TaxTMI 
TaxTMI 
2006 (8) TMI 527
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....Company was incorporated on 19.6.1979. The amount of consideration paid to said Shanti Narain Verma was repaid by the Company by two cheques of Rs.1,11,250/- each to Mohan Lal Saraf and Pushpa Devi Saraf (hereinafter referred to as "Sarafs"). The first balance sheet of the Company was signed by the 2nd respondent herein on 30.6.1980, wherein also 'the property' was shown to be that of the company. With a view to do away with the said clause of re-conveyance, a suit was filed by the Company against the said Shanti Narain Verma. The said suit was decreed. The First Directors' Report dated 15.11.1980 and the balance sheet of the Company for the year ending 30.6.1981, signed by the 2nd respondent herein also disclosed the property to be that of the Company. Directors of the Company, viz., 'Sarafs' resolved to sell the property in favour of the appellants herein. A resolution to let out the property in favour of one Manoj Kumar Poddar was also adopted by it. A General Power of Attorney was also executed by the Company in favour of one M.M. Aggarwal who had specially been invited to attend the said meeting. Pursuant to or in furtherance of the said resolution, an agreement of sale of the....
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....d to execute the decree. In execution of the said decree a warrant of delivery of Possession was issued against the Company and M.K. Poddar was said to have been dispossessed. M.K. Poddar, indisputably filed an application under Order 21 Rule 99 of the Civil Procedure Code for restoration of possession of the said property. In response to the notice issued thereupon, the respondents contended that they intended to raise a multi-storied building upon demolition of the existing building. Suits and other proceedings initiated by the appellants : A suit was filed by the appellants and the said M.K. Poddar in the Delhi High Court for a declaration that the Decree dated 21.2.1985 passed by the said Court was obtained by fraud and thus was a nullity. Another suit was filed by the appellants for declaration and appointment of Receiver before the Civil Judge, Kanpur Dehat being Suit No.237 of 1989, wherein a declaration was sought for that the defendants therein, in view of the Agreement of Sale dated 12.6.1984, had no authority to cause any damage to the suit property. Symbolic possession was directed to be given in favour of the appellants therein by an order dated 23.10.1989. Ho....
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....ymbolic possession was quashed by the High Court by an order dated 23.10.1989 on the premise that there had been no sufficient service and the matter was remanded to the Trial Court for fresh consideration thereof. A Criminal Misc. Writ Petition No.23804/89 was filed in the High Court of Judicature at Allahabad for a direction that a criminal case be registered for protection of life and property of the Sarafs and for payment of damages for damages allegedly caused to them. By an order dated 9.12.1993, the High Court directed investigation into the allegations made by Sarafs by the Central Bureau of Investigation. Upon completion of the investigation by the Central Bureau of Investigation, a charge-sheet was filed against the appellants and the trial against them is pending. Judgment of the Court : On the backdrop of several litigations between the parties and allegations and counter allegations made by one party against the other therein, the learned Trial Court decreed the Appellants' suit for specific performance of contract. The said judgment and decree came to be challenged before the High Court. A Division Bench of the High Court allowed the appeal on the premise that t....
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....ree of the Delhi High Court, in any view of the matter, would not adversely affect the interest of the appellants, which could not have been relied upon by the respondents as they were not parties thereto. ix) Both the Hon'ble Judges of the High Court committed a manifest error in arriving at a finding that the appellants were responsible for demolition of the existing structures and institution of the rent case through G.P. Tiwari. (x) Even assuming that the said findings are correct, the same by itself could not have been a ground for denying the appellants the relief by way of a decree for specific performance of contract. Mr. Sudhir Chandra, learned Senior Counsel appearing on behalf of the respondents, on the other hand, would support the impugned judgment contending : (i) The High Court has rightly arrived at a finding that the suit property was demolished on 23.9.1989 illegally by the appellant No.1 and his associates and thus, they became disentitled from obtaining the discretionary relief of specific performance of contract; (ii) The said finding of the High Court being based upon the materials on record including the judgment of another Division Bench of th....
