Specific Performance of Contracts in India: Navigating the Rights of Subsequent Purchasers

Specific Performance of Contracts in India: Navigating the Rights and Liabilities of Subsequent Purchasers

Introduction

The remedy of specific performance, rooted in equity, compels a party to execute their contractual obligations, particularly in agreements for the sale of immovable property where monetary compensation is often deemed inadequate. A complex legal scenario arises when the vendor, after entering into an agreement to sell property to one party (the prior agreement holder), subsequently sells or agrees to sell the same property to another person (the subsequent purchaser). This article undertakes a comprehensive analysis of the legal framework in India governing the rights and liabilities of such subsequent purchasers in suits for specific performance. It examines the interplay between the Specific Relief Act, 1963, the Transfer of Property Act, 1882, the Code of Civil Procedure, 1908, and authoritative judicial pronouncements that have shaped this area of law.

Background: The Sanctity of Contract and Competing Interests

The law of contract upholds the principle of sanctity of contract, implying that parties should be held to their bargains. Specific performance is a manifestation of this principle. However, the introduction of a subsequent purchaser creates a triangular conflict: the prior agreement holder seeks to enforce their contractual right to obtain the property; the vendor has breached the initial contract, often by seeking a better price; and the subsequent purchaser, who may or may not have knowledge of the prior agreement, has acquired an interest in the same property. Indian law attempts to balance these competing interests, primarily through the provisions of the Specific Relief Act, 1963, and the concept of notice.

Key Legal Principles Governing Subsequent Purchasers

The determination of rights in such conflicts hinges on several statutory provisions and the equitable considerations applied by courts.

1. The Specific Relief Act, 1963 (SRA)

Section 19 of the SRA is pivotal. It delineates against whom specific performance of a contract may be enforced. Section 19(b) states that specific performance can be enforced against:

"any other person claiming under him [a party to the contract] 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;"
This provision protects a bona fide purchaser for value without notice of the prior contract. The onus of proving that they are a transferee for value, paid money in good faith, and had no notice of the original contract typically lies on the subsequent purchaser.[1][2][3] Furthermore, Section 16(c) of the SRA mandates that the plaintiff (prior agreement holder) must plead and prove their continuous readiness and willingness to perform their part of the contract, which is a prerequisite for obtaining specific performance.[4]

2. The Transfer of Property Act, 1882 (TPA)

The concept of "notice" in Section 19(b) SRA is interpreted in light of Section 3 of the TPA. Notice can be actual or constructive. A person is said to have constructive notice of a fact if, but for "wilful abstention from an enquiry or search which he ought to have made, or gross negligence, he would have known it."[5] Possession of the property by a tenant or another person can, in certain circumstances, amount to constructive notice of the rights of that person.[6][7]

Section 52 of the TPA, embodying the doctrine of lis pendens, is also crucial. It provides that during the pendency of any suit or proceeding in which any right to immovable property is directly and specifically in question, the property cannot be transferred or otherwise dealt with by any party to the suit or proceeding so as to affect the rights of any other party thereto under any decree or order which may be made therein, except under the authority of the Court and on such terms as it may impose. A transfer made during the pendency of a suit for specific performance is subject to the outcome of the suit.[8][9][10] A subsequent purchaser acquiring property *pendente lite* generally cannot successfully plead the defence of being a bona fide purchaser without notice under Section 19(b) SRA against the plaintiff in that suit.[11][12]

3. The Code of Civil Procedure, 1908 (CPC)

Order 1 Rule 10 of the CPC empowers courts to add parties to a suit. In suits for specific performance, a subsequent purchaser claiming under the vendor is generally considered a necessary or at least a proper party to ensure that an effective decree can be passed and to avoid multiplicity of proceedings.[13][14] However, a person claiming an independent title, not derived from the vendor, may not be a necessary or proper party to a suit for specific performance.[15]

Rights and Liabilities of the Subsequent Purchaser

1. The Bona Fide Purchaser for Value Without Notice

As per Section 19(b) SRA, a subsequent transferee who has paid valuable consideration, acted in good faith, and had no notice (actual or constructive) of the prior contract is protected. Specific performance cannot be enforced against such a purchaser. The burden of establishing these conditions rests on the subsequent purchaser.[16][17] The term "good faith" implies honesty in the transaction. "Notice" includes not only actual knowledge but also knowledge imputed through circumstances that ought to have put a prudent person on inquiry.[18]

2. Subsequent Purchaser With Notice or Not for Value, or *Pendente Lite*

If the subsequent purchaser had notice of the prior agreement, or if the transfer was gratuitous, or if the transfer occurred *pendente lite* (during the pendency of a suit for specific performance by the prior agreement holder), they are generally bound by the prior contract. The prior agreement holder can enforce specific performance against both the vendor and such a subsequent purchaser.[19][20] The Supreme Court in Thomson Press (India) Limited v. Nanak Builders And Investors Private Limited And Others emphasized that a subsequent purchaser who buys property despite an injunction or with knowledge of the pending suit cannot claim equities.[21]

