Vinod
Seth Vs. Devinder Bajaj & ANR. [2010] INSC 441 (5 July 2010)
Judgment
Reportable
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.4891
OF 2010 [Arising out of SLP [C] No.6736 of 2009] Vinod Seth ... Appellant
Devinder Bajaj & Anr. ... Respondents
R.V.RAVEENDRAN,
J.
1.
Leave granted. Heard. The validity of a novel and innovative
direction by the High Court, purportedly issued to discourage frivolous and
speculative litigation is under challenge in this appeal. To understand the
issue, it is necessary to set out the facts and also extract relevant portions
of the plaint and the impugned orders of the High Court.
2.
The appellant claims to be a builder-cum-real estate dealer. He
filed a suit for specific performance of an oral agreement for "commercial
collaboration for business benefits" allegedly entered by the respondents
as the owners in possession of premises No.A-1/365, Paschim Vihar, New 2 Delhi,
with him. He alleged in the plaint, that the following terms and conditions
were orally agreed between the parties:
a.
The defendants will apply to the DDA for conversion of the above
property from leasehold to freehold and within 2-3 months the defendants will
handover vacant physical possession of the above property to the plaintiff.
b. The
plaintiff will reconstruct the above property from his own money/funds with
three storeys i.e. ground floor, first floor and second floor.
c.
Out of the said reconstructed three storeyed building, the
plaintiff shall be entitled to own and possess the ground floor;
and the
first and second floors will be owned and possessed by the defendants.
a.
b.
c.
d. Besides
bearing the expenses of construction and furnishing etc. of the proposed three
storeyed building, the plaintiff shall also pay a sum of Rs. 3,71,000/- to the
defendants at the time of handing over possession of the above house for
reconstruction.
e.
Out of the agreed consideration of Rs.3,71,000/-, a sum of
Rs.51,000/- was paid to the defendants in cash and the remaining consideration
of Rs.3,20,000/- was to be paid to the defendants at the time of handing over
possession of the above house for reconstruction. In token of the same a
Receipt for Rs.51,000/- was duly executed by defendant No.1.
f.
On getting conversion of the above property from leasehold to
freehold, the above agreement/proposed collaboration of the property bearing
No. A-1/365, Paschim Vihar, New Delhi and the above terms and conditions were
to be reduced into writing vide an appropriate Memorandum Of Understanding to
be duly executed by the parties i.e. the builder and the owners of the above
property."
The
appellant further alleged that in pursuance of the above, he paid a sum of
Rs.51,000/- to first respondent in the presence of second respondent and two
witnesses (Sanjay Kumar Puri and M.R.Arora) and that the first respondent
executed the following receipt acknowledging the payment:
"RECEIPT/PART
PAYMENT Received a sum of Rs.51,000/- (Fifty one thousand only) By Cash/Cheque
Cash From Sh. Vinod Seth S/o Sh. Sohan Seth R/o M-231 First Floor, Guru
Harikishan Nagar Against Collaboration of Property No. A-1/365 Paschim Vihar
Signature (Devinder Bajaj)/10-6-04
3.
The appellant alleged that the respondents failed to comply with
the agreement and lingered over the matter on one pretext or the other; that
the appellant came to know subsequently that the property stood in the name of
the second respondent and not the first respondent; and that the appellant
therefore issued a notice dated 9.3.2007 calling upon the respondents to comply
with the legal formalities to facilitate the collaboration agreement.
Alleging
that respondents failed to comply, the appellant filed a suit on 30.6.2007 for
specific performance. We extract below the relevant portion of the prayer:
4.
"......to pass a decree of specific performance of
Collaboration Agreement entered in between the parties on 10-6-2004, as per its
terms and conditions in favour of plaintiff and against defendants specifying
that :
a.
the defendants to apply immediately with the DDA for conversion of
the above property from leasehold to freehold and immediately after such
conversion, the defendants will handover vacant physical possession of the suit
property i.e. House No.A-1/365 Paschim Vihar Delhi to the plaintiff.
b. that the
defendants to immediately apply by submitting building plan as per Annexure P-3
with the Authorities for sanction of the building plan.
c.
the plaintiff will reconstruct the above property as three
storeyed building as per site/building plan from his own money/funds within one
year of handing over of possession by the defendants to the plaintiff and
sanctioning of the building plan of the suit property.
d. out of
the said reconstructed three storeyed building the plaintiff shall be entitled
to own and possess its ground floor only, and the first and second floors will
be owned and possessed by the defendants.
e.
besides to bear the expenses of construction etc. of the proposed
3 storeyed complete building, the plaintiff shall also pay a sum of
Rs.3,20,000/- to the defendants at the time of handing over possession of the
above house for reconstruction.
f.
the defendants will not transfer the title or possession of the
suit property till execution of the collaboration Agreement but after its
execution, the defendants would be within their full rights to enjoy lawfully
the title and possession of the first floor and second floor of the building.
g. the
plaintiff will be fully entitled for the full title and possession of the
ground floor of the building and the defendants would be left with no right,
title or interest in the property of the ground floor of the building, however,
he would not be entitled for any exclusive rights in the property of ground
floor till the first and second floor of the building are duly constructed, as
per the specifications and quality as that of the ground floor, and handed over
to the defendants.
