M/S Chandra Estates Ltd. vs M/S Tej Properties Pvt. Ltd. & ...
2008 Latest Caselaw 1392 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                   CS (OS) No.3227/1990 & IA No.1251/2006

%                                                   Reserved on: 25.04.2008
                                                   Pronounced on: 20.08.2008


       M/s Chandra Estates Ltd.                                 Plaintiff

                       Through : Mr. Rajiv Endlaw with Mr.Kamal Mehta,

                                  Advocate

                            Vs.

       M/s Tej Properties Pvt. Ltd. & Others                    Defendants

                       Through : Mr. Rajiv Dutta, Sr. Advocate with Ms.Misha,
                                Advocate, for Defendant No.3.

% 20.08.2008


       CORAM:
       Mr. Justice S. Ravindra Bhat

1.

Whether reporters of local papers may be allowed to see the judgment? Yes

2. To be referred to the Reporter or not? Yes

3. Whether the judgment should be reported in the Digest? Yes

CS (OS) 3227/1990 1 of 40 Mr.Justice S.Ravindra Bhat

1. By this suit a decree for specific performance of the Agreement to

Sell dated 1.1.1983 as well as mandatory injunction compelling first

defendant to obtain necessary permission and to pay dues of

Defendant No.3 to secure its title deeds and execute the Sale Deed

have been sought. Correspondingly a mandatory injunction against

third defendant to handover title deeds to the property on payment

of Rs.20 lacs is claimed. In the alternative the Plaintiff has sought a

decree for Conveyance of the suit property in its favour subject to

the third defendant's liability and for damages equivalent to the

amount payable to the third defendant to get the title deeds of the

property released less Rs.20 lacs being a balance consideration.

2. The suit averments are that the plaintiff is an incorporated Company

represented through Shri Mohan Lal, its Director; the Defendant

No.1 is a Limited company engaged in the business of construction,

sale and purchase of immovable property. The 4th Defendant,

Union of India has been made a party since the Plaintiff had sought

CS (OS) 3227/1990 2 of 40 quashing of an order then made under Section 269 UD of the

Income-tax Act, compulsorily seeking to purchase the property in

question. It is averred that negotiations for purchase of the

property i.e. being Plot No.23, Block 172, Jor Bagh New Delhi

measuring 1236 sq.yds had started in 1982 with the Defendants 1 &

2. It is claimed that at the defendant's request a sum of Rs.6 lakhs

was issued by M/s William Jacks & Co., New Delhi on 2.9.1982 and

another sum of Rs.5 lakhs was issued by the said M/s William Jacs &

Co.; as earnest money. The Plaintiff also avers that M/s William

Jacks & Co. were to be given possession of the premises by it (the

Plaintiff) and, therefore, the latter had made payments. It is also

alleged that possession of the property was later given by the

Plaintiffs to the said M/s William Jacks & Co.

3. The plaintiff avers to entering into an Agreement to Sell on 1.1.1983

in respect of the said property (hereafter called the "suit property")

for a consideration of Rs.41.50 lakhs. The Plaintiff has set out the

terms of the Agreement which mentioned about the payment of

Rs.11 lakhs as part payment and a further sum of Rs.50,000/- and

CS (OS) 3227/1990 3 of 40 the plaintiff undertaking to pay the balance Rs.30 lakhs. The

Defendants were to deliver peaceful and vacant possession of the

property to the plaintiff as well as original documents of title,

possession or power concerning the suit property. According to

clause 4 the Defendants (Vendor) were to obtain necessary

permission for purchase from the Land & Development Officer and

clearance under Section269-AB of the Income-tax Act, 1961 and

other such clearances. Clause 10 recorded that the sale would be

completed as soon as necessary permissions/sanctions and

certificates etc were obtained by the Defendants/Vendors which was

also to pay the entire unearned increase of the land. The Plaintiff

was to bear expenses of the sale deed, stamp duty, registration

charges etc.

4. The suit property was mortgaged to the third Defendant; clause 12,

therefore, recorded that the Defendants/Vendor authorized the

Plaintiff to deduct, out of the consideration money and make

payments on behalf of the Defendant to the third Defendant for

clearing its dues. The Defendant/Vendor authorized the Plaintiff to

CS (OS) 3227/1990 4 of 40 take delivery of the original title deeds in respect of the suit

property and retain possession of it. The Defendant agreed to issue

a separate letter of authority to the Bank permitting the Plaintiff to

take delivery of the original title deeds without any lien or authority

after the Bank was paid its dues by the plaintiff.

5. The Plaintiff alleges that subsequent to entering into Agreement to

Sell seven other documents were given by the second Defendant on

behalf of the first Defendant, including Special Power of Attorney,

possession letter, letter authorizing the Plaintiff to get title deeds

from the Bank, original letter from the Chief Architect, NDMC along

with original sanctioned plans for the building of the suit property;

perpetual lease executed on 23.12.1970 between the President of

India and one Shri Kundan Khushi Ram Nathani duly certified by the

Office of the L&DO; Photostat copy of the Sale Deed between the

said lessee between said Sh. Kundan Khushi Ram Nathati and M/s

Tej Properties Pvt. Ltd. and lastly the receipt. It is claimed that

physical possession of the suit property was handed over to the

Plaintiff on 1.1.1983 as well as the Letter of Possession. The

CS (OS) 3227/1990 5 of 40 Plaintiff further alleges that S. Tejwant Singh, second Defendant

also executed a transfer irrevocable Deed of Guarantee in its favour

guaranteeing due performance of the Agreement and stating that in

the event the first Defendant did not adhere to the terms, he would

ensure that Agreement to Sell would be complied with.

