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Saturday, April 20, 2013

the Maharashtra Ownership of Flats (Regulation of Promotion of Construction, Sale, Management and Transfer) Act, 1963 (hereinafter referred to as ‘the Act’)= According to the provisions of Section 4 (1) of the Act, the agreement, if any, executed between the plaintiffs on one hand and the developer on the another, ought to have been registered with the sub-Registrar. 24. In absence of such a registered document, the plaintiffs would not get any right in respect of the flats, which they intended to purchase. Moreover, in absence of the registration, the Subsequent Buyers could not have got an opportunity to inspect the agreement and there could not be any presumption that the Subsequent Buyers knew about the agreement.; The letter of intent=The letter of intent cannot be said to be an agreement to sell for the simple reason that according to the contents of the letter of intent, only upon payment of the entire purchase price, the Developer and the plaintiffs were to enter into an agreement with regard to sale of the flats. This fact clearly denotes that no agreement to sell had been entered into between the plaintiffs and the Developer and in absence of such agreements, in our opinion, there cannot be any right in favour of the plaintiffs with regard to specific performance of any contract. Thus, in our opinion, the High Court did not commit any error while coming to the conclusion that there was no binding contract or agreement in existence between the plaintiffs and the Developer and therefore, the trial court could not have decreed the suit for specific performance.; subsequent buyers - whether bonafide or not = As no averment was made by the plaintiffs in their plaints that the Subsequent Buyers were not bonafide purchasers for consideration, the Subsequent Buyers could not have adduced any evidence to show that they were bonafide purchasers for consideration. Had such a plea been raised by the plaintiffs in their pleadings, the Subsequent Buyers could have adduced necessary evidence to prove their cases. In such cases, normally the burden of proof would lie on the plaintiffs unless there is a registered document so as to raise a presumption that the Subsequent Buyers had knowledge with regard to the earlier transaction. Such a burden of proof was not discharged by the plaintiffs and therefore, we are also of the view that the Subsequent Buyers were bonafide buyers for consideration.; amount refunded with interest = In view of the above circumstances, in our opinion, the High Court was right in allowing the appeals and directing the Developer to return the amount of the purchase price received by it from the plaintiffs with interest at the rate of 9% p.a. from the date when the letter of cancellation was written by the Developer to the plaintiffs. In our opinion, the said direction is just and proper however, looking to the rising price and inflationary trend in the country, we partly modify the judgment by increasing the rate of interest from 9% p.a. to 12% p.a. The said amount shall be paid to the plaintiffs by the Developer within two months from today.


Page 1
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4509 OF 2007
HANSA V. GANDHI …APPELLANT
 VERSUS
DEEP SHANKAR ROY & ORS. ....RESPONDENTS
WITH
CIVIL APPEAL NO. 4510 OF 2007
AND
CIVIL APPEAL NO. 4511 OF 2007
J U D G M E N T
ANIL R. DAVE, J.
1. Being aggrieved by a common judgment delivered in First Appeal
Nos.492, 493 and 499 of 2002, dated 24th August, 2005 by the High Court of
Judicature at Bombay, these appeals have been filed by the original
plaintiffs, who had filed the suits for specific performance.
1Page 2
2. As the facts involved in all these three appeals are similar in nature,
all these appeals are being decided by this common judgment. For the
purpose of clarity, we are referring to all the parties by their description as it
was before the trial court. The Developer of the property, original
Defendant No.1 is now respondent No. 2 in all the appeals whereas
respondent no.1 is a subsequent buyer of the property in question. M/s.
O.P. Co-operative Housing Society (hereinafter referred to as ‘the Society’)
was the owner of the land which was being developed by the Developer.
3. The Developer had entered into an agreement to develop the property
i.e. land owned by the Society and thereafter to sell the flats constructed on
the land in question to the intending purchasers in accordance with the terms
and conditions of the agreement dated 17th April, 1992.
4. Each plaintiff wanted to purchase one flat to be constructed by the
Developer on the land belonging to the Society, so they had negotiated deals
with the Developer. As per the understanding arrived at between each
plaintiff and the Developer, the plaintiffs had to pay a total consideration of
Rs.4,40,000/- in respect of each flat in certain installments. Accordingly,
2Page 3
each plaintiff had started making payment to the Developer as per the
amount of installments determined by the Developer. The Developer had
executed a letter of intent dated 29th September, 1992, whereby the
Developer had agreed to reserve a flat for each plaintiff . Reservation of the
flat was subject to bye-laws of the Society. Moreover, the reservation made
by the Developer for the flats was also subject to the terms and conditions
which had been incorporated in the letter of intent. Initially each plaintiff
had given a sum of Rs. 88,000/- to the Developer and a receipt had been
executed by the Developer in respect of the said amount. Clause No. 3 of
the said letter of intent dated 29.9.1992, written by the Developer and
addressed to the plaintiffs is as under :
 “Clause 3 : We acknowledge and admit the receipt of
Rs.88,000/- (Rupees Eighty Eight Thousand only) from you,
which amount you have paid to us in view of our reserving
the above mentioned flat in our proposed building on the
basis of the plans shown to you, with a view to securing that
on compliance of all the terms and conditions of Agreement
to Lease executed between the Society and the Corporation,
you shall purchase the said flat and enter into ‘Agreement to
Sale’ with us.”