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....perty in favour of Sarafs by a deed of sale dated 24.2.1979 and the Company having admittedly been incorporated on 19.6.1979, the title in respect thereof did not vest in the Company and, thus, the provisions of Section 15(h) and 19(e) of the Specific Relief Act, 1963 would have no application in the instant case. As on the date of execution of sale, the Company had no funds of its own and the amount of consideration, admittedly, having been paid by Sarafs, the Company could not be declared to be the owner thereof by a Court of law as was purportedly done by reason of the judgment dated 19.8.1987 in the suit filed by the Company against Shanti Narain Verma. (d) The controversy in Suit No.267/80 being confined to the applicability of the re-conveyance clause contained in the deed of sale dated 24.2.1979, the question of ownership of the property having been vested in the Company did not and could not arise and in that view of the matter, the judgment rendered therein was inadmissible in evidence to prove the Company's title thereover. Ownership issue : The property in question was purchased by the Promoters of the company, namely, Sarafs. An application for registration of the....
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....owner of the property. There cannot, therefore, be any doubt whatsoever that for all intent and purport the Company was the owner of the property and at all material times Sarafs had made representations as such to the appellants as also to others thereabout. Unincorporated Corporation issue : At the time when the property was released from the charge held by the State Bank of India, a notice in terms of Section 138 of the Companies Act was issued by Shri Mohan Lal Saraf. In the registers maintained by the Registrar of the Companies under Section 132 of the Companies Act, it was shown that a charge of the said property had been made in favour of the State Bank of India. Under the English Common Law, an unincorporated corporation could not have become an owner of the property. The law in India, however, is different. Before we advert to the statutes operating in the field, in passing we may notice a wholly untenable submission of Shri Sudhir Chandra that an unregistered deed of sale only having been executed in favour of the company by Sarafs, no title passed to the company in view of Section 54 of the Transfer of Property Act. Section 54 of the Transfer of Property A....
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....[AIR 1969 Mad. 462], the Madras High Court clearly held that Section 19(e) of the Specific Relief Act carves out an exception from the common law of England, stating : "While we accept the position that a promoter is neither an agent nor a trustee of the company under incorporation, we are inclined to think that in respect of transactions on behalf of it, he stands in a fiduciary position. For the plaintiff-company Sections 92 and 94 of the Indian Trusts Act, 1882, were relied upon. It seems to us that neither of these sections is of assistance to it. These sections, as we think, contemplate transactions as between persons in existence. In any case, it seems to us that no trust as defined by Section 3 of the Act is brought about by the purchases made by the promoters. The legal position of a promoter in relation to his acts, particularly purchase of immoveable properties on behalf of the company under incorporation, is a peculiar one not capable of being brought into any established or recognised norms of the law as to its character as an agent or a trustee. But, at the same time, it is impossible, to our minds, to deny that he does stand in a certain fiduciary position in relat....
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....ior counsel for the respondent on Shamsu Suhara Beevi v. G. Alex & Anr. [(2004) 8 SCC 569, para 11] is not apposite, wherein it was held : "On equitable considerations court cannot ignore or overlook the provisions of the statute. Equity must yield to law." In the said decision this Court was not concerned with the interpretation of Section 19(e) of the Specific Relief Act. Transfer of Property Act does not prohibit an oral transfer. The statute merely provides that if the value of the said property is more than Rs.100/- a registered document is required to be executed. Section 5 of the Transfer of Property Act provides for transfer in favour of the company which was unincorporated. The effect of the Transfer of Property of Act, therefore, postulates transfer in favour of unincorporated company. It does not create any bar. Our attention was drawn to a statement made by the appellant No.1 before the trial court in cross-examination. He stated that Sarafs had informed him that the company was the owner. He, however, volunteered that he himself as also the company became owners. He probably gave the said answer having regard to the fact that an agreement for sale had been ....
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....le of law that mere admission does not create title but while determining such a question that intention of the parties as to in whom the title of the property shall vest, the conduct of the parties assumes significance. In the instant case, it was Sarafs who represented the company. They had made the representation that the company was the owner of the property. Such a representation had been made to the appellant herein not only in terms of the decree obtained in the said O.S. No.267 of 1980, but by reason of execution of the other documents including creation of mortgage of the property and discharge thereof in favour of the State Bank of India. If by reason of such representation, a third party alters his position, indisputably, the principle of estoppel would apply. We may, however, hasten to add that where there exists a statutory embargo, vesting of title in a person shall be subject thereto. We have, however, in this case, no doubt whatsoever that there did not exist any statutory embargo in this behalf. In Bank of India & Ors. etc. vs. O.P. Swarnakar & Ors. etc. [(2003) 2 SCC 721], this Court took notice of the following passage from Halsbury's Law of England, 4th Ed....
