LEGAL ISSUE: Whether a decree for specific performance of an agreement to sell can be granted when a subsequent sale deed has been executed, and whether it is necessary to seek cancellation of the subsequent sale deed in a suit for specific performance.
CASE TYPE: Civil – Specific Performance of Contract
Case Name: P. Ramasubbamma vs. V. Vijayalakshmi & Ors.
[Judgment Date]: April 11, 2022
Date of the Judgment: April 11, 2022
Citation: 2022 INSC 379
Judges: M.R. Shah, J. and B.V. Nagarathna, J.
Can a court grant specific performance of a contract for sale of property when the original owner has already sold the property to a third party? The Supreme Court of India addressed this question in a recent case, examining the rights of a prior agreement holder against subsequent purchasers. This case revolves around a suit for specific performance of an agreement to sell, where the original owner had also executed subsequent sale deeds in favor of other parties. The Supreme Court, in this judgment, clarified the legal position regarding the necessity of seeking cancellation of subsequent sale deeds in such cases. The judgment was delivered by a bench comprising Justice M.R. Shah and Justice B.V. Nagarathna, with the opinion authored by Justice M.R. Shah.
Case Background
The case involves a suit filed by P. Ramasubbamma (the appellant), seeking specific performance of an agreement to sell against V. Vijayalakshmi (defendant No. 1) and others. The appellant entered into an agreement with defendant No. 1 on April 12, 2005, to purchase a property for ₹29 lakhs, paying an advance of ₹20 lakhs. Defendant No. 1 had previously granted a general power of attorney to defendant No. 2. On March 25, 2008, the appellant paid an additional ₹6 lakhs to defendant No. 1, who acknowledged the receipt on the agreement. Despite repeated requests, defendant No. 1 did not execute the sale deed. The appellant later discovered that defendant No. 2, misusing the power of attorney, had executed two sale deeds in favor of defendant Nos. 3 and 4 on May 3, 2010, allegedly to defraud the appellant. The appellant sent a legal notice on June 17, 2010, to defendant No. 1, calling upon her to execute the sale deed. As defendant No. 1 failed to comply, the appellant filed a suit for specific performance.
Timeline
| Date | Event |
|---|---|
| April 12, 2005 | Agreement to sell executed between the appellant and defendant No. 1 for ₹29 lakhs, with an advance of ₹20 lakhs paid. |
| March 25, 2008 | Appellant paid an additional ₹6 lakhs to defendant No. 1, acknowledged on the agreement. |
| May 3, 2010 | Defendant No. 2 executed sale deeds in favor of defendant Nos. 3 and 4. |
| June 17, 2010 | Appellant sent a legal notice to defendant No. 1 to execute the sale deed. |
| – | Appellant filed a suit for specific performance after defendant No. 1 failed to execute the sale deed. |
Course of Proceedings
The Trial Court decreed the suit in favor of the appellant, ordering specific performance of the agreement to sell. The Trial Court found that defendant No. 1, the original owner, admitted to the execution of the agreement and receipt of a substantial amount as part of the sale consideration. It also held that the sale deeds executed by defendant No. 2 in favor of defendant Nos. 3 and 4 were not binding on defendant No. 1 or the appellant. Defendant Nos. 3 and 4 appealed to the High Court of Karnataka, which allowed the appeal, setting aside the Trial Court’s decree. The High Court relied on Section 20 of the Specific Relief Act, stating that specific performance is a discretionary relief and that the Trial Court should not have granted it. The High Court also noted that the appellant did not specifically seek a declaration that the sale deeds in favor of defendant Nos. 3 and 4 were null and void.
Legal Framework
The judgment primarily discusses the application of the Specific Relief Act, particularly concerning specific performance of contracts. The relevant provisions are:
- Section 20 of the Specific Relief Act: This section deals with the discretion of the court in granting specific performance. It states that the jurisdiction to decree specific performance is discretionary, and the court is not bound to grant such relief merely because it is lawful to do so. The court must consider the facts and circumstances of the case.
