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K. Appa Rao And Another v. P. Balasubramania Gramanl And Others.

Madras High Court
Apr 7, 1975
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Structured Summary of the Opinion

Factual and Procedural Background

These are appeals by the legal representatives of the plaintiff under the Letters Patent after failing in all Courts below to obtain specific performance of three agreements dated 28 October 1957. The agreements purported to convey an aggregate 3/5 share in certain joint-family properties (notably "Samadhi Thottam" and "Panantope"). At the time the agreements were executed, a partition suit (O.S. No. 150 of 1952) was pending and a preliminary decree had been passed in 1954. The executants of the agreements were parties in that partition suit (each holding 1/5 share).

The plaintiff attempted to be impleaded in the partition suit on 18 April 1958 but was unsuccessful. The partition suit concluded by a compromise decree dated 1 May 1958, which resulted in the allotment of the shares that the executants had purportedly agreed to convey to the plaintiff and to certain other parties (plaintiffs 1 and 2 and defendants 1 and 2 in the partition suit).

Procedurally: the trial Court found the sale agreements not genuine and dismissed the suit. The trial Court noted in passing that, if the agreements were genuine, the partition compromise decree would be collusive and would not bind the plaintiff. The first appellate Court held the agreements were genuine but refused specific performance on the ground that the consideration was grossly inadequate. On second appeal, Srinivasan, J. agreed with the first appellate Court and dismissed the appeal; the present appeals are by the plaintiff's legal representatives under Letters Patent.

Legal Issues Presented

  1. Whether the agreements were for grossly inadequate consideration so that specific performance should not be ordered in view of Section 28 of the Specific Relief Act, 1877.
  2. If the first question is answered in favour of the appellants (i.e., the agreements are grossly inadequate), whether the appellants could still succeed in view of the compromise decree in the partition suit and Section 27(b) of the Specific Relief Act, 1877.

Arguments of the Parties

Respondents' Arguments

  • The respondents relied on Section 27(b) of the Specific Relief Act, contending that the persons (plaintiffs 1 & 2 and defendants 1 & 2 in the partition suit) to whom the allotment had been made in the compromise decree could not be regarded as persons "claiming under" the executants of the sale agreements for the purpose of Section 27(b), and thus the compromise decree should protect them from specific performance claims.

Appellant's Arguments (as advanced by the Advocate-General)

  • The Advocate-General for the appellant relied on the trial Court's finding that the partition decree was collusive, asserting that because the parties to the partition proceeded with full knowledge of the sale agreements, the compromise decree could be attacked as collusive and should not bind the plaintiff who sought specific performance.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Fateh Chand v. Narsingh Das (1915) 22 Cal.L.J. 383; 16 Indian Cases 988 Established that a plaintiff seeking specific performance may impeach a compromise decree relied on in defence by showing the decree to be fraudulent or collusive; such a decree would not necessarily affect his legal rights. The court noted this principle was invoked by the Advocate-General to argue that a collusive compromise decree should not bind the plaintiff. The court observed that Fateh Chand did not involve a pending partition suit of the kind before the court.
Rangayya Reddy v. Subramania Ayyar (1917) I.L.R. 40 Mad. 365; 32 M.L.J. 575; 5 L.W. 797 Observed that a partition effects release of interest among coparceners and that, if a partition is proved to be a fraudulent design to defeat a purchaser's rights, those allotted properties may render the allottees subsequent transferees with notice for the purposes of attacking the partition as collusive. The court relied on the case for the proposition that a partition involves release of interest. However, the court also expressed doubt whether Section 27(b) applies to a coparcener who is an allottee on partition, since such an allottee does not "derive" title from another coparcener in the usual sense.
Venkataramayya v. Raghavalu (1925) 21 L.W. 62; A.I.R. 1925 Mad. 492 Held that where an undivided coparcener sold his share and later conveyed to a brother who took with knowledge of the prior contract, the promisee under the contract was entitled to specific performance against the brother, and the brother was a transferee within the meaning of Section 27(b). The court acknowledged that this case is factually closer to the present matter, but proceeded to examine whether a coparcener allottee on partition can be said to "claim under" another coparcener so as to attract Section 27(b). The court concluded that it is doubtful Section 27(b) can be applied to such allottees.

Court's Reasoning and Analysis

The court's reasoning proceeded in two main strands corresponding to the two issues framed.

