Thulasi vs D.H. Siddanagoud and Others

Anand Byrareddy, J.—Heard the learned counsel for the appellant and the learned counsel for the respondents. Appellant was the plaintiff before the trial court in a suit for specific performance and the parties are referred to by their rank before the trial court for the sake of convenience.

The suit was filed not only for specific performance of a sale agreement dated 03.05.2006, but also for a declaration to declare that the sale deed dated 28.06.2007 executed by the first defendant in favour of second and third defendants as being null and void and for an alternative relief of recovery of a sum of Rs. 3,30,500/- with interest thereon and for injunctory relief restraining the defendants from interfering with the possession of the suit property since the plaintiff claims to be in possession under an agreement dated 03.05.2006.

It was urged that the first defendant was the absolute owner of the suit property and the first defendant had purchased the same by availing a loan from the State Bank of India and the defendant had entrusted the construction work to one M/s. Siddhanth Associates. The plaintiff had approached the defendant No. 1 to buy the suit property for a consideration of Rs. 10,50,000/- and accordingly an agreement was executed as on 03.05.2006. The plaintiff is said to have paid an advance amount of Rs. 1,00,000/- under the agreement. The defendant apart from executing such agreement had also subsequently received a sum of Rs. 60,000/- as on 28.06.2006. The receipt of which is endorsed and the same was acknowledged in terms of the document which is marked as Ex. P4. The agreement also records that the possession of the property was delivered to the plaintiff after the construction of the building was completed. The agreement also contemplated that the building upon completion of construction would be handed over to the plaintiff on receipt of balance consideration. However, there was certain dispute between the first defendant and his builder as regards the rates payable in respect of the civil works and the first defendant had therefore approached the plaintiff for an additional amount of Rs. 1,00,000/- on 18.10.2006. The receipt of which is also acknowledged as per EX. P2. Therefore, the plaintiff had paid a total sum of Rs. 2,60,000/- as advance payment towards the sale consideration. It was also agreed that the outstanding loan amount with the bank would be cleared within one year from the date of delivery of possession. It is further claimed by the plaintiff that in furtherance of the said agreement the plaintiff had paid a further sum of Rs. 40,000/- and was directly deposited to the loan account of defendant No. 1 on 27.01.2007 apart from another sum of Rs. 20,500/- on 20.07.2007. Therefore, it was contended that the plaintiff was always ready and willing to pay the remaining amount of the sale consideration and to clear the bank account. However, under the apprehension that the defendant No. 1 may not abide by the agreement and was likely to alienate the property to a third party, the plaintiff was constrained to file a suit in O.S. No. 1547/2007 before the City Civil Court, Bengaluru on 17.08.2007 and there was an order of temporary injunction restraining defendant No. 1 not to alienate the said property.

On service of summons defendant No. 1 is said to have entered appearance and had filed a written statement and declared that the agreement as claimed by the plaintiff was never executed and that the plaintiff had no right to claim the/suit property and denied the plaint averments and also declared that the property was sold in favour of defendants No. 2 and 3. It is on learning of this act of defendant No. 1, having committed breach of agreement and in violation of the same having allegedly sold the property to defendant Nos. 2 and 3, that the plaintiff withdrew the suit for injunction and immediately filed the present suit.

However, the defendants herein though had entered appearance before the court through counsel, did not choose to file any pleadings and thereafter the plaintiff having been examined as P.W. 1 and the documents Exs. P1 to P19 having been marked, apart from examining PW. 2 who tendered evidence in support of the plaintiffs case, the trial court has framed the following points for consideration.

Whether the plaintiff proves that the 1st defendant being the owner of the suit property had executed an agreement of sale in favour of the plaintiff on 3.5.2006?

Whether the plaintiff proves that he is always ready and willing to perform his part of the contract?

Whether the plaintiff proves that the sale deed dt. 28.6.2007 executed by the 1st defendant in favour of the 2nd and 3rd defendant is null and void?

Whether the plaintiff proves that he is in the possession of the suit property as on the date of the suit?

Whether the plaintiff is entitled for the relief of specific performance of contract?

Whether the plaintiff is entitled for the relief of permanent injunction?

Whether the plaintiff is entitled for alternative relief of recovery of money from the 1st defendant? If so, how much?

If so whether the plaintiff is entitled for interest at what rate?