4. The
respondents contested the said suit and filed a written statement denying the
claim in toto. When the case came up for framing issues, a learned Single Judge
of the High Court on perusal of the pleadings passed an interim order dated
2.12.2008, relevant portion of which is extracted below :
"The
agreement of such a nature, in common parlance known as collaboration
agreement, requires detailed terms and conditions to be settled between the
parties as to the quality of construction, time period, alternate
accommodation, sharing of the expenses and space in the newly constructed
building, etc. and ordinarily specific performance of such agreements is
difficult for the Court to supervise. In the present case all the terms of the
agreement will have to be established by evidence, there being no document
recording the same.
The
plaintiff instituted the suit without any application for interim relief and
notice was issued of the suit by the Joint Registrar and the suit has come up
before the Court for the first time.
The suit
being with respect to an immovable property, even in the absence of any interim
order restraining the defendants from dealing with the property, attracts
Section 52 of the Transfer of Property Act and the pendency of the suit itself
has a tendency of interference with the defendants' dealing with their own
property and if at all the defendants are compelled to deal with the same, the
defendants are likely to realize much less than the market value of the
property, owing to the pendency of the said suit.
Prima
facie, the likelihood of the plaintiff succeeding in the suit appears to be
remote. Such agreements are not concluded and enforceable till detailed writing
as aforesaid is executed. Even if the averment of the plaintiff of having paid
Rs. 51,000/- to the defendants is established, the same would still not
establish a concluded enforceable agreement. The suit cannot be dismissed at
the threshold. The counsel for the plaintiff has also contended that in law it
is permissible to have such an oral agreement.
However,
the defendants are likely to suffer considerably merely owing to the pendency
of the present suit. While nearly nothing of the plaintiff is at stake in
pursuing the present suit, the defendants as aforesaid will be losers even if
ultimately succeed. Courts cannot be silent spectators to the parties being put
on such unequal footing. The remedy of defendants suing the plaintiffs for
damages caused to them, after succeeding in the present suit is not
efficacious. Affluent speculators in immovable 6 properties cannot be permitted
to misuse the process of the court to compel owners to transact with them only.
In the circumstances, it is deemed expedient to direct the plaintiff to file an
affidavit/undertaking to this Court to, in the event of not succeeding in the
suit pay a sum of Rs. 25 lacs by way of damages to the defendants. If the
plaintiff is reasonably confident of the genuineness of his case, the plaintiff
ought not to suffer any harm by giving such undertaking. The said amount has
been arrived at because of the averments in the plaint that the plaintiff was
to spend Rs. 20 lacs in development of the property and in lieu thereof was to
become the owner of the ground floor of the newly constructed property.
The
plaintiff to file the affidavit in terms of above within four weeks from today.
List on 27th January, 2009 for framing of issues."
(emphasis
supplied)
5.
The appellant filed an intra-court appeal contending that every
person has an inherent right to bring a suit of civil nature and there was no
provision in law which enabled the Trial Court to impose such a condition on a
plaintiff requiring an undertaking to pay Rs.25 lakhs by way of damages to
defendants in the event of failing in the suit. He relied upon the following
observations of this Court in Abdul Gafur v. State of Uttarakhand [2008 (10)
SCC 97] :
"Section
9 of the Code provides that the civil court shall have jurisdiction to try all
suits of a civil nature excepting the suits of which their cognizance is either
expressly or impliedly barred. To put it differently, as per Section 9 of the
Code, in all types of civil disputes, the civil courts have inherent
jurisdiction unless a part of that jurisdiction is carved out from such
jurisdiction, expressly or by necessary implication by any statutory provision
and conferred on other tribunal or authority. Thus, the law confers on every
person an inherent right to bring a suit of civil nature of one's choice, at
one's peril, howsoever frivolous the claim may be, unless it is barred by a
statute." (vide Abdul Gafur v. State of Uttarakhand [2008 (10) SCC 97]. In
Ganga Bai v. Vijay Kumar [1974 (2) 7 SCC 393] this Court had observed as under:
"...... There is an inherent right in every person to bring a suit of a
civil nature and unless the suit is barred by statute one may, at one's peril,
bring a suit of one's choice. It is no answer to a suit, howsoever frivolous to
claim, that the law confers no such right to sue. A suit, for its
maintainability requires no authority of law and it is enough that no statute
bars the suit."
6.
The Division Bench dismissed the appeal by the appellant, holding
that the order of the learned Single Judge did not in any way contravene the
said decision, on the following reasoning:
"We
see no contradiction in the aforesaid judgment and the impugned order. The
learned Single Judge has not dismissed the suit. We also note the observations
of the Supreme Court that even a frivolous suit can be bought before the court
"at one's peril". All that the learned Single Judge has done at the
stage of framing of issues, having prima facie found not much merit in the case
of the appellant, considered it appropriate to impose certain terms and
conditions.
We may
notice that the provisions of Order 39 of the said Code deals with temporary
injunctions and interlocutory orders. Order 39 Rule 2(2) authorizes the court
to grant injunction on such terms as deems proper including giving of security.
Thus, when the prayer for interim relief has to be granted, provision has been
specifically made authorizing the court to make orders for keeping accounts,
giving security or otherwise as the court thinks fit.
The
appellant has conveniently not filed an interim application to avoid the rigour
of such an order. Normally in a suit for specific performance and that too
dealing with an immovable property, a party would seek interim protection. The
appellant has not done so. It is an ingenious method of keeping a suit alive
without claiming interlocutory relief and creating a cloud over a property in
view of the provisions of Section 52 of Transfer of Property Act.