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....milarly, in Amalgamated Investment & Property Co. Ltd. vs. Texas Commerce International Bank Ltd. [(1981) 1 All ER 923], it was held : "Where the estoppel alleged was founded on active encouragement or representations made by the representator, it was only unconscionable for the representator to enforce his strict legal rights if the representee's conduct was influenced by the encouragement or the representation. However, it was not necessary for the encouragement or representation to have been the initial cause of the representee's conduct in order to be unconscionable but merely that his conduct was so influenced by the encouragement or representation that it would be unconscionable for the representor to enforce his legal rights." Mr. Sudhir Chandra placed strong reliance in Mahboob Sahab v. Syed Ismail & Ors. [(1995) 3 SCC 693], wherein this Court was dealing with the issue of res judicata. As in this case, we have already held that the principle of res judicata may not have any application, it is not necessary to advert thereto. It is also not a case where fraud was alleged, as was the fact involved therein. Reliance placed on Chhaganlal Keshavlal Mehta vs. Patel N....
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....the statement did so without full knowledge, or under error, sibi imputet. It may, in the result, be unfortunate for him, but it would be unjust, even though he acted under error, to throw the consequences on the person who believed his statement and acted on it as it was intended he should do." Lifting the Corporate Veil : In a case of this nature, keeping in view the facts and circumstances of the case, even the doctrine of lifting the corporate veil would be applicable. We would, in this regard, notice some precedents operating in the field. In Kapila Hingorani vs. State of Bihar [(2003) 6 SCC 1], this Court opined : "It is now well settled that the corporate veil can in certain situations be pierced or lifted. The principle behind the doctrine is a changing concept and it is expanding its horizon as was held in State of U.P. v. Renusagar Power Co. The ratio of the said decision clearly suggests that whenever a corporate entity is abused for an unjust and inequitable purpose, the court would not hesitate to lift the veil and look into the realities so as to identify the persons who are guilty and liable therefor." {See also Union of India & Ors. vs. M/s. Playwo....
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.... to have been obtained by Sarafs by concealment of material facts and by a collusive and fraudulent exercise. In the arbitration proceedings, Sarafs stated that the agreement dated 12.06.1984 was in fact a sale transaction. In paragraph 8 of the written statement, the stand taken by them was that the agreement was a sham document entered into by and between the parties so as to enable them to secure removal of padlocks by State Bank of India, Kanpur. In the said written statement itself they, however, disclosed about the execution of an agreement for sale in favour of the defendant no.5. The said agreement was registered on 29.09.1984 i.e. much after the execution of agreement for sale dated 12.6.1984 as also after the institution of the suit. It is now well settled that fraud vitiated all solemn act. Any order or decree obtained by practicing fraud is a nullity. {See - (1) Ram Chandra Singh vs. Savitri Devi & Ors. [(2003) 8 SCC 319] followed in (2) Vice Chairman, Kendriya Vidyalaya Sangathan & Anr. vs. Girdhari Lal Yadav [(2004) 6 SCC 325]; (3) State of A.P. & Anr. vs. T. Suryachandra Rao [(2005) 6 SCC 149]; (4) Ishwar Dutt vs. Land Acquisition Collector & Anr. [(2005) 7 ....
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....fs in favour of their son-in-law, original defendant No.5, S.K. Mittal stated that the property was worth Rs.25 lakhs. The trial court, in our opinion, correctly arrived at an opinion that the said agreement was a shame one. The original defendant No.5 did not file any suit for specific performance of contract. The said agreement for sale had not been acted upon by the parties. Reliance placed on the said agreement by a learned Judge of the High Court was, therefore, unwarranted. The High Court in its judgment did not show as to how the said finding of the learned trial court in that behalf was wrong. Moreover, except the said agreement, no other legal evidence was brought on record to establish as to what was the actual market value of the property. The value of the property, as noticed hereinbefore, was only Rs.2 lakhs in the year 1979. Within a period of 5 years thereof as per the agreement for sale, its price went up five times over the original. It is, wholly unlikely that the property which was valued at Rs.2 lakhs in 1979, would be worth Rs.25 lakhs in 1984. In any view of the matter inadequate consideration by itself would not lead to the conclusion that the same w....
