Supreme Court Upholds Specific Performance of Oral Sale Agreement: Manjit Singh vs. Darshana Devi (21 November 2024)

Date of the Judgment: 21 November 2024

Citation: 2024 INSC 895

Judges: Hon’ble Mr. Justice J.B. Pardiwala and Hon’ble Mr. Justice R. Mahadevan

Can a subsequent purchaser of a property be considered a ‘bona fide purchaser’ if they did not inquire about the rights of a person in possession of the property? The Supreme Court of India recently addressed this question in a case concerning the specific performance of an oral agreement of sale. The Court examined whether the subsequent purchasers had taken sufficient steps to verify the title of the property before buying it. The judgment was delivered by a bench comprising Hon’ble Mr. Justice J.B. Pardiwala and Hon’ble Mr. Justice R. Mahadevan.

Case Background

The case revolves around a dispute over the sale of a property. The original owner, Bishan Singh, entered into an oral agreement to sell the property to Darshana Devi (Respondent No. 1) in 1986. This agreement was evidenced by an unregistered sale deed dated 12 February 1986. However, Bishan Singh later sold the same property to Manjit Singh and another (Appellants) through a registered sale deed dated 29 August 1986. Consequently, Darshana Devi filed a civil suit in 1987 seeking specific performance of the oral agreement. She sought a court order to compel the sale of the property to her, as per the original agreement.

Timeline

Course of Proceedings

The Trial Court initially ruled in favor of Darshana Devi, granting the specific performance of the contract. However, the District Court overturned this decision in the first appeal. The District Court held that the subsequent purchasers, Manjit Singh and another, were bona fide purchasers without notice of the prior agreement. Darshana Devi then filed a second appeal before the High Court of Punjab and Haryana. The High Court reversed the District Court’s decision, ruling that the subsequent purchasers were not bona fide purchasers and thus, the specific performance of the oral agreement was valid.

Legal Framework

The Supreme Court referred to Section 19(b) of the Specific Relief Act, 1963, which deals with the enforcement of specific performance against parties claiming under a contract. The section 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;”

The Court also considered Section 3 of the Transfer of Property Act, which defines “notice,” including constructive notice arising from actual possession of the property. Explanation II of Section 3 states:

“Explanation II-Any person acquiring any immovable property or any share or interest in any such property shall be deemed to have notice of the title if any, of any person who is for the time being in actual possession thereof.”

Additionally, the Court examined the definition of “good faith” under Section 3(22) of the General Clauses Act, which states:

“3(22). A thing shall be deemed to be done in good faith where it is in fact done honestly whether it is done negligently or not.”

and Section 2(11) of the Bhartiya Nyaya Sanhita, 2023, which defines “good faith”, as follows:

“2(11). “Good faith- Nothing is said to be done or believed in “good faith” which is done or believed without due care and attention;”

Arguments

Arguments of the Appellants (Manjit Singh and another):

• The Appellants argued that they were bona fide purchasers for value without notice of the prior agreement between Bishan Singh and Darshana Devi.
• They claimed they had paid valuable consideration for the property and were unaware of any prior agreement.

Arguments of the Respondent (Darshana Devi):

• Darshana Devi argued that the Appellants were not bona fide purchasers because they failed to make reasonable inquiries about the property’s title.
• She contended that the Appellants should have inquired about the possession of the property, especially since her husband was a mortgagee in possession.
• She also pointed out that the sale deed in favor of the Appellants indicated that a portion of the sale consideration was kept as a mortgage amount for redemption, which should have raised suspicion.

The innovativeness of the argument by the respondent was that she highlighted the lack of due diligence by the appellants in verifying the title and possession of the property, emphasizing their failure to inquire about the rights of the person in possession, which is crucial for establishing bona fide purchaser status.

Issues Framed by the Supreme Court

The High Court framed the following substantial question of law:

1. “Whether the judgment passed by the First Appellate Court is the result of misreading and non-reading of evidence while returning a finding that the defendant Nos.2 and 3 are bona fide purchasers as per 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 Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

✓ R.K. Mohammed Ubaidullah v. Hajee C. Abdul Wahab [2000 (6) SCC 402]* was followed to reiterate that the onus of proving good faith lies on the subsequent purchaser.

