Delhi High Court
M/S Chandra Estates Ltd. vs M/S Tej Properties Pvt. Ltd. & Others on 20 August, 2008
Author: S.Ravindra Bhat
Bench: S. Ravindra Bhat
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS (OS) No.3227/1990 & IA No.1251/2006
% Reserved on: 25.04.2008
Pronounced on: 20.08.2008
M/s Chandra Estates Ltd. Plaintiff
Through : Mr. Rajiv Endlaw with Mr.Kamal Mehta,
Advocate
Vs.
M/s Tej Properties Pvt. Ltd. & Others Defendants
Through : Mr. Rajiv Dutta, Sr. Advocate with Ms.Misha,
Advocate, for Defendant No.3.
% 20.08.2008
CORAM:
Mr. Justice S. Ravindra Bhat
1. Whether reporters of local papers may be
allowed to see the judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported
in the Digest? Yes
CS (OS) 3227/1990 1 of 40
Mr.Justice S.Ravindra Bhat
1. By this suit a decree for specific performance of the Agreement to
Sell dated 1.1.1983 as well as mandatory injunction compelling first
defendant to obtain necessary permission and to pay dues of
Defendant No.3 to secure its title deeds and execute the Sale Deed
have been sought. Correspondingly a mandatory injunction against
third defendant to handover title deeds to the property on payment
of Rs.20 lacs is claimed. In the alternative the Plaintiff has sought a
decree for Conveyance of the suit property in its favour subject to
the third defendant's liability and for damages equivalent to the
amount payable to the third defendant to get the title deeds of the
property released less Rs.20 lacs being a balance consideration.
2. The suit averments are that the plaintiff is an incorporated Company
represented through Shri Mohan Lal, its Director; the Defendant
No.1 is a Limited company engaged in the business of construction,
sale and purchase of immovable property. The 4th Defendant,
Union of India has been made a party since the Plaintiff had sought
CS (OS) 3227/1990 2 of 40
quashing of an order then made under Section 269 UD of the
Income-tax Act, compulsorily seeking to purchase the property in
question. It is averred that negotiations for purchase of the
property i.e. being Plot No.23, Block 172, Jor Bagh New Delhi
measuring 1236 sq.yds had started in 1982 with the Defendants 1 &
2. It is claimed that at the defendant's request a sum of Rs.6 lakhs
was issued by M/s William Jacks & Co., New Delhi on 2.9.1982 and
another sum of Rs.5 lakhs was issued by the said M/s William Jacs &
Co.; as earnest money. The Plaintiff also avers that M/s William
Jacks & Co. were to be given possession of the premises by it (the
Plaintiff) and, therefore, the latter had made payments. It is also
alleged that possession of the property was later given by the
Plaintiffs to the said M/s William Jacks & Co.
3. The plaintiff avers to entering into an Agreement to Sell on 1.1.1983
in respect of the said property (hereafter called the "suit property")
for a consideration of Rs.41.50 lakhs. The Plaintiff has set out the
terms of the Agreement which mentioned about the payment of
Rs.11 lakhs as part payment and a further sum of Rs.50,000/- and
CS (OS) 3227/1990 3 of 40
the plaintiff undertaking to pay the balance Rs.30 lakhs. The
Defendants were to deliver peaceful and vacant possession of the
property to the plaintiff as well as original documents of title,
possession or power concerning the suit property. According to
clause 4 the Defendants (Vendor) were to obtain necessary
permission for purchase from the Land & Development Officer and
clearance under Section269-AB of the Income-tax Act, 1961 and
other such clearances. Clause 10 recorded that the sale would be
completed as soon as necessary permissions/sanctions and
certificates etc were obtained by the Defendants/Vendors which was
also to pay the entire unearned increase of the land. The Plaintiff
was to bear expenses of the sale deed, stamp duty, registration
charges etc.
4. The suit property was mortgaged to the third Defendant; clause 12,
therefore, recorded that the Defendants/Vendor authorized the
Plaintiff to deduct, out of the consideration money and make
payments on behalf of the Defendant to the third Defendant for
clearing its dues. The Defendant/Vendor authorized the Plaintiff to
CS (OS) 3227/1990 4 of 40
take delivery of the original title deeds in respect of the suit
property and retain possession of it. The Defendant agreed to issue
a separate letter of authority to the Bank permitting the Plaintiff to
take delivery of the original title deeds without any lien or authority
after the Bank was paid its dues by the plaintiff.
5. The Plaintiff alleges that subsequent to entering into Agreement to
Sell seven other documents were given by the second Defendant on
behalf of the first Defendant, including Special Power of Attorney,
possession letter, letter authorizing the Plaintiff to get title deeds
from the Bank, original letter from the Chief Architect, NDMC along
with original sanctioned plans for the building of the suit property;
perpetual lease executed on 23.12.1970 between the President of
India and one Shri Kundan Khushi Ram Nathani duly certified by the
Office of the L&DO; Photostat copy of the Sale Deed between the
said lessee between said Sh. Kundan Khushi Ram Nathati and M/s
Tej Properties Pvt. Ltd. and lastly the receipt. It is claimed that
physical possession of the suit property was handed over to the
Plaintiff on 1.1.1983 as well as the Letter of Possession. The
CS (OS) 3227/1990 5 of 40
Plaintiff further alleges that S. Tejwant Singh, second Defendant
also executed a transfer irrevocable Deed of Guarantee in its favour
guaranteeing due performance of the Agreement and stating that in
the event the first Defendant did not adhere to the terms, he would
ensure that Agreement to Sell would be complied with.
