A. K. LAKSHMIPATHY (DEAD) & ORS. v. RAI SAHEB PANNALAL H. LAHOTI CHARITABLE TRUST & ORS

Citation: [2009] 15 S.C.R. 475

Court: Supreme Court of India

Bench: TARUN CHATTERJEE, AFTAB ALAM

Case summary

A. K. LAKSHMIPATHY (DEAD) & ORS. v. RAI SAHEB PANNALAL H. LAHOTI CHARITABLE TRUST & ORS.pdf

Judgment text

collect the earnest amount. Appellant filed suit for specific performance of the contract for sale by respondents. Trial Court held that appellant by insisting upon the respondents to perform additional condition were not ready and willing to perform their part of contract and s time was not essence of contract. It dismissed the suit but passed a decree directing the respondent to refund the earnest money to the appellant. High Court upheld the decree and held that the time was the essence of the contract. Hence the present appeal. Partly allowing the appeal, the Court HELD: 1. The judgment of the High Court so far as the suit for specific performance of the contract for sale is concerned is upheld. [Para 19] [494-A-B] 2. 1. From a bare perusal of clauses of the contract for sale, it would be evident that the onus is on the .. appellants to obtain clearance from the competent authorities under the Urban Land (Ceiling and Regulation) Act, 1976.

The respondents were nevertheless bound to extend their full cooperation to the vendees and to sign all necessary papers and documents. In the contract, there is no such clause where the certificate from the Endowment Department was also to be taken for specific performance of the contract. The first appellant who was one of the executors of the said contract had admitted in his evidence that the transaction was finalized in the presence of a real estate broker and neither he nor any of the other appellants had asked the respondent to·get permissions from the Endowment Department at that juncture. The first appellant had further deposed that he started entertaining doubts about the motives of the sellers from 28th of May, 1970 because there were allegedly other brokers approaching the respondent. Further PWs. 1 and 3 had AK. LAKSHMIPATHY (DEAD) & ORS. v. RAI SAHEB 477 PANNALAL H. LAHOTI CHARITABLE TRUST & ORS.

affirmed at the trial court level that they had entered into the agreement only after having satisfied themselves of the title of the sellers and that they were ready to go ahead to complete the contract. [Para 10] (486-A-F] 2. 2. It is generally the prerogative of the buyer to find 6 out the defects in a property before buying it and also to make the seller rectify such defects. Section 55 of the Transfer of Property Act, 1882 deals with rights and liabilities of buyer and seller. Sub-section (b) of s. 55(1) clearly says that it would be open to the buyer to ask the seller to produce for examination all documents of title relating to the p·roperty which are in the possession of the seller or buyer. A plain reading of the provision would amply show that documents of title relating to the property in respect of which agreement for sale was entered into must be in the possession or power of the seller which should be produced to the buyer for examination.

[Paras 11 and 13] (486-G; 488-E-G] 2. 3. In the instant case, sub-section (c) of s. 55 of the T. P. Act is pertinent: A reading of the provisions u/s. 55 · which starts with "In the absence of a contract to the contrary' would clearly mean thats. 55 (1) (b) and (c) of the Act would become applicable only in the absence of these words 'contract to the contrary'. [Para 12] [487-E- F] 2. 4. The condition regarding the clearance or exemption from the Endowment Department is not document of title relating to the property which would benefit the buyer for examination for the purpose of completing the agreement for sale. Sub-section (c) of s. 55(1) also equally cannot be applicable in the facts and circumstances of the instant case. It is evident from a plain reading of s. 55 that this section becomes applicable only in the absence of contract to the contrary. There is admittedly a contract for sale which clearly lays { )"'" down the terms and conditions to govern the sale transaction.

The views expressed by the High Court that since the Head Office of the Trust is registered at Kolkata which would be enough to show that the relevant law ~~ applicable to a charitable trust would be that of the State in which the Head Office of the Trust is registered, is accepted. The respondents had fulfilled their part of the obligation when respondent No. 2 sent a reply dated 6th of June, 1979 intimating the appellants that there was no need to obtain any permission from the Endowment Department for the purpose of transferring the title in respect of the property in question as the laws of the West Bengal applicable in this case, were not required to take such permission for alienation of trust property. Therefore, there was no obligation on the part of the "' respondents to get clearance of permission or exemption from the Endowment Department of the State for the purpose of transferring the title of the property in question. [Para 13] [488-G-H; 489-A-F] State of Bihar vs. Smt.