6. The Plaintiff claims that on 1.2.1983 the second Defendant

approached it stating that the third Defendant-Vendor was present

for payment of its dues and pending permissions which had to be

secured under Clauses 4 & 8 of the Agreement requested for a

payment of Rs.5 lacs. The Plaintiff accordingly paid Rs.5 lacs

through cheque dated 1.2.1983. It is claimed that other similar

payment for Rs.2.50 lacs was made through cheque dated

10.2.1983. The Plaintiff claims to have issued a legal notice

(Ex.PW1/15) calling upon the first defendant to perform its part of

the Contract, on 26.5.1983 in obtaining a necessary sanctions and

permissions. The Defendnat No.2 in reply, through letter dated

30.6.1983 (PW1/16) requested for more time to get the necessary

permission. It is claimed that despite requests and reminders the

CS (OS) 3227/1990 6 of 40 Plaintiff did not obtain the necessary permission and, on the other

hand, the defendants sought extension of time from the Plaintiff to

discharge their obligation and conclude the sale transaction. The

Plaintiff was constrained to agree for extension through

supplementary Agreements dated 7.7.1983 (PW1/17),

17.11.1983(PW1/18), 6.2.1984(PW1/19), 16.4.1984 (PW1/20),

30.9.1984(PW1/21), 28.12.1984 (PW1/22) and 31.3.1985 (PW1/23).

7. The Plaintiff further states that Defendant again approached it and

requested for another payment of Rs.5 lacs on 18.7.1985 towards

discharging the liabilities of the Defendants to the Bank. The

Plaintiff, therefore, paid Rs.2.5 lakhs directly to Defendant No.3

Bank. With this the total amount paid for as part payment towards

sale consideration was Rs.21.5 lacs. The Plaintiffs avers to further

supplementary agreements dated 24.9.1985, 28.3.1986 and

26.9.1986 finally extending the date of purchase of the Agreement

to Sell dated 30.9.1987 (these were exhibited during the course of

evidence as Ext.PW1/24, PW1/25 and Ex.PW1/26).

CS (OS) 3227/1990 7 of 40

8. The Plaintiff alleges that despite extension of time the Defendants 1

& 2 failed and defaulted to obtain necessary permission for

completing the sale transaction. The property was in the meanwhile

equitably mortgaged to Punjab & Sind Bank through Defendant as

security for payment of debt owning to the said Defendant. The

Defendant No.1 was liable to pay the mortgage money and get the

title deeds released, even though the Plaintiff could get them

released independently after making payment of the mortgaged

amount. The Plaintiff alleges that second defendant kept falsely

representing that he would sort out his affairs with the third

defendant. The Plaintiff avers that it was informed about a further

charge by the first defendant in collusion with third defendant, in

October, 1985 for securing the further amount running into lakhs of

rupees. The Plaintiff alleges that it discovered that the property in

dispute was thus charged to the amount of over Rs.50 lakhs which

was not disclosed to it by the first two defendants even in the

supplementary agreements.

9. The Plaintiff states that it has been in possession of the property

CS (OS) 3227/1990 8 of 40 after the original Agreement to Sell dated 1.1.1983 (PW1/2) was

entered into. It claims to be ready and willing to perform its part of

the contract to pay the balance sale consideration of Rs.20 lacs to

Defendant No.1. It also avers to calling upon both Defendants 1 & 2

repeatedly to perform their part of the contract but to no avail. The

Plaintiff further alleges that the third defendant is not ready and

willing to release the suit property from the mortgage and handover

title deeds even on receipt of 20 lacs. It was also allegedly unwilling

to disclose the exact amounts payable towards the mortgage

security as liabilities of the first two defendants. The Plaintiff,

therefore, claims that cause of action arose in his favour on

1.10.1987, when the first defendant on expiry of the lease extension

of time felt to obtain the redemption of mortgage and defaulted in

the execution of the sale deed. It also arose on expiry of the period

mentioned on 24.5.1988. The Plaintiff also claims that the cause of

action for damage arose in 1988 when it became aware about

increase of the liabilities of the first two defendants to further

charge on the property.

CS (OS) 3227/1990 9 of 40

10.The fourth Defendant-Union of India against which no decree was

sought by its written statement, alleged that the suit was not

maintainable because the competent authority had acquired the

suit property through an order dated 23.1.1987 passed under

Section 269-UD(1) of the Act. It was claimed that this extinguished

the title of the Defendants to the suit property.

11.The third Defendant - Bank in its written statement alleges that the

transaction between the Plaintiff and Defendants 1 & 2 is void as it

is collusive. It claims that the Agreement to Sell was solely with the

intention of defeat or delay the rights of creditors of the Vendor

(Defendants 1 & 2) such as the Bank. It alleges that the property

could not have been subject of any Agreement to Sell when the

Defendant vender merely had an equity of redemption. The

Plaintiff, it claims was fully aware of the pre-existing liabilities of the

Defendants 1 & 2 and was party to the attempt to defeat them. The

vendor also objected to maintainability of the suit in view of the

order made by the Competent Authority under Chapter 20-C of the

Income Tax Act which had divested title of the first and second

CS (OS) 3227/1990 10 of 40 defendant.