6. The Plaintiff claims that on 1.2.1983 the second Defendant
approached it stating that the third Defendant-Vendor was present
for payment of its dues and pending permissions which had to be
secured under Clauses 4 & 8 of the Agreement requested for a
payment of Rs.5 lacs. The Plaintiff accordingly paid Rs.5 lacs
through cheque dated 1.2.1983. It is claimed that other similar
payment for Rs.2.50 lacs was made through cheque dated
10.2.1983. The Plaintiff claims to have issued a legal notice
(Ex.PW1/15) calling upon the first defendant to perform its part of
the Contract, on 26.5.1983 in obtaining a necessary sanctions and
permissions. The Defendnat No.2 in reply, through letter dated
30.6.1983 (PW1/16) requested for more time to get the necessary
permission. It is claimed that despite requests and reminders the
CS (OS) 3227/1990 6 of 40
Plaintiff did not obtain the necessary permission and, on the other
hand, the defendants sought extension of time from the Plaintiff to
discharge their obligation and conclude the sale transaction. The
Plaintiff was constrained to agree for extension through
supplementary Agreements dated 7.7.1983 (PW1/17),
17.11.1983(PW1/18), 6.2.1984(PW1/19), 16.4.1984 (PW1/20),
30.9.1984(PW1/21), 28.12.1984 (PW1/22) and 31.3.1985 (PW1/23).
7. The Plaintiff further states that Defendant again approached it and
requested for another payment of Rs.5 lacs on 18.7.1985 towards
discharging the liabilities of the Defendants to the Bank. The
Plaintiff, therefore, paid Rs.2.5 lakhs directly to Defendant No.3
Bank. With this the total amount paid for as part payment towards
sale consideration was Rs.21.5 lacs. The Plaintiffs avers to further
supplementary agreements dated 24.9.1985, 28.3.1986 and
26.9.1986 finally extending the date of purchase of the Agreement
to Sell dated 30.9.1987 (these were exhibited during the course of
evidence as Ext.PW1/24, PW1/25 and Ex.PW1/26).
CS (OS) 3227/1990 7 of 40
8. The Plaintiff alleges that despite extension of time the Defendants 1
& 2 failed and defaulted to obtain necessary permission for
completing the sale transaction. The property was in the meanwhile
equitably mortgaged to Punjab & Sind Bank through Defendant as
security for payment of debt owning to the said Defendant. The
Defendant No.1 was liable to pay the mortgage money and get the
title deeds released, even though the Plaintiff could get them
released independently after making payment of the mortgaged
amount. The Plaintiff alleges that second defendant kept falsely
representing that he would sort out his affairs with the third
defendant. The Plaintiff avers that it was informed about a further
charge by the first defendant in collusion with third defendant, in
October, 1985 for securing the further amount running into lakhs of
rupees. The Plaintiff alleges that it discovered that the property in
dispute was thus charged to the amount of over Rs.50 lakhs which
was not disclosed to it by the first two defendants even in the
supplementary agreements.
9. The Plaintiff states that it has been in possession of the property
CS (OS) 3227/1990 8 of 40
after the original Agreement to Sell dated 1.1.1983 (PW1/2) was
entered into. It claims to be ready and willing to perform its part of
the contract to pay the balance sale consideration of Rs.20 lacs to
Defendant No.1. It also avers to calling upon both Defendants 1 & 2
repeatedly to perform their part of the contract but to no avail. The
Plaintiff further alleges that the third defendant is not ready and
willing to release the suit property from the mortgage and handover
title deeds even on receipt of 20 lacs. It was also allegedly unwilling
to disclose the exact amounts payable towards the mortgage
security as liabilities of the first two defendants. The Plaintiff,
therefore, claims that cause of action arose in his favour on
1.10.1987, when the first defendant on expiry of the lease extension
of time felt to obtain the redemption of mortgage and defaulted in
the execution of the sale deed. It also arose on expiry of the period
mentioned on 24.5.1988. The Plaintiff also claims that the cause of
action for damage arose in 1988 when it became aware about
increase of the liabilities of the first two defendants to further
charge on the property.
CS (OS) 3227/1990 9 of 40
10.The fourth Defendant-Union of India against which no decree was
sought by its written statement, alleged that the suit was not
maintainable because the competent authority had acquired the
suit property through an order dated 23.1.1987 passed under
Section 269-UD(1) of the Act. It was claimed that this extinguished
the title of the Defendants to the suit property.
11.The third Defendant - Bank in its written statement alleges that the
transaction between the Plaintiff and Defendants 1 & 2 is void as it
is collusive. It claims that the Agreement to Sell was solely with the
intention of defeat or delay the rights of creditors of the Vendor
(Defendants 1 & 2) such as the Bank. It alleges that the property
could not have been subject of any Agreement to Sell when the
Defendant vender merely had an equity of redemption. The
Plaintiff, it claims was fully aware of the pre-existing liabilities of the
Defendants 1 & 2 and was party to the attempt to defeat them. The
vendor also objected to maintainability of the suit in view of the
order made by the Competent Authority under Chapter 20-C of the
Income Tax Act which had divested title of the first and second
CS (OS) 3227/1990 10 of 40
defendant.
