Bombay High Court
Hilton Builders & Textiles Pvt. Ltd vs Special Paints Limited & Anr on 9 October, 2013
Author: D.Y.Chandrachud
Bench: D.Y.Chandrachud, M.S.Sonak
VBC 1/16 appl397.13-9.10
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O. O. C. J.
APPEAL (L) NO.397 OF 2013
IN
NOTICE OF MOTION NO. 2508 OF 2011
IN
SUIT NO.426 OF 2007
WITH
NOTICE OF MOTION (L) NO.1938 OF 2013
Hilton Builders & Textiles Pvt. Ltd. ...Appellant.
Vs.
Special Paints Limited & Anr. ...Respondents.
....
Mr.Sharan Jagtiani with Mr.Saket Mone and Ms.Anshula Grover i/b. Vidhii
Partners for the Appellant.
Mr.Rohan Cama with Mr.Hemang Raythalta and Mr.Jayesh Mestry i/b. RMG
Law Asso. for Respondent No.1.
Mr.Prashant Chavan with Ms.Kirti Patkar i/b. Navdeep Vora & Asso. for
Respondent No.2.
.....
CORAM : DR.D.Y.CHANDRACHUD AND
M.S.SONAK, JJ.
October 9, 2013.
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
The appeal arises from a judgment of a learned Single Judge dated 13 September 2013 in a motion that was taken out by the Appellant, the original Plaintiff, during the pendency of a suit for specific performance. The reliefs that were sought in the motion were: (i) The rejection of the plaint under Order 7 Rule 11 of the Code of Civil Procedure, 1908; and (ii) A direction to relieve the Defendant (the First Respondent) from lis pendens. By the judgment and order which is questioned in appeal, the learned Single Judge declined to accede to the prayer under Order 7 Rule 11. That part of the judgment has not been questioned in appeal by the First Respondent.
::: Downloaded on - 27/11/2013 20:24:39 :::VBC 2/16 appl397.13-9.10 However, the learned Single Judge relieved the First Respondent from the operation of lis pendens under Section 52 of the Transfer of Property Act, 1882 on the deposit of an amount of Rs.8 lakhs in Court within six weeks.
The Plaintiff is in appeal.
2. The Appellant has instituted a suit for specific performance and sought a declaration that there was a binding and concluded contract between the parties for the assignment/sale of certain immovable property described in Exhibit-A to the Plaint "as is evidenced by the draft MOU exchanged' between the Appellant and the First Respondent. The prayer for performance is of an agreement which, according to the Appellant is evidenced by a draft MOU which is annexed to an e-mail dated 22 August 2006, which is annexed at Exhibit-F to the Plaint. According to the Appellant, in the month of May 2006, a concluded contract was arrived at under which the First Respondent agreed to assign its leasehold interest under an Indenture of Lease dated 12 August 1991 to the Appellant at and for a consideration of Rs.3.33 crores, besides the payment of transfer charges to MIDC. The Appellant admittedly paid to the First Respondent an aggregate sum of Rs.1 crore by two cheques both dated 22 May 2006. The case of the Appellant is that on 14 August 2006, a meeting took place in the office of the First Respondent's Advocate, during the course of which, the changes sought by the First Respondent were discussed. In pursuance of that meeting, by an e-mail dated 22 August 2006, the Appellant's Advocate attached a copy of a revised draft MOU which was to be executed between the parties. The revised draft, according to the Appellant, incorporated track changes which were discussed at the meeting which was ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 3/16 appl397.13-9.10 held on 14 August 2006. However, by an e-mail dated 29 August 2006, the First Respondent indicated that unless the Appellant was agreeable to complete the sale on an as is where is basis, the First Respondent would return all the amounts which were paid. Subsequently, meetings took place between the parties between September 2006 and January 2007. On 29 January 2007, the First Respondent enclosed under cover of a letter, two cheques each in the amount of Rs.50 lakhs in return of the amount which was paid by the Appellant. On this basis, the Appellant has instituted a suit before this Court on the Original Side, seeking specific performance of an oral contract to sell/assign the property as evidenced by the draft MOU attached to the e-mail of 22 August 2006 (Exhibit-F to the Plaint).