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....rted dispute was raised on 6.6.1984 by and between the said Vijay Kumar on the one hand and Sarafs on the other, as regards the ownership of the property. One B.S. Mathur, Advocate, was appointed as arbitrator on 7.6.1984. If the said documents were in existence on 8.6.1984, Sarafs themselves could not have been a party to the resolution in regard to the execution of the agreement for sale of the company's property in favour of the appellant as also letting out of the same to Manoj Kumar Poddar. It has not been denied nor disputed that the said Vijay Kumar was merely an employee. The arbitrator was appointed in undue haste. Within a few days, so many events took place, which itself is a pointer to the evil design on the part of Sarafs. It is of some significance to note that the appointment of Shri Vijay Kumar as Director of the company was intimated to the Registrar of the Companies on 29.9.1984, and the same had been received in his office only on 7.1.1985. Not only Sarafs intended to wriggle out of the agreement to sell, they even intended to play fraud on the State Bank of India as 'the property' was charged in its favour and the amount received from the appellant by way ....
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....ed. Apparently the respondents intended to sell what they had purchased. There is nothing in the averments of the agreement to suggest that the intention of the respondents was restricted to the house alone and not the lands. There was no basis for arriving at the said findings. In any event, expression 'the house' will also include the land appurtenant thereto. In P. Ramanatha Aiyar's Advanced Law Lexicon, Volume 2, 2005, the word "house" has been defined to mean : "HOUSE" means a house suitable for occupation by a Military Officer or a military mess. The term includes the land and buildings appurtenant to a house. [Cantonment (House Accommodation) Act (6 of 1923), S. 2(f)] "HOUSE" includes any building or part of a building with its appurtenances and outhouses used for any purpose whatsoever [Orissa House Rent Control Act, 1967 (4 of 1968), S. 2(3)]. "HOUSE" includes (a) any part of a building occupied or intended to be occupied as a separate dwelling, and (b) any yard, garden, outhouses and appurtenances belonging to it or usually enjoyed with it [Housing Act, 1996 (c. 52 1996), S. 6B(1)]" In 'Word and Phrases, Permanent Edition, Volume 19A, it is stated ....
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....ed: "The applicant would suffer irreparable injury in case the opp. parties are successful in demolishing the building." The said findings by itself, as was submitted by Mr. Dwivedi, in our opinion, would not be sufficient to draw an inference that Sarafs were responsible for demolition of the building. We are not oblivious of the fact that thereafter G.P. Tiwari instituted Rent Case numbered as Rent Case No.99/87 against the Sarafs. The appellants were not impleaded as parties therein. G.P. Tiwari was allegedly the caretaker of the building. An ex- parte order was passed on 25.8.1989 directing eviction of Sarafs and granting possession of the premises in his favour. The said order was implemented and possession of the said premises was delivered on 23.9.1989. It is not in dispute that the building was demolished on the same day. It is furthermore not in dispute that Mohan Lal Saraf filed an application for setting aside the said ex-parte order dated 23.9.1989. On 24.9.1989, in relation to the said order, Smt. Pushpa Devi Saraf also filed a Writ Petition being W.P. No.21985/89 for quashing of the ex-parte order dated 25.8.1989. The ex-parte order was recalled. The writ petiti....
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.... response to the application for recalling the ex- parte order passed in Rent Case No.99/87, stated that he had been appointed as caretaker by Manoj Kumar Poddar. It is not in dispute that Manoj Kumar Poddar is a cousin of Sudhir Parasrampuria. We may moreover notice that against the order dated 9.12.1993 passed by the Allahabad High Court, special leave petitions were filed by G.P. Tiwari and also by A.C. Verma, Civil Judge, Kanpur, which were dismissed. Circumstances pointed out hereinbefore prima facie do not lead to a conclusion that Sarafs were responsible for demolition of the structures in question. In view of the pendency of the criminal case, we do not intend to express a definite opinion on one way or the other on the said issue. The sequence of events noticed hereinbefore would go to show that the balance in regard to demolition of the said structure tilts against the Appellants, in view of the charge-sheet filed by the Central Bureau of Investigation although the same itself may not be conclusive in nature. There is no reason for us, as at present advised, to take a different view from that of the High Court in this behalf. There are other circumstances too which ....