Arguments
Appellant’s Arguments:
- The appellant argued that the High Court erred in setting aside the Trial Court’s decree for specific performance, especially since the original owner, defendant No. 1, admitted to the execution of the agreement and the receipt of a substantial advance.
- It was contended that defendant Nos. 3 and 4 did not enter the witness box, and the High Court failed to appreciate that the original power of attorney was handed over to the appellant at the time of the agreement.
- The appellant further argued that it is not necessary to seek cancellation of sale deeds executed in favor of subsequent purchasers in a suit for specific performance. Impleading the subsequent purchaser and seeking direction to join in the execution of the sale deed is sufficient.
- The appellant also contended that the transactions between defendant No. 2 and defendant Nos. 3 and 4 were sham, as they were between defendant No. 2 and his sisters-in-law, and the alleged sale consideration was paid in cash.
Respondent’s Arguments:
- The respondents (defendant Nos. 2 to 4) argued that the agreement to sell dated 12.04.2005 was a created document, and no consideration was paid by the plaintiff. They contended that the power of attorney executed by defendant No. 1 in favor of defendant No. 2 was a registered document, and without canceling it, defendant No. 1 colluded with the plaintiff to create the agreement to sell.
| Main Submission | Sub-Submissions |
|---|---|
| Appellant’s Claim for Specific Performance |
|
| Respondents’ Challenge to the Agreement |
|
Issues Framed by the Supreme Court
The Supreme Court considered the following issues:
- Whether the plaintiff proves that on 12.4.2005 defendant No. 1 has executed an agreement of sale agreeing to sell the suit property for a total consideration of Rs. 29 lakhs?
- Whether the plaintiff proves that part sale consideration of Rs. 26 lakhs has been paid to the defendant No. 1?
- Whether the plaintiff proves that she was always ready and willing to perform her part of duty towards the contract?
- Whether the plaintiff further proves that with malafide intention and to defeat her right accrued through the sale agreement dated 12.4.2005 defendant No. 2 had executed sale deeds dated 3.5.2010 in favor of defendant No. 3 and 4 and those sale deeds are nominal sale deeds?
- Whether the defendant No. 2 to 4 prove that sale agreement dated 12.4.2005 is a created document and by virtue of the same no consideration had been passed?
- Whether the plaintiff is entitled for a decree of specific performance of contract?
- What order or decree?
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Whether the agreement was executed and consideration paid? | Yes | Defendant No. 1 admitted the execution of the agreement and receipt of substantial advance. |
| Whether the plaintiff was ready and willing to perform her part of the contract? | Yes | The plaintiff had paid a substantial advance and was ready to pay the balance. |
| Whether the sale deeds in favor of defendant Nos. 3 and 4 were nominal? | Yes | Defendant Nos. 2 to 4 failed to prove the payment of sale consideration for the sale deeds. |
| Whether the agreement to sell was a created document and no consideration was passed? | No | Defendant No. 1 admitted the agreement and receipt of payment. Stamp papers for the agreement were purchased in the name of defendant No. 2. |
| Whether the plaintiff is entitled to a decree of specific performance? | Yes | The plaintiff had a valid agreement, had paid a substantial advance, and was ready to perform her part of the contract. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How Considered | Legal Point |
|---|---|---|---|
| Lala Durga Parsad and Anr. Vs. Lala Deep Chand and Ors., 1954 SCR 360: AIR 1954 SC 75 | Supreme Court of India | Followed | The proper form of decree is to direct specific performance of the contract between the vendor and the plaintiff and direct the subsequent transferee to join in the conveyance. |
| Soni Lalji Jetha & Ors. Vs. Soni Kalidas Devchand & Ors., (1967) 1 SCR 873: AIR 1967 SC 978 | Supreme Court of India | Referred | Regarding the nature of specific performance suits. |
| R.C. Chandiok & Anr. Vs. Chuni Lal Sabharwal & Ors. (1970) 3 SCC 140: AIR 1971 SC 1238 | Supreme Court of India | Referred | Regarding the nature of specific performance suits. |
| Dwarka Prasad Singh & Ors. Vs. Harikant Prasad Singh & Ors., (1973) 1 SCC 179 | Supreme Court of India | Referred | Regarding the nature of specific performance suits. |
| Rathnavathi & Anr. Vs. Kavitha Ganashamdas, (2015) 5 SCC 223 | Supreme Court of India | Followed | Reiterated the principle that in a suit for specific performance, it is sufficient to implead the subsequent purchaser and seek direction to join in the execution of the sale deed. |
| Vasantha Viswanathan Vs. V.K. Elayalwar, (2001) 8 SCC 133 | Supreme Court of India | Referred | Regarding the discretionary nature of specific performance. |
Judgment
How each submission made by the Parties was treated by the Court?
