IN THE HIGH COURT OF JUDICATURE AT MADRAS
Date: 31.1.2011
Coram
The Hon ble Mr.Justice R.S.RAMANATHAN
Second Appeal No.62 of 1997
D.Kamalavathi Appellant
vs.
1. P.Balasundaram (deceased)
2. R.Ganga (deceased)
3. R.Shanmugam
4. Kannammal
(R4 brought on record as LR
of the deceased 1st respondent
vide order dated 13.1.2003 made
in CMP No.19196 of 1999)
5. Adiammal
6. Renuka
7. Thara
8. Krishnaveni
9. Pushpa
10. G.Gopinath
11. Saradha
12. Vanitha
(RR 5 to 12 brought on record
as LR of the deceased
2nd respondent vide order
dated 5.6.2007 in
CMP No.10783 of 2006)
13. T.Murthy
(R13 brought on record as LR
of the deceased 4th respondent
vide order in C.M.P.Nos.304
to 306 of 2010) Respondents
For appellant : Mr.S.Parthasarathy, Senior Counsel
For respondents 3 and 5 to 13 : Ms.C.R.Rukmani
Prayer:- Second Appeal against the judgment and decree dated 3.10.1996 in A.S.No.78 of 1993 on the file of the Sub Court, Arni reversing the judgment and decree dated 12.1.1993 in O.S.No.225 of 1988 on the file of the Principal District Munsif Court, Arni.
JUDGMENT
The plaintiff is the appellant.
2. The plaintiff filed the suit for specific performance of an agreement of sale dated 27.10.1987, Ex.A1 executed between the plaintiff/appellant and the first respondent herein for a consideration of Rs.5750/=. The case of the plaintiff/appellant was that an agreement of sale, Ex.A1 was entered into between him and the first respondent herein who was the first defendant in the suit for a consideration of Rs.5700/= and he paid a sum of Rs.3500/= towards sale consideration and one year time was stipulated for completing the sale and as per the agreement of sale, documents of title were handed over to her and as the first defendant failed to execute the sale deed, she issued a notice and thereafter, obtained the encumbrance certificate and found that the first defendant sold the properties to defendants 2 and 3 under a registered sale deed and respondents 2 and 3 were aware of the sale agreement in her favour and they are not bona fide purchasers of title and therefore, filed the suit for specific performance of agreement of sale dated 27.10.1987.
3. The first respondent herein remained absent and he was set ex parte and respondents 2 and 3 who are defendants 2 and 3 contested the suit stating that they were bona fide purchasers for value and they were not aware of the agreement of sale between the appellant and the first respondent and the sale deed was executed by the first respondent to discharge the family debts and after they purchased the property, they came to know through court notice that there was an agreement of sale and they enquired the first respondent and the first respondent informed that he had not received any money for the agreement of sale and he deposited the original document with the appellant for raising a loan and the appellant's husband cheated him and created the documents and filed the suit and after the sale deed was executed, the possession was handed over to respondents 2 and 3 by removing the person, who was cultivating the property and thereafter, respondents 2 and 3 are in possession of the property and therefore, the plaintiff/appellant is not entitled to the relief prayed for as respondents 2 and 3 are bona fide purchasers for value and purchased the suit property without knowledge of the agreement of sale in favour of the appellant.
4. The Trial Court decreed the suit holding that respondents 2 and 3 were not bona fide purchasers for value and they were aware of the agreement of sale and hence, the plaintiff/appellant is entitled to a decree. The first appellate court reversed the findings of the Trial Court and held that respondents 2 and 3 are bona fide purchasers for value and admittedly, they were not aware of the agreement of sale between the appellant and the first respondent. They purchased the property and paid the entire sale consideration and the sale consideration was used to discharge the debts and therefore, the sale in favour of respondents 2 and 3 is a valid one and the appellant is not entitled to the relief prayed for. Hence, the second appeal.
5. At the time when the second appeal came up for admission, the following substantial questions of law were framed:-
"1. When the ingredients of Section 19(b) of the Specific Relief Act, 1983 were not satisfied by the 2nd and 3rd defendants, whether the lower appellate court was justified in holding that they were bona fide purchasers for value without notice?
2. When the original title deeds of the property in question was not with the vendor (1st defendant) but with the plaintiff and the plaintiff was cultivating the crops on the land in question and the 2nd and 3rd defendants purchased hurriedly even after knowing that there was sale agreement and the 2nd sale deed in favour of the 3rd defendant was after the plaintiff had sent a lawyers notice, whether it could be said that the ingredients of Section 19(b) had been satisfied namely bona fide purchasers for value without notice had been satisfied?