12.The bank further claims that the Plaintiff and Defendants 1 & 2 have
acted in pari delicto and no decree for specific performance or any
other equitable relief can be granted. It is claimed that Plaintiff has
no independent right of the third defendant's claim since the suit
was instituted after vesting of property in September, 1990. It could
not assert any failure or enforceable legal right. The defendant
further adverts to two suit against the first defendant being Suit
Nos.21284/1988 and 1204/1989 whether it has claimed in
aggregate a sum of Rs.1.3 crores with interest.
13.The bank alleges that the Plaintiff is not a bonafide purchaser
without notice. The title deeds were not in possession of
Defendants 1 & 2 on 1.1.1983 when Ext.PW1/2 was entered into. It
claims that the transaction has injured its interest. The bank further
additionally alleges that condition of having to secure permissions
have been rendered impossible and, therefore, incapable of
performance. Moreover the effect of acquisition is to vest the
CS (OS) 3227/1990 11 of 40
property free from all encumbrances, which has defeated the
Plaintiff's claim. The Defendant avers that the claim in its two suit
against Defendants 1 & 2 are for the sum of Rs.99,61,034/- with
interest and Rs.57,19,134/- with interest. The equitable mortgage
of the property had been created on 30.11.1978 by deposit of title
deeds with the Bank. The Defendant Bank also alludes to issuance
of a Certificate of Charge under provisions of Sections 125 & 132 of
the Companies Act which disclosed the Bank's interest over the
property. It is alleged that the property was acquired/compulsorily
purchased because of under valuation of the property, by the
competent authority under the Income-tax Act exercising its
powers. The Bank disputes the authority of the Plaintiff to take
delivery of the title deeds. It alleges that such delivery would have
extinguished the equitable rights of the bank in the property and
the mortgage. It, therefore, contests any liability to the plaintiff to
return the title deeds or to accept any sum from the plaintiff in
discharge of the liabilities of Defendants 1 & 2. The Defendant Bank
further contests that the Agreement to Sell was performed in part.
CS (OS) 3227/1990 12 of 40
It also disputes that amounts were paid to the Defendants 1 & 2
ever by the Plaintiff or by M/s William Jacks & Co. on behalf of the
plaintiff.
14.The Defendant Bank claims that the suit is barred by time and also
contests that the Agreement dated 1.1.1983 could have frozen the
value of the mortgage without its redemption. In these
circumstances it seeks dismissal of the suit.
15.Though Defendants 1 & 2 were served, they were unrepresented in
the proceedings and no attempt to enter any plea was made on
their behalf. They were, therefore, set down ex parte on
15.`10.1992.
16.After admission and denial of documents on 17.4.2001 issues were
framed in the suit. Later by order dated 17.2.2005 the Court
appointed a Local Commissioner for recording the evidence of
parties. The oral testimony of witnesses on behalf of the parties
was concluded on 4.7.2007. The matter was, therefore, placed later
before Court for arguments.
CS (OS) 3227/1990 13 of 40
17.At the time of hearing of the suit with consent of parties the issues
originally framed were modified. The issues re-cast on 3.1.2008 are
as follows :
ISSUES:
1. Whether the suit is barred by limitation? OPD
2. Whether Plaintiff can claim any relief in view of the mortgage
subsisting in favour of the third defendant on the date of the
agreement to sell? OPP
3. Whether the plaintiff is entitled to a decre for specific
performance or any other relief? OPP
ISSUES NO.1:
18. This issue concerns maintainability of the suit; it was framed in view
of Preliminary Objection No.15 of the third defendant/Bank that the action
is time barred.
19. The plaintiff contends that the suit was filed within period of
prescribed limitation. It relies on Article 54 of Schedule I to the Limitation
CS (OS) 3227/1990 14 of 40
Act, to say that such suits are to be filed within three years from the date
agreed for performance or when the plaintiff first had notice of refusal of
performance. It is contended that though the agreement to sell was
entered into by parties on 1-1-1983, the time for its performance was
extended, through mutual written agreements, all of which are produced
and exhibited in these proceedings. The plaintiff relies on the said
supplemental agreements, being Ex.PW-1/17 to Ext. PW-1/26. It is urged
that according to the last agreement, Ex.PW-1/26, (dated 26-9-1986) the
last date by which performance could be done was 30-9-1987. The
defendants did not comply with the terms; they were also asked to
complete the sale transaction through registered legal notice dated
24.5.1988(Ex.PW-1/27). In the circumstances, the suit, was filed within
time. Learned counsel also contended that though the Bank has objected
to the suit on the ground of limitation, no serious cross-examination of the
plaintiff's witnesses took place on that score.
20. Learned counsel for the defendant bank urged that the Court should
examine the issue of limitation carefully, in view of Section 3 of the
Limitation Act, and particularly since the first two defendants chose to be
CS (OS) 3227/1990 15 of 40
set down ex parte. He submitted that though in an agreement to sell
immoveable property time is not deemed of the essence, that did not
mean that parties could postpone its performance indefinitely, at will and
at the same time claim relief. Counsel submitted that the supplementary
agreements are bogus documents, which should not be given credence.
21. The agreement to sell (Ex.PW-1/2) was entered into on 1-1-1983 the
plaintiff has relied on ten supplementary agreements (Ex.PW-1/17 to
Ex.PW-1/26). Ex.PW-1/26 is the tenth supplementary agreement,
executed on 26-9-1986. According to its terms, the defendants were to
complete the sale transactions on or before 30th September 1987. It is
not disputed that the first two defendants did not take steps towards
honouring the agreement; a legal notice was issued on them by the
plaintiff on 24-5-1988 (Ex.PW-1/27). The suit, though dated 29-4-1990,
was filed on 6-10-1990. The earliest official stamp of the Court is of that
date; the plaint also discloses a filing number for 6-10-1990.