1. On Section 28 (gross inadequacy of consideration):

  • The court explained the standard under Section 28: specific performance is discretionary; enforcement is barred where consideration "is so grossly inadequate, with reference to the state of things existing at the date of the contract, as to be either by itself or coupled with other circumstances evidence of fraud or of undue advantage taken by the plaintiff".
  • Two inquiries arise under Section 28: (a) whether inadequacy of consideration is so extreme as to be "grossly inadequate" (a question of degree, i.e., whether it shocks the conscience of the court), and (b) whether inadequacy, alone or combined with other circumstances, amounts to evidence of fraud or undue advantage.
  • The court applied these principles to the facts: the plaintiff had himself offered Rs. 7,250 (later enhanced to Rs. 8,500) for one of the properties (Samadhi Thottam) to the Receiver, whereas the agreements were executed for a consideration of only Rs. 800 for a 1/5 share. The court held that Rs. 800 for a 1/5 share was grossly inadequate in the circumstances, and that the inadequacy, combined with the unequal bargaining position (the plaintiff's power and advantage over the executants), evidenced undue advantage.
  • The court expressly agreed with Srinivasan, J., and the first appellate Court on this point, concluding that the inadequacy and the circumstances sufficed to refuse specific performance.

2. On Section 27(b) and the effect of the compromise decree:

  • The court noted Section 27(b) provides that specific performance may be enforced against any person claiming under the promisor by a title arising subsequently to the contract, except a transferee for value in good faith without notice.
  • The respondents argued that the allottees in the partition decree could not be regarded as persons "claiming under" the executants for the purpose of Section 27(b). The Advocate-General invoked the trial Court's finding that the partition decree was collusive to support the appellant's case.
  • The court reviewed relevant precedents (Fateh Chand, Rangayya Reddy, Venkataramayya) and analysed the nature of joint Hindu family property and partition law: on partition a coparcener's interest is released and allottees do not, as a general rule, derive title from another coparcener in a way that fits the language of "claiming under him" used in Section 27(b).
  • Given that a partition allottee does not obtain title by derivation from another coparcener but by release in partition, the court considered it doubtful that Section 27(b) applies to such allottees. The court also observed that the trial Court's finding of collusion did not rest on considered specific circumstances and that the plaint did not plead collusion nor was it clear that evidence was led on the point.
  • Ultimately, because the appeals could be disposed of on the ground of gross inadequacy under Section 28, the court declined to express a final opinion on the Section 27(b) point and on the alleged collusiveness of the partition decree.

Holding and Implications

Holding:

APPEALS DISMISSED

Implications:

  • The court affirmed that specific performance will not be granted where consideration is grossly inadequate and, in the present facts, found that the agreements (executed for Rs. 800 for a 1/5 share while the plaintiff valued the property at thousands of rupees) were unconscionable and evidenced undue advantage. As a result, the plaintiff's claim for specific performance failed.
  • The court did not grant any relief based on an attack on the compromise partition decree; it found it unnecessary to decide finally whether Section 27(b) applies to a coparcener allottee on partition and whether the partition decree was collusive, and expressly refrained from expressing a final view on that second question.
  • Direct effect on the parties: dismissal of the appeals and refusal to grant specific performance. The court ordered no costs.
  • The opinion did not authoritatively decide the broader question whether Section 27(b) applies to partition allottees in all circumstances; the court described that point as doubtful and left it undecided in light of disposal on Section 28 grounds.

This summary is prepared strictly from the content of the provided opinion. No information has been added beyond what appears in the text.

Show all summary ...

1. These are appeals by the legal representatives of the plaintiff under the Letters Patent. The plaintiff or his legal representatives as the case may be, had failed in all the Courts below to get specific performance of the three agreements, all executed on 28th October, 1957 to sell certain shares, which the executants of the agreements had in certain joint family properties. The three agreements put together had undertaken an obligation to convey to the plaintiff a total of 3/5 share in those properties. At the time the agreements were entered into, O.S. No. 150 of 1952, which was a suit for partition by two of the coparceners, was pending, and in fact, a preliminary decree had been passed in 1954. Defendants 3 to 7 forming one unit, defendants 8 and 9 forming another unit and defendant 10 in that suit for partition, who held each 1/5 share, were the executants. On 18th April, 1958, the plaintiff -ought to get himself impleaded as a party defendant in the partition suit, but without success. The suit for partition eventually ended in a compromise decree dated 1st May, 1958, the effect of which was that whatever share the executants of the agreements had agreed to convey had in fact been allotted to the plaintiff and defendants 1 and 2 in that suit. The trial Court found that the agreements were not genuine and dismissed the suit. In passing, it had also observed that if the agreements, were genuine, there would be no difficulty in holding that the compromise decree in the partition suit would be a collusive one against the interest of the plaintiff and that, as such, it would not bind him. The first lower appellate Court did not share that view, but held that the agreements were genuine. But it being of opinion that the consideration for the agreements was grossly inadequate it declined to grant a decree for specific performance. In second appeal, Srinivasan, J., concurred with the first appellate Court and dismissed it.

