2022 (3) TMI 265 - SC - Indian Laws

Supreme Court dismisses suit for sale of site, citing unenforceable agreement. Appellants ordered to pay 20,00,000 to Respondents.

The Supreme Court dismissed the suit for specific performance regarding the sale of a site due to the unenforceability of the agreement under Section 23 ... Suit for specific performance - direction to return of the amount paid by the Plaintiff under the contract - second Defendant was a bonafide purchaser of the site for value without notice of the earlier agreement of sale as well as pendency of the Suit - Bangalore Development Authority Act, 1976 - Pari Delicto Potior Est Conditio Defendentis - Is the suit premature? - scope of article 54 of the Limitation Act - Impact of absence of prayer questioning repudiation by first defendant - Is the second defendant, a bonafide purchaser - Not a case under Article 136?. Pari Delicto Potior Est Conditio Defendentis - HELD THAT:- Section 61 of the Karnataka Land Reforms Act, 1961 provided that no land for which occupancy was granted, shall within 15 years of the order of the Tribunal, be transferred by sale, inter alia. A partition was permitted. Equally, a mortgage could be effected to secure a loan. Cases of Conditional decree of specific performance - HELD THAT:- The High Court, in the impugned Judgment, had dismissed the Suit for Specific Performance, taking the view that till 1999, when the Tamil Nadu Urban Ceiling Act was repealed, the agreement was not enforceable. That apart, under the agreement of sale, vacant land, in the aggregate, exceeding the ceiling limit of the Plaintiff, would have to be conveyed to him, attracting the VETO contained in Section 5(3) read with Section 6 of the State Act. It was this view, which was reversed by this Court, following the Judgments, which we have referred to which relate to conditional decrees. This result was arrived at by this Court, after finding that agreement to sell contemplated transfer of the land only after getting exemption. Clause (4) of the Agreement contemplated that the vendor was to obtain permission from the Competent Authority under the Urban Land Ceiling Act. We need not multiply authorities. All that is necessary to notice and find is that when an agreement to sell is entered into, whereunder to complete the title of the vendor and for a sale to take place and the sale is not absolutely prohibited but a permission or approval from an Authority, is required, then, such a contract is, indeed, enforceable and would not attract the shadow of Section 23 of the Indian Contract Act, 1872. Whatever may be intention of the parties, a contract which is expressly or impliedly prohibited by a Statute, may not be enforced by the Court. The Bombay Act did not prohibit a contract of sale of agricultural land between two agriculturists. The invalidity of the acquisition of land in excess, involved the consequence that the land would vest in the Government. In the context of the said Act, the Court has taken the view that a person can be said to hold land only when it is conveyed to him, which would not take place when there is a mere agreement to sell. The further reasoning of the Court appears to be that it is open to the buyer to transfer or dispose of land already held by him to another agriculturist and unless at the date of acquisition, the buyer held the land in excess of the ceiling limit, the acquisition to the extent of the excess over the ceiling, would not be invalid. It was further declared that the mere possibility that the Respondent/buyer may not have disposed of his original holding on the date of acquisition of title under the agreement to sell, would not render the object of the agreement such that, if permitted, it would defeat the provisions of any law. Thus, the contract was found to be not void. Is the suit premature? - scope of article 54 of the Limitation Act - HELD THAT:- Article 54 contemplates that when a date is fixed for the performance of the contract, then, the period of limitation begins to run from that date. When such a date is not fixed in an agreement to sell, then, refusal or breach by the vendor will start the clock ticking. Impact of absence of prayer questioning repudiation by first defendant - HELD THAT:- We do not need to rest our decision to non-suit the Plaintiff on this score in view of our finding that the agreement dated 17.12.1982 should not be enforced. Lis pendens - HELD THAT:- It would appear that the High Court has, in arriving at the finding that the transfer in favour of the Appellant is hit by lis pendens, taken into consideration the Doctrine of Notice/Constructive Notice. We have already observed that the Doctrine of Notice and Constructive Notice would be inapposite and inapplicable. Neither the fact that the transferee had no notice nor the fact that the transferee acted bonafide, in entering into the transaction, are relevant for applying Section 52 to a transaction. This is unlike the requirement of Section 19(1)(b) of the Specific Relief Act whereunder these requirements are relevant - As far as the transfer is made by Defendant 1(b) to the second Defendant in his own right and in so far as Defendant 1(b) was not a party and by the time the sale was effected the period of limitation for impleading Defendant 1(b) had already clearly expired even the principle laid down in the decision of the Madras High Court would not apply and the High Court was not correct in finding that the sale by Defendant 1(b) in favour of second Defendant was hit by lis pendens. Is the second defendant, a bonafide purchaser - HELD THAT:- The sale deed in favour of the second Defendant, cannot be treated as a sham transaction and the finding, in