✓ Ram Niwas v. Bano [2000 (6) SCC 685]* was followed to emphasize that abstaining from inquiring about the possession of a tenant leads to deemed notice under Section 3 of the Transfer of Property Act.

✓ Kailas Etc., Works v. Munlity, B. & N. [1968 Bombay Law Reporter 554]* was approved to highlight that acting honestly requires fairness and uprightness, and not acting with wanton or wilful negligence.

✓ The Municipality of Bhiwandi and Nizampur v. Kailash Sizing Works [1974 (2) SCC 596]* was approved to underscore that an authority is not acting honestly if it suspects something wrong and does not make further inquiries.

✓ Daniels v. Davison [(1809) 16 Ves Jun 249: 33 ER 978]* was followed to support the principle that a purchaser must inquire about the terms of a tenant’s possession.

What weighed in the mind of the Court?

The Supreme Court emphasized the importance of due diligence by subsequent purchasers, particularly regarding inquiries about the possession and title of a property. The Court highlighted that the concept of ‘good faith’ requires not only honesty but also due care and attention. The Court noted that the subsequent purchasers, despite being aware of a mortgagee’s possession, failed to make any inquiries, which indicated a lack of good faith. The Court also considered the fact that the subsequent purchasers did not verify the source of funds for the purchase, further demonstrating a lack of due diligence.

Logical Reasoning:

The Court rejected the argument that the subsequent purchasers were bona fide purchasers, emphasizing that they failed to make reasonable inquiries about the property’s title and possession, especially given that the husband of the original agreement holder was in possession as a mortgagee. The court held that this failure amounted to a lack of due diligence and good faith, thus affirming the High Court’s decision to grant specific performance of the oral agreement. The court observed that the subsequent purchasers had constructive notice of the prior agreement due to the possession of the property by the mortgagee. The court emphasized that good faith requires due care and attention, and the subsequent purchasers failed to meet this standard by not making necessary inquiries.

The Court stated, “The aforesaid decision of this Court makes it clear that Section 19 (b) of the Act, 1963 is an exception from the general rule and the onus is on the subsequent purchaser to prove that he purchased the property in good faith and also bona fide purchaser for value.”

The Court also quoted, “A person cannot be said to act honestly unless he acts with fairness and uprightness. A person who acts in a particular manner in the discharge of his duties in spite of the knowledge and consciousness that injury to someone or group of persons is likely to result from his act or omission or acts with wanton or wilful negligence in spite of such knowledge or consciousness cannot be said to act with fairness or uprightness and, therefore, he cannot be said to act with honesty or in good faith.”

The Court further stated, “In Jones v. Gordon, Lord Blackburn pointed out the distinction between the case of a person who was honestly blundering and careless, and the case of a person who has acted not honestly. An authority is not acting honestly where an authority has a suspicion that there is something wrong and does not make further enquiries.”

Key Takeaways

• Subsequent purchasers must conduct thorough inquiries about the title and possession of a property before purchasing it.
• Failure to inquire about the rights of a person in possession of the property can lead to constructive notice of prior agreements.
• The concept of “good faith” requires not only honesty but also due care and attention.
• Subsequent purchasers cannot claim to be bona fide purchasers if they fail to make reasonable inquiries.
• Oral agreements of sale can be enforced through specific performance if subsequent purchasers are not considered bona fide.

Directions

The Supreme Court directed that the plaintiff (Darshana Devi) may now proceed with the execution of the decree passed by the Civil Court.

Development of Law

The ratio decidendi of this case is that subsequent purchasers of a property cannot be considered bona fide purchasers if they fail to make reasonable inquiries about the title and possession of the property, particularly when there is a person in possession. This decision reinforces the principle that constructive notice applies when a purchaser fails to inquire about the rights of a person in possession, and it clarifies the requirements for establishing a bona fide purchaser status under Section 19(b) of the Specific Relief Act, 1963. The Court’s emphasis on due diligence and the need for a purchaser to act with both honesty and due care represents a reiteration of established legal principles rather than a change in the previous position of law.

Conclusion

The Supreme Court dismissed the appeal, upholding the High Court’s decision to grant specific performance of the oral agreement of sale. The Court emphasized that subsequent purchasers must conduct thorough inquiries to establish themselves as bona fide purchasers and that a failure to do so can result in the enforcement of prior agreements. This judgment underscores the importance of due diligence in property transactions and reinforces the protection of prior agreements.