Full Judgment Text
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CASE NO.:
Appeal (civil) 3801 of 1999
PETITIONER:
Jai Narain Parasurampuria (Dead) & Ors
RESPONDENT:
Pushpa Devi Saraf & Ors
DATE OF JUDGMENT: 24/08/2006
BENCH:
S.B. Sinha & P.P. Naolekar
JUDGMENT:
J U D G M E N T
With
CIVIL APPEAL NO.3802 of 1999
S.B. SINHA, J :
Background facts:
Kanpur is a metropolitan town. The respondents herein were owners
of a house property bearing municipal number 7/169, on a freehold plot
bearing No.22, measuring 2978 sq. yards, situate in Block B, Scheme No.7,
Gutaiyya, Swaroop Nagar in the said town (’the property’ for short). The 1st
respondent-Pushpa Devi Saraf and the 2nd respondent-Mohan Lal Saraf
intended to promote a company in the name of the 5th respondent-M/s.
Kanpur Exports (P) Ltd. (’the Company’ for short). They filed an
application therefor as promoters of the Company on 15.2.1979. They
acquired the property in their capacity of promoters or Directors of the
proposed company from one Shanti Narain Verma by a registered Deed of
Sale dated 24.2.1979 at a price of Rs.2 lakhs. The said Deed of Sale
contained a clause of re-conveyance of ’the property’.
The Company was incorporated on 19.6.1979. The amount of
consideration paid to said Shanti Narain Verma was repaid by the Company
by two cheques of Rs.1,11,250/- each to Mohan Lal Saraf and Pushpa Devi
Saraf (hereinafter referred to as "Sarafs"). The first balance sheet of the
Company was signed by the 2nd respondent herein on 30.6.1980, wherein
also ’the property’ was shown to be that of the company. With a view to do
away with the said clause of re-conveyance, a suit was filed by the Company
against the said Shanti Narain Verma. The said suit was decreed. The First
Directors’ Report dated 15.11.1980 and the balance sheet of the Company
for the year ending 30.6.1981, signed by the 2nd respondent herein also
disclosed the property to be that of the Company. Directors of the
Company, viz., ’Sarafs’ resolved to sell the property in favour of the
appellants herein. A resolution to let out the property in favour of one
Manoj Kumar Poddar was also adopted by it. A General Power of Attorney
was also executed by the Company in favour of one M.M. Aggarwal who
had specially been invited to attend the said meeting. Pursuant to or in
furtherance of the said resolution, an agreement of sale of the said property
was executed by Sarafs as Directors of the Company, wherefor the total
consideration was fixed at Rs.11 lakhs. Out of the said amount, a sum of
Rs.10 lakhs was paid in advance through Bankers’ Cheques and Cash Orders
dated 11.6.1984 and 12.6.1984. The remaining amount of Rupees One lakh
was to be paid at the time of execution and registration of the Deed of Sale.
A registered Deed of Lease pursuant to the said resolution was also
executed and registered in favour of said Shri M.K. Poddar, the sister’s son
of the appellant, on the same day. There exists a dispute, to which we would
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advert to at an appropriate stage, as to whether the possession of the property
had been handed over to Shri M.K. Poddar or not.
Proceeding :
The appellants herein issued a notice asking the respondents to
execute a Deed of Sale on 5.8.1984. They also got a public notice published
in Newspaper notifying the execution of the agreement for sale between the
appellants and the contesting respondents. Another Agreement for sale was
purported to have been executed on 4.6.1984 by ’Sarafs’ in favour of one
Surendra Kumar Mittal stated to be a close relation (brother-in-law) of
Mohan Kumar Saraf.
The appellants filed a suit against the respondents for injunction.
Subsequently, a relief by way of decree of specific performance of the
agreement for sale was also prayed for. A further prayer was made therein
that the purported Agreement of Sale dated 4.6.1984 executed by the
defendant Nos.2 to 4 in favour of the said Surendra Kumar Mittal was a
sham.
The said M.K. Poddar also instituted a suit for injunction on
25.5.1984, which was numbered as Suit No.612 of 1984, wherein an interim
order of injunction, directing the parties not to interfere with his possession
was passed. In the said suit, an Advocate Commissioner was also appointed.
He found the said M.K. Poddar to be in possession of the property.
A purported dispute, however, was raised as regards ownership of the
said property by and between the Company on the one hand and the Sarafs
on the other. One Shri B.S. Mathur, Advocate was appointed as sole
Arbitrator. He made an Award holding the property to be belonging to
Sarafs. They were directed to refund an amount of Rs.2,22,500/- to the
Company; they having received the same from the Company. The Award
was made Rule of the Court. An Execution Case was filed to execute the
decree. In execution of the said decree a warrant of delivery of Possession
was issued against the Company and M.K. Poddar was said to have been
dispossessed.
M.K. Poddar, indisputably filed an application under Order 21 Rule
99 of the Civil Procedure Code for restoration of possession of the said
property. In response to the notice issued thereupon, the respondents
contended that they intended to raise a multi-storied building upon
demolition of the existing building.
Suits and other proceedings initiated by the appellants :
A suit was filed by the appellants and the said M.K. Poddar in the
Delhi High Court for a declaration that the Decree dated 21.2.1985 passed
by the said Court was obtained by fraud and thus was a nullity. Another suit
was filed by the appellants for declaration and appointment of Receiver
before the Civil Judge, Kanpur Dehat being Suit No.237 of 1989, wherein a
declaration was sought for that the defendants therein, in view of the
Agreement of Sale dated 12.6.1984, had no authority to cause any damage to
the suit property. Symbolic possession was directed to be given in favour of
the appellants therein by an order dated 23.10.1989. However, the said suit
later on was withdrawn. Another suit was filed by the appellants in the
Court of Munsif, Kanpur praying for an order restraining Sarafs from
interfering with their right to manage and maintain the suit property, which
was registered as Original Suit No.2256 of 1989. The said suit was also
dismissed as withdrawn by an order dated 26.8.1991. The appellants also
filed a suit for permanent injunction, which was registered as Suit No.677/91
for restraining the respondents from causing any disturbance in their
peaceful possession. The said suit was also dismissed. It is furthermore not
in dispute that one G.P. Tiwari claiming himself to be the caretaker of the
property filed a suit against the respondents and by an order dated 13.7.1987
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an ex-parte decree was passed in terms of the provisions of the U.P. Rent
Control Act. An application for setting aside the said ex-parte decree was
filed by Mohan Lal Saraf. The first respondent herein also filed a writ
petition for quashing the said ex-parte decree before the Allahabad High
Court, which was numbered as Writ Petition No.21985 of 1989. The said
ex-parte decree was set aside by an order dated 8.2.1990. The said suit was
also withdrawn by G.P. Tiwari. The writ petition filed by respondent No.1
herein was also dismissed as having become infructuous, whereagainst
Pushpa Devi Saraf preferred a Special Leave Petition which was also
dismissed by an order dated 19.9.1990. However, the said order dated
19.9.1990 was recalled by this Court by an order dated and the petition was
disposed of on 14.8.1991, directing the District Judge, Kanpur to nominate a
Receiver for taking charge of the property.
Suit and other proceedings initiated by the respondents :
On 8.7.1980, the Company through its Directors, Sarafs, filed a suit
against Shanti Narain Verma for declaration that the Company was the
absolute owner in possession of the suit premises. However, as noticed
hereinbefore, before the Trial Court, the respondents, inter alia, raised a
contention that the Sarafs were the owners of the suit property and not the
Company. The learned trial Court negatived the said contention. As noticed
hereinbefore, the said suit questioning the grant of symbolic possession was
decreed in favour of the appellants. A writ petition was filed on 9.5.1990
which was numbered as Writ Petition No.24301/89. The order granting
symbolic possession was quashed by the High Court by an order dated
23.10.1989 on the premise that there had been no sufficient service and the
matter was remanded to the Trial Court for fresh consideration thereof. A
Criminal Misc. Writ Petition No.23804/89 was filed in the High Court of
Judicature at Allahabad for a direction that a criminal case be registered for
protection of life and property of the Sarafs and for payment of damages for
damages allegedly caused to them. By an order dated 9.12.1993, the High
Court directed investigation into the allegations made by Sarafs by the
Central Bureau of Investigation. Upon completion of the investigation by
the Central Bureau of Investigation, a charge-sheet was filed against the
appellants and the trial against them is pending.