fact, on point No. 2 by the High Court, also that the second Defendant is not a bonafide purchaser. Once we come to the conclusion that the agreement, relied upon by the Plaintiff, cannot be enforced, as to whether, even proceeding on the basis that the sale in favour of the second Defendant was made, not in circumstances which would entitle the second Defendant to set up the case that he is a bonafide purchaser, the question of granting relief to the Plaintiff must first be decided. In other words, in view of the illegality involved in enforcing the agreement dated 17.11.1982, the question would arise, whether, on principles, which have been settled by this Court, the Court should assist the Plaintiff or the Defendant. We have noted the state of the evidence, in particular, as it is revealed from the deposition of PW2. We have found that the agreement, relied upon by the Plaintiff, cannot be acted upon. In such circumstances, we would think that, even if we do not reverse the finding of the High Court that the second Defendant is not a bonafide purchaser, it will not itself advance the case of the Plaintiff. This is for the reason that his case is in the teeth of the law, as found by us, making it an unenforceable contract. The Plaintiff is seeking the assistance of the Court which must be refused. Not a case under Article 136? - HELD THAT:- The High Court has clearly erred in holding that the Suit was maintainable. We would find that the Suit to enforce the agreement dated 17.11.1982, should not be countenanced by the Court. We are inclined to overturn the impugned judgment by holding that the Suit itself, was not maintainable, we must notice that the High Court had decreed the Suit on the appeal by the Plaintiff. The Defendants did not challenge the Decree of the Trial Court. Therefore, the setting aside of the judgment of the High Court would not result in dismissal of the Suit. What is more, we are of the further view that to do complete justice between the parties, while we allow the appeals, we must pass an Order, which will result in a fair amount being paid to the Plaintiff. Appeal allowed - Suit for Specific Performance will stand dismissed. Issues Involved:1. Suit for specific performance.2. Validity of the agreement under Section 23 of the Indian Contract Act, 1872.3. Doctrine of Lis Pendens.4. Bonafide purchaser for value without notice.5. Prematurity of the suit.6. Legal consequences of the agreement being unenforceable.Detailed Analysis:1. Suit for Specific Performance:The Plaintiff sought specific performance of an agreement dated 17.11.1982 for the sale of a site by the first Defendant. The Trial Court denied specific performance but ordered the return of Rs. 50,000 with interest. The High Court reversed this decision, directing the Defendants to execute the sale deed.2. Validity of the Agreement under Section 23 of the Indian Contract Act, 1872:The agreement was found to be in violation of the law as it contravened the terms of the lease-cum-sale agreement and the statutory rules governing the allotment of the site. The agreement to sell was entered into during a period when the first Defendant was prohibited from alienating the property for ten years from the date of allotment. Enforcing the agreement would defeat the purpose of the statutory rules, which aimed to ensure that the allottee constructs a residential building on the allotted site. The Supreme Court held that the agreement was unenforceable as it was against public policy and violated Section 23 of the Indian Contract Act.3. Doctrine of Lis Pendens:The High Court found that the sale of the site by Defendant 1(b) to the second Defendant was hit by the Doctrine of Lis Pendens, as the transfer occurred during the pendency of the suit. However, the Supreme Court noted that the transfer was made when Defendant 1(b) was not a party to the suit, and thus, the Doctrine of Lis Pendens did not apply.4. Bonafide Purchaser for Value without Notice:The Trial Court found the second Defendant to be a bonafide purchaser for value without notice of the agreement to sell. The High Court, however, reversed this finding, concluding that the second Defendant did not make sufficient inquiries and was not a bonafide purchaser. The Supreme Court, while noting that the High Court's finding was based on a reappreciation of evidence, ultimately held that the agreement itself was unenforceable, rendering the question of the second Defendant's bonafides moot.5. Prematurity of the Suit:The suit was filed by the Plaintiff before the expiry of the ten-year period during which the first Defendant was prohibited from alienating the property. The Supreme Court noted that there was no evidence to support the Plaintiff's apprehension that the first Defendant was about to sell the property to someone else. The suit was thus premature and lacked a valid cause of action at the time it was filed.6. Legal Consequences of the Agreement Being Unenforceable:The Supreme Court held that the agreement dated 17.11.1982 was unenforceable due to its violation of statutory rules and public policy. Consequently, the suit for specific performance was dismissed. However, to do complete justice, the Court ordered the Appellants to pay Rs. 20,00,000 to the Respondents in place of the Trial Court's decree, considering the value of the property and the amount initially paid by the Plaintiff.Conclusion:The Supreme Court allowed the appeals, set aside the High Court's judgment, and dismissed the suit for specific performance. The Appellants were directed to pay Rs. 20,00,000 to the Respondents within three months, failing which interest would accrue at 8% per annum. Each party was directed to bear its own costs.