J L Gugnani Huf vs O P Arora & Anr.
2009 Latest Caselaw 4203 Del

       IN THE HIGH COURT OF DELHI AT NEW DELHI

       CS (OS) 2906/1995 & I.A. Nos. 13733/2008, 15371/2008,
              2551, 3884, 4565 and 4566/2009

                                  Reserved on: 17th September 2009
                                  Decision on: 20th October 2009

       J L GUGNANI HUF                              ..... Plaintiff
                     Through: Mr. Arvind Nigam, Sr. Adv. with
                     Mr. Samrat Nigam, Advocate

                      versus

       O P ARORA & ANR.                         ..... Defendants
                     Through: Defendant No. 1 in person.
                     Mr. Ajay Choudhary and
                     Mr. K.L. Mishra, Advocates for D-3.

       CORAM:
       HON'BLE DR. JUSTICE S. MURALIDHAR

        1.Whether reporters of the local newspapers
          be allowed to see the judgment?                         No

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

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

                               JUDGMENT

20.10.2009

S. Muralidhar, J.

1. This suit seeks specific performance of an agreement to sell dated 26th

November 1994 in respect of a property at E-1/13, Vasant Vihar, New

Delhi (the `suit property‟) as well as a decree of permanent injunction

restraining the Defendants from parting with or transferring possession of

the suit property in favour of any other person. The further prayers are for

a declaration that any document executed by Defendant No.1 in favour of

Defendant No.2 is null and void; that Defendant No.2 has no right, title

or interest in the suit property; further that an enquiry should be ordered

into the damages suffered by the Plaintiff and a decree be passed in

favour of the Plaintiff in terms thereof on account of the breaches by the

Defendant No.1 of its obligations under the said agreement to sell.

2. The plaint was originally filed against three Defendants, i.e. Shri O.P.

Arora, M/s Gupta Brothers and M/s. Syndicate Bank respectively. The

Plaintiff is a Hindu undivided family (HUF) consisting of Shri J.L.

Gugnani (the Karta), Ms. Raj Kumari Gugnani, Shri Kundan Lal

Gugnani and Shri Yash Pal Gugnani.

3. Defendant No.1 is the owner of the suit property which, at the time of

entering into the agreement to sell dated 26th November 1994, was a

single-storied building constructed on a plot of land measuring 630 sq.

yds. Defendant No.2 was a partnership firm and according to the Plaintiff

a trespasser in the suit property. Defendant No.3 Syndicate Bank was

sued in its capacity as mortgagee of the suit property, in possession of the

title deeds thereto.

4. The Plaintiff‟s case is that by an agreement dated 26th November 1994

the Defendant No.1 agreed to sell the suit property to the Plaintiff HUF

for a total consideration of Rs.2.6 crores. According to the Plaintiff,

Defendant No.1 represented to the Plaintiff that the suit property was

subject to an equitable mortgage in favour of Defendant No.3 for an

outstanding credit balance of Rs.90 lakhs. Defendant No.1 agreed to get

the suit property released from the mortgagee Syndicate Bank and

thereafter execute the sale deed in favour of the Plaintiff.

5. Cheque No.239209 dated 26th November 1994 for a sum of

Rs.75,00,000/- and Cheque No.239210 dated 31st December 1994 for

another sum of Rs.75,00,000/- were given by the Plaintiff to the

Defendant No.1 at the time of execution of the aforementioned agreement

to sell. It was agreed that the balance sum of Rs.1.10 crores would be

received by the seller (Defendant No.1) at the time of the registration of

the sale deed. It was stated in the agreement that the suit property was

lying vacant and was in actual physical possession of the Defendant No.1

and further that he would not induct any other person in the suit property.

It was agreed that the actual physical, vacant and peaceful possession of

the first floor of the suit property would be delivered to the Plaintiff after

the cheque dated 31st December 1994 was encashed.

6. In terms of the agreement to sell, the obligations of Defendant No.1

were to obtain:

"1. Sale permission from DDA and Society, in terms of the perpetual sub lease deed.

2. Sale permission from the Competent Authority, of the Urban Land (Ceiling and Regulation 2976 Act of 1976), if applicable to the property.

3. Income Tax Clearance Certificate on Form No.34A under Section 23 of the Income Tax Act, 1961.

4. Permission from Appropriate Authority on Form No.37(1) under Section 269-UC of the Income Tax Act, 1961."

7. It was further agreed that after the above permission and any other

permission as required in law were obtained, Defendant No.1 would

inform the Plaintiff by registered post of the obtaining of such approvals.

Within thirty days of such intimation, the Plaintiff would pay to

Defendant No.1 the balance consideration amount and on receiving the

same, Defendant No.1 would execute the sale deed in respect of the suit

property in favour of the Plaintiff. It was agreed that if Defendant No.1

failed to do so, the Plaintiff "would be entitled to get the sale deed

registered through the Court of law by specific performance of the

contract at the costs and expenses of the Vendor". If after Defendant

No.1 had informed the Plaintiff that he had obtained all the necessary

permissions, the Plaintiff failed to make the payment of the balance

consideration within thirty days, then the Plaintiff would be liable to pay

Defendant No.1 interest at 21% on the balance amount for such delayed

period. Clause 5 of the agreement stated: "However in the event the

vendee is desirous of taking possession of the property pending

approval/permission, the vendee can do so by making the balance

payment and vendor executing registering all necessary documents, like

GPA, will supplementary agreement etc., and as may be desired by the

vendees solicitor."