12.The bank further claims that the Plaintiff and Defendants 1 & 2 have

acted in pari delicto and no decree for specific performance or any

other equitable relief can be granted. It is claimed that Plaintiff has

no independent right of the third defendant's claim since the suit

was instituted after vesting of property in September, 1990. It could

not assert any failure or enforceable legal right. The defendant

further adverts to two suit against the first defendant being Suit

Nos.21284/1988 and 1204/1989 whether it has claimed in

aggregate a sum of Rs.1.3 crores with interest.

13.The bank alleges that the Plaintiff is not a bonafide purchaser

without notice. The title deeds were not in possession of

Defendants 1 & 2 on 1.1.1983 when Ext.PW1/2 was entered into. It

claims that the transaction has injured its interest. The bank further

additionally alleges that condition of having to secure permissions

have been rendered impossible and, therefore, incapable of

performance. Moreover the effect of acquisition is to vest the

CS (OS) 3227/1990 11 of 40 property free from all encumbrances, which has defeated the

Plaintiff's claim. The Defendant avers that the claim in its two suit

against Defendants 1 & 2 are for the sum of Rs.99,61,034/- with

interest and Rs.57,19,134/- with interest. The equitable mortgage

of the property had been created on 30.11.1978 by deposit of title

deeds with the Bank. The Defendant Bank also alludes to issuance

of a Certificate of Charge under provisions of Sections 125 & 132 of

the Companies Act which disclosed the Bank's interest over the

property. It is alleged that the property was acquired/compulsorily

purchased because of under valuation of the property, by the

competent authority under the Income-tax Act exercising its

powers. The Bank disputes the authority of the Plaintiff to take

delivery of the title deeds. It alleges that such delivery would have

extinguished the equitable rights of the bank in the property and

the mortgage. It, therefore, contests any liability to the plaintiff to

return the title deeds or to accept any sum from the plaintiff in

discharge of the liabilities of Defendants 1 & 2. The Defendant Bank

further contests that the Agreement to Sell was performed in part.

CS (OS) 3227/1990 12 of 40 It also disputes that amounts were paid to the Defendants 1 & 2

ever by the Plaintiff or by M/s William Jacks & Co. on behalf of the

plaintiff.

14.The Defendant Bank claims that the suit is barred by time and also

contests that the Agreement dated 1.1.1983 could have frozen the

value of the mortgage without its redemption. In these

circumstances it seeks dismissal of the suit.

15.Though Defendants 1 & 2 were served, they were unrepresented in

the proceedings and no attempt to enter any plea was made on

their behalf. They were, therefore, set down ex parte on

15.`10.1992.

16.After admission and denial of documents on 17.4.2001 issues were

framed in the suit. Later by order dated 17.2.2005 the Court

appointed a Local Commissioner for recording the evidence of

parties. The oral testimony of witnesses on behalf of the parties

was concluded on 4.7.2007. The matter was, therefore, placed later

before Court for arguments.

CS (OS) 3227/1990 13 of 40

17.At the time of hearing of the suit with consent of parties the issues

originally framed were modified. The issues re-cast on 3.1.2008 are

as follows :

ISSUES:

1. Whether the suit is barred by limitation? OPD

2. Whether Plaintiff can claim any relief in view of the mortgage

subsisting in favour of the third defendant on the date of the

agreement to sell? OPP

3. Whether the plaintiff is entitled to a decre for specific

performance or any other relief? OPP

ISSUES NO.1:

18. This issue concerns maintainability of the suit; it was framed in view

of Preliminary Objection No.15 of the third defendant/Bank that the action

is time barred.

19. The plaintiff contends that the suit was filed within period of

prescribed limitation. It relies on Article 54 of Schedule I to the Limitation

CS (OS) 3227/1990 14 of 40 Act, to say that such suits are to be filed within three years from the date

agreed for performance or when the plaintiff first had notice of refusal of

performance. It is contended that though the agreement to sell was

entered into by parties on 1-1-1983, the time for its performance was

extended, through mutual written agreements, all of which are produced

and exhibited in these proceedings. The plaintiff relies on the said

supplemental agreements, being Ex.PW-1/17 to Ext. PW-1/26. It is urged

that according to the last agreement, Ex.PW-1/26, (dated 26-9-1986) the

last date by which performance could be done was 30-9-1987. The

defendants did not comply with the terms; they were also asked to

complete the sale transaction through registered legal notice dated

24.5.1988(Ex.PW-1/27). In the circumstances, the suit, was filed within

time. Learned counsel also contended that though the Bank has objected

to the suit on the ground of limitation, no serious cross-examination of the

plaintiff's witnesses took place on that score.

20. Learned counsel for the defendant bank urged that the Court should

examine the issue of limitation carefully, in view of Section 3 of the

Limitation Act, and particularly since the first two defendants chose to be

CS (OS) 3227/1990 15 of 40 set down ex parte. He submitted that though in an agreement to sell

immoveable property time is not deemed of the essence, that did not

mean that parties could postpone its performance indefinitely, at will and

at the same time claim relief. Counsel submitted that the supplementary

agreements are bogus documents, which should not be given credence.

