Supreme Court Upholds Restrictions on Property Transfer in Bangalore Development Authority Cases: G.T. Girish vs. Y. Subba Raju (2022)

LEGAL ISSUE: Whether an agreement to sell a property allotted by the Bangalore Development Authority (BDA), entered into before the expiry of the stipulated non-alienation period, is enforceable.
CASE TYPE: Civil Law, Specific Performance
Case Name: G.T. Girish vs. Y. Subba Raju (D) BY LRs AND ANOTHER
[Judgment Date]: 18 January 2022

Date of the Judgment: 18 January 2022
Citation: (2022) INSC 38
Judges: K.M. Joseph, J. and Pamidighantam Sri Narasimha, J.

Can a contract that seemingly bypasses legal restrictions on property transfer be enforced? The Supreme Court of India recently addressed this critical question in a case involving the Bangalore Development Authority (BDA), clarifying the enforceability of agreements made in violation of statutory rules. This judgment delves into the complexities of property law and contractual obligations, providing crucial insights into the limits of private agreements when they conflict with public policy and statutory mandates. The bench comprised Justices K.M. Joseph and Pamidighantam Sri Narasimha, with the judgment authored by Justice K.M. Joseph.

Case Background

The case revolves around a property in Bangalore originally allotted by the BDA to the first defendant on 04.04.1979, under a lease-cum-sale agreement. The first defendant was given possession of the site on 14.05.1979. On 17.11.1982, the first defendant entered into an agreement with the plaintiff, promising to execute a sale deed within three months of obtaining the sale deed from the BDA. The plaintiff sent letters on 01.03.1983 and 26.04.1984, urging the first defendant to complete the sale. However, the first defendant, on 08.05.1984, claimed the plaintiff was in breach and forfeited the advance amount, stating that the agreement had lapsed. Following this, the plaintiff filed a suit seeking specific performance of the agreement on 14.02.1985. The first defendant died on 18.07.1994, and her husband and son were brought on record as defendants 1(a) and 1(b) respectively. Subsequently, the son executed a sale deed of the property in favor of the second defendant on 19.06.1996. The second defendant was impleaded in the suit in 1997.

Timeline

Course of Proceedings

The Trial Court refused specific performance but directed the return of the amount paid by the plaintiff with interest. The High Court, however, allowed the plaintiff’s appeal, directing the defendants to execute the sale deed in favor of the plaintiff. The High Court found that the second defendant was not a bonafide purchaser and that the alienation was hit by Section 52 of the Transfer of Property Act, 1882.

Legal Framework

The judgment discusses several key legal provisions:

• City of Bangalore Improvement Act, 1945:
  • Section 24: Prohibits the Board from selling sites until improvements specified in Section 23 are substantially provided.
  • Section 29: Grants the Board power to acquire, hold, and dispose of property, subject to restrictions by government rules. Sub-section (3) states that restrictions in grants by the Board will have effect notwithstanding anything in the Transfer of Property Act, 1882.
  • Section 42: Empowers the government to make rules for the allotment or sale of sites and specifying conditions for property transfers.
• City of Bangalore Improvement Allotment of Site Rules, 1972:
  • Rule 2(b): Defines ‘allottee’ as the person to whom a site is allotted.
  • Rule 7: States that the allottee is deemed a lessee until the lease is determined or the site is conveyed.
  • Rule 17: Outlines the conditions of allotment and sale of sites, including payment schedules, lease agreements, and construction timelines. It also specifies that on the expiry of ten years and if the allotment has not been cancelled or the lease has not been determined, the Board shall by notice call upon the allottee to get the sale deed of the site executed.
  • Rule 18: Specifies restrictions, conditions, and limitations on the sale of sites. It includes a prohibition on alienation within ten years from the date of allotment, except by mortgage for construction purposes. It also includes a provision for the BDA to take back the site in case of breach of conditions or if the allottee is unable to reside in Bangalore or due to insolvency or impecuniosity.
• Section 23 of the Indian Contract Act, 1872: Deals with lawful and unlawful considerations and objects of agreements. An agreement is void if its object or consideration is forbidden by law or would defeat the provisions of any law.
• Section 52 of the Transfer of Property Act, 1882: Deals with the doctrine of lis pendens, stating that during the pendency of a suit, property cannot be transferred or otherwise dealt with by a party to the suit so as to affect the rights of any other party.
• Article 54 of the Limitation Act, 1963: Sets the limitation period for specific performance suits as three years from the date fixed for performance or when performance is refused.

