Ram Niwas
Vs. Smt.Bano & Ors [2000] INSC 394 (1 August 2000)
Shrivaraj
V Patil, S.S.M.Quadri
Syed
Shah Mohammed Quadri, J.
The
scope of Section 19(b) of the Specific Relief Act read with Explanation II to
Section 3 of the Transfer of Property Act and the provisions of Section 20(2)
of the Specific Relief Act, 1963, determine the result of this appeal. It will
be apt to begin our discussion with Section 19(b) of the Specific Relief Act,
1963 which is in the following terms : 19. Relief against parties and persons
claiming under them by subsequent title - Except as otherwise provided by this
Chapter, specific performance of a contract may be enforced against- (a) ***
*** *** (b) any other person claiming under him by a title arising subsequently
to the contract, except a transferee for value who has paid his money in good
faith and without notice of the original contract;
(c) to
(e) *** *** *** Section 19 provides the categories of persons against whom
specific performance of a contract may be enforced.
Among
them is included, under clause (b), any transferee claiming under the vendor by
a title arising subsequently to the contract of which, specific performance is
sought.
However,
a transferee for value, who has paid his money in good faith and without notice
of the original contract, is excluded from the purview of the said clause. To
fall within the excluded class, a transferee must show that :
(a) he
has purchased for value the property (which is the subject-matter of the suit
for specific performance of the contract); (b) he has paid his money to the
vendor in good faith; and (c) he had no notice of the earlier contract for sale
(specific performance of which is sought to be enforced against him). The said
provision is based on the principle of English law which fixes priority between
a legal right and an equitable right. If A purchases any property from B and
thereafter B sells the same to C, the sale in favour of A, being prior in time,
prevails over the sale in favour of C as both A and C acquired legal rights.
But
where one is a legal right and the other is an equitable right a bona fide
purchaser for valuable consideration who obtains a legal estate at the time of
his purchase without notice of a prior equitable right is entitled to priority
in equity as well as at law. [Snells Equity Thirtieth Edition p.48]. This
principle is embodied in Section 19(b) of the Specific Relief Act. It may be
noted here that notice may be (i) actual, (ii) constructive or (iii) imputed.
Section 3 of the Transfer of Property Act defines, inter alia, a person is said
to have notice of a fact when he actually knows that fact, or when but for wilful
abstention from an enquiry or search which he ought to have made, or gross
negligence, he would have known it. And Explanation II appended to this
definition clause says :
Any
person acquiring any immovable property or any share or interest in any such
property shall be deemed to have notice of the title, if any, of any person who
is for the time being in actual possession thereof. Thus, it is seen that a
statutory presumption of notice arises against any person who acquires any
immovable property or any share or interest therein of the title, if any, of
the person who is for the time being in actual possession thereof. The
principle of constructive notice of any title which a tenant in actual
possession may have, was laid down by Lord Eldon in Daniels law Lord observed,
Upon one point in this cause there is considerable authority for the opinion I
hold; that, where there is a tenant in possession under a lease or an
agreement, a person, purchasing part of the estate, must be bound to inquire,
on what terms that person is in possession. That principle has been followed by
various High Courts in India. [See : Faki Ibrahim vs. Faki Gulam
Mohidin (AIR 1921 Bombay 459); Mahadeo vs. S.B.Kesarkar (AIR 1972 Bombay 100); Tiloke
Chand vs. J.B.Bettie & Co.
(AIR
1926 Calcutta 204); Parthasaradhi Iyer vs. Subbaraya Gramani (AIR 1924 Madras
67) and Mummidi Reddi Papannagari Yella Reddy vs. Salla Subbi Reddy & Ors. (AIR
1954 Andhra 20)]. This being the position in law, we shall now advert to the
facts of this case. The appellant (referred to as the tenant) is the
unsuccessful plaintiff in the suit giving rise to this appeal. He took on rent
a shop situated at Katlara Bazar, Loharawali Gali, Merta City (for short, the
suit shop) from its owner, respondent No.5 (referred to as, the vendor) and on
the material date he was paying rent of Rs.35/- per month. On January 25, 1978, he claims to have entered into an
agreement with the vendor to purchase the suit shop (Ext.1) for a sum of
Rs.9200/- and paid a sum of Rs.3200/- in cash and undertook to pay remaining
amount of Rs.6000/- at the time of execution of sale deed. During the pendency
of this appeal, he died and the appellants were substituted as his legal
representatives. The tenant and the vendor are said to be closely related they
are brothers as well as brothers-in-law. Respondent Nos.1 to 4 (referred to as
the purchasers) purchased the suit shop from the vendor on July 24, 1978 for a sum of Rs.20,000/- under
Exhibit 4. On October
12, 1978 the tenant
filed the suit for specific performance of Ext.1 against the vendor and the
purchasers and their respective husbands - respondent Nos. 6 to 9.