3. During the pendency of the suit, an application for interim relief was taken out. The motion for interim relief was dismissed by a learned Single Judge on 31 March 2009. While dismissing the motion, the learned Single Judge held as follows:
"However, the agreement as revised with the detailed additions cannot be taken to have been entered into between the parties in any joint meeting held by them or thereafter.
The main aspect of the agreement is payment of consideration. The precise extent of the consideration orally agreed between the parties is not even reflected in the draft which has been revised.
Further correspondence of the Plaintiffs shows that the amount already paid to Defendant No.1 was ''approximately 30% of the total agreed consideration'' paid in May 2006. If the precise consideration was agreed upon in May 2006, it would have found a place in the draft of the MOU. The Consideration clause in the MOU shows blanks with regard to the payment of earnest as well as the balance amount. The consideration is bifurcated into only two payments the earnest amount and the balance amount. This lends credence to the email of the 1st Defendant's attorney ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 4/16 appl397.13-9.10 showing the terms and conditions upon which the agreement could be entered into between the parties which was on ''as is where is basis'' for a lumpsum consideration. Hence further additions in the draft are a pointer only to negotiations between the parties.
The oral agreement as contended by the Plaintiffs is not prima facie shown. No case for specific performance of the agreement is made out."
4. It is not in dispute before the Court at the hearing of the appeal that on 29 March 2007, the Appellant encashed the amount of Rs.1 crore that was returned by the First Respondent by two cheques. The encashment of the amount was after the suit for specific performance came to be instituted.
5. Now, it is in this background that the First Respondent filed a motion seeking rejection of the plaint under Order 7 Rule 11 on the ground that the plaint did not make out a cause of action; the Appellant having accepted a refund of the amount of Rs.1 crore after the filing of the suit, the entire basis of the suit had ceased to exist; and that the MOU was inadmissible in evidence for want of payment of stamp duty and the plaint was liable to be rejected on that ground. The second relief that was sought in the motion was to relieve the First Respondent of lis pendens under Section 52 of the Transfer of Property Act, 1882. The Appellant, it is an admitted position, has registered the notice of lis pendens on 21 February 2007.
Section 52 of the Transfer of Property Act, 1882, in relation to the State of Maharashtra, requires the registration of a notice of lis pendens. The learned Single Judge declined to entertain the motion for rejection of the Plaint under Order 7 Rule 11. However, the learned Single Judge directed that on the First ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 5/16 appl397.13-9.10 Respondent depositing an amount of Rs.8 lakhs within six weeks in Court, the First Respondent would be entitled to deal with the property, without the property being subjected to the operation of lis pendens under Section 52 of the Transfer of Property Act, 1882. The learned Single Judge, while exercising the discretion that is vested in the Court under Section 52, observed that: (i) The oral agreement of which performance has been sought by the Appellant, is stated to be evidenced by the draft MOU which was forwarded with the e-mail of the First Respondent on 22 August 2006. The e-
mail described the MOU as the revised draft MOU which was proposed to be executed between the parties.