8. In the preamble clauses of the agreement, it was acknowledged that the

suit property was subject to the equitable mortgage in favour of

Defendant No.3 Bank for an amount of Rs.90 lakhs and that Defendant

No.1 had agreed to get the suit property released from the mortgage

before executing the sale deed. In clause 7 of the Agreement to Sell,

Defendant No.1 assured the Plaintiff that the suit property was free from

all encumbrances, except the equitable mortgage in favour of Syndicate

Bank. In terms of the said clause, Defendant No.1 undertook that he

would be liable and responsible to make good the loss suffered by the

Plaintiff if there was any dispute or litigation or acquisition or requisition

in respect of the suit property. In clause 8, it was recorded that pending

the completion of sale, Defendant No.1 would not enter into any

agreement to sell, in respect of the suit property or any part thereof.

9. The first cheque dated 26th November 2004 in the sum of Rs.75 lakhs

was encashed by Defendant No.1. According to the Plaintiff, cash in the

sum of Rs.14 lakhs was also paid to Defendant No.1. However, no

document was produced by the Plaintiff to substantiate this. According to

the Plaintiff, despite agreeing to forthwith apply for statutory

permissions, Defendant No.1 did not take any steps in that regard. The

Plaintiff further discovered that the dues owed by Defendant No.1 to the

Syndicate Bank was around Rs.1.5 crores and not Rs.90 lakhs as held out

in the agreement. The Plaintiff states that by failing to perform his

obligations in terms of the agreement, the bonafides of Defendant No.1

became doubtful. In the circumstances, in order to protect its interests,

the Plaintiff by letter dated 31st December 1994 informed its bankers to

stop payment of the cheque dated 31st December 1994 for Rs.75 lakhs.

The Plaintiff claimed that "due intimation was also given to the

defendant verbally".

10. The Plaintiff states that although the Defendant No.1 failed to apply

for the necessary permissions, the Plaintiff on 3rd January 1995 applied to

the Appropriate Authority in Form No.37(1) under Section 269-UC of

the Income Tax Act, 1961 („Act‟) for a no objection of that Authority. By

a letter dated 30th January 1995, the Appropriate Authority informed the

Plaintiff that without the signatures of the Defendant No.1, the

application could not be considered.

11. In the meanwhile, Defendant No.1 wrote to the Plaintiff on 3rd

January 1995 protesting against the stoppage of the payment of the said

cheque dated 31st December 1994. By letters dated 5th January 1995 and

14th January 1995, the Plaintiff replied to the said letter through counsel

pointing out the breaches committed by Defendant No.1. The Plaintiff

offered that the matter should be discussed so that an amicable solution

could be found. Simultaneously, the Plaintiff published a notice dated

13th January 1995 in a leading English daily informing the public of the

agreement to sell entered into between the parties. In the correspondence

that ensued between the Plaintiff and Defendant No.1, allegations and

counter-allegations were traded. The Plaintiff wrote to the Defendant

No.3 Bank on 28th March 1995 seeking information as to the outstanding

dues of Defendant No.1.

12. The Plaintiff claims that some time in April 1995, the Defendant

No.1 approached the Plaintiff and agreed to resolve the disputes. The

Plaintiff states that Defendant No.1 expressed his willingness to perform

his obligations under the agreement to sell. According to the Plaintiff, as

a first step, Defendant No.1 agreed to apply to the Income-tax authorities

for permission to sell under Section 269 UC. The Plaintiff states that

thereupon they jointly signed and executed forms and under the cover of

the letter dated 26th April 1995, the Plaintiff once again submitted the

concerned forms to the income-tax authorities. The Plaintiff claims that

the income-tax authority granted permission on 31st July 1995. A

photocopy of the permission purporting to be a certificate issued under

Section 269 UC (3) of the Act as issued by the Appropriate Authority,

has been placed on record. However, the Plaintiff has failed to place on

record the original of this document.

13. The Plaintiff claims that thereafter on 30th November 1995, the Karta

of the Plaintiff HUF, on a visit to the suit property, was shocked to see

the board of M/s. Gupta Brothers (Defendant No.2). According to the

Plaintiff it was evident from this that the suit property was not in the

possession of Defendant No.1. According to the Plaintiff, on 7th June

1995 it received an undated letter from the Advocate for the Defendant

No.1 in which it was alleged that the Plaintiff had failed to perform his

part of the contract. It was stated therein that "as already communicated

to your client, the agreement stood cancelled on account of the breaches

committed by your client of the said agreement, which position stood

accepted by your client and that is the reason your client slept over the

same". This was denied by the Plaintiff by a letter dated 28th June 1995.

On 18th July 1995, the lawyer for the Defendant No.1 again wrote to the

lawyer for the Plaintiff reiterating that the agreement to sell stood

cancelled.

14. The reliefs in the present suit have been claimed on the basis of the

above averments. The suit first came to be listed before this Court on 14th

December 1995 and while directing the summons to issue, an ad interim

ex parte injunction was granted restraining the Defendants from creating

any third party rights and from entering into any other agreement with

any other party including the Defendant No.2.

15. In the written statement filed by Defendant No.1, it was categorically

denied that the parties had jointly applied to the income-tax authorities

for permission on 26th April 1995. Defendant No.1 denied being aware of

any such letter or the filing of any Form 37-I with the income-tax

authority either on 3rd January 1995 or thereafter. The stand of Defendant

No.1 was that inasmuch as the Plaintiff did not have the balance sum of

Rs.75 lakhs available on 31st December 1994, he got the encashment of

the cheque of that date stopped. Since this was a condition precedent for

Defendant No.1 to take further steps, the Plaintiff had by committing the

most fundamental and essential breach of the agreement to sell, frustrated

its compliance. The case of Defendant No.1 was that on account of this

breach by the Plaintiff, Defendant No.1 suffered huge losses since he had

made commitments in the hope that he would be able to redeem the

mortgage with the Defendant No.3 Bank.

