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TMI Blog2006 (8) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of consideration paid to said Shanti Narain Verma was repaid by the Company by two cheques of Rs.1,11,250/- each to Mohan Lal Saraf and Pushpa Devi Saraf (hereinafter referred to as "Sarafs"). The first balance sheet of the Company was signed by the 2nd respondent herein on 30.6.1980, wherein also 'the property' was shown to be that of the company. With a view to do away with the said clause of re-conveyance, a suit was filed by the Company against the said Shanti Narain Verma. The said suit was decreed. The First Directors' Report dated 15.11.1980 and the balance sheet of the Company for the year ending 30.6.1981, signed by the 2nd respondent herein also disclosed the property to be that of the Company. Directors of the Company, viz., 'Sarafs' resolved to sell the property in favour of the appellants herein. A resolution to let out the property in favour of one Manoj Kumar Poddar was also adopted by it. A General Power of Attorney was also executed by the Company in favour of one M.M. Aggarwal who had specially been invited to attend the said meeting. Pursuant to or in furtherance of the said resolution, an agreement of sale of the said property was executed by Sarafs as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecree a warrant of delivery of Possession was issued against the Company and M.K. Poddar was said to have been dispossessed. M.K. Poddar, indisputably filed an application under Order 21 Rule 99 of the Civil Procedure Code for restoration of possession of the said property. In response to the notice issued thereupon, the respondents contended that they intended to raise a multi-storied building upon demolition of the existing building. Suits and other proceedings initiated by the appellants : A suit was filed by the appellants and the said M.K. Poddar in the Delhi High Court for a declaration that the Decree dated 21.2.1985 passed by the said Court was obtained by fraud and thus was a nullity. Another suit was filed by the appellants for declaration and appointment of Receiver before the Civil Judge, Kanpur Dehat being Suit No.237 of 1989, wherein a declaration was sought for that the defendants therein, in view of the Agreement of Sale dated 12.6.1984, had no authority to cause any damage to the suit property. Symbolic possession was directed to be given in favour of the appellants therein by an order dated 23.10.1989. However, the said suit later on was withdrawn. Another sui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 23.10.1989 on the premise that there had been no sufficient service and the matter was remanded to the Trial Court for fresh consideration thereof. A Criminal Misc. Writ Petition No.23804/89 was filed in the High Court of Judicature at Allahabad for a direction that a criminal case be registered for protection of life and property of the Sarafs and for payment of damages for damages allegedly caused to them. By an order dated 9.12.1993, the High Court directed investigation into the allegations made by Sarafs by the Central Bureau of Investigation. Upon completion of the investigation by the Central Bureau of Investigation, a charge-sheet was filed against the appellants and the trial against them is pending. Judgment of the Court : On the backdrop of several litigations between the parties and allegations and counter allegations made by one party against the other therein, the learned Trial Court decreed the Appellants' suit for specific performance of contract. The said judgment and decree came to be challenged before the High Court. A Division Bench of the High Court allowed the appeal on the premise that the Trial Court had wrongly exercised its discretionary jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest of the appellants, which could not have been relied upon by the respondents as they were not parties thereto. ix) Both the Hon'ble Judges of the High Court committed a manifest error in arriving at a finding that the appellants were responsible for demolition of the existing structures and institution of the rent case through G.P. Tiwari. (x) Even assuming that the said findings are correct, the same by itself could not have been a ground for denying the appellants the relief by way of a decree for specific performance of contract. Mr. Sudhir Chandra, learned Senior Counsel appearing on behalf of the respondents, on the other hand, would support the impugned judgment contending : (i) The High Court has rightly arrived at a finding that the suit property was demolished on 23.9.1989 illegally by the appellant No.1 and his associates and thus, they became disentitled from obtaining the discretionary relief of specific performance of contract; (ii) The said finding of the High Court being based upon the materials on record including the judgment of another Division Bench of the Allahabad High Court passed in Criminal Writ Petition No.23804/89, as also the charge-sheet is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 19.6.1979, the title in respect thereof did not vest in the Company and, thus, the provisions of Section 15(h) and 19(e) of the Specific Relief Act, 1963 would have no application in the instant case. As on the date of execution of sale, the Company had no funds of its own and the amount of consideration, admittedly, having been paid by Sarafs, the Company could not be declared to be the owner thereof by a Court of law