Jageshwar Parshad Sharma vs Raghunath Rai & Ors.
2012 Latest Caselaw 2786 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                             Decided on: 27.04.2012

+                           RFA (OS) NO. 54/1999


JAGESHWAR PARSHAD SHARMA               ........Appellant
                Through: Rakesh Prabhakar, Advocate.

                   versus

RAGHUNATH RAI & ORS.                      .......Respondents

                 Through: Sh. L.S. Solanki, Advocate,                         for
                 Respondent Nos. 1 and 2.


MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE S.P. GARG


MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
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1. The Appellant challenges a judgment and order of a learned Single Judge of this Court, decreeing OS No. 1394/79. The appellant was arrayed as defendant in the respondents' suit which sought decree of specific performance of the agreement to sell (hereafter "the agreement") dated 6.6.1977 (executed by the appellant in their favour) and consequential decree for possession (of ground floor part) and also for damages.

2. The plaintiffs had contended that the Defendant No. 1 (hereafter "the appellant") executed the agreement to sell the property No. 227 in Block E, Greater Kailash, New Delhi measuring 208 sq. yards in their favor for a

RFA (OS) 54/1999 Page 1 consideration of ` 2,00,000/-. They had paid `1,00,000/- (` 21,000/- as earnest money and `79,000/- as advance part payment) to him on 9.6.1977 at the time of execution and presentation for registration of the agreement before the Sub-Registrar. The appellant had delivered vacant physical possession of the first and second floors of the said property to them. The sale was to be completed by the appellant within 81 days of obtaining the No Objection Certificate from the competent authority under the Urban Land (Ceiling and Regulation) Act (for short "ULCRA") and from the Income Tax authorities. This was not done; on 15.11.1977 he sought extension of time for 90 days for completing the sale which was consented to by the plaintiffs vide their letter dated 19.11.1977, but still sale had not been completed. The suit also alleged that under the agreement, he had to furnish documents to enable them to raise a loan from the Life Insurance Corporation of `1,00,000/- to pay the balance sale consideration. The Appellant agreed to clear the water and electricity dues and property taxes and convey to the plaintiffs a clear title free from encumbrance/liabilities whatsoever. The plaintiff respondent expressed their readiness and willingness to perform their part of the obligations. They alleged that the Appellant, however defaulted and breached his obligations.

3. The Defendants filed separate written statements. The Second defendant (the Punjab National Bank, hereafter "PNB") claimed that the Appellant had created an equitable mortgage in its favor in respect of the suit property for credit facilities given to M/s. Anil Industries of which the appellant and his brother S.K. Sharma were partners and there was an out- standing liability amounting to `12,95,889.02 as on 31.12.1979 towards that

RFA (OS) 54/1999 Page 2 facility, that the suit is bad in law, plaintiffs have no locus standi to file the suit and the agreement was null and void and not binding, being in violation of the mortgage created in its favor. The plaintiffs, however, claimed ignorance of such mortgage and asserted that what was represented to it was that the property was free from encumbrances.

4. The appellant, in the written statement, contended that the plaintiff had no cause of action and was disentitled to claim specific performance as the No Objection Certificate required was not given. There was consequently no failure on his part. It was also stated that at the time of execution of the agreement to sell, the existence of the equitable mortgage on the property to PNB was informed to the plaintiff in March, 1978 and that inspite of his best efforts and due to the circumstances beyond his control, he could not get the title deeds of the property released from the bank. It was alleged that the plaintiff was offered a refund of the sum of `1.00 lakh given as advance and earnest money, subject the return of possession of first floor and second floor. The first defendant also counter claimed for recovery of `79,750/- on account of damages for use and occupation of the first and second floors by the plaintiffs at the rate of `2250/- per month for the period up to 6.2.1980.

5. On the pleadings of the parties the following issues were framed:

1. Whether the suit has not been properly valued for court fee and whether the court fee paid is not sufficient and proper?

2. Whether the agreement to sell dated 6.6.1977 had come to an end as alleged in paras Nos. 3-4 of the written statement of Defendant No. 1, if so to what effect?

