TMI Blog2006 (8) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire lands. Prima facie the demolition of the house took place at the instance of the appellants. However, it is not a case where the appellants are entitled to a decree for specific performance of contract. The respondents should refund the amount of advance of Rs.10,00,000/- (ten lakhs) with interest and furthermore pay compensation to the extent of Rs.50,00,000/- (fifty lakhs). Appeal allowed. - C.A. 3801 OF 1999 - - - Dated:- 24-8-2006 - S.B. Sinha P.P. Naolekar , JJ. JUDGMENT Background facts: Kanpur is a metropolitan town. The respondents herein were owners of a house property bearing municipal number 7/169, on a freehold plot bearing No.22, measuring 2978 sq. yards, situate in Block B, Scheme No.7, Gutaiyya, Swaroop Nagar in the said town ('the property' for short). The 1st respondent-Pushpa Devi Saraf and the 2nd respondent-Mohan Lal Saraf intended to promote a company in the name of the 5th respondent-M/s. Kanpur Exports (P) Ltd. ('the Company' for short). They filed an application therefor as promoters of the Company on 15.2.1979. They acquired the property in their capacity of promoters or Directors of the proposed company from one Shanti Narain Ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported to have been executed on 4.6.1984 by 'Sarafs' in favour of one Surendra Kumar Mittal stated to be a close relation (brother-in-law) of Mohan Kumar Saraf. The appellants filed a suit against the respondents for injunction. Subsequently, a relief by way of decree of specific performance of the agreement for sale was also prayed for. A further prayer was made therein that the purported Agreement of Sale dated 4.6.1984 executed by the defendant Nos.2 to 4 in favour of the said Surendra Kumar Mittal was a sham. The said M.K. Poddar also instituted a suit for injunction on 25.5.1984, which was numbered as Suit No.612 of 1984, wherein an interim order of injunction, directing the parties not to interfere with his possession was passed. In the said suit, an Advocate Commissioner was also appointed. He found the said M.K. Poddar to be in possession of the property. A purported dispute, however, was raised as regards ownership of the said property by and between the Company on the one hand and the Sarafs on the other. One Shri B.S. Mathur, Advocate was appointed as sole Arbitrator. He made an Award holding the property to be belonging to Sarafs. They were directed to refund an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court, which was numbered as Writ Petition No.21985 of 1989. The said ex-parte decree was set aside by an order dated 8.2.1990. The said suit was also withdrawn by G.P. Tiwari. The writ petition filed by respondent No.1 herein was also dismissed as having become infructuous, whereagainst Pushpa Devi Saraf preferred a Special Leave Petition which was also dismissed by an order dated 19.9.1990. However, the said order dated 19.9.1990 was recalled by this Court by an order dated and the petition was disposed of on 14.8.1991, directing the District Judge, Kanpur to nominate a Receiver for taking charge of the property. Suit and other proceedings initiated by the respondents : On 8.7.1980, the Company through its Directors, Sarafs, filed a suit against Shanti Narain Verma for declaration that the Company was the absolute owner in possession of the suit premises. However, as noticed hereinbefore, before the Trial Court, the respondents, inter alia, raised a contention that the Sarafs were the owners of the suit property and not the Company. The learned trial Court negatived the said contention. As noticed hereinbefore, the said suit questioning the grant of symbolic possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty, the Agreement of Sale executed in favour of the appellants was valid as the Company itself was being represented by them who were even otherwise authorized to execute the Agreement on behalf of the company and, thus, by reason of their conduct, they must be held to have executed the said Agreement on their own behalf also. iv) The Court failed to apply the doctrine of lifting the corporate veil, as the same was necessary for determining the real issue between the parties. (v) Assuming that the Award passed by the Arbitrator, as also the decree passed by the High Court pursuant thereto are valid in law, in terms whereof Sarafs were declared to be owners of the property, the agreement of sale would be binding on them. vi) The Award and the decree, having been obtained by practicing fraud as envisaged under Section 44 of the Evidence Act, were void ab initio and the Trial Court rightly having applied the said principle, the same could not have been overturned by one of the Judges of the Division Bench of the High Court. vii) Withdrawal of Suit No. 1252/85 filed by the appellants for setting aside the Award and the consequent decree, would not debar the appellants from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that view of the matter they were not entitled to any discretionary relief in terms of Section 20 of the Specific Relief Act, 1963. (vi) The purported Agreement of Sale dated 12.6.84 was in effect and substance an agreement of loan. (vii) The agreement dated 12.6.84 itself having stipulated that in the event of defect in the right or title of the parties of the first part or the said Company, or any other encumbrance or legal hurdle in respect of