21. The agreement to sell (Ex.PW-1/2) was entered into on 1-1-1983 the

plaintiff has relied on ten supplementary agreements (Ex.PW-1/17 to

Ex.PW-1/26). Ex.PW-1/26 is the tenth supplementary agreement,

executed on 26-9-1986. According to its terms, the defendants were to

complete the sale transactions on or before 30th September 1987. It is

not disputed that the first two defendants did not take steps towards

honouring the agreement; a legal notice was issued on them by the

plaintiff on 24-5-1988 (Ex.PW-1/27). The suit, though dated 29-4-1990,

was filed on 6-10-1990. The earliest official stamp of the Court is of that

date; the plaint also discloses a filing number for 6-10-1990.

22. Upon a consideration of the plaintiff's contentions, if the

supplementary agreements Ex.PW-1/17 to Ex.PW-1/26 are to be given

CS (OS) 3227/1990 16 of 40 effect - since nothing substantial to the contrary was urged by the

Defendant Bank, the cause of action, or the right to sue occurred first on

expiry of the time indicated, ie 30-9-1987. The plaintiff, therefore, had to

file the suit within three years of that date, or by 29-9-1990.

23. In this case, the plaintiff filed the suit on 6-10-1990. The suit was

therefore clearly time barred and, is, therefore not maintainable.

ISSUES NOS.2 & 3:

24. Common and overlapping questions of fact and law are involved in

relation to these issues. They are, therefore, considered together.

25. Learned counsel for plaintiff submitted that decree for specific

performance had to follow in this case, and the third defendant's

objections were really a non-sequitor. The claimed that all the elements

necessary for grant of such relief, namely:

1) Extension of agreement;

2) Payment of advances;

3) Plaintiff's readiness and willingness to perform its par of the

CS (OS) 3227/1990 17 of 40 bargain;

4) Extension of the obligation, through mutual negotiation,

evidenced by Ex.PW-1/17 to Ex.PW-1/26;

5) Willingness of the plaintiff to even clear the defendants' dues

to the Bank

were clearly established by oral and documentary evidence. The plaintiff

also proved that possession of the suit property had been handed to it, by

the defendants 1 & 2. If these circumstances were weighed alongside the

reality of skyrocketing real estate prices, the claim for decree of specific

performance as the only just relief this Court should grant, would be

evident.

26. Learned counsel contended that a prior mortgage nowhere

constituted a bar to granting a decree for specific performance. He

submitted that being an encumbrance, such a mortgage would attach

itself and the mortgagee creditor's options can never be limited or

diminished. The mortgagees right to foreclosure would be as regards the

property, not the debtor. There was no legal bar, or any principle in

CS (OS) 3227/1990 18 of 40 equity constituting a vendor mortgagor's right to enter into agreements,

to sell such mortgaged property.

27. Learned counsel relied upon the decision of this Court reported as

Raghunath Vs. J.P. Sharma AIR 1999 Del 383; R. Velammal Vs. R. Daya

Siga Mani AIR 1993 Mad 100 in support of his contention that mere prior

mortgage or encumbrance could not deprive the vendee of a right to

decree for specific performance and that such mortgage only became a

liability or encumbrance to the property which the subsequent purchaser

has to satisfy.

28. Learned counsel next submitted that no bar, legal or contractual

could be inferred merely because the agreement to sell stipulated that

the vendor had to obtain permission from authorities or administrative or

clearances. He relied upon the judgments of the Supreme Court reported

as Mrs. Chandni Widyavati Maddan Vs. Dr. C.L. Katial AIR 1960 (9) SC 978;

Ramesh Chandra Chandiok Vs. Chunni Lal Sabharwal AIR 1971 SC 1238

and Ramji Bhai Dahya Vs. Jani Narottam Dass Lallu Bhai air 1986 SC 1912

in support of the submission that the requirement of having to secure

CS (OS) 3227/1990 19 of 40 permission from statutory and other authorities did not constitute a legal

impediment for decree of specific performance.

29. It was next contended that in the written statement filed in 1990 a

sum of Rs.2 corers was payable under the equitable mortgage of the suit

property for which two suits were filed. The Plaintiff contends that even

though the third defendant claims to be an equitable mortgagor holding

the title deeds crucially it elected to sue only for a simple money decree,

thus electing against its option to enforce the mortgage. In these

circumstances it cannot be heard to say that the plaintiff is disentitled to

a decree of specific performance since all the material averments have

been proved by it in that regard.

30. The plaintiff disputes the third defendant's right to oppose the

decree of specific performance and contends that as regards such relief,

only defendants 1 and 2 have the locus standi to resist these

proceedings. They were set down ex parte long ago. It is contended that

no collusion or malafides on behalf of the plaintiff have been averred or

established in the course of these proceedings. So long as the third

CS (OS) 3227/1990 20 of 40 defendants' rights are not affected or prejudiced, it cannot legitimately

oppose a decree for specific performance of the agreement in relation to

the suit property provided all the legal requirements for such reliefs are

proved. It is submitted that though by virtue of Section 20 of the Specific

Performance, it is a discretionary relief yet such discretion should be

exercised judicially and reasonably. It was urged that there was no

material on the record to show that the plaintiff's conduct was suspect or

that it, in any manner sought to defeat third party rights or had colluded

with the first defendant. The plaintiff had, even during the pendency of

the suit made attempts to settle the liabilities of the first two defendants

with the third defendant Bank. Yet the latter refused to entertain the

plaintiff claiming that it had no right or locus as regards the suit property.