Judgment of the Court :
On the backdrop of several litigations between the parties and
allegations and counter allegations made by one party against the other
therein, the learned Trial Court decreed the Appellants’ suit for specific
performance of contract. The said judgment and decree came to be
challenged before the High Court. A Division Bench of the High Court
allowed the appeal on the premise that the Trial Court had wrongly
exercised its discretionary jurisdiction under Section 20 of the Specific
Relief Act, 1963; as the appellants were guilty of demolition of the existing
structures on the land. The learned Judges of the Division Bench of the
High Court, however, differed in their opinion on other issues.
Both the parties are, thus, before us.
Submissions :
Mr. Rakesh Dwivedi, learned Senior Counsel appearing on behalf of
the appellants raised the following contentions:
i) The High Court committed a serious error in holding that the
Sarafs had purchased the property for the benefit of the Company ignoring
the decree passed in favour of the Company as also the representations made
by the Sarafs to the State Bank of India, before the Courts of Law as also the
society at large.
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(ii) Sarafs were estopped and precluded from denying the title of
the Company and setting up their own title over the property in view of their
representations made to the appellants and the world at large.
iii) Even if Sarafs were owners of the property, the Agreement of
Sale executed in favour of the appellants was valid as the Company itself
was being represented by them who were even otherwise authorized to
execute the Agreement on behalf of the company and, thus, by reason of
their conduct, they must be held to have executed the said Agreement on
their own behalf also.
iv) The Court failed to apply the doctrine of lifting the corporate
veil, as the same was necessary for determining the real issue between the
parties.
(v) Assuming that the Award passed by the Arbitrator, as also the
decree passed by the High Court pursuant thereto are valid in law, in terms
whereof Sarafs were declared to be owners of the property, the agreement of
sale would be binding on them.
vi) The Award and the decree, having been obtained by practicing
fraud as envisaged under Section 44 of the Evidence Act, were void ab initio
and the Trial Court rightly having applied the said principle, the same could
not have been overturned by one of the Judges of the Division Bench of the
High Court.
vii) Withdrawal of Suit No. 1252/85 filed by the appellants for
setting aside the Award and the consequent decree, would not debar the
appellants from raising the said issue as a plea of fraud can be raised at any
stage and even in a collateral proceeding.
viii) The Award and the decree of the Delhi High Court, in any view
of the matter, would not adversely affect the interest of the appellants, which
could not have been relied upon by the respondents as they were not parties
thereto.
ix) Both the Hon’ble Judges of the High Court committed a
manifest error in arriving at a finding that the appellants were responsible for
demolition of the existing structures and institution of the rent case through
G.P. Tiwari.
(x) Even assuming that the said findings are correct, the same by
itself could not have been a ground for denying the appellants the relief by
way of a decree for specific performance of contract.
Mr. Sudhir Chandra, learned Senior Counsel appearing on behalf of
the respondents, on the other hand, would support the impugned judgment
contending :
(i) The High Court has rightly arrived at a finding that the suit
property was demolished on 23.9.1989 illegally by the appellant No.1 and
his associates and thus, they became disentitled from obtaining the
discretionary relief of specific performance of contract;
(ii) The said finding of the High Court being based upon the
materials on record including the judgment of another Division Bench of the
Allahabad High Court passed in Criminal Writ Petition No.23804/89, as also
the charge-sheet issued by the Central Bureau of Investigation upon
investigation made pursuant to the order of the High Court and various other
orders passed by this Court, the impugned judgment should not be interfered
with.
(iii) The High Court rightly came to the conclusion that Shri G.P.
Tiwari was set up by the appellants which would be evident from the fact
that they had a common counsel and, had furthermore approached this Court
as appellants against the orders passed by the High Court.
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(iv) Shri G.P. Tiwari himself having admitted that he had handed
over possession of the suit premises to one of the brothers of the appellant,
collusion between himself and the appellants stood established.
(v) The appellants had abused the process of court, as they not only
got the aforementioned Rent Case No. 99/87 instituted by Shri G.P. Tiwari,
but also initiated multiple proceedings against Sarafs with a view to obtain
ex-parte orders through one Nand Lal Jaiswal, Advocate and in that view of
the matter they were not entitled to any discretionary relief in terms of
Section 20 of the Specific Relief Act, 1963.
(vi) The purported Agreement of Sale dated 12.6.84 was in effect
and substance an agreement of loan.
(vii) The agreement dated 12.6.84 itself having stipulated that in the
event of defect in the right or title of the parties of the first part or the said
Company, or any other encumbrance or legal hurdle in respect of the suit
property, the appellants would have an option to refund the advance money
of Rs.10 lakhs together with interest @18% per annum, no relief by way of
specific performance of contract could have been granted.
In view of the following surrounding and attending circumstances, the
purported agreement to sell should be construed to be an Agreement for
Loan:
(a) Sudhir Kumar Parasrampuria, while examining himself as
P.W.1 in his deposition, categorically stated that he had been informed by
respondent No.2 that the property belonged to the Company as also
individuals which would demonstrate that he was aware of the ownership of
Sarafs thereover;
(b) The said property having not been mentioned in the Articles of
Association of the Company, it could not have been treated to be the owner
thereof in law;
(c) Shanti Narain Verma having sold the property in favour of
Sarafs by a deed of sale dated 24.2.1979 and the Company having
admittedly been incorporated on 19.6.1979, the title in respect thereof did
not vest in the Company and, thus, the provisions of Section 15(h) and 19(e)
of the Specific Relief Act, 1963 would have no application in the instant
case. As on the date of execution of sale, the Company had no funds of its
own and the amount of consideration, admittedly, having been paid by
Sarafs, the Company could not be declared to be the owner thereof by a
Court of law as was purportedly done by reason of the judgment dated
19.8.1987 in the suit filed by the Company against Shanti Narain Verma.
(d) The controversy in Suit No.267/80 being confined to the
applicability of the re-conveyance clause contained in the deed of sale dated
24.2.1979, the question of ownership of the property having been vested in
the Company did not and could not arise and in that view of the matter, the
judgment rendered therein was inadmissible in evidence to prove the
Company’s title thereover.
Ownership issue :
The property in question was purchased by the Promoters of the
company, namely, Sarafs. An application for registration of the company
was filed on 15.2.1979 under the Companies Act, 1956 and the company
was registered on 19.6.1979. Sarafs at the relevant were the only Directors
and shareholders of the Company. In the deed of sale, they described
themselves as Promoters/Directors of the company. As on the date of
execution of the deed of sale, the company being not registered, the property
was purchased in the name of the Promoters. In the balance sheet, income
tax return, annual report, audit accounts and other relevant documents, the
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company had been shown to be the owner of the property. On its
registration, the company also paid a sum of Rs.2,22,500/- to Sarafs. The
company in its report dated 15.11.1980 categorically mentioned that it had
acquired fixed assets of Rs.3,03,924/- including free hold land valued at
Rs.1,02,500/- . The balance sheet also mentioned that the disputed property
was the assets of the company. The company had taken a loan from the
State Bank of India, Kanpur Branch upon mortgaging the property as a
security.
We have noticed hereinbefore that a suit was filed by the company
through Sarafs against Shanti Narayan Verma praying for a declaration that
the property belonged to the company. The said suit was decreed by a
judgment dated 19.8.1982 declaring that the company is the absolute owner
thereof. It is also not in dispute that the Board of Directors of the company
adopted a resolution on 6.9.1984 for sale of the said property in favour of the
appellant herein for a sum of Rs.11,00,000/-. The agreement for sale was
signed by the Directors, namely, Pushpa Devi Saraf and Mohan Lal Saraf
and their son Sandeep Saraf. The company also discharged a part of the
debts of State Bank of India, out of the amount of the advance of
Rs.10,00,000/- received by it from the appellants herein. The company had
also adopted another resolution for leasing out the property to Manoj Kumar
Poddar. The deed of lease in favour of Manoj Kumar Poddar was also
signed by Sarafs. In the said documents it was clearly and unequivocally
stated that the property belonged to the company.
It is the company again which executed a general power of attorney in
favour of Shri M.M. Agarwal for executing the deed of sale of the disputed
property in favour of the appellants, upon getting the property released from
the Bank. In the said power of attorney also, the company had been
described as owner of the property.