the suit property, the appellants would have an option to refund the advance money of Rs.10 lakhs together with interest @18% per annum, no relief by way of specific performance of contract could have been granted. In view of the following surrounding and attending circumstances, the purported agreement to sell should be construed to be an Agreement for Loan: (a) Sudhir Kumar Parasrampuria, while examining himself as P.W.1 in his deposition, categorically stated that he had been informed by respondent No.2 that the property belonged to the Company as also individuals which would demonstrate that he was aware of the ownership of Sarafs thereover; (b) The said property having not been mentioned in the Articles of Association of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the company through Sarafs against Shanti Narayan Verma praying for a declaration that the property belonged to the company. The said suit was decreed by a judgment dated 19.8.1982 declaring that the company is the absolute owner thereof. It is also not in dispute that the Board of Directors of the company adopted a resolution on 6.9.1984 for sale of the said property in favour of the appellant herein for a sum of Rs.11,00,000/-. The agreement for sale was signed by the Directors, namely, Pushpa Devi Saraf and Mohan Lal Saraf and their son Sandeep Saraf. The company also discharged a part of the debts of State Bank of India, out of the amount of the advance of Rs.10,00,000/- received by it from the appellants herein. The company had also adopted another resolution for leasing out the property to Manoj Kumar Poddar. The deed of lease in favour of Manoj Kumar Poddar was also signed by Sarafs. In the said documents it was clearly and unequivocally stated that the property belonged to the company. It is the company again which executed a general power of attorney in favour of Shri M.M. Agarwal for executing the deed of sale of the disputed property in favour of the appellants, up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. Relief against parties and persons claiming under them by subsequent title. - Except otherwise provided by this Chapter, specific performance of a contract may be enforced against xxx xxx xxx xxx (e) when the promoters of a company have, before its incorporation, entered into a contract for the purpose of the company and such contract is warranted by the terms of the incorporation, the company : Provided that the company has accepted the contract and communicated such acceptance to the other party to the contract." In terms of Section 15(h) of the Specific Relief Act, the Promoters of a company before its incorporation could enter into a contract for the benefit of the company and such contract may be warranted by the terms of incorporation of the company. The said provision is subject to the proviso that the company should accept the said transaction. In the instant case, indisputably it was done. Section 19(e) of the Act provides for grant of a decree of specific performance of a contract against a company when the promoters of a company before incorporation entered into a contract for the purpose of the company and such contract is warranted by the terms of incorpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Sudhir Chandra that acquisition of a property for the benefit of the company must find place in the articles of association of the company, is wholly misplaced. What is meant by acceptance of the contract by the company which is to be warranted by its incorporation, is that it is not ultra vires the purpose for which the company had been incorporated. The distinction sought to be made by the learned counsel between Section 27 of the Specific Relief Act, 1877 and Section 19 of the 1963 Act is not of much significance. Under the 1877 Act, not only ratification and adoption of the contract was mandatory, such contract was to be warranted by the terms of the incorporation. The words 'ratified and adopted" have been dropped from the main section and in Section 19 of the 1963 Act, a proviso has been added that the company has accepted the contract and communicated such acceptance to the other party of the contract. An express ratification of the contract, therefore, is no longer warranted. In view of the fact that the Company, in the suit filed against Verma, sought for a declaration that it was the owner of the property, the same, in our opinion, would amount to acceptance of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not deny or dispute the same. In fact company spoke only through Sarafs. The High Court overlooked the fact that the plaint was signed by Sarafs and the company was represented by them. It is they who had made solemn statement before a competent court of law that the company was the owner of the property. Hence, they are bound by the said statement. The principle of estoppel and/or acquiescence would, thus, be applicable. While applying the procedural law like principle of estoppel or acquiescence, the court would be concerned with the conduct of a party for determination as to whether he can be permitted to take a different stand in a subsequent proceeding, unless there exists a statutory interdict. If principle of estoppel applies, Sarafs will not be permitted by a court of law to raise the contention that the company was not the owner of the property. It is one thing to say that the property did not vest in the company as there was