22. Upon a consideration of the plaintiff's contentions, if the
supplementary agreements Ex.PW-1/17 to Ex.PW-1/26 are to be given
CS (OS) 3227/1990 16 of 40
effect - since nothing substantial to the contrary was urged by the
Defendant Bank, the cause of action, or the right to sue occurred first on
expiry of the time indicated, ie 30-9-1987. The plaintiff, therefore, had to
file the suit within three years of that date, or by 29-9-1990.
23. In this case, the plaintiff filed the suit on 6-10-1990. The suit was
therefore clearly time barred and, is, therefore not maintainable.
ISSUES NOS.2 & 3:
24. Common and overlapping questions of fact and law are involved in
relation to these issues. They are, therefore, considered together.
25. Learned counsel for plaintiff submitted that decree for specific
performance had to follow in this case, and the third defendant's
objections were really a non-sequitor. The claimed that all the elements
necessary for grant of such relief, namely:
1) Extension of agreement;
2) Payment of advances;
3) Plaintiff's readiness and willingness to perform its par of the
CS (OS) 3227/1990 17 of 40
bargain;
4) Extension of the obligation, through mutual negotiation,
evidenced by Ex.PW-1/17 to Ex.PW-1/26;
5) Willingness of the plaintiff to even clear the defendants' dues
to the Bank
were clearly established by oral and documentary evidence. The plaintiff
also proved that possession of the suit property had been handed to it, by
the defendants 1 & 2. If these circumstances were weighed alongside the
reality of skyrocketing real estate prices, the claim for decree of specific
performance as the only just relief this Court should grant, would be
evident.
26. Learned counsel contended that a prior mortgage nowhere
constituted a bar to granting a decree for specific performance. He
submitted that being an encumbrance, such a mortgage would attach
itself and the mortgagee creditor's options can never be limited or
diminished. The mortgagees right to foreclosure would be as regards the
property, not the debtor. There was no legal bar, or any principle in
CS (OS) 3227/1990 18 of 40
equity constituting a vendor mortgagor's right to enter into agreements,
to sell such mortgaged property.
27. Learned counsel relied upon the decision of this Court reported as
Raghunath Vs. J.P. Sharma AIR 1999 Del 383; R. Velammal Vs. R. Daya
Siga Mani AIR 1993 Mad 100 in support of his contention that mere prior
mortgage or encumbrance could not deprive the vendee of a right to
decree for specific performance and that such mortgage only became a
liability or encumbrance to the property which the subsequent purchaser
has to satisfy.
28. Learned counsel next submitted that no bar, legal or contractual
could be inferred merely because the agreement to sell stipulated that
the vendor had to obtain permission from authorities or administrative or
clearances. He relied upon the judgments of the Supreme Court reported
as Mrs. Chandni Widyavati Maddan Vs. Dr. C.L. Katial AIR 1960 (9) SC 978;
Ramesh Chandra Chandiok Vs. Chunni Lal Sabharwal AIR 1971 SC 1238
and Ramji Bhai Dahya Vs. Jani Narottam Dass Lallu Bhai air 1986 SC 1912
in support of the submission that the requirement of having to secure
CS (OS) 3227/1990 19 of 40
permission from statutory and other authorities did not constitute a legal
impediment for decree of specific performance.
29. It was next contended that in the written statement filed in 1990 a
sum of Rs.2 corers was payable under the equitable mortgage of the suit
property for which two suits were filed. The Plaintiff contends that even
though the third defendant claims to be an equitable mortgagor holding
the title deeds crucially it elected to sue only for a simple money decree,
thus electing against its option to enforce the mortgage. In these
circumstances it cannot be heard to say that the plaintiff is disentitled to
a decree of specific performance since all the material averments have
been proved by it in that regard.
30. The plaintiff disputes the third defendant's right to oppose the
decree of specific performance and contends that as regards such relief,
only defendants 1 and 2 have the locus standi to resist these
proceedings. They were set down ex parte long ago. It is contended that
no collusion or malafides on behalf of the plaintiff have been averred or
established in the course of these proceedings. So long as the third
CS (OS) 3227/1990 20 of 40
defendants' rights are not affected or prejudiced, it cannot legitimately
oppose a decree for specific performance of the agreement in relation to
the suit property provided all the legal requirements for such reliefs are
proved. It is submitted that though by virtue of Section 20 of the Specific
Performance, it is a discretionary relief yet such discretion should be
exercised judicially and reasonably. It was urged that there was no
material on the record to show that the plaintiff's conduct was suspect or
that it, in any manner sought to defeat third party rights or had colluded
with the first defendant. The plaintiff had, even during the pendency of
the suit made attempts to settle the liabilities of the first two defendants
with the third defendant Bank. Yet the latter refused to entertain the
plaintiff claiming that it had no right or locus as regards the suit property.
Counsel contended that under Section 20(2) discretion has to be
exercised only in regard to the purchaser to the agreement - in this case
the plaintiff and defendants 1 & 2 and none else.