There cannot, therefore, be any doubt whatsoever that for all intent
and purport the Company was the owner of the property and at all material
times Sarafs had made representations as such to the appellants as also to
others thereabout.
Unincorporated Corporation issue :
At the time when the property was released from the charge held by
the State Bank of India, a notice in terms of Section 138 of the
Companies Act was issued by Shri Mohan Lal Saraf. In the registers
maintained by the Registrar of the Companies under Section 132 of the
Companies Act, it was shown that a charge of the said property had been
made in favour of the State Bank of India.
Under the English Common Law, an unincorporated corporation
could not have become an owner of the property. The law in India,
however, is different.
Before we advert to the statutes operating in the field, in passing we
may notice a wholly untenable submission of Shri Sudhir Chandra that an
unregistered deed of sale only having been executed in favour of the
company by Sarafs, no title passed to the company in view of Section 54 of
the Transfer of Property Act. Section 54 of the Transfer of Property Act,
defines sale and provides for a procedure as to how the same shall be made.
It does not speak of conveyance of ownership. Section 54 of the Transfer of
Property Act does not lay down a law as to whether in all situations an
apparent state of affairs as contained in a deed of sale would be treated to be
the real state of affairs. It does not bar a benami transaction. There is no
embargo in getting a property registered in the name of one person; although
real beneficiary thereof would be another.
Sections 15(h) and 19(e) of the Specific Relief Act, 1963 read as
under :-
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"15. Who may obtain specific performance. - Except
as otherwise provided by this Chapter, the specific
performance of a contract may be obtained by \026
xx xxx xxx xxx
(h) when the promoters of a company have, before its
incorporation, entered into a contract for the
purposes of the company, and such contract is
warranted by the terms of the incorporation, the
company :
Provided that the company has accepted the
contract and has communicated such acceptance to
the other party to the contract."
"19. Relief against parties and persons claiming
under them by subsequent title. - Except otherwise
provided by this Chapter, specific performance of a
contract may be enforced against \026
xxx xxx xxx xxx
(e) when the promoters of a company have, before its
incorporation, entered into a contract for the
purpose of the company and such contract is
warranted by the terms of the incorporation, the
company :
Provided that the company has accepted the
contract and communicated such acceptance to the
other party to the contract."
In terms of Section 15(h) of the Specific Relief Act, the Promoters of
a company before its incorporation could enter into a contract for the benefit
of the company and such contract may be warranted by the terms of
incorporation of the company. The said provision is subject to the proviso
that the company should accept the said transaction. In the instant case,
indisputably it was done. Section 19(e) of the Act provides for grant of a
decree of specific performance of a contract against a company when the
promoters of a company before incorporation entered into a contract for the
purpose of the company and such contract is warranted by the terms of
incorporation. The said provision applies herein.
In Weavers Mills Ltd., Rajapalayam vs. Balkis Ammal & Ors.
[AIR 1969 Mad. 462], the Madras High Court clearly held that Section 19(e)
of the Specific Relief Act carves out an exception from the common law of
England, stating :
"While we accept the position that a promoter is
neither an agent nor a trustee of the company under
incorporation, we are inclined to think that in respect of
transactions on behalf of it, he stands in a fiduciary
position. For the plaintiff-company Sections 92 and 94
of the Indian Trusts Act, 1882, were relied upon. It
seems to us that neither of these sections is of assistance
to it. These sections, as we think, contemplate
transactions as between persons in existence. In any
case, it seems to us that no trust as defined by Section 3
of the Act is brought about by the purchases made by the
promoters. The legal position of a promoter in relation to
his acts, particularly purchase of immoveable properties
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on behalf of the company under incorporation, is a
peculiar one not capable of being brought into any
established or recognised norms of the law as to its
character as an agent or a trustee. But, at the same time,
it is impossible, to our minds, to deny that he does stand
in a certain fiduciary position in relation to the company
under incorporation. When he does certain things for the
benefit of it, as for instance, purchase of immoveable
properties, he is not at liberty to deny that benefit to the
company when incorporated. We are prepared to hold
that in such a case the benefit of the purchase will pass
on to the company when incorporated."
The said decision has been followed by a Division Bench of the
Andhra Pradesh High Court in Vali Pattabhirama Rao & Anr. vs. Sri
Ramanuja Ginning & Rice. Factory (P.) Ltd. & Ors. [AIR 1984 A.P.
176], wherein it was held :
"Thus, we hold that if the constitution of the
partnership firm is changed into that of a company by
registering it under Part 9 of present Act (Part 8 of
previous Act), there shall be statutory vesting of title of
all the property of the previous firm in the newly
incorporated company without any need for a separate
conveyance."
The company upon incorporation has accepted the contract and
communicated such acceptance to the other party. Besides that, purchase of
the property was for the purpose of the company. Submissions of Mr.
Sudhir Chandra that acquisition of a property for the benefit of the company
must find place in the articles of association of the company, is wholly
misplaced. What is meant by acceptance of the contract by the company
which is to be warranted by its incorporation, is that it is not ultra vires the
purpose for which the company had been incorporated. The distinction
sought to be made by the learned counsel between Section 27 of the Specific
Relief Act, 1877 and Section 19 of the 1963 Act is not of much significance.
Under the 1877 Act, not only ratification and adoption of the contract was
mandatory, such contract was to be warranted by the terms of the
incorporation. The words ’ratified and adopted" have been dropped from
the main section and in Section 19 of the 1963 Act, a proviso has been added
that the company has accepted the contract and communicated such
acceptance to the other party of the contract. An express ratification of the
contract, therefore, is no longer warranted. In view of the fact that the
Company, in the suit filed against Verma, sought for a declaration that it was
the owner of the property, the same, in our opinion, would amount to
acceptance of the contract and communication thereof to the other party
thereto.
Reliance placed by the learned senior counsel for the respondent on
Shamsu Suhara Beevi v. G. Alex & Anr. [(2004) 8 SCC 569, para 11] is
not apposite, wherein it was held :
"\005On equitable considerations court cannot ignore or
overlook the provisions of the statute. Equity must yield
to law."
In the said decision this Court was not concerned with the
interpretation of Section 19(e) of the Specific Relief Act.
Transfer of Property Act does not prohibit an oral transfer. The
statute merely provides that if the value of the said property is more than
Rs.100/- a registered document is required to be executed. Section 5 of the
Transfer of Property Act provides for transfer in favour of the company
which was unincorporated. The effect of the Transfer of Property of Act,
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therefore, postulates transfer in favour of unincorporated company. It does
not create any bar.
Our attention was drawn to a statement made by the appellant No.1
before the trial court in cross-examination. He stated that Sarafs had
informed him that the company was the owner. He, however, volunteered
that he himself as also the company became owners. He probably gave the
said answer having regard to the fact that an agreement for sale had been
executed in his favour; and furthermore Manoj Kumar Poddar had been
granted a lease and thus, he also became the owner thereof. His claim may
not be correct in law, but by reason thereof, it cannot be said that the
representation made by Sarafs that the company was the owner of the
property had been whittled down or the appellants were all along aware that
Sarafs were the owners thereof.
The High Court, therefore, in our opinion committed a gross error in
opining that the object and purport of the proceedings in OS No.267 of 1980
was mainly for seeking foreclosure of the right of reconveyance of Vendor
S.N. Verma.
Estoppel issue :
It may be true that no issue as regards title between Sarafs and the said
S.N. Verma having been framed in O.S.No.267 of 1980, the principle of res
judicata is not applicable. In the said proceedings, however, Sarafs as also
the said S.N. Verma being parties, there cannot be any doubt or dispute
whatsoever that a claim was laid by the company that it was the owner of the
property which was accepted not only by Verma but also by Sarafs. The
Sarafs or Verma did not deny or dispute the same. In fact company spoke
only through Sarafs. The High Court overlooked the fact that the plaint was
signed by Sarafs and the company was represented by them. It is they who
had made solemn statement before a competent court of law that the
company was the owner of the property. Hence, they are bound by the said
statement. The principle of estoppel and/or acquiescence would, thus, be
applicable.
While applying the procedural law like principle of estoppel or
acquiescence, the court would be concerned with the conduct of a party for
determination as to whether he can be permitted to take a different stand in a
subsequent proceeding, unless there exists a statutory interdict. If principle
of estoppel applies, Sarafs will not be permitted by a court of law to raise the
contention that the company was not the owner of the property.