Counsel contended that under Section 20(2) discretion has to be

exercised only in regard to the purchaser to the agreement - in this case

the plaintiff and defendants 1 & 2 and none else.

31. Learned counsel submitted that in suits of the present kind where

necessary ingredients have been proved, a decree for specific

performance is the rule; it should be declined or only when the

CS (OS) 3227/1990 21 of 40 circumstances show that damages constitutes adequate relief. He relied

upon the judgment reported as Prakash Chandra Vs. Angadi Lal AIR 1979

SC 1241. Similarly, it was contended that unless the vendor is able to

bring his case within the exceptions specified in Section 20(2) of the Act,

the Court should ordinarily not decline exercise of discretion and should

decree the suit. He relied upon the judgment reported as Shri Pradeep

Bhargav Vs. Smt. Ram Piary ILR 1992 (Del) 677. He also relied upon the

decision reported as Prithvi Raj Singh Vs. Dalip Kulkarni AIR1999 Raj 201

and Frank Finn Aviation Services Vs. B.C. Gupta 2007 (9) AD(Del) 449.

32. Mr. Rajeev Dutta, learned counsel for the third defendant (the Bank)

submitted that no relief should be granted in the circumstances of the

case. According to him, the plaintiff and first two defendants entered into

the agreement, with the intention to defeat the bank's rights. The bank

had a prior, subsisting mortgage right from 1978. The defendant Nos 1

and 2 with mala fide intention sought to defeat and diminish its rights,

and entered into the agreement to sell in 1983. The ostensible

consideration was admittedly inadequate. As a result, the property was

acquired through order of the competent authority, under (the then

CS (OS) 3227/1990 22 of 40 existing) Chapter XX-C of the Income Tax Act. Learned counsel contended

that though the plaintiff was aware about the subsistence of the order, it

did not reveal it, in the suit. As on the date of filing the suit, the defendant

Nos 1 and 2 did not possess any right title or interest in the property,

which could have been conveyed to the plaintiff. The plaintiff's conduct in

not disclosing these essential and material facts, in the suit, disentitles it

to any discretionary relief.

33. It was next submitted that the plaintiff's witnesses in their cross

examination showed awareness of the Bank's prior entitlement, as well as

the pending suits against the first defendant. These, it was submitted,

established that the sole object of the agreement to sell was to defeat the

contract between the bank and the first defendant. It was also submitted

that in any case, an agreement to sell property did not create any interest

in the property, unlike a mortgage or charge, as in the Bank's case.

34. Counsel submitted that the first two defendants were conveniently

set down ex-parte, to facilitate the plaintiff's design in seeking a decree

for specific performance. According to him, the agreement was

CS (OS) 3227/1990 23 of 40 unenforceable, since the surrounding circumstances revealed that it was

a dubious and sham transaction, meant to defeat the bank's rights to

realize the mortgage security. Counsel submitted that mere existence of

an agreement to sell did not entitle a potential purchaser any interest in

land; such agreement also did not result in any lien or charge, which

could defeat a valid mortgage or security of a genuine creditor, such as

the bank in this case.

35. Learned counsel submitted that the defendant vendor's being set

down exparte is also suspect and dubious, having regard to the

background of its Directors. It was submitted that S. Tejwant Singh and

his family members had been indicted by the Supreme Court, in other

proceedings; the court had directed attachment of their properties, as

well as their associates.

36. Mr. Rajeev Dutta relied on the order of the Supreme Court, dated

29-1-1991, to say that all properties of Shri Tejwant Singh were attached.

It was urged that the subsequent order of the Supreme Court, dated 6-5-

1996, in Delhi Development Authority, Petitioner; V. Skipper Construction

CS (OS) 3227/1990 24 of 40 Co. (P) Ltd 1996-(4)-SCC -622 pierced the veil of M/s Tej Properties (P) Ltd,

and held it to be that of S. Tejwant Singh, all of whose properties were

attached. Pursuant to those orders, a commissioner has, it is submitted,

been continuously monitoring the affairs; the suit property is also one of

the assets which is subject to attachment. Counsel therefore, contended

that these circumstances and facts intercede to prevent any decree for

specific performance, as it would not be equitable to do so. Counsel also

contended that the court should take into consideration other

circumstances that the bank's suits were decreed by the Debt Recovery

Tribunal, as a result of which the defendant vendor has to discharge huge

liabilities. The plaintiffs, it is contended, sought to have themselves

impleaded in those proceedings, but unsuccessfully. They even

approached the Supreme Court, which dismissed their petition. It was

lastly urged that the Commissioner appointed in the Skipper case, by the

Supreme Court, has filed reports, which indicate that even the suit

property is subject to attachment, and orders of the Supreme Court.

37. It was submitted that even if the plaintiff were held to have proved

other facts which would lead the court to grant the decree, the present

CS (OS) 3227/1990 25 of 40 case is not one where the court should exercise its discretion, as it would

be injudicious to do so, under Section 20 (2) of the Act. It was submitted

that the circumstances in which the contract was entered into,

particularly the alleged initial consideration paid, the repeated extensions

given by the vendor, the intervening order of vesting under the Income

Tax Act, (which had, during its currency, the effect of effacing any

obligations under the contract), despite which the agreement was

extended, the time lag between the initial contract and the filing of the

suit, as well as the bank's rights to proceed against the suit property, are

all material considerations which would bar the entitlement to decree for

specific performance.