The Court emphasized that these rules are statutory and aim to ensure that public property is used for its intended purpose, with allotments made to eligible persons who would construct residential buildings.

Arguments

Appellant’s Arguments (Second Defendant):

• The agreement was unlawful, being opposed to public policy and violating Section 23 of the Indian Contract Act, 1872, due to the ten-year prohibition on alienation in the lease-cum-sale agreement and the Bangalore Rules of Allotment, 1972.
• The agreement was a bargain that defeated the provisions of the law, as it circumvented the ten-year non-alienation clause.
• The suit was premature, as the agreement contemplated the sale deed to be executed three months after the BDA conveyed the sale deed to the first defendant, which was to happen only after ten years from the initial allotment.
• The High Court erred in finding that the second defendant was not a bonafide purchaser, as he was unaware of the pending suit and had conducted all possible inquiries.

Respondent’s Arguments (Plaintiff):

• The agreement was valid, and neither the lease-cum-sale agreement nor the Rules prohibited an agreement to sell.
• The relevant rule is Rule 17, which does not prevent the agreement to sell or sale in favor of the plaintiff.
• The doctrine of Lis Pendens applies, and the second defendant was not a bonafide purchaser.
• The suit was not premature, as the first defendant’s actions forced the plaintiff to seek legal recourse.
• Relied on several judgments of the High Court of Karnataka to contend that an agreement to sell in such circumstances is valid.

Innovativeness of the Argument: The appellant’s argument that the agreement to sell itself was a violation of the law by circumventing the non-alienation clause was particularly innovative.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues:

