Property Sellers Beware: liability of a Bank in a Tripartite Agreement in a consumer Dispute Explained

Table of Contents

• 1. Bibliographic Details of the Hon’ble Supreme Court Judgment on the liability of a Bank in a Tripartite Agreement in a consumer Dispute
• 2. Brief Facts of the Case: Analyzing the liability of a Bank to a property seller in a Tripartite Agreement
• 2.1 Timeline of Material Events: Determining the liability of a bank to the seller under a home loan agreement
• 3. The Status of the Parties: Consideration of a property seller as a consumer
• 3.1 The Complainant’s Perspective: Seeking the liability of a Bank in a Tripartite Agreement in a consumer Dispute
• 3.2 The Opponent’s Defense: The role of privity of contract in a consumer law
• 4. The Core Legal Question: Can a property seller sue the buyer’s bank for deficiency in service?
• 4.1 The impact of a missing or unproven agreement on the liability of a Bank to a property seller in a Tripartite Agreement
• 5. Procedural History: From the Hon’ble NCDRC to Hon’ble SC
• 5.1 Initial findings on the consideration of a property seller as a consumer and the subsequent remand by the Hon’ble Supreme Court
• 6. Legal Issues Pending Before the Hon’ble Supreme Court
• 6.1 Assessing the status and liability of a Bank in a Tripartite Agreement in a consumer Dispute
• 7. Submissions of the Appellant and Respondents Before the Hon’ble Supreme Court
• 7.1 Arguments regarding the liability of a bank to the seller under a home loan agreement
• 8. Judgments Relied upon by the Hon’ble SC in the Analysis
• 8.1 Establishing the principle of privity of contract in a consumer law through judicial precedents
• 9. Legal Principles and Burden of Proof: Proving the liability of a Bank in a Tripartite Agreement in a consumer Dispute
• 9.1 Why the burden of proof rests on the Complainant to establish the liability of a Bank to a property seller in a Tripartite Agreement
• 10. The Final Judgment: Hon’ble Supreme Court’s ruling on the liability of a Bank in a Tripartite Agreement in a consumer Dispute
• 10.1 Operative portion and insights for Appellants and Respondents
• 11. Frequently Asked Questions (FAQ) regarding the liability of a Bank in a Tripartite Agreement in a consumer Dispute

1. Bibliographic Details of the Hon’ble Supreme Court Judgment on the liability of a Bank in a Tripartite Agreement in a consumer Dispute

The Hon’ble Supreme Court has recently addressed the critical issue of the liability of a Bank in a Tripartite Agreement in a consumer Dispute. This case clarifies the legal relationship between a property seller and the buyer’s financial institution. The specific details of the judgment are as follows:

• Title of the Judgment: M/S Citicorp Finance (India) Limited Versus Snehasis Nanda
• Name of the Judges: Hon’ble Mr. Justice Sudhanshu Dhulia and Hon’ble Mr. Justice Ahsanuddin Amanullah
• Citation Number of the Judgment: 2025 INSC 371
• Date of the Judgment: March 20, 2025

2. Brief Facts of the Case: Analyzing the liability of a Bank to a property seller in a Tripartite Agreement

The case began when the Respondent (the property seller) bought a flat in Navi Mumbai on 30.05.2006, financed by ICICI Bank. In early 2008, a borrower approached the Respondent to purchase this flat for Rs. 32,00,000. The parties signed a Memorandum of Understanding (MoU) on 09.02.2008, and the borrower sought a home loan from the Appellant bank to cover the purchase. The Respondent claimed that a Tripartite Agreement was entered into between the seller, borrower, and the bank on the same day to secure the sale consideration.

The Appellant bank eventually sanctioned a loan of Rs. 23,40,000 to the borrower. At the borrower’s request, the bank paid Rs. 17,80,000 directly to the seller’s ICICI Bank account to clear the existing mortgage. However, the remaining balance consideration of approximately Rs. 13,20,000 was not paid to the seller. This sparked a major dispute regarding the liability of a Bank to a property seller in a Tripartite Agreement.

2.1 Timeline of Material Events: Determining the liability of a bank to the seller under a home loan agreement

Understanding the material dates is vital for assessing the liability of a bank to the seller under a home loan agreement:

• 30.05.2006: Respondent purchased the property and took a loan from ICICI Bank.
• 09.02.2008: Respondent and borrower signed the MoU. Purported Tripartite Agreement entered.
• 12.02.2008: Agreement for Sale executed between Respondent and borrower for Rs. 32,00,000.
• 28.02.2008: Appellant bank and the borrower entered into a Home Loan Agreement for Rs. 23,40,000.
• 11.04.2008: Appellant bank granted in-principle approval for the loan.
• April/May 2008: Stated cause of action arose.
• 2009: Appellant issued a cheque for Rs. 5,09,311 to the borrower, which remained unencashed.
• 16.04.2018: Respondent filed a consumer complaint before the Hon’ble NCDRC after a delay of nearly ten years.