31. Learned counsel submitted that in suits of the present kind where
necessary ingredients have been proved, a decree for specific
performance is the rule; it should be declined or only when the
CS (OS) 3227/1990 21 of 40
circumstances show that damages constitutes adequate relief. He relied
upon the judgment reported as Prakash Chandra Vs. Angadi Lal AIR 1979
SC 1241. Similarly, it was contended that unless the vendor is able to
bring his case within the exceptions specified in Section 20(2) of the Act,
the Court should ordinarily not decline exercise of discretion and should
decree the suit. He relied upon the judgment reported as Shri Pradeep
Bhargav Vs. Smt. Ram Piary ILR 1992 (Del) 677. He also relied upon the
decision reported as Prithvi Raj Singh Vs. Dalip Kulkarni AIR1999 Raj 201
and Frank Finn Aviation Services Vs. B.C. Gupta 2007 (9) AD(Del) 449.
32. Mr. Rajeev Dutta, learned counsel for the third defendant (the Bank)
submitted that no relief should be granted in the circumstances of the
case. According to him, the plaintiff and first two defendants entered into
the agreement, with the intention to defeat the bank's rights. The bank
had a prior, subsisting mortgage right from 1978. The defendant Nos 1
and 2 with mala fide intention sought to defeat and diminish its rights,
and entered into the agreement to sell in 1983. The ostensible
consideration was admittedly inadequate. As a result, the property was
acquired through order of the competent authority, under (the then
CS (OS) 3227/1990 22 of 40
existing) Chapter XX-C of the Income Tax Act. Learned counsel contended
that though the plaintiff was aware about the subsistence of the order, it
did not reveal it, in the suit. As on the date of filing the suit, the defendant
Nos 1 and 2 did not possess any right title or interest in the property,
which could have been conveyed to the plaintiff. The plaintiff's conduct in
not disclosing these essential and material facts, in the suit, disentitles it
to any discretionary relief.
33. It was next submitted that the plaintiff's witnesses in their cross
examination showed awareness of the Bank's prior entitlement, as well as
the pending suits against the first defendant. These, it was submitted,
established that the sole object of the agreement to sell was to defeat the
contract between the bank and the first defendant. It was also submitted
that in any case, an agreement to sell property did not create any interest
in the property, unlike a mortgage or charge, as in the Bank's case.
34. Counsel submitted that the first two defendants were conveniently
set down ex-parte, to facilitate the plaintiff's design in seeking a decree
for specific performance. According to him, the agreement was
CS (OS) 3227/1990 23 of 40
unenforceable, since the surrounding circumstances revealed that it was
a dubious and sham transaction, meant to defeat the bank's rights to
realize the mortgage security. Counsel submitted that mere existence of
an agreement to sell did not entitle a potential purchaser any interest in
land; such agreement also did not result in any lien or charge, which
could defeat a valid mortgage or security of a genuine creditor, such as
the bank in this case.
35. Learned counsel submitted that the defendant vendor's being set
down exparte is also suspect and dubious, having regard to the
background of its Directors. It was submitted that S. Tejwant Singh and
his family members had been indicted by the Supreme Court, in other
proceedings; the court had directed attachment of their properties, as
well as their associates.
36. Mr. Rajeev Dutta relied on the order of the Supreme Court, dated
29-1-1991, to say that all properties of Shri Tejwant Singh were attached.
It was urged that the subsequent order of the Supreme Court, dated 6-5-
1996, in Delhi Development Authority, Petitioner; V. Skipper Construction
CS (OS) 3227/1990 24 of 40
Co. (P) Ltd 1996-(4)-SCC -622 pierced the veil of M/s Tej Properties (P) Ltd,
and held it to be that of S. Tejwant Singh, all of whose properties were
attached. Pursuant to those orders, a commissioner has, it is submitted,
been continuously monitoring the affairs; the suit property is also one of
the assets which is subject to attachment. Counsel therefore, contended
that these circumstances and facts intercede to prevent any decree for
specific performance, as it would not be equitable to do so. Counsel also
contended that the court should take into consideration other
circumstances that the bank's suits were decreed by the Debt Recovery
Tribunal, as a result of which the defendant vendor has to discharge huge
liabilities. The plaintiffs, it is contended, sought to have themselves
impleaded in those proceedings, but unsuccessfully. They even
approached the Supreme Court, which dismissed their petition. It was
lastly urged that the Commissioner appointed in the Skipper case, by the
Supreme Court, has filed reports, which indicate that even the suit
property is subject to attachment, and orders of the Supreme Court.
37. It was submitted that even if the plaintiff were held to have proved
other facts which would lead the court to grant the decree, the present
CS (OS) 3227/1990 25 of 40
case is not one where the court should exercise its discretion, as it would
be injudicious to do so, under Section 20 (2) of the Act. It was submitted
that the circumstances in which the contract was entered into,
particularly the alleged initial consideration paid, the repeated extensions
given by the vendor, the intervening order of vesting under the Income
Tax Act, (which had, during its currency, the effect of effacing any
obligations under the contract), despite which the agreement was
extended, the time lag between the initial contract and the filing of the
suit, as well as the bank's rights to proceed against the suit property, are
all material considerations which would bar the entitlement to decree for
specific performance.
