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  • fact, Section 91 of the Indian-Trusts Act, 1882,
  • Section 19 (b) of the Specific Relief Act, 1963,
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Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
Judges
Acts
  • fact, Section 91 of the Indian-Trusts Act, 1882,
  • Section 19 (b) of the Specific Relief Act, 1963,
Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The plaintiff (first respondent) sued for specific performance of a contract for sale originally executed on 23 April 1970 by Ayyakannu Gounder and his two sons (defendants 1 and 2). Under that agreement the plaintiff agreed to purchase the suit property for Rs. 4,500, paid Rs. 2,500 as advance and agreed to pay the balance of Rs. 2,000 within a year. The plaintiff alleged he was put into possession in pursuance of the agreement and had raised groundnut crops. The suit was filed on 18 December 1970. By then Ayyakannu had died and the suit named his heirs (defendants 1–4).

The first defendant asserted that on 17 February 1970 he had sold the property to Annamalai Gounder (later impleaded as fifth defendant) for Rs. 7,000 by a registered sale deed, and alleged the earlier agreement with the plaintiff undervalued the property to defeat the Stamp Act, urging that the plaintiff had come to court with unclean hands.

The plaintiff amended to implead the subsequent purchaser (fifth defendant) contending the fifth defendant was not a bona fide purchaser for value without notice. The fifth defendant pleaded he purchased for Rs. 7,000 by registered sale deed without knowledge of the prior agreement and claimed to be a bona fide purchaser for value and in possession.

At trial the plaintiff and two others testified and the agreement of sale was marked. The fifth defendant and another witness testified and the registered sale deed was produced. The trial Court found the fifth defendant was not a bona fide purchaser without notice and decreed specific performance in favour of the plaintiff. The lower appellate Court affirmed the trial Court's findings on the validity of the contract and on possession and notice, correcting a clerical error as to amounts and making the plaintiff liable to pay Rs. 4,500 with credit for Rs. 2,500 already paid.

Defendants 1–3 and 5 appealed to the learned Subordinate Judge; thereafter a second appeal was brought by the appellant (the fifth defendant) to the court giving this opinion.

Legal Issues Presented

  1. Whether the fifth defendant (subsequent purchaser) was a transferee for value in good faith and without notice of the prior agreement such that he should be protected from specific performance under Section 19(b) of the Specific Relief Act, 1963.
  2. If specific performance can be enforced against the fifth defendant, whether the Rs. 2,000 court deposit (balance of consideration) ought to be paid to the fifth defendant (who paid Rs. 7,000 to the vendors) or to the original vendors (defendants 1–3), and on what equitable basis.
  3. What form of decree should be made where a subsequent transferee holds title but is not a bona fide purchaser without notice (i.e., the mechanics of requiring the subsequent transferee to join in execution of conveyance to the plaintiff).

Arguments of the Parties

Appellant (Fifth Defendant)

  • Contended that the lower Courts were wrong to conclude he purchased with notice of the prior contract; specifically challenged the finding that the plaintiff had been put into possession pursuant to the agreement and was in possession when the suit was filed.
  • Accepted that he paid Rs. 7,000 to defendants 1–4 and got a registered sale deed, and argued that because he paid the purchase money he should be entitled to the Rs. 2,000 court deposit rather than the vendors.

First Defendant (and defendants 2–4 by adoption)

  • Alleged that the earlier agreement in favour of the plaintiff undervalued the property to defeat the Stamp Act; property was worth Rs. 6,500–7,000. Urged the plaintiff had unclean hands and that the Court should refuse specific performance in its discretion.
  • Accepted payment of Rs. 7,000 by the fifth defendant in the written statement (as noted by the Court).

Plaintiff (First Respondent)

  • Asserted performance readiness and willingness, tendered the balance, and deposited Rs. 2,000 with the plaint.
  • Maintained he had been put into possession pursuant to the agreement and was in possession when the suit was filed, having cultivated groundnut crops on the suit land.

