J.K. Rajgarhia vs Ravi Singh And Ors.
1995 Latest Caselaw 454 Del

JUDGMENT

Jaspal Singh, J.

(1) Along with his suit for specific performance on the basis of a Memorandum of Understanding with regard to sale of premises No. C-63 Meharani Bagh, New Delhi, the plaintiff has also moved an application under Order 39 rules 1 and 2 seeking to restrain the defendants from "parting with ownership/possession" of the said premises. It is that application which has led me to pen these lines.

(2) First a bird-eye view of the facts.

3. The plaintiff claims that Dr.Ravi Singh defendant for himself and on behalf of the other co-owners who too are arrayed as defendants, executed a Memorandum of Understanding agreeing" thereby to sell the building for a consideration of Rs.2,35,00,000.00 and in terms of the said agreement he even received a payment of Rs.500,000.00 through a Bank draft but is now refusing to proceed ahead with the execution of a sale deed.

(4) The defendants allege that Dr.Ravi Singh had no authority to act on behalf of the other co-owners and as such the Memorandum of Understanding does not bind them. It is not disputed that a cheque for Rs.5,00,000.00 was received by Dr.Ravi Singh. However, it is claimed that as the said cheque was not honoured by the Bank and as no payment Hereafter was made to him, the negotiations failed and it was for this reason that no Agreement of Sale was entered into.

(5) Time now to come into grip with the arguments advanced.

(6) As per Mr.Marwah the Memorandum of Understanding is not enforceable as Dr.Ravi Singh had no authority from the other co-owners to negotiate and to enter into the agreement and that in any case in the absence of an agreement of sale as envisaged by section 269Uc of the Income Tax Act, 1961, the Memorandum cannot be acted upon.

(7) As far as the first contention of Mr.Marwah is concerned, the fact that Dr. Ravi Singh entered into an agreement of lease, a Memorandum of Understanding and an Agreement of Sale with regard to this very property with another company and admittedly on the basis of a power of attorney on behalf of the others, cannot he lost sight of. It may not be out of place to mention that when Mr.Rohatgi appearing for the plaintiff showed in court a photocopy of the alleged power of attorney and challenged Mr.Marwaha to deny it, Mr.Marwah considered it perhaps more convenient to skirt the challenge.

(8) Coming to section 269Uc of the Income Tax Act it merely imposes restrictions on transfer of certain immovable properties in the absence of an Agreement in the prescribed form, for transfer. It does not debar the parties concerned from entering into a Memorandum of Understanding which, if otherwise valid and enforceable, can be made the basis for its specific performance though, for ultimate transfer, the provision of section 269Uc shall have to be complied with.

(9) Mr. Marwah had also drawn my attention to a judgment of the Supreme Court in Amritsar Sugar Mills v. Commissioner of Sales Tax . In the said case the contract by the Mills was to actually deliver goods at a place to be communicated. Clause Ii of the contract contemplated a destination in spite of constructive delivery having been contracted to be made at one Rohana Kalan station. Further, the contract was not to actually deliver at some place to be chosen or assented to by the assesses mills but at any place without restrictions. The contract required nothing more than a mention of the place. The court observed : "WHEN the dispatch instructions were given, it was not a case of performing the contract but specifying a term of the contract. If the place of actual delivery had been specified and it was a question merely of communicating the route by which the goods were to be delivered. This would perhaps relate to the mode of performance of contract. But communication of the place where actual delivery is to he given does not relate to inc mode of performance but formation of the contract

(10) I fail to see as to how this judgment so fondly referred to by Mr.Marwah, fits into the facts of the present case or advances his case. I have taken pains to deal with it in some detail lest I am accused of not referring to it.

(11) This leads me to the next step shown of course by Mr.Soli Sorabjee.

(12) How ?

(13) Let me explain.

(14) The defendants are alleged to have entered into a Memorandum of Understanding and an Agreement of Sale with regard to this very properly with M/s. Hotz Industries Pvt. Ltd. This happened after the execution of the Memorandum of Understanding with the present plaintiff. It so happens that the said Company too has filed a suit for specific performance of the agreement of sale allegedly entered into by the present defendants with it and Along with the suit it too has moved an application for ad interim injunction. While arguing on that application Mr.Soli Sorabjee briefly but incisively enough touched upon the question of validity of the Memorandum of Understanding in the present suit. He wanted me to ignore the Memorandum on the ground that it was merely a contract to enter into a contract and hence unenforceable.

(15) Should I ?

(16) Let me first have a look at the Memorandum of Understanding, Its relevant portion runs asunder: .1st "WHEREAS the Vendors are desirous of selling the said property and Purchaser has agreed to purchase the same at a total consideration of Rs.2.35 Crores payable as detailed herein below.