RFA (OS) 54/1999 Page 3

3. Whether the defendant No. 1 had represented to the plaintiff that the property in suit was free from all sorts of encumbrances, liens and charges etc., if so, to what effect?

4. Whether the plaintiff has been ready and willing to perform his part of the agreement?

5. Whether the defendant No. 1 has been ready and willing to perform his part of the agreement ?

6. Whether defendant No. 1 is entitled to claim from the plain tiff the charges for use and occupation for the fist floor and 2nd floor of the suit property and if so at what rate and for what period?

7. Whether the defendant No.1 can claim the charges mentioned in issue No. 6 above without payment of Court fee, if so, to what effect?

8. Whether the plaintiff is entitled to claim for damages from defendant No. 1, if so, to what amount?

9. Whether the plaintiff has no locus standi to file the suit and the agreement in question in null and void as alleged by defendant No. 2 in preliminary objection No. 2 and paras 6 and 7 on merits of his written statement?

10. Whether the defendant No. 2 has first charge over the property in suit and what is the effect of the equitable mortgage?

11. To what relief is the plaintiff entitled?

6. The parties led oral and documentary evidence; the plaintiffs examined nine witnesses. The first defendant examined three witnesses.

RFA (OS) 54/1999 Page 4 PNB remained absent after filling the written statement and did not lead any evidence.

7. The learned single judge, by the impugned judgment and order, decreed the suit, holding that the plaintiff had proved that it was ready and willing to perform its part of the bargain, and that there was no impediment, legal or otherwise for the court to issue a decree of specific performance.

8. The appellant's only contention before this Court was that the impugned judgment is unsustainable because the prior mortgage with PNB constituted a legal impediment for the court to issue a decree of specific performance. He relied on Section 48 of the Transfer of Property Act, 1882, in this regard, which reads as follows:

"48. Priority of rights created by transfer.- Where a person purports to create by transfer at different times rights in or over the same immoveable property, and such rights cannot all exist or be exercised to their full extent together, each later created right shall, in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created."

It was contended that since an equitable mortgage in favour of the PNB existed, which was prior in point of time, as a result, the agreement to sell was hit by Section 48 and could not be enforced, over the prior claim of the Bank. It was submitted that the contract for sale of the property was subject to the vendor/ first defendant getting rid of his liabilities, and redeeming the mortgage. Since that could not be done, the contract for sale of the property could not be fulfilled. Counsel submitted that the Trial Court fell into error in holding that this argument was not proved, even though the documentary

RFA (OS) 54/1999 Page 5 material, in the form of the agreement to sale, and the first defendant's evidence, established that.

9. This court has considered the submissions and the materials on record. Before analyzing the appellant's submissions, it would be necessary to reproduce the Agreement to sell, which was produced and marked in evidence as Ex. P-1. It reads as follows:

"1. That the Purchasers will pay a sum of Rs. 21,000/- (Rupees twenty on thousand only) as earnest money to the seller at the time of execution of this Agreement and a further sum of Rs. 79,000/- (Rupees seventy nine thousand only) as a further advance payment at the time of presentation for registration of this Agreement in the Office of Sub-Registrar, Asaf Ali Road, New Delhi. In the form of collateral securities the Seller shall handover the vacant physical possession of the First and Second floors of the said building.

2. That the Seller shall obtain a No Objection from the Competent Authority set up under the Urban Land (Ceiling & Regulation) Act, 1976.

3. That the Seller shall also obtain the required Income Tax clearance Certificate vide Proforma 34-A under section 230A of the Income Tax Act.

4. That the Seller shall clear off all the dues and demands in respect of Electric and Water Charges, Fire & Scavenges tax, House-tax or any other Levy or Penalty pertaining to the said property and thus make the property absolutely free from all encumbrances, liens, claims, demands, dues, executions, mortgages, agreements to sell, prior sales, appurtenances, easements, privileges etc. etc.

RFA (OS) 54/1999 Page 6

5. That the Seller shall pay all the expenses in respect of this Deal, such as Stamp Paper, Corporation Duty, Stamps and any other incidental charges.

6. That the Purchasers will be entitled to do the renovation, painting & polishing in the premises handed over to them even during the tenure of this Agreement at their own will and cost.