as was purportedly done by reason of the judgment dated 19.8.1987 in the suit filed by the Company against Shanti Narain Verma. (d) The controversy in Suit No.267/80 being confined to the applicability of the re-conveyance clause contained in the deed of sale dated 24.2.1979, the question of ownership of the property having been vested in the Company did not and could not arise and in that view of the matter, the judgment rendered therein was inadmissible in evidence to prove the Company's title thereover. Ownership issue : The property in question was purchased by the Promoters of the company, namely, Sarafs. An application for registration of the company was filed on 15.2.1979 under the Companies Act, 1956 and the company was registered on 19.6.1979. Sarafs at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the owner of the property and at all material times Sarafs had made representations as such to the appellants as also to others thereabout. Unincorporated Corporation issue : At the time when the property was released from the charge held by the State Bank of India, a notice in terms of Section 138 of the Companies Act was issued by Shri Mohan Lal Saraf. In the registers maintained by the Registrar of the Companies under Section 132 of the Companies Act, it was shown that a charge of the said property had been made in favour of the State Bank of India. Under the English Common Law, an unincorporated corporation could not have become an owner of the property. The law in India, however, is different. Before we advert to the statutes operating in the field, in passing we may notice a wholly untenable submission of Shri Sudhir Chandra that an unregistered deed of sale only having been executed in favour of the company by Sarafs, no title passed to the company in view of Section 54 of the Transfer of Property Act. Section 54 of the Transfer of Property Act, defines sale and provides for a procedure as to how the same shall be made. It does not speak of conveyance of ownership. Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, stating : "While we accept the position that a promoter is neither an agent nor a trustee of the company under incorporation, we are inclined to think that in respect of transactions on behalf of it, he stands in a fiduciary position. For the plaintiff-company Sections 92 and 94 of the Indian Trusts Act, 1882, were relied upon. It seems to us that neither of these sections is of assistance to it. These sections, as we think, contemplate transactions as between persons in existence. In any case, it seems to us that no trust as defined by Section 3 of the Act is brought about by the purchases made by the promoters. The legal position of a promoter in relation to his acts, particularly purchase of immoveable properties on behalf of the company under incorporation, is a peculiar one not capable of being brought into any established or recognised norms of the law as to its character as an agent or a trustee. But, at the same time, it is impossible, to our minds, to deny that he does stand in a certain fiduciary position in relation to the company under incorporation. When he does certain things for the benefit of it, as for instance, purchase of immoveable properties, he is not at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions court cannot ignore or overlook the provisions of the statute. Equity must yield to law." In the said decision this Court was not concerned with the interpretation of Section 19(e) of the Specific Relief Act. Transfer of Property Act does not prohibit an oral transfer. The statute merely provides that if the value of the said property is more than Rs.100/- a registered document is required to be executed. Section 5 of the Transfer of Property Act provides for transfer in favour of the company which was unincorporated. The effect of the Transfer of Property of Act, therefore, postulates transfer in favour of unincorporated company. It does not create any bar. Our attention was drawn to a statement made by the appellant No.1 before the trial court in cross-examination. He stated that Sarafs had informed him that the company was the owner. He, however, volunteered that he himself as also the company became owners. He probably gave the said answer having regard to the fact that an agreement for sale had been executed in his favour; and furthermore Manoj Kumar Poddar had been granted a lease and thus, he also became the owner thereof. His claim may not be correct in law, but by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the parties assumes significance. In the instant case, it was Sarafs who represented the company. They had made the representation that the company was the owner of the property. Such a representation had been made to the appellant herein not only in terms of the decree obtained in the said O.S. No.267 of 1980, but by reason of execution of the other documents including creation of mortgage of the property and discharge thereof in favour of the State Bank of India. If by reason of such representation, a third party alters his position, indisputably, the principle of estoppel would apply. We may, however, hasten to add that where there exists a statutory embargo, vesting of title in a person shall be subject thereto. We have, however, in this case, no doubt whatsoever that there did not exist any statutory embargo in this behalf. In Bank of India & Ors. etc. vs. O.P. Swarnakar & Ors. etc. [(2003) 2 SCC 721], this Court took notice of