3Page 4
Thus, upon compliance of certain terms and conditions referred to in the
aforestated clause and in the letter of intent, the Developer had agreed to sell
the flats to the plaintiffs.
5. It was also provided in the letter of intent that the plaintiffs had to bear
expenses in relation to registration of the document, stamp duty and certain
other expenditure to be incurred for getting motor and electric connection
etc. and it was also provided in the letter of intent that delayed payment of
the installment would attract interest at the rate of 21% p.a. and if two or
more installments remained unpaid, the reservation made in respect of the
flat would stand cancelled.
6. In pursuance of the execution of the aforestated letter of intent, the
plaintiffs had started paying installments to the Developer. It may also be
noted here that due to some litigation which had taken place between some
persons and the Society before the High Court, the High Court had ordered
an enquiry. The said litigation went on till the end of 1996, due to which the
Developer could not continue his construction activity and that resulted into
delay in the construction work. According to the Developer, the said delay
4Page 5
had resulted into increase in the cost of construction and therefore, it was
constrained to increase the price of the flats and as a result thereof, the
amount of installment was also increased from Rs.22,000/- to Rs. 38,500/-.
The increase in the price of the flats and the amount of installments had been
opposed by the plaintiffs and they had refused to pay the installments on the
ground that the increase in the price as well as installments was not justified.
The plaintiffs had paid about ten installments till 10th January, 1997. In view
of the fact that the entire amount payable as per the letter of intent and the
understanding arrived at among the plaintiffs and the Developer had not
been paid, the Developer did not allot or sell any flat to the plaintiffs and
therefore, a Civil Suit No. 149 of 1998 had been filed by Mrs. Hansa V.
Gandhi (who has filed Civil Appeal No. 4509 of 2007 herein) with a prayer
for specific performance of the agreement for sale of the flat or in the
alternative, to refund the price already paid to the Developer along with
damages, which according to the plaintiff was Rs.10,00,000/-. Similarly,
other plaintiffs had also filed suits for specific performance/damages.
7. It is important to note that when the plaintiffs had stopped paying
installments to the Developer, the Developer had entered into another
agreement with the present respondent No.1 in each appeal for sale of the
5Page 6
flats with increased price, which were to be constructed and allotted to the
plaintiffs. All these buyers are described hereinafter as ‘Subsequent
Buyers’, who were defendant No.3 in the suits.
8. The Developer had filed written statements before the trial court
denying its liability on the ground that by virtue of letter dated 19th
December, 1997, it had cancelled the reservation of flats in question made
for the plaintiffs. Thus, the understanding arrived at among the Developer
and the plaintiffs in pursuance of the letter of intent had come to an end and
as there was no subsisting agreement with regard to sale of the flats in
question with any of the plaintiffs, there was no question of either specific
performance of the contract or about breach of the contract resulting into
payment of damages by the Developer.
9. It was contended on behalf of the Subsequent Buyers, who had
purchased the flats from the Developer that they were bonafide purchasers
for consideration without notice. It was specifically stated by them that they
had no notice with regard to the earlier transactions which the plaintiffs had
entered into with the Developer. It was also submitted that the agreement
6Page 7
between each plaintiff and the Developer, if any, had never been registered
as required under the provisions of the Maharashtra Ownership of Flats
(Regulation of Promotion of Construction, Sale, Management and Transfer)
Act, 1963 (hereinafter referred to as ‘the Act’) and therefore, it cannot be
presumed that the Subsequent Buyers had any notice with regard to the
earlier transactions, especially when they were never informed about the
earlier transactions either by the Developer or by the original plaintiffs. It
was further submitted on behalf of the Subsequent Buyers that they had paid
the entire amount of consideration of Rs. 6,37,000/- and they were also put
in possession of their respective flats and therefore, they were bonafide
purchasers for consideration. Thus, the agreement with regard to sale of the
flats, by the Developer to the Subsequent Buyers could not have been
questioned and they had legal and legitimate right to have occupation of
their respective flats.
10. After framing necessary issues and upon considering the evidence led
before the trial court, the trial court decreed the suits whereby the Developer
was directed to specifically perform the contract with regard to sale of the
flats in favour of the plaintiffs upon payment of unpaid amount of
consideration by them.
7Page 8
11. Being aggrieved by the judgment and decree of the trial court, the
Subsequent Buyers filed the First Appeals, referred to hereinabove, before
the High Court. As the facts in respect of each First appeal were quite
similar, the High Court thought it proper to decide all the three First Appeals
by a common judgment, which was delivered on 24th August, 2005 and
validity of the said judgment is challenged in these civil appeals filed before
this Court.
12. After hearing the concerned parties and looking at the facts of the case
and after considering the judgment delivered by the trial court, the High
Court allowed the appeals. The judgments and decrees which had been
passed in favour of the plaintiffs by the trial court had been set aside and it
was directed by the High Court that the plaintiffs would be entitled to get
refund of the amount paid by them to the Developer with interest at the rate
of 9% per annum from the date on which the letter of termination of the
agreement was sent by the Developer to the plaintiffs till the date of payment
of the said amount.
8Page 9
13. The learned counsel appearing for the appellants i.e. the original
plaintiffs mainly submitted that the Subsequent Buyers were not bonafide
purchasers without notice because they did not make sufficient enquiry with
regard to the earlier transactions which had been entered into by the
Developer with the plaintiffs. According to the learned counsel, had the
Subsequent Buyers made detailed enquiry with regard to the records of the
Developer, they would have surely ascertained the facts with regard to the
letters of intent sent to the plaintiffs by the Developer but by not doing so,
the Subsequent Buyers had shown gross negligence and therefore, it cannot
be said that the Subsequent Buyers were bonafide purchasers without any
notice with regard to earlier transactions entered into between the Developer
and the plaintiffs. The counsel further submitted that the burden of
establishing the bonafides of the Subsequent Buyers was on them and the
said burden had not been discharged by them and therefore, the High Court
was in error while observing that the Subsequent Buyers were bonafide
purchasers without any notice.
14. It was also submitted by the learned counsel that the Subsequent
Buyers had not adduced any evidence with regard to payment of purchase
9Page 10
price to the Developer and therefore, it could not have been said that the
Subsequent Buyers were buyers in good faith for valuable consideration.
15. On the other hand, it had been submitted on behalf of the Subsequent
Buyers i.e. respondent no. 1 in each appeal that the plaintiffs never averred
in their respective plaints that the Subsequent Buyers were not bonafide
purchasers having no notice with regard to the earlier transactions. In
absence of such pleadings before the trial court, the plaintiffs could not have
advanced any argument with regard to bonafides of the Subsequent Buyers.
To substantiate the aforestated submission, the learned counsel had relied
upon a judgment delivered in the case of Ram Swarup Gupta (dead)
through LRs. Vs. Bishun Narain Inter College and Ors. [(1987) 2 SCC
555] to the effect that in absence of pleadings, the court would not deal with
the matter not pleaded or the concerned party would not be permitted to
make out a case beyond its pleadings. Some other judgments were also cited
to substantiate the aforestated submissions.
16. It was mainly submitted by the learned counsel appearing for the
Subsequent Buyers that in absence of any registration of the agreement,
1Page 11
entered into between the plaintiffs and the Developer, the Subsequent
Buyers could not have got any opportunity to find out existence of the letter
of intent or an agreement, if any, entered into between the plaintiffs and the
Developer. According to the learned counsel, registration of a document is a
notice to all concerned persons and in absence of registration of the so called
agreement, it cannot be presumed that the Subsequent Buyers had any
knowledge with regard to the earlier transactions. The burden of proof
would be on the plaintiffs to establish that the Subsequent Buyers had
knowledge about the earlier transactions entered into by the Developer with
the plaintiffs.
17. The counsel appearing for the Subsequent Buyers further submitted
that Section 4(1) of the Act makes it mandatory to get the agreement,
between the purchaser of the flat and the Developer, registered but in the
instant case there was no registration as required under Section 4(1) of the
Act, the plaintiffs could not have acquired any right in the flats.
18. Thus, the sum and substance of the submissions made on behalf of the
Subsequent Buyers was that being bonafide purchasers for consideration,
1Page 12
they had a better right in respect of the flats in question, especially when the
plaintiffs had stopped paying installments which were due and payable by
them to the Developer and in view of the letter of cancellation written by the
Developer to the plaintiffs. If there was any agreement or if the plaintiffs had
any right to purchase the flats in question, by virtue of the letter dated 19th
December, 1997, cancelling the allotment, the so called right had come to an
end and thereafter the plaintiffs did not have any enforceable right in respect
of the flats in question.
19. We have heard the learned counsel for the parties at length and have
perused the judgments of the courts below and the judgments referred to by
the learned counsel.
20. Upon thoughtful consideration, we are of the view that the High Court
was not in error while allowing the First Appeals filed by the Subsequent
Buyers for the reasons stated by it in the impugned judgment.