Fifth Defendant's Trial Plea

  • Plead he had purchased for valuable consideration by a registered deed without notice of the prior agreement and had taken possession; thus claimed status as a bona fide purchaser for value.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Veeramalai Vanniar v. Thadikara Vanniar Where a transferee purchases property and the purchaser of a portion is in possession pursuant to a prior contract, the transferee is put on notice and must inquire; failure to inquire indicates lack of bona fide purchase without notice. The Court relied on this authority to hold that, because the plaintiff was found to be in possession and the fifth defendant owned adjoining/other portions in the same survey number and lived nearby, the fifth defendant was on notice and therefore was not a bona fide purchaser without notice.
Lala Durga Prasad and Anr. v. Lala Deep Chand and Ors. Where a subsequent transferee takes title with notice of a prior contract enforceable by specific performance, the proper decree is to direct specific performance between vendor and plaintiff and require the subsequent transferee to join in conveyance so as to pass his title; ordinarily balance consideration should be paid to the original owner but the Court has equitable discretion to pay the transferee in some circumstances. The Court applied the principle to direct that defendants 1–3 execute the sale-deed and that the fifth defendant join in the execution so as to pass his title to the plaintiff. The Court also used the precedent’s equitable reasoning to justify paying the Rs. 2,000 court deposit to the fifth defendant to avoid unjust enrichment of the vendors and because the vendors lacked means to reimburse the fifth defendant.

Court's Reasoning and Analysis

The Court accepted the findings of the trial and lower appellate Courts on critical factual points and applied legal principles accordingly:

  1. Findings on Possession: The lower appellate Court accepted the testimony of the plaintiff and two other witnesses (P.Ws. 1–3) that the plaintiff was put into possession pursuant to the agreement and had cultivated the suit land. The Court found conflicts in the defence evidence (D.W.1 and D.W.2) and saw no reason to upset the appellate Court’s evaluation of witnesses. The trial Court had proceeded on the assumption of possession and the appellate Court made a positive finding on it.
  2. Notice Arising from Possession and Local Circumstances: Given that the plaintiff was in possession of the suit portion and the fifth defendant owned another portion in the same survey number (total about 7 acres, suit portion about 1.42 acres) and lived in the same village/street, the fifth defendant was held to be necessarily on notice of the plaintiff’s possession and therefore of the prior contract.
  3. Consequence for Bona Fide Purchaser Status: Applying the principle in Veeramalai Vanniar v. Thadikara Vanniar, the Court concluded the fifth defendant failed to make inquiries and therefore could not claim to be a transferee for value in good faith without notice; accordingly he was not protected under Section 19(b) of the Specific Relief Act, 1963.
  4. Statutory and Equitable Framework for Decree: The Court observed Section 19(b) permits specific performance to be enforced against persons claiming under either party except a transferee for value who paid in good faith and without notice. Section 91 of the Indian Trusts Act, 1882, was cited to show that a person who acquires property with notice must hold it for the benefit of the party entitled to performance to the extent necessary to give effect to the contract. The Court therefore concluded specific performance could be decreed against the fifth defendant notwithstanding his registered sale deed.
  5. Form of Relief and Distribution of the Court Deposit: Relying on the Supreme Court decision in Lala Durga Prasad v. Lala Deep Chand and the equitable discretion described there, the Court examined whether the Rs. 2,000 court deposit should be paid to defendants 1–3 or to the fifth defendant. Given that defendants 1–3 had also received Rs. 7,000 from the fifth defendant and were not possessed of sufficient means to reimburse him, the Court found it would be unjust to permit the vendors to keep both sums. To avoid unjust enrichment of the vendors and to protect the fifth defendant’s equitable claim against his vendors, the Court directed that on execution of the sale-deed in favour of the plaintiff the Rs. 2,000 in Court be paid to the fifth defendant, without prejudice to the fifth defendant's right to claim from his vendors any balance due to him.
  6. Decree Mechanics and Costs: The Court directed that defendants 1–3 execute the sale-deed in favour of the plaintiff and that the fifth defendant join in that conveyance to pass his title, and ordered the Rs. 2,000 paid to the fifth defendant. Costs were allocated: parties to bear their respective costs throughout. Cross-objections were dismissed and no costs ordered on them.

Holding and Implications

Core Holding: Subject to a modification in the form of the decree, the second appeal is dismissed.

