K.C. Bhatt and Others vs Indira Bhuraria

N. Kumar, J.—The defendants have preferred this appeal against the judgment and decree of the trial Court which has decreed the suit of the plaintiff as prayed for with costs.

For the sake of convenience, the parties are referred to as they are referred to in the original suit.

The case of the plaintiff is, the first defendant claims to be an allottee of site No. 8, BTM layout, BOOHBCS colony, Bangalore South taluk, which property is fully described in the schedule to the plaint and hereinafter referred to as `the schedule property''. By an agreement of sale dated 14-11-1995, the first defendant agreed to sell the schedule property to the plaintiff for a sum of Rs. 27,88,425/-. A sum of Rs. 9,00,000/- was paid as advance by cheque. The balance sale consideration was to be paid at the time of registration. The first defendant agreed to get the sale deed in favour of the plaintiff directly from the Society within three months from 14-11-1995 - the date of execution of the sale agreement. Within seven days from the date of execution of the sale deed, possession of the schedule property was to be handed over to the plaintiff. The plaintiff would get the schedule property registered by paying the balance sale consideration of Rs. 18,88,425/-. The balance sale consideration was agreed to be paid on delivery of vacant possession with interest calculated at the rate of 21% p.a. from 14-11-1995.

The case of the plaintiff is that, she was always ready and willing to perform her part of the contract. However, the defendant kept on postponing the execution of the sale deed on one pretext or the other. It was agreed that, if the first defendant failed to produce the sale deed in favour of the plaintiff, the entire sum of Rs. 9,00,000/- has to be refunded to the plaintiff with interest at the rate of 1.5% per month. When the first defendant failed to perform his part of the contract, the plaintiff enquired with the society. On such enquiry, plaintiff was informed that the allotment of the suit schedule property in favour of the first defendant was cancelled two months prior to the sale agreement. The first defendant in spite of having knowledge that the allotment in his favour has been cancelled, with an oblique intention of making unlawful gain, entered into an agreement of sale with the plaintiff and took a sum of Rs. 9,00,000/- as advance.

As a matter of abundant caution, the plaintiff had demanded security from the first defendant for the due performance of the contract. The second defendant provided security for the due performance of the contract. The security that was offered was by way of deposit of original title deeds in respect of property bearing No. 141, Madiwala layout, Bangalore south taluk, Bangalore, belonging to his mother - the second defendant herein, for whom the first defendant held power of attorney. The Memorandum of deposit of title deeds came to be executed. The original title deeds in respect of the said property was handed over. Possession certificate was also handed over.

Immediately after the plaintiff came to know that the society had cancelled the allotment of the schedule property, she contacted the first defendant and asked him to refund the money. The first defendant promised to sort out the matter. A legal notice came to be issued to the first defendant on 14-05-96 calling upon him to repay the sum of Rs. 9,00,000/- being the advance amount with 1.5% interest per month. The first defendant sent a reply dated 28-05-96 admitting the agreement, receipt of Rs. 9,00,000/-, but blaming the plaintiff for committing breach of contract. The plaintiff sent a rejoinder. Subsequently, negotiations took place between the parties, where the defendants agreed to sell the property given as security for the due performance of the contract. However, at a later stage they refused to sell the property to the plaintiff. Therefore, the plaintiff left with no other option had to file the suit for recovery of Rs. 9,00,000/- with interest at the rate of 1.5% per month from 14-11-95 which has accumulated to Rs. 14,67,000/-. Therefore, the plaintiff sought for a decree for a sum of Rs. 14,67,000/- with interest at the rate of 24% p.a. from the date of filing of this suit until payment and in the event of the decreetal amount not being paid for sale of property offered as security and to pay the decreetal amount from the sale proceeds.

After service of suit summons, the defendants entered appearance through their Counsel and filed written statement. They admitted the agreement of sale dated 14-11-95 and receipt of Rs. 9,00,000/-. But they contended, the suit filed in the month of May, 1999 is clearly beyond 3 years. As such, it is barred by law of limitation and sought for dismissal of the suit on that ground. They also contended, the plaintiff is guilty of gross suppression veri suggestiofalsi. It was specifically pleaded that the first defendant wanted to sell the schedule property as he did not have adequate funds at the point of time to purchase the same though it was allotted to him. The plaintiff was aware that unless the money was paid to the defendant, the question of he getting the absolute sale deed executed by the Society did not arise. Therefore, the total consideration agreed upon was Rs. 27,88,425/- and time was made the essence of the contract and the balance sale consideration of Rs. 18,88,425/- was agreed to be paid within three months with interest at 21% p.a. from 14-11-1995 or the rate of interest settled by the Society at the time of execution and registration of sale deed. It was only thereafter, the first defendant would get the sale deed executed by the Society in favour of the plaintiff or her nominees and hand over vacant possession of the schedule property.