1. Whether the agreement to sell, entered into before the expiry of the non-alienation period, was valid and enforceable.
2. Whether the second defendant was a bonafide purchaser for value without notice of the prior agreement.
3. Whether the suit was premature.
4. Whether the doctrine of lis pendens applied to the sale in favor of the second defendant.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• Kedar Nath Motani and others v. Prahlad Rai and others [AIR 1960 SC 213]*: The Court referred to this case to explain the principle of in pari delicto potior est conditio defendentis, but found the principle not applicable in the case.
• Narayanamma and another v. Govindappa and others [(2019) 19 SCC 42]*: The Court referred to this case to explain the principle of in pari delicto potior est conditio defendentis and found it applicable in the case.
• Holman v. Johnson [(1775) 1 Cowp 341]*: The Court referred to this case to emphasize that courts will not assist a party who bases their cause of action on an immoral or illegal act.
• Sita Ram v. Radhabai and others [AIR 1968 SC 534]*: The Court referred to this case to explain the exceptions to the rule of turpi causa.
• Motilal v. Nanhelal [AIR 1930 PC 287]*: The Court referred to this case to explain the concept of conditional decrees of specific performance, but found that it was not applicable in the present case.
• Vishwa Nath Sharma v. Shyam Shanker Goela and another [(2007) 10 SCC 595]*: The Court referred to this case to reiterate the principle of conditional decrees of specific performance, but found that it was not applicable in the present case.
• Ferrodous Estates (Pvt.) Limited v. Gopiratnam (Dead) and others [AIR 2020 SC 5041]*: The Court referred to this case to reiterate the principle of conditional decrees of specific performance, but found that it was not applicable in the present case.
• T. Dase Gowda v. D. Srinivasaiah [(1990) SCC Online Karnataka 613]*: The Court distinguished this case, noting that it was different from the facts of the present case.
• Yogambika V. Narsingh [ILR 1992 KAR 717]*: The Court followed this case, noting that it had followed the decision in T. Dase Gowda and the principle of conditional decrees.
• Subbireddy v. K.N. Srinivasa Murthy [AIR 2006 Karnataka 4]*: The Court referred to this case in the context of the agreement to sell being after the non-alienation period.
• Syed Zaheer and others v. C.V. Siddveerappa [ILR 2010 Karnataka 765]*: The Court referred to this case in the context of the agreement to sell being after the non-alienation period.
• Balwant Vithal Kadam v. Sunil Baburaoi Kadam [(2018) 2 SCC 82]*: The Court referred to this case to emphasize that an agreement to sell does not create an interest in land.
• Punjab & Sind Bank v. Punjab Breeders Ltd. and another [(2016) 13 SCC 283]*: The Court referred to this case to reiterate that an agreement to sell is not a sale.
• Suraj Lamp & Industries (P) Ltd. (2) Through Director v. State of Haryana and another [(2012) 1 SCC 656]*: The Court referred to this case to reiterate that a transfer of immovable property can only be by a deed of conveyance.
• K. Chandrashekar Hegde v. Bangalore City Corporation [ILR 1988 KAR 356]*: The Court distinguished this case, noting that it was different from the facts of the present case.
• Jambu Rao Satappa Kocheri v. Neminath Appayya Hanamannayar [AIR 1968 SC 1358]*: The Court referred to this case to explain that a contract for purchase of land entered into with the knowledge that the purchaser may hold land in excess of the ceiling is not void.
• Bhagat Ram v. Kishan and others [(1985) 3 SCC 128]*: The Court followed the principle in Jambu Rao Satappa Kocheri.
• Union of India v. Col. L.S.N. Murthy [(2012) 1 SCC 718]*: The Court disagreed with the view that the word “law” in the expression “defeat the provisions of any law” in Section 23 of the Contract Act is limited to the expressed terms of an Act of the legislature.
• Gherulal Parakh v. Mahadeodas Maiya and others [AIR 1959 SC 781]*: The Court referred to this case to explain that an act forbidden by law includes acts punishable under the Penal Code and acts prohibited by special legislation.
• Ramzan v. Hussaini [(1990) 1 SCC 104]*: The Court distinguished this case, noting that it was a case of contingent contract.
• Ahmadsahab Abdul Mulla (2) (dead) v. Bibijan and others [(2009) 5 SCC 462]*: The Court referred to this case to explain that the date for performance under Article 54 of the Limitation Act must be a specific date.
• I.S. Sikandar (Dead) by Lrs. v. K. Subramani and others [(2013) 15 SCC 27]*: The Court referred to this case in the context of a suit not being maintainable in the absence of a prayer for declaration that the cancellation of agreement was bad in law.
• Mohinder Kaur v. Sant Paul Singh [(2019) 9 SCC 358]*: The Court followed the view in I.S. Sikandar.
• Manjeshwara Krishnaya v. Vasudeva Mallya and Four Others [AIR 1918 Madras 578]*: The Court referred to this case to explain that the Doctrine of Lis Pendens is an extension of the Doctrine of Res Judicata.
• Nallakumara Goundan v. Pappayi Ammal and Another [AIR 1945 Mad 219]*: The Court referred to this case to explain that the doctrine of lis pendens applies when the legal representative of a deceased party disposes of the property within the limitation period for substitution.

Ratio Decidendi

The ratio decidendi of the judgment is that an agreement to sell a property allotted by the Bangalore Development Authority (BDA), entered into before the expiry of the stipulated non-alienation period, is unenforceable because it defeats the provisions of the law and is against public policy. The Court held that such agreements circumvent the statutory rules and the lease-cum-sale agreement, which mandate construction of a residential building and prohibit alienation for ten years. The Court emphasized that the agreement effectively prevented the first defendant from fulfilling their legal obligations under the allotment.

Obiter Dicta

The Court also made the following obiter dicta:

• The Court noted that the suit was filed before the expiry of the ten-year period, but it did not base its judgment on this argument.
• The Court did not explicitly reverse the High Court’s finding that the second defendant was not a bonafide purchaser but stated that even if he was, it would not change the outcome because the agreement was unenforceable.
• The Court held that the doctrine of lis pendens did not apply as the transfer was made by the son of the first defendant before he was impleaded as a party to the suit.

Final Order

The Supreme Court allowed the appeal and set aside the judgment of the High Court. The Court held that the agreement was unenforceable and dismissed the suit for specific performance. The Court did not grant any other relief to the plaintiff.

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