FINDINGS

38. The Agreement to Sell on 1.1.1983 here was for a consideration of

Rs.41.50 lakhs. The agreement mentions about payment of Rs.11 lakhs

as part payment and a further sum of Rs.50,000/- and the plaintiff

undertaking to pay the balance Rs.30 lakhs. The Defendant was to deliver

CS (OS) 3227/1990 26 of 40 peaceful and vacant possession of the property to the plaintiff as well as

original documents of title, possession or power concerning the suit

property. According to clause 4 the Defendants (Vendor) was to obtain

necessary permission for purchase from the Land & Development Officer

and clearance under Section269-AB of the Income-tax Act, 1961 and

other such clearances. Clause 10 recorded that the sale would be

completed as soon as necessary permissions/sanctions and certificates

etc were obtained by the Defendants/Vendors which was also to pay the

entire unearned increase of the land. The Plaintiff was to bear expenses

of the sale deed, stamp duty, registration charges etc.

39. The documentary evidence shows that though the Agreement (Ex.

PW-1/2) is dated 1-1-1983, the vendor and the plaintiff executed no less

than eleven extension of time for performance documents (Ex. PW-1/17 to

Ex. PW-1/27 series). These documents are also relied on by the plaintiff to

claim that the is filed within the period of limitation. It cannot be denied

that a suit for specific performance of a contract for sale of immovable

property has to be filed within 3 years from accrual of cause of action.

The suit would have been barred, but for these documents, which are

CS (OS) 3227/1990 27 of 40 sought to be set up as acknowledgements or fresh agreements.

40. A careful scrutiny of the extension agreements, if one may so term

them, reveals that their sole purpose was to extend the time for

performance, by the defendant vendors. They otherwise incorporate the

same terms and conditions, as originally agreed. Yet, interestingly

sometime during the interregnum, the Central Government had

undeniably issued an order under Chapter XX-C, Income Tax Act. That the

plaintiff filed a writ petition, questioning that order is a matter of record.

Yet, neither the plaintiff avers, nor does it show through any documentary

evidence, how such agreements, embodied in extensions could have at

all been entered into by the parties, when the vendor had been divested

of the title. It is an established proposition of law that even void statutory

orders are deemed to have effect, till declared to be so, or set aside in

appropriate proceedings. This was so held in State of Punjab v. Gurdev

Singh, (1991) 4 SCC 1, that an order:

"....has at least a de facto operation unless and until it is declared to be void or nullity by a competent body or court. In Smith v. East Elloe Rural District Council 6 Lord Radcliffe observed: (All ER p. 871) "An order, even if not made in good faith, is still an act capable

CS (OS) 3227/1990 28 of 40 of legal consequences. It bears no brand of invalidity on its forehead. Unless the necessary proceedings are taken at law to establish the cause of invalidity and to get it quashed or otherwise upset, it will remain as effective for its ostensible purpose as the most impeccable of orders.".."

41. Here, in this case, neither the plaintiff, nor the defendant Nos. 2 and

3 (the vendors) could have foreseen and foretold a future event, i.e the

quashing of the compulsory purchase order made by the Central

Government in 1987. Yet, the plaintiff seeks specific performance of the

agreement. The order of the Central Government was made on 23-1-

1987; the plaintiff filed the writ petition, being WP 338/1987. Yet, there is

no mention of these facts. That these facts have become to some extent

academic, is a matter of detail. The court, however cannot overlook the

plaintiff's conduct in this regard. Being aware of the statutory order,

vesting the property in the Central Government, and even having

challenged it, the plaintiff chose to deliberately remain silent, or even

explain how the suit could be maintained, when it was filed.

42. According to the averments in the suit, the initial consideration for

the agreement to sell was paid by M/s Allan Jacks & Co (India) Pvt. Ltd (so

CS (OS) 3227/1990 29 of 40 described in Exhibit PW-1/3). A receipt issued by the second and third

defendants in this regard, Ex. PW-1/3 is relied on for this purpose.

However, these cheques were issued, even according to the document,

on 2nd September, 1982 (Rupees six lakhs) and 8th November, 1982

(Rupees five lakhs). PW-1 in his deposition stated that the payment was

made when the agreement was not in force; he also stated that the

plaintiff was subsidiary of M/s William Jacks. The same witness stated that

William Jacks was the plaintiff's tenant, but was unable to mention how

long it continued in that capacity. No such tenancy agreement or any

document to that effect has been brought on record. In fact, this is

contrary to the averments of the plaintiff, which deposes, in para 7 of the

plaint, that it has been in possession of the property, after the agreement

to sell was entered into with the vendors.

43. Apart from the receipt and the agreement to sell, with the further

extensions, all of which record that a balance of Rs. 22,50,000/- was

payable to the vendor defendants, no independent evidence of the

amounts having been paid, or the plaintiff's ability to pay such amounts,

CS (OS) 3227/1990 30 of 40 at the relevant time, was shown. It is one thing to rely on documents, to

say that there can be no dispute about payments, in an ex-parte

proceeding, but entirely different, where a third party to the transaction

alleges that grant of decree would be inequitable and prejudicial to its

interests. The bank has always disputed the genuineness of the

transaction between the plaintiff and the defendant vendors; it terms it as

collusive. In these circumstances, whether the vendors contested the

proceeding or not, the plaintiff still was under a duty to satisfy the court

that grant of a decree would be sound exercise of jurisdiction, and that it

was always ready and willing to pay the amounts, at the time of agreed

performance, in 1988, and again, when it approached the court. Such

independent evidence is lacking; the mere oral deposition of the plaintiff's

witnesses in that regard would be insufficient.