3. When the various tests laid down by the court in the following decisions, AIR 1968 Madras 383, AIR 1991 Madras p.209 were not satisfied whether the lower appellate court could still state that the ingredients of Section 19(b) had been satisfied by the defendants?"
6. Mr.S.Parthasarathy, learned Senior Counsel appearing for the appellant submitted that the lower appellate court, without properly appreciating the admitted facts, erred in holding that respondents 2 and 3 are the bona fide purchasers for value. According to him, when there is an agreement of sale, the agreement holder can enforce the agreement against either party thereto; any other person claiming under him by a title arising subsequently to the contract, except a transferee for value who has paid his money in good faith and without notice of the original contract; (section 19(a) and (b) of the Specific Relief Act).
7. Therefore, the learned Senior Counsel for the appellant submitted that unless respondents 2 and 3 prove to the satisfaction of the court that they are the bona fide purchasers for value, they cannot save their sale and the burden is on them to prove that they are the bona fide purchasers for value and in this case, they have not discharged the burden and on the other hand, their conduct would also prove that they are not the bona fide purchasers for value. He also relied upon the judgment reported in R.K.MOHAMMED UBAIDULLAH v. HAJEE C.ABDUL WAHAB ((2000) 6 SCC 402), MOHIDEEN SAHIB v. A.AMENA BI (2007 (1) CTC 505), B.NEMI CHAND JAIN v. G.RAVINDRAN (2010 (2) CTC 751) in support of his contention. According to the learned Senior Counsel Mr.Parthasarathy, the following facts would prove that respondents 2 and 3 are not bona fide purchasers for value.
1) Admittedly, the original documents of title were with the appellant and they were produced and marked as Exs.A13 and A14.
2) Admittedly, no enquiry was made by respondents 2 and 3 regarding the original documents of title before purchase.
3) The appellant was in possession of the property on the date of filing of the suit and she got possession even on the date of agreement of sale.
4) Even according to respondents 2 and 3, when they have purchased the property, one Ramasamy was in possession of the property and no enquiry was made with Ramasamy as to the capacity in which he was in possession.
5) After receipt of the court notice from the appellant, respondents 2 and 3 purchased the land for the purpose of taking water under Ex.B2.
8. He therefore submitted that these facts would prove that respondents 2 and 3 are not bona fide purchasers for value.
9. On the other hand, learned counsel for respondents 2 and 3 submitted that admittedly, respondents 2 and 3 were not aware of the agreement of sale and having regard to the relationship of the parties, they believed that the first respondent, owner, who told that the original documents of title would be handed over to them later and therefore, they did not insist on production of original documents of title and after finding out that there was no encumbrance and after obtaining encumbrance certificate, they purchased the property by paying the full consideration and the consideration was used to discharge the loan as per Exs.B3 and B4 and the entire sale consideration was paid on the date of sale and later, possession was handed over to them by Ramasamy and therefore, they are the bona fide purchasers for value and relied upon the judgment reported in ARUNACHALA v. MADAPPA (AIR 1936 MADRAS 949), VEERAMALAI v. THADIKARA (AIR 1968 MADRAS 383) in support of his contention.
10. Therefore, we will have to see whether respondents 2 and 3 are the bona fide purchasers for value and therefore, the appellant cannot seek enforcement of the agreement of sale against the respondents.
11. Section 19 of the Specific Relief Act has been interpreted by the Honourable Supreme Court in the judgment reported in R.K.MOHAMMED UBAIDULLAH v. HAJEE C.ABDUL WAHAB ((2000) 6 SCC 402), wherein the Honourable Supreme Court held as follows:-
"14. Section 19 of the Specific Relief Act, 1963, to the extent it is relevant, reads:
"19. Relief against parties and persons claiming under them by subsequent title Except as otherwise provided by this Chapter, specific performance of a contract may be enforced against--
(a) either party thereto;
(b) any other person claiming under him by atitle arising subsequently to the contract, except a transferee for value who has paid his money in good faith and without notice of the original contract;
(c) (e) ******
As can be seen from Sections 19(a) and (b) extracted above specific performance of a contract can be enforced against (a) either party thereto; and (b) any person claiming under him by a title arising subsequent to the contract, except a transferee for value who has paid his money in good faith and without notice of the original contract. Section 19(b) protects the bona fide purchaser in good faith for value without notice of the original contract. This protection is in the nature of exception to the general rule. Hence, the onus of proof of good faith is on the purchaser who takes the plea that he is an innocent purchaser. Good faith is a question of fact to be considered and decided on the facts of each case. Section 52 of the Penal Code emphasises due care and attention in relation to good faith. In the General Clauses Act emphasis is laid on honesty.
