Supreme Court Upholds Specific Performance of Agreement: Vijay A. Mittal vs. Kulwant Rai (28 January 2019)

Date of the Judgment: 28 January 2019

Citation: (2019) INSC 68

Judges: Abhay Manohar Sapre, J., Indu Malhotra, J.

Can a Karta of a Hindu Undivided Family (HUF) unilaterally sell a property, and what happens if the Karta enters into a sale agreement and then sells the property to someone else? The Supreme Court of India addressed this question in a case concerning the specific performance of a sale agreement. The core issue revolved around whether a sale agreement entered into by the Karta of an HUF was binding on the family and whether a subsequent sale to a third party could be nullified. The judgment was delivered by a two-judge bench of Justices Abhay Manohar Sapre and Indu Malhotra, with Justice Sapre authoring the opinion.

Case Background

The case originated from a civil suit filed on 19 March 1982, by Kulwant Rai and Atul Kumar against Amar Nath, Yash Pal Mittal, Sunil Mittal, and Bal Kishandas. The plaintiffs sought specific performance of an agreement dated 12 June 1979, for the sale of a property located at Narain Dass Building, Durga Charan Road, Ambala Cantt. The agreement was for a sum of Rs. 46,000, with an earnest money of Rs. 5,000 paid by the plaintiffs to Amar Nath. The sale deed was to be executed by 31 December 1979.

However, instead of selling the property to the plaintiffs, Amar Nath sold it to Yash Pal Mittal and Sunil Mittal on 27 November 1981. The plaintiffs contended that they were ready to fulfill their part of the agreement, but Amar Nath breached the contract by selling the property to the other defendants for a higher price.

Amar Nath passed away during the pendency of the suit and his legal representatives were brought on record. The legal representatives of Amar Nath contended that the property was a Joint Hindu Family property, and Amar Nath was not competent to enter into an agreement to sell it without the consent of other coparceners. They also argued that the sale was not for any legal necessity.

Defendants, Yash Pal Mittal and Sunil Mittal, claimed they had purchased the property from Amar Nath based on an agreement entered into in 1978 and were unaware of the plaintiff’s agreement.

Timeline:

Course of Proceedings

The Trial Court dismissed the suit on 22 November 1991, holding that the agreement dated 12 June 1979 was proven, and the plaintiffs were ready and willing to perform their part of the agreement. However, the Trial Court held that Amar Nath was not competent to enter into the agreement because the property was a Joint Hindu Family property, and he was only the Karta. The Trial Court also noted that the plaintiffs failed to aver that the sale was for legal necessity or benefit of the family.

The First Appellate Court, on 15 April 1993, reversed the Trial Court’s decision and decreed the plaintiffs’ suit. The First Appellate Court held that the sale deed executed by Amar Nath in favor of defendants 2 and 3 was invalid as it was a collusive sale to deprive the plaintiffs of their rights under the agreement. It also held that defendants 2 and 3 were not bona fide purchasers and that the agreement of sale entered into by Amar Nath was binding on all coparceners.

The High Court dismissed the second appeal, upholding the judgment of the First Appellate Court. The High Court held that Amar Nath executed the agreement as the Karta of the Joint Hindu Family, and the agreement was binding on him and his legal representatives.

Legal Framework

The case primarily revolves around the concept of a Karta in a Hindu Undivided Family (HUF) and their power to alienate joint family property. The Supreme Court referred to its earlier decision in Sunil Kumar & Anr. vs. Ram Parkash & Ors., [(1988) 2 SCC 77], which states that a Karta can alienate joint family property if it is for legal necessity, benefit of the estate, or to meet an antecedent debt. The Court also considered Section 65 of the Indian Contract Act, which deals with the obligation of a person who has received an advantage under a void agreement or contract.

The Court also examined the concept of specific performance of contracts, particularly in cases where the property has been sold to a third party. The court referred to Lala Durga Prasad & Anr. Vs. Deep Chand & Ors., [AIR 1954 SC 75] to determine the proper form of decree in such cases. The court noted that the practice of courts in India has not been uniform, with three distinct lines of thought emerging. The Supreme Court held that the proper form of decree is to direct specific performance of the contract between the vendor and the prior transferee and direct the subsequent transferee to join in the conveyance to pass on the title to the prior transferee.

