Supreme Court Upholds Denial of Specific Performance in Property Dispute: S. Abdul Khader vs. Abdul Wajid (2008)

Date of the Judgment: 11 September 2008
Judges: Altamas Kabir, J., Markandey Katju, J.

In a dispute over the specific performance of a sale agreement, can a court enforce the agreement if the seller lacked the authority to enter into it? The Supreme Court of India addressed this critical question in the case of S. Abdul Khader vs. Abdul Wajid. The case revolves around a petitioner seeking specific performance of an agreement for sale, which was denied by lower courts due to the seller’s lack of authority and the intervention of a bona fide third-party purchaser. The Supreme Court upheld the High Court’s decision, reinforcing principles related to property rights and contractual obligations. The judgment was delivered by Justice Altamas Kabir and Justice Markandey Katju.

Case Background

The petitioner, S. Abdul Khader, filed OS No. 8198 of 1995 seeking specific performance of an Agreement for Sale dated May 18, 1995, against Abdul Wajid (since deceased) and other respondents. The agreement was for the sale of a property, Site No. 18 in Survey No. 51/3A, located in Byrasandra, Bangalore.

According to the petitioner, he entered into an agreement on February 21, 1995, with Abdul Wajid for a total consideration of Rs. 4,30,000. He paid Rs. 1,00,000 as an advance. Subsequently, he made additional payments totaling Rs. 2,05,000. Abdul Wajid represented himself as the owner, having purchased the property from Prasanth M. Kumar.

The petitioner claimed that Abdul Wajid assured him the property was free from encumbrances but cited that the original sale deed was with the Deputy Commissioner due to undervaluation. Abdul Wajid promised to produce the original sale deed and relevant corporation records for registration.

The petitioner waited until the end of October 1995, relying on Abdul Wajid’s assurances to complete the sale. However, Abdul Wajid failed to finalize the transaction despite repeated requests. The petitioner remained ready and willing to pay the balance after deducting the advance.

The petitioner grew suspicious upon noticing the construction of a compound wall. Abdul Wajid reassured him it was for tax purposes and promised to complete the sale once he obtained the necessary records and the original sale deed.

On November 17, 1995, the petitioner received a legal notice from Abdul Wajid canceling the agreement. Consequently, the petitioner filed a suit for specific performance and possession of the property.

Timeline

Course of Proceedings

The Trial Court disposed of the suit by granting an alternate relief: reimbursement of the monies advanced with 9% interest per annum. It denied the order for specific performance, holding that the respondent No. 3 had purchased the property without notice of the prior sale agreement, thus qualifying as a bona fide purchaser. The Trial Court found that Section 52 of the Transfer of Property Act, 1882, concerning lis pendens, did not apply.

The petitioner appealed to the High Court via RSA No. 781 of 2004, reiterating the submissions made in the Trial Court. The High Court upheld the Trial Court’s findings, stating that the agreement between respondent No. 1 and the petitioner was not binding on respondent No. 3. The High Court noted that respondent No. 1 lacked marketable title and the petitioner did not seek relief against other respondents.

The High Court also observed that the petitioner made payments without verifying records, doing so at his own risk, as respondent No. 1 had no authority to execute the sale agreement. The High Court noted that Respondent No. 3 had made inquiries and found Rafi Ahmed, the lawful Power of Attorney holder of respondent No. 2, competent to sell the property.

Acknowledging the increase in property prices, the High Court enhanced the interest rate from 9% to 18% on the decreed amount, partly allowing the appeal to this extent.

Legal Framework

The judgment refers to several important legal provisions:

• Section 52 of the Transfer of Property Act, 1882: This section deals with the doctrine of lis pendens, which prevents the transfer of property rights during the pendency of a lawsuit that affects the property.
• Section 19(b) of the Specific Relief Act, 1963: This section outlines the parties against whom specific performance of a contract may be enforced. Specifically, it states:
  “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 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;”
• Sections 41, 43, and 52 of the Transfer of Property Act, 1882: These sections concern ostensible ownership, transfer by unauthorized persons who subsequently acquire interest, and the doctrine of lis pendens, respectively.
• Section 20 of the Specific Relief Act, 1963: This section states that granting relief of specific performance is purely discretionary.
• Section 21 of the Specific Relief Act, 1963: This section gives the Court the power to award compensation for breach of contract instead of decreeing the suit for specific performance.

Arguments

Petitioner’s Arguments:

• Lis Pendens Violation: The transaction between respondent No. 2 and respondent No. 3 was in violation of Section 52 of the Transfer of Property Act, 1882, and the doctrine of lis pendens.
• Erroneous Disallowance: Both the Trial Court and the High Court erred in not directing respondent No. 1 to execute the sale deed and hand over possession of the suit land to the petitioner.
• Section 19(b) of the Specific Relief Act, 1963: The courts below overlooked this provision, which allows specific performance against any person claiming under the original party, except a transferee for value who acted in good faith and without notice of the original contract.
• Reliance on Nivarti Govind Ingale and Ors. Vs. Revanagouda Bhimanagouda Patil, [1997 (1) SCC 475]: This case supports the view that a subsequent purchaser is bound by a decree of specific performance and is liable to reconvey the property to the plaintiff.
• Reliance on Hardev Singh vs. Gurmail Singh (dead) by LRs., [2007 (2) SCC 404]: This case clarifies the scope of Sections 41, 43, and 52 of the Transfer of Property Act, 1882, arguing that Section 52 does not render a sale deed void during the pendency of a suit.
• Affidavit of Abdul Wajid: A “consent agreement” indicated that the General Power of Attorney in favor of respondent No. 1 was canceled, and a fresh agreement was made in favor of Rafi Ahmed, who sold the property to the petitioner. The courts erred in dismissing the claim based on readiness and willingness to conclude the sale.
• Readiness and Willingness: The findings of the trial court and the High Court regarding the petitioner’s readiness and willingness to conclude the sale were contrary to the evidence.