the following passage from Halsbury's Law of England, 4th Edn., Vol.16 (Reissue), para 957 at p.844: "On the principle that a person may not approbate and reprobate a special species of estoppel has arisen. The principle that a person may not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentations made by the representator, it was only unconscionable for the representator to enforce his strict legal rights if the representee's conduct was influenced by the encouragement or the representation. However, it was not necessary for the encouragement or representation to have been the initial cause of the representee's conduct in order to be unconscionable but merely that his conduct was so influenced by the encouragement or representation that it would be unconscionable for the representor to enforce his legal rights." Mr. Sudhir Chandra placed strong reliance in Mahboob Sahab v. Syed Ismail & Ors. [(1995) 3 SCC 693], wherein this Court was dealing with the issue of res judicata. As in this case, we have already held that the principle of res judicata may not have any application, it is not necessary to advert thereto. It is also not a case where fraud was alleged, as was the fact involved therein. Reliance placed on Chhaganlal Keshavlal Mehta vs. Patel Narandas Haribhai [(1982) 1 SCC 223 : AIR 1982 SC 121] was misplaced. Therein it was held that a person is entitled to plead estoppel in his individual character and not as a representative of his assignee. In this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved his statement and acted on it as it was intended he should do." Lifting the Corporate Veil : In a case of this nature, keeping in view the facts and circumstances of the case, even the doctrine of lifting the corporate veil would be applicable. We would, in this regard, notice some precedents operating in the field. In Kapila Hingorani vs. State of Bihar [(2003) 6 SCC 1], this Court opined : "It is now well settled that the corporate veil can in certain situations be pierced or lifted. The principle behind the doctrine is a changing concept and it is expanding its horizon as was held in State of U.P. v. Renusagar Power Co. The ratio of the said decision clearly suggests that whenever a corporate entity is abused for an unjust and inequitable purpose, the court would not hesitate to lift the veil and look into the realities so as to identify the persons who are guilty and liable therefor." {See also Union of India & Ors. vs. M/s. Playworld Electronics Pvt. Ltd. & Anr. [(1989) 3 SCC 181 : AIR 1990 SC 202], State of U.P. & Ors. vs. Renusagar Power Co. & Ors. [(1988) 4 SCC 59 : AIR 1988 SC 1737] and Yukong Line Ltd. of Korea v. Rendsburg Investments Corp of Liberia and Oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he written statement, the stand taken by them was that the agreement was a sham document entered into by and between the parties so as to enable them to secure removal of padlocks by State Bank of India, Kanpur. In the said written statement itself they, however, disclosed about the execution of an agreement for sale in favour of the defendant no.5. The said agreement was registered on 29.09.1984 i.e. much after the execution of agreement for sale dated 12.6.1984 as also after the institution of the suit. It is now well settled that fraud vitiated all solemn act. Any order or decree obtained by practicing fraud is a nullity. {See - (1) Ram Chandra Singh vs. Savitri Devi & Ors. [(2003) 8 SCC 319] followed in (2) Vice Chairman, Kendriya Vidyalaya Sangathan & Anr. vs. Girdhari Lal Yadav [(2004) 6 SCC 325]; (3) State of A.P. & Anr. vs. T. Suryachandra Rao [(2005) 6 SCC 149]; (4) Ishwar Dutt vs. Land Acquisition Collector & Anr. [(2005) 7 SCC 190]; (5) Lillykutty vs. Scrutiny Committee, SC & ST Ors. [(2005 (8) SC 283]; (6) Chief Engineer, M.S.E.B. & Anr. vs. Suresh Raghunath Bhokare [(2005) 10 SCC 465]; (7) Smt. Satya vs. Shri Teja Singh [(1975) 1 SCC 120]; (8) Mahboob Sahab vs. Sayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any suit for specific performance of contract. The said agreement for sale had not been acted upon by the parties. Reliance placed on the said agreement by a learned Judge of the High Court was, therefore, unwarranted. The High Court in its judgment did not show as to how the said finding of the learned trial court in that behalf was wrong. Moreover, except the said agreement, no other legal evidence was brought on record to establish as to what was the actual market value of the property. The value of the property, as noticed hereinbefore, was only Rs.2 lakhs in the year 1979. Within a period of 5 years thereof as per the agreement for sale, its price went up five times over the original. It is, wholly unlikely that the property which was valued at Rs.2 lakhs in 1979, would be worth Rs.25 lakhs in 1984. In any view of the matter inadequate consideration by itself would not lead to the conclusion that the same was an agreement of loan. Inadequate consideration, it is trite, is also not a ground for refusing to grant a decree for specific performance of contract. Clause 5 of the said agreement required the company to satisfy the appellants in regard to the ownership of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sarafs themselves could not have been a party to the resolution in regard to the execution of the agreement for sale of the company's property in favour of the appellant as also letting out of the same to Manoj Kumar Poddar. It has not been denied