ig Besides being described as a "without prejudice draft", the fundamental terms relating to the payment of consideration and the manner of payment had been left blank. This e-mail was replied to by the First Respondent on 29 August 2006 suggesting that the revised draft MOU was not acceptable to the First Respondent. The First Respondent suggested that if the changes which were suggested by the First Respondent were not acceptable, the amount which had been paid by the Appellant would be refunded. The learned Single Judge held that the course of conduct of the parties, including the correspondence annexed to the Plaint, showed that prima facie there is no credible case of a concluded contract of the sale; (ii) What emerges from the correspondence was that there was a negotiation pending because of which an amount of Rs.1 crore was paid by the Appellant to the First Respondent on an ad-hoc basis. Upon the failure of the negotiations, the First Respondent refunded the amount of Rs.1 crore to the Appellant. The Appellant accepted this payment unconditionally by encashing the cheques within a few days of the institution of the suit. It was ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 6/16 appl397.13-9.10 not the case of the Appellant that the payment was accepted without prejudice to the rights and contentions in the suit; (iii) Equally, there is no case for the award of damages which have been claimed for compensation in lieu of specific performance; (iv) The only relief that the Appellant would have been entitled to on the date of the suit was a refund of Rs.1 crore together with interest. The amount has already been refunded. On the other hand, the valuable property of the First Respondent, which on the showing of the Appellant was worth about Rs.3.33 crores in May 2006 would remain locked up in litigation with the registered lis pendens resulting in severe prejudice to the First Respondent. On these facts, the learned Single Judge held that a case has been made out for relieving the First Respondent of the operation of the doctrine of lis pendens subject to a deposit of interest at the rate of 12% per annum between the period from 22 May 2006 (when the amount of Rs.1 crore was paid by the Appellant) until 29 January 2007 (when the amount was refunded). Consequently, an amount of Rs.8 lakhs was directed to be deposited.
6. Counsel appearing on behalf of the Appellant submits that: (i) The doctrine of lis pendens applies irrespective of the strength or weakness of the case and is subject only to the proceedings being bona fide; (ii) The learned Single Judge has relieved the First Respondent of the operation of lis pendens upon a consideration of the merits of the case. In consequence, the doctrine of lis pendens has been undone by looking prima facie to the merits;
(iii) The merits or strength of the case of the Plaintiff is extraneous to the issue as to whether the Defendant should be relieved of the operation of lis ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 7/16 appl397.13-9.10 pendens. The only case where the Defendant can be relieved is where the registration is not in accordance with Section 52 of the Transfer of Property Act, 1882; and (iv) In the alternative, the Appellant is willing to purchase the property at its current market value.
7. On the other hand, Counsel appearing on behalf of the First Respondent submits that; (i) Though the operation of lis pendens under Section 52 does not depend upon the strength or weakness of the case, but as a matter of law, the exercise of discretion by the Court to relieve a party of the operation of the doctrine has to be based on a consideration of all the facts and circumstances, including the interests of justice; (ii) If the evaluation, prima facie, of the justice of the case is to be excluded from consideration, then the discretion which is vested in the Court under Section 52 to relieve a party of the operation of the doctrine would have no meaning whatsoever; (iii) While dismissing the motion for interim relief, a learned Single Judge of this Court in a judgment dated 31 March 2009 held that prima facie no case was made out and there was no concluded contract between the parties; (iv) Admittedly, the Appellant encashed cheques for Rs.1 crore tendered by the First Respondent after the suit was instituted. The encashment of the cheques was made unconditionally and without any reservation. In these circumstances, to allow the operation of the doctrine of lis pendens would virtually freeze the property since no prospective purchaser would be willing to come forth with an offer to purchase the property which is subject to the operation of lis pendens.
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8. The rival submissions fall for consideration.