It is one thing to say that the property did not vest in the company as
there was a statutory embargo in that behalf; but it is another thing to say
that a person is estopped from raising a question of title. The provisions of
the Indian Evidence Act are clear like Section 116, whereby in certain
situation a person may be estopped from pleading a title in himself.
We are, however, not oblivious of the principle of law that mere
admission does not create title but while determining such a question that
intention of the parties as to in whom the title of the property shall vest, the
conduct of the parties assumes significance.
In the instant case, it was Sarafs who represented the company. They
had made the representation that the company was the owner of the property.
Such a representation had been made to the appellant herein not only in
terms of the decree obtained in the said O.S. No.267 of 1980, but by reason
of execution of the other documents including creation of mortgage of the
property and discharge thereof in favour of the State Bank of India. If by
reason of such representation, a third party alters his position, indisputably,
the principle of estoppel would apply. We may, however, hasten to add that
where there exists a statutory embargo, vesting of title in a person shall be
subject thereto. We have, however, in this case, no doubt whatsoever that
there did not exist any statutory embargo in this behalf.
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In Bank of India & Ors. etc. vs. O.P. Swarnakar & Ors. etc.
[(2003) 2 SCC 721], this Court took notice of the following passage from
Halsbury’s Law of England, 4th Edn., Vol.16 (Reissue), para 957 at p.844:
"On the principle that a person may not approbate
and reprobate a special species of estoppel has arisen.
The principle that a person may not approbate and
reprobate expresses two propositions:
(1) That the person in question, having a choice
between two courses of conduct is to be treated as
having made an election from which he cannot
resile.
(2) That he will be regarded, in general at any rate, as
having so elected unless he has taken a benefit
under or arising out of the course of conduct,
which he has first pursued and with which his
subsequent conduct is inconsistent."
In Gillett v Holt and another [2000 (2) All. E.R.-289], the Court of
Appeal, upon referring to a large number of decisions, developed the
doctrine of proprietary estoppel opining:
"The overwhelming weight of authority shows that
detriment is required. But the authorities also show that
it is not a narrow or technical concept. The detriment
need not consist of the expenditure of money or other
quantifiable financial detriment, so long as it is
something substantial. The requirement must be
approached as part of a broad inquiry as to whether
repudiation of an assurance is or is not unconscionable in
all the circumstances."
In Indu Shekhar Singh & Ors. vs. State of U.P. & Ors. [2006 (5)
SCALE 107], this Court stated :
"They, therefore, exercised their right of option.
Once they obtained entry on the basis of election, they
cannot be allowed to turn round and contend that the
conditions are illegal."
In Pawan Alloys and Casting Pvt. Ltd. , Meerut vs. U.P. State
Electricity Board & Ors. [(1997) 7 SCC 251], this Court applied the
principle of promissory estoppel.
The doctrine of estoppel by acquiescence was not restricted to cases
where the representor was aware both of what his strict rights were and that
the representee was acting on the belief that those rights would not be
enforced against him. Instead, the court was required to ascertain whether in
the particular circumstances, it would be unconscionable for a party to be
permitted to deny that which, knowingly or unknowingly, he had allowed or
encouraged another to assume to his detriment. Accordingly, the principle
would apply if at the time the expectation was encouraged. [See also Taylor
Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd. (1981) 1 All ER
897.]
Similarly, in Amalgamated Investment & Property Co. Ltd. vs.
Texas Commerce International Bank Ltd. [(1981) 1 All ER 923], it was
held :
"Where the estoppel alleged was founded on active
encouragement or representations made by the
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representator, it was only unconscionable for the
representator to enforce his strict legal rights if the
representee’s conduct was influenced by the
encouragement or the representation. However, it was
not necessary for the encouragement or representation to
have been the initial cause of the representee’s conduct in
order to be unconscionable but merely that his conduct
was so influenced by the encouragement or
representation that it would be unconscionable for the
representor to enforce his legal rights."
Mr. Sudhir Chandra placed strong reliance in Mahboob Sahab v.
Syed Ismail & Ors. [(1995) 3 SCC 693], wherein this Court was dealing
with the issue of res judicata.
As in this case, we have already held that the principle of res judicata
may not have any application, it is not necessary to advert thereto. It is also
not a case where fraud was alleged, as was the fact involved therein.
Reliance placed on Chhaganlal Keshavlal Mehta vs. Patel
Narandas Haribhai [(1982) 1 SCC 223 : AIR 1982 SC 121] was
misplaced. Therein it was held that a person is entitled to plead estoppel in
his individual character and not as a representative of his assignee. In this
case ingredients constituting an estoppel and in particular the representation
made by Sarafs that it was the company which was the owner of the
property, were raised specifically.
In the context of the present case it is of some significance to note the
following observations made in Chapleo and Wife v. The Brunswick
Permanent Building Society and Others [1881 QBD 696]:
"\005Being not incorporated the individual members might
be liable like any other individuals for what has been
done under an implied authority given to their agent to
borrow. That the borrowing power was exceeded is a
matter which could only be known to the officers of the
society, and not to the persons who lent their money, and
the society must be liable for the fraud or wrongful act of
their agent who was held out as having authority to
borrow for the society\005"
It was further held :
"It must be taken that when the directors
represented that they had authority which they had not,
by reason of the limit to borrowing having been passed,
they nevertheless warranted to the plaintiff Chapleo that
they had that authority. Therefore upon that ground they
are liable."
The Judicial Committee in Sarat Chunder Dey and Others v. Gopal
Chunder Laha and Others [(1892) Vol. XIX Law Report 203], as regards
the conditions of estoppel under the Evidence Act, opined :
"\005The law of this country gives no countenance to the
doctrine that in order to create estoppel the person whose
acts or declarations induced another to act in a particular
way must have been under no mistake himself, or must
have acted with an intention to mislead or deceive. What
the law and the Indian statute mainly regard is the
position of the person who was induced to act; and the
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principle on which the law and the statute rest is, that it
would be most inequitable and unjust to him that if
another, by a representation made, or by conduct
amounting to a representation, has induced him to act as
he would not otherwise have done, the person who made
the representation should be allowed to deny or repudiate
the effect of his former statement, to the loss and injury
of the person who acted on it. If the person who made
the statement did so without full knowledge, or under
error, sibi imputet. It may, in the result, be unfortunate
for him, but it would be unjust, even though he acted
under error, to throw the consequences on the person
who believed his statement and acted on it as it was
intended he should do."
Lifting the Corporate Veil :
In a case of this nature, keeping in view the facts and circumstances of
the case, even the doctrine of lifting the corporate veil would be applicable.
We would, in this regard, notice some precedents operating in the
field.
In Kapila Hingorani vs. State of Bihar [(2003) 6 SCC 1], this Court
opined :
"It is now well settled that the corporate veil can in
certain situations be pierced or lifted. The principle
behind the doctrine is a changing concept and it is
expanding its horizon as was held in State of U.P. v.
Renusagar Power Co. The ratio of the said decision
clearly suggests that whenever a corporate entity is
abused for an unjust and inequitable purpose, the court
would not hesitate to lift the veil and look into the
realities so as to identify the persons who are guilty and
liable therefor."
{See also Union of India & Ors. vs. M/s. Playworld Electronics
Pvt. Ltd. & Anr. [(1989) 3 SCC 181 : AIR 1990 SC 202], State of U.P. &
Ors. vs. Renusagar Power Co. & Ors. [(1988) 4 SCC 59 : AIR 1988 SC
1737] and Yukong Line Ltd. of Korea v. Rendsburg Investments Corp
of Liberia and Others (No 2) [(1998) 4 All ER 82 (QBD)}
The application of the said doctrine becomes relevant in view of the
fact that in the Memorandum of Association of the company Sarafs alone
were shown to be the subscriber members of the company. In the Article of
Association they were naturally inducted as the first Directors. Subsequently
they included their son as a Director; and it was all the three of the Directors
who executed the agreement for sale. There had, thus, been no shareholder
except Sarafs. Since, they had been attempting to use the personality of the
company for furthering their own personal object the doctrine of lifting the
veil is applicable. They did so in furtherance of their dishonest and
fraudulent design. They in fact were the alter ego of the company. It was,
therefore, impossible for them to take a different stand vis-‘-vis the interest
of the company
Withdrawal of suit \026 effect of :
One of the judges of the High Court in the impugned judgment opined
that in view of the fact that the appellant had withdrawn the suit questioning
the said award and the decree subsequent to passing of the judgment and
decree of the trial court, they became disentitled to raise the said question.