The
purchasers contested the suit denying genuineness of Ext.1 and taking the plea
that they are bona fide purchasers of the suit shop for value without notice of
Ext.1. On the basis of the pleadings, the trial court framed necessary issues.
Issue Nos.1 and 10, which are relevant to the present discussion, read as follows
: 1. Had the defendant No.1 agreed to sell the disputed shop to the plaintiff
on 25.1.78 on the conditions written in para 2 of the plaint and put the
plaintiff in possession as owner after taking Rs.3200/- in its lieu, and
entrusted the tenancy deed (letter) written by him and his father, dated Baisakhi
Sudi 9 Samvat 2029, to the plaintiff?
10.
Have the defendants Nos.2 to 5 purchased the disputed shop after paying full
price and had they no knowledge of the alleged agreement to sell? On December 15, 1984, after considering the evidence
placed before it, the trial court found all the issues in favour of the
plaintiff and decreed the suit. Dissatisfied with the judgment and decree of
the trial court, the purchasers filed appeal (S.B. Civil First Appeal No.7/85)
in the High Court of judicature for Rajasthan at Jodhpur.
By his
judgment dated August
4, 1987, a learned
Single Judge of the High Court, on reappraisal of the evidence and after
referring to Section 19(b) of the Specific Relief Act, held that the contesting
respondents were bona fide purchasers of the suit shop and they paid
consideration of Rs.20,000/- without having knowledge of the said agreement
(Ex.1). He held that the registered sale deed (Ext.4) in favour of the
purchasers could not be cancelled and the relief of specific performance could
not be granted in favour of the tenant.
The
appeal was thus allowed on August 4, 1987.
Assailing that judgment of the learned Single Judge, the tenant filed Special
Appeal No.27 of 1987 before the High Court. A Division Bench, having agreed
with all the findings recorded by the learned Single Judge, dismissed the
appeal on January 29,
1990. The Division
Bench, however, held that simply because an enquiry from the tenant had not
been made as to his real equitable interest in the property, it could not be
taken or presumed that the defendants vendees had knowledge of the earlier
transaction and pointed out that the vendor gave out that the tenant was his
brother as well as sister-in-laws husband and the documents were with him,
which he would take back and deliver to them so, there was no need to make
further enquiry. It also held, the conduct of the plaintiff has been
elaborately dealt with by the learned Judge and on that basis, it has been
found that the version which the plaintiff has given is not trustworthy.
Besides
that we may also state that the relief of specific performance is an equitable
relief. It would not be proper exercise of discretion in granting equitable
relief of cancellation of the sale deed in the circumstances of the case. Thus,
the Division Bench dismissed the appeal on January 29, 1990. From that judgment of the Division
Bench arises the present appeal, at the instance of the tenant, by special
leave. Mr.Sanjeev K.Kapoor, the learned counsel appearing for the appellants,
invited our attention to Explanation II to Section 3 of the Transfer of
Property Act and submitted that both the learned Single Judge as well as the
Division Bench erred in not taking note of the said provision while holding
that the purchasers are covered by clause (b) of Section 19 of the Special
Relief Act, 1963.
There
is nothing in the conduct of the tenant, submitted the learned counsel, which
would disentitle him to the relief of specific performance of contract for
sale. Ms.Madhurima Tatia, the learned counsel appearing for the purchasers
(contesting respondents), argued that both the vendor as well as the tenant
were close relations and the latter was in possession as a tenant of the
former, and these facts were known to the purchasers, so Explanation II to
Section 3 of the Transfer of Property Act would have no application;
in
view of the close relationship between the vendor and the tenant and the pleas
taken by the purchasers, the learned Single Judge ought to have considered the
evidence himself and recorded a clear finding on issue No.1 instead of assuming
the finding in favour of the appellant and deciding the question of actual
knowledge for purposes of Section 19(b) of the Specific Relief Act, 1963. Even
otherwise also, she argued, both the learned Single Judge as well as the
Division Bench declined to grant the discretionary relief of specific
performance having regard to the close relationship between the vendor and the
tenant, the price mentioned in Ext.1 and the price paid by the purchasers and
the conduct of the tenant so, this court need not interfere in the judgment
under appeal. On the above contentions, the point that falls for consideration is
: Whether the appellant (tenant) is entitled to specific performance of Ext.1?
The purchasers have acquired a legal right under sale deed (Ext.4). The right
of the tenant under Ext.1, if it is true and valid, though earlier in time, is
only an equitable right and it does not affect the purchasers if they are bona
fide purchasers for valuable consideration without notice of that equitable
right. The foundation of the claim of the tenant is the existence of an
equitable right under Ext.1. We have referred to the pleadings of the parties,
the relevant issues and the findings of the courts on this facet. The trial
court found issue No.1 in favour of the plaintiff. The learned Single Judge
having noted the plea in the written statement that the purchasers denied
execution of any agreement by the vendor in favour of the tenant and stated
that any such alleged agreement was forged, observed : It may be mentioned that
I have assumed the original contract because although Smt.Bano and others have
challenged it on the ground that it was fictitious and not genuine, the finding
of the lower court on this aspect of the case that there was agreement to sell
between Ram Narain and Satya Narain calls for no interference. It appears to us
that he assumed the finding of the trial court as correct and proceeded to
decide the appeal presumably because on issue No.10, he found that the
purchasers did not have actual knowledge of Ext.1. In our considered view, the
learned Single Judge ought to have considered the evidence and recorded his own
positive finding on the question whether Ext.1 was a true and valid agreement.
This feature of the case was not adverted to by the Division Bench.
Therefore,
issue No.1 has to be considered afresh by the learned Single Judge. Both the
learned Single Judge as well as the learned Judges of the Division Bench of the
High Court dealt with the question whether the purchasers had actual knowledge
of Ext.1, the earlier contract, and on evidence found that the purchasers did
not have any knowledge of it. But they failed to notice the provisions of
Explanation II to Section 3 of the Transfer of Property Act which is germane on
the point of notice. Indeed, issue No.10 was not properly framed. The word
notice should have been used in issue No.10 instead of knowledge because
Section 19(b) uses the word notice. From the definition of the expression, a
person is said to have notice in Section 3 of the Transfer of Property Act, it
is plain that the word notice is of wider import than the word knowledge. A
person may not have actual knowledge of a fact but he may have notice of it
having regard to the aforementioned definition and Explanation II thereto. If
the purchasers have relied upon the assertion of the vendor or on their own
knowledge and abstained from making enquiry into the real nature of the
possession of the tenant, they cannot escape from the consequences of the
deemed notice under Explanation II to Section 3 of the Transfer of Property
Act. On this point, in the light of the above discussion, we hold that the purchasers
will be deemed to have notice of Ext.1, should it be found to be true and
valid. The last point, whether on the facts and circumstances of this case, it
will be just and proper to grant discretionary relief of the specific
performance of the contract in favour of the tenant or will it be inequitable
to enforce Ext.1 against the purchasers remains to be decided? The Division
Bench in agreement with the learned Single Judge took the view that the
plaintiff is not entitled to the relief of specific performance of Ext.1. As on
the question of genuineness and validity of Ext.1, we are remanding the case to
the learned Single Judge. We do not propose to express any opinion on this
point and leave it to be decided afresh with reference to the provisions of Section
20(2) of the Specific Relief Act by the learned Single Judge after recording
finding on issue No.1. For the above reasons, we set aside the judgment and
order of the Division Bench confirming the judgment of the learned Single Judge
and remand the case to the learned single Judge for his decision on (i) issue
No.1 and (ii) whether the plaintiff is entitled to the discretionary relief of
specific performance of a contract in the light of Section 20(2) of the
Specific Relief Act in accordance with law.
The
appeal is accordingly allowed but in the circumstances of the case we make no
order as to costs.
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