9. Section 52 of the Transfer of Property Act, 1882 has been amended in relation to the State of Maharashtra by Act VI of 1939. The Statement of Objects and Reasons accompanying the introduction of the bill for the amendment provides that there was no provision in Section 52 as enacted, providing for compulsory registration or giving notice of a pending suit or action by a party claiming benefit under the section. The result was that bona fide purchasers for valuable consideration may suffer loss for want of notice, that the properties purchased by them had been included in a pending action. The amendment of Section 52 was intended to supplement the provisions and to make registration of the lis pendens a condition precedent to the operation of the provisions. Section 52 as amended in relation to this State, provides as follows:
thereof .....(1) During the "Transfer of Property pending suit relating pendency in any Court having authority within the limits of India excluding the State of Jammu and Kashmir or established beyond such limits by the Central Government of any suit or proceeding which is not collusive and in which any right to immovable property is directly and specifically in question, if a notice of the pendency of such a suit or proceeding is registered under section 18 of the Indian Registration Act, 1808, the property after the notice is so registered cannot be transferred or otherwise dealt with by any party to the suit or proceeding so as to affect the right of any other party thereof under the decree or order which may be made therein; except under the authority of the Court and on such terms as it may impose"
10. Now, it is a well settled principle of law ever since the decision of the Privy Council in Gouri Dutt Maharaj vs. Sukur Mohammed,1 that the 1 AIR (35) 1948 PC 147 ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 9/16 appl397.13-9.10 purpose of Section 52 is to maintain status quo in effect by any act of a party to the litigation pending its determination. Similarly, it is well settled that the operation of the doctrine of lis pendens does not depend upon the strength or weakness of the case of the Plaintiff or, as the case may be, of the Defendant, in bona fide proceedings. This principle has been recognised in the judgment of the Supreme Court in Kedarnath vs. Sheonarain.2 Consequently, the doctrine of lis pendens operates as a matter of law subject only to the condition that the proceedings which have been instituted by the Plaintiff must be bona fide. What Section 52 postulates is that: (i) A suit or proceeding must be pending; (ii) The suit or proceeding must not be collusive; (iii) A right to immovable property must be directly and specifically in question; and (iv) A notice of the pendency of the suit or proceeding must be registered under Section 18 of the Indian Registration Act, 1808 (this last requirement being the amendment applicable to the State of Maharashtra). Once these requirements are satisfied, the property, after a notice is so registered, cannot be transferred or dealt with by any party to a suit or proceeding, so as to affect a right of any other party under a decree or order which may be made therein except under the authority of the Court and on such terms and conditions as the Court may deem fit to impose. The doctrine of lis pendens in other words does not annul or invalidate a dealing by a party to the suit but renders it subordinate to the rights of the other party to a litigation.
11. Section 52 confers a wholesome discretion on the Court as a result of which the operation of the doctrine of lis pendens can be lifted on 2 AIR 1970 SC 1717 ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 10/16 appl397.13-9.10 such terms and conditions as the Court thinks fit to impose. The Court has a discretion, which like all other discretion in law, has to be exercised on judicious considerations. Whether a party should be relieved from the operation of lis pendens is a matter of discretion. Similarly, if the Court were to decide to relieve a party of the operation of the doctrine, it has been vested with the discretion to prescribe the terms and conditions which would subserve the interests of justice. In considering the interests of justice for the purpose of determining as to whether a party should be relieved from the operation of lis pendens, the Court must necessarily have regard to all the facts and circumstances of the case. The facts and circumstances of the case must undoubtedly include the merits prima facie. To hold that the merits should be completely excluded from consideration while assessing whether the discretion should be exercised would be to read a restriction which Section 52 has not statutorily imposed. On the contrary, where the statute allows the Court under its authority and on such terms and conditions as it may impose to relieve a party of the embargo which is imposed by the provision, the court should not read restrictions which would substantially dilute the efficacy of the provision. The operation of lis pendens is as a matter of law. But the same law which recognises the doctrine confers on the Court a discretion to relieve a party of the operation of lis pendens. The law confers such a discretion in recognition of the fact that in the facts of a given case, the doctrine will result in serious inequity.
12. The reason why the Court has been vested with a discretion to relieve a party of the operation of lis pendens is that the pendency of a suit ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 11/16 appl397.13-9.10 and the registration of a lis pendens (as required in Maharashtra) substantially restricts the freedom of a party to secure a buyer at a fair market value. The Supreme Court has recognised that the mere filing of a suit may be an ingenious way to create a cloud over the title of a party. The suit may remain pending over a long period of time. This has been recognized in the decision of the Supreme Court in Vinod Seth vs. Devinder Bajaj,3 in the following observations:
"We also agree with the High Court that having regard to the doctrine of lis pendens embodied in section 52 of the Transfer of Property Act, 1882 ('TP Act' for short), the pendency of the suit by the appellant shackled the suit property, affected the valuable right of the second defendant to deal with the property in the manner she deems fit, and restricted her freedom to sell the property and secure a fair market price from a buyer of her choice.