The Form of Decree in Suits for Specific Performance Against Subsequent Purchasers

The seminal case of Lala Durga Prasad And Another v. Lala Deep Chand And Others laid down the proper form of decree in a suit for specific performance where the property has been subsequently transferred to another person with notice of the prior contract.[22] The Supreme Court held that the proper form of decree is to direct specific performance of the contract between the vendor and the plaintiff (prior agreement holder) and direct the subsequent transferee to join in the conveyance so as to pass on the title which resides in him to the plaintiff. The decree should also provide for the payment of the purchase money. The plaintiff is to deposit the balance purchase money in court, which would then be paid to the vendor (or apportioned if the subsequent purchaser had already paid the vendor). The vendor would then be directed to refund any amount received from the subsequent purchaser.

This principle has been consistently followed. In Kafiladdin v. Samiraddin, cited with approval in Lala Durga Prasad and later cases like Thomson Press, the Calcutta High Court noted that equity enforces specific performance against the vendor and all persons claiming under him by a title arising subsequently to the contract, except bona fide purchasers for value without notice.[23] The Madras High Court in Chinna Vannan v. Alomelu And Others reiterated that the proper decree is to direct the subsequent transferee to join in the conveyance.[24] The Delhi High Court in Ramji Lal And Others v. Ram Pershad And Another highlighted the importance of correctly framing the decree to include the subsequent purchaser in the execution of the sale deed.[25]

It is not appropriate to merely declare the subsequent sale void or cancel it. The title that has passed to the subsequent purchaser must be conveyed to the prior agreement holder through a properly executed instrument involving the subsequent purchaser.[26]

Judicial Interpretation and Application: Insights from Reference Materials

The Indian judiciary has extensively interpreted these provisions.

In Lala Durga Prasad And Another v. Lala Deep Chand And Others (1954)[27], the Supreme Court established the foundational principle for the form of decree, ensuring that the plaintiff obtains a clear title by compelling both the vendor and the subsequent purchaser (with notice) to convey the property. The court emphasized that the subsequent purchaser with notice is obliged to join in the conveyance.

The necessity of the plaintiff proving readiness and willingness, a sine qua non for specific performance under Section 16(c) SRA, was a focal point in Veerayee Ammal v. Seeni Ammal (2002)[28]. While the case primarily dealt with appellate jurisdiction, it implicitly underscores that only a plaintiff who meets this statutory requirement can seek to enforce the contract, including against a subsequent purchaser.

The discretionary nature of specific performance (historically under Section 20 SRA, now amended) and the impact of parties' conduct were touched upon in Jai Narain Parasrampuria (Dead) And Others v. Pushpa Devi Saraf And Others (2006)[29]. While the court awarded compensation instead of specific performance due to mutual misconduct, it illustrates that equitable remedies are subject to judicial discretion, which can be influenced by the bona fides of all parties involved, including subsequent purchasers.

The importance of "notice" was central to Ram Niwas (Dead) Through Lrs. v. Bano (Smt) And Others (2000)[30]. The Supreme Court remanded the case for a fresh examination of whether the subsequent purchasers had constructive notice of the prior agreement, emphasizing the broad definition of "notice" under Section 3 of the TPA. Similarly, in R.K Mohammed Ubaidullah And Others v. Hajee C. Abdul Wahab (D) By Lrs. And Others (2000)[31], the Supreme Court affirmed that subsequent purchasers who failed to make due inquiries despite circumstances suggesting a prior interest could not be deemed bona fide purchasers without notice. The burden of proof was highlighted.

The doctrine of lis pendens (Section 52 TPA) and its effect on subsequent purchasers was thoroughly examined in Thomson Press (India) Limited v. Nanak Builders And Investors Private Limited And Others (2013)[32]. The Court held that a subsequent purchaser who buys property during the pendency of a specific performance suit, especially with knowledge of an injunction, is bound by the outcome and is a proper party to the suit. This was also echoed in A. Nawab John And Others v. V.N Subramaniyam (2012)[33], which discussed the rights of *pendente lite* purchasers. Recent High Court decisions like KARAM SINGH v. JOGINDER PAL (2024)[34] and OM PARKASH v. JOGINDER PAL AND ANOTHER (2024)[35] from the Himachal Pradesh High Court confirm that sales made after the institution of a suit for specific performance are hit by *lis pendens*, and the subsequent purchaser cannot claim protection under Section 19(b) SRA. The Supreme Court in Guruswamy Nadar v. P. Lakshmi Ammal (Dead) Through Lrs. And Others (2008)[36] also affirmed that a sale made after the institution of the suit for specific performance would be subordinate to the decree passed in that suit.