In so opining, the High Court committed a manifest error. The appellant had
contended that the said award and the consequent decree passed by the Delhi
High Court was a fraudulent and collusive one. The appellants having
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obtained a decree, it was not necessary for them to obtain another decree. It
might not have been able to file another suit, but the same would not mean
that they were not entitled to question the validity or otherwise of the said
award in the suit for specific performance of contract. If a judgment or
decree is vitiated by fraud, the same would be a nullity. In such an event,
Section 44 of the Indian Evidence Act would be attracted. As a plea of fraud
can be raised even in a collateral proceeding and the trial court having
recorded a specific finding that the jurisdiction of the Delhi Court was
created artificially by including a Delhi property, in respect whereof there
was no dispute, the said decree must be held to have been obtained by Sarafs
by concealment of material facts and by a collusive and fraudulent exercise.
In the arbitration proceedings, Sarafs stated that the agreement dated
12.06.1984 was in fact a sale transaction. In paragraph 8 of the written
statement, the stand taken by them was that the agreement was a sham
document entered into by and between the parties so as to enable them to
secure removal of padlocks by State Bank of India, Kanpur.
In the said written statement itself they, however, disclosed about the
execution of an agreement for sale in favour of the defendant no.5. The said
agreement was registered on 29.09.1984 i.e. much after the execution of
agreement for sale dated 12.6.1984 as also after the institution of the suit.
It is now well settled that fraud vitiated all solemn act. Any order or
decree obtained by practicing fraud is a nullity. {See - (1) Ram Chandra
Singh vs. Savitri Devi & Ors. [(2003) 8 SCC 319] followed in (2) Vice
Chairman, Kendriya Vidyalaya Sangathan & Anr. vs. Girdhari Lal
Yadav [(2004) 6 SCC 325]; (3) State of A.P. & Anr. vs. T. Suryachandra
Rao [(2005) 6 SCC 149]; (4) Ishwar Dutt vs. Land Acquisition Collector
& Anr. [(2005) 7 SCC 190]; (5) Lillykutty vs. Scrutiny Committee, SC &
ST Ors. [(2005 (8) SC 283]; (6) Chief Engineer, M.S.E.B. & Anr. vs.
Suresh Raghunath Bhokare [(2005) 10 SCC 465]; (7) Smt. Satya vs. Shri
Teja Singh [(1975) 1 SCC 120]; (8) Mahboob Sahab vs. Sayed Ismail &
Ors. [(1995) 3 SCC 693]; and (9) Asharfi Lal vs. Smt. Koili (Dead) by
LRs. [(1995) 4 SCC 163].}
The submission of Mr. Sudhir Chandra that withdrawal of the Suit
No.1252 of 1985 without obtaining liberty to file a fresh suit would
constitute a bar in filing of a second suit under Order 23, Rule 1 of the Code
of Civil Procedure, in the factual matrix obtaining herein, cannot be
accepted. By withdrawal of the said suit, the appellant did not and could not
have given up their right to contend that the said award and decree were
fraudulent.
It was not necessary for the appellants to reserve their right to raise
the said contention by instituting another suit as they had earlier done it in
their suit. In fact they had already obtained the decree for specific
performance of the agreement to sell.
In that view of the matter, the decision of this Court in Hulas Rai
Baij Nath vs. Firm K.B. Bass & Co. [(1967) 3 SCR 886], relied on by the
Sudhir Chandra is not applicable.
Nature of transaction :
One of the learned Judges of the High Court also held that the said
agreement dated 12.06.1984 was in fact an agreement for obtaining loan.
There was no warrant for such a proposition. Clause 7 of the agreement on
the basis whereof such a finding was arrived at reads as under :
"(7) That it is further agreed that in case any defect in
the right or title of the parties of the first part or the said
company is found or any other encumbrance or legal
hurdle is found in respect of the said house property then
in both the circumstances the second party shall have
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option for the refund of advance money of Rs.10 lacs
together with interest @ 18% per annum."
It is interesting to note that the sale deed dated 24.02.1979 whereby
Sarafs purchased the property also contain an identical clause. Such types of
clauses normally are found in the agreement so as to enable the vendee to
protect his interest against the defects in vendor’s title, if any. The
agreement records the valuation of property at Rs.11 lakhs. The respondents
relying on or on the basis of another purported agreement dated 04.06.1984
executed by Sarafs in favour of their son-in-law, original defendant No.5,
S.K. Mittal stated that the property was worth Rs.25 lakhs. The trial court,
in our opinion, correctly arrived at an opinion that the said agreement was a
shame one. The original defendant No.5 did not file any suit for specific
performance of contract. The said agreement for sale had not been acted
upon by the parties. Reliance placed on the said agreement by a learned
Judge of the High Court was, therefore, unwarranted.
The High Court in its judgment did not show as to how the said
finding of the learned trial court in that behalf was wrong. Moreover, except
the said agreement, no other legal evidence was brought on record to
establish as to what was the actual market value of the property.
The value of the property, as noticed hereinbefore, was only Rs.2
lakhs in the year 1979. Within a period of 5 years thereof as per the
agreement for sale, its price went up five times over the original. It is,
wholly unlikely that the property which was valued at Rs.2 lakhs in 1979,
would be worth Rs.25 lakhs in 1984.
In any view of the matter inadequate consideration by itself would not
lead to the conclusion that the same was an agreement of loan. Inadequate
consideration, it is trite, is also not a ground for refusing to grant a decree for
specific performance of contract.
Clause 5 of the said agreement required the company to satisfy the
appellants in regard to the ownership of the company in the said property
and the same was free from encumbrances, the reason wherefor is not far to
seek. The provisions of the Urban Land Ceiling Act were in force.
Permission was required for completing the said transaction both under the
Urban Land Ceiling (Regulation) Act, 1976 as also under the Income Tax
Act. In terms of Sections 26 of 1976 Act, a notice was required to be served
on the competent authority. At least the parties appear to have proceeded on
that basis. Strong reliance has been placed on the circumstance that when an
advertisement issued in the newspaper on 5.8.1984 notifying the existence of
agreement for sale between the appellants and the respondents, Sarafs
responded thereto alleging that the said transaction was a loan transaction.
By reason of such self-serving statement alone, an agreement for sale validly
entered into by and between the parties would not be treated to be a loan
agreement. It is furthermore interesting to note that in the said purported
response to the advertisement published in the paper also, Sarafs did not
raise any plea that the company had already entered into an agreement for
sale of property with a third person or that the dispute as regard title thereof
was pending adjudication before an arbitrator. If Sarafs claimed themselves
to be the owner of the said property, they should have challenged the
subsequent agreement also. The contention of the respondents that the said
agreement was merely one of loan was an afterthought.
Conduct of Sarafs :
It is in the aforementioned situation, the conduct of Sarafs assumes
significance. The agreement for sale was executed on 12.6.1984, pursuant to
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the resolution of the Board of Directors dated 08.6.1984, which was
followed by execution of a General Power of Attorney in favour of M.M.
Agarwal for the purpose of redeeming the mortgage from State Bank of
India, Kanpur and other purposes. They evidently with a design either to
defraud the State Bank of India or for other purposes best known to them,
purported to have inducted Vijay Kumar as Director of the company on
4.6.1984. Soon thereafter a purported dispute was raised on 6.6.1984 by and
between the said Vijay Kumar on the one hand and Sarafs on the other, as
regards the ownership of the property. One B.S. Mathur, Advocate, was
appointed as arbitrator on 7.6.1984. If the said documents were in existence
on 8.6.1984, Sarafs themselves could not have been a party to the resolution
in regard to the execution of the agreement for sale of the company’s
property in favour of the appellant as also letting out of the same to Manoj
Kumar Poddar. It has not been denied nor disputed that the said Vijay
Kumar was merely an employee.
The arbitrator was appointed in undue haste. Within a few days, so
many events took place, which itself is a pointer to the evil design on the
part of Sarafs. It is of some significance to note that the appointment of Shri
Vijay Kumar as Director of the company was intimated to the Registrar of
the Companies on 29.9.1984, and the same had been received in his office
only on 7.1.1985.
Not only Sarafs intended to wriggle out of the agreement to sell, they
even intended to play fraud on the State Bank of India as ’the property’ was
charged in its favour and the amount received from the appellant by way of
advance, had been utilized for the purpose of redeeming the mortgage.
The arbitrator made an award on 20.11.1984. It has not been denied
or disputed that the decree dated 19.8.1982 passed in O.S. No.267 of 1980
had not been placed before the arbitrator. Attention of the arbitrator had also
not been drawn to the proceedings of pending suit filed by the appellant
herein for specific performance of the said agreement of sale dated
12.6.1984 being O.S. No.537 of 1984. The arbitrator furthermore was not
made known about the pendency of another suit filed by Manoj Kumar
Poddar against the company being Suit No.612 of 1984 and the order of ex
parte injunction passed therein on 31.8.1984. The arbitrator while passing
an award on 20.11.1984 might not have any other option but to declare
Sarafs to be the owners of the property as the purported lis between the
parties went uncontested. Interestingly by reason of the said award, Sarafs
were directed to refund Rs.2,22,500/- to the company, which had been paid
to them. The company did not raise any objection evidently because nobody
else could factually represent it before the arbitrator; all the parties being on
the same side.
It is interesting to note that before the arbitrator, the company was
shown to be the claimant and thus, the company itself is said to have
appointed Shri Mathur as sole arbitrator. Such appointment of the arbitrator,
being in the teeth of the decree passed in Suit No.267 of 1980, arbitration
award and the decree passed by the Delhi High Court, had rightly been held
by the learned trial judge as collusive and fraudulent. It was thus a nullity.
Even in the proceedings for making the award a rule of the court before the
Delhi High Court being Suit No.1857-A of 1984, there was no opposition on
the part of the company. Although a decree for delivery of possession was
passed against the company, the lessee Shri Manoj Kumar Poddar or the
appellant had not been made parties therein. We would have occasion to
deal with the effect of our discussions hereafter.
Subject matter of the agreement :
One of the learned Judges of the High Court also opined that as the
agreement to sell referred to only the house or the bungalow, the parties did
not agree to sell the land. We have gone through the agreement for sale and
are of the opinion that the views taken by the learned judge were wholly
unwarranted. Apparently the respondents intended to sell what they had
purchased. There is nothing in the averments of the agreement to suggest
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that the intention of the respondents was restricted to the house alone and not
the lands. There was no basis for arriving at the said findings. In any event,
expression ’the house’ will also include the land appurtenant thereto.
In P. Ramanatha Aiyar’s Advanced Law Lexicon, Volume 2, 2005,
the word "house" has been defined to mean :
"HOUSE" means a house suitable for occupation by a
Military Officer or a military mess. The term includes
the land and buildings appurtenant to a house.
[Cantonment (House Accommodation) Act (6 of 1923),
S. 2(f)]
"HOUSE" includes any building or part of a building
with its appurtenances and outhouses used for any
purpose whatsoever [Orissa House Rent Control Act,
1967 (4 of 1968), S. 2(3)].
"HOUSE" includes \026
(a) any part of a building occupied or intended to be
occupied as a separate dwelling, and
(b) any yard, garden, outhouses and appurtenances
belonging to it or usually enjoyed with it [Housing
Act, 1996 (c. 52 1996), S. 6B(1)]"
In ’Word and Phrases, Permanent Edition, Volume 19A, it is stated :
"The word "building" necessarily embraces the
foundation on which it rests; and the cellar, if there be
one, under the edifice, is also included in the term
"house" or "building". If there be a cellar, the word
"building" includes it, unaffected by the height above the
foundation Benedict v. Ocean Ins. Co., 31 N.Y. 389,
394."
Furthermore, it is now well settled that the building includes the land
on which it stands, unless by express stipulation it is excluded. [See T.
Lakshmipathi & Ors. vs. P. Nithyananda Reddy & Ors. (2003) 5 SCC
150, paras 19 to 24]
Re : Demolition of the building:
Both the learned judges of the High Court found that the appellants
were responsible for demolition of the building forming the part of the
property.
Before adverting to the said question, we may, at the cost of
repetition, notice the contentions, which, according to Mr. Dwivedi,
sufficiently indicate that Sarafs alone were responsible therefor.
On the basis of the Award of the Arbitrator, a decree was passed by
the Delhi High Court on 21.2.1985. Sarafs executed the said decree. A
warrant of delivery of possession was issued against the Company. Pursuant
thereto or in furtherance thereof Manoj Kumar Poddar was said to have
been dispossessed, despite an order of interim injunction passed in Suit
No.612 of 1984 on 19.10.1984 operating in this behalf. An application for
restoration of possession was filed by the said Manoj Kumar Poddar under
Order 21 Rule 99 of the Code of Civil Procedure in the said execution case,
which was registered as Miscellaneous Case No.184/74 of 1985. In the said
application, Sarafs were sought to be restrained from damaging and
destroying any portion of the suit property and from parting with the
possession. An order of injunction restraining Sarafs from causing any
damage or destruction and parting with the possession of the suit property
was passed.
In response to the said application, Sarafs contended that they were
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required to execute a project of construction work. The contentions of
Sarafs were noted by the learned trial Judge in the following words:
"The opp. parties maintained that they have to
execute project of construction work in place of existing
disputed building. It is therefore, clear that the opp.
parties No.1 and 2 have intention to demolish or change
the nature of the existing premises."
It was further opined:
"The applicant would suffer irreparable injury in
case the opp. parties are successful in demolishing the
building."
The said findings by itself, as was submitted by Mr. Dwivedi, in our
opinion, would not be sufficient to draw an inference that Sarafs were
responsible for demolition of the building. We are not oblivious of the fact
that thereafter G.P. Tiwari instituted Rent Case numbered as Rent Case
No.99/87 against the Sarafs. The appellants were not impleaded as parties
therein. G.P. Tiwari was allegedly the caretaker of the building. An ex-
parte order was passed on 25.8.1989 directing eviction of Sarafs and
granting possession of the premises in his favour. The said order was
implemented and possession of the said premises was delivered on
23.9.1989. It is not in dispute that the building was demolished on the same
day. It is furthermore not in dispute that Mohan Lal Saraf filed an
application for setting aside the said ex-parte order dated 23.9.1989. On
24.9.1989, in relation to the said order, Smt. Pushpa Devi Saraf also filed a
Writ Petition being W.P. No.21985/89 for quashing of the ex-parte order
dated 25.8.1989. The ex-parte order was recalled. The writ petition was
dismissed only on the premise that the ex-parte order had been recalled. In
fact, the Rent Case itself was withdrawn by G.P. Tiwari on 8.2.1990. The
respondents contended that G.P. Tiwari was the man of the appellants. We
have, in this behalf, hereinbefore noticed the conduct on the part of the
appellants. One of the appellants and G.P. Tiwari filed a special leave
petition together. They had also engaged the same counsel for defending
themselves in the proceedings before this court.
It has been found by the High Court while determining the writ
petition that Sarafs had represented before various authorities, Government
functionaries and police complaining about the said unauthorized demolition
of the structure. Collusion of the police authorities with the appellants had
also been alleged, although not substantiated. Only on 23.9.1989 a First
Information Report was lodged. Charge-sheets were filed against the
appellants in terms of an order dated 9.12.1993 in Criminal Writ Petition
No.23804/89, in terms whereof the Central Bureau of Investigation was
directed to record a First Information Report against the appellants and
others. It is not disputed that in April, 1994, the Central Bureau of
Investigation, after investigation filed a charge-sheet against the appellants
for demolition of the said building and for alleged commission of other
offences relating to theft, criminal conspiracy, trespass, etc. It is also not in
dispute that in the said proceedings, charges have been framed and a large
number of witnesses have already been examined.
It is true that Sudhir Parasrampuria filed a suit in the Court of Civil
Judge, Kanpur Dehat against Sarafs and also against the said G.P. Tiwari for
a declaration that they had no right to damage the property and for its
preservation through a Receiver contending that the Sarafs had got the house
demolished through G.P. Tiwari who was their dummy. An interim order
was passed in the said suit on 23.10.1989 permitting grant of symbolic
possession to the appellants. But the said order, admittedly, had been set
aside by the High Court by an order dated 9.5.1990 in Writ Petition
No.21985/89 on the ground that service of notice had not been properly
effected upon Sarafs and the matter was remanded to the competent court,
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but, in the meantime, the suit itself was withdrawn by an order dated
30.5.1990. G.P. Tiwari, in response to the application for recalling the ex-
parte order passed in Rent Case No.99/87, stated that he had been appointed
as caretaker by Manoj Kumar Poddar. It is not in dispute that Manoj Kumar
Poddar is a cousin of Sudhir Parasrampuria. We may moreover notice that
against the order dated 9.12.1993 passed by the Allahabad High Court,
special leave petitions were filed by G.P. Tiwari and also by A.C. Verma,
Civil Judge, Kanpur, which were dismissed. Circumstances pointed out
hereinbefore prima facie do not lead to a conclusion that Sarafs were
responsible for demolition of the structures in question.
In view of the pendency of the criminal case, we do not intend to
express a definite opinion on one way or the other on the said issue. The
sequence of events noticed hereinbefore would go to show that the balance
in regard to demolition of the said structure tilts against the Appellants, in
view of the charge-sheet filed by the Central Bureau of Investigation
although the same itself may not be conclusive in nature. There is no reason
for us, as at present advised, to take a different view from that of the High
Court in this behalf.
There are other circumstances too which cannot be ignored.
The possession of the land in question was directed to be delivered by
the Civil Court in favour of G.P. Tiwari. On the same date, the buildings
were demolished. The respondents, therefore, on the said date were armed
with the orders of the court; the Appellants were not. The circumstances are
such which lead us to a finding for the purpose of disposal of this case that
the Appellants were responsible for demolishing the building.
For the aforementioned reasons, we would uphold the findings of the
High Court that the Appellants were responsible for demolition of the
structures standing on the land in question.
Discretionary relief:
Both the parties hereto are guilty of serious misconduct. Both of them
have abused the process of court. They initiated unnecessary nay frivolous
proceedings against each another. Both the parties took recourse to abuse of
judicial process against the other upon suppression of material fact, which
would amount to fraud on court. The question in regard to exercise of
discretionary jurisdiction for grant of a decree of specific performance of
contract, as envisaged under Section 20 of the Specific Relief Act, must be
considered from the said angle.
Section 20 of the Specific Relief Act reads thus:
"20. Discretion as to decreeing specific performance.-
(1) The jurisdiction to decree specific performance is
discretionary, and the court is not bound to grant such
relief merely because it is lawful to do so; but the
discretion of the court is not arbitrary but sound and
reasonable, guided by judicial principles and capable of
correction by a court of appeal.
(2) The following are cases in which the court may
properly exercise discretion not to decree specific
performance:-
(a) where the terms of the contract or the conduct of
the parties at the time of entering into the contract
or the other circumstances under which the
contract was entered into are such that the contract,
though not voidable, gives the plaintiff an unfair
advantage over the defendant; or
(b) where the performance of the contract would
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involve some hardship on the defendant which he
did not foresee, whereas its non-performance
would involve no such hardship on the plaintiff; or
(c) where the defendant entered into the contract
under circumstances which though not rendering
the contract voidable, makes it inequitable to
enforce specific performance.
Explanation 1.- Mere inadequacy of consideration,
or the mere fact that the contract is onerous to the
defendant or improvident in its nature, shall not be
deemed to constitute an unfair advantage within the
meaning of clause (a) or hardship within the meaning of
clause (b).
Explanation 2.- The question whether the
performance of a contract would involve hardship on the
defendant within the meaning of clause (b) shall, except
in cases where the hardship has resulted from any act of
the plaintiff subsequent to the contract, be determined
with reference to the circumstances existing at the time of
the contract.
(3) The court may properly exercise discretion to
decree specific performance in any case where the
plaintiff has done substantial acts or suffered losses in
consequence of a contract capable of specific
performance.
(4) The court shall not refuse to any party specific
performance of a contract merely on the ground that the
contract is not enforceable at the instance of the party."
Balancing of equities in a case of this nature is a difficult task. It is
now well settled that compensation can be awarded in lieu of grant of decree
of specific performance of contract. The courts are now evolving separate
principles in regard to the remedy of compensation. (See Snells’ Equity,
page 452.) The learned author cites various cases to make home the point
stating:
"18-17 A monetary award which is made in
substitution for (or in addition to) non-monetary
relief will frequently be determined on the basis
of pecuniary performance or pecuniary
rescission; but, in some cases, may also be
determined by reference to the loss which has
been suffered.
18-18 (a) Pecuniary performance. Pecuniary
performance is a money substitute for the thing
which the defendant would have been required
to do, had specific relief been ordered. It is to
be determined by identifying the difference
between two values: (i) the value of the
claimant’s right to performance of the
obligation and (ii) the value of the performance
which the defendant is able to give. Where the
defendant is not able to perform the obligation,
the amount of the award will represent the
value of the claimant’s right to performance : in
such a case, an order for pecuniary performance
will be for a sum corresponding with the value
of the claimant’s right to performance. The
position is similar where the court declines to
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grant non-monetary relief and thereby (in
effect) releases the defendant from the need to
perform the obligation in the future."
In Spry’s Equitable Remedies, it is stated:
"In considering what circumstances induce the
court, as a matter of discretion, to award equitable
damages rather than relief in specie it must be borne in
mind that when once the general conditions for the
exercise of equitable jurisdiction have been established,
that is, the inappropriateness of damages in respect of a
matter coming within a recognized head of relief, prima
facie there arises a right to specific performance or to an
injunction, as the case may require. So it was observed
by Lord Langdale, "I conceive the doctrine of the court to
be this, that the court exercises a discretion, in cases of
specific performance, and directs a specific performance
unless it should be what is called highly unreasonable to
do so." Similarly reference has been made to "the rule
that where the plaintiff has established the invasion of a
common law right, and there is ground for believing that
without an injunction there is likely to be a repletion of
the wrong, he is, in the absence of special circumstances,
entitled to an injunction against such repetition."
On the one hand it is clear that the passage of
provisions for equitable damages did not affect these
general principles. So it has been affirmed that the
authorities show "that Lord Cairns’ Act did not
revolutionise the principles upon which the equitable
jurisdiction had been administered up to that time and
that some special case must be shown before the court
should exercise the jurisdiction under the Act". On the
other hand, in cases where an injunction or an order of
specific performance would be granted if there were no
power to grant damages the statutory power of the court
to award damages may, in special circumstances, be of
critical weight. It may induce the court to conclude that
any inconvenience or hardship which would be caused to
the plaintiff if he were obliged to accept merely an award
of damages would be so far outweighed by the hardship
that would be caused to the defendant if specific
enforcement were granted that damages constitute the
most appropriate remedy. Hence where the court would
otherwise have granted specific relief the importance of a
power to grant equitable damages is found to lie
primarily in its relation to considerations of hardship
between the parties and to the balance of convenience."
In Gillett (supra), it was pointed out:
"Since Mr. Gillett has established his claim to
equitable relief, this court must decide what is the most
appropriate form for the relief to take. The aim is (as Sir
Arthur Hobhouse said in Plimmer v Mayor of Wellington
(1884) 9 App Cas 699 at 714) to ’look at the
circumstances in each case to decide in what way the
equity can be satisfied’. The court approaches this task
in a cautious way, in order to achieve what Scarman LJ
(in Crabb v Arun DC [1975] 3 All ER 865 at 880, [1976]
Ch 179 at 198) called ’the minimum equity to do justice
to the plaintiff’. The wide range of possible relief
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appears from Snell’s Equity (30th edn, 1999) pp 641-
643."
For the aforementioned purpose it is necessary to have a broad
approach, as was observed in Gillett (supra). Therein it was further held:
"That is in my view the maximum extent of the
equity. The court’s aim is, having identified the
maximum, to form a view as to what is the minimum
required to satisfy it and do justice between the parties.
The court must look at all the circumstances, including
the need to achieve a ’clean break’ so far as possible and
avoid or minimize future friction (see Pascoe v Turner
[1979] 2 All ER 945 at 951, [1979] 1 WLR 431 at 438-
439)."