Time was certainly the essence of the contract and the plaintiff was required to pay the balance sale consideration of Rs. 18,88,425/- which she has miserably failed to do so. It was also contended that the suit was liable to be dismissed for mis-joinder of necessary parties, in as much as though second defendant has nothing to do with the said transaction, still she has been arrayed as a party. If the second defendant is considered as a surety, then in such an event, the suit against her is not maintainable as the security or guarantee given by her is wholly unenforceable in law.

The plaintiff''s claim is based on an unregistered document branded as Memorandum of Deposit of Title Deeds. Such document is null and void ab initio and is wholly unenforceable. Thereafter they have traversed the allegations in the plaint and admitted the payment of Rs. 9,00,000/- and they have referred to the other terms mentioned in the agreement and they contend the Memorandum of Deposit of Title Deeds is not duly stamped. As such, it cannot be admitted in evidence. The said document has been cancelled by virtue of the power of attorney executed by the plaintiff in favour of the first defendant as the plaintiff committed breach of terms of the agreement. The amount of Rs. 9,00,000/- paid is earnest money. As plaintiff committed breach of contract, the said amount stood forfeited for default committed by the plaintiff. They contend, there was no cancellation of the allotment prior to the date of the agreement. It is only because plaintiff committed default in payment of the money within the time prescribed, the allotment stood cancelled and plaintiff alone is responsible for such cancellation. The second defendant also put forth a counter claim for return of the documents which were in the possession of the plaintiff, which were handed over to the plaintiff as a document of security.

The trial Court based on the aforesaid pleadings framed the following issues:

(1) Whether the defendants prove that the time was the essence of the contract?

(2) Whether the law of limitation bars the suit?

(3) Whether the suit is bad for the mis-joinder of the parties?

(4) Whether the plaintiff proves that she was and is always ready and willing to perform her part of the contract as alleged?

(5) Whether the defendants prove that the payment of Rs. 9,00,000/- by the plaintiff is an earnest money and stood forfeited in favour of the defendant No. 1 for the default committed by her?

(6) Whether the plaintiff is entitled to claim the interest at the rat of 18% p.a. from the defendants?

(7) Whether the plaintiff is entitled to recover a sum of Rs. 14,67,000/- together with the interest at the rate of 24% p.a. from the defendants, from the date of the suit till its realization?

(8) What decree or order?

The plaintiff in order to substantiate his claim examined himself as P.W. 1 and produced six documents which were marked at Exs. P. 1 to P. 6. On behalf of the defendants, the first defendant was examined as D.W. 1 and five documents were produced and marked at Exs. D. 1 to D. 5.

The learned trial Judge on consideration of the aforesaid oral and documentary evidence on record, held, that the defendants have failed to prove that time was the essence of the contract. The suit is not barred by time. The suit is also not bad for mis-joinder of parties. The plaintiff has proved that she was and is always ready and willing to perform her part of the contract. The defendants have failed to prove that Rs. 9,00,000/- paid by the plaintiff is an earnest money and stood forfeited in favour of the defendant No. 1 for the default committed by her. The plaintiff is entitled to interest at the rate of 18% p.a. from the defendants. The plaintiff is also entitled to recover a sum of Rs. 14,67,000/- together with interest at the rate of 24% p.a. on the principal amount of Rs. 9,00,000/- from the defendants from the date of the suit till its realization. Thus, the suit of the plaintiff was decreed for a sum of Rs. 14,67,000/- with interest at 10% p.a. on the principal amount of Rs. 9,00,000/- from the date of the suit till realization.

Aggrieved by the said judgment and decree of the trial Court, the defendants have preferred this appeal.