16. An application (IA 3854/1996) was filed on behalf of Defendant No.2

under Order VII Rule 11 CPC for rejection of the plaint. This was heard

on 10th September 1996 along with the application under Order XXXIX

Rules 1 and 2 CPC (IA No.12510/1995) filed by the Plaintiff. This Court

prima facie concluded on the basis of the pleadings on record that "the

case of the plaintiff-applicant that the first defendant joined with the

applicant in applying to the appropriate authority is not correct". It was

noticed by this court in its order dated 10 th September 1996 that in view

of the Plaintiff having issued instructions to his bankers to stop payment

of the cheque dated 31st December 1994 he had "acted in violation of the

provisions of the agreement and, therefore, he cannot claim the equitable

relief of specific performance". Clarifying that this was only a prima

facie view, this Court held that the balance of convenience was also not

in favour of the Plaintiff.

17. In the same order, it was noted by the court that the counsel for the

Defendant No.1 had offered to return Rs.75 lakhs to the Plaintiff.

However, the learned counsel for the Plaintiff refused to receive the

amount. It was then directed that Defendant No.1 would deposit the said

sum of Rs.75 lakhs in a fixed deposit in his name for a period of three

years and would deposit in court the fixed deposit receipt issued by the

bank. IA 12510 of 1995 under Order 39 Rule 1 and 2 CPC was

accordingly dismissed.

18. As regards the application (IA No.3854 of 1996) filed by Defendant

No.2 under Order VII Rule 11 CPC, it was the contention of the

Defendant No.2 that the Plaintiff was aware of the agreement in favour of

Defendant No.2 even at the time of entering into the agreement to sell

dated 26th November 1994. It was observed by this Court that "if the

second defendant has got an agreement with the first defendant it is for

him to sue the first defendant for the specific relief. He cannot file

application under Order 7 Rule 11 CPC and seek an adjudication on the

question which is the prior agreement as between the two". Accordingly

the said application was dismissed without prejudice to the rights of

Defendant No.2 to claim appropriate relief.

19. An appeal FAO (OS) No.367 of 1996 was filed by the Plaintiff

against the aforementioned order dated 10th September 1996 in which it

was directed by the Division Bench that status quo would be maintained

by the parties till the next date of hearing. However, on 19th February

1998 the suit itself was dismissed for non-prosecution. IA No.1691 of

1998 was filed thereafter by the Plaintiff for restoration of the suit. This

also was dismissed in default on 14th September 1998. A fresh

application (IA 9920/98) was thereafter filed on 2nd November 1998. In

the meanwhile, since the suit itself had been dismissed, FAO (OS)

No.367 of 1996 was dismissed on 15th February 1999. Meanwhile, in the

application for restoration of the suit, despite several adjournments the

Defendant was not served. Accordingly IAs 1601/98 and IA 9920/98

were both dismissed for non-prosecution by this court on 3rd December

1999. A further application IA 12754/1999 was thereafter allowed by this

Court on 9th February 2000. The earlier applications for restoration were

restored subject to the payment by the Plaintiff of Rs.5000 as costs. IA

1691/1998 was thereafter allowed by order dated 9th October 2002

subject to the costs of Rs.2000/-. The delay in filing the application for

restoration was also allowed subject to the costs of Rs.1,000/-.

20. It may be mentioned that the plaintiff filed an IA No.10122/2002 for

striking out the defence of Defendant No.1 since he had not deposited

Rs.75 lakhs pursuant to the order dated 10 th September 1996. On 16th

February 2004 a statement was made by counsel for defendant No.1 that

he would be depositing the said amount. He was directed to deposit it

within a week with the Registrar General of this Court and the amount

was directed to be kept in a fixed deposit and kept renewed till further

orders. Counsel appearing for Defendant No.2 stated that he would be

filing an application for deletion of his name from the array of parties. On

the next date, i.e., 9th March 2004 this court was informed that in

compliance with the earlier orders, the Defendant No.1 had deposited

Rs.75 lakhs. The said amount was directed to be kept in fixed deposit for

a period of six months and kept renewed till further orders of the Court.

IA 10122/2002 was disposed of as having become infructuous.

21. On 27th September 2004, the Court while considering IA 6443/2004

filed by the Plaintiff issued a direction to the Defendant No.1 not to

demolish the structures on the suit property. At that stage, this Court was

informed by the counsel for Defendant No.1 that the suit property had

already been demolished and the Defendant No.1 was in the process of

re-constructing the same. The court then appointed a Local

Commissioner to visit the suit property and file a report. On 20th April

2005, the Court dismissed IA 3031/2005 filed by the Plaintiff seeking a

decree on admissions under Order XII Rule 6 CPC. It was observed by

the Court that "perusal of the written statement filed shows that there are

serious issues which have to be contested between the parties. I do not

find any admission of the defendant".

22. On 27th September 2005, the Court disposed of IA 8432/2004 filed by

Defendant No.2 seeking deletion on the ground that Defendant No.2 had

abandoned its claim in the suit property and had no interest therein. It

was also stated that the Defendant No.2 was not in possession of the suit

property and, therefore, there was no cause of action as far as Defendant

No.2 was concerned. The learned counsel for the plaintiff did not object

to the deletion of Defendant No.2. Accordingly, the Defendant No.2 was

deleted from the array of parties. Consequently in the present suit since

then there have been only two defendants.

