1968 (3) TMI 106 - SC - Indian Laws

Supreme Court upholds oral agreement for share sale, emphasizes equitable considerations in partition decree

KOLLIPARA SRIRAMULU Versus T. ASWATHANARAYANA & ORS.

The Supreme Court affirmed the High Court's judgment regarding an oral agreement for the sale of shares, finding the agreement valid despite the absence ... Whether the appellant was entitled to the 39 shares purchased by him from the partners owning them? Whether by reason of the prior oral agreement the 1st respondent was entitled to a conveyance in respect of the shares? Held that:- There was evidence given on behalf of respondent No. 1 that the women partners had authorised the men partners to represent them at the meeting but none of the women partners entered the witness box to deny such authorisation. On behalf of the appellant reliance was placed upon the circular letter, Ex. A-15 purported to be written by one Gopi Setti Venkata Subba Rao, one of the shareholders. The document is not signed by respondent No. 1. It appears to be a notice prepared by one of the shareholders to be circulated inter se among them and refers to the mode of payment of the purchase money agreed to between respondent No. 1 and the persons selling the shares. The High Court has observed tive. The mere omission to settle the mode of payment does no, case of respondent No. 1 and we see no reason to take a different view as regards the effect of Ex. A-15. The evidence adduced on behalf of respondent No. 1 does not show that the drawing up of a written agreement was a pre-requisite to the coming into effect of the oral agreement. It is therefore not possible to accept the contention of The appellant that the oral agreement was ineffective in law because there is no execution of any formal written document. As regards the other point, it is true that there is no specific agreement with regard to the mode of payment but this does not necessarily make the agreement ineffective. The mere omission to settle the mode of payment does not affect the completeness of the contract because the vital terms of the contract like the price and area of the land and the time for completion of the sale were all fixed. We accordingly hold that Mr. Gokhale is unable to make good his argument on this aspect of the case. Issues Involved:1. Existence of an oral agreement for the sale of shares.2. Effectiveness of the oral agreement without a formal written document.3. Bona fide purchaser status of the appellant.4. Directions regarding the allotment of the site with the cinema building.Detailed Analysis:1. Existence of an Oral Agreement for the Sale of Shares:The primary issue was whether there was an oral agreement between the 1st respondent and all the partners of the firm, except the appellant, for the sale of their shares on July 6, 1952. The 1st respondent claimed that an agreement was reached at a meeting of the male partners at Desu Virabhadrayya's house, where it was agreed to sell their shares at the rate of Rs. 3,375 for eight shares. The High Court accepted the evidence of the 1st respondent and corroborating witnesses, including P.Ws. 5, 6, 7, and 8, who testified to the agreement's occurrence. The High Court found the evidence credible, noting that 20 out of 30 shareholders executed sale deeds in favor of the 1st respondent after the alleged oral agreement, supporting the claim of a pre-existing agreement.2. Effectiveness of the Oral Agreement Without a Formal Written Document:The appellant argued that the oral agreement was ineffective because it was contingent on a formal written agreement, which was never executed. The Court rejected this argument, stating that a mere reference to a future formal contract does not prevent a binding bargain if the essential terms are agreed upon. Citing legal precedents, the Court held that the absence of a formal written document did not invalidate the oral agreement, as the vital terms like price, area, and time for completion were fixed.3. Bona Fide Purchaser Status of the Appellant:The appellant claimed to be a bona fide purchaser for value without notice of the prior oral agreement. However, the Court found that the appellant had notice of the agreement. P.W. 2 testified that the appellant was aware of the agreement when he made his purchases. Additionally, P.Ws. 5 and 6 met the appellant on July 7, 1952, and informed him about the agreement. The High Court concluded that the appellant had notice of the prior oral agreement, and the purchase price paid by the appellant was nearly the same as that under the agreement in favor of the 1st respondent, further supporting this conclusion.4. Directions Regarding the Allotment of the Site with the Cinema Building:The High Court had directed that, as far as possible, the site upon which the cinema building stands should be allotted to the 1st respondent. The appellant contended that there was no equity in favor of the 1st respondent, as he was a lessee for a limited period, and the High Court had no jurisdiction to modify its judgment without an application for review. The Supreme Court agreed with the appellant that the High Court's direction should be deleted as no application was made under Section 2 of the Partition Act. The Court allowed for the possibility of equitable directions in the final partition decree based on representations by the parties.Conclusion:The Supreme Court affirmed the judgment and decree of the High Court of Andhra Pradesh, subject to the modification regarding the allotment of the site with the cinema building. The appeals were dismissed with costs, and the High Court's direction concerning the site allotment was deleted. The parties were allowed to make representations for equitable directions in the final partition decree.