Supreme Court Upholds Family Settlement but Denies Specific Performance: Tilak Raj Bakshi vs. Avinash Chand Sharma (2019)

Introduction

Date of the Judgment: 20 August 2019

Citation: 2019 INSC 838

Judges: Ashok Bhushan, J., K.M. Joseph, J.

Can a family agreement that restricts the sale of property to outsiders be enforced? The Supreme Court of India recently addressed this question in a case involving a dispute among brothers over a family property in Chandigarh. The core issue revolved around whether a brother could sell his share of the property to a third party without the written consent of his other brothers, as stipulated in a family settlement agreement. This case highlights the importance of family settlements and the legal implications of clauses restricting property transfers.

The Supreme Court bench comprised of Justice Ashok Bhushan and Justice K.M. Joseph. Justice K.M. Joseph authored the judgment.

Case Background

The case involves a property in Chandigarh originally owned by Kirpa Ram Bakshi. He had three sons: Tilak Raj Bakshi (the plaintiff/appellant), another son who was the first defendant and another son who was the 3rd defendant in the suit. In 1974, Kirpa Ram Bakshi executed a will in favor of his three sons. The property was subsequently transferred to them by the Estate Officer. On March 31, 1982, the three brothers entered into a family agreement.

Clause 5 of this agreement stated that the individual portions of properties in New Delhi and Chandigarh, along with agricultural land, could not be sold without the written consent of all three brothers. If a sale was agreed upon, the other brothers were to be given first preference. The agreement also mentioned that any special renovations done by any individual brother would be accounted for during a total sale, with the individual being compensated for the extra amount spent, subject to depreciation or appreciation.

The plaintiff claimed that the first defendant violated this agreement by selling the Chandigarh property to the second defendant without his written consent. He argued that this sale was void and sought a declaration to that effect, along with specific performance to purchase the first defendant’s one-third share. The second defendant contested the suit, claiming the family settlement was forged and that he was a bonafide purchaser.

Timeline:

Course of Proceedings

The Trial Court found that the family arrangement was genuine and not forged. It also found that the suit was filed within the limitation period. The court held that the second defendant was not a bonafide purchaser and was aware of the first defendant’s obligation to offer the property to the plaintiff first. The Trial Court declared the sale to the second defendant null and void and granted specific performance to the plaintiff, allowing him to purchase the first defendant’s share.

The first Appellate Court upheld the genuineness of the family arrangement. It noted correspondence indicating an offer to the plaintiff to purchase the property. The court found that the first defendant did not offer the property to the plaintiff directly, but his wife did. It also noted that the plaintiff’s written consent was not obtained before the sale to the second defendant. The Appellate Court dismissed the second defendant’s appeal and further directed the second defendant to hand over possession to the plaintiff.

Legal Framework

The Supreme Court considered several legal provisions in its judgment:

• Section 29 of the Indian Contract Act, 1872: This section deals with agreements that are void due to uncertainty. It states that agreements whose meanings are not certain or capable of being made certain are void.
  
  “Agreements, the meaning of which is not certain, or capable of being made certain, are void.”
• Section 93 of the Indian Evidence Act, 1872: This section states that when the language used in a document is ambiguous or defective, evidence cannot be given to explain or amend it.
  
  “When the language used in a document is, on its face, ambiguous or defective, evidence may not be given of facts which would show its meaning or supply its defects.”
• Rule 16 of the Chandigarh Estate Rules, 2007: This rule prohibits the fragmentation or amalgamation of any site or building, except under specific conditions.
  
  “No fragmentation or amalgamation of any site or building shall be permitted.”
• Section 2(f) of the Capital of Punjab (Development and Regulation) Act, 1952: This section defines “site” as any land transferred by the Central Government under Section 3 of the Act.
  
  “any land which is transferred by the Central Government under Section 3”
• Section 3 of the Capital of Punjab (Development and Regulation) Act, 1952: This section empowers the Central Government to sell, lease, or transfer land or buildings in Chandigarh.
  
  “Subject to the provisions of this section, the Central Government may sell, lease or otherwise transfer, whether by auction, allotment or otherwise, any land or building belonging to the Government in Chandigarh on such terms and conditions as it may, subject to any rules that may be made under this Act, think fit to impose.”
• Section 2(k) of the Capital of Punjab (Development and Regulation) Act, 1952: This section defines “transferee” as a person to whom a site or building is transferred under the Act.
  