15. Notice is defined in Section 3 of the Transfer of Property Act. It may be actual where the party has actual knowledge of the fact or constructive. "A person is said not have notice" of a fact when he actually knows that fact, or when, but for wilful abstention from an inquiry or search which he ought to have made, or gross negligence, he would have known it. Explanation II of said Section 3 reads:
"Explanation II-- Any person acquiring any immovable property or any share or interest in any such property shall be deemed to have notice of the title if any, of any person who is for the time being in actual possession thereof."
Section 3 was amended by the Amendment Act of 1929 in relation to the definition of "notice". The definition has been amended and supplemented by three explanations, which settle the law in several matters of great importance. For the immediate purpose Explanation II is relevant. It states that actual possession is notice of the title of the person in possession. Prior to the amendment there had been some uncertainty because of divergent views expressed by various High Courts in relation to the actual possession as notice of title. A person may enter the property in one capacity and having a kind of interest. But subsequently while continuing in possession of the property his capacity or interest may change. A person entering the property as tenant later may become usufructuary mortgagee or may be agreement holder to purchase the same property or may be some other interest is created in his favour subsequently. Hence with reference to subsequent purchaser it is essential that he should make an inquiry as to the title or interest of the person in actual possession as on the date when the sale transaction was made in his favour. The actual possession of a person itself is deemed or constructive notice of the title if any, of a person who is for the time being in actual possession thereof. A subsequent purchaser has to make inquiry as to further interest, nature of possession and title under which the person was continuing in possession on the date of purchase of the property."
12. Therefore, from the above passage, it clear that section 19(b) of the Specific Relief Act is an exception from the general rule and the onus is on the subsequent purchaser to prove that he purchased the property in good faith and also bona fide purchaser for value. Therefore, we have to see whether respondents 2 and 3 have discharged their burden that they are the bona fide purchasers for value and they purchased the property in good faith.
13. Admittedly, the agreement of sale, Ex.A1 was not a registered one. Therefore, it cannot be stated that respondents 2 and 3 must be aware of the agreement of sale had they obtained encumbrance certificate. Therefore, we will have to go by the admissions and the conduct of respondents 2 and 3 to find out whether they are the bona fide purchasers for value and purchased the property in good faith.
14. Admittedly, the original documents of title were not with the first respondent and they were produced by the appellant/plaintiff and marked as Exs.A13 and A14. According to respondents 2 and 3, the property was in the possession of one Ramasamy and he was cultivating the same and after removing the crops, he handed over possession. In this context, the observation of the Division Bench of this court reported in VEERAMALAI v. THADIKARA (AIR 1968 MADRAS 383) is relevant. In that judgment, the learned Judges, after quoting the passage from the judgment in DANIELS v. DAVIDSON ((1809) 16 Ves Jun 249 at pg 254) observed as follows:-
"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, these circumstances altogether give him an equity repelling the claim of a subsequent purchaser who made no enquiry as to the nature of his possession."
15. Therefore, when a person is in possession of the property, the purchaser ought to have made enquiries about the capacity of a person in possession and if no enquiry is made, then it cannot be stated that he is a bona fide purchaser for value. The judgment reported in AIR 1968 MADRAS 383 was relied upon by the Honourable Supreme Court in the judgment reported in (2000) 6 SCC 402. Further, no enquiry was made by respondents 2 and 3 about the documents of title. In the written statement, they have stated that after the receipt of the court notice, they enquired about the genuineness of the agreement of sale with the first respondent and he told that he did not execute an agreement of sale nor received any money from the appellant and the document was deposited with the appellant's husband for raising a loan, but, the appellant has cheated him.
16. In evidence, DW1 would say that after the receipt of the court notice, he approached the first defendant/first respondent and enquired about the same and he stated that the first defendant demanded a loan from the appellant's husband and his signature was obtained in blank papers and from that, they might have created the agreement of sale. Therefore, it is made clear from the above admission that prior to the agreement of sale, respondents 2 and 3 did not make any enquiries about the original documents of title. Further, in the cross-examination, DW1 would say that he enquired about the original documents of title from the first respondent and he informed them that he would hand over the documents later and thereafter, the first respondent informed him that the husband of the appellant cheated him and got the original documents of title. Therefore, having regard to the prevaricating answers given in evidence and his admission in the pleading, it is made clear that they have not demanded the original documents of title prior to the sale deed.