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....nforce specific performance. Explanation 1.- Mere inadequacy of consideration, or the mere fact that the contract is onerous to the defendant or improvident in its nature, shall not be deemed to constitute an unfair advantage within the meaning of clause (a) or hardship within the meaning of clause (b). Explanation 2.- The question whether the performance of a contract would involve hardship on the defendant within the meaning of clause (b) shall, except in cases where the hardship has resulted from any act of the plaintiff subsequent to the contract, be determined with reference to the circumstances existing at the time of the contract. (3) The court may properly exercise discretion to decree specific performance in any case where the plaintiff has done substantial acts or suffered losses in consequence of a contract capable of specific performance. (4) The court shall not refuse to any party specific performance of a contract merely on the ground that the contract is not enforceable at the instance of the party." Balancing of equities in a case of this nature is a difficult task. It is now well settled that compensation can be awarded in lieu of grant of decree ....
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....g, he is, in the absence of special circumstances, entitled to an injunction against such repetition." On the one hand it is clear that the passage of provisions for equitable damages did not affect these general principles. So it has been affirmed that the authorities show "that Lord Cairns' Act did not revolutionise the principles upon which the equitable jurisdiction had been administered up to that time and that some special case must be shown before the court should exercise the jurisdiction under the Act". On the other hand, in cases where an injunction or an order of specific performance would be granted if there were no power to grant damages the statutory power of the court to award damages may, in special circumstances, be of critical weight. It may induce the court to conclude that any inconvenience or hardship which would be caused to the plaintiff if he were obliged to accept merely an award of damages would be so far outweighed by the hardship that would be caused to the defendant if specific enforcement were granted that damages constitute the most appropriate remedy. Hence where the court would otherwise have granted specific relief the importance of a power to g....
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....he purchaser is entitled to recover as damages his deposit, if any, with interest, and his expenses incurred in connection with the agreement, but not more than nominal damages for the loss of his bargain.' It is not necessary to decide how far the words 'without his default' go, if I am right in thinking that inability without default is what one has to consider as attracting the rule in Bain v Fothergill. There may be cases in which there has been no lack of bona fides, yet the rule in Bain v Fothergill has been excluded. I would not however venture to suggest that anything less than lack of good faith could exclude the rule. But it seems from later decisions that fraud, in the full sense of that word such as would found an action for deceit, may not be necessary to exclude the rule. No doubt Blackett-Ord V-C had in mind that fraud must be strictly alleged and proved in all ordinary circumstances. But in my judgment, unwillingness to use best endeavours to carry out a contractual promise is bad faith, and for there to be bad faith which takes the case out of this exceptional rule it is not necessary that there should be either a deliberate attempt to prevent title being mad....
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.... weeks, by the end of August and by the end of November 2002 respectively. When we suggested to the learned counsel that it would be fair if some more amount is offered, the learned counsel for the appellants agreed on behalf of his clients for payment of Rs.40 lakhs in lump sum within a period of six months commencing from today. Having regard to the offer made in the letter coupled with the oral representation made today and to mete out justice to the parties, we direct that the undertaking to pay the sum of Rs.40 lakhs within six months should form part of the decree in the suit. This shall be in addition to the sale price already deposited in the Court. The same shall be deposited in the Court within a period of six months and the plaintiffs are entitled to withdraw the same in addition to the amount already deposited." In Manjunath Anandappa urf Shivappa Hanasi vs. Tammanasa & Ors. [(2003) 10 SCC 390], was a member, a decree for specific performance was declined as the plaintiff did not approach the court within a reasonable time. In P.D'Souza vs. Shondrilo Naidu [(2004) 6 SCC 649], this Court rejected the contention that inadequacy of consideration may be ground for ref....