2. Two questions, which arise for our decision, are:

1 Whether the agreements aforesaid were for grossly inadequate consideration, so that specific performance of the agreements should not be ordered in view of Section 28 of the Specific Relief Act, 1877; and,

2. If that question were answered in favour of the appellants, whether they could still succeed in the light of the compromise decree and Section 27(b) of that Act. In order to appreciate the first question, he related facts are briefly these. The agreements were to convey a total of 3/5 share in what was called Samadhi Thottam and Panantope. The first was of an extent of 7 acres 26 cents. Pending the partition suit, there was a Receiver appointed. The plaintiff had offered Rs. 7,250 for the first property to the Receiver, and at a subsequent stage, the very same plaintiff enhanced his offer to Rs. 8,500 Pananthope, we find, was of an extent of about 5 acres. But this item of property had been sold away by the Receiver, and it does not form the subject-matter of the suit. The first appellate Court, with whom Srinivasan, J., agreed, held that in view of the offer made by the plaintiff himself for one of the properties covered by the agreements, each of which was executed for a consideration of only Rs. 800 for Samadhi Thottam the consideration was not only inadequate, but grossoly inadequate which attracted the provisions of Section 28 of the old Specific Relief Act.

3. Specific performance of an agreement to sell immoveable property is not invariably ordered as a matter of right. The relief is discretionary; but the discretion being a judicial one, it has to be exercised neither arbitrarily nor unreasonably, but according to law and reason. The Specific Relief Act itself has provided certain guidelines as to when specific performance could be ordered and when not. Section 28 is one of them, which provides what parties cannot be compelled to perform. Specific performance of an agreement cannot be enforced against a party thereto if the consideration to be received by him

"is so grossly inadequate, with reference to the state of things existing at the date of the contract, as to be either by itself or coupled with other circumstances evidence of fraud or of undue advantage taken by the plaintiff"
. Two matters will have to be considered: one while consideration was obviously inadequate, was it grossly inadequate; and the other, whether the fact by itself or in association with other circumstances would amount to undue advantage taken, by the party asking for enforcement of the agreement. The first one involves a question of degree. If the inadequacy of consideration is so much as to shock the conscience of the Court in respect of the fairness of the agreement, it is a case of gross inadequacy of consideration. It is not any inadequacy of consideration that will help a defence in a suit for specific performace but when the inadequacy is unconscionable or is so patently unjust that it savours by itself of fraud or that it amounts to that when it is taken in conjunction with other circumstances that exist on the date of the contract. In the instant case, the plaintiff himself had valued one of the two items covered by these agreements at more than Rs. 8,000. That being the case, we are of opinion that the sum of Rs. 800 for 1/5 share was grossly inadequate. That was the view of Srinivasan, J., with which we agree. The learned Judge has also pointed out the miserable and unenviable position in which the executants were placed vis a vis the powerful plaintiff who took undue advantage of their position and had the agreements executed in his favour. That will suffice to conclude the appeals against the appellants.

4. But the other question, which we have formulated at the start of this judgment, has also been argued at the Bar, and in fairness thereto we shall notice it. Section 27(b) relied on by the respondents is to the effect that except as otherwise provided by the chapter in which the section occurs, specific performance of a contract may be enforced against 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. It is contended for the respondents that plaintiffs 1 and 2 and defendants 1 and 2 in the partition suit, to whom the whole of Samadhi Thotam had been allotted as and for their share, could not be regarded as persons claiming under the executants of the agreements in favour of the plaintiff in the instant case. But this contention is met by the learned Advocate-General for the appellant by relying on the finding of the trial Court that the decree in the partition suit was a collusive decree inasmuch as it had been entered into by all the parties concerned with full knowledge of the agreements. De hors authority, we should have found no difficulty in accepting the contention for the respondents. But the learned Advocate-General has invited our attention to Fateh Chand v. Narsingh Das (1915) 22 Cal.L.J. 383 : 16 Indian Cases 988 Rangayya Reddy v. Subramania Ayyar (1917) I.L.R. 40 Mad. 365 : 32 M.L.J. 575 : 5 L.W. 797, and Venkataramayya v. Raghavalu (1925) 21 L.W. 62 : A.I.R. 1925 Mad. 492. The first of these cases did not involve a suit for partition pending which agreements, sought to be enforced specifically had been entered into. The question mooted for the respondents whether persons, to whom allotment of this or other specific property was made in a suit for partition, which belongs to a joint family, can be regarded as claiming title thereto under any other coparcener, did not fall to be decided in that case. But the Court held that a plaintiff who sought specific performance of an agreement could show that the compromise decree which was put in defence, was fraudulent and collusive and that it would not affect his legal rights. It is this principle which the learned Advocate-General sought to press into his service. In the second case, Rangayya Reddy v. Subramania Ayyar (1917) I.L.R. 40 Mad. 365 : 32 M.L.J. 575 : 5 L.W. 797, the only two questions which were referred for decision were; (1) whether defendants 2 to 5 in that case were proper parties to the suit; and (2) whether the relief of partition and possession could be claimed by the plaintiffs in one suit as well as execution of a sale deed.