21. It is not in dispute that the letter of intent was issued by the Developer
to the plaintiffs wherein certain conditions had been incorporated and upon
1Page 13
fulfillment of those conditions, agreements for sale of the flats were to be
executed. Upon perusal of the letter of intent closely, one would find that
certain conditions had been incorporated in the letter of intent. The said
conditions clearly imposed a duty on the part of the intended purchasers to
make payment of all the installments payable in respect of the purchase price
of the flat. It is also not in dispute that it was open to the Developer to vary
the price or the area to be covered by a flat in certain cases. It is not in
dispute that the Developer had raised the price because of the delay caused
on account of the litigation faced by the Society. On account of the delay
caused in construction of the flats, the cost had gone up and therefore, the
Developer had asked for a rise in the price which was approved by the
majority of the intended purchasers of the flats. Accordingly, all the other
purchasers had started paying the increased price of installments but the
plaintiffs had refused to the same and in fact they had stopped paying the
installments which were becoming due and payable after the price had been
increased. It is also worth noticing that the plaintiffs did not make payment
even as per the rate prescribed under the letter of intent and the terms and
conditions agreed upon by them with the Developer.
1Page 14
22. It is a fact that the plaintiffs had not entered into any formal
agreement with regard to the purchase of the flats with the Developer. The
mere letter of intent, which was subject to several conditions, would not give
any right to the plaintiffs for purchase of the flats in question till all the
conditions incorporated in the letter of intent were fulfilled by the plaintiffs
i.e. the proposed purchasers. It is also a fact that all the conditions, which
were to be fulfilled, had not been fulfilled by the plaintiffs.
23. According to the provisions of Section 4 (1) of the Act, the agreement,
if any, executed between the plaintiffs on one hand and the developer on the
another, ought to have been registered with the sub-Registrar.
24. In absence of such a registered document, the plaintiffs would not get
any right in respect of the flats, which they intended to purchase. Moreover,
in absence of the registration, the Subsequent Buyers could not have got an
opportunity to inspect the agreement and there could not be any presumption
that the Subsequent Buyers knew about the agreement.
1Page 15
25. The letter of intent cannot be said to be an agreement to sell for the
simple reason that according to the contents of the letter of intent, only upon
payment of the entire purchase price, the Developer and the plaintiffs were
to enter into an agreement with regard to sale of the flats. This fact clearly
denotes that no agreement to sell had been entered into between the
plaintiffs and the Developer and in absence of such agreements, in our
opinion, there cannot be any right in favour of the plaintiffs with regard to
specific performance of any contract. Thus, in our opinion, the High Court
did not commit any error while coming to the conclusion that there was no
binding contract or agreement in existence between the plaintiffs and the
Developer and therefore, the trial court could not have decreed the suit for
specific performance.
26. As no averment was made by the plaintiffs in their plaints that the
Subsequent Buyers were not bonafide purchasers for consideration, the
Subsequent Buyers could not have adduced any evidence to show that they
were bonafide purchasers for consideration. Had such a plea been raised by
the plaintiffs in their pleadings, the Subsequent Buyers could have adduced
necessary evidence to prove their cases. In such cases, normally the burden
of proof would lie on the plaintiffs unless there is a registered document so
1Page 16
as to raise a presumption that the Subsequent Buyers had knowledge with
regard to the earlier transaction. Such a burden of proof was not discharged
by the plaintiffs and therefore, we are also of the view that the Subsequent
Buyers were bonafide buyers for consideration.
27. The learned counsel for the Subsequent Buyers relied upon several
judgments and the propositions laid down in the said judgments are clear to
the effect that
  if the contention of the plaintiffs is that the Subsequent
Buyers are not bonafide purchasers, the plaintiffs must have pleading to that effect.
28. In view of the above circumstances, in our opinion, the High Court
was right in allowing the appeals and directing the Developer to return the
amount of the purchase price received by it from the plaintiffs with interest
at the rate of 9% p.a. from the date when the letter of cancellation was
written by the Developer to the plaintiffs. In our opinion, the said direction
is just and proper however, looking to the rising price and inflationary trend
in the country, we partly modify the judgment by increasing the rate of
1Page 17
interest from 9% p.a. to 12% p.a. The said amount shall be paid to the
plaintiffs by the Developer within two months from today.
29. Looking into the aforestated facts, we are of the view that the High
Court did not commit any error while allowing the appeals. Subject to
aforestated modification with regard to the rate of interest, the appeals are
dismissed with no order as to costs.
………..……………......................J.
(R.M. LODHA)
………...........................................J.
 (ANIL R. DAVE)
…….…..……………......................J.
 (RANJAN GOGOI)
New Delhi
April 18, 2013
1

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