Regarding impleadment, Kasturi v. Iyyamperumal And Others (2005)[37] clarified that while subsequent purchasers claiming under the vendor are generally necessary or proper parties, third parties claiming independent or paramount title are not to be impleaded in a suit for specific performance, as it would change the nature of the suit. Anil Kumar Singh v. Shivnath Mishra Alias Gadasa Guru (1994)[38] also discussed the distinction, noting that Lala Durga Prasad held subsequent purchasers to be necessary parties.

The Allahabad High Court in Smt. Ram Peary And Others v. Gauri And Others (1977)[39] explicitly addressed the relationship between Section 52 TPA and Section 19(b) SRA, concluding that a subsequent purchaser *pendente lite* cannot set up rights against the prior contractor from which the vendor is excluded by the decree.

The burden of proof on the subsequent purchaser to establish their bona fides and lack of notice was reiterated in several High Court judgments, including Vimala Ammal v. C. Suseela And Others (Madras HC, 1990)[40], Ashutosh Jana v. Ananta Kumar Jana & Ors. (Calcutta HC, 1998)[41], Kesar Bai v. Pyarelal (MP HC, 2010)[42], and Pawan Kumar Garg Petitioner v. Harbans Singh & Ors. (P&H HC, 2015)[43]. The last case also noted that a prayer for setting aside the subsequent sale deed is often a surplusage, as the finding on Section 19(b) SRA determines the validity of the subsequent purchase vis-à-vis the prior agreement.

The case of Maharwal Khewaji Trust (Regd.), Faridkot v. Baldev Dass (2004)[44], concerning interim orders, highlights the court's power to grant injunctions to protect the subject matter of the suit, which can prevent alienation to subsequent purchasers or construction by them during the pendency of the suit, thereby safeguarding the prior agreement holder's potential right to specific performance.

Conclusion

The legal framework in India provides a structured approach to resolving disputes involving specific performance and subsequent purchasers. The cornerstone of this framework is Section 19(b) of the Specific Relief Act, 1963, which protects bona fide transferees for value without notice of a prior contract. However, this protection is not absolute and is carefully scrutinized by courts. The doctrine of lis pendens under Section 52 of the Transfer of Property Act, 1882, significantly curtails the rights of those who purchase property during the pendency of litigation concerning it.

Judicial precedents, notably Lala Durga Prasad v. Lala Deep Chand, have established clear guidelines for the form of decrees in such suits, ensuring that the prior agreement holder, if successful, obtains a clear title by involving the subsequent purchaser (if they had notice or are otherwise bound) in the conveyance. The burden of proving bona fides and lack of notice lies squarely on the subsequent purchaser. Prospective buyers of immovable property are therefore well-advised to conduct thorough due diligence to ascertain the existence of any prior agreements or encumbrances to avoid being embroiled in litigation and potentially losing their claim to the property. The consistent application of these principles by Indian courts aims to uphold contractual sanctity while balancing the equities between competing claimants to immovable property.