3. The Status of the Parties: Consideration of a property seller as a consumer

The legal battle turned on the consideration of a property seller as a consumer under Section 2(1)(d) of the Act. The bank argued that it only provided services to its borrower, while the seller claimed he was a beneficiary of those services.

3.1 The Complainant’s Perspective: Seeking the liability of a Bank in a Tripartite Agreement in a consumer Dispute

The Complainant (Respondent) argued that the bank was guilty of deficiency in service and unfair trade practices. He maintained that the bank approved the borrower’s loan based on the Tripartite Agreement and the registered Agreement for Sale. Therefore, he argued the bank was obligated to ensure the full sale price reached him and sought to establish the liability of a Bank in a Tripartite Agreement in a consumer Dispute for the balance of Rs. 13,20,000.

3.2 The Opponent’s Defense: The role of privity of contract in a consumer law

The Opponent (Appellant) contended that the Respondent was not a consumer because no service was ever provided to him. They emphasized the lack of privity of contract in a consumer law, stating they were only a party to the Home Loan Agreement with the borrower. They argued that clearing the seller’s mortgage was a task performed for their own customer’s benefit and did not create a new legal relationship with the seller.

4. The Core Legal Question: Can a property seller sue the buyer’s bank for deficiency in service?

The Hon’ble Supreme Court addressed the question: Can a property seller sue the buyer’s bank for deficiency in service?. The primary issue was whether a lender owes a direct duty to a seller in the absence of a clear contractual link.

4.1 The impact of a missing or unproven agreement on the liability of a Bank to a property seller in a Tripartite Agreement

The Respondent could only produce an unsigned, unstamped, and partly blank document as the Tripartite Agreement. The Appellant bank explicitly denied the existence of such a signed document. Without a validly executed contract, the Hon’ble Court found no basis for the liability of a Bank to a property seller in a Tripartite Agreement.

5. Procedural History: From the Hon’ble NCDRC to Hon’ble SC

Initially, the Hon’ble NCDRC dismissed the complaint in 2018, stating the Respondent was not a consumer. The Hon’ble Supreme Court set this aside in 2019, remanding the matter for a decision on merits. On remand, the Hon’ble NCDRC allowed the complaint and ordered the bank to pay the balance consideration. The bank then appealed this order back to the Hon’ble Supreme Court.

5.1 Initial findings on the consideration of a property seller as a consumer and the subsequent remand by the Hon’ble Supreme Court

In the 2019 remand, the Hon’ble Supreme Court had only taken a preliminary view regarding the consideration of a property seller as a consumer:

“We have considered the matter only from the perspective whether prima facie it is evident that the appellant is a consumer or not. The entire matter has to be gone into and our prima facie view shall not debar any of the parties to submit material and prove it to the contrary.”

6. Legal Issues Pending Before the Hon’ble Supreme Court

The Hon’ble Court identified two primary heads for adjudication.

6.1 Assessing the status and liability of a Bank in a Tripartite Agreement in a consumer Dispute

The issues were defined as:

“Firstly, as to whether the complainant would come under the definition of ‘consumer’ in terms of the Act. Secondly, assuming the first question is answered in the affirmative, whether any liability rested on the appellant to disburse the entire amount of Rs.31,00,000/- (Rupees Thirty-One Lakhs) i.e., the remaining consideration amount for sale of the flat payable to the complainant-respondent by the borrower.”

7. Submissions of the Appellant and Respondents Before the Hon’ble Supreme Court

7.1 Arguments regarding the liability of a bank to the seller under a home loan agreement

The Appellant argued that the Hon’ble NCDRC presumed a Tripartite Agreement existed without any signed evidence. They stated that clearing the seller’s mortgage was done only to protect their interest in the flat at the borrower’s request. The Respondent claimed the bank deliberately misled the authorities to hide the agreement and avoid their liability to pay.

8. Judgments Relied upon by the Hon’ble SC in the Analysis

8.1 Establishing the principle of privity of contract in a consumer law through judicial precedents

The Hon’ble Court cited several authorities to clarify the liability of a bank to the seller under a home loan agreement:

• Indian Oil Corporation v Consumer Protection Council, Kerala: Held that without privity of contract, no deficiency would arise.
• Janpriya Buildestate Pvt. Ltd. v Amit Soni: Stated that “the existence of an obligation under a contract is a sine qua non for a consumer to successfully prosecute a case under the Act.”
• Tata Motors Limited v Antonio Paulo Vaz: Clarified that a party cannot be held liable through inferential findings without direct proof of their involvement.
• Udit Narain Singh Malpaharia v Additional Member Board of Revenue, Bihar: Defined necessary and proper parties. The Court noted the borrower was a necessary party in this complaint.
• M Hemalatha Devi v B Udayasri & Emaar MGF Land Ltd. v Aftab Singh: Affirmed that while consumer disputes are generally non-arbitrable, a consumer can choose arbitration over a public forum if they wish.