23. An application (IA 4258/2004) was filed by the Defendant No.1

praying that the relief for specific performance of the agreement to sell

dated 26th November 1994 should be declined to the Plaintiff since he had

also prayed in the alternative for the relief of damages and further that the

Defendant No.1 had already deposited Rs.75 lakhs in this Court by way

of refund. This application was, however, dismissed by this court on 16 th

November 2005 noting that the question whether the plaintiff was

entitled to specific performance of the agreement to sell could be decided

"only after adjudicating all the pleas and contentions of the parties and

not at an interim stage on the basis of the pleas of the defendant that he

has refunded the amount received by him by depositing the same in the

Court".

24. On 21st April 2006, this Court disposed of IA 1588/2005 filed by the

Plaintiff seeking a direction to the Defendant No.1 to deposit a sum of

Rs.2.70 crores which, according to the Plaintiff, was the interest earned

by the Defendant No.1 on the sum of Rs.75 lakhs that was supposed to

have been deposited by the Defendant No.1 in this Court on 10 th

September 1996. It was directed that the Registry would keep the said

amount in a fixed deposit till the disposal of the suit. The question

whether Defendant No.1 was liable to pay any interest on the said sum in

the event of the suit being decreed in the alternative would be decided at

the time of the disposal of the suit.

25. In IAs 6443/2004, 5463/2005 and 6708/2005 the prayers of the

Plaintiff were for maintenance of the status quo in respect of the suit

property and for appointment of a receiver. As regards the prayer by

Defendant No.1 for vacation of the ad interim injunction, the court in its

order dated 21st April 2006 noted that the suit property had been

demolished and that Defendant No.1 was seeking to raise a construction

thereon. It was observed that it could not serve anybody‟s interest if the

land was not constructed upon. Defendant No.1 was accordingly

permitted to construct upon the suit property at his own risks and costs

and that it would not create any equities in his favour and would be

subject to the final outcome of the suit. The Defendant was also

restrained from transferring or alienating the suit property or from parting

with possession in favour of anybody else. It was noted that the

Defendant No.1 had entered into agreement with one M/s. Kataria

Constructions Pvt. Ltd., who had filed a Suit CS(OS) No.1080 of 2005 in

this Court and an interim injunction had been granted in that suit on 8 th

August 2005 directing the Defendant No.1 to maintain status quo.

Consequently, it was felt that there was no need to appoint any receiver.

26. Thereafter, this court framed the following issues by the order dated

21st April 2006:

"1. Whether the suit for performance of the agreement dated 26th November, 1994 is not maintainable under the provisions of the Specific Relief Act, as alleged in the objections? OPD

2. Whether Defendant No.1 had made any misrepresentation about the mortgage/charge of the suit property with the Syndicate Bank at the time of signing the agreement dated 26th November, 1994 and the extent thereof? If so, its effect? OPP

3. Whether Defendant No.1 complied with his obligation under Clause 2 of the agreement to sell dated 26th November, 1994 within time, and if so, its effect? OPD

4. Whether the Plaintiff has been ready and willing to perform his part of the agreement to sell dated 26th November, 1994, if so to what effect? OPP

5. Whether Defendant No.1 has created any third party interest in favour of Defendant No.2 prior to 26th November, 1994, if so, its effect? OPD

6. Whether the Plaintiff is entitled to specific performance of the agreement to sell dated 26th November, 1994 as prayed? OPP

7. Whether the Plaintiff is entitled to the relief of permanent injunction as prayed? OPP

8. Whether the Plaintiff is entitled to any amount towards damages? OPP

9. Whether the Plaintiff is entitled to interest? If so, at what amount, rate and period? OPP

10. Whether the Plaintiff has not approached this Court with clean hands? OPD

11. Relief.

27. It is also noted in the said order that apart from the suit filed by M/s.

Kataria Constructions CS(OS)No.1080/2005) there was another suit filed

by the Plaintiff against M/s Krishna Estates being Suit No.2110 of 2002

seeking specific performance of agreement in respect of the suit property.

Defendant No.1 had filed Crl.Mic.No.2923/2005 under Section 340 CrPC

which was directed to be taken up along with the suit at the time of final

disposal.

28. On behalf of the Plaintiff Mr. J.L. Gugnani was examined as PW1.

His cross-examination was completed after several orders passed by this

court including imposition of costs on Defendant No.1. On 6th December

2008, Defendant No.1 was asked to file his affidavit of evidence within

one week. PW2 was Mr. Ashok Kumar working as Assistant Manager,

Vijaya Bank. His examination concluded on 18th March 2009. PW3 Mr.

Yashpal working as Tax Assistant, Appropriate Authority, Income-tax

Department produced a letter dated 12thMarch 2009 (ExPW3/A) of Ms.

Sushma Duggal, ITO Headquarters, Appropriate Authority. Photocopies

of the relevant entries in the no objection certificate/dispatch register

containing entries at Sr. Nos. 5 and 6 were marked as Ex.PW3/B. On

behalf of the Defendant No.1, he did not examine himself but one Mr. SC

Chopra, Senior Manager, Syndicate Bank on 28th July 2009. A statement

was made before this Court on 3rd August 2009 that Defendant No.1

wished to close his evidence. Accordingly the case was listed for final

arguments.

29. Mr. Arvind Nigam, the learned Senior Counsel appearing on behalf

of the Plaintiff contended that as far as the Plaintiff HUF was concerned,

it was always willing to perform its obligations under the agreement to

sell dated 26th November 1994. There was no forfeiture clause in the

agreement and, therefore, time was not the essence of the contract. It was

submitted that since the agreement to sell stated that Defendant No.1

would apply for the permissions `forthwith‟, this had to be done

immediately upon the agreement to sell being entered into and not, as

contended by Defendant No.1, after encashment of the second cheque

dated 31st December 1994 for a sum of Rs.75 lakhs. Defendant No.1 had

not been candid with the Plaintiff and had suppressed the fact that the

amount owing to the Syndicate Bank was over Rs.1.5 crores and not

Rs.90 lakhs as held out. Consequently Defendant No.1 also suppressed

the fact of his having entered into a separate agreement to sell with M/s

Gupta Brothers. He pointed out that there was a settlement arrived at

between the parties in April 1995 pursuant to which the Form 37-I jointly

signed by both the parties was presented to the Appropriate Authority

and the certificate was issued on 31st July 1995.