Sri Y.K. Narayana Sharma, the learned Counsel appearing for the appellants - defendants, assailing the impugned order, contended, time was the essence of the contract. The plaintiff committed breach of the terms of contract, in as much as, she did not pay the balance amount agreed, which resulted in cancellation of the allotment. The amount of Rs. 9,00,000/- paid was in the nature of earnest money, and notwithstanding the absence of the clause in the agreement, the said amount was liable to be forfeited and therefore the trial Court committed a serious error in decreeing the suit of the plaintiff. Society which is the owner of the land was not a party to the suit agreement. The first defendant was only an allottee. It is only after the consideration for allotment is paid, the Society would be under an obligation to execute the sale deed in favour of the first defendant which could have been executed in favour of the second defendant as his nominee and therefore it is understood between the parties that the plaintiff has to pay the consideration due to the Society within the time stipulated which was not done. The contention that the allotment had been cancelled even prior to the date of the agreement is contrary to the evidence on record. It was cancelled for failure on the part of the plaintiff to pay the balance sale consideration. In fact, the plaintiff has not produced any evidence to show that the allotment had been cancelled prior to the date of the agreement. At any rate, the burden of proving that the allotment was cancelled prior to the date of the agreement was with the plaintiff, which the plaintiff has miserably failed to establish. Further he contended, when once the Deposit of Memorandum of title deed is reduced into writing and when the written document is not registered, as it is a compulsorily registerable document, there is no document in the eye of law. The suit was filed beyond three years from the date stipulated in the agreement for completion of the contract, and treating the suit as one for recovery of money on the basis of mortgage, the suit is held to be in time. If the mortgage is not established the suit is clearly barred by time. Even if the Memorandum of deposit of title deeds could be looked into, there is a specific recital in the said document, the document shall be automatically cancelled if within three months from the date of the agreement of sale, the plaintiff fails to pay the balance consideration. In fact the power of attorney executed by the plaintiff in favour of the wife of the second defendant by virtue of which, the Memorandum of deposit of title deeds stood cancelled and therefore there is no agreement. Lastly it was contended, when the breach is committed by the plaintiff, even if he is entitled to refund of Rs. 9,00,000/- it is without interest and the award of 18% interest per annum from the date of the suit till realization is unsustainable.

Per contra, the learned Counsel for the plaintiff - respondent supporting the impugned order contended, though the plaintiff was ready with the balance sale consideration, as the cancellation of allotment had been made anterior to the agreement of sale, the sale deed could not have been obtained and therefore the breach was on the part of the first respondent. According to clause 4 of the agreement, a sum of Rs. 9,00,000/- with interest at 1.5% per month is required to be paid by the defendant in the event of default on the part of the defendant to the plaintiff which the plaintiff has paid as advance for completion of the suit transaction. The mother of the first defendant offered her property as security by way of deposit of title deeds. The Memorandum of deposit of title deeds on which reliance is placed is not a document under which the document was created. It was only regarding a past transaction. It was only a proof of the mortgage. In fact in the reply notice, the first defendant has categorically admitted the creation of a mortgage as a security. As the mortgage was not created under the agreement, it need not be registered. Even otherwise, in the reply notice sent, there is clear admission of receipt of Rs. 9,00,000/- and if from that date time is calculated, the suit filed is in time and therefore he submits, the decree passed by the trial Court is just and proper and no case for interference is made out.

In the light of the aforesaid facts and rival contentions, the points that arise for our consideration in this first appeal are as under:

(1) Whether the plaintiff was entitled to refund of Rs. 9,00,000/- paid under the agreement of sale with interest at 1.5% per month from the date of the agreement till the date of the suit?

(2) Whether Ex. P. 2 - the Memorandum of Deposit of Original Title Deeds requires registration and for want of registration, it is inadmissible in evidence?

(3) Whether the finding of the trial Court that the suit is in time calls for any interference?

(4) What order?

Point No. 1 and 2:

The undisputed facts are, the schedule property belongs to the Society. The first defendant is an allottee. But letter of allotment is not placed before this Court to find out the date of allotment, the consideration paid by the first defendant prior to allotment or the consideration payable in lieu of allotment and the terms and conditions of the allotment. The agreement of sale which is marked as Ex. P. 1, which is not in dispute, shows the total consideration payable for sale of the property allotted to the first respondent was fixed at Rs. 27,88,425/-. An amount of Rs. 9,00,000/- was paid under the agreement towards the said sale consideration. The word ''earnest money'' is conspicuously missing in the said agreement. The balance consideration payable was Rs. 18,88,425/-. The sum had to be paid within three months with interest at 21% p.a. from 14th November, 1995. The terms of the agreement make it obligatory for the first defendant to produce the sale deed from the Society in favour of the purchaser or her nominee and within 7 days to hand over vacant possession. The evidence on record shows, if the amount mentioned as consideration for the allotment is paid to the Society, the nominee can execute a sale deed either in the name of the first defendant or his nominee. Therefore unless the said amount is paid, question of the first defendant producing the sale deed from the Society and handing over possession of the property to the plaintiff would not arise. The terms of the agreement are vague and not understandable. But the evidence on record shows, what the parties really agreed was, the plaintiff has to pay the balance sale consideration of Rs. 18,88,425/- to the Society with interest, if any, and then the Society has to execute the sale deed in favour of the plaintiff. Now the evidence on record shows, after entering into an agreement the plaintiff enquired with the Society and came to know that the allotment of the site has been cancelled. Therefore the plaintiff did not proceed with the matter. On the contrary, the first defendant''s evidence shows, because the plaintiff had not paid the balance sale consideration within 3 months, it resulted in cancellation of the allotment and thereby the first defendant was put to loss. However, both the parties have not placed any evidence on record to show what is the date on which the allotment stood cancelled, though now both agree that the allotment stood cancelled. The trial Court has recorded a finding giving due credence to the evidence of the plaintiff that the allotment had been cancelled prior to the date of the agreement. That finding is not supported by any legal evidence on record. But one thing is clear. Both the parties were very clear of what should happen if the transaction did not go through. In clause 4 of the agreement of sale, it is agreed, in the event of the first defendant failing to produce the relevant documents, he shall refund the advance amount together with interest thereon at the rate of 1.5% per month. The relevant document referred to herein is the sale deed and the possession certificate. When the amount is not paid to the Society, question of Society executing sale deed either in the name of the plaintiff or in the name of the first defendant did not arise. Further, delivering possession also would not arise. Therefore in that context, this clause loses its significance. It only shows that the parties are not diligent. Their minds were not ad adem, in that, both of them do not know what they were doing and how the transaction had to go through. However clause 4 makes it clear, in the event of the purchaser failing to pay the balance amount as stated, within the time stipulated, the advance amount shall be refundable by the defendant to the plaintiff free of interest. So the agreement provides, for a default to be committed by the plaintiff, the first defendant is only liable to refund the amount of Rs. 9,00,000/- received without interest. Now, from the evidence on record, it is clear plaintiff has not paid the balance sale consideration within 3 months. Defendant also did not produce the documents, namely the sale deed and possession certificate within the period stipulated. But the plaintiff has not produced any evidence on record to show at least she was ready with the balance sale consideration. It is only if the plaintiff was ready with the balance sale consideration and was willing to pay the balance sale consideration, it could be said, the plaintiff was ready and willing to perform her part of the contract and it is not the defendant who committed the breach. This aspect has been missed by the trial Court and it has recorded a finding that the plaintiff was ready and willing to perform her part of the contract. Even if we hold that the plaintiff was not ready and willing to perform her part of the contract, by virtue of clause 4, the plaintiff was entitled to refund of Rs. 9,00,000/- free of interest. Having regard to the nature of transaction entered into between the parties, as the parties were under the mercy of a third party who is not a party to the contract, anticipating the difficulties, these clauses are inserted in the agreement and therefore when the transaction did not go through, the agreement specifically provides for refund of the amount. If the fault is on the part of the first defendant, he should repay with interest and if the fault is on the part of the plaintiff, he should refund the amount with interest. In the facts and circumstances, justice would be met if we direct the first defendant to refund the amount without interest. Therefore, the plaintiff is entitled to only Rs. 9,00,000/- as against the claim of Rs. 14,67,000/- as decreed by the trial Court.

The plaintiff claims for due performance of the contract, as a security, the first defendant offered the site belonging to the second defendant, his mother as a security by way of mortgage by deposit of title deeds. The original title deed of the said property is handed over to the plaintiff. Possession certificate is also handed over to the plaintiff. In fact, in the reply notice at Ex. P. 6, it is categorically stated by the first defendant that he has acted in good faith always and he has even offered security for the remaining money and advance paid. Therefore, the fact that the property belonging to the second defendant is offered as a security for the advance paid is not in dispute. Now the question is, if such a security is evidenced by a written document and if that document is not registered, can the Court act on that document and grant relief to the plaintiff. In this context, learned Counsel for the appellants - defendants relied on the judgment of the Apex Court in the case of United Bank of India Ltd. Vs. Lekharam Sonaram and Co. and Others, , where the Apex Court explaining how a mortgage by deposit of title deed has to be created and what is the effect, has held as under at para 7:

A mortgage by deposit of title deeds is a form of mortgage recognized by S. 58(f) of the Transfer of Property Act which provides that it may be effected in, certain towns (including Calcutta) where a person "delivers to a creditor or his agent documents of title to immovable property with intent to create a security thereon". In other words, when the debtor deposits with the creditor title deeds of his property with an intent to create a security the law implies a contract between the parties to create a mortgage and no registered instrument is required under S. 59 as in other classes of mortgage. It is essential to bear in mind that the essence of a mortgage by deposit of title deeds is the actual handing over by a borrower to the lender of documents of title to immovable property with the intention that those documents shall constitute a security which will enable the creditor ultimately to recover the, money which he has lent. But if the parties choose to reduce the contract to writing, this implication of law is excluded by their express bargain, and the document will be the sole evidence of its terms. In such a case the deposit and the document both from integral parts of the transaction and are essential ingredients in the creation of the mortgage. It follows that in such a case the document which constitutes the bargain regarding securing require registration under S. 17 of the Indian Registration Act, 1908, as a non-testamentary instrument creating an interest in immoveable property, where the value of such property is one hundred rupees and upwards. If a document of this character is not registered it cannot be used in the evidence at all and the transaction itself cannot be proved by oral evidence either."

Relying on the judgment, it was held, even if a mortgage is created by deposit of title deeds, when once the said mortgage is evidenced by a written document and that document is not registered, the factum of handing over of original title deeds cannot be proved by oral evidence.

However, the learned Counsel for the respondent relied on the judgment of the Constitution Bench of the Apex Court in the case of Rachpal Mahraj Vs. Bhagwandas Daruka and Others, , where the Apex Court at para 4 held as under:

"The time factor is not decisive. The document may be handed over to the creditor along with the title deeds and yet may not be registrable, as in Obla Sudarachariar v. Narayan Ayyar. Or, it may be delivered at a later date and nevertheless be registrable, as in Hari Sankar Paul v. Kedar Nath Saha. The crucial question is : Did the parties intend to reduce their bargain regarding the deposit of the title deeds to the form of a document? If so, the document requires registration. If, on the other hand, its proper construction and the surrounding circumstances lead to the conclusion that the parties did not intend to do so, then, there being no express bargain, the contract to create the mortgage arises by implication of the law from the deposit itself with the requisite intention, and the document, being merely evidential does not require registration."

The entire case revolved on the Memorandum of deposit of title deed - Ex. P. 2. After setting out the description of the property, which is the subject matter of the mortgage, it has been explicitly stated that the said property belongs to the mortgagor and the title deed of the property has been delivered to the plaintiff for the purpose of securing the execution and registration of property No. 8, BTM Layout, Bangalore South taluk, measuring 51'' x 81'' in the layout of the Society in favour of the plaintiff as guarantor thereof and they guaranteed due performance of the agreement entered into by the plaintiff and the first defendant and for granting the advance paid on the basis of the said agreement to the extent of Rs. 9,00,000/-. Therefore, this document decides for what purpose the Memorandum of deposit of original title deed is created by the first defendant. It is clear from the further recital that a provision is made for the cancellation of the Memorandum of deposit of original title deed in the event of the plaintiff committing breach. Therefore the intention of the parties is very clear. The mortgage had been created. The person who created the mortgage was creating it as a guarantor, but not towards any debt due. It was made clear, in the event of the plaintiff committing breach the said guarantee stands cancelled. Therefore on a proper appreciation of the said document coupled with the circumstances of the case, it is clear no mortgage by way of Memorandum of deposit of title deeds was created under the document. It was only a record of the past transactions, which does not require registration. Though this point has not been properly appreciated by the trial Court, as the document is before the Court, evidence is on record and both the learned Counsel have canvassed their respective contentions and supported their contentions by judgments of the Apex Court as a Court of first appeal, it is open for this Court to consider the said document in a proper perspective and record a finding of fact. Therefore the contention that Ex. P. 2 is a mortgage deed, it requires registration and it is a compulsorily registerable document has no substance. Once it is held the second defendant offered the said property by way of security/guarantee for repayment of Rs. 9,00,000/- received by the first defendant from the plaintiff, suit filed is in time.

Point No. 3:

In the light of what is stated above, the finding of the trial Court that the suit is in time is correct and do not call for interference.

In view of what is stated above, we pass the following order:

Appeal is partly allowed.

The suit of the plaintiff is decreed only for a sum of Rs. 9,00,000/- with interest at 10% p.a. from the date of the suit till the date of the decree and interest at 6% p.a. from the date of decree till realization. In default of payment of the decreetal amount within six months, the plaintiff is entitled to bring the property offered as security for sale and realise the said amount.

In the event of the first defendant depositing the decreetal amount in Court with due notice to the plaintiff, the plaintiff shall return the title deeds. The first defendant is entitled to get back the original title deeds - Exs. P. 3 and P. 4.

Parties to bear their own costs.