What order or decree?

The trial court has answered point Nos. 1, 7 and 8 in the affirmative and the other issues in the negative and has partly decreed the suit. It is aggrieved by such a partial decree that the appellant is before this court.

The respondent No. 1 has remained absent. Respondents No. 2 and 3 are represented by counsel and the matter has been heard at length.

The learned counsel for the appellant would contend that there was no defence set up by the defendants though they had entered appearance through counsel and when the court below has found that there was indeed an agreement of sale executed by the defendant in favour of the plaintiff, has yet denied the relief of specific performance on the ground that the defendants 2 and 3 would not be bound by the agreement of sale and since there is a completed transaction in favour of defendants No. 2 and 3, who are said to be bonafide purchasers for value, the court below has only directed a partial refund of the advance amount, though there was material on record which was not disputed or challenged to indicate that the total amount paid by the plaintiff to the defendant No. 1 was in a sum of Rs. 2,60,000/- apart from depositing. Rs. 65,500/- in the loan account of defendant No. 1 with his bank. This has resulted in gross injustice.

It is pointed out that in terms of Section 19(b) of the Specific Reliefs Act, 1963, no doubt the suit for specific performance can be brought not only against the vendor but against any other persons as well and the exceptions being if such person is a bonafide purchaser for value, a suit may not lie. To establish that defendants No. 2 and 3 were bonafide purchasers for value they ought to have pleaded their case and establish the same. In the absence of any such circumstance the court below was not justified in negating the relief which the plaintiff was entitled to Once the agreement was established and it was indicated that there was readiness and willingness on the part of the plaintiff having paid the further amount pursuant to the agreement and there being time available to the plaintiff to complete the obligations on his part and the defendant No. 1 having proceeded to act illegally has been overlooked by the trial court and though there was no claim setup by the defendants No. 2 and 3 as to being bonafide purchasers for value, the judgment having been rendered denying refund of the entire money that was legitimately paid by the plaintiff to the defendant No. 1, has resulted in a miscarriage of justice and therefore seeks that appeal be allowed and the suit be decreed as prayed for.

While, the learned counsel for the respondents No. 2 and 3 would assert that there was indeed no want of good faith in so far as respondents No. 2 and 3 who were defendants No. 2 and 3 before the trial court, were concerned. They were indeed bonafide purchasers for value, but the default committed and the lapse on their part was in engaging the very counsel engaged by defendant No. 1. The said counsel having abandoned the proceedings has resulted in the case of defendants going by default and that an opportunity be provided to demonstrate that the plaintiff was not in possession of the suit property and that he had not completed his obligations under the agreement and that they were bonafide purchasers for value with no notice of the earlier transaction as claimed by the plaintiff.

By way of reply the learned counsel for the plaintiff would point out that it is the settled legal position that if once there is a completed transaction setup by the defendants in a suit for specific performance, the question of readiness and willingness is no longer relevant and the remedy is for cancellation of the sale deed which has been entered into subsequent to the agreement and to seek the relief of specific performance. Hence the contention of the defendants No. 2 and 3 that they are in a position to demonstrate that the plaintiff was not ready and willing is no longer relevant. Secondly, it is pointed out that Explanation II to Section 3 of the Transfer of Property Act lays down that it is the purchaser who is required to examine and enquire into the nature of possession and title of a person in possession of the property and this has been subject matter of elaborate discussion in a division bench judgment of this court in Smt. Padmini Raghavan Vs. Mr. H.A. Sonnappa Since dead by his L.Rs. Smt. Bhagyamma and Others, , where the Division Bench has particularly noticed as follows:

"When a person purchases a property from the owner knowing that it is in the possession of another, he is under a duty to inquire into the nature of that possession, and, in the absence of such inquiry or knowledge of title under which possession is held, the same should be attributed to the purchaser. Where there is a tenant in possession under a lease and an agreement of sale in his favour, a person purchasing part of the estate must be bound to inquire on what terms that person is in possession. A tenant being in possession under a lease, with an agreement in his pocket to become the purchaser, those circumstances altogether give him an equity repelling the claim of a subsequent purchaser who made no inquiry as to the nature of his possession. It is the duty of the subsequent purchaser to inquire from the persons in possession as to the precise character in which they were in possession at the time when subsequent sale transaction was entered into. If there be a tenant in possession of land a purchaser is bound by all the equities which the tenant could enforce against the vendor and such equity extends not only to the interest connected with the tenancy, but also to interests under the actual agreement.