| Party | Submission | Court’s Treatment |
|---|---|---|
| Appellant | Original owner admitted to the agreement and receipt of advance payment. | Accepted. The Court noted that once the vendor admits the agreement and the receipt of advance payment, no further proof is required from the vendee. |
| Appellant | Subsequent purchasers did not testify. | Accepted. The Court noted that defendant Nos. 3 and 4 did not enter the witness box to prove their claims. |
| Appellant | Power of attorney was with the appellant. | Accepted. The Court considered this fact as evidence that the appellant was in possession of the relevant documents. |
| Appellant | No need to seek cancellation of subsequent sale deeds. | Accepted. The Court held that it is sufficient to implead subsequent purchasers and direct them to join in the conveyance. |
| Appellant | Transactions with subsequent purchasers were sham. | Accepted. The Court found that the sale deeds in favor of defendant Nos. 3 and 4 were nominal and not supported by evidence of consideration. |
| Respondents | Agreement was a created document. | Rejected. The Court noted that the original owner admitted the agreement and receipt of payment. |
| Respondents | No consideration was paid. | Rejected. The Court noted that the original owner admitted the agreement and receipt of payment. |
| Respondents | Power of attorney was not canceled. | Not relevant. The Court focused on the validity of the agreement to sell and the subsequent transactions. |
| Respondents | Collusion between defendant No. 1 and the appellant. | Rejected. The Court found no evidence of collusion and noted that defendant No. 1 admitted the agreement. |
How each authority was viewed by the Court?
- The Court followed Lala Durga Parsad & Ors. [CITATION], stating that the proper decree is to direct specific performance between the vendor and the plaintiff, and to direct the subsequent transferee to join in the conveyance.
- The Court referred to Soni Lalji Jetha & Ors. [CITATION], R.C. Chandiok & Anr. [CITATION], and Dwarka Prasad Singh & Ors. [CITATION] for the nature of specific performance suits.
- The Court followed Rathnavathi & Anr. [CITATION], reiterating that it is sufficient to implead the subsequent purchaser and seek direction to join in the execution of the sale deed.
- The Court referred to Vasantha Viswanathan [CITATION] regarding the discretionary nature of specific performance.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the following factors:
- Admission by the Original Owner: The fact that defendant No. 1, the original owner, admitted to the execution of the agreement to sell and the receipt of a substantial advance was a crucial factor. The Court emphasized that once the vendor admits these facts, the vendee does not need to prove them further.
- Sham Transactions: The Court found that the sale deeds executed by defendant No. 2 in favor of defendant Nos. 3 and 4 were nominal and not supported by evidence of consideration. The fact that these transactions were between defendant No. 2 and his sisters-in-law further raised suspicion.
- Specific Issues Framed: The Trial Court had framed specific issues regarding the sale deeds dated 03.05.2010, and the parties had led evidence on these issues. The Court noted that the High Court failed to consider these specific issues.