9. Legal Principles and Burden of Proof: Proving the liability of a Bank in a Tripartite Agreement in a consumer Dispute

9.1 Why the burden of proof rests on the Complainant to establish the liability of a Bank to a property seller in a Tripartite Agreement

The Hon’ble Court noted that the Respondent was a signatory to the alleged Tripartite Agreement and should have had a copy. Since he only produced an unproven draft, the burden of proof was not met.

“In the present case, where the respondent himself is a signatory to the purported Tripartite Agreement, the presumption will be that he has retained a copy of the same. Thus, non-production of the (complete) Tripartite Agreement, if at all there was one, would lead to an adverse inference, and under normal circumstances as also in the present case, against the complainant-respondent, and not against the appellant.”

10. The Final Judgment: Hon’ble Supreme Court’s ruling on the liability of a Bank in a Tripartite Agreement in a consumer Dispute

The Hon’ble Supreme Court allowed the appeal and set aside the NCDRC order.

10.1 Operative portion and insights for Appellants and Respondents

The Hon’ble Court found that the Respondent was not a consumer due to a lack of privity. Furthermore, the bank’s total sanctioned loan was only Rs. 23,40,000, not the Rs. 31,00,000 the Respondent claimed was owed. The Court also highlighted that the complaint was barred by limitation under Section 24-A, as it was filed ten years late without recorded reasons for condoning the delay.

Navigating the complexities of the liability of a Bank in a Tripartite Agreement in a consumer Dispute requires expert legal advice. If you have questions about the liability of a Bank to a property seller in a Tripartite Agreement or the application of privity of contract in a consumer law, we are here to help.

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11. Frequently Asked Questions (FAQ) regarding the liability of a Bank in a Tripartite Agreement in a consumer Dispute

11.1 Can a property seller sue the buyer’s bank for deficiency in service?
Answer. Generally, no. The Hon’ble Supreme Court held that since the property seller typically has no privity of contract with the buyer’s bank, they cannot be considered a consumer of that bank. Without this relationship, a claim for deficiency in service is not maintainable.

11.2 Is a seller considered a consumer if the bank pays the sale consideration?
Answer. No. Even if a bank transfers funds to clear the seller’s previous loan, it does so based on the instructions of its own customer (the borrower) and not as a service provider to the seller. The seller does not hire or avail services from the bank for consideration.

11.3 What is the burden of proof for a Tripartite Agreement in a home loan dispute?
Answer. The burden of proof rests entirely on the party asserting the agreement’s existence. If a complainant claims they signed such an agreement but fail to produce a signed, stamped, and complete copy, the court may draw an adverse inference against them.

11.4 Does a bank have a direct liability to the seller under a home loan agreement?
Answer. No. A home loan agreement is a contract strictly between the lender and the borrower. The bank’s liability is limited to the terms of that agreement and cannot be extended to cover the buyer’s total debt to the seller.

11.5 Can a consumer complaint be filed without a privity of contract with the bank?
Answer. No. The Hon’ble Supreme Court clarified that the existence of a contractual obligation is a “sine qua non” (an essential condition) for a consumer to successfully prosecute a case. Without privity, the opposite party cannot be held liable under the Act.

11.6 What is the impact of privity of contract in a consumer law?
Answer. Privity ensures that only a person who has actually hired or availed of services for consideration can file a complaint. In this judgment, it prevented a third-party seller from holding a bank liable for a loan transaction to which the seller was not a formal party.

11.7 Who is a necessary party in a dispute involving a Tripartite Agreement?
Answer. The borrower is a necessary party because they are the person who purchased the property and the only link between the bank and the seller. A necessary party is one without whom no effective order can be made.

11.8 What is the limitation period for filing a consumer complaint?
Answer. Under Section 24-A, a complaint must be filed within two years from the date the cause of action arises. If filed later, the commission must record specific reasons for condoning the delay based on “sufficient cause” shown by the complainant.

11.9 Can a seller choose arbitration in a consumer dispute?
Answer. The choice between the Consumer Forum and arbitration lies exclusively with the consumer. However, this election is only possible if the party first qualifies as a “consumer” under the law. If they do not, they cannot avail the special remedies provided by the Act.

11.10 What happens if a bank issues a cheque to a borrower that remains unencashed?
Answer. If a bank issues a cheque for the balance loan amount to its borrower and the borrower chooses not to encash it and closes the loan account, the bank’s obligations are discharged. This does not create any liability for the bank to pay that amount to the property seller.