2019 (9) TMI 1724 - SC - Companies Law

Agreement to sell within 15-year prohibition period under Section 61 Reforms Act renders transaction invalid and unenforceable

The SC held that an agreement to sell dated 15.05.1990 was unenforceable due to violation of Section 61 of the Reforms Act, which prohibits mortgage or ... Enforceability of an agreement - non-alienation Clause of 15 years - whether the agreement to sell dated 15.05.1990 executed by Bale Venkataramanappa in favour of the Plaintiff would be enforceable in law or not? - HELD THAT:- The transaction between the late Bale Venkataramanappa and the Plaintiff is not disputed. Initially the said Bale Venkataramanappa had executed a registered mortgage deed in favour of the Plaintiff. Within a month, he entered into an agreement to sell wherein, the entire consideration for the transfer as well as handing over of the possession was acknowledged. It could thus be seen, that the transaction was nothing short of a transfer of property. Under Section 61 of the Reforms Act, there is a complete prohibition on such mortgage or transfer for a period of 15 years from the date of grant. Sub-section (1) of Section 61 of the Reforms Act begins with a non-obstante clause. It is thus clear that, the unambiguous legislative intent is that no such mortgage, transfer, sale etc. would be permitted for a period of 15 years from the date of grant. Undisputedly, even according to the Plaintiff, the grant is of the year 1983, as such, the transfer in question in the year 1990 is beyond any doubt within the prohibited period of 15 years. Sub-section (3) of Section 61 of the Reforms Act makes the legislative intent very clear. It provides, that any transfer in violation of Sub-section (1) shall be invalid and it also provides for the consequence for such invalid transaction. Undisputedly, in the present case, the claim of the Plaintiff is entirely based upon the agreement to sell dated 15.05.1990, which is clearly hit by Section 61 of the Reforms Act. There is no other foundation for the claim of the Plaintiff except the one based on the agreement to sell, which is hit by Section 61 of the Act - It could thus be seen that, the trial Judge upon finding that the agreement of sale was hit by Section 61 of the Reforms Act, had rightly dismissed the suit of the Plaintiff. The judgment and order passed by the High Court of Karnataka dated 08.06.2015 and the Order passed by the Fast Track Court-III, Bangalore Rural District, Bangalore, dated 17.06.2008 are quashed and set aside - Appeal allowed. Issues Involved:1. Enforceability of the agreement to sell during the non-alienation period under Section 61 of the Karnataka Land Reforms Act, 1961.2. Limitation period for filing the suit for specific performance.3. The validity of the trial court's judgment versus the appellate court's judgment.Detailed Analysis:1. Enforceability of the Agreement to Sell:The primary issue revolves around whether the agreement to sell dated 15.05.1990, executed by Bale Venkataramanappa in favor of the Plaintiff, is enforceable in law. The court examined Section 61 of the Karnataka Land Reforms Act, 1961, which imposes a 15-year non-alienation period on the transfer of granted land. The section explicitly prohibits the transfer by sale, gift, exchange, mortgage, lease, or assignment within this period. The court noted that the agreement to sell was executed within this prohibited period, making the transaction invalid and unenforceable. The court held that the trial judge was correct in dismissing the suit based on this statutory bar.2. Limitation Period for Filing the Suit:The Defendants contended that the suit for specific performance, filed in 1999 for an agreement made in 1990, was beyond the limitation period. The High Court, however, did not frame an issue regarding the Plaintiff's readiness and willingness to perform his part of the contract, which is a necessary consideration in such suits. The Supreme Court did not delve deeply into this issue, focusing instead on the statutory prohibition under Section 61 of the Reforms Act.3. Validity of the Trial Court's Judgment versus the Appellate Court's Judgment:The trial court dismissed the suit, finding the agreement void due to the non-alienation clause. The first appellate court reversed this decision, holding that the non-alienation clause did not prohibit the agreement to sell and that the Plaintiff had paid the entire consideration and taken possession. The High Court upheld the appellate court's decision, but the Supreme Court found that both the Plaintiff and the predecessor-in-title of the Defendants were equally responsible for the illegal transaction. The Supreme Court emphasized that the agreement was void under Section 61 of the Reforms Act, and thus, the Plaintiff's claim could not be sustained.The court applied the principles from previous judgments, such as Kedar Nath Motani v. Prahlad Rai and Immani Appa Rao v. Gollapalli Ramalingamurthi, which discuss the application of legal maxims like 'ex turpi causa non oritur actio' (no action arises from a base cause) and 'in pari delicto' (in equal fault). The court concluded that the Plaintiff could not base his claim on an illegal transaction and that granting relief would be against public policy.Conclusion:The Supreme Court allowed the appeals, setting aside the judgments of the High Court and the first appellate court, and upheld the trial court's order dismissing the suit. The agreement to sell was found to be void and unenforceable due to the statutory prohibition under Section 61 of the Karnataka Land Reforms Act, 1961. The parties were ordered to bear their own costs.