FINDINGS
38. The Agreement to Sell on 1.1.1983 here was for a consideration of
Rs.41.50 lakhs. The agreement mentions about payment of Rs.11 lakhs
as part payment and a further sum of Rs.50,000/- and the plaintiff
undertaking to pay the balance Rs.30 lakhs. The Defendant was to deliver
CS (OS) 3227/1990 26 of 40
peaceful and vacant possession of the property to the plaintiff as well as
original documents of title, possession or power concerning the suit
property. According to clause 4 the Defendants (Vendor) was to obtain
necessary permission for purchase from the Land & Development Officer
and clearance under Section269-AB of the Income-tax Act, 1961 and
other such clearances. Clause 10 recorded that the sale would be
completed as soon as necessary permissions/sanctions and certificates
etc were obtained by the Defendants/Vendors which was also to pay the
entire unearned increase of the land. The Plaintiff was to bear expenses
of the sale deed, stamp duty, registration charges etc.
39. The documentary evidence shows that though the Agreement (Ex.
PW-1/2) is dated 1-1-1983, the vendor and the plaintiff executed no less
than eleven extension of time for performance documents (Ex. PW-1/17 to
Ex. PW-1/27 series). These documents are also relied on by the plaintiff to
claim that the is filed within the period of limitation. It cannot be denied
that a suit for specific performance of a contract for sale of immovable
property has to be filed within 3 years from accrual of cause of action.
The suit would have been barred, but for these documents, which are
CS (OS) 3227/1990 27 of 40
sought to be set up as acknowledgements or fresh agreements.
40. A careful scrutiny of the extension agreements, if one may so term
them, reveals that their sole purpose was to extend the time for
performance, by the defendant vendors. They otherwise incorporate the
same terms and conditions, as originally agreed. Yet, interestingly
sometime during the interregnum, the Central Government had
undeniably issued an order under Chapter XX-C, Income Tax Act. That the
plaintiff filed a writ petition, questioning that order is a matter of record.
Yet, neither the plaintiff avers, nor does it show through any documentary
evidence, how such agreements, embodied in extensions could have at
all been entered into by the parties, when the vendor had been divested
of the title. It is an established proposition of law that even void statutory
orders are deemed to have effect, till declared to be so, or set aside in
appropriate proceedings. This was so held in State of Punjab v. Gurdev
Singh, (1991) 4 SCC 1, that an order:
"....has at least a de facto operation unless and until it is declared
to be void or nullity by a competent body or court. In Smith v. East
Elloe Rural District Council 6 Lord Radcliffe observed: (All ER p. 871)
"An order, even if not made in good faith, is still an act capable
CS (OS) 3227/1990 28 of 40
of legal consequences. It bears no brand of invalidity on its
forehead. Unless the necessary proceedings are taken at law to
establish the cause of invalidity and to get it quashed or otherwise
upset, it will remain as effective for its ostensible purpose as the
most impeccable of orders.".."
41. Here, in this case, neither the plaintiff, nor the defendant Nos. 2 and
3 (the vendors) could have foreseen and foretold a future event, i.e the
quashing of the compulsory purchase order made by the Central
Government in 1987. Yet, the plaintiff seeks specific performance of the
agreement. The order of the Central Government was made on 23-1-
1987; the plaintiff filed the writ petition, being WP 338/1987. Yet, there is
no mention of these facts. That these facts have become to some extent
academic, is a matter of detail. The court, however cannot overlook the
plaintiff's conduct in this regard. Being aware of the statutory order,
vesting the property in the Central Government, and even having
challenged it, the plaintiff chose to deliberately remain silent, or even
explain how the suit could be maintained, when it was filed.
42. According to the averments in the suit, the initial consideration for
the agreement to sell was paid by M/s Allan Jacks & Co (India) Pvt. Ltd (so
CS (OS) 3227/1990 29 of 40
described in Exhibit PW-1/3). A receipt issued by the second and third
defendants in this regard, Ex. PW-1/3 is relied on for this purpose.
However, these cheques were issued, even according to the document,
on 2nd September, 1982 (Rupees six lakhs) and 8th November, 1982
(Rupees five lakhs). PW-1 in his deposition stated that the payment was
made when the agreement was not in force; he also stated that the
plaintiff was subsidiary of M/s William Jacks. The same witness stated that
William Jacks was the plaintiff's tenant, but was unable to mention how
long it continued in that capacity. No such tenancy agreement or any
document to that effect has been brought on record. In fact, this is
contrary to the averments of the plaintiff, which deposes, in para 7 of the
plaint, that it has been in possession of the property, after the agreement
to sell was entered into with the vendors.
43. Apart from the receipt and the agreement to sell, with the further
extensions, all of which record that a balance of Rs. 22,50,000/- was
payable to the vendor defendants, no independent evidence of the
amounts having been paid, or the plaintiff's ability to pay such amounts,
CS (OS) 3227/1990 30 of 40
at the relevant time, was shown. It is one thing to rely on documents, to
say that there can be no dispute about payments, in an ex-parte
proceeding, but entirely different, where a third party to the transaction
alleges that grant of decree would be inequitable and prejudicial to its
interests. The bank has always disputed the genuineness of the
transaction between the plaintiff and the defendant vendors; it terms it as
collusive. In these circumstances, whether the vendors contested the
proceeding or not, the plaintiff still was under a duty to satisfy the court
that grant of a decree would be sound exercise of jurisdiction, and that it
was always ready and willing to pay the amounts, at the time of agreed
performance, in 1988, and again, when it approached the court. Such
independent evidence is lacking; the mere oral deposition of the plaintiff's
witnesses in that regard would be insufficient.