In Malhotra v Choudhury 1979 (1) All ER 186, Stephenson, LJ., in
the fact situation obtaining therein, opined:
"But as counsel for the plaintiff pointed out, the
question which the judges were summoned by their
Lordships to answer and which was proposed for their
consideration was ’Whether, upon a contract for the sale
of real estate, where the vendor, without his default [my
emphasis], is unable to make a good title, the purchaser is
by law entitled to recover damages for the loss of his
bargain?’ That is the question which was answered in
the judgment of Pollock B, which was also the judgment
of Kelly CB, Keating and Brett, JJ, and the question as it
was stated by both Denman J and Pigott B. I note this is
the way in which the rule is stated in Williams on
Contract of Sale of Land, cited by Megarry J in Wroth v
Tyler:
’Where the breach of contract is occasioned
by the vendor’s inability, without his own fault
[my emphasis], to show a good title, the purchaser
is entitled to recover as damages his deposit, if
any, with interest, and his expenses incurred in
connection with the agreement, but not more than
nominal damages for the loss of his bargain.’
It is not necessary to decide how far the words ’without
his default’ go, if I am right in thinking that inability
without default is what one has to consider as attracting
the rule in Bain v Fothergill.
There may be cases in which there has been no
lack of bona fides, yet the rule in Bain v Fothergill has
been excluded. I would not however venture to suggest
that anything less than lack of good faith could exclude
the rule. But it seems from later decisions that fraud, in
the full sense of that word such as would found an action
for deceit, may not be necessary to exclude the rule. No
doubt Blackett-Ord V-C had in mind that fraud must be
strictly alleged and proved in all ordinary circumstances.
But in my judgment, unwillingness to use best
endeavours to carry out a contractual promise is bad
faith, and for there to be bad faith which takes the case
out of this exceptional rule it is not necessary that there
should be either a deliberate attempt to prevent title being
made good or anything more than the unwillingness
which I find it inevitable to infer in this case. If a man
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makes a promise and does not use his best endeavours to
keep it, it cannot take much and, in my judgment, may
not need more to make him guilty of bad faith and to
entitle the victim of his bad faith to his full share of
damages to compensate him for what he has lost by
reason of that breach of contract and bad faith."
In so far as the principle relating to assessing damages in substitution
for an order of specific performance is concerned, the learned Judge opined
that a court of equity should follow law and address itself to find the proper
substitute, stating that the equitable remedy of specific performance has
features markedly different from damages at common law for breach of
contract. [See also Horsler and another v Zorro, 1975 (1) All ER 584.]
Having noticed the law operating in the filed vis-‘-vis the conduct of
the parties, we decline to grant a decree for specific performance of contract
and opine that in its stead and place a decree for compensation should be
granted.
What should be the amount of compensation is now the question.
Law as declared by this Court is that the quantum and measure of
damages would vary from case to case.
We may notice a few of them.
In Lalit Kumar Jain & Anr. vs. Jaipur Traders Corporation Pvt.
Ltd. [(2002) 5 SCC 383], this Court, while directing dismissal of the suit,
opined:
"\005.However, in view of the fact that the defendants are
not free from blame as discussed above and they have
utilized the property to the best of their advantage right
from day one without, at the same time, paying the
balance sale price for several years, we put it to the
counsel for the appellants whether they are willing to pay
to the plaintiff a substantial amount over and above the
sale price already deposited in the Court, in order to do
justice to the parties. In fact, in the course of arguments
by the learned counsel for the appellants, there was an
indication that the appellants were prepared to offer a
reasonable amount, without prejudice to their
contentions. The learned counsel for the appellants has
filed a letter dated 18-4-2002 stating that "the appellants
can pay and agree to pay a further sum of Rs.35 lakhs
(Rupees thirty-five lakhs) in 3 instalments of Rs.15 lakhs
and Rs.10 lakhs and Rs.10 lakhs", in three weeks, by the
end of August and by the end of November 2002
respectively. When we suggested to the learned counsel
that it would be fair if some more amount is offered, the
learned counsel for the appellants agreed on behalf of his
clients for payment of Rs.40 lakhs in lump sum within a
period of six months commencing from today. Having
regard to the offer made in the letter coupled with the
oral representation made today and to mete out justice to
the parties, we direct that the undertaking to pay the sum
of Rs.40 lakhs within six months should form part of the
decree in the suit. This shall be in addition to the sale
price already deposited in the Court. The same shall be
deposited in the Court within a period of six months and
the plaintiffs are entitled to withdraw the same in
addition to the amount already deposited."
In Manjunath Anandappa urf Shivappa Hanasi vs. Tammanasa &
Ors. [(2003) 10 SCC 390], was a member, a decree for specific performance
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was declined as the plaintiff did not approach the court within a reasonable
time.
In P.D’Souza vs. Shondrilo Naidu [(2004) 6 SCC 649], this Court
rejected the contention that inadequacy of consideration may be ground for
refusing relief of specific performance, which may cause hardship stating:
"It is not a case where the defendant did not
foresee the hardship. It is furthermore not a case that
non-performance of the agreement would not cause any
hardship to the plaintiff. The defendant was the landlord
of the plaintiff. He had accepted part-payments from the
plaintiff from time to time without any demur
whatsoever. He redeemed the mortgage only upon
receipt of requisite payment from the plaintiff. Even in
August, 1981 i.e. just two months prior to the institution
of suit, he had accepted Rs.20,000 from the plaintiff. It
is, therefore, too late for the appellant now to suggest that
having regard to the escalation in price, the respondent
should be denied the benefit of the decree passed in his
favour. Explanation I appended to Section 20 clearly
stipulates that merely inadequacy of consideration, or the
mere fact that the contract is onerous to the defendant or
improvident in its nature would not constitute an unfair
advantage within the meaning of sub-section (2) of
Section 20."
The Court noticed that somewhat a different note was struck in
Nirmala Anand vs. Advent Corpn. (P) Ltd & Ors. [(2002) 5 SCC 481]
and opined:
"The said decision cannot be said to constitute a
binding precedent to the effect that in all cases where
there had been an escalation of prices, the court should
either refuse to pass a decree on specific performance of
contract or direct the plaintiff to pay a higher sum. No
law in absolute terms to that effect has been laid down by
this Court nor is discernible from the aforementioned
decision."
In Surinder Singh vs. Kapoor Singh (Dead) through LRs. & Ors.
[(2005) 5 SCC 142], it was emphasized that discretionary jurisdiction must
be exercised reasonably and having regard to the fact situation obtaining in
each case. The present market value of the property is also a relevant fact.
The prices must have gone up manifold. It is situate in a metropolitan town.
It has a great potential value.
As noticed hereinbefore, the conduct of both the parties are
blameworthy. The value of the property is now said to be a few crores. The
appellants had deposited a sum of Rs.10 lakhs as far back as on 12.6.1984.
The said amount must be directed to be refunded to the appellants with
interest @15% per annum. Although we decline to grant any relief of
specific performance of contract to which the Appellants were otherwise
entitled to, we are of the opinion that it is a fit case where the respondents
should be asked to compensate the Appellants. In view of the fact that the
Sarafs are also responsible for bringing out such a situation, we are of the
opinion that interest of justice would be met if the respondents are directed
to pay a sum of Rs.50,00,000/- to the Appellants herein by way of
compensation. Such amount should be in addition to the sum of
Rs.10,00,000/- deposited by the Appellants together with interest at the rate
of 12% per annum thereupon. This order shall not preclude Manoj Kumar
Poddar to bring an independent action against the respondents herein, if he
so desires.
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Conclusion:
(i) The property in suit for all intent and purport was acquired for the
benefit of the Company.
(ii) Only because at the time of acquisition of the property by Sarafs,
the Company was unincorporated, the same would not mean that
no title could have been passed in favour of the Company.
(iii) In view of their conduct, Sarafs were estopped and precluded from
denying and disputing the title of the Company over the property
in dispute.
(iv) Withdrawal of suit No. 1252 of 1982 by the appellants did not
create any embargo in raising a contention that the award of the
arbitrator and the consequent decree passed were void ab initio and
of no effect.
(v) The agreement for sale dated 11.6.1984 was not a transaction for
loan.
(vi) Saraf’s conduct was condemnable so far as they not only raised
false and frivolous pleas but also initiated frivolous proceedings in
courts of law.
(vii) The subject matter of the agreement was not only the house in
question but also the entire lands.
(viii) Prima facie the demolition of the house took place at the instance
of the appellants.
(ix) However, it is not a case where the appellants are entitled to a
decree for specific performance of contract.
(x) The respondents should refund the amount of advance of
Rs.10,00,000/- (ten lakhs) with interest and furthermore pay
compensation to the extent of Rs.50,00,000/- (fifty lakhs).
The appeals are allowed to the aforementioned extent. However, in
the facts and circumstances of these cases, the parties shall bear and pay
their own costs.