(17) Now, both the parties have desired to reduce the terms and conditions in writing and this agreement stales as under: 1. That the consideration for the properly would be Rs.2.35 Crores payable as under: Rs. in lakhs i) On signing of this agreement 5.00 ii) On signing of agreement to sell 25.00 iii) On receiving the permission under section 269UC(3) of the Income Tax Act. 1961 from the appropriate Authority (37-1) 5().00 iv) Within one month of receiving permission under section 269UC(3) 75.00 v) Within one month of payment under Clause iv) 80.00 Total 235.00 A cheque No.323598 dated 29.8.94 for Rs.5,00,000.00 (Rupees Five Lakhs only) being handed over to theVendors. 2. That it would be the sole responsibility of the Vendors to obtain permission under Section 269UC(3). 3. Any other permission viz. permission under Section 230A (Form 14 A) of the Income Tax Act, permission from Dda, permission from Maharani Bagh Co-operative House Building Society Ltd. etc. would be obtained by the Vendors. 4. That the house tax of the said property till the dale of signing of the Sale agreement would he payable by the Vendors and this liability hereinafter would be of the Purchaser. 5. That in case of any litigation of any nature whatsoever arising due to any pending action before the date of this agreement, the same would be defended by the Vendors at their own cost. 6. The Purchaser would finalise the Agreement to Sell' within a period of 21 days of this agree ment which would, subject, to the mutual agreement of both the parties, then be signed by both Vendors and Purchaser. sd/- (VENDORS) sd/- (PURCHASER)"

(18) The contention Mr.Soli Sorabjee was that as the finalised "Agreement to Sell" was to be signed by the vendors and the purchaser "subject to the mutual agreement of both the parties" therefore, it envisaged a contract to enter into a contract

(19) Is this Memorandum of Understanding something writ in water and thus of no value ?

(20) As said by Lord Dunedin in May and Butcher v. The King ( 1934) 2 Kb 7 reported in a note to Foley v. Classique Coaches Ltd. (ibid) "TO be a good contract there must he a concluded bargain and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to he settled by agreement between the parties. Of course it may leave something which has still to be determined but then that determination must he a determination which does not depend upon the agreement between the parties."

(21) In other words.the general principle is that when there is a fundamental matter left undecided and to be the subject of negotiation, there is no contract (Courtney & Fair Bairn Ltd. v. Tolaini Bros. (Hotels) Ltd. (1075) I Wlr 207).

(22) There is also no manner of doubt that though the Courts do seek to apply the old maxim of English Law, verba it a 'simt intelligent at res magis valeat pereat, hut the maxim does not mean that the court can redraft the clause to make a contract for the parties, or to go outside the words they have used, except in so far as they are appropriate implications of law (Hillas & Co. Ltd. v. Acros Ltd. 147 L.T. 503, 514: Adamstos Shipping Co. ltd. v. Anglo-Saxon Petroleum Co. Ltd. 1050 Ac 133 at 186; Scammell (G) and Nephew Ld v. Ouston (H.C. And J.G.) 104] Ac 251 at 272).

(23) During arguments Mr.Soli Sorabjee drew my attention to the following in Anson's Law of Contract 25th Edition:    "BUT the contract will clearly he incomplete if a material term not agreed upon can be determined only by a future agreement between the parties."   

(page 62) And that    "....there will be no contract if a material term is left to he negotiated between the parties..."  

(24) My attention was also drawn to the following passage appearing in Mulla's Contract Act 10th Edition at page 57:    "BUT in case of contract for sale of land a contract is not concluded where the requirement is "subject always to preparation and execution of a formal contract for sale" and there is no such contract drawn up and executed."  

(25) As would be borne out from what has been said by me preceding the passages quoted from Anson, I have no quarrel nor can I possibly have, with what Anson has said, but I do feel that the passage extracted from Mulla does need to be commented upon. It seems to be inspired by a judgment from Australia reported as Bridle Estates Pty. Ltd. v. Myer Realty Pty Ltd. ( 1977) 51 ALJR 734. It is important to note that in the said case there was a dispute on the question as to whether all the terms had been agreed upon or not. The respondent had made an offer which contained the special condition "The Vendor agrees to have all missing survey pegs replaced prior to settlement". The document signed by the appellant's directors contained no such term. There were negotiations and making of proposals and counter proposals. It was thus a case where parties were negotiating subject to the preparation and execution of a formal contract. It was in the context of these facts that the court held what has been stated by Mulla.