17. Further, admittedly, respondents 2 and 3 received the court notice prior to the execution of the sale deed, Ex.B2 in respect of a portion of land for taking water. Therefore, even after coming to know about the agreement of sale and the suit filed by the appellant to enforce the agreement of sale, respondents 2 and 3 proceeded with the purchase of another extent of property for the purpose of taking water. Further, the suit property is having an extent of 25 cents with well right and under Ex.B1, respondents 2 and 3 purchased 22 cents excluding 3 cents without mentioning the boundaries of properties purchased by them. Further, respondents 2 and 3 claimed to have got possession of the property from one Ramasamy who is admittedly the brother's son of the appellant's husband and no enquiry was made by respondents 2 and 3 with Ramasamy about his character of possession. Further, they have not examined Ramasamy to prove that they have got possession from him. According to the appellant, on the date of agreement of sale, the possession was handed over to them and in the month of February 1998, when possession was sought to be disturbed, she gave complaint to the police against respondents 2 and 3 and they were enquired and she continued to be in possession of the property and she also obtained injunction and she is in possession of the property. Therefore, the fact that respondents 2 and 3 were not put in possession of the property on the date of sale nor have they examined Ramasamy to prove the possession taken from him and the original documents of title were produced by the appellant would prove that respondents 2 and 3 cannot be the bona fide purchasers for value.
18. Further, according to respondents 2 and 3 the money was utilised for discharging the earlier loan that was evidenced by Exs.B3 and B4. Ex.B4 was the pro note in favour of the third respondent's wife. If really the first respondent owed money to the wife of the third respondent, there would have been a mention in the sale deed and the third respondent would not have paid the entire sale consideration without deducting the loan amount. Further, DW1 would also state that he was not aware of the quantum of money paid towards Ex.B4 and he was not aware as to when the loan amount was discharged. Nevertheless the pro notes were produced by respondents 2 and 3. This fact would probabilise the case of the appellant that the pro notes were fabricated only for the purpose of this case to make it appear that the sale consideration was utilised to discharge the loan.
19. The learned Judge in the judgment reported in 2010 (2) CTC 751, cited supra, has discussed the law in respect of section 19(b) of the Specific Relief Act and held as follows:-
"The legal presumption of knowledge or notice arises from:
(a) Wilful abstention from an enquiry or search;
(b) Gross negligence;
(c) Registration, omission to search the register kept under the Registration Act, may amount to gross negligence so as to attract the consequences which result from notice;
(d) Actual possession; and
(e) Notice to an agent."
20. Further, after quoting the provisions of section 3 of the Transfer of Property Act, about notice, the learned Judge held as follows:-
"115.As seen from Section 3 of the Transfer of Property act, which we have extracted above, a wilful abstention from an enquiry or search which a purchaser ought to have made, would give rise to a presumption of constructive notice. The effect of abstention on the part of a subsequent purchaser, to make enquiries with regard to the possession of a tenant, was considered in Ram Niwas v. Bano, 2000(6) SCC 685. It was held in paragraphs 16 and 18 therein as follows:
"16. The purchasers have acquired a legal right under sale deed (Ext.4). The right of the tenant under Ext.1, if it is true and valid, though earlier in time, is only an equitable right and it does not affect the purchasers if they are bona fide purchasers for valuable consideration without notice of that equitable right."
"18. .... ..... If the purchasers have relied upon the assertion of the vendor or on their own knowledge and abstained from making inquiry into the real nature of the possession of the tenant, they cannot escape from the consequences of the deemed notice under Explanation II to Section 3 of the Transfer of Property Act."
The wilful abstention of the defendants 4 and 5 to make an enquiry or search, is writ large on the fact of the records due to --
(i) their failure to demand the production of the original title deeds before going ahead with the registration,
(ii) the knowledge that they admittedly had at least about the other encumbrances existing in the property, and
(iii) their retention of an amount of Rs.2.5 crores from out of the total sale consideration of Rs.4,11,08,000/=, specially for the purpose of settling the claim of the plaintiffs.