30. Referring to Sections 101 and 102 of the Evidence Act Mr.Nigam

submits that the burden of proof was on the Defendant No.1 in respect of

the facts alleged by him. It is submitted that of the ten issues framed by

this court on 21st April 2006, issues 1, 3, 5 and 10 were to be proved by

Defendant No.1 by leading evidence. Since Defendant No.1 had failed to

examine himself, he must be held not to have proved the above issues

which went to the very root of the matter. Once Defendant No.1 had

failed to discharge his burden, the suit for specific performance had to be

decreed. Mr. Nigam submitted that although the copy of the original

income-tax clearance dated 31st July 1995 was not available, the evidence

of PW3 being the official of the Appropriate Authority, should be

sufficient to show that the statutory requirement of getting income-tax

clearance was in fact fulfilled. Reliance is placed on the decision of this

court in Sudershan Kumari Jain v. Pran Nath Jain 2009 (157) DLT 626

to contend that no objection could be raised by the Defendant No.1 to the

decree for specific performance being passed in favour of the plaintiff

since the essential statutory permissions from the income-tax authorities

had been obtained and other statutory permissions could always to be

directed to be obtained by the court even while decreeing in the suit for

specific performance.

31. Defendant No.1 appeared in person and also submitted a written note

of arguments. He pointed out that the essential requirement in order to

succeed in a suit for specific performance was that the Plaintiff should

show that it was ready and willing to perform its part of the obligations.

By issuing stop payment instructions vis-à-vis the cheque dated 31st

December 1994 the Plaintiff had demonstrated that it was in fact not

ready or willing to perform its part of the obligations. The evidence of

PW2, the Assistant Manager of the Vijaya Bank showed that the balance

in the account of the Plaintiff as on 31st December 2004 was less than

Rs.75 lakhs. This was in fact the reason why the stop payment instruction

was issued. In so far as the Plaintiff had miserably failed to demonstrate

its readiness and willingness to perform its part of the obligations, no

decree for specific performance could be granted in favour of the

Plaintiff.

32. Referring to the answers given by Mr. Gugnani in his cross-

examination, Defendant No.1 submitted that admittedly even during the

pendency of the present suit, the Plaintiff had entered into an agreement

to sell dated 6th June 1996 with M/s Krishna Estates in respect of certain

agricultural land in village Wazirabad. As part payment of the

consideration for the said property, the Plaintiff herein had sold all its

rights and interests flowing from the present agreement to sell to the said

M/s Krishna Estates. Thus it was plain that the Plaintiff was not

interested in getting the agreement to sell specifically performed for

itself. Yet another agreement to sell had been entered into on 10th June

1999 (Ex.PW1/D-5) with the said M/s Krishna Estates for purchase of

agricultural land. It is submitted that in respect of those transactions also

a suit for specific performance had been filed in this Court by the

Plaintiff who was only interested in speculating in real estate. Defendant

No.1 referred to the forgery committed by the Plaintiff in preparing an

alleged receipt in the sum of Rs.14 lakhs. In respect thereof an FIR

No.245/2005 had been registered against the Plaintiff and charges had

been framed by the learned ACMM on 26th February 2006.

33. According to Defendant No.1, the documents submitted to the

Income-tax Department by the Plaintiff were forged as he had never

signed any such document. He contested the contention of the Plaintiff

that any valid NOC had been issued by the Appropriate Authority on 31 st

July 1995 in favour of the Plaintiff. It is submitted that there was no

reason why without receiving the second payment of Rs.75 lakhs the

Defendant No.1 would take steps to get clearance. The Plaintiff was fully

aware of the mortgage created in favour of the Defendant No.3 Bank and

if the said payment of Rs.75 lakhs had been realized by the Defendant

No.1, it would have cleared the outstanding dues of Syndicate Bank and

got the title documents released. It was the Plaintiff‟s stoppage of

payment without any prior notice to the Defendant No.1 that had

frustrated the agreement to sell.

34. Defendant No.1 points out that the attempt by the Plaintiff to have the

records of the Bank for producing the statement of account of the dues

after 31st December 1994 was negatived by this court by an order dated

23rd March 2009. Accordingly, the Plaintiff had miserably failed to prove

that as on 31st December 1994, it had sufficient money for performing its

obligations of paying Rs.75 lakhs to the Defendant No.1 and that even

thereafter it had sufficient sum to pay the balance consideration.

Defendant No.1 also points out that there were certain criminal

proceedings in which the Plaintiff had Defendant No.1 arrested on 4th

March 2004. He submitted that he had suffered enormous hardship and

harassment at the hands of the Plaintiff. He prays for dismissal of the suit

with exemplary costs. As regards the sum of Rs.75 lakhs deposited in this

Court, it is submitted that there is no prayer made by the Plaintiff for

return of the said money together with the amount of interest accrued

thereon and therefore it should be directed to be returned to Defendant

No.1.

Issue No.4: Whether the Plaintiff has been ready and willing to perform his part of the agreement to sell dated 26th November, 1994, if so to what effect?

Issue No.6: Whether the Plaintiff is entitled to specific performance of the agreement to sell dated 26th November, 1994 as prayed?