We do
think that the courts cannot look helplessly at such tactics and ignore the
problem of huge docket, which arises on account of meritless claims being
filed. The heavy docket does not permit early disposal of suits and thus
parties may take advantage of keeping frivolous claims alive. We also cannot
ignore the ground realities of the market which would persuade third parties to
eschew dealing with such a property over 8 which there is a cloud during the
pendency of the suit. It is this cloud of which the appellant can take
advantage of to extract some money in case the relief is frivolous.
We also
find that the appellant really cannot have any grievance since a condition has
not been imposed to deposit any amount which would make the appellant be out of
pocket. The condition is of a much lesser level of only an undertaking to
compensate the respondent in case of failure in the suit and as the learned
Single Judge has rightly observed that a party coming to court should
reasonably be confident of the genuineness of its case. The figure of Rs. 20
lakhs is based on the claim of the appellant as noticed by learned Single
Judge. We may also add that Order XXV Rule 1 of the CPC gives power to the
Court including suo moto power for the plaintiff to give security for payment
of all costs incurred and likely to be incurred by the defendant. However,
reasons for such an order are to be recorded. The costs include not only what
is spent in the litigation but also the effect of the continuation of the suit
on the plaintiff and, thus, as per the impugned order, for reasons recorded,
the learned Single Judge has passed the order.
We find
that the course adopted by the learned Single Judge is not without sanction of
law and there is merit in this approach looking to the ground realities
mentioned aforesaid."
(emphasis
supplied)
7.
The appellant has challenged the said decision in this appeal.
This Court directed notice on 2.4.2009 on the special leave petition with the
following observations :
"Though
the order appears to be a just order, as it involves a serious question of law,
we direct issuance of notice returnable in four weeks.
We
however make it clear that there will be no order of stay in regard to the
decision of the learned Single Judge affirmed by the division bench and if the
petitioner fails to give an undertaking as ordered, he will not have the
benefit of section 52 of Transfer of Property Act."
9 The
respondents have remained ex parte. On the submissions of the appellant, the
following question arises for our consideration :
(i)
Whether a court has the power to pass an order directing a plaintiff in a suit
for specific performance (or any other suit), to file an undertaking that in
the event of not succeeding in the suit, he shall pay Rs.25 lakhs (or any other
sum) by way of damages to the defendant?
8.
We are broadly in agreement with the High Court that on the
material presently on record, the likelihood of appellant succeeding in the
suit or securing any interim relief against the defendants is remote. We may
briefly set out the reasons therefor.
8.1. It is
doubtful whether the collaboration agreement, as alleged by the appellant, is
specifically enforceable, having regard to the prohibition contained in section
14(1) (b) and (d) of the Specific
Relief Act, 1963. The agreement propounded by the
appellant is not an usual agreement for sale/transfer, where the contract is
enforceable and if the defendant fails to comply with the decree for specific
performance, the court can have the contract performed by appointing a person
to execute the deed of sale/transfer under Order XXI Rule 32(5) of the Code of
Civil Procedure (`Code' for short). The agreement alleged by the appellant is
termed by him 1 as a commercial collaboration agreement for development of a
residential property of the respondents. Under the alleged agreement, the
obligations of the respondents are limited, that is, to apply to DDA for
conversion of the property from leasehold to freehold, to submit the
construction plan to the concerned authority for sanction, and to deliver
vacant possession of the suit property to the appellant for development. But
the appellant/plaintiff has several obligations to perform when the property is
delivered, that is, to demolish the existing building, to construct a
three-storeyed building within one year in accordance with the agreed plan,
deliver the first and second floors to the respondents and also pay a token
cash consideration of Rs.3,71,000/-. The performance of these obligations by
appellant is dependent upon his personal qualifications and volition. If the
court should decree the suit as prayed by the appellant (the detailed prayer is
extracted in para 3 above) and direct specific performance of the
"collaboration agreement" by respondents, it will not be practical or
possible for the court to ensure that the appellant will perform his part of the
obligations, that is demolish the existing structure, construct a
three-storeyed building as per the agreed specifications within one year, and
deliver free of cost, the two upper floors to the respondents. Certain other
questions also will arise for consideration. What will happen if DDA refuses to
convert the property 1 from leasehold to freehold? What will happen if the
construction plan is not sanctioned in the manner said to have been agreed
between the parties and the respondents are not agreeable for any other plans
of construction? Who will decide the specifications and who will ensure the
quality of the construction by the appellant? The alleged agreement being vague
and incomplete, require consensus, decisions or further agreement on several minute
details. It would also involve performance of a continuous duty by the
appellant which the court will not be able to supervise. The performance of the
obligations of a developer/builder under a collaboration agreement cannot be
compared to the statutory liability of a landlord to reconstruct and deliver a
shop premises to a tenant under a rent control legislation, which is
enforceable under the statutory provisions of the special law. A collaboration
agreement of the nature alleged by the appellant is not one that could be
specifically enforced. Further, as the appellant has not made an alternative
prayer for compensation for breach, there is also a bar in regard to award of
any compensation under section 21 of the Specific Relief Act.
8.2. The
appellant claims to be a builder and real estate dealer. If the appellant
entered into a collaboration agreement orally with numerous details as set out
in the plaint (extracted in Para (2) above) and could secure 1 a receipt in
writing for Rs.51,000/-, nothing prevented him from reducing the said terms of
the alleged collaboration agreement in the form of an agreement or Memorandum
of Understanding and have it signed by the owners of the property. No reason is
forthcoming as to why that was not done.