More specifically, the Court ordered:

  • Defendants 1–3 are directed to execute the sale-deed in favour of the plaintiff (specific performance of the original contract is to be given effect).
  • The fifth defendant (subsequent transferee) is directed to join in the execution of the sale-deed so as to pass his title to the plaintiff.
  • The Rs. 2,000 court deposit (balance of consideration deposited by the plaintiff) is to be paid to the fifth defendant upon execution of the sale-deed in favour of the plaintiff; this payment is without prejudice to the fifth defendant's claim against his vendors for reimbursement of the consideration he paid.
  • The parties will bear their respective costs; cross-objections were dismissed (no order as to costs on cross-objections).

Implications:

  • The direct effect on the parties is that specific performance will be given effect by procuring the vendors' execution of conveyance and by requiring the subsequent purchaser to join in the conveyance, while protecting the equitable interests of the subsequent purchaser by directing payment of the court deposit to him.
  • The Court exercised equitable discretion (consistent with the Supreme Court precedent cited) in determining the disposition of the deposit to prevent unjust enrichment of the vendors; no new legal principle or precedent was announced beyond application of existing authorities.

If any particular detail (such as additional cited precedents or party submissions) appears absent from this summary, it is because the provided opinion did not include that information.

    Annamalai Gounder v. Chinnathambi Gounder And Ors.

    1. The fifth defendant is the appellant. The first respondent filed the suit for specific performance of contract of sale executed by one Ayyakannu Gounder and defendants 1 and 2, who are the sons of Ayyakannu Gounder The contract of sale is dated 23rd April, 1970, under which Ayyakannu and his two sons agreed to sell the property to the plaintiff for a sum of Rs. 4,500 and received a sum of Rs. 2,500 as an advance. The balance of Rs. 2,000 was agreed to be paid within a period of one year. The plaintiff further stated that in pursuance of the agreement of sale the plaintiff was put in possession of the suit property and that he was in possession on the date of the suit and had raised groundnut crops thereon. The suit itself was filed on 18th December, 1970. Since by that time Ayyakannu had died, the suit was originally filed against defendants 1 to 4, who are the sons, daughter and wife of the said Ayyakanou. The plaintiff had made the usual averments in the plaint that in pursuance of the agreement to sell he was ready and willing to pay the balance of consideration and in fact he tendered the money; but the defendants would not execute the sale deed. The plaintiff also deposited the balance of consideration of Rs. 2,000 along with the plaint.

    2. The first defendant filed a written statement in which he stated that on 17th February, 1970 he had sold the property to one Annamalai Gounder, who has now been impleaded as the fifth defendant in the suit, for a consideration of Rs. 7,000 and that the sale deed also has been registered. The first defendant further contended that though he executed an agreement of sale in favour of the plaintiff, the property was highly undervalued and the consideration was palpably low. The property was worth more than Rs. 6,500 to Rs. 7,000 on the date of the sale and it was undervalued to defeat the provisions of the stamp act. The first defendant, therefore, prayed that the Court should not exercise its discretionary power of granting relief for specific performance to the plaintiff, who had come to the Court with unclean hands.

    3. When coming to know of the sale in favour of Annamalai Gounder, the plaintiff impleaded him as the fifth defendant in the suit and amended the plaint contending that the fifth defendant is not a bona fide purchaser for value and that, therefore, he could ask for specific performance even against the fifth defendant The fifth defendant filed a written statement stating that he had purchased the property for a valuable consideration of Rs. 7,000 under a registered sale deed without the knowledge of the prior agreement in favour of the plaintiff and that as a bona fide purchaser for value, he is entitled to remain in possession. The fifth defendant also stated that he had taken possession of the property in pursuance of the sale in his favour.

    4. Though the first defendant filed a written statement which was adopted by defendants 2 to 4 none of them let in any evidence either oral or documentary. The plaintiff examined himself and 2 others and also marked the agreement of sale. The fifth defendant examined himself and another third party and filed the registered sale deed in his favour. On a consideration of the evidence both oral and documentary, the trial Court carte to the conclusion that the fifth defendant was not a bona fide purchaser for value without notice of the original contract in favour of the plaintiff. The trial Count did not agree that there was any under valuation in order to defeat the provisions of the stamp act and ultimately decreed the suit as prayed for. It may be mentioned that the trial Court was willing and in fact proceeded to consider the case on the basis that the fifth defendant had paid the sum of Rs. 7,000 as per the sale deed to defendants 1 to 4, who are the legal heirs of the original owner, Ayyakannu. The trial Court also proceeded on the assumption that the plaintiff in pursuance of the agreement to sell, was put in possession of the property and he was in possession of the property on the day when the suit was filed.