Charusila Dasi AIR 1959 SC 1002; Anant Prasad vs. State ofAndhra Pradesh AIR 1963 SC 853, Referred to. 2. 5. The submission that the High Court was in error in not giving any due regard to all the clauses of the r. ,, contract for sale especially Clause 11 of the agreement for sale cannot be accepted. From a mere glance through ' " the judgment of the High Court, it would be evident that the entire agreement was reproduced verbatim and the High Court in the impugned order truly went in depth into the discussion of the terms and conditions embodied in ,,. the contract for sale. Its analysis wa~ impregnable. [Para 14] [489-F-H; 490-A] . ~ 3. 1 The High Court rightly pointed out that there are many instances in the said contract where the fact that A. K. LAKSHMIPATHY (DEAD) & ORS. v. RAI SAHEB 479 PANNALAL H. LAHOTI CHARITABLE TRUST & ORS. time is to be of essence of the contract has been specifically mentioned.

Clause 10 of the Agreement of Sale which reads: "Time will be of essence of the contract", therefore, has been clearly mentioned in the agreement for sale. However, time is not to be of essence in case of sale of immoveable property. [Para 15] (490-C- 8 E] Chand Rani vs. Kamal Rani AIR 1993 SC 1742, Referred to 3. 2. A reading of clause 3 of the agreement for sale would clearly show that what was the intention of the parties to make time to be the essence of the contract. If clause 3 and clause 10 of the agreement for sale is read conjointly , it would be safe to conclude that the intention ; of the parties to enter into the agreement for sale incorporating clauses 3 and 10 in the same for the purpose of making the time being the essence of the contract. [Para 17] (491-C-D] 3. 3. Clauses 3 and 10 of the contract for sale clearly indicate that time was always meant to be of prime importance in the contract. In fact P. W.

1, who was examined as a witness for the appellants admitted in his deposition that time was always the essence of the contract and the appellants were aware of this even before entering into the contract. From the contract for sale also, it can be seen that time was repeatedly mentioned to be of prime importance and it was stated quite clearly that under all circumstances, the appellants would have to definitely deposit the balance amount of Rs. 5 lakhs by the date stipulated in the contract for sale. Hence, it cannot be said that the time was not the essence of the contract. [Para 17] [492-8-0] Swarnam Ramachandram (Smt) & Anr. v. Aravacode Chakungal Jayapalan (2004) 8 SCC 689, Distinguished. 4. 1. In a suit for specific performance of a contract i.

I for sale, it has to be proved that the plaintiff who is seeking for a decree for specific performance of the contract for sale must always be ready and willing to complete the terms of the agreement for sale and that he has not abandoned the contract and his intention is to keep the contract subsisting till it is executed. This readiness and willingness on the part of the appellants in the facts and circumstances of the case, cannot be found in favour of the appellants. In the instant case, not only the trial court as well as the High Court on concurrent findings of fact and on consideration of the evidence on record came to the conclusion that the appellants were not ready and willing to perform the terms and conditions of the agreement for sale.

It is evident from the exhi~its which would show that the 0 appellants sought clarifications regarding the joining of all trustees in execution of the sale deed, asking the second respondent to enter into another agreement by way of indemnifying the appellants for any loss due to defect in the title, etc. There is no justification to say that the demands of the appellants were justified and reasonable. On the other hand, this demand on the part of the appellants was not only unjustified and unreasonable but it was in fact imaginary. In order to show that the appellants were all ready and willing to perform their part of their obligation to complete the agreement was to bear the remaining amount of the contract and then agitate the matter for specific performance before the court. Therefore, the appellants having failed to do so, they cannot be allowed to take advantage of their own mistake and conveniently pass the blame to the respondents. [Para 18] [492-E-H; 493-A- E] 4. 2.

The concurrent findings of fact arrived at by the High Court and the trial court on the question of A. K. LAKSHMIPATHY (DEAD) & ORS. v. RAI SAHEB 481 PANNALAL H. LAHOTI CHARITABLE TRUST & ORS. readiness and willingness of appellant to perform their part of obligation, to complete the agreement for sale, cannot be interfered with. [Para 18] [493-F-G] Chand Rani vs. Kamal Rani AIR 1993 SC 1742; K. S. Vidyanam and Ors v. Vairavan (1997) 3 SCC 1, Relied on. Case Law Reference: AIR 1959 SC 1002 Referred to. Para 13 AIR 1963 SC 853 Referred to. Para 13 AIR 1993 SC 1742 Relied on Para 15, 18 (2004) 8 sec 689 Distinguished. Para 17 (1997) 3 sec 1 Relied on. Para 18 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7208 of 2009. From the Judgment & Order dated 23. 2. 2005 of the High Court of Judicature Andhra Pradesh at Hyderabad in C. C. C. A. No. 88 of 1993. , K. K. Venugopal, Suryanarayana, P. S. Narasimha, Mohan Rao, Sridhar Potaraju, Gopal, Julius for the Appellants. P. S. Patwalia, G.