8.3. The
property stands in the name of second respondent (Defendant No.2), but she did
not sign the receipt. There is nothing to show that the second respondent
participated in the alleged negotiations or authorized her husband-the first
respondent to enter into any collaboration agreement in respect of the suit
property. The receipt is not signed by the first respondent as Attorney Holder
or as the authorized representative of the owner of the property. From the
plaint averments it is evident that appellant did not even know who the owner
was, at the time of the alleged negotiations and erroneously assumed that first
respondent was the owner. The execution of a receipt for Rs.51,000/- by the
first respondent even if proved, may at best make out a tentative token payment
pending negotiations and finalization of the terms of an agreement for
development of the property.
8.4. The
agreement is alleged to have been entered on 10.6.2004. But the plaintiff
issued the first notice calling upon defendants to perform, only on 9.3.2007
and filed the suit on 30.6.2007. There was no correspondence or demand for
performance, in writing, prior to 9.3.2007, even though the alleged agreement
was a commercial transaction.
1.
2.
3.
4.
5.
6.
7.
8.
9.
We also agree with the High Court that having regard to the
doctrine of lis pendens embodied in section 52 of the Transfer of Property
Act, 1882 (`TP Act' for short), the pendency of the
suit by the appellant shackled the suit property, affected the valuable right
of the second defendant to deal with the property in the manner she deems fit,
and restricted her freedom to sell the property and secure a fair market price
from a buyer of her choice. When a suit for specific performance is filed
alleging an oral agreement without seeking any interim relief, the defendant
will not even have an opportunity to seek a prima facie finding on the validity
of the claim. Filing such a suit is an ingenious way of creating a cloud over
the title to the suit property. Such a suit, filed in the Delhi High Court, is
likely to be pending for a decade or more. Even if a defendant-owner asserts
that his property is not subject to any agreement and the said assertion is
ultimately found to be true, his freedom to deal with the property as he likes
or to realize its true market 1 value by sale or transfer is adversely affected
during the pendency of the suit. The ground reality is that no third party
would deal with a property in regard to which a suit for specific performance
is pending. This enables an unscrupulous plaintiff to cajole and persuade a
defendant to sell/give the property on plaintiff's terms, or force the defendant
to agree for some kind of settlement. It is these circumstances which persuaded
the High Court to find some way to do justice, leading to the impugned
direction. Having broadly agreed with the High Court in regard to the factual
position and the adverse consequences of the suit, the question that remains is
whether in such a situation, the High Court could have issued the impugned
interim direction.
10.
Every person has a right to approach a court of law if he has a
grievance for which law provides a remedy. Certain safeguards are built into
the Code to prevent and discourage frivolous, speculative and vexatious suits.
Section 35 of the Code provides for levy of costs. Section 35A of the Code
provides for levy of compensatory costs in respect of any false or vexatious
claim. Order 7 Rule 11 of the Code provides for rejection of plaint, if the
plaint does not disclose a cause of action or is barred by any law. Order 14
Rule 2 of the Code enables the court to dispose of a suit by 1 hearing any
issue of law relating to jurisdiction or bar created by any law, as a
preliminary issue. Even if a case has to be decided on all issues, the court
has the inherent power to expedite the trial/hearing in appropriate cases, if
it is of the view that either party is abusing the process of court or that the
suit is vexatious. The court can secure the evidence (examination-in-chief) of
witnesses by way of affidavits and where necessary, appoint a commissioner for
recording the cross examination so that it can dispose of the suit
expeditiously. The court can punish an erring plaintiff adopting delaying
tactics, by levying costs under Section 35B or taking action under Order 17
Rules 2 and 3 of the Code. Apart from recourse to these provisions in the Code,
an aggrieved defendant can also sue the plaintiff for damages, if the suit is
found to be based on a forged or false document, or if the suit was vexatious
or frivolous.
11.
There are also two other significant provisions in the Code having
a bearing on the issue. We may refer to them :
11.1. Section
95 provides that where in any suit in which an arrest or attachment has been
affected or a temporary injunction granted, the suit of the plaintiff
ultimately fails and it appears to the court that there was no reasonable or
probable ground for instituting the suit, and the court may 1 upon an
application by the defendant, award against the plaintiff, such amount not
exceeding Rs.50,000/- as it deems a reasonable compensation to the defendant
for the expense or injury caused to him. It further provides that an order
determining any such application shall bar any suit for compensation in respect
of such arrest, attachment or injunction. In other words, if a suit is field
without sufficient grounds and in such a suit the plaintiff obtains an interim
order of arrest, attachment or temporary injunction, the court can grant
compensation up to Rs. 50,000 on application by the defendant. Three things are
implicit from this provision. The first is, if no interim order (of arrest, attachment
or injunction) is obtained by the plaintiff, the court cannot grant any
compensation to defendant. The second is that the compensation awardable by the
court cannot exceed Rs.50,000/.
The third
is that if a plaintiff does not secure an interim order of arrest, attachment
or temporary injunction but merely files a suit on insufficient or false
grounds the remedy of the defendant, if the defendant wants any compensation
(other than costs and exemplary costs under Section 35 and 35A of the Code), he
has to file a separate suit.
