Author: Mahima, 5th Year student at School of Law, UPES, Dehradun.
Citation: AIR 2019 SUPREME COURT 4252
Date of Judgment: August 13, 2019
Bench: Abhay Manohar Sapre, Dinesh Maheshwari
Original Copy: View
Issues in Question:
- Whether the transfer made to the third-party during pendency of the suit was legal?
Background of the Case:
- An agreement dated 20.09.1965 was made between the plaintiffs and the defendants for sale of the suit property for a consideration of Rs. 22,951 and the sum of Rs. 3,500 was paid as the earnest money. It was stated in the agreement that the possession of half of the crops standing on the suit property will be transferred as well by the end of the year. As part of the performance of the agreement, the plaintiffs paid a sum of Rs. 2,000 to the defendants on 24.09.1965 and possession of 25 acres of land was transferred to them on 14.11.1965.
- On receiving the notice served by the plaintiffs regarding performance of the agreement in the following year, the defendants executed a supplementary agreement for sale and the possession of the remaining part of the land in question was also transferred to the plaintiffs after accepting an additional amount of Rs. 500.
- The plaintiffs further stated that a sum of Rs. 6,000 was paid to the defendants as part performance of the total sale consideration and remaining was settled at Rs. 11,951 after deducting the encumbrances. On payment of remaining settled consideration, the defendants were liable to execute the sale deed within 15 days and while plaintiffs were ready to perform their part of the contract, the defendants failed to execute the sale deed.
- The defendants contended that the agreement and the supplementary agreement in question were executed only as a collateral security against a loan advanced by the plaintiff and not for the sale of the property. They further asserted that they never parted with the possession of the land in question.
- 25 acres of the land in question was sold to the third party through a sale deed dated 10.07.1978 and the remaining portion was again sold to another party by a sale deed dated 18.09.1968. These parties were also sued as defendants and they claimed to be the bona fide purchasers, unknown to the aforementioned transactions.
- The Trial Court dismissed the suit for specific performance as it ascertained that the documents in question were executed as security for loan and not as a sale deed for the suit property. It observed that plaintiffs couldn’t establish that the possession of the suit property was handed over to them in pursuance of the agreements in question. It held that the plaintiffs were not entitled for specific performance or recovery of possession as they prayed but directed that the amount paid by the plaintiffs should be returned to them with an interest rate of 6% per annum from the date of decree until payment.
- It further observed that the transaction between the defendants and the third parties were hit by the doctrine of lis pendens under Section 52 of the Transfer of Property Act and therefore, were not bona fide purchasers of the suit property.
- Aggrieved by the decree of the Trial Court, plaintiffs filed for first appeal where principal findings of the Trial Court were affirmed and the appeal was dismissed. It observed that plaintiffs failed to establish their continuous willingness to perform their part of the contract as they preferred execution of supplementary agreement instead of the sale deed despite the availability of sufficient consideration.
- The First Appellate Court further noted that while the transactions between the defendants and the third parties were hit by the doctrine of lis pendens, the validity of sale deeds executed in their favor was not affected by the same as the alleged documents were executed as collateral security against a loan advanced. However, it affirmed the judgment of the Trial Court regarding the status of the third parties as bona fide purchasers.
- The second appeal by the contesting plaintiffs was entertained by the High Court where it concluded that the agreements in question were not executed as security against loans as it observed that both the agreements didn’t explicitly mention any kind of loan transactions. However, it upheld the findings of the lower courts that the third parties involved were not bona fide purchasers and that such sale deeds should be declared illegal.
- The High Court fixed the market value of the land in question at Rs. 10,000/- per acre while examining the extent of relief to be granted.
- The appeal to the Supreme Court was allowed to the extent where the impugned judgment and decree by the High Court is modified and the relief of specific performance was set aside.
- Considering the specific performance or any other claim with respect to the land in question, the plaintiff-respondent was awarded a compensation of Rs. 15,00,000/- to be paid by the defendants within 2 months from the date of decree and on expiry of the said time period the amount would carry the interest of 6% per annum until payment.
- The Supreme Court observed that no implications in the agreements existed suggesting that the document was being executed against a loan transaction between the parties but rather affirmed that the agreement in question was an agreement to sale along with the receipt of part payment on various occasions.
- The Supreme Court also observed that the execution of supplement agreement which not only acknowledged the receipt of part consideration but also agreed to an adjustment towards encumbrances affirm the intention of the parties towards the sale transaction.
- The Court further stated that delay cannot be put against the plaintiffs when the suit has been filed within the limitation period as was held in the case of R Lakshikantham v Devaraji. In this case, the plaintiffs had the limitation of three years for filing the suit for specific performance from 1966 and they filed the suit in 1968.
- Regarding the effect of the doctrine of lis pendens in the present case, the Court explained that the purpose of the doctrine is to make the decree passed in a suit binding on the transferee and not declare all transactions as void ab initio. Hence, the effect of the doctrine of lis pendens under Section 52 of the Transfer of Property Act in this case would be that the sale transactions in the favor of the third parties shall not have any adverse effect on the rights of the parties to the suit and shall remain subject to the final decree of the suit in question.
- This case discusses the scope and extent of lis pendens under Section 52 of the Transfer of Property Act on transactions done by the parties to the suits.
- It was reiterated that lis pendens does not nullify the transfers affected by the parties to the suits but merely reduces the status of such transactions as secondary to the rights of the parties under the decree or order made in the suit.
- The Supreme Court was of the view that monetary compensation would be a more justifiable relief as compared to relief of specific performance after looking into the relevant provisions (Section 21 and Section 22) of the Act of 1963.
- It was observed that the alienation of the property in the favor of the subsequent purchasers would be hit by the doctrine of lis pendens. However, every alienation during pendency of a suit would not be illegal or void.