35. The above two issues are taken up for consideration first. This is a

suit for specific performance. It is the Plaintiff, an HUF, which has to

first satisfy the Court that it has always been ready and willing to perform

its part of the obligations under the agreement to sell of which specific

performance is being sought. In para 15 of the plaint, the Plaintiff has

made the necessary averment that it "has at all times been and continues

to be ready and willing to perform all their obligations under the

agreement to sell dated 26th November, 1994. The Plaintiff is and has all

times been ready and willing to pay the balance sale consideration

provided the said Defendant fulfills all their obligations under the

aforesaid agreement to sell dated 26th November, 1994." However, the

evidence in support of this averment requires to be examined.

36. The facts narrated hereinbefore show that on the date of entering into

agreement to sell, the Plaintiff was aware that the property stood

mortgaged to the Syndicate Bank. The amount for which the mortgage

was created in favour of the Syndicate Bank as indicated in the

agreement to sell is Rs.90 lakhs. The allegation of the Plaintiff is that it

discovered subsequently that the amount owed to the said Bank was

approximately Rs.1.5 crores. In response to the averment to this effect in

para 10 of the plaint, the Defendant No.3 in its written statement only

gives the outstanding liability owed by the Defendant No.1 to the Bank

as on the date of the written statement, i.e., 10th July 1996. This is split up

into non-fund based liability to the tune of Rs.95.95 lakhs and funds

based liability to the tune of Rs.162.45 lakhs. This written statement is,

therefore, not helpful in ascertaining the exact amount owed to the

Defendant No.3 Bank by Defendant No.1 as on the date of the agreement

to sell. In any event this does not appear to have deterred the Plaintiff

from seeking specific performance of the agreement because on its own

showing, it kept corresponding with the Defendant No.1 even thereafter.

37. It appears that on 14th January 1995 itself, the lawyer for the Plaintiff

had written to the Defendant No.1 stating that "it has now transpired

from letter dated 1/12/94 of Syndicate Bank that the liability of the Bank

is existing Rs.1.5 Crore". The Plaintiff was also aware of the further

collaboration agreement in favour of Defendant No.2 and yet by that

letter the Plaintiff was still seeking specific performance of the agreement

to sell. This was, of course, denied by the Defendant No.1 through his

lawyer by the reply dated 22nd January 1995. It was also denied that any

sum of Rs.14 lakhs was received in cash. Defendant No.1 expressed

shock that the Plaintiff had given a stop payment instruction behind the

back of the Defendant No.1 and therefore by the letter dated 3rd January

1995 Defendant No.1 cancelled the agreement.

38. A perusal of the agreement to sell shows that the applications for

statutory permissions were to be made by Defendant No.1 "forthwith".

However, the time period within which this had to be done was not

indicated. It was also not envisaged that the Plaintiff would stop payment

of the cheque of Rs.75 lakhs dated 31st December 1994 if the Defendant

No.1 did not apply for and obtain the permissions "forthwith". The

undisputed fact is that the Plaintiff did issue a stop payment instruction

vis-a-vis the cheque dated 31st December 1994. The Plaintiff did so

without informing Defendant No.1. The letter addressed by the Plaintiff

to its bankers giving such instruction is dated 31st December 1994. The

Plaintiff had has not been candid and truthful in stating that it was not

aware that the payment of Rs.1.5 crores to the Defendant No.3 was one

of the essential conditions to be fulfilled. This is significant because even

according to the Plaintiff, it knew that as on the date of the agreement to

sell, an equitable mortgage in the sum of Rs.90 lakhs was created in

favour of the Syndicate Bank. One of the essential conditions of the

agreement to sell was that the Defendant No.1 would liquidate the dues

of Syndicate Bank and get the total dues realized. Only then would it be

possible for the sale deed to be executed in favour of the Plaintiff.

Obviously the said amount could not have been liquidated by Defendant

No.1 himself without receiving the two payments by the two cheques

issued by the Plaintiff in his favour.

39. The second significant aspect was that the vacant possession of the

first floor of the suit property was to be delivered by Defendant No.1 to

the Plaintiff soon after the encashing of the cheque dated 31st December

1994. This also the Plaintiff did not permit to happen.

40. Then we have the evidence of the Bank official PW2. He had brought

to the court the statement of account of the Plaintiff which showed that as

on 31st December 1994 the balance in the account was Rs.69,80,125/-.

Clearly, therefore, if the cheque dated 31st December 1994 in the sum of

Rs.75 lakhs had been presented for payment, it would have been

dishonoured. The attempt by the Plaintiff to get the bank official again

summoned to bring the statement of account beyond that date was not

permitted by this Court by an order dated 23rd March 2009. In the

circumstances, the Plaintiff has miserably failed to prove that it had the

capacity to pay the amounts owing to the Defendants under the

agreement to sell either on 31st December 1994 or even thereafter.

Therefore, this essential obligation of the Plaintiff under the agreement to

sell has not been fulfilled by it and the Plaintiff has, therefore, not been

able to show its readiness to perform its part of the obligation.