Since all the payments under Exx.A-29 to 34 to the tune of Rs.55 lakhs, Rs.35 lakhs, Rs.60 lakhs, Rs.130 lakhs, Rs.130 lakhs and Rs.1.08 lakhs (totalling to Rs.4,11,08,000/-) were admittedly only cash payments and also since DW-1 categorically admitted that a sum of Rs.2.5 crores, out of the above amount was retained by the defendants 4 and 5 for settling the claim of the second plaintiff, the defendants 4 and 5 had a duty cast upon them to make a search or enquiry about the nature of such a claim. Their failure to do so, amounted to wilful abstention leading to constructive notice."
21. In the above judgment, the following judgments are also discussed. In BOLE NAIDU v. N.KOTHANDARAMA PILLAI (1987 (100) LW 750), good faith has been discussed as follows:
"An honest purchaser will at least make enquiries with the persons having knowledge of the property and also with the neighbouring owners. The standard of proof required to show that the respondents 3 and 4 are the bona fide purchasers and entitled to the exception provided in Section 19(b) of the Specific Relief Act, is very high. The burden of proof is on the purchaser. If the purchaser had not taken the ordinary precaution which a normal purchaser will take then his conduct cannot be said to be bona fide."
"Making of necessary enquiries and obtaining of the encumbrance certificate will indicate the bona fide of the purchaser and a purchaser who has ventured into the transaction without observing the above said formalities cannot be said to be a bona fide purchaser coming within the exception to Section 19 (b) of the Specific Relief Act.
94. For coming to the above conclusion, the learned Judge relied upon the following observations of the Bombay High Court (but wrongly quoting it as that of the Apex Court) in Kailash Sizing Works vs. Municipality of Bhiwandi and Nizampur {1968 Bom. L. R. 554}:-
"A person cannot be said to act honestly unless he acts with fairness and uprightness. A person who acts in a particular manner in the discharge of his duties in spite of the knowledge and consciousness that injury to some one or group of persons is likely to result from his act or omission or acts with wanton or wilful negligence in spite of such knowledge or consciousness cannot be said to act with fairness or uprightness and, therefore, he cannot be said to act with honesty or in good faith. Whether in a particular case a person acted with honesty or not will depend on the facts of each case.
Good faith implies upright mental attitude and clear conscience. It contemplates an honest effort to ascertain the facts upon which the exercise of the power must rest. It is an honest determination from ascertained facts. Good faith precludes pretence, deceit or lack of fairness and uprightness and also precludes wanton or wilful negligence."
Though Sengottuvelan, J., extracted the above passage from the judgment of the Bombay High Court and wrongly referred it as that of the Supreme Court, the decision of the Bombay High Court was actually taken on appeal to the Supreme Court in The Municipality of Bhiwandi and Nizampur v. M/s.Kailash Sizing Works, (1974 (2) SCC 596). While approving the decision of the Bombay High Court, the Apex Court held as follows:-
"15. In Jones vs. Gordon, Lord Blackburn pointed out the distinction between the case of a person who was honestly blundering and careless, and the case of a person who has acted not honestly. An authority is not acting honestly where an authority has a suspicion that there is something wrong and does not make further enquiries. Being aware of possible harm to others, and acting in spite thereof, is acting with reckless disregard of consequences. It is worse than negligence, for negligent action is that, the consequences of which, the law presumes to be present in the mind of the negligent person, whether actually it was there or not. This legal presumption is drawn through the well known hypothetical reasonable man. Reckless disregard of consequences and mala fides stand equal, where the actual state of mind of the actor is relevant. This is so in the eye of law, even if there might be variations in the degree of moral reproach deserved by recklessness and mala fides.
16. The Bombay, as also, the Central, General Clauses Acts, help only in so far as they lay down that negligence does not necessarily mean mala fides. Something more than negligence is necessary. But these Acts say "honestly" and so, for the interpretation of that word, we have explained the legal meanings above."
22. Therefore, from the above judgments, I am of the opinion that having regard to the fact that respondents 2 and 3 did not make any enquiry about the original documents of title, and did not make any enquiry about the person who was having possession and purchased another item of property after the notice, would prove that they are not the bona fide purchasers for value and hence, they are not coming under the exemption of Section 19(b) of the Specific Relief Act and hence, they are not entitled to the protection provided under section 19(b).
23. Admittedly, both the courts below have held that the agreement of sale is a genuine one and the appellant was ready and willing to purchase the property and the suit was also filed in time. Hence, the appellant is entitled to the relief of specific performance and the substantial questions of law are answered in favour of the appellant and the judgment and decree of the lower appellate court is set aside and the judgment and decree of the Trial Court is restored.
In the result, the second appeal is allowed. No costs.
ssk.
To
1. The Sub Judge,
Arni
2. The Principal District Munsif,
Arni