The law on the point is well settled. The principle of constructive notice of any title which a tenant in actual possession may have, was laid down by Lord Eldon in Daniels vs. Davison (1809) 16 VES 249 at P. 254. The Learned Law Lord observed:

"Where there is a tenant in possession under a lease, or an agreement, a person purchasing part of the estate must be bound to inquire on what terms that person is in possession .......... That a tenant being in possession under a lease, with an agreement in his pocket to become the purchaser, those circumstances altogether give him an equity repelling the claim of a subsequent purchaser who made no inquiry as to the nature of his possession."

(emphasis supplied)"

The learned counsel would contend that since the plaintiff was in possession of the suit property, the defendants No. 2 and 3 were duty bound to enquire as to the nature of possession and title if any claimed by the plaintiff and if there was no such enquiry made and no steps taken to ascertain that there were no encumbrance on the suit property the defendants No. 2 and 3 are not in a position to claim that they are bon afide purchasers for value. Further it is pointed out that present respondents No. 2 and 3 who were defendants 2 and 3 before the trial court not having taken any measures to defend their case or to plead their case cannot now be permitted to raise such a contention and for reasons already stated the appeal would have to be allowed.

Given the above facts and circumstances, it is no doubt true that defendants 2 and 3 have not contested the suit by filing appropriate pleadings and it is only now that a plea is raised that they are bon afide purchasers for value and that protection offered under Section 19(1)(b) would come to their aid. However, this can in fact be brought home only be by way of pleadings and evidence in that regard and notwithstanding that the counsel engaged had not taken any steps to file pleadings or tender evidence, in order to ensure that there is complete justice, an opportunity is granted to defendants No. 2 and 3 even at this point of time to tender evidence on this aspect if it is possible. The defendants therefore as a first step have sought permission of this court to file a written statement. Such a written statement being filed at this point of time on a plain reading of the procedural law is not contemplated. However, since this court is inclined to remand the matter to enable the plaintiff to urge the case now setup, the written statement would have to be taken on record, which will then require issues to be framed. While it is made clear that as laid down by the Supreme Court in the case of M.M.S. Investments, Madurai and Others Vs. V. Veerappan and Others, , the defendants No. 2 and 3 claiming a completed transaction, the question of readiness and willingness on the part of the plaintiff at this point of time would not be of any relevance. Now, the question would only center around the fact of defendants 2 and 3 having purchased the property as bon afide purchasers for value. Hence the only issue that would now remain for consideration by the court below is, as to the claim of defendants No. 2 and 3 as being bon afide purchasers for value. Hence the following issue would arise.

"Whether the defendants No. 2 and 3 prove that they are bon afide purchasers for value of the property without any knowledge of the earlier transaction as between the plaintiff and defendant No. 1." 13. The trial court having already held that the plaintiff was not ready and willing would not arise for consideration. If there was already a sale deed which has been given credence by the trial court, this would be the legal position as laid down by the Supreme Court in the above referred case. The trial court will also consider as an alternative relief, if it is found that the defendants No. 2 and 3 establish that they are bon afide purchasers for value, as to the amounts that the plaintiff would be entitled to by way of refund from defendant No. 1. The court below having held that the plaintiff was entitled only to the refund of Rs. 1,00,000/- is therefore set aside. Accordingly, the findings of the trial court that the plaintiff was not ready and willing is set aside. As also the amount directed to be refunded is also set aside leaving the question open for fresh consideration if the occasion should arise.

With the above observations the matter is remanded to be dealt with in accordance with law. Since such a measure taken by this court causes some hardship and inconvenience to the plaintiff it is appropriate and since that defendants No. 2 and 3 are given the advantage of defending their case even as on date, defendants No. 2 and 3 are to bear the costs and this court directs that the defendants No. 2 and 3 shall on the very first date of hearing before the trial court on such remand, shall pay to the plaintiff a sum of Rs. 30,000/-. In terms of Section 64 of the Karnataka Court Fees and Suits Valuation Act, 1959, the appellant is held entitled to refund of the court fee paid before this court. The registry to remit the records forthwith to the trial court. Parties and counsel to appear before the trial court on 30.04.2015, without any further notice.