nor disputed that the said Vijay Kumar was merely an employee. The arbitrator was appointed in undue haste. Within a few days, so many events took place, which itself is a pointer to the evil design on the part of Sarafs. It is of some significance to note that the appointment of Shri Vijay Kumar as Director of the company was intimated to the Registrar of the Companies on 29.9.1984, and the same had been received in his office only on 7.1.1985. Not only Sarafs intended to wriggle out of the agreement to sell, they even intended to play fraud on the State Bank of India as 'the property' was charged in its favour and the amount received from the appellant by way of advance, had been utilized for the purpose of redeeming the mortgage. The arbitrator made an award on 20.11.1984. It has not been denied or disputed that the decree dated 19.8.1982 passed in O.S. No.267 of 1980 had not been placed before the arbitrator. Attention of the arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... event, expression 'the house' will also include the land appurtenant thereto. In P. Ramanatha Aiyar's Advanced Law Lexicon, Volume 2, 2005, the word "house" has been defined to mean : "HOUSE" means a house suitable for occupation by a Military Officer or a military mess. The term includes the land and buildings appurtenant to a house. [Cantonment (House Accommodation) Act (6 of 1923), S. 2(f)] "HOUSE" includes any building or part of a building with its appurtenances and outhouses used for any purpose whatsoever [Orissa House Rent Control Act, 1967 (4 of 1968), S. 2(3)]. "HOUSE" includes (a) any part of a building occupied or intended to be occupied as a separate dwelling, and (b) any yard, garden, outhouses and appurtenances belonging to it or usually enjoyed with it [Housing Act, 1996 (c. 52 1996), S. 6B(1)]" In 'Word and Phrases, Permanent Edition, Volume 19A, it is stated : "The word "building" necessarily embraces the foundation on which it rests; and the cellar, if there be one, under the edifice, is also included in the term "house" or "building". If there be a cellar, the word "building" includes it, unaffected by the height above the foundation Benedict v. Ocean I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivious of the fact that thereafter G.P. Tiwari instituted Rent Case numbered as Rent Case No.99/87 against the Sarafs. The appellants were not impleaded as parties therein. G.P. Tiwari was allegedly the caretaker of the building. An ex- parte order was passed on 25.8.1989 directing eviction of Sarafs and granting possession of the premises in his favour. The said order was implemented and possession of the said premises was delivered on 23.9.1989. It is not in dispute that the building was demolished on the same day. It is furthermore not in dispute that Mohan Lal Saraf filed an application for setting aside the said ex-parte order dated 23.9.1989. On 24.9.1989, in relation to the said order, Smt. Pushpa Devi Saraf also filed a Writ Petition being W.P. No.21985/89 for quashing of the ex-parte order dated 25.8.1989. The ex-parte order was recalled. The writ petition was dismissed only on the premise that the ex-parte order had been recalled. In fact, the Rent Case itself was withdrawn by G.P. Tiwari on 8.2.1990. The respondents contended that G.P. Tiwari was the man of the appellants. We have, in this behalf, hereinbefore noticed the conduct on the part of the appellants. One of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d High Court, special leave petitions were filed by G.P. Tiwari and also by A.C. Verma, Civil Judge, Kanpur, which were dismissed. Circumstances pointed out hereinbefore prima facie do not lead to a conclusion that Sarafs were responsible for demolition of the structures in question. In view of the pendency of the criminal case, we do not intend to express a definite opinion on one way or the other on the said issue. The sequence of events noticed hereinbefore would go to show that the balance in regard to demolition of the said structure tilts against the Appellants, in view of the charge-sheet filed by the Central Bureau of Investigation although the same itself may not be conclusive in nature. There is no reason for us, as at present advised, to take a different view from that of the High Court in this behalf. There are other circumstances too which cannot be ignored. The possession of the land in question was directed to be delivered by the Civil Court in favour of G.P. Tiwari. On the same date, the buildings were demolished. The respondents, therefore, on the said date were armed with the orders of the court; the Appellants were not. The circumstances are such which lead us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormance of a contract would involve hardship on the defendant within the meaning of clause (b) shall, except in cases where the hardship has resulted from any act of the plaintiff subsequent to the contract, be determined with reference to the circumstances existing at the time of the contract. (3) The court may properly exercise discretion to decree specific performance in any case where the plaintiff has done substantial acts or suffered losses in consequence of a contract capable of specific performance. (4) The court shall not refuse to any party specific performance of a contract merely on the ground that the contract is not enforceable at the instance of the party." Balancing of equities in a case of this nature is a difficult task. It is now well settled that compensation can be awarded in lieu of grant of decree of specific performance of contract. The courts are now evolving separate principles in regard to the remedy of compensation. (See Snells' Equity, page 452.) The learned author cites various cases to make home the point stating: "18-17 A monetary award which is made in substitution for (or in addition to) non-monetary relief will frequently be determined on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been administered up to that time and that some special case must be shown before the court should exercise the jurisdiction under the Act". On the other hand, in cases where an injunction or an order of specific performance would be granted if there were no power to grant damages the statutory power of the court to award damages may, in special circumstances, be of critical weight. It may induce the court to conclude that any inconvenience or hardship which would be caused to the plaintiff if he were obliged to accept merely an award of damages would be so far outweighed by the hardship that would be caused to the defendant if specific enforcement were granted that damages constitute the most appropriate remedy. Hence where the court would otherwise have granted specific relief the importance of a power to grant equitable damages is found to lie primarily in its relation to considerations of hardship between the parties and to the balance of convenience." In Gillett (supra), it was pointed out: "Since Mr. Gillett has established his claim to equitable relief, this court must decide what is the most appropriate form for the relief to take. The aim is (as Sir Arthur Hobhouse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Bain v Fothergill. There may be cases in which there has been no lack of bona fides, yet the rule in Bain v Fothergill has been excluded. I would not however venture to suggest that anything less than lack of good faith could exclude the rule. But it seems from later decisions that fraud, in the full sense of that word such as would found an action for deceit, may not be necessary to exclude the rule. No doubt Blackett-Ord V-C had in mind that fraud must be strictly alleged and proved in all ordinary circumstances. But in my judgment, unwillingness to use best endeavours to carry out a contractual promise is bad faith, and for there to be bad faith which takes the case out of this exceptional rule it is not necessary that there should be either a deliberate attempt to prevent title being made good or anything more than the unwillingness which I find it inevitable to infer in this case. If a man makes a promise and does not use his best endeavours to keep it, it cannot take much and, in my judgment, may not need more to make him guilty of bad faith and to entitle the victim of his bad faith to his full share of damages to compensate him for what he has lost by reason of that br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentation made today and to mete out justice to the parties, we direct that the undertaking to pay the sum of Rs.40 lakhs within six months should form part of the decree in the suit. This shall be in addition to the sale price already deposited in the Court. The same shall be deposited in the Court within a period of six months and the plaintiffs are entitled to withdraw the same in addition to the amount already deposited." In Manjunath Anandappa urf Shivappa Hanasi vs. Tammanasa & Ors. [(2003) 10 SCC 390], was a member, a decree for specific performance was declined as the plaintiff did not approach the court within a reasonable time. In P.D'Souza vs. Shondrilo Naidu [(2004) 6 SCC 649], this Court rejected the contention that inadequacy of consideration may be ground for refusing relief of specific performance, which may cause hardship stating: "It is not a case where the defendant did not foresee the hardship. It is furthermore not a case that non-performance of the agreement would not cause any hardship to the plaintiff. The defendant was the landlord of the plaintiff. He had accepted part-payments from the plaintiff from time to time without any demur whatsoever. He redee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein by way of compensation. Such amount should be in addition to the sum of Rs.10,00,000/- deposited by the Appellants together with interest at the rate of 12% per annum thereupon. This order shall not preclude Manoj Kumar Poddar to bring an independent action against the respondents herein, if he so desires. Conclusion: (i) The property in suit for all intent and purport was acquired for the benefit of the Company. (ii) Only because at the time of acquisition of the property by Sarafs, the Company was unincorporated, the same would not mean that no title could have been passed in favour of the Company. (iii) In view of their conduct, Sarafs were estopped and precluded from denying and disputing the title of the Company over the property in dispute. (iv) Withdrawal of suit No. 1252 of 1982 by the appellants did not create any embargo in raising a contention that the award of the arbitrator and the consequent decree passed were void ab initio and of no effect. (v) The agreement for sale dated 11.6.1984 was not a transaction for loan. (vi) Saraf's conduct was condemnable so far as they not only raised false and frivolous pleas but also initiated frivolous proceedings in court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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