11.2. Order XXV
Rule 1 of Code provides that at any stage of a suit, the court may either on
its own motion or on the application of any defendant 1 order the plaintiff for
reasons to be recorded, to give security for the payment of all costs incurred
or likely to be incurred by the defendant.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
But the Code, nowhere authorizes or empowers the court to issue a
direction to a plaintiff to file an undertaking to pay damages to the defendant
in the event of being unsuccessful in the suit. The Code also does not contain
any provision to assess the damages payable by a plaintiff to defendant, when
the plaintiff's suit is still pending, without any application by defendant,
and without a finding of any breach or wrongful act and without an inquiry into
the quantum of damages. There is also no contract between the parties which
requires the appellant to furnish such undertaking.
None of
the provisions of either TP Act or Specific Relief
Act or any other substantive law enables the court to issue such an
interim direction to a plaintiff to furnish an undertaking to pay damages. In
the absence of an enabling provision in the contract or in the Code or in any
substantive laws a court trying a civil suit, has no power or jurisdiction to
direct the plaintiff, to file an affidavit undertaking to pay any specified sum
to the defendant, by way of damages, if the plaintiff does not succeed in the
suit. In short, law does not contemplate a plaintiff indemnifying a defendant
for all or any losses sustained by the defendant on account of the litigation,
by giving an 1 undertaking at the time of filing a suit or before trial, to pay
damages to the defendants in the event of not succeeding in the case.
13.
We will next examine whether the power to make such an order can
be traced to Section 151 of the Code, which reads: "Nothing in this Code
shall be deemed to limit or otherwise affect the inherent power of the court to
make such orders as may be necessary for the ends of justice or to prevent
abuse of the process of the court." As the provisions of the Code are not
exhaustive, section 151 is intended to apply where the Code does not cover any
particular procedural aspect, and interests of justice require the exercise of
power to cover a particular situation. Section 151 is not a provision of law
conferring power to grant any kind of substantive relief. It is a procedural
provision saving the inherent power of the court to make such orders as may be
necessary for the ends of justice and to prevent abuse of the process of the
court. It cannot be invoked with reference to a matter which is covered by a
specific provision in the Code. It cannot be exercised in conflict with the
general scheme and intent of the Code. It cannot be used either to create or
recognize rights, or to create liabilities and obligations not contemplated by
any law.
13.1. Considering
the scope of Section 151, in Padam Sen v. State of Uttar Pradesh (AIR 1961 SC
218), this Court observed:
"The
inherent powers of the court are in addition to the powers specifically
conferred on the court by the Code. They are complementary to those powers and
therefore it must be held that the court is free to exercise them for the purposes
mentioned in S.151 of the Code when the exercise of those powers is not in any
way in conflict with what has been expressly provided in the Code or against
the intentions of the Legislature."
xxx xxx
xxx The inherent powers saved by S.151 of the Code are with respect to the
procedure to be followed by the Court in deciding the cause before it. These
powers are not powers over the substantive rights which any litigant possesses.
Specific powers have to be conferred on the courts for passing such orders
which would affect such rights of a party."
(emphasis
supplied)
13.2. In
Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal - AIR 1962 SC 527, this
court held :
".....that
the inherent powers are not in any way controlled by the provisions of the Code
as has been specifically stated in S.151 itself. But those powers are not to be
exercised when their exercised may be in conflict with what had been expressly
provided in the Code or against the intentions of the legislature."
13.3. In Ram
Chand and Sons Sugar Mills Pvt. Ltd.v. Kanhayalal Bhargav - AIR 1966 SC 1899
this court reiterated that the inherent power of the court is in addition to
and complementary to the powers expressly conferred under the Code but that
power will not be exercised if its exercise is 2 inconsistent with, or comes
into conflict with any of the powers expressly or by necessary implication
conferred by the other provisions of the Code.
Section
151 however is not intended to create a new procedure or any new right or
obligation. In Nainsingh v. Koonwarjee - AIR 1970 SC 997, this Court observed:
"Under
the inherent power of Courts recognized by Section 151 CPC, a Court has no
power to do that which is prohibited by the Code.
Inherent
jurisdiction of the Court must be exercised subject to the rule that if the
Code does contain specific provisions which would meet the necessities of the
case, such provisions should be followed and inherent jurisdiction should not
be invoked. In other words the court cannot make use of the special provisions
of Section 151 of the Code where a party had his remedy provided elsewhere in
the Code...."
13.4. A suit or
proceeding initiated in accordance with law, cannot be considered as an abuse
of the process of court, only on the ground that such suit or proceeding is
likely to cause hardship or is likely to be rejected ultimately. As there are
specific provisions in the Code, relating to costs, security for costs and
damages, the court cannot invoke Section 151 on the ground that the same is
necessary for ends of justice. Therefore, we are of the view that a court
trying a civil suit, cannot, in exercise of inherent power under section 151 of
the Code, make an interim order directing the plaintiff to file an undertaking
that he will pay a sum directed by the court to the defendant as damages in
case he fails in the suit.
14.
The direction to the plaintiff to furnish an undertaking to pay
Rs.25 lakhs to defendants in the event of losing the case, is an order in
terrorem. It is made not because the plaintiff committed any default, nor
because he tried to delay the proceedings, nor because he filed any frivolous
applications, but because the court is unable to find the time to decide the
case in view of the huge pendency. (The division bench has supported the order
of the learned Single Judge on the ground that `the heavy docket does not
permit early disposal of suits and thus parties may take advantage of keeping
frivolous claims alive'). Such an order, punishing a litigant for approaching
the court, on the ground that the court is not able to decide the case
expeditiously, is unwarranted, unauthorized and beyond the power and
jurisdiction of the court in a civil suit governed by the Code. Such orders are
likely to be branded as judicial highhandedness, or worse, judicial
vigilantism.
15.
We appreciate the anxiety shown by the High Court to discourage
land-grabbers, speculators, false claimants and adventurers in real estate from
pressurizing hapless and innocent property owners to part with their property
against their will, by filing suits which are vexatious, false or frivolous.
But we cannot approve the method adopted by the High Court which is wholly
outside law. In a suit governed by the Code, no court can, 2 merely because it
considers it just and equitable, issue directions which are contrary to or not
authorized by law. Courts will do well to keep in mind the warning given by
Benjamin N. Cardozo in The Nature of the Judicial Process : (Yale University
Press -1921 Edition Page 114) :
"The
Judge even when he is free, is still not wholly free. He is not to innovate at
pleasure. He is not a knight-errant roaming at will in pursuit of his own ideal
of beauty or of goodness. He is to draw his inspiration from consecrated
principles. He is not to yield to spasmodic sentiment, to vague and unregulated
benevolence. He is to exercise a discretion informed by tradition, methodized
by analogy, disciplined by system, and subordinated to "the primordial
necessity of order in social life".
The High
Court can certainly innovate, to discipline those whom it considers to be
adventurers in litigation, but it has to do so within the four corners of law.
16.
This case reminds us of the adage: "Hard cases make bad
law".
Black's
Law Dictionary defines a `hard case' thus : "A law suit involving equities
that tempt a judge to stretch or even disregard a principle of law at issue ---
hence the expression "Hard cases make bad law". Justice Holmes
explained and extended the adage thus : (See his dissenting opinion in Northern
Securities Co. v. United States 193 (1903) US 197) :
"Great
cases, like hard cases make bad law. For great cases are called great, not by
reason of their real importance in shaping the law of the future, but because
of some accident of immediate overwhelming interest which appeals to the
feelings and distorts the judgment. These immediate interests exercise a kind
of hydraulic pressure which makes what 2 previously was clear seem doubtful,
and before which even well settled principles of law will bend."
This is
certainly a hard case. The High Court should have resisted from laying down a
`bad law', which will be treated as a precedent and will result in similar
directions by courts, wherever they feel that suits are not likely to succeed.
It would encourage, in fact even force, the losing party to file an appeal or
further appeal against the final decision in the suit. This is because no
plaintiff would like to undertake to pay a large sum as damages, nor would a
defendant like to miss a chance to receive a large sum as damages.
Such
orders would also tempt and instigate both the parties to make attempts to
succeed in the suit by hook or crook, by adopting means fair or foul. If
litigants are to be subjected to such directions in terrorem, the litigant
public will be dissuaded from approaching courts, even in regard to bona fide
claims. Such orders may lead to gradual loss of faith in the judiciary and
force litigants to think of extra-judicial remedies by seeking the help of
underworld elements or police to settle/enforce their claims thereby leading to
break-down of rule of law. No order or direction of the High Court, even if it
is intended to deter vexatious and frivolous litigation, should lead to
obstruction of access to courts.
17.
We may also examine the matter from another angle. Can the court
insist upon the plaintiff to give an undertaking to pay compensation to
defendant on the event of dismissal of the suit, irrespective of the reasons
for the dismissal of the suit? If the plaintiff furnishes such an undertaking
and proceeds with the suit and is able to establish the oral agreement as
pleaded by him, but the court dismisses the suit either because it holds that
the prayer is barred under section 14(1)(b) and (d) of the Specific Relief Act,
or because it decides not to exercise discretion to grant specific performance
under section 20(2) of the Specific Relief Act,
should the plaintiff be made liable to pay Rs.25 lakhs as compensation to the
defendants?
18.
The attempt of the Division Bench to support the order of the
learned Single Judge with reference to Order XXV Rule 1 of the Code is clearly
erroneous. The said provision, as noticed above, only enables the court to
require the plaintiff to furnish security for payment of costs incurred or
likely to be incurred by the defendant.
19.
If the High Court felt that the prayer in the suit was vexatious
or not maintainable, it could have considered whether it could reject the suit
under Order 7 Rule 11 of the Code holding that the plaint did not disclose the
2 cause of action for grant of the relief sought or that the prayer was barred
by section 14(1)(b) and (d) of the Specific Relief Act.
Alternatively, the court could have framed issues and heard the issue relating
to maintainability as a preliminary issue and dismiss the suit if it was of the
view that it had no jurisdiction to grant specific performance as sought, in
view of the bar contained in section 14(1)(b) and (d) of the Specific
Relief Act. If it was of the prima facie view that
the suit was a vexatious one, it could have expedited the trial and dismissed
the suit by awarding appropriate costs under section 35 of the Code and
compensatory costs under section 35A of the Code. Be that as it may.
20.
Having found that the direction of the High Court is
unsustainable, let us next examine whether we can give any relief to defendants
within the four corners of law. The reason for the High Court directing the
plaintiff to furnish an undertaking to pay damages in the event of failure in
the suit, is that Section 52 of the Transfer of Property Act would apply to the suit property and the pendency of the
suit interfered with the defendant's right to enjoy or deal with the property.
