1987 (3) TMI 515 - SC - Indian Laws

Validity of Property Sale Agreement under U.P. Law: Exemption from Prohibited Transactions

GAYA PRASAD Versus SURENDRA BAHADUR SINGH (DEAD) BY LRS.

The Supreme Court held that the agreement to sell a house was valid under the U.P. Encumbered Estates Act as it did not fall under the prohibited ... - Issues Involved:1. Validity of the agreement to sell the house under Section 7 of the U.P. Encumbered Estates Act.2. Effect of the exemption order under Section 24 of the U.P. Encumbered Estates Act.3. Impact of the mortgage and subsequent decree on the property.4. Applicability of Section 23 of the Contract Act.5. Finality of proceedings under the U.P. Encumbered Estates Act.Issue-wise Detailed Analysis:1. Validity of the Agreement to Sell the House under Section 7 of the U.P. Encumbered Estates Act:The core issue was whether the agreement to sell the house, made on May 4, 1958, was valid under Section 7 of the U.P. Encumbered Estates Act. The High Court had previously ruled that the agreement was void under Section 23 of the Contract Act due to the prohibition under Section 7 of the U.P. Encumbered Estates Act. However, the Supreme Court found that the restrictions under Section 7 pertain to 'exchange, gift, sale, mortgage, or lease' and do not explicitly include an agreement to sell. The Court clarified that an agreement to sell does not transfer any rights in immovable property and, therefore, is not prohibited by Section 7. Thus, the agreement to sell was held to be valid.2. Effect of the Exemption Order under Section 24 of the U.P. Encumbered Estates Act:The respondents had obtained an exemption order under Section 24 on March 26, 1943, which exempted the house from being sold during proceedings under the Act. The Supreme Court noted that this exemption made the house free from any mortgage or charge. The Court emphasized that the language of the provision, rather than the specific wording of the exemption order, was crucial. The exemption under Section 24 was intended to allow the debtor to retain a residential house and necessary furniture, free from encumbrances.3. Impact of the Mortgage and Subsequent Decree on the Property:The property in question had been mortgaged, and a decree based on the mortgage had been passed. The Supreme Court observed that once the Special Judge passed a simple money decree under Section 14(7) of the U.P. Encumbered Estates Act, the rights of the mortgagee were extinguished, and the decree substituted all previous rights. Therefore, at the time of the suit for specific performance, the house was free from any mortgage or charge.4. Applicability of Section 23 of the Contract Act:The High Court had ruled that the agreement to sell was void under Section 23 of the Contract Act due to the prohibition under Section 7 of the U.P. Encumbered Estates Act. However, the Supreme Court found that Section 7 did not apply to agreements to sell, as they do not transfer any rights in immovable property. Consequently, the agreement was not void under Section 23 of the Contract Act.5. Finality of Proceedings under the U.P. Encumbered Estates Act:The respondents contended that proceedings under the Act were still pending, which would invoke the restrictions under Section 7. However, the Supreme Court noted an order dated May 7, 1976, which indicated that no proceedings were pending under the Act. The Court held that the restrictions under Section 7 cease to be effective once the proceedings are concluded. Therefore, a decree for specific performance could be passed without objection under Section 7.Conclusion:The Supreme Court allowed the appeal, setting aside the High Court's judgment and restoring the decree passed by the trial court and maintained by the appellate court. The Court directed the appellant to pay a sum of Rs. 20,000 to the respondent as compensation, considering the escalation in property value. The main appeal was allowed, and no orders were necessary in the other appeal. The parties were directed to bear their own costs.