41. Then we have the conduct of the Plaintiff in entering into an

agreement dated 6th June 1996 with M/s Krishna Estate. That agreement

was for the purchase by the Plaintiff of 434 bighas and six biswas of

agricultural land from M/s Krishna Estates for a total consideration of

Rs.11.04 crores. In clause 9 of that agreement, it was stated that "sum of

Rs.1 crore had already been paid". In clause 9(b) of the said agreement,

an express reference was made to the fact that the Plaintiff was holding

an agreement to sell in respect of the suit property and that they had paid

to the Defendant No.1 a sum of Rs.89 lakhs and they have received no

objection from the income-tax authority and that the balance would have

to be paid through Defendant No.1 for the sale deed to be executed. It

was mentioned that a suit had already been filed by the Plaintiff in this

Court pending adjudication and that the first party to the agreement dated

6th June 1996, i.e., M/s Krishna Estates had no objection to the right and

title of the interest of the second party, i.e., (J.L. Gugnani) in respect of

the said property. It was agreed that the total consideration of Rs.2.5

crores included the amount of Rs.90 lakhs paid by the second party to the

owner (i.e., the Defendant No.1 herein). Clearly, therefore, the karta of

the Plaintiff, J.L. Gugnani, held out M/s Krishna Estates that it was still

holding an agreement to sell although it did not correctly represent the

amount paid to the Defendant No.1.

42. It requires to be recalled that a sum of Rs.75 lakhs had been paid to

the Defendant No.1. According to the Plaintiff, it had also paid Rs.14

lakhs in cash which of course was disputed by the Defendant No.1.The

Plaintiff has not made any attempt to prove the payment of Rs.14 lakhs

by way of cash to the Defendant No.1. The Plaintiff also does not deny

pendency of a criminal case arising out of the alleged forgery of the

receipt of Rs.14 lakhs and the cancelled cheque for the said amount,

photocopy of which document has been included as Annexure B to the

Plaintiff‟s compilation in the present case. In his cross-examination, the

Plaintiff also does not deny that "he entered into the second agreement

dated 6th June 1996".

43. In the above context, the following questions and answers during the

cross-examination of the karta of the Plaintiff HUF are significant:

"I have seen the certified copy of the plaint being suit no.2110/2002 titled `J L Gugnani vs. Krishna Estates and Others‟ annexed with the affidavit and another agreement to sell dt.10th June 1999 which are correct but all these are not relevant qua the point in controversy. These also marked as Ex.PW1/D3, Ex.PW1/D4 and Ex.PW1/D5 respectively. (Objected to mode of proof)

Ques : I put it to you that you have filed the suit for specific performance of the agreement 6th June 1996 pending in this Hon‟ble High Court?

Ans : Since the agreement was never materialized, so another agreement to sell was executed but I do not recall the exact date

of that agreement. However, the suit for specific performance was filed on the basis of subsequent agreement.

Ques : I put it to you that during the pendency of the present suit you dealt with M/s Krishna Estates with a view to sell the suit property?

Ans : It was proposed discussion and agreement by mentioning of suit no.2906/95 but the same was not materialized."

The above admission of the Plaintiff is significant for determining its

readiness and willingness to perform its part of the obligation.

44. The aspect of obtaining all income-tax clearance is also controversial.

From the documents placed on record it appears that the Plaintiff

unilaterally submitted Form 37-I to the Appropriate Authority on 3rd

January 1995 knowing that it was not signed by the Defendant No.1. It is

not possible to believe that the Plaintiff did not understand the

consequences of submitting such a form without the signature of the

Defendant No.1. Further, the said form was submitted after the Plaintiff

had stopped payment of the cheque dated 31st December 1994. The

Plaintiff has not been able to satisfactorily explain this conduct. Not

surprisingly, therefore, on 30th January 1995 the Appropriate Authority

wrote to the Plaintiff that since the statement "filed by you is not signed

by the transferor", another Form 37-I has to be filed. It is surprising,

therefore, that the Plaintiff accuses the Defendant No.1 of not having

taken steps "forthwith" when apparently the Plaintiff had himself

submitted this Form to the Appropriate Authority, even while not paying

the Defendant No.1 the second instalment of Rs.75 lakhs, consequent to

which the Defendant No.1 was to take steps to get the income tax

clearance..

45. Although the Plaintiff states that the Defendant No.1 was "verbally"

informed of the instruction issued to the bank to stop payment of the

cheque dated 31st December 1994, the only document that has been

produced in proof thereof is the letter dated 5 th January 1995 written to

Defendant No.1 in which for the first time the Plaintiff informed

Defendant No.1 about having issued such an instruction. Significantly by

this date on 3rd January 1995 itself the Defendant No.1 had written to the

Plaintiff that the agreement stood cancelled since the cheque presented by

the Defendant No.1 was returned dishonoured. In the letter dated 5th

January 1995, the Plaintiff accused the Defendant No.1 of failing to "file

the application in Form 37-I within the due date". From the letter dated

30th January 1995 of the Income-tax Authority to the Plaintiff, it appears

that the Plaintiff had itself sent such a form "unsigned by the Defendant

No.1 to the Appropriate Authority".

46. Then we have the letter dated 26th April 1995 again written by the

Plaintiff to the Appropriate Authority admitting that when earlier the

Form 37-I was submitted "the Transferee in spite of his best efforts could

not get the form signed by the Transferor earlier. However, the same has

now been signed by the transferor and the duly filled and signed by both

the parties is now enclosed herewith for your necessary action". This

belies the case of the Plaintiff that the Defendant No.1 did not take any

steps. It is the Plaintiff who had unilaterally sent the Form 37-I to the

Appropriate Authority without the Defendant No.1 signing on it. If the

cheque dated 31st December 1994 was not going to be honoured, it was

not surprising that the Defendant No.1 did not come forward to sign such

a form. With the Defendant No.1 denying that he had ever signed such a

form, the burden was on the Plaintiff to show that such a signed form had

been submitted to the Appropriate Authority. That document has not seen

the light of the day.