7. That the Purchasers are likely to approach the Life Insurance Corporation of India for the grant of a loan against this property for the payment of balance amount of sale price to the seller and to make this loan feasible the seller shall handover all the original sale deeds and other relevant papers to the Purchasers at the time of grant of such loan by the Life Insurnce Corporation of India to the purchasers.

8. Should the Purchasers fail to pay the balance sale proceed within 21 days after the Seller's intimation to them about the receipt of No Objection and the Income Tax clearance Certificate the Seller reserves the right to forfeit the earnest money of Rs. 21,000/- and cancel the deal. But the amount of Rs. 79,000/- received by him as further advance along with the expenses in curred by the purchasers on renovation, painting & polishing, as agreed upon, shall be returned to the Purchasers forthwith

10. That the Seller shall keep the possession of the ground floor till the final sale deed is made but shall allow the purchasers or their authorized agents to do the work of renovation or painting & polishing at reasonable hours.

11. That the seller shall obtain the required No Objection and the I.T.C. within 75 days from the date of execution of this Agreement.

XXXXXX XXXXXXX XXXXXX

13. That the Seller shall intimate the Purchasers about the receipt of No Objection and the Income Tax Clearance

RFA (OS) 54/1999 Page 7 Certificate by him by a registered acknowledgment due letter and the Purchas ers shall be required to make the balance payment within 21 days from the receipt of such intimation.

xx xx xx xx

15. The stipulated period for the finalisation of the Sale Deed is eighty one days."

10. After considering the provisions of the Contract Act, the learned Single Judge held that:

"18. It is not the case of the defendant that the contract was void or voidable at the time of execution of the agreement to sell at the instance of the defendant No. 1 for any of the grounds enumerated in the Contract Act.

19. The terms agreed upon also do not show that it was also a contingent contract giving the option to the seller to avoid the contract on the happening or non happening of any event. The conditions to be fulfillled by the defendant/seller are also not impossible of performance. As such the defendant could not avoid the agreement on his own ipsi dixit for non performance of the terms on his part as agreed for the alleged reasons.

20. In the agreement to sell defendant had agreed to do certain acts and things. There is mostly always an implied covenant on the part of the vendor to do all things necessary to give effect to the agreement, including the obtaining of the permission or clearances for the transfer of the property. The law is well settled that if the vendor agrees to sell the property which can be transferred only with the sanction of some Government authority, the court has jurisdiction to order the vendor to apply to such authority within specified period, and if the sanction is forthcoming to convey the property to the purchaser within a certain time. (See Motilal Vs. Nanhelal AIR 1937 PC 287: Mrs. Chandnee Widya Vati Madden Vs . Dr. C.L. Katial & Others

RFA (OS) 54/1999 Page 8 [1964]2 SCR 495 : and Rojasara Ramjibhai Dahyabhai Vs. Jani Narotamdas Lallubhai (dead by LRs.) AIR 1986 SC 1912).

21. It is not the case of the defendant that though he had applied for "No Objection" and Income Tax Clearance but the same were disallowed/refused. Permission was applied under ULCRA which was granted on 2.5.1978 vide order Ex. P-4. This fact has inter alias been proved by the Competent Authority himself (Shri A.C. Kher as P.W.7 and the material on record shows that this was granted in the presence of the defendant who himself had collected it from there. Denial of knowledge even of this permission by defendant No. 1 is sneer concoction, falsehood and mala fide. If he did not know the fact of this permission, he would have pursued the matter further with the Competent Authority which obviously he did not do. Obviously, this is a false plea taken to avoid the agreement. Similarly the defendant had either obtained the Income Tax clearance or he had not applied for the same. It does not appear nor it is shown that there would have been any difficulty in obtaining this Income Tax clearance if the defendant had made any attempt to obtain it. Again if there was mortgage on the property, it was within his power to discharge the same when he had undertaken to convey title to the plaintiff free from all sorts of encumbrances etc. One cannot be allowed to take benefit of his own faults and omissions. Contracts solemnly entered into cannot be avoided on the ipsi dixit of one of the party to the prejudice of the other. There will be no frustration of the contract when the parties are put to observe what they were required to do under the contract and which they do not want to perform.