  “a person (including a firm or. other body of individuals, whether incorporated or not) to whom a site or building is transferred in any manner whatsoever, under this Act and includes his successors and assigns”
• Section 4(2) of the Capital of Punjab (Development and Regulation) Act, 1952: This section requires every transferee to comply with the directions issued under sub-section (1) and to erect any building or take such other steps as may be necessary.
  
  “Every transferee shall comply with the directions issued under sub -section(1) and shall as expeditiously as possible, erect any building or take such other steps as may be necessary, to comply with such directions.”
• Section 5 of the Capital of Punjab (Development and Regulation) Act, 1952: This section forbids erection or occupation of any building at Chandigarh in contravention of Building Rules made under sub-Section (2).
  
  “forbids erection or occupation of any building at Chandigarh in contravention of Building Rules made under sub -Section (2)”
• Section 2(c) of the Capital of Punjab (Development and Regulation) Act, 1952: This section defines “building” as any construction or part of a construction which is transferred by the Central Government under section 3.
  
  “any construction or part of a construction which is transferred by the ‘[Central Government] under section 3 and which is intended to be used for residential, commercial, industrial or other purposes, whether in actual use or not, and includes any out -house, stable , cattle shed and garage and also includes any building erected on any land transferred by the Central Government under section 3”
• Section 22 of the Capital of Punjab (Development and Regulation) Act, 1952: This section confers power upon the Central Government to make the Rules for various purposes.
  
  “confers power upon the Central Government to make the Rules for various purposes”

Arguments

Appellant’s Arguments:

• The appellant argued that the family settlement contained two distinct conditions: first, that preference must be given to the other sharers, and second, that the first defendant was obliged to obtain the written concurrence of the other sharers before selling the property.
• The appellant contended that the object behind clause (5) was to ensure that a third party does not get entitled to the family property.
• The appellant submitted that courts lean in favor of family settlements and should uphold them. He argued that the restriction on sale was a partial one, which has been approved by the Privy Council and the Supreme Court.
• The appellant emphasized that under Rule 16 of the Chandigarh Estate Rules, 2007, no fragmentation or amalgamation of any site is permissible, and the High Court overlooked this.
• The appellant contended that he was always willing and ready to take the share of the first defendant, and the correspondence showed that the first defendant’s wife was insisting that the entire consideration be paid at Bhilai, whereas the conveyance could only be effected in Chandigarh.
• The appellant argued that even if preference was given to him, he must succeed because clause (5) of the family settlement required written concurrence from the other sharers before a valid sale.

Respondent’s Arguments:

• The respondent supported the High Court’s order, arguing that the first defendant was in a precarious health condition and needed money urgently.
• The respondent pointed out that an offer of Rs. 5 lakhs was made to the plaintiff, which was not unreasonable, but the plaintiff failed to act on it, leaving the first defendant with no option but to sell to the second defendant.
• The respondent contended that the second defendant was a bonafide purchaser, and the lower courts erred in finding otherwise based on a conversation about an offer to the appellant.
• The respondent argued that the first Appellate Court went beyond the Trial Court and ordered the second defendant to put the plaintiff in possession, even though the second defendant was a tenant entitled to protection under the law.

Submissions by Parties:

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether there was a family settlement?
2. Whether the High Court was right in, without even a plea, holding that the family settlement is vague and unenforceable and void?
3. Whether an offer was made by the first defendant to the plaintiff before the sale of the property to the second defendant?
4. Whether the High Court was right in holding that the courts could not exercise discretion under Section 20 of the Specific Relief Act, 1963 as the contract is not specifically enforceable?
5. What is the impact of absence of written concurrence by brothers for sale?
6. What is the effect of the prohibition against fragmentation of property in question under the Capital of Punjab (Development and Regulation) Act, 1952?

Treatment of the Issue by the Court

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

Authorities

The Supreme 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?