Section 52 of TP Act provides that during the pendency in any court of any suit
in which any right to immovable property is directly and specifically in
question, the property cannot be 2 transferred or otherwise dealt with by any
party to the suit or proceedings so as to affect the rights of any other party
thereto under any decree or order which may be made therein except under the
authority of the court and on such terms as it may impose. The said section
incorporates the well-known principle of lis pendens which was enunciated in
Bellamy v. Sabine [1857 (1) De G & J 566] :
"It
is, as I think, a doctrine common to the Courts both of Law and Equity, and
rests, as I apprehend, upon this foundation - that it would plainly be
impossible that any action or suit could be brought to a successful
termination, if alienations pendente lite were permitted to prevail. The
plaintiff would be liable in every case to be defeated by the defendant's
alienating before the judgment or decree, and would be driven to commence his
proceedings de novo, subject again to be defeated by the same course of
proceeding."
It is
well-settled that the doctrine of lis pendens does not annul the conveyance by
a party to the suit, but only renders it subservient to the rights of the other
parties to the litigation. Section 52 will not therefore render a transaction
relating to the suit property during the pendency of the suit void but render
the transfer inoperative insofar as the other parties to the suit.
Transfer
of any right, title or interest in the suit property or the consequential
acquisition of any right, title or interest, during the pendency of the suit
will be subject to the decision in the suit.
21.
The principle underlying section 52 of TP Act is based on justice
and equity. The operation of the bar under section 52 is however subject to the
power of the court to exempt the suit property from the operation of section 52
subject to such conditions it may impose. That means that the court in which
the suit is pending, has the power, in appropriate cases, to permit a party to
transfer the property which is the subject-matter of the suit without being
subjected to the rights of any part to the suit, by imposing such terms as it
deems fit. Having regard to the facts and circumstances, we are of the view
that this is a fit case where the suit property should be exempted from the
operation of Section 52 of the TP Act, subject to a condition relating to
reasonable security, so that the defendants will have the liberty to deal with
the property in any manner they may deem fit, inspite of the pendency of the
suit. The appellant-plaintiff has alleged that he is a builder and real estate
dealer. It is admitted by him that he has entered into the transaction as a
commercial collaboration agreement for business benefits. The appellant has
further stated in the plaint, that under the collaboration agreement, he is
required to invest Rs. 20 lakhs in all, made up of Rs.16,29,000/- for
construction and Rs.3,71,000/- as cash consideration and that in lieu of it he
will be entitled to ground floor of the new building to be constructed by him
at his own cost. Treating it as a business venture, a reasonable profit from 2
such a venture can be taken as 15% of the investment proposed, which works out
to Rs.3 lakhs. Therefore it would be sufficient to direct the respondents to
furnish security for a sum of Rs. 3 lakhs to the satisfaction of the court
(learned Single Judge) as a condition for permitting the defendants to deal
with the property during the pendency of the suit, under Section 52 of the TP
Act.
The need
for reform :
22.
Before concluding, it is necessary to notice the reason why the
High Court was trying to find some way to protect the interests of defendants,
when it felt that they were being harassed by plaintiff. It made the impugned
order because it felt that in the absence of stringent and effective provision
for costs, on the dismissal of the suit, it would not be able to compensate the
defendants for the losses/hardship suffered by them, by imposing costs. If
there was an effective provision for levy of realistic costs against the losing
party, with reference to the conduct of such party, the High Court, in all
probability would not have ventured upon the procedure it adopted. This draws
attention to the absence of an effective provision for costs which has led to
mushrooming of vexatious, frivolous and speculative civil litigation.
23.
The principle underlying levy of costs was explained in Manindra
Chandra Nandi v. Aswini Kumar Acharaya - ILR (1921) 48 Cal. 427 thus:
"We
must remember that whatever the origin of costs might have been, they are now
awarded, not as a punishment of the defeated party but as a recompense to the
successful party for the expenses to which he had been subjected, or, as Lord
Coke puts it, for whatever appears to the Court to be the legal expenses
incurred by the party in prosecuting his suit or his defence. * * * * The
theory on which costs are now awarded to a plaintiff is that default of the
defendant made it necessary to sue him, and to a defendant is that the
plaintiff sued him without cause; costs are thus in the nature of incidental
damages allowed to indemnify a party against the expense of successfully
vindicating his rights in court and consequently the party to blame pays costs
to the party without fault. These principles apply, not merely in the award of
costs, but also in the award of extra allowance or special costs. Courts are
authorized to allow such special allowances, not to inflict a penalty on the
un-successful party, but to indemnify the successful litigant for actual
expenses necessarily or reasonably incurred in what are designated as important
cases or difficult and extraordinary cases."
In Salem
Advocate Bar Association v. Union of India [2005 (6) SCC 344] this after
noticing that the award of costs is in the discretion of the court and that
there is no upper limit in respect of the costs awardable under Section 35 of
the Code, observed thus:
"Judicial
notice can be taken of the fact that many unscrupulous parties take advantage
of the fact that either the costs are not awarded or nominal costs are awarded
against the unsuccessful party. Unfortunately, it has become a practice to
direct parties to bear their own costs. In a large number of cases, such an
order is passed despite Section 35 (2) of the Code. Such a practice also
encourages the filing of frivolous suits. It also leads to the taking up of
frivolous defences. Further, wherever costs are awarded, ordinarily the same
are not realistic and are nominal. When Section 35(2) provides for cost to
follow the event, it is implicit that the costs have to be those which are
reasonably incurred by a successful party except in those cases where the court
in its discretion may direct otherwise by recording reasons therefor. The costs
have to be actual reasonable costs including the cost of the time spent by the
successful party, the 3 transportation and lodging, if any, or any other
incidental costs besides the payment of the court fee, lawyer's fee, typing and
other costs in relation to the litigation. It is for the High Courts to examine
these aspects and wherever necessary make requisite rules, regulations or
practice direction so as to provide appropriate guidelines for the subordinate
courts to follow."