22. The plaintiffs had admittedly paid 50% of the sale consideration at the time of execution of the agreement and the balance 50% amount of Rs. 1.00 lakh was payable after the seller's intimation to them by registered post about the receipt of "No Objection" and the Income Tax Clearance Certificate (ITC) under Clause B and such "N0 Objection" and "ITC" were to be obtained by the seller within 75 days from the date of execution of this agreement (Clause 11). Besides this the defendant had to pay off all the Municipal dues and taxes etc.

RFA (OS) 54/1999 Page 9 and to convey a valid title free from all encumbrances whatsoever as provided in Clause 4. Under section 55(1)(g) of the Transfer of Property Act (for short "TPA") also he was obliged to perform and discharge these obligations undertaken by him for which he had even sought time and which was granted by plaintiffs on 19.11.1977 (Ex. P3). It is not the case of the defendant nor shown that there was any breach on the part of the plaintiffs in this respect.

23. The agreement to sell in question thus did not come to an end as alleged in paras 3 and 4 of the written statement of the defendant No. 1. This issue is thus decided against defendant No.1."

Next, dealing with the question whether the previous mortgage had been disclosed to the plaintiff/respondent, after considering the evidence, it was held that:

"30. Though defendant No.1 as D.W.1 has stated that he had taken loan from Punjab National Bank and the sale deeds were deposited there and that he had told the plaintiff at the time of entering into the agreement that the property stood mortgaged with that Bank but he has been challenged on this in his cross examination by the plaintiffs. He has stated that Mr. B.R.

Kataria, an officer of the Punjab National Bank and on other officer of that Bank had appeared before the Sub-Registrar at the time of the registration of the agreement to sell with the original sale deed of the property. But neither the written request that would have been made to this effect to the Bank to produce the original nor Mr. Kataria or any other person from that Bank has been produced as witnesses to prove this fact. His self-serving statement in the absence of such corroborating evidence which could be produced, cannot be believed in preference to the statements of P.W. 5 and P.W. 9. Further his statement that he neither appeared before the Competent Authority nor produced before him, the original sale deed at the time of obtaining permission is not correct. Shri A.C. Kher, who

RFA (OS) 54/1999 Page 10 was the Competent Authority and granted the permission (Ex. P. 4) has appeared as P.W. 7 and proved Ex.P-5, copy of order sheet dated 27.4.1978 wherein the fact of production of the original sale deed for his perusal is recorded. In his statement as P.W. 7 also he has so deposed which was the normal practice to see the original title deeds. He is a responsible senior Government Officer and is an independent witness. He has no interest to depose favoring one and disfavoring the other. There is no reason to disbelieve him. Moreover, there is no reason nor any Explanationn that if the property was subject to equitable mortgage, why it was not incorporated in the agreement itself.

31. In view of this discussion, I find and it is so held that defendant No. 1 had not disclosed to the plaintiffs at the time of entering into or execution and registration of the agreement to sell that the property in question was encumbranced by way of equitable mortgage with the Punjab National Bank. I also hold that defendant No. 1 had manipulated in collusion with the staff of the Punjab National Bank in surreptitiously obtaining from them if so deposited there and producing the original sale deeds of the property in question before the plaintiffs, the property dealer, the Sub-Registrar and before the Competent Authority. It is further held that he had represented to the plaintiffs that the Municipal dues and taxes were the only outstanding liability against this property. This issue is decided accordingly and in favor of the plaintiffs."

11. The Defendants' argument about the Plaintiff not being ready and willing to perform his part of the bargain was rejected by the Trial Court. It was held that the first defendant was aware that the Plaintiff had applied for a loan from the Life Insurance Corporation to pay the balance consideration. The advance of Rupees one lakh had been paid to the first defendant. The first plaintiff was examined as PW-9; in addition to his evidence, P.W. 6 Shri M.L. Ahuja from the concerned branch of LIC deposed that the plaintiff

RFA (OS) 54/1999 Page 11 had applied for a loan of Rs.1 lakh for the purchase of this property and intimation of sanction of loan was sent and original title deeds were called from him which were not submitted. He also proved relevant correspondence Ex. P-9 to P-15 exchanged between LIC and the plaintiff. The LIC did not release the amount due to the fact that the title deeds had not been furnished (as they were deposited by the first defendant). Having regard to these, and the other materials, which were not disputed by the Appellant, the Trial Court concluded that the plaintiffs had proved readiness and willingness to perform their part of the bargain.