44. The Court has to independently examine whether the material on
record entitles the plaintiff to the decree sought for it. Two important
considerations always weigh with the Court while adjudicating a claim for
specific performance of a contract of sale of immovable property. One,
whether the plaintiff had pleaded and proved readiness and willingness to
CS (OS) 3227/1990 31 of 40
perform his part of the contract and two, whether the equities of the case
demand that such a decree be made. (see Yohanan vs. Ram Latha, 2005
(7) SCC 534; Suryanarian Upadhayay vs. Ram Roop Pandey, AIR 1994 SC
105 and Ouseph Verghese vs. Joseph Aley, 1969 (2) SCC 539).
45. Learned counsel for the plaintiff was able to point out the averment
in the suit to submit that the necessary pleadings had been made. He
also referred to the affidavit of evidence of PW-1 and PW-2 for the
contention that the plaintiffs always ready and willing and continued to be
so for the performance of their obligation. However, independent of that,
no other evidence, as noticed earlier, is forthcoming. It was urged that the
plaintiff had at the relevant time, deposited a sum in excess of Rs. 37
lakhs in the defendant bank, in a no lien account, to show its bona fides.
That was pursuant to an offer to pay off the banks' dues, owed by the
vendors; in any case, it was much after the filing of the suit. That aspect
cannot be considered by the court as evidence of the plaintiff's readiness
and willingness to pay the balance, at least at the time of performance of
the contract, or at the time of filing the suit. No bank statement, or
document, revealing the plaintiff's capacity, at those times, has been
CS (OS) 3227/1990 32 of 40
placed on record.
46. It is now established law (refer Chand Rani vs. Kamal Rani, 1993 (1)
SCC 519) that there is no presumption that the time is not of the essence
of the contract, in the case of an agreement to sell immovable property
yet at the same time absence of any stipulation does not relieve the
parties concerned from the obligation to perform it within reasonable
time. As to what is reasonable time would vary from case to case having
regard to attendant facts and circumstances. In this case, the parties, as
evident from documentary evidence, fixed the time for performance. It
was extended no less than 8 times, spanning more than 5 years.
Strangely, despite the undeniable appreciation in value, the terms were
never renegotiated.
47. On behalf of the bank, DW-2 its witness, mentioned about five legal
proceedings filed against the defendant vendors, as well as other sister
concerns. The documents relied upon (DW-2/1 to DW-2/3) are to the
effect that an overall settlement of the said groups' liabilities was
acceptable, for the sum of Rs. 5.3 crores, provided the Supreme Court's
CS (OS) 3227/1990 33 of 40
approval was forthcoming, and without prejudice to the banks' rights. The
bank also contends that as a result of this arrangement, Rs. 37.5 lakhs
was kept in a no lien account, as a without prejudice arrangement.
48. The plaintiff contends, by relying on these documents, as well as
evidence introduced by PW-2, in the form of five letters (PW-2/1 to PW-
2/3) a draft application under Order 23, Rule 3, signed by Shri Tejwant
Singh (PW-2/4) a draft receipt (PW-2/5) certificate dated 10-1-2002 (PW-
2/6) and Fixed Deposit Receipt dated 28-12-2001 (PW-2/7) that the bank
would not be prejudiced, as its interests are fully taken care of.
49. Now to tie the threads of reasoning which seem disparate and dis-
jointed. The evidence on record no doubt reveals that the plaintiff
agreed to purchase the suit property from the vendor defendants (No.1
and 2). Its reliance on the receipt, as discussed above, about the payment
of initial amounts, to the said vendors, through M/s William Jacks, is
inconsistent. Though it would not ordinarily be of any consequence, yet
the defendant bank's refutation of the transaction, and its claim to the
agreement affecting its interests, placed an obligation on the plaintiff to
CS (OS) 3227/1990 34 of 40
explain to some degree, and lead evidence in that regard. It did not do so.
It has also not led any evidence in the form of any contemporaneous
document, about its ability and willingness to perform its part of the
bargain. If one keeps in mind that the initial agreement was to have been
executed in 1983, but was mutually extended up to 1988, the plaintiff
should have shown its financial capacity as of the time for performance,
as well as when it approached the court. Evidence is lacking in that
regard.
50. The plaintiff has not denied that the property was subject to
mortgage. Its argument was that the bank did not elect to enforce the
securities through a suit for foreclosure, but filed a suit for recovery.
Ordinarily, perhaps, this would have been a relevant factor. However,
having regard to the observations in the preceding paragraph, and the
circumstance that the property had vested in the Central Government,
(which was not even pleaded in the suit, when filed, but disclosed by the
fourth defendant, Union of India) that is not of significance. If these are
taken together with the Supreme Court's orders attaching the properties
of the Skipper group, and Shri Tejwant Singh, the picture emerging is an
CS (OS) 3227/1990 35 of 40
entirely different one.
51. Section 20 of the Specific Relief Act, 1963 reads as follows:
"20 DISCRETION AS TO DECREEING SPECIFIC DECREEING SPECIFIC
PERFORMANCE.
(1) The jurisdiction to decree specific performance is discretionary,
and the court is not bound to grant such relief merely because it is
lawful to do so; but the discretion of the court is not arbitrary but
sound and reasonable, guided by judicial principles and capable of
correction by a court of appeal.
(2) The following are cases in which the court may properly exercise
discretion not to decree specific performance :
(a) where the terms of the contract or the conduct of the parties at
the time of entering into the contract or the other circumstances
under which the contract was entered into are such that the
contract, though not voidable, gives the plaintiff an unfair
advantage over the defendant; or
(b) where the performance of the contract would involve some
hardship on the defendant which he did not foresee, whereas its
non- performance would involve no such hardship on the plaintiff; or
(c) where the defendant entered into the contract under
circumstances which though not rendering the contract voidable,
makes it in equitable to enforce specific performance.