Ramakrishna Prasad, Suyodhan . ,. Byrapaneni, Siddharth Patnaik, K. Venkata Rao for the Responden~ The Judgment of the Court was delivered by TARUN CHATTERJEE, J. 1. Leave granted. 2. This appeal by way of a Special Leave Petition has been filed by the appellants to challenge the judgment and decree dated 23rd of February 2002 of the High Court of Andhra Pradesh at Hyderabad in C. C. C. A. no. 88/1993 and AS no. 673 of 1995, which was filed by the defendants/ respondents in so far as the direction given by the trial Court to refund a sum of Rs. 1,00,000/- to the plaintiffs/appellants, ~ which they had paid to the defendants/respondents as an advance, was concerned. 3. The relevant facts leading to the filing of this appeal are:- \- The dispute in this appeal involves a property marked no. 1-11-251 in Begumpet, Hyderabad (hereinafter referred to as the 'property in question') which was owned by one Rai Bahadur Saheb Pannalal Lahoti.

By a Will, he bequeathed all his properties including the property in question and appointed Respondent no. 2 B. M. Bhandari and one Bhima Bai as joint executors of his Will. According to the Will of Rai Bahadur Saheb Pannalal Lahoti, one-fourth of the fund of his estate was to be used for hospitals and educational institutions in equal shares as the executors would deem fit. After the death of Bhima Bai, who was one of the joint executors of the Will, her '" heirs Govind Bai Vinani and Suresh Chandra Lahoti (Respondents no. 2 and 5 respectively) came into the picture. ~ .... By a trust deed as per the wishes of the Late Rai Bahadur Saheb Pannalcil Hiralal Lahoti, a Charitable Trust by the same name was set up. The trust owned properties in Hyderabad, Andhra Pradesh and Hingoli in Maharashtra. The registered office was in Kolkata, West Bengal. Respondent no. 2 on behalf of the trust entered into a written contract for sale with "t appellant no.

1 on 6th of December 1978 agreeing to sell the property in question measuring 9400 sq. yards along with constructions thereon. The contract contained certain terms and .. conditions. The first of such condition was that Appellant no. 1 would advance a sum of Rs. 1 lakh and the rest of the balance amount, i. e. , Rs. 5 lakhs would be paid by the appellants on or i"-before 5th of June 1979. Under the contract, the appellants also agreed to obtain the necessary permission or exemption from ~ the competent authorities under the Urban Land (Ceiling and ~ ' Regulation) Act, 1976 (hereinafter referred to as "the ULC Act"). It was also alleged that the respondents shall cooperate with 1~ AK. LAKSHMIPATHY (DEAD) & ORS. v. RAI SAHEB PANNALAL 483 the appellants in getting all such necessary permissions from the competent authority under the ULC Act. Clause 10 of the Contract emphatically mentioned that time was the essence of the contract.

It reads as under: "Time will be of essence of the contract. " 4. The said contract also mentioned that in case of failure of the appellants to pay the balance amount within the stipulated time, the respondents would forfeit the balance amount. 5. Thereafter, the competent authority under the ULC Act informed the appellants of being granted exemption provided that the land was continued to be used for the purposes of the trust. Due to such intimation, the Appellants sought clarifications from Respondent no. 2 regarding procurement of permissions from the Endowment Department in a telegraphic notice on 29th " of May 1979. This was followed by a registered notice on 31st of May 1979. Respondent no. 2 sent a reply to the appellants ,f on 4th of June 1979 without clarifying the doubts raised on procurement of permission from the Endowment Department. In response, the appellants sent a detailed communication to the respondent enquiring about the state of affairs on 5th of June 1979.

The respondent no. 2 sent a reply on 6th of June 1979 informing the appellants that there was no requirement of . ,. obtaining permission from the Endowment Department as the • laws of West Bengal, which were applicable in this case, did not require any particular procedure for alienation of the trust property. 6. Thereafter, the appellants sent a communication enclosing a Photostat copy of a cheque of Rs. 5 lakhs, certified by the banker as "good for payment", thus showing their readiness and willingness to complete the contract with the "! -"' balance consideration but with the condition that the respondent had to obtain a certificate from, the Endowment Department. ln reply, on 7th of June 1979 the respondents sent a Photostat copy of a cheque of Rs. 1 lakh towards return of the advance amount simply terminating the agreement and threatening to .... ~ ,. forfeit the advance amount. The written communication mentioned that Respondent no.

2 was kind enough to offer the earnest amount back to the appellants on the condition that the latter would not agitate the matter further. The appellants were directed to collect the amount within three days of the receipt of the letter; ptherwise the earnest money would be forfeited. The said letter mentioned that by this communication the respondents would not be waiving any of their rights to pursue (. the matter further. • }-- ~ 7. The appellants then filed a suit being O. S. No. 317/1985 Jc in the Court of The Principal Subordinate Judge, R. R. District, Hyderabad for specific performance of the said contract for sale by the seller-respondents. The trial court framed no less than 17 issues in all.