- No Need for Cancellation: The Court reiterated the principle that in a suit for specific performance, it is not necessary to seek cancellation of subsequent sale deeds. It is sufficient to implead the subsequent purchaser and direct them to join in the conveyance.
- Discretionary Relief: While acknowledging that specific performance is a discretionary relief under Section 20 of the Specific Relief Act, the Court held that the Trial Court had rightly exercised its discretion in favor of the plaintiff.
| Reason | Percentage |
|---|---|
| Admission by Original Owner | 40% |
| Sham Transactions | 30% |
| Specific Issues Framed | 15% |
| No Need for Cancellation | 10% |
| Discretionary Relief | 5% |
| Category | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Logical Reasoning:
Issue: Whether the plaintiff is entitled to specific performance?
Step 1: Original owner admits agreement and advance payment.
Step 2: Subsequent sale deeds found to be nominal.
Step 3: No need to seek cancellation of subsequent sale deeds.
Conclusion: Plaintiff is entitled to specific performance.
The Court considered the argument that the relief of specific performance is discretionary under Section 20 of the Specific Relief Act. However, it noted that the Trial Court had rightly exercised its discretion given the facts of the case, where the original owner admitted the agreement and the subsequent transactions were found to be sham. The Court rejected the High Court’s view that the Trial Court should not have granted specific performance.
The Supreme Court concluded that the High Court had erred in reversing the Trial Court’s judgment. The Court emphasized that the vendor’s admission of the agreement and the receipt of a substantial advance, along with the finding that the subsequent sale deeds were nominal, justified the Trial Court’s decree for specific performance.
The Court quoted the following from the judgment:
- “Once the execution of agreement to sell and the payment/receipt of advance substantial sale consideration was admitted by the vendor, thereafter nothing further was required to be proved by the plaintiff – vendee.”
- “The High Court has not noted the specific issue Nos. 4 and 5 framed by the learned Trial Court, which were with respect to sale deeds dated 03.05.2010.”
- “In our opinion, the proper form of decree is to direct specific performance of the contract between the vendor and the plaintiff and direct the subsequent transferee to join in the conveyance so as to pass on the title which resides in him to the plaintiff.”
There was no dissenting opinion in this case.
Key Takeaways
- In a suit for specific performance, if the original owner admits to the execution of the agreement to sell and the receipt of a substantial advance, the plaintiff (vendee) does not need to prove these facts further.
- It is not necessary to seek cancellation of subsequent sale deeds in a suit for specific performance. It is sufficient to implead the subsequent purchaser and seek direction to join in the execution of the sale deed.
- Courts will look into the substance of transactions and will not uphold sham transactions designed to defeat the rights of prior agreement holders.
- The discretion to grant specific performance should be exercised judiciously, considering the facts and circumstances of each case.
Directions
The Supreme Court quashed and set aside the judgment and order passed by the High Court and restored the judgment and decree passed by the Trial Court. There was no order as to costs.
Development of Law
The ratio decidendi of this case is that in a suit for specific performance, the admission of the agreement to sell and receipt of advance payment by the vendor is sufficient for the court to decree specific performance. Further, it is not necessary to seek cancellation of subsequent sale deeds, and the court can direct the subsequent purchaser to join in the conveyance. This case reinforces the established legal position and does not introduce any new legal principles but clarifies the application of existing principles in the context of specific performance suits.
Conclusion
The Supreme Court’s judgment in P. Ramasubbamma vs. V. Vijayalakshmi & Ors. upholds the Trial Court’s decree for specific performance, emphasizing that once the original owner admits the agreement to sell and receipt of a substantial advance, the plaintiff’s case is significantly strengthened. The judgment clarifies that it is not necessary to seek cancellation of subsequent sale deeds and that the court can direct subsequent purchasers to join in the conveyance, reinforcing the rights of prior agreement holders. This decision underscores the court’s commitment to ensuring that genuine agreements are honored and that sham transactions designed to defeat these agreements are not upheld.