If you are stuck in such a situation, here is what to do.

Mr. Kumar and his family, residing in the city of Chandrapur, were on the verge of realizing their dream of owning their first home. They identified a suitable property valued at ₹1.2 crore. However, their journey hit a roadblock when their real estate agent, Mr. Mehta, proposed a dubious transaction structure. He insisted on creating two separate agreements to finalize the deal.

The first agreement, intended for official registration, would state the property value as only ₹60 lakhs. This would involve an initial payment of ₹20 lakhs upon signing and the remaining ₹40 lakhs at the time of registration. The second agreement, which Mr. Mehta termed a “buyer’s security” document, would account for the remaining ₹60 lakhs, to be paid entirely in cash and kept off the official records. Mr. Mehta assured the Kumar family that this was a standard practice in the real estate market to save on stamp duty and other taxes. The Kumars, however, were deeply uncomfortable with this arrangement, fearing the legal and financial repercussions. They questioned the legitimacy of this practice and the enforceability of the second, unofficial agreement.

Advice in such cases

Engaging in a property transaction with two agreements, one official and one for cash, is a highly risky and illegal practice. While some brokers and sellers may present it as a “norm,” it is a method to evade taxes and can have severe consequences for the buyer.

• Refuse to Proceed: Do not agree to such a two-agreement structure. Insist on a single, transparent Agreement for Sale that reflects the actual, total consideration for the property.
• Legal and Financial Risks: Understand that the second agreement, dealing with the cash component, is generally unenforceable in a court of law. If the seller backs out after taking your cash, you will have a very difficult time recovering it legally.
• Tax Implications: Participating in such a transaction makes you complicit in tax evasion. You could face scrutiny and penalties from the Income Tax Department. Furthermore, when you decide to sell the property in the future, your capital gains will be calculated based on the artificially low purchase price mentioned in the registered deed, leading to a significantly higher tax liability for you.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

Applicable Sections of Law

Several Indian laws are violated by such a transaction:

• Income Tax Act, 1961: Section 269SS of the Act prohibits any person from accepting any loan, deposit, or specified sum of ₹20,000 or more in cash. Violating this can lead to a penalty equivalent to the amount of cash transacted.
• Benami Transactions (Prohibition) Act, 1988: This Act prohibits benami transactions (where a property is held by one person but paid for by another). While not a classic benami case, transactions designed to conceal the real value and owner of funds can attract scrutiny under this law.
• Indian Stamp Act, 1899 and State Stamp Acts: Deliberately undervaluing a property to pay lower stamp duty is illegal. If discovered, the authorities can demand the deficit stamp duty along with a hefty penalty.
• Registration Act, 1908: This Act governs the registration of property documents. An unregistered agreement for an immovable property transaction has limited legal standing and evidentiary value.
• Bharatiya Nyaya Sanhita, 2023 (BNS): If it can be proven that the seller or broker had a fraudulent intention from the beginning to deceive you and take your cash, a criminal case for Cheating under Section 318 of the BNS could potentially be filed.

If you are the complainant

If you are the buyer being pushed into such a deal, you are in a position of strength as long as you haven’t paid the cash component.

• Stand Firm: Clearly communicate to the seller and the broker that you will only proceed with a single, legal agreement that states the full sale price.
• Document Everything: Keep records of all communications, including emails or messages where this two-agreement structure was proposed.
• Walk Away if Necessary: If the seller or broker refuses to conduct the transaction legally, it is better to walk away from the deal than to get entangled in an illegal arrangement.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

If you are the victim

If you have already paid the cash amount and the seller is now creating problems or backing out, you are in a very vulnerable position.

• Legal Challenges: Your primary challenge is the lack of legal recognition for the cash transaction. The second agreement is likely to be deemed void by a court as it was created for an unlawful purpose (tax evasion).
• Difficulty in Proving Payment: Proving a large cash payment without any official receipt is extremely difficult.
• Potential Legal Action: You can file a civil suit for the recovery of your money, but this would require you to admit to the cash transaction, potentially exposing you to action from the Income Tax department.
• Criminal Complaint: You could file a police complaint for cheating under Section 318 of the BNS, but you will need strong evidence to show that the seller’s intention was to defraud you from the very beginning.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

How the police behave in such cases

The police often view such matters as civil disputes. They may be hesitant to file an FIR (First Information Report) and will likely advise you to approach a civil court to resolve the contractual issue. However, if you can provide compelling evidence of fraud—for instance, chats, recordings, or witness testimony proving that the seller intended to cheat you—they may register a case under Section 318 of the BNS. In cases involving large sums of money, the Economic Offences Wing (EOW) may also take up the investigation.

FAQs people normally have

Is it really the norm to have two agreements?

No. While it is a common malpractice, it is not a legal or accepted “norm.” It is a fraudulent practice designed to evade taxes, and honest buyers and sellers avoid it.

What happens if the seller takes my cash and then sells the property to someone else?

Your legal recourse is very weak. Since the cash agreement is not registered and is for an illegal purpose, enforcing it through a court is nearly impossible. You risk losing your entire cash payment.

Will I get into trouble for admitting I paid in cash?

Yes. Admitting to a large cash transaction can lead to penalties under the Income Tax Act. The department can initiate proceedings against you for dealing with unaccounted money.

What evidence is required?

For a legal transaction, the primary evidence is the registered Sale Deed. In a disputed two-agreement case, any evidence is critical, but also problematic:

• The unofficial agreement for the cash portion.
• Any WhatsApp/SMS chats or call recordings discussing the cash payment.
• Bank statements showing large cash withdrawals around the time of the payment (this is circumstantial).
• Testimony from any witnesses who were present during the cash transaction.

It is important to remember that presenting this evidence also serves as an admission of your own participation in an illegal transaction.

How long will the investigation take?

If the matter proceeds as a civil case (e.g., a suit for recovery of money), it can take several years to be resolved in the Indian court system. If a criminal FIR is registered, the police investigation as per the procedures in the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) may take several months to a year before a final report or chargesheet is filed. The subsequent trial will add more time to the process.

Advocate Sudhir Rao, Supreme Court of India