After examining witnesses, hearing ~ arguments of both the parties and deliberating upon the issues, the Trial Court, iriter alia, held that the appellants by insisting -\upon the trustees to perform additional conditions were not ·+ ready and willing to perform their part of the contract and also holding that time was hot the essence of the contract. Accordingly, the Trial Court on 25th of August 1993 dismissed the suit for specific performance but passed a decree directing refund of Rs 1 Lakh of earnest money to the appellants. • 8. Thereafter, the appellants, aggrieved by the decree, filed ·+ an appeal before the High Court of Andhra Pradesh at "' Hyderabad being C. C. C. A. no. 88/1993 and the respondents had filed another appeal A. S. No. 673 of 1995 against the said decree, to the extent that the Trial Court had directed the respondents to refund the advance . amount of Rs. 1 lakh.

On 23rd of February 2003, the High Court by its judgment and decree affirmed the decree of the Trial Court and held that time .... ... y was the essence of the contract. Feeling aggrieved, the appellants filed a Special Leave Petition which, on grant of A. K. LAKSHMIPATHY (DEAD) & ORS. v. RAI SAHEB PANNALAL 485 ---1-. ,1 . #'. leave, was heard in presence of the learned counsel for the parties. 9. Having heard the learned counsel for the parties and after examining the materials on record including the judgment of the courts below, the following questions need to be decided for proper disposal of this appeal which are as follows :- (i) Whether the insistence of the appellants to get the ~- clearance of the Endowment department of the. State of Andhra Pradesh at Hyderabad was the condition to be incorporated in the agreement itself for the purpose of a decree for specific performance of the contract for sale ?

(ii) Whether in the facts and circumstances of the ~ present case the appellant could be found to be not ready and willing to perform their part of the contract " ? (iii) Whether in the facts and circumstances of the present case, the High Court was in error in holding that time was the essence of the contract for sale? (iv) Whether in the facts and circumstances of the " present case, the respondents are entitled to forfeit • the advance amount paid by the appell13ntspurchasers? 10. Let us now turn to the questions at hand. The learned counsel for the appellants argued that the appellants had shown their willingness and readiness to perform their part of the contract by sending a photostat copy of a cheque within the £ stipulated time. Mr. P. S. Patwalia, the learned senior counsel . ,.

for the respondents, argued that the appellants were on one hand supposedly ready with the balance amount and on the other hand were imposing additional conditions, which is not permissible and which is beyond the terms of the contract. To ..... _ add:ess this question, a look at the contract for sale is ~ ...... pertinent. From a ~are perusal of clauses 4, 7, 8 and g of the Contract for sale, 1t would be evident that the onus is on the appellants to obtain clearance from the competent authorities under the ULC Act. The respondents were nevertheless bound to extend their full cooperation to the vendees and to sign all necessary papers and documents. In clauses 7 to 9 of the said contract, the respondents agreed to obtain non-encumbrance !! > and clearance certificates from the Income Tax Department and .. J. also to settle all payments to be made towards Municipal taxes, water tax, non-agricultural land assessment tax, etc.

In the Contract, there is no such clause where the certificate from the Endowment Department was also to be taken for specific performance of the contract. The first appellant who was one ,... of the executors of the said contract had admitted in his evidence that the transaction was ,finalized in the presence of ~ real estate broker and neither he nor any of the. other appellants had asked the respondent to get permissions from ¥ the Endowment Department at that juncture. The first appellant had further deposed that he started entertaining doubts about the motives of the sellers from 28th of May, 1970 because there were allegedly other brokers approaching the respondent. Further P. Ws. 1 and 3 had affirmed at the Trial Court level that they had entered into the agreement only after having satisfied ,,. themselves of the title of the sellers. The important admission -1 that was made was that they were ready to go ahead to complete the contract. 11.

Nevertheless, it must be recognized that it is generally the prerogative of the buyer to find out the defects in a property before buying it and also to make the seller rectify such defects. The rights of the buyer to seek reasonable clarifications and raise reasonable doubts have been statutorily recognized by '"'·"'. ie Section 55 of the Transfer of Property Act, 1882 (hereinafter referred to as the T. P. Act). Section 55 runs as under:- "Rights and liabilities of buyer and seller- In the absence AK. LAKSHMIPATHY (DEAD) & ORS. v. RAI SAHEB PANNALAL 487 -- -- willingness on the part of the appellants to complete the agreement for sale. A 19. For the reasons aforesaid, we affirm the judgment of the High Court so far as the suit for specific performance of )- ~ the contract for sale is concerned.

Since no appeal has been filed by the respondent against the order regarding the forfeiJure of the amount in question, we need not go into the question B whether such forfeiture was proper or not. 22. For the reasons aforesaid, the appeal is allowed to the extent indicated above. There will be no order as to costs. N. J. Appeal partly allowed.