Arguments

Appellants’ (Defendants’) Submissions:

• The appellants argued that the plaintiffs had not impleaded all the legal representatives of Amar Nath in their first appeal. Therefore, the decree of the Trial Court dismissing the suit against those not impleaded had become final. They contended that the First Appellate Court had passed conflicting decrees.
• The appellants also argued that the sale made in favor of defendant Nos. 2 and 3 by defendant No. 1 should have been considered a bona fide sale for consideration without notice of the agreement with the plaintiffs.
• They contended that Amar Nath was not the absolute owner of the suit property as it was a Joint Hindu Family property. Therefore, he was not competent to enter into an agreement to sell the suit property, and the sale was not for legal necessity.

Respondents’ (Plaintiffs’) Submissions:

• The respondents argued that the finding on the issue of readiness and willingness to perform the agreement was a finding of fact and was binding on the High Court and the Supreme Court.
• They contended that all the legal representatives of Amar Nath were on record in the Trial Court and had taken a similar defense. Therefore, it was not necessary to implead all of them in the first appeal.
• The respondents argued that the sale to defendants 2 and 3 was a collusive sale to avoid the agreement with the plaintiffs.
• They also contended that one of the sons of Amar Nath had signed the agreement, thus showing that the legal representatives of Amar Nath were aware of the agreement and had given their consent.

Innovativeness of the argument: The plaintiffs’ argument that the legal representatives of Amar Nath were aware of the agreement and had given their consent by virtue of one of the sons being a signatory is an innovative way to show that the sale was made with the consent of the coparceners.

Issues Framed by the Supreme Court:

The Supreme Court did not explicitly frame issues in a separate section. However, the issues that the court addressed can be summarized as follows:

1. Whether the finding of the readiness and willingness of the plaintiffs to perform their part of the agreement is binding on the High Court and the Supreme Court.
2. Whether the non-impleadment of all legal representatives of Amar Nath in the first appeal resulted in conflicting decrees.
3. Whether the sale made in favor of defendants 2 and 3 was a bona fide sale.
4. Whether the agreement dated 12.06.1979 was binding on the legal heirs of Amar Nath.
5. What is the nature of decree to be passed in this case?

Treatment of the Issue by the Court:

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

Authorities

Judgment

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

How each authority was viewed by the Court?

• The Court relied on Sunil Kumar & Anr. vs. Ram Parkash & Ors. [(1988) 2 SCC 77]* to explain the powers of a Karta to alienate joint family property, emphasizing that such alienation must be for legal necessity or benefit of the estate.
• The Court referred to Hunoomanpersaud Panday v. Mussumat Babooee Munraj Koonweree [(1856) 6 Moo Ind App 393]* to explain that the power of the Manager of a joint Hindu family to alienate property is analogous to that of a manager for an infant heir.
• The Court relied on Lala Durga Prasad & Anr. Vs. Deep Chand & Ors. [AIR 1954 SC 75]* to determine the proper form of decree in cases of specific performance where the property has been sold to a third party. The Court held that the subsequent transferee should join in the conveyance.
• The Court relied on Section 65 of the Indian Contract Act* to hold that since the sale between defendant No. 1 and defendants 2 & 3 was declared void, defendant No. 1 was obligated to return the sale consideration to defendants 2 & 3.
• The Court used Order 22 Rule 4(2) of the Code of Civil Procedure, 1908* to state that the legal representatives of Amar Nath were entitled to raise the defenses that were available to Amar Nath against the plaintiffs.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The concurrent findings of the lower courts that the plaintiffs were ready and willing to perform their part of the agreement.
• The fact that all the legal representatives of Amar Nath were on record in the Trial Court and had taken a similar defense.
• The finding that the sale to defendants 2 and 3 was a collusive sale to avoid the agreement with the plaintiffs.
• The fact that one of the sons of Amar Nath had signed the agreement, indicating consent of the coparceners.
• The need to balance the equities between the parties and to avoid further litigation.