Respondent’s Arguments:

• Invalid Agreement: The Agreement for Sale executed by respondent No. 1 on February 21, 1995, was invalid because respondent No. 1 had no power or authority to execute it.
• Revoked Power of Attorney: The Power of Attorney executed by respondent No. 2 in favor of respondent No. 1 on April 3, 1995, was revoked. The subsequent Agreement for Sale executed by respondent No. 1 on May 18, 1995, was without legal authority.
• Valid Power of Attorney to Rafi Ahmed: After revoking the Power of Attorney to respondent No. 1, respondent No. 2 gave another General Power of Attorney to Rafi Ahmed on June 9, 1995. Rafi Ahmed then executed the sale deed in favor of respondent No. 3.
• Bona Fide Purchaser: Respondent No. 3 was a bona fide purchaser for value without notice, which does not affect their title to the property.
• Detailed Analysis by Lower Courts: Both the Trial Court and the High Court conducted a detailed analysis of the evidence and found that respondent No. 3 was a bona fide purchaser for value without notice.

Issues Framed by the Supreme Court

1. Whether the transaction between the respondent No. 2 and the respondent No. 3 was hit by Section 52 of the Transfer of Property Act, 1882, and the doctrine of lis pendens.
2. Whether the Trial Court and the High Court erred in law in disallowing the petitioner’s prayer for a direction upon the respondent No. 1 to execute the sale deed in respect of the suit land and to make over possession thereof to the petitioner.
3. Whether the courts below lost sight of the provisions of Section 19(b) of the Specific Relief Act, 1963.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Nivarti Govind Ingale and Ors. Vs. Revanagouda Bhimanagouda Patil, [1997 (1) SCC 475]: The petitioner cited this case to support the argument that a subsequent purchaser is bound by a decree of specific performance. However, the court did not explicitly adopt or reject this view in its reasoning.
• Hardev Singh vs. Gurmail Singh (dead) by LRs., [2007 (2) SCC 404]: The petitioner cited this case to clarify the scope of Sections 41, 43, and 52 of the Transfer of Property Act, 1882. The court did not explicitly adopt or reject this view in its reasoning.
• Section 19(b) of the Specific Relief Act, 1963: The Court relied on this section to validate the Agreement for Sale entered into with respondent No. 3 by Rafi Ahmed, as respondent No. 3 was a bona fide purchaser for value without notice.
• Section 20 of the Specific Relief Act, 1963: The Court referred to this section to emphasize that granting relief of specific performance is purely discretionary.
• Section 21 of the Specific Relief Act, 1963: The Court referred to this section to highlight its power to award compensation for breach of contract instead of decreeing the suit for specific performance.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the respondent No. 1 lacked the legal authority to enter into the Agreement for Sale with the petitioner on the relevant dates. Additionally, the Court considered that respondent No. 3 was a bona fide purchaser for value without notice, which protected their title to the property.

Fact:Law

Logical Reasoning

For the issue of whether specific performance should be granted:

Key Takeaways

• Authority to Contract: It is crucial to verify that the person entering into a sale agreement has the legal authority to do so.
• Bona Fide Purchaser Protection: A bona fide purchaser for value without notice is protected under the law.
• Discretionary Relief: Specific performance is a discretionary remedy and not always granted.

Development of Law

The ratio decidendi of the case is that specific performance cannot be enforced against a seller who lacked the authority to enter into the agreement at the time of execution, especially when the property has been purchased by a bona fide purchaser for value without notice.

Conclusion

The Supreme Court dismissed the special leave petition, upholding the decisions of the Trial Court and the High Court. The Court found that the respondent No. 1 had no legal authority to enter into an Agreement for Sale with the petitioner and that respondent No. 3 was a bona fide purchaser for value without notice. The Court also emphasized that granting relief of specific performance is purely discretionary.

Category

• Transfer of Property Act, 1882
  • Section 52, Transfer of Property Act, 1882
• Specific Relief Act, 1963
  • Section 19, Specific Relief Act, 1963
  • Section 20, Specific Relief Act, 1963
  • Section 21, Specific Relief Act, 1963
• Property Law
  • Specific Performance
  • Bona Fide Purchaser
  • Lis Pendens

FAQ

1. What does this judgment mean for property buyers?
   This judgment highlights the importance of verifying the seller’s authority before entering into a property transaction. It also underscores the protection afforded to bona fide purchasers who buy property without notice of prior agreements.
2. What is a bona fide purchaser?
   A bona fide purchaser is someone who buys property in good faith, pays a fair price, and has no knowledge of any prior claims or disputes on the property.
3. What is specific performance?
   Specific performance is a legal remedy where a court orders a party to fulfill their obligations under a contract, such as a sale agreement. However, it is a discretionary remedy and not always granted.