47. A copy of the document dated 31st July 1995 purported to be issued

by the income-tax authority indicating its no objection to the transfer of

the property has been placed on record. It does not show the signatures of

the Members of the Appropriate Authority. It is only a photocopy of a

certified copy. No attempt has been made by the Plaintiff to lead

secondary evidence in respect of this document. The evidence that has

come on record in the form of PW3, the official from the Office of the

Appropriate Authority, has only proved the letter dated 12th March 2009

(Ex.PW3/A) written by Ms. Sushma Duggal, ITO HQ.-Appropriate

Authority stating that the record File No. 4532 "is not readily available in

this office". Although it shows that a NOC has been issued to the

Plaintiff and Defendant No.1 and certain entries in the dispatch register

kept in the office had been sought to be proved. This NOC by income-tax

authority shows that the Plaintiff and the Defendant No.1 jointly applied

for income-tax clearance. In the light of the categorical denial by the

Defendant No.1 of ever signing of such a document and accusing the

Plaintiff of fabricating such a document, the burden was on the Plaintiff

to show that in fact the Defendant No.1 had joined him in making such

an application. This burden has not been discharged by the Plaintiff.

48. It is surprising that without the Plaintiff performing his part of the

obligation of making payment of the sum of Rs.1.5 crores to Defendant

No.1, it was expecting Defendant No.1 to take steps for performance of

his obligations. Moreover the Plaintiff was clearly not interested in

getting the property for itself as it had already parted with its rights even

during the pendency of this suit to M/s Krishna Estates.

49. In the circumstances, the Plaintiff has miserably failed to prove that it

has been ready and willing to perform its part of the obligations under the

agreement to sell dated 26th November 1994. The Plaintiff is accordingly

not entitled to seek specific performance of the said agreement.

Accordingly, the issue Nos.4 and 6 are answered against the Plaintiff and

in favour of the Defendant No.1.

Issue No.1: Whether the suit for performance of the agreement dated 26th November, 1994 is not maintainable under the provisions of the Specific Relief Act, as alleged in the objections?

50. In view of the findings on issues 4 and 6, it cannot be held that the

suit for specific performance is maintainable under the Specific Relief

Act and therefore the issue is decided in favour of the Defendant No.1

and against the Plaintiff. Although the Defendant No.1 has not stepped

into the witness box to lead the evidence, the evidence led by the Plaintiff

himself has demonstrated that it has not been ready and willing to

perform its part of the obligations.

Issue No.2: Whether Defendant No.1 had made any misrepresentation about the mortgage/charge of the suit property with the Syndicate Bank at the time of signing the agreement dated 26th November, 1994 and the extent thereof? If so, its effect?

51. In the considered view of this Court, the Plaintiff has not been able to

prove that Defendant No.1 made any misrepresentation as alleged. The

issue is answered against the Plaintiff and in favour of Defendant No.1.

Issue No.3: Whether Defendant No.1 complied with his obligation under Clause 2 of the agreement to sell dated 26th November, 1994 within time, and if so, its effect?

52. As already noticed, there was no specific time frame within which

Defendant No.1 had to perform his obligations under the agreement to

sell. Moreover, the said obligations did not arise if the payment of Rs.1.5

crores was not made to Defendant No.1. Admittedly, the Plaintiff

unilaterally stopped the payment of the second cheque dated 31 st

December 1994. Consequently, it cannot be held that the Defendant No.1

failed to fulfill the obligations under clause 2 of the agreement to sell

within the time envisaged under that agreement. The issue is answered

accordingly.

Issue No.5: Whether Defendant No.1 has created any third party interest in favour of Defendant No.2 prior to 26th November, 1994, if so, its effect?

53. The Defendant No.2 was dropped from the array of parties.

Therefore, this issue does not require to be answered.

Issue No.7: Whether the Plaintiff is entitled to the relief of permanent injunction as prayed?

Issue No.8 : Whether the Plaintiff is entitled to any amount towards damages?

Issue No.9 : Whether the Plaintiff is entitled to interest? If so, at what amount, rate and period?

54. In view of the Plaintiff having failed to succeed in issue Nos. 4 and 6,

these issues are answered against the Plaintiff. The Plaintiff is not entitled

to any further relief.

Issue No.10: Whether the Plaintiff has not approached this Court with clean hands?

55. The Defendant No.1 by not entering the witness box has really not

been able to show that the Plaintiff has not approached this court with

clean hands. This issue is therefore answered against the Defendant No.1.

56. The prayers in the plaint do not include a prayer for return of the sum

of Rs.75 lakhs paid to the Defendant No.1. Accordingly it is not possible

to grant such a relief to the Plaintiff. Moreover the Plaintiff has not been

able to show that it is entitled to any decree for specific performance. The

question therefore of payment of any sum to the Plaintiff does not arise.

57. Consequently the suit is dismissed with costs of Rs.30,000 which is

apart from the costs that will be determined in accordance with law. The

costs of Rs.30,000 shall be paid by the Plaintiff to Defendant No.1 within

four weeks. It is made clear that the court has not adjudicated upon any

of the submissions made by Defendant No.1 vis-à-vis Defendant No.3

Syndicate Bank. That is a subject matter of separate proceedings which

will be decided independent of the present judgment. The interim orders

stand vacated. The amount deposited by the Defendant No.1 in this court

which has been directed to be kept in a fixed deposit will be returned to

Defendant No.1 within two weeks by the Registry together with the

accrued interest. The pending applications stand disposed of.

Crl.MA. No.2923/2005

58. Having perused this application, this Court is of the view that the

allegations made in the application need not be examined in the view of

the fact that the Plaintiff has been denied relief for having failed to prove

its case. Moreover, by not appearing in the witness box, the Defendant

No.1 has failed to discharge the burden of even prima facie proving Issue

No.10 as indicated above.

59. The application is accordingly disposed of.

S. MURALIDHAR, J.

OCTOBER 20, 2009 ak