44. The Court has to independently examine whether the material on

record entitles the plaintiff to the decree sought for it. Two important

considerations always weigh with the Court while adjudicating a claim for

specific performance of a contract of sale of immovable property. One,

whether the plaintiff had pleaded and proved readiness and willingness to

CS (OS) 3227/1990 31 of 40 perform his part of the contract and two, whether the equities of the case

demand that such a decree be made. (see Yohanan vs. Ram Latha, 2005

(7) SCC 534; Suryanarian Upadhayay vs. Ram Roop Pandey, AIR 1994 SC

105 and Ouseph Verghese vs. Joseph Aley, 1969 (2) SCC 539).

45. Learned counsel for the plaintiff was able to point out the averment

in the suit to submit that the necessary pleadings had been made. He

also referred to the affidavit of evidence of PW-1 and PW-2 for the

contention that the plaintiffs always ready and willing and continued to be

so for the performance of their obligation. However, independent of that,

no other evidence, as noticed earlier, is forthcoming. It was urged that the

plaintiff had at the relevant time, deposited a sum in excess of Rs. 37

lakhs in the defendant bank, in a no lien account, to show its bona fides.

That was pursuant to an offer to pay off the banks' dues, owed by the

vendors; in any case, it was much after the filing of the suit. That aspect

cannot be considered by the court as evidence of the plaintiff's readiness

and willingness to pay the balance, at least at the time of performance of

the contract, or at the time of filing the suit. No bank statement, or

document, revealing the plaintiff's capacity, at those times, has been

CS (OS) 3227/1990 32 of 40 placed on record.

46. It is now established law (refer Chand Rani vs. Kamal Rani, 1993 (1)

SCC 519) that there is no presumption that the time is not of the essence

of the contract, in the case of an agreement to sell immovable property

yet at the same time absence of any stipulation does not relieve the

parties concerned from the obligation to perform it within reasonable

time. As to what is reasonable time would vary from case to case having

regard to attendant facts and circumstances. In this case, the parties, as

evident from documentary evidence, fixed the time for performance. It

was extended no less than 8 times, spanning more than 5 years.

Strangely, despite the undeniable appreciation in value, the terms were

never renegotiated.

47. On behalf of the bank, DW-2 its witness, mentioned about five legal

proceedings filed against the defendant vendors, as well as other sister

concerns. The documents relied upon (DW-2/1 to DW-2/3) are to the

effect that an overall settlement of the said groups' liabilities was

acceptable, for the sum of Rs. 5.3 crores, provided the Supreme Court's

CS (OS) 3227/1990 33 of 40 approval was forthcoming, and without prejudice to the banks' rights. The

bank also contends that as a result of this arrangement, Rs. 37.5 lakhs

was kept in a no lien account, as a without prejudice arrangement.

48. The plaintiff contends, by relying on these documents, as well as

evidence introduced by PW-2, in the form of five letters (PW-2/1 to PW-

2/3) a draft application under Order 23, Rule 3, signed by Shri Tejwant

Singh (PW-2/4) a draft receipt (PW-2/5) certificate dated 10-1-2002 (PW-

2/6) and Fixed Deposit Receipt dated 28-12-2001 (PW-2/7) that the bank

would not be prejudiced, as its interests are fully taken care of.

49. Now to tie the threads of reasoning which seem disparate and dis-

jointed. The evidence on record no doubt reveals that the plaintiff

agreed to purchase the suit property from the vendor defendants (No.1

and 2). Its reliance on the receipt, as discussed above, about the payment

of initial amounts, to the said vendors, through M/s William Jacks, is

inconsistent. Though it would not ordinarily be of any consequence, yet

the defendant bank's refutation of the transaction, and its claim to the

agreement affecting its interests, placed an obligation on the plaintiff to

CS (OS) 3227/1990 34 of 40 explain to some degree, and lead evidence in that regard. It did not do so.

It has also not led any evidence in the form of any contemporaneous

document, about its ability and willingness to perform its part of the

bargain. If one keeps in mind that the initial agreement was to have been

executed in 1983, but was mutually extended up to 1988, the plaintiff

should have shown its financial capacity as of the time for performance,

as well as when it approached the court. Evidence is lacking in that

regard.

50. The plaintiff has not denied that the property was subject to

mortgage. Its argument was that the bank did not elect to enforce the

securities through a suit for foreclosure, but filed a suit for recovery.

Ordinarily, perhaps, this would have been a relevant factor. However,

having regard to the observations in the preceding paragraph, and the

circumstance that the property had vested in the Central Government,

(which was not even pleaded in the suit, when filed, but disclosed by the

fourth defendant, Union of India) that is not of significance. If these are

taken together with the Supreme Court's orders attaching the properties

of the Skipper group, and Shri Tejwant Singh, the picture emerging is an

CS (OS) 3227/1990 35 of 40 entirely different one.

51. Section 20 of the Specific Relief Act, 1963 reads as follows:

"20 DISCRETION AS TO DECREEING SPECIFIC DECREEING SPECIFIC PERFORMANCE.