(26) There are cases in the books where it has been found that parties had entered into a firm agreement even though it was their common contemplation that a formal document would thereafter be executed and in this connection reference may he made to Godecke v. Kirwan (1973), 129 Clr 629 and Eccles v. Bryant (1948) Ch. 93

(27) The correct position of law, if I may say so with respect, seems to have been stated in Von Hutzfeldt - Wildenburg v. Alexander (1912) I Ch. 284 wherein Parker .J. observed: "IT appears to he well settled by the authorities that if the documents or letters related on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract. In the latter case there is a binding contract....."

(28) That the principle of the English Law summarised in the passage above quoted applies in India too is borne out from two judgments of the Privy Council namely, Hari Chand Mancharan v. Govind Luxman Air 1923 Pc 47 and Currimbhoy & Co. v. Creet .

(29) What is more material than the expression of desire by the parties to resort to a formal document is the intention of the parties behind the expression of that desire. Was the desire to execute further contract a condition or term of the bargain or a mere expression of parties wish to formalize what had already been agreed upon? This would be the real question and to answer it one must know as to whether a material term had been left out for future negotiations between the parties or not.

(30) What is the position in the case before me? Undoubtedly, the written statement does say that the Memorandum of Undertaking is not a concluded contract. And, in support it gives three reasons. First, Dr.Ravi Singh had no authority to enter into the agreement on behalf of the other co-owners. Secondly, the cheque for Rs.5 lakhs had bounced and thirdly no Agreement of Sale had been entered into in terms of section 269UC of the Income Tax. In paragraph 3 of the Preliminary Objections, the Memorandum of Understanding is labelled as "mere promises" and thus "not equivalent to valid and completed contracts". In paragraph 4 it is claimed that the Memorandum is "illegal and cannot be acted upon" in view of "the provision of section 269Uc(3) and Rule 48 L of the Income Tax Act" and in paragraph 5 the reason given for non-execution of an Agreement of Sale is given as "bouncing of the cheque of Rs. 5 lakhs" In paragraph 11 it is stated that negotiations "never matured into an agreement as the co-owners never agreed including defendant No. 1 to enter into an agreement with the plaintiff whose cheque of small amount of Rs.5 lakhs even bounced and who never bothered to pay in lieu of the same nor expressed regret and that is why the negotiations came to end and no Contemplated agreement as required by para 6 of Memorandum of Understanding came into existence." In paragraph 3 of the written statement on merits, it is pleaded: "The Memorandum of Understanding was signed by defendant No.1 only subject to the condition of the encashment of the cheque, after the approval by the co-owners of the terms and conditions signing was to be on the agreement of sale ... and not otherwise."

(31) Where is it thus pleaded that the Memorandum of Understanding is incomplete because a material term or terms remained yet to be determined by a future agreement or that clause 6 of the Memorandum was inserted for that reason? And, where is it notified as to what was it which needed determination? I feel it was required to be spelled out because what is left to he determined must be a determination which does not depend upon the agreement between the parties.

(32) Was it because of this lack of plea that Mr.Marwah did not even care to stand up and adopt the point so assiduously urged by Mr.Soli Sorabjee who, in fact, represented none of the parties to the suit?

(33) I was reminded by Mr.Marwah that no interim injunction can be granted unless the plaintiff shows the existence of a prima facie case and unless he further establishes that balance of convenience is in favor of grant of injunction and that non-grant of injunction would result in irreparable injury to him. Here is a Memorandum of Understanding which prima facie embodies within it all the material terms. The plaintiff claims that Dr.Ravi Singh had the authority to enter into the agreement and that consequent upon dishonour of the cheque for Rs.5 lakhs a bank draft for the said amount had been handed over to him. True, the defendants deny the authority of Dr.Ravi Singh and so also the factum of his having received the Bank draft. Does all this not raise substantial questions which need decision on merits? It appears that the defendants have already entered into another agreement of sale. It is of a subsequent date. Does not the plaintiff need protection from its consequences? After all, irreparable injury does not mean that there must be no physical possibility of repairing the injury. It means this only that the injury must be a material one and surely if the defendants are allowed to go ahead with the sale of the properly, the injury ensuing to the plaintiff would be material. And, as for the "balance of convenience", I do feel that as compared to the defendants, the refusal of injunction is likely to cause much more substantial mischief or injury to the plaintiff and thus the subject matter needs to be maintained in status quo.

(34) The result is that I direct the defendants to maintain status quo with regard to the suit properly and its possession till further orders. This, however, is subject to the condition that the plaintiff deposits in court within a week from.today a sum of Rs.2,35,()(),()()().00 (Rupees two crores thirty five lakhs only).

(35) It may be said, if it really needs to he said, that this order shall not he read as an expression of opinion on the merits of the ease.