When a suit for specific performance is filed alleging an oral agreement without seeking any interim relief, the defendant will not even have an opportunity to seek a prima facie finding on the validity of the claim. Filing such a suit is an ingenious way of creating a cloud over the title to the suit property. Such a suit, filed in the Delhi High Court, is likely to be pending for a decade or more. Even if a defendant owner asserts that his property is not subject to any agreement and the said assertion is ultimately found to be true, his freedom to deal with the property as he likes or to realize its true market value by sale or transfer is adversely affected during the pendency of the suit. The ground reality is that no third party would deal with a property in regard to which a suit for specific performance is pending. This enables an unscrupulous plaintiff to cajole and persuade a defendant to sell/give the property on plaintiff's terms, or force the defendant to agree for some kind of settlement."
Again while emphasising that the principle underlying Section 52 is based on justice and equity, the Supreme Court held as follows :
"The principle underlying section 52 of the TP Act is based on justice and equity. The operation of the bar under Section 52 is however subject to the power of the court to exempt the suit property from the operation of section 52 subject to such 3 (2010) 8 SCC 1 ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 12/16 appl397.13-9.10 conditions it may impose. That means that the court in which the suit is pending, has the power, in appropriate cases, to permit a party to transfer the property which is the subject matter of the suit without being subjected to the rights of any party to the suit, by imposing such terms as it deems fit. Having regard to the facts and circumstances, we are of the view that this is a fit case where the suit property should be exempted from the operation of Section 52 of the TP Act, subject to a condition relating to reasonable security, so that the defendants will have the liberty to deal with the property in any manner they may deem fit, in spite of the pendency of the suit."
13. A learned Single Judge of this Court in B.J.Patel vs. Vadilal Dolatram and Sons,4 had occasion to consider the principles on the basis of which the discretion under Section 52 is to be exercised. Justice Mody sitting singly held as follows :
"Though, there cannot be an exhaustive enumeration of principles one thing is clear that this is a discretionary order and lis pendens is a rule and relief is an exception and strong grounds must be made out to deprive the plaintiff of the fruits of litigation.
This being a discretionary relief, it will depend on the several circumstances which inter alia, can be, the nature of the plaintiff's case and the defence, the nature of property market and the circumstances of the defendants. If the Court is convinced on the affidavits and the pleadings that even if all the evidence was led by the parties there is a very strong probability that the plaintiff will lose the matter, it will be a very important factor, possibly conclusive for granting relief. The Court will also have to consider the inconvenience and injustice that is likely to be caused to the defendants if the relief is not granted and balance it with the inconvenience and injustice that is likely to be caused to the plaintiff if the relief from lis pendens is granted."
The earlier decision was considered in a subsequent judgment of Mr.Justice F.I.Rebello (as the Learned Judge then was) in Shantilal Jethabai Khona vs. Anandrai Shivlal Dave.5 The learned Judge referred to some of the 4 AIR 1982 Bombay 66 5 2002(3) Bom.C.R. 346 ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 13/16 appl397.13-9.10 considerations which must be borne in mind, clarifying that these were not intended to be exhaustive:
"While considering the issue to my mind this Court must pose to itself, at least the following questions which are not exhaustive:-
-(i) Is it a requirement of the section that a party can be relieved of lis pendens only on a Court imposing conditions. Is imposition of condition a prerequisite?
-(ii) Whether on the facts as pleaded will the plaintiff prima facie, be entitled to the relief of specific performance of the contract.
-(iii) If the Court comes to the conclusion that specific relief cannot be granted, then whether considering the alternative relief of damages which the plaintiff in the suit for specific performance is entitled to, whether the plaintiff should be secured.
-(iv) If to be secured should it only be the market value of the property on the date of the suit at time when the suit is filed be considered."