The Court’s reasoning was a mix of factual analysis and legal interpretation. The Court placed significant emphasis on the factual findings of the lower courts, particularly the finding of readiness and willingness on the part of the plaintiffs and the collusive nature of the sale to defendants 2 and 3. The Court also relied on legal principles related to the powers of a Karta in a Hindu Undivided Family and the specific performance of contracts.

“A finding on the issue of readiness and willingness is one of the important and relevant findings in a suit for specific performance of an agreement. It is a finding based on facts and once it is recorded, it becomes a finding of fact.”

“The other argument of learned counsel for the appellants (defendants) was that since the respondents (plaintiffs) got impleaded only some legal representatives out of eight legal representatives of late Amar Nath in their first appeal and remaining legal representatives were not impleaded, the decree of the Trial Court dismissing the civil suit qua those legal representatives, who were not made parties in the appeal, had become final.”

“We, therefore, consider it just and proper and with a view to end this litigation between the parties, which is pending since 1982 and also to balance the equities amongst the parties that defendant No.1 through his legal representatives (Appellant Nos. 1-4 & 7 herein) would return a sum of Rs.48,000/- to the legal representatives of defendant No.2 (Appellant No.5 herein) and defendant No. 3 (Appellant No.6 herein).”

Key Takeaways

• A finding of readiness and willingness to perform an agreement in a suit for specific performance is a finding of fact and is binding on higher courts unless it is against the pleadings, evidence, or law.
• In a suit for specific performance, it is not necessary to implead all legal representatives of a deceased party if the majority of them are on record and have taken a similar defense.
• A sale made by a Karta of a Hindu Undivided Family (HUF) is binding on the family if it is for legal necessity or benefit of the estate.
• A subsequent sale to a third party can be nullified in a suit for specific performance if the sale is collusive and intended to avoid the prior agreement.
• In cases of specific performance where the property has been sold to a third party, the proper form of decree is to direct specific performance of the contract between the vendor and the prior transferee and direct the subsequent transferee to join in the conveyance.

Directions

The Supreme Court gave the following directions:

1. The legal representatives of defendant No. 1 (Amar Nath) were directed to deposit a sum of Rs. 48,000 in the executing Court for being paid to the legal representatives of defendant No. 2 and defendant No. 3 within three months.
2. The legal representatives of original plaintiff No. 1 and plaintiff No. 2 were directed to deposit a sum of Rs. 41,000 in the executing Court for being paid to the legal representatives of original defendant No. 1 within three months.
3. The legal representatives of original defendant No. 1, along with the legal representatives of original defendant No. 2 and defendant No. 3, were directed to jointly execute the sale deed in favor of the legal representatives of original plaintiff No. 1 and plaintiff No. 2 and hand over the possession of the suit property to them simultaneously.
4. The executing Court was directed to ensure completion of proceedings within the time fixed and record due satisfaction of the decree.

Development of Law

The ratio decidendi of the case is that a sale agreement entered into by the Karta of a Hindu Undivided Family (HUF) is binding on the family if it is for legal necessity or benefit of the estate, and a subsequent sale to a third party can be nullified in a suit for specific performance if the sale is collusive. The Court also clarified the proper form of decree in cases of specific performance where the property has been sold to a third party.

This case reinforces the established principles regarding the powers of a Karta in an HUF and the specific performance of contracts. There is no change in the previous position of law, but the case clarifies the application of these principles in a situation where the property has been sold to a third party.

Conclusion

In conclusion, the Supreme Court upheld the decision of the lower courts, affirming that the agreement entered into by the Karta of the Hindu Undivided Family was binding on the family and that the subsequent sale to a third party was invalid. The Court also clarified the proper form of decree in such cases, directing the subsequent transferee to join in the conveyance. The judgment underscores the importance of the Karta’s fiduciary duty and the protection of prior agreements in property transactions.