Explanation 1 : Mere inadequacy of consideration, or the mere
fact that the contract is onerous to the defendant or improvident in
its nature, shall not be deemed to constitute an unfair advantage
within the meaning of clause (a) or hardship within the meaning of
clause (b).
Explanation 2 : The question whether the performance of a
CS (OS) 3227/1990 36 of 40
contract would involve hardship on the on the defendant within the
meaning of clause (b) shall, except in cases where the hardship has
resulted from any act of the plaintiff subsequent to be the contract,
be determined with reference to the circumstances existing at the
time of the contract.
(3) The court may properly exercise discretion to decree specific
performance in any case where the plaintiff has done substantial
acts or suffered losses in consequence of a contract capable of
specific performance.
(4) The court shall not refuse to any party specific performance of a
contract merely on the ground that the contract is not enforceable
at the instance of the other party."
52. In M. Meenakshi v. Metadin Agarwal,(2006) 7 SCC 470, it was held
that:
"39. Furthermore, Section 20 of the Specific Relief Act confers a
discretionary jurisdiction upon the courts. Undoubtedly such a
jurisdiction cannot be refused to be exercised on whims and
caprice; but when with passage of time, the contract becomes
frustrated or in some cases increase in the price of land takes place,
the same being relevant factors can be taken into consideration for
the said purpose. While refusing to exercise their jurisdiction, the
courts are not precluded from taking into consideration the
subsequent events. Only because the plaintiff-respondents are
ready and willing to perform their part of contract and even assuming that the defendant was not entirely vigilant in protecting his rights in the proceedings before the competent authority under the 1976 Act, the same by itself would not mean that a decree for specific performance of contract would automatically be granted. While considering the question as to whether the discretionary jurisdiction should be exercised or not, the orders of a competent authority must also be taken into consideration."
53. As to what are properly matters of discretion, was spelt out in a perceptive decision reported as K.S. Vidyanadam v. Vairavan, (1997) CS (OS) 3227/1990 37 of 40 3 SCC 1, at page 7 :
"10. It has been consistently held by the courts in India, following certain early English decisions, that in the case of agreement of sale relating to immovable property, time is not of the essence of the contract unless specifically provided to that effect. The period of limitation prescribed by the Limitation Act for filing a suit is three years. From these two circumstances, it does not follow that any and every suit for specific performance of the agreement (which does not provide specifically that time is of the essence of the contract) should be decreed provided it is filed within the period of limitation notwithstanding the time-limits stipulated in the agreement for doing one or the other thing by one or the other party. That would amount to saying that the time-limits prescribed by the parties in the agreement have no significance or value and that they mean nothing. Would it be reasonable to say that because time is not made the essence of the contract, the time-limit(s) specified in the agreement have no relevance and can be ignored with impunity? It would also mean denying the discretion vested in the court by both Sections 10 and 20. As held by a Constitution Bench of this Court in Chand Rani v. Kamal Rani1: (SCC p. 528, para 25) "... it is clear that in the case of sale of immovable property there is no presumption as to time being the essence of the contract. Even if it is not of the essence of the contract, the Court may infer that it is to be performed in a reasonable time if the conditions are (evident?): (1) from the express terms of the contract; (2) from the nature of the property; and (3) from the surrounding circumstances, for example, the object of making the contract."
In other words, the court should look at all the relevant circumstances including the time-limit(s) specified in the agreement and determine whether its discretion to grant specific performance should be exercised. Now in the case of urban properties in India, it is well-known that their prices have been going up sharply over the last few decades..."
CS (OS) 3227/1990 38 of 40
54. No doubt, most of the decisions involving courts' discretion refusing specific performance have been in the context of equities favouring the defendant vendor. However, the construct of Section 20(2) and 20(3) is such that discretion is not limited to examining whether an order of either kind would prejudice the parties; it is wide enough to comprehend prejudice or injury to third parties. Here, the bank's interests are involved. Also, importantly the attachment of properties of the Skipper group, by the Supreme Court's directions are wide and comprehend the present property, since the "corporate veil" was pierced by the Supreme court. The object of the attachment order was to protect the interests of parties who suffered on account of the actions of the Skipper group and the third defendant. Arguendo, if the court were to, on the basis of only materials on record, decree specific performance, such order would result in potential injury to large number of persons, whose economic interests (apart from the interests of the bank) are sought to be secured by the Supreme Court's attachment order. Such decree would defeat the attachment, and undermine public justice. These circumstances are indeed weighty; they outweigh the plaintiff's interests.
CS (OS) 3227/1990 39 of 40
55. In view of the above discussion, it is held that the plaintiff is not entitled to the decree for specific performance; issue Nos 2 and 3 are held against the plaintiff.
56.As a consequence of the findings on Issue Nos 1 to 3, this court is of the opinion that the reliefs sought cannot be granted. In view of the above findings as well as express provision of Section 22 (2) of the Specific Relief Act, 1963, this court cannot consider the relief of refund of earnest money or consideration, as it has not been pleaded.
57.The suit, therefore fails. It is dismissed with costs. Counsel's fee is quantified at Rs. 75,000/-; the same shall be paid to the third defendant.
DATED: August 20, 2008 S. RAVINDRA BHAT
(JUDGE)
CS (OS) 3227/1990 40 of 40