexplained delay of nearly ten years as an important circumstance against the appellant. The principal sale transactions were executed in 1998; the suit was filed only in 2008. During this period, the GPAs remained uncancelled, mutation entries continued in the names of purchasers, and further sale transactions took place without any objection.
The appellant’s explanation that she discovered the transactions only in 2008 upon inspecting Sub-Registrar records was not found credible, particularly given that both the appellant and her husband were engaged in real estate business. The Court held that such prolonged silence and inaction was inconsistent with the conduct expected from a person alleging fraudulent and unauthorised alienation of immovable property.
Scope of Second Appeal and This Court’s Jurisdiction
The Court reiterated that the High Court’s jurisdiction under Section 100 of the CPC is confined to substantial questions of law. The First Appellate Court, as the final court on facts, had reappreciated oral and documentary evidence and reversed the Trial Court with reasoned findings. The High Court, upon independent examination, concluded that no substantial question of law arose. The Supreme Court found no perversity, patent illegality, or jurisdictional error in that conclusion.
Outcome
The Supreme Court dismissed Civil Appeal No. 9837 of 2017. The judgment and order dated 3 January 2017 of the High Court of Judicature at Madras in Second Appeal No. 714 of 2016 stands affirmed. Pending applications, if any, were disposed of.