(1) The jurisdiction to decree specific performance is discretionary, and the court is not bound to grant such relief merely because it is lawful to do so; but the discretion of the court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a court of appeal.

(2) The following are cases in which the court may properly exercise discretion not to decree specific performance :

(a) where the terms of the contract or the conduct of the parties at the time of entering into the contract or the other circumstances under which the contract was entered into are such that the contract, though not voidable, gives the plaintiff an unfair advantage over the defendant; or

(b) where the performance of the contract would involve some hardship on the defendant which he did not foresee, whereas its non- performance would involve no such hardship on the plaintiff; or

(c) where the defendant entered into the contract under circumstances which though not rendering the contract voidable, makes it in equitable to enforce 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

CS (OS) 3227/1990 36 of 40 contract would involve hardship on the 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 be 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 other party."

52. In M. Meenakshi v. Metadin Agarwal,(2006) 7 SCC 470, it was held that:

"39. Furthermore, Section 20 of the Specific Relief Act confers a discretionary jurisdiction upon the courts. Undoubtedly such a jurisdiction cannot be refused to be exercised on whims and caprice; but when with passage of time, the contract becomes frustrated or in some cases increase in the price of land takes place, the same being relevant factors can be taken into consideration for the said purpose. While refusing to exercise their jurisdiction, the courts are not precluded from taking into consideration the subsequent events. Only because the plaintiff-respondents are ready and willing to perform their part of contract and even assuming that the defendant was not entirely vigilant in protecting his rights in the proceedings before the competent authority under the 1976 Act, the same by itself would not mean that a decree for specific performance of contract would automatically be granted. While considering the question as to whether the discretionary jurisdiction should be exercised or not, the orders of a competent authority must also be taken into consideration."

53. As to what are properly matters of discretion, was spelt out in a

perceptive decision reported as K.S. Vidyanadam v. Vairavan, (1997)

CS (OS) 3227/1990 37 of 40 3 SCC 1, at page 7 :

"10. It has been consistently held by the courts in India, following certain early English decisions, that in the case of agreement of sale relating to immovable property, time is not of the essence of the contract unless specifically provided to that effect. The period of limitation prescribed by the Limitation Act for filing a suit is three years. From these two circumstances, it does not follow that any and every suit for specific performance of the agreement (which does not provide specifically that time is of the essence of the contract) should be decreed provided it is filed within the period of limitation notwithstanding the time-limits stipulated in the agreement for doing one or the other thing by one or the other party. That would amount to saying that the time-limits prescribed by the parties in the agreement have no significance or value and that they mean nothing. Would it be reasonable to say that because time is not made the essence of the contract, the time-limit(s) specified in the agreement have no relevance and can be ignored with impunity? It would also mean denying the discretion vested in the court by both Sections 10 and 20. As held by a Constitution Bench of this Court in Chand Rani v. Kamal Rani1: (SCC p. 528, para 25) "... it is clear that in the case of sale of immovable property there is no presumption as to time being the essence of the contract. Even if it is not of the essence of the contract, the Court may infer that it is to be performed in a reasonable time if the conditions are (evident?): (1) from the express terms of the contract; (2) from the nature of the property; and (3) from the surrounding circumstances, for example, the object of making the contract."

In other words, the court should look at all the relevant circumstances including the time-limit(s) specified in the agreement and determine whether its discretion to grant specific performance should be exercised. Now in the case of urban properties in India, it is well-known that their prices have been going up sharply over the last few decades..."

CS (OS) 3227/1990 38 of 40

54. No doubt, most of the decisions involving courts' discretion refusing

specific performance have been in the context of equities favouring the

defendant vendor. However, the construct of Section 20(2) and 20(3) is

such that discretion is not limited to examining whether an order of either

kind would prejudice the parties; it is wide enough to comprehend

prejudice or injury to third parties. Here, the bank's interests are involved.

Also, importantly the attachment of properties of the Skipper group, by

the Supreme Court's directions are wide and comprehend the present

property, since the "corporate veil" was pierced by the Supreme court.

The object of the attachment order was to protect the interests of parties

who suffered on account of the actions of the Skipper group and the third

defendant. Arguendo, if the court were to, on the basis of only materials

on record, decree specific performance, such order would result in

potential injury to large number of persons, whose economic interests

(apart from the interests of the bank) are sought to be secured by the

Supreme Court's attachment order. Such decree would defeat the

attachment, and undermine public justice. These circumstances are

indeed weighty; they outweigh the plaintiff's interests.

CS (OS) 3227/1990 39 of 40

55. In view of the above discussion, it is held that the plaintiff is not

entitled to the decree for specific performance; issue Nos 2 and 3 are held

against the plaintiff.

56.As a consequence of the findings on Issue Nos 1 to 3, this court is of

the opinion that the reliefs sought cannot be granted. In view of the

above findings as well as express provision of Section 22 (2) of the

Specific Relief Act, 1963, this court cannot consider the relief of

refund of earnest money or consideration, as it has not been

pleaded.

57.The suit, therefore fails. It is dismissed with costs. Counsel's fee is

quantified at Rs. 75,000/-; the same shall be paid to the third

defendant.

DATED: August 20, 2008                         S. RAVINDRA BHAT

                                                     (JUDGE)




CS (OS) 3227/1990                                               40 of 40