• Keshavlal Lallubhai Patel v. Lalbhai Trikumlal Mills Ltd. [AIR 1958 SC 512]: The Court used this case to support the view that an appellate court can examine the vagueness of a contract even if it was not pleaded by the parties.
• K. Naina Mohammed (Dead) Through Lrs. v. A.M. Vasudevan Chettiar (Dead) Through Lrs. and Others [2010 (7) SCC 603]: The Court referred to this case to discuss the nature of family settlements and the concept of preemption. It was distinguished on facts.
• Hari Shankar Singhania and Others v. Gaur Hari Singhania and Others [2006 (4) SCC 658]: The Court cited this case to highlight the importance of family settlements in maintaining peace and harmony within families.
• Muhammad Raza (since deceased) and others v. Abbas Bandi Bibi [AIR 1932 PC 158]: The Court relied on this case to support the view that partial restrictions on alienation, such as those that prevent sales to strangers, are not invalid.
• Bishan Singh v. Khazan Singh [AIR 1958 SC 838]: The Court cited this case to explain the nature of the right of preemption, emphasizing that it is a right to an offer, not a right to the property itself.
• Section 29 of the Indian Contract Act, 1872: The Court used this section to determine whether the family settlement clause was void due to uncertainty.
• Section 93 of the Indian Evidence Act, 1872: The Court used this section to determine whether extrinsic evidence could be used to clarify the family settlement clause.
• Rule 16 of the Chandigarh Estate Rules, 2007: The Court considered this rule to determine if the sale of the property resulted in illegal fragmentation.
• Section 2(f) of the Capital of Punjab (Development and Regulation) Act, 1952: The Court used this section to define “site” in the context of the case.
• Section 3 of the Capital of Punjab (Development and Regulation) Act, 1952: The Court used this section to understand the powers of the Central Government to transfer land and buildings.
• Section 2(k) of the Capital of Punjab (Development and Regulation) Act, 1952: The Court used this section to define “transferee” under the Act.
• Section 4(2) of the Capital of Punjab (Development and Regulation) Act, 1952: The Court used this section to understand the obligations of a transferee.
• Section 5 of the Capital of Punjab (Development and Regulation) Act, 1952: The Court used this section to understand the restrictions on building in Chandigarh.
• Section 2(c) of the Capital of Punjab (Development and Regulation) Act, 1952: The Court used this section to define “building” under the Act.
• Section 22 of the Capital of Punjab (Development and Regulation) Act, 1952: The Court used this section to understand the powers of the Central Government to make rules.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors. The court emphasized the importance of upholding family settlements, but also considered the specific facts of the case. The court noted thatthe family settlement did not create a contract for sale of the property and the terms of the agreement were not clear about the price at which the property is to be sold and purchased. The court also noted that the appellant had received an offer for the property, and did not act on it. The court also noted that the sale did not result in illegal fragmentation of the property.

The court’s reasoning can be summarized as follows:

• Upholding Family Settlements: The court recognized the importance of family settlements in maintaining peace and harmony within families. It acknowledged that courts generally favor such settlements and should try to uphold them.
• Partial Restriction on Alienation: The court reaffirmed that partial restrictions on alienation, such as requiring first preference to be given to family members, are valid. This is in line with the principle that families can impose reasonable restrictions on the transfer of property to outsiders.
• Absence of a Contract for Sale: The court noted that the family settlement did not constitute a contract for the sale of immovable property. The agreement did not specify the price at which the property was to be sold, nor did it lay down the terms of sale.
• Estoppel: The court held that the appellant was estopped from setting up the plea of absence of written consent as the appellant had proceeded to the stage of offer without insisting on the written consent.
• No Illegal Fragmentation: The court found that the sale to the second defendant did not result in illegal fragmentation of the property, as the second defendant could seek partition as a co-owner.
• Offer of Purchase: The court noted that the first defendant had made an offer to the plaintiff to purchase the property, which the plaintiff did not act upon.

Final Decision

The Supreme Court dismissed the appeals. The court upheld the High Court’s decision that the family settlement was valid but not specifically enforceable. The court noted that the family settlement did not create a binding contract for the sale of the property. The court held that the appellant was estopped from setting up the plea of absence of written consent as the appellant had proceeded to the stage of offer without insisting on the written consent. The court also held that the sale did not result in illegal fragmentation.

Implications:

• Family Settlements are Valid: The Supreme Court reiterated the validity and importance of family settlements in resolving disputes and maintaining harmony.
• Partial Restrictions are Valid: The court upheld the validity of clauses in family settlements that impose partial restrictions on alienation, such as requiring first preference to be given to family members before selling to outsiders.
• Specific Performance Not Granted: The court clarified that a family settlement does not automatically create a contract for sale of immovable property. Specific performance cannot be granted for a family settlement that does not specify the price and other terms of sale.
• Importance of Clear Terms: The case highlights the importance of having clear and specific terms in family settlement agreements, especially if they involve the transfer of property. Ambiguous or vague terms can lead to disputes and make it difficult to enforce the agreement.
• Estoppel: The court held that a party can be estopped from raising a plea if they have acted in a way that suggests they have waived that right.

Flowchart of the Case

Ratio of the Case

The following table summarises the ratio of the case: