Supreme Court Invalidates Sale Agreement Due to Statutory Bar: Narayanamma vs. Govindappa (2019)

Date of the Judgment: September 26, 2019
Citation: 2019 INSC 1003
Judges: Arun Mishra, J., M. R. Shah, J., B.R. Gavai, J.
Can a sale agreement made during a statutory prohibition period be enforced after the prohibition ends? The Supreme Court of India addressed this crucial question in a case concerning land transfer restrictions under the Karnataka Land Reforms Act, 1961. This judgment clarifies that such agreements are void and cannot be enforced, upholding the statutory bar on land alienation. The bench comprised of Justice Arun Mishra, Justice M. R. Shah, and Justice B.R. Gavai, with the judgment authored by Justice B.R. Gavai.

Case Background

The case revolves around a land dispute originating from an agreement to sell, entered into during a statutory restriction period. The original owner, Bale Venkataramanappa, was granted land under the Karnataka Land Reforms Act, 1961, with a 15-year restriction on alienation. Despite this, he entered into a mortgage agreement on April 23, 1990, and then an agreement to sell on May 15, 1990, with the plaintiff, Govindappa, for a sum of Rs. 46,000, receiving the full amount and handing over possession.

Timeline

Course of Proceedings

The trial court dismissed the plaintiff’s suit for specific performance, holding the agreement void due to the non-alienation clause. The first appellate court reversed this, ruling the agreement valid as the non-alienation period had expired. The High Court upheld the first appellate court’s decision. The defendants then appealed to the Supreme Court.

Legal Framework

The key legal provision is Section 61 of the Karnataka Land Reforms Act, 1961, which states:

“61. Restriction on transfer of land of which tenant has become occupant.—
(1) Notwithstanding anything contained in any law, no land of which the occupancy has been granted to any person under this Chapter shall, within fifteen years from the date of the final order passed by the Tribunal under sub-section (4) or sub-section (5) or sub-section (5A) of section 48A be transferred by sale, gift, exchange, mortgage, lease or assignment; but the land may be partitioned among members of the holder’s joint family.”

This section prohibits the transfer of granted land through sale, gift, exchange, mortgage, lease, or assignment within 15 years of the final order by the Tribunal. It allows for partition among family members but also includes provisions for loans from specific institutions for land development or education, with a clause for attachment and sale in case of default. Any transfer violating this is deemed invalid, with the land vesting in the State Government.

Arguments

Arguments by the Defendants (Appellants)

• The defendants argued that the agreement to sell was void from its inception due to the statutory bar under Section 61 of the Karnataka Land Reforms Act, 1961.
• They contended that the trial court’s initial decision to dismiss the suit was correct and should not have been overturned by the appellate courts.
• They submitted that the High Court erred in upholding the first appellate court’s decision, as the agreement was unenforceable due to the statutory restrictions.

Arguments by the Plaintiff (Respondent)

• The plaintiff argued that Section 61 of the Karnataka Land Reforms Act, 1961, only restricts actual transfers like sale, gift, or mortgage, and does not prohibit an agreement to sell.
• The plaintiff contended that once the 15-year restriction period expired, the agreement to sell became enforceable, even if it was executed during the prohibited period.
• The plaintiff also emphasized that the full consideration was paid, and possession was handed over, supporting the validity of the agreement.
• The plaintiff argued that since the defendants did not file a written statement or contest the suit, the findings of the first appellate court were correct.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the agreement to sell dated May 15, 1990, executed by Bale Venkataramanappa in favor of the plaintiff, is enforceable in law, given the restrictions under Section 61 of the Karnataka Land Reforms Act, 1961.

Treatment of the Issue by the Court

Authorities

Cases Relied Upon by the Court

Legal Provisions Considered by the Court

Judgment

The Supreme Court overturned the High Court’s decision, ruling in favor of the defendants. The Court held that the agreement to sell, entered into during the statutory prohibition period, was void and unenforceable.

The Court analyzed the authorities as follows:

• Kedar Nath Motani vs. Prahlad Rai [1960] 1 SCR 861:* The Court reiterated the principle that it would not assist a plaintiff who relies on an illegal transaction.
• Immani Appa Rao vs. Gollapalli Ramalingamurthi [1962] 3 SCR 739:* The Court emphasized that when both parties are equally at fault, the court should not actively assist either party but allow possession to rest where it lies, which is less injurious to public interest.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that courts should not enforce agreements that are contrary to statutory provisions and public policy. The Court emphasized that when both parties are equally involved in an illegal transaction, the court should not actively assist either party.

The Court’s reasoning was based on the following points:

• The agreement to sell was executed during the prohibited period under Section 61 of the Karnataka Land Reforms Act, making it void from the start.
• The Court cannot actively assist a party in enforcing an illegal agreement, even if the other party also participated in the illegality.
• Public policy dictates that the court should not interfere in such cases, and possession should rest where it lies.

The Court rejected the argument that the agreement became enforceable after the 15-year restriction period, emphasizing that an agreement void from its inception cannot become valid later. The Court also noted that both parties were equally responsible for violating the law.

The Court quoted from the judgment:

“It could thus be seen, that this Court has held that the correct position of law is that, what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered.”

“It has further been held, that where parties are concerned in illegal agreements or other transactions, courts of equity following the rule of law as to participators in common crime will not interpose to grant any relief, acting upon the maxim in pari delicto potior est conditio defendentis et possidentis.”

“As held in Immani Appa Rao (supra), if the decree is granted in favour of the plaintiff on the basis of an illegal agreement which is hit by a statute, it will be rendering an active assistance of the court in enforcing an agreement which is contrary to law.”

There were no dissenting opinions in this case.

Key Takeaways

• Agreements to sell land, executed during a statutory prohibition period, are void from their inception and cannot be enforced later, even after the prohibition period expires.
• Courts will not assist parties in enforcing illegal agreements, especially when both parties are equally responsible for the illegality.
• When both parties are involved in an illegal transaction, the court will not actively assist either party but will allow possession to remain where it is.
• This judgment reinforces the importance of adhering to statutory restrictions on land transfers.

Directions

The Supreme Court quashed the judgments of the High Court of Karnataka and the Fast Track Court, and upheld the trial court’s order dismissing the suit.

Development of Law

The ratio decidendi of this case is that an agreement to sell, entered into during a statutory prohibition period, is void and unenforceable, even after the prohibition period expires. This reaffirms the principle that courts will not enforce agreements that are contrary to statutory provisions and public policy. This judgment clarifies that an agreement that is void from the beginning cannot become valid later.

Conclusion

The Supreme Court’s decision in Narayanamma vs. Govindappa reinforces the principle that agreements made in violation of statutory restrictions are void and unenforceable. The judgment highlights the importance of adhering to legal prohibitions on land transfers and clarifies that courts will not assist parties in enforcing illegal contracts.