12. The Court, in addition, concluded that the PNB staff had colluded with the first defendant, in allowing him access to the title documents, which resulted in the former entering into an agreement to sell the property with the plaintiff, and that the first plaintiff was not aware of this. Consequently, it was held that the PNB could not enforce its mortgage against the property, to the plaintiffs' detriment, as it was estopped in that regard. The Court also enjoined the PNB with appropriate directions, in its decree. PNB did not appeal against the decree, and has not even participated in the present proceedings.

13. As observed earlier, the endeavour of the appellant was to submit that the impugned judgment was unsustainable as it preferred to decree the suit for specific performance, over the pre-existing mortgage in favour of the PNB. The first defendant's submission was that the agreement of sale was void, and unenforceable on that count. The appellant also relied on Section

48.

RFA (OS) 54/1999 Page 12

14. First, the argument regarding applicability of Section 48, Transfer of Property Act. Speaking about this provision, the Supreme Court held in Dattatreya Shanker Mote & Ors V. Anand Chintaman Datar & Ors 1974 (2) SCC 799, that:

"The principle underlying Section 48 is one expressed in the maxim of Equity : "Qui prior est tempore potior est jure (first in time is stronger in right). This principle, applied to ranking between rival equitable claims, is applied by Section 48 to contending claims of otherwise equal legal validity. The effect of Section 100 is that while a charge, which is not a "transfer" of property, gets recognition as a legally enforceable claim, that enforceability is subjected by the proviso to the requirements of a prior notice in order to give it precedence over a legally valid transfer ofproperty. The rights of the appellants chargeholders could only be exercised, on facts found, subject to the priority obtained by the respondent mortagagee's rights. This clear result of the law, as contained in Section 100 of the Act, cannot be defeated by invoking either the terms of or the principles underlying Section 48 of the Act read with the first part only of Section 100 of the Act."

15. Further, a prior mortgage does not constitute a bar to granting a decree for specific performance. Being an encumbrance, the mortgage would attach itself and the mortgagee creditor's options can never be limited or diminished. The mortgagee's right to foreclosure would be as regards the property, not the debtor. There is thus no legal bar, or any principle in equity constituting a vendor mortgagor's right to enter into agreements, to sell such mortgaged property, even if the vendee is made aware of the prior charge. It has been held in Raghunath Vs. J.P. Sharma AIR 1999 Del 383 and R. Velammal Vs. R. Daya Siga Mani AIR 1993 Mad 100 that prior mortgage or encumbrance cannot deprive the vendee of a right to decree for specific

RFA (OS) 54/1999 Page 13 performance and that such mortgage only became a liability or encumbrance to the property which the subsequent purchaser has to satisfy. This aspect was correctly decided by the impugned judgment in the following terms:

"63. Assuming that an equitable mortgage had been created by defendant No. 1 in favor of defendant No. 2 as alleged. Equitable mortgage had not extinguished the rights of defendant No.1 in the property. He had still interest and could sell the property with or without encumbrance. In this case he had agreed to transfer it without any encumbrance. The agreement to sell for this reason is not null and void. The plaintiffs being the purchasers for valuable consideration under the agreement to sell have right to claim specific performance and as such have locus standi to file the present suit. This issue is decided against defendants."

Apart from the above aspects, no other argument was made on behalf of the appellant to challenge the impugned judgment.

16. The Court does not find any infirmity with the findings or conclusions returned by the impugned judgment, which does not call for interference. The appeal, RFA 54/1999 is accordingly dismissed.

S. RAVINDRA BHAT (JUDGE)

S.P.GARG (JUDGE) APRIL 27, 2012

RFA (OS) 54/1999 Page 14