23. The
provision for costs is intended to achieve the following goals :
(a) It
should act as a deterrent to vexatious, frivolous and speculative litigations
or defences. The spectre of being made liable to pay actual costs should be
such, as to make every litigant think twice before putting forth a vexatious,
frivolous or speculative claim or defence.
(b) Costs
should ensure that the provisions of the Code, Evidence Act and other laws
governing procedure are scrupulously and strictly complied with and that
parties do not adopt delaying tactics or mislead the court.
(c) Costs
should provide adequate indemnity to the successful litigant for the
expenditure incurred by him for the litigation. This necessitates the award of
actual costs of litigation as contrasted from nominal or fixed or unrealistic
costs.
(d) The
provision for costs should be an incentive for each litigant to adopt
alternative dispute resolution (ADR) processes and arrive at a settlement
before the trial commences in most of the cases. In many other jurisdictions,
in view of the existence of appropriate and adequate provisions for costs, the
litigants are persuaded to settle nearly 90% of the civil suits before they
come up to trial.
3 (e) The
provisions relating to costs should not however obstruct access to courts and
justice. Under no circumstances the costs should be a deterrent, to a citizen
with a genuine or bonafide claim, or to any person belonging to the weaker
sections whose rights have been affected, from approaching the courts.
24.
At present these goals are sought to be achieved mainly by
sections 35,35A and 35B read with the relevant civil rules of practice relating
to taxing of costs. Section 35 of the Code vests the discretion to award costs
in the courts. It provides that normally the costs should follow the event and
court shall have full power to determine by whom or out of what property, and
to what extent such costs are to be paid. Most of the costs taxing rules,
including the rules in force in Delhi provide each party should file a bill of
cost immediately after the judgment is delivered setting out: (a) the court fee
paid; (b) process fee spent; (c) expenses of witnesses; (d) advocate's fee; and
(e) such other amount as may be allowable under the rules or as may be directed
by the court as costs. We are informed that in Delhi, the advocate's fee in
regard to suits the value of which exceeds Rs.5 lakhs is : Rs.14,500/- plus 1%
of the amount in excess of Rs.5 lakhs subject to a ceiling of Rs. 50,000/-. The
prevalent view among litigants and members of the bar is that the costs
provided for in the Code and awarded by courts neither compensate nor indemnify
the litigant fully in regard to the expenses incurred by him.
25.
The English civil procedure rules provide that a court in deciding
what order, if any, to make in exercising its discretion about costs should
have regard to the following circumstances: (a) the conduct of all the parties;
(b)
whether a party has succeeded on part of his case, even if he has not been
wholly successful; and (c) any payment made into court or admissible offer to
settle made by a party which is drawn to the courts attention. `Conduct of the
parties' that should be taken note by the court includes : (a) conduct before,
as well as during, the proceedings and in particular the extent to which the
parties followed the relevant pre-action protocol; (b) whether it was
reasonable for a party to raise, pursue or contest a particular allegation or
issue; (c) the manner in which a party has pursued or defended his case or a
particular allegation or issue; and (d) whether a claimant who has succeeded in
his claim, in whole or in part, exaggerated his claim. Similar provisions, with
appropriate modifications may enable proper and more realistic costs being
awarded. As Section 35 of the Code does not impose any ceiling the desired
object can be achieved by the following : (i) courts levying costs, following
the result, in all cases (non-levy of costs should be supported by reasons);
and (ii) appropriate amendment to Civil Rules of 3 Practice relating to
taxation of costs, to make it more realistic in commercial litigation.
26.
The provision relating to compensatory costs (Section 35A of the
Code) in respect of false or vexatious claims or defences has become virtually
infructuous and ineffective, on account of inflation. Under the said section,
award of compensatory costs in false and vexatious litigation, is subject to a
ceiling of Rs.3,000/-. This requires a realistic revision keeping in view, the
observations in Salem Advocates Bar Association (supra).
Section
35B providing for costs for causing delay is seldom invoked. It should be
regularly employed, to reduce delay.
27.
The lack of appropriate provisions relating to costs has resulted
in a steady increase in malicious, vexatious, false, frivolous and speculative
suits, apart from rendering Section 89 of the Code ineffective. Any attempt to
reduce the pendency or encourage alternative dispute resolution processes or to
streamline the civil justice system will fail in the absence of appropriate
provisions relating to costs. There is therefore an urgent need for the
legislature and the Law Commission of India to re-visit the provisions 3
relating to costs and compensatory costs contained in Section 35 and 35A of the
Code.
Conclusion
26. In
the result, we allow this appeal in part, set aside the order of the Division
Bench and Learned Single Judge directing the plaintiff-appellant to file an
affidavit undertaking to pay Rs. 25 lakhs to defendants-respondents in the
event of failure in the suit. Instead, we permit the defendants-respondents
under section 52 of TP Act, to deal with or dispose of the suit property in the
manner they deem fit, in spite of the pendency of the suit by the plaintiff,
subject to their furnishing security to an extent of Rs. Three lakhs to the
satisfaction of the learned Single Judge.
..........................J. (R V Raveendran)
..........................J.
New Delhi;
Back
Pages: 1 2