    5. Pending the Suit, the fourth defendant, the widow of Ayyakannu, died and defendants 1 to 3, the 2 sons and daughter, were recorded as legal representatives of the fourth defendant. Defendants 1 to 3 and 5 preferred an appeal before the learned Subordinate Judge of Tiruvannamalai. The appellate Court confirmed the findings of the trial Court that there was a valid and enforceable contract of sale between the plaintiff and Ayyakannu and his sons and that the fifth defendant was not a bona fide purchaser for value and without notice of prior contract of sale. The lower appellate Court specifically found that in pursuance of the contract of sale the plaintiff was put in possession of the property and he was in possession on the day when the suit was filed. In that view, the appeal was dismissed. It may be mentioned that the trial Court made some mistake about the amount to be paid by the plaintiff to defendants 1 to 4, which was rectified by the lower appellate Court and thus need not detain us any further. Suffice it to say that the plaintiff was made liable to pay the sum of Rs. 4,500 for getting the specific performance and he was given a credit for the sum of Rs. 2,500 which he had paid to Ayyakannu as an advance.

    6. In this second appeal the learned Counsel for the appellant strenuously contended that the whole approach of the lower appellate Court and the trial Court in finding that he purchased the property with notice of the prior contract of sale was wrong and based on a wrong assumption that the plaintiff had taken possession of the property in pursuance of the contract of sale and that, therefore, the fifth defendant must have been aware of the contract of sale. As already stated, there is no dispute that the sum of Rs. 7,000 was paid by the fifth defendant to defendants 1 to 4 as per the registered sale deed executed by them. In fact, the first defendant in his written statement had accepted the payment and this was not disputed during the trial.

    7. The only question, therefore, for consideration was whether he paid this money in good faith and without notice of the original contract. Though the learned Counsel for the appellant challenged the finding that the plaintiff was put in possession of the property in pursuance of the contract of sale and was in possession on the date when he filed the suit, I am unable to interfere with the finding of the Courts below. The trial Court, of course, did not give any specific finding that the plaintiff was put in possession in pursuance of the contract of sale, but proceeded on the assumption that he was put in possessian. But the lower appellate Court accepted the evidence of P.Ws. 1 to 3, who specifically and categorically stated that the plaintiff was put in possession and he had raised groundnut crops there. The lower appellate Court also pointed out that there was conflict in the evidence of D.Ws. 1 and 2m this regard. While D.W.1 stated that the fifth defendant did not take possession in pursuance of the sale in his favour, the fifth defendant a" D.W. 2 stated that he did take possession. D.W.1 was also not prepared to deny that the plaintiff raised groundnut crops. He only stated that he was not aware of it. In any case, the lower appellate Court had chosen to rely on the evidence of P.Ws. 1 to 3 in regard to possession of the suit property and 1 do not think there is any reason to interfere with that finding in the second appeal. If the possession is to be taken as having been given to the plaintiff, 1 think the finding of the Courts below that the fifth defendant had not paid the consideration in good faith and without notice of the original contract has to be accepted. If the plaintiff was in possession, as held by this Court in Veeramalai Vanniar v. Thadikara Vanniar the fifth defendant immediately puts defenants 1 to 4 with a notice of warning to enquire into the nature and character of the possession, of the plaintiff. If he had not done so before purchasing the property, he could not be held to be a bona fide purchaser without notice of the original contract. Further it is in evidence that the suit property is only a portion of a survey number and the fifth defendant is owning some other portion in the same survey number. The survey number is said to measure about 7 acres of which only 1.42 acres are the subject-matter of the suit. The portion remaining is owned by the fifth defendant. Necessarily, therefore, the fifth defendant must have known that the plaintiff is in possession of the suit property and that should have put him on notice of the contract of sale. The parties are also living in the same village and their residence are stated to be, in fact in the same street. In those circumstances the Courts below were right in holding that the fifth defendant was not a bona fide purchaser without notice of the original