14. Now it is on the touch stone of these principles that we must consider as to whether the exercise of the discretion of the learned Single Judge would warrant interference in appeal. The Appellant seeks specific performance of an oral contract for sale (assignment) which is stated to be evidenced by a draft MOU which was attached to an e-mail dated 22 August 2006 (Exibit-F). The case of the Appellant is that in May 2006, parties had arrived at an agreement under which the First Respondent would assign its leasehold interest to the Appellant at and for a consideration of Rs.3.33 crores and in pursuance of which an amount of Rs.1 crore was paid by the Appellant to the First Respondent by cheque. According to the Appellant, a meeting was thereafter held on 14 August 2006. In pursuance of that meeting, the Appellant's Advocate addressed a communication attaching "a revised draft of the MOU proposed to be executed" between the respective parties. The e-
mail stated that the changes were in line with the discussion which was held in the meeting and the feed back/comments of the First Respondent were ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 14/16 appl397.13-9.10 sought. As the learned Single Judge observed, the revised draft MOU which is annexed to the e-mail dated 22 August 2006 is blank both in regard to the total consideration payable and the mode of payment. Hence, two fundamental terms of the alleged agreement have been left in the blank in the MOU. In reply, the First Respondent in its e-mail dated 29 August 2006 stated through its Advocate that it proposed to carry out the sale on an as is where is basis failing which and, if this was not acceptable to the Appellant, the First Respondent stated that it will refund all the amounts which were paid pending the negotiations. As a matter of fact, the First Respondent proceeded to refund an amount of Rs.1 crore by its two cheques under cover of a letter dated 29 January 2007. The suit for specific performance was lodged on or about 12 February 2007. Thereafter, on 29 March 2007, the Appellant proceeded to encash the cheques of Rs.1 crore. After the cheques were refunded, the Appellant by its initial letter dated 6 February 2007, declined to accept the cheques, but it is not in dispute that subsequently the cheques were encashed without any reservation or without stating that this was without prejudice to the rights and contentions of the Appellant in the suit.
Prima facie, on these facts, there is a serious doubt on whether the Appellant would be able to succeed in the suit for specific performance. That was the basis on which interim relief was declined on 31 March 2009.
15. Now, if these facts are considered, there can be no manner of doubt that the exercise of discretion by the learned Single Judge was just and proper. The learned Single Judge has acted within jurisdiction by considering the justice of the case. Prima facie, allowing the doctrine of lis pendens ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 15/16 appl397.13-9.10 under Section 52 to operate in a situation where the Appellant has encashed the cheques for Rs.1 crore, after the institution of the suit and without any reservation, would be manifestly contrary to the interests of justice. The case of the Appellant that there was an oral agreement as reflected in the revised draft MOU attached to the e-mail dated 22 August 2006, is tenuous. Equally, the claim for damages is prima facie untenable. The appreciation of the facts and circumstances of the case, prima facie in the impugned order of the learned Single Judge does not suffer from any infirmity. The interest of the Appellant has been safeguarded by requiring the First Respondent to deposit an amount of Rs.8 lakhs to take care of the claim of the Appellant towards interest, if any, on the amount of Rs. 1 crore which was paid by the Appellant to the First Respondent. This has been computed with reference to the period between 22 May 2006 when the payment was made and 29 January 2007 when the amount was refunded.
16. For these reasons, we hold that there is no merit in the appeal.
The appeal shall accordingly stand dismissed. There shall be no order as to costs.
17. In view of the dismissal of the appeal, the Notice of Motion in the appeal does not survive and is disposed of.
18. On the conclusion of the judgment, Counsel appearing on behalf of the Appellant seeks continuation of the ad-interim order of the learned Single Judge so as to enable the Appellant to seek its remedies against this ::: Downloaded on - 27/11/2013 20:24:39 ::: VBC 16/16 appl397.13-9.10 judgment. In order to enable the Appellant to do so, we continue the operation of the ad-interim order of the learned Single Judge for a period of four weeks from today.
( Dr.D.Y.Chandrachud, J.) ( M.S.Sonak, J. ) ::: Downloaded on - 27/11/2013 20:24:39 :::