The first question was answered in the affirmative and the second in the negative. In so doing, one of the learned Judges (Srinivasa Ayyangar, J) observed:

But a partition involves the release of the interest of the other coparceners in the properties allotted to one of them and though by virtue of their prior title defendants Nos. 2 to 5 may be entitled to a release from the first defendant of his interest in his properties the subject of the present suit, if these properties were allotted to them in a fair partition without their being affected by the contract of sale which can only operate subject to their rights, yet if the partition is proved to be a fraudulent design to defeat the rights of the plaintiff under his contract of sale, by the first defendant giving up the chance of the suit properties or a share in them being allotted to him in a fair division, I think that defendants 2 to 5 in such a case may fairly be treated as subsequent transferees with notice.

It is not clear whether the learned Judge in making this observation had in view Section 27 of the old Specific Relief Act at all. It would appear that the learned Judge was rather proceeding on the general principle that a plaintiff, who seeks specific performance of an agreement, can attack a compromise decree standing in his way as having been obtained fraudulently or collusively. The last case, Venkataramayya v. Raghavalu (1925) 21 L.W. 62 : A.I.R. 1925 Mad. 492, decided by Devadoss, J., held that where an undivided coparcener of a joint Hindu family, consisting of himself and his brother, entered into a contract for the sale of his share in the joint family properties, which consisted only of two items of land and subsequently effected a settlement conveying his share to his brother, who took the settlement with knowledge of the contract, the promisee under the contract was entitled to specific performance, as against the brother who took the settlement and that the brother who took the settlement was a transferee within the meaning of Section 27(b) of the Specific Relief Act, 1877. On facts, this case seems to be nearer to the one under our consideration. But the question is whether a coparcener allottee at a partition of a particular property as and for his share can be regarded as claiming under any one or other of the coparceners, who, on partition, were allotted other properties so as to attract Section 27. It has been recognised in Rangayya Reddy v. Subramania Ayyar (1917) I.L.R. 40 Mad. 365 : 32 M.L.J. 575 : 5 L.W. 797, that a partition involves the release of the interest of each of the coparceners in the joint Hindu family and that no member of a joint Hindu family as a coparcener can predicate either the quantum of his share in the joint family or claim a particular property or specific item as belonging to him or referable to his share. The concept of joint Hindu family property is that each of the coparceners is entitled to the same right as the other and they all hold together the coparcenary property and that when a partition is effected all that happens is, not a transfer of interest from one to the other but only release of the interest of one coparcener in favour of the other in specific immovable property allotted to the latter as and for his share. In such circumstances, it is, in our opinion, doubtful whether there is any occuasion to apply Section 27(b) for, in such a case, there is no room for applying the language "any other person claiming under him." A sharer on partition does not derive title to his share from any one else and, therefore, it cannot be said that he is claiming under somebody for the purpose of the application of the section. Even assuming, therefore, that the compromise decree was collusive, it is not possible to apply Section 27 to a case like this.

5. On the question whether the compromise decree was collusive it is true the first Court gave such a finding. But these are cases where the agreements sought to be enforced were entered into the pending suit for partition and, therefore, the agreements would be affected by the doctrine of Us pendens. Where, under the personal law, the parties, in a suit for partition are entitled to allotment of particular properties as and for their shares irrespective of any agreement entered into by any one of the sharers to sell any quantum of their share, it would be hardly, possible to say that the compromise resulting in allotment of properties was collusive. The Trial Court, in concluding that the decree was collusive, did not consider any specific circumstances which would justify that conclusion. It may be that the parties in the suit for partition were aware of the agreements. But if, notwithstanding the agreements, under the personal law they were entitled to allotment, as they desire as per the agreement on which the compromise decree was based, it cannot be said that that by itself should necessarily lead one to the conclusion that the said compromise decree is collusive merely because it is against the interest of the plaintiff in the present suit.

6. As a matter of fact, in the plaint no ground was taken that the compromise decree was collusive; nor was there any specific issue on that question. It is not also clear whether any evidence was directed on the point. The first lower appellate Court did not consider this question at all.

7. Anyway, since these appeals are capable of disposal on our answer to the first question which we have set out at the beginning, we do not think it necessary to express any final opinion on the second question. The appeals are, therefore, dismissed. No. costs.