References

  1. R.K Mohammed Ubaidullah And Others v. Hajee C. Abdul Wahab (D) By Lrs. And Others (2000 SCC 6 402, Supreme Court Of India, 2000).
  2. Vimala Ammal v. C. Suseela And Others (1990 SCC ONLINE MAD 196, Madras High Court, 1990).
  3. Kesar Bai v. Pyarelal (Madhya Pradesh High Court, 2010).
  4. Veerayee Ammal v. Seeni Ammal (2002 SCC 1 134, Supreme Court Of India, 2001).
  5. Transfer of Property Act, 1882, Section 3.
  6. Ram Niwas (Dead) Through Lrs. v. Bano (Smt) And Others (2000 SCC 6 685, Supreme Court Of India, 2000).
  7. R.K Mohammed Ubaidullah And Others v. Hajee C. Abdul Wahab (D) By Lrs. And Others (2000 SCC 6 402, Supreme Court Of India, 2000).
  8. A. Nawab John And Others v. V.N Subramaniyam (2012 SCC 7 738, Supreme Court Of India, 2012).
  9. Thomson Press (India) Limited v. Nanak Builders And Investors Private Limited And Others (2013 SCC 5 397, Supreme Court Of India, 2013).
  10. Guruswamy Nadar v. P. Lakshmi Ammal (Dead) Through Lrs. And Others (2008 SCC 5 796, Supreme Court Of India, 2008).
  11. Smt. Ram Peary And Others v. Gauri And Others (Allahabad High Court, 1977).
  12. KARAM SINGH v. JOGINDER PAL (Himachal Pradesh High Court, 2024); OM PARKASH v. JOGINDER PAL AND ANOTHER (Himachal Pradesh High Court, 2024).
  13. Thomson Press (India) Limited v. Nanak Builders And Investors Private Limited And Others (2013 SCC 5 397, Supreme Court Of India, 2013).
  14. Anil Kumar Singh v. Shivnath Mishra Alias Gadasa Guru (1995 SCC 3 147, Supreme Court Of India, 1994), citing Lala Durga Prasad v. Lala Deep Chand.
  15. Kasturi v. Iyyamperumal And Others (2005 SCC 6 733, Supreme Court Of India, 2005).
  16. Specific Relief Act, 1963, Section 19(b).
  17. Pawan Kumar Garg Petitioner v. Harbans Singh & Ors. (2015 SCC ONLINE P&H 5434, Punjab & Haryana High Court, 2015).
  18. Ram Niwas (Dead) Through Lrs. v. Bano (Smt) And Others (2000 SCC 6 685, Supreme Court Of India, 2000).
  19. Lala Durga Prasad And Another v. Lala Deep Chand And Others (1954 SCC 0 75, Supreme Court Of India, 1953).
  20. Rajendra Kantilal Dalal v. Bombay Builders Co. (P) Ltd. (2002 SCC ONLINE BOM 389, Bombay High Court, 2002).
  21. Thomson Press (India) Limited v. Nanak Builders And Investors Private Limited And Others (2013 SCC 5 397, Supreme Court Of India, 2013).
  22. Lala Durga Prasad And Another v. Lala Deep Chand And Others (1954 SCC 0 75, Supreme Court Of India, 1953).
  23. Kafiladdin v. Samiraddin (Calcutta High Court, 1930), as cited in Thomson Press (India) Limited v. Nanak Builders And Investors Private Limited And Others (Supreme Court Of India, 2013) and Lala Durga Prasad (supra).
  24. Chinna Vannan v. Alomelu And Others (Madras High Court, 1974).
  25. Ramji Lal And Others v. Ram Pershad And Another (Delhi High Court, 1978).
  26. Lala Durga Prasad And Another v. Lala Deep Chand And Others (1954 SCC 0 75, Supreme Court Of India, 1953).
  27. Lala Durga Prasad And Another v. Lala Deep Chand And Others (1954 SCC 0 75, Supreme Court Of India, 1953).
  28. Veerayee Ammal v. Seeni Ammal (2002 SCC 1 134, Supreme Court Of India, 2001).
  29. Jai Narain Parasrampuria (Dead) And Others v. Pushpa Devi Saraf And Others (2006 SCC 7 756, Supreme Court Of India, 2006).
  30. Ram Niwas (Dead) Through Lrs. v. Bano (Smt) And Others (2000 SCC 6 685, Supreme Court Of India, 2000).
  31. R.K Mohammed Ubaidullah And Others v. Hajee C. Abdul Wahab (D) By Lrs. And Others (2000 SCC 6 402, Supreme Court Of India, 2000).
  32. Thomson Press (India) Limited v. Nanak Builders And Investors Private Limited And Others (2013 SCC 5 397, Supreme Court Of India, 2013).
  33. A. Nawab John And Others v. V.N Subramaniyam (2012 SCC 7 738, Supreme Court Of India, 2012).
  34. KARAM SINGH v. JOGINDER PAL (Himachal Pradesh High Court, 2024).
  35. OM PARKASH v. JOGINDER PAL AND ANOTHER (Himachal Pradesh High Court, 2024).
  36. Guruswamy Nadar v. P. Lakshmi Ammal (Dead) Through Lrs. And Others (2008 SCC 5 796, Supreme Court Of India, 2008).
  37. Kasturi v. Iyyamperumal And Others (2005 SCC 6 733, Supreme Court Of India, 2005).
  38. Anil Kumar Singh v. Shivnath Mishra Alias Gadasa Guru (1995 SCC 3 147, Supreme Court Of India, 1994).
  39. Smt. Ram Peary And Others v. Gauri And Others (Allahabad High Court, 1977).
  40. Vimala Ammal v. C. Suseela And Others (1990 SCC ONLINE MAD 196, Madras High Court, 1990).
  41. Ashutosh Jana v. Ananta Kumar Jana & Ors. (Calcutta High Court, 1998).
  42. Kesar Bai v. Pyarelal (Madhya Pradesh High Court, 2010).
  43. Pawan Kumar Garg Petitioner v. Harbans Singh & Ors. (2015 SCC ONLINE P&H 5434, Punjab & Haryana High Court, 2015).
  44. Maharwal Khewaji Trust (Regd.), Faridkot v. Baldev Dass (2004 SCC 8 488, Supreme Court Of India, 2004).