a statutory embargo in that behalf; but it is another thing to say that a person is estopped from raising a question of title. The provisions of the Indian Evidence Act are clear like Section 116, whereby in certain situation a person may be est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent must be approached as part of a broad inquiry as to whether repudiation of an assurance is or is not unconscionable in all the circumstances." In Indu Shekhar Singh Ors. vs. State of U.P. Ors. [2006 (5) SCALE 107], this Court stated : "They, therefore, exercised their right of option. Once they obtained entry on the basis of election, they cannot be allowed to turn round and contend that the conditions are illegal." In Pawan Alloys and Casting Pvt. Ltd. , Meerut vs. U.P. State Electricity Board Ors. [(1997) 7 SCC 251], this Court applied the principle of promissory estoppel. The doctrine of estoppel by acquiescence was not restricted to cases where the representor was aware both of what his strict rights were and that the representee was acting on the belief that those rights would not be enforced against him. Instead, the court was required to ascertain whether in the particular circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he had allowed or encouraged another to assume to his detriment. Accordingly, the principle would apply if at the time the expectation was encouraged. [See also Taylor Fashi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esented that they had authority which they had not, by reason of the limit to borrowing having been passed, they nevertheless warranted to the plaintiff Chapleo that they had that authority. Therefore upon that ground they are liable." The Judicial Committee in Sarat Chunder Dey and Others v. Gopal Chunder Laha and Others [(1892) Vol. XIX Law Report 203], as regards the conditions of estoppel under the Evidence Act, opined : "The law of this country gives no countenance to the doctrine that in order to create estoppel the person whose acts or declarations induced another to act in a particular way must have been under no mistake himself, or must have acted with an intention to mislead or deceive. What the law and the Indian statute mainly regard is the position of the person who was induced to act; and the principle on which the law and the statute rest is, that it would be most inequitable and unjust to him that if another, by a representation made, or by conduct amounting to a representation, has induced him to act as he would not otherwise have done, the person who made the representation should be allowed to deny or repudiate the effect of his former statement, to the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect of : One of the judges of the High Court in the impugned judgment opined that in view of the fact that the appellant had withdrawn the suit questioning the said award and the decree subsequent to passing of the judgment and decree of the trial court, they became disentitled to raise the said question. In so opining, the High Court committed a manifest error. The appellant had contended that the said award and the consequent decree passed by the Delhi High Court was a fraudulent and collusive one. The appellants having obtained a decree, it was not necessary for them to obtain another decree. It might not have been able to file another suit, but the same would not mean that they were not entitled to question the validity or otherwise of the said award in the suit for specific performance of contract. If a judgment or decree is vitiated by fraud, the same would be a nullity. In such an event, Section 44 of the Indian Evidence Act would be attracted. As a plea of fraud can be raised even in a collateral proceeding and the trial court having recorded a specific finding that the jurisdiction of the Delhi Court was created artificially by including a Delhi property, in respect w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Firm K.B. Bass Co. [(1967) 3 SCR 886], relied on by the Sudhir Chandra is not applicable. Nature of transaction : One of the learned Judges of the High Court also held that the said agreement dated 12.06.1984 was in fact an agreement for obtaining loan. There was no warrant for such a proposition. Clause 7 of the agreement on the basis whereof such a finding was arrived at reads as under : "(7) That it is further agreed that in case any defect in the right or title of the parties of the first part or the said company is found or any other encumbrance or legal hurdle is found in respect of the said house property then in both the circumstances the second party shall have option for the refund of advance money of Rs.10 lacs together with interest @ 18% per annum." It is interesting to note that the sale deed dated 24.02.1979 whereby Sarafs purchased the property also contain an identical clause. Such types of clauses normally are found in the agreement so as to enable the vendee to protect his interest against the defects in vendor's title, if any. The agreement records the valuation of property at Rs.11 lakhs. The respondents relying on or on the basis of another purpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would not be treated to be a loan agreement. It is furthermore interesting to note that in the said purported response to the advertisement published in the paper also, Sarafs did not raise any plea that the company had already entered into an agreement for sale of property with a third person or that the dispute as regard title thereof was pending adjudication before an arbitrator. If Sarafs claimed themselves to be the owner of the said property, they should have challenged the subsequent agreement also. The contention of the respondents that the said agreement was merely one of loan was an afterthought. Conduct of Sarafs : It is in the aforementioned situation, the conduct of Sarafs assumes significance. The agreement for sale was executed on 12.6.1984, pursuant to the resolution of the Board of Directors dated 08.6.1984, which was followed by execution of a General Power of Attorney in favour of M.M. Agarwal for the purpose of redeeming the mortgage from State Bank of India, Kanpur and other purposes. They evidently with a design either to defraud the State Bank of India or for other purposes best known to them, purported to have inducted Vijay Kumar as Director of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies being on the same side. It is interesting to note that before the arbitrator, the company was shown to be the claimant and thus, the company itself is said to have appointed Shri Mathur as sole arbitrator. Such appointment of the arbitrator, being in the teeth of the decree passed in Suit No.267 of 1980, arbitration award and the decree passed by the Delhi High Court, had rightly been held by the learned trial judge as collusive and fraudulent. It was thus a nullity. Even in the proceedings for making the award a rule of the court before the Delhi High Court being Suit No.1857-A of 1984, there was no opposition on the part of the company. Although a decree for delivery of possession was passed against the company, the lessee Shri Manoj Kumar Poddar or the appellant had not been made parties therein. We would have occasion to deal with the effect of our discussions hereafter. Subject matter of the agreement : One of the learned Judges of the High Court also opined that as the agreement to sell referred to only the house or the bungalow, the parties did not agree to sell the land. We have gone through the agreement for sale and are of the opinion that the views taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to or in furtherance thereof Manoj Kumar Poddar was said to have been dispossessed, despite an order of interim injunction passed in Suit No.612 of 1984 on 19.10.1984 operating in this behalf. An application for restoration of possession was filed by the said Manoj Kumar Poddar under Order 21 Rule 99 of the Code of Civil Procedure in the said execution case, which was registered as Miscellaneous Case No.184/74 of 1985. In the said application, Sarafs were sought to be restrained from damaging and destroying any portion of the suit property and from parting with the possession. An order of injunction restraining Sarafs from causing any damage or destruction and parting with the possession of the suit property was passed. In response to the said application, Sarafs contended that they were required to execute a project of construction work. The contentions of Sarafs were noted by the learned trial Judge in the following words: "The opp. parties maintained that they have to execute project of construction work in place of existing disputed building. It is therefore, clear that the opp. parties No.1 and 2 have intention to demolish or change the nature of the existing premises." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April, 1994, the Central Bureau of Investigation, after investigation filed a charge-sheet against the appellants for demolition of the said building and for alleged commission of other offences relating to theft, criminal conspiracy, trespass, etc. It is also not in dispute that in the said proceedings, charges have been framed and a large number of witnesses have already been examined. It is true that Sudhir Parasrampuria filed a suit in the Court of Civil Judge, Kanpur Dehat against Sarafs and also against the said G.P. Tiwari for a declaration that they had no right to damage the property and for its preservation through a Receiver contending that the Sarafs had got the house demolished through G.P. Tiwari who was their dummy. An interim order was passed in the said suit on 23.10.1989 permitting grant of symbolic possession to the appellants. But the said order, admittedly, had been set aside by the High Court by an order dated 9.5.1990 in Writ Petition No.21985/89 on the ground that service of notice had not been properly effected upon Sarafs and the matter was remanded to the competent court, but, in the meantime, the suit itself was withdrawn by an order dated 30.5.1990. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered from the said angle. Section 20 of the Specific Relief Act reads thus: "20. Discretion as to decreeing specific performance.- (1) The jurisdiction to decree specific performance is discretionary, and the court is not bound to grant such relief merely because it is lawful to do so; but the discretion of the court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a court of appeal. (2) The following are cases in which the court may properly exercise discretion not to decree specific performance:- (a) where the terms of the contract or the conduct of the parties at the time of entering into the contract or the other circumstances under which the contract was entered into are such that the contract, though not voidable, gives the plaintiff an unfair advantage over the defendant; or (b) where the performance of the contract would involve some hardship on the defendant which he did not foresee, whereas its non-performance would involve no such hardship on the plaintiff; or (c) where the defendant entered into the contract under circumstances which though not rendering the contract voidable, makes it inequitable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position is similar where the court declines to grant non-monetary relief and thereby (in effect) releases the defendant from the need to perform the obligation in the future." In Spry's Equitable Remedies, it is stated: "In considering what circumstances induce the court, as a matter of discretion, to award equitable damages rather than relief in specie it must be borne in mind that when once the general conditions for the exercise of equitable jurisdiction have been established, that is, the inappropriateness of damages in respect of a matter coming within a recognized head of relief, prima facie there arises a right to specific performance or to an injunction, as the case may require. So it was observed by Lord Langdale, "I conceive the doctrine of the court to be this, that the court exercises a discretion, in cases of specific performance, and directs a specific performance unless it should be what is called highly unreasonable to do so." Similarly reference has been made to "the rule that where the plaintiff has established the invasion of a common law right, and there is ground for believing that without an injunction there is likely to be a repletion of the wrong, he i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... look at all the circumstances, including the need to achieve a 'clean break' so far as possible and avoid or minimize future friction (see Pascoe v Turner [1979] 2 All ER 945 at 951, [1979] 1 WLR 431 at 438- 439)." In Malhotra v Choudhury 1979 (1) All ER 186, Stephenson, LJ., in the fact situation obtaining therein, opined: "But as counsel for the plaintiff pointed out, the question which the judges were summoned by their Lordships to answer and which was proposed for their consideration was 'Whether, upon a contract for the sale of real estate, where the vendor, without his default [my emphasis], is unable to make a good title, the purchaser is by law entitled to recover damages for the loss of his bargain?' That is the question which was answered in the judgment of Pollock B, which was also the judgment of Kelly CB, Keating and Brett, JJ, and the question as it was stated by both Denman J and Pigott B. I note this is the way in which the rule is stated in Williams on Contract of Sale of Land, cited by Megarry J in Wroth v Tyler: 'Where the breach of contract is occasioned by the vendor's inability, without his own fault [my emphasis], to show a good title, the purchaser is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntum and measure of damages would vary from case to case. We may notice a few of them. In Lalit Kumar Jain Anr. vs. Jaipur Traders Corporation Pvt. Ltd. [(2002) 5 SCC 383], this Court, while directing dismissal of the suit, opined: " However, in view of the fact that the defendants are not free from blame as discussed above and they have utilized the property to the best of their advantage right from day one without, at the same time, paying the balance sale price for several years, we put it to the counsel for the appellants whether they are willing to pay to the plaintiff a substantial amount over and above the sale price already deposited in the Court, in order to do justice to the parties. In fact, in the course of arguments by the learned counsel for the appellants, there was an indication that the appellants were prepared to offer a reasonable amount, without prejudice to their contentions. The learned counsel for the appellants has filed a letter dated 18-4-2002 stating that "the appellants can pay and agree to pay a further sum of Rs.35 lakhs (Rupees thirty-five lakhs) in 3 instalments of Rs.15 lakhs and Rs.10 lakhs and Rs.10 lakhs", in three weeks, by the end of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The said decision cannot be said to constitute a binding precedent to the effect that in all cases where there had been an escalation of prices, the court should either refuse to pass a decree on specific performance of contract or direct the plaintiff to pay a higher sum. No law in absolute terms to that effect has been laid down by this Court nor is discernible from the aforementioned decision." In Surinder Singh vs. Kapoor Singh (Dead) through LRs. Ors. [(2005) 5 SCC 142], it was emphasized that discretionary jurisdiction must be exercised reasonably and having regard to the fact situation obtaining in each case. The present market value of the property is also a relevant fact. The prices must have gone up manifold. It is situate in a metropolitan town. It has a great potential value. As noticed hereinbefore, the conduct of both the parties are blameworthy. The value of the property is now said to be a few crores. The appellants had deposited a sum of Rs.10 lakhs as far back as on 12.6.1984. The said amount must be directed to be refunded to the appellants with interest @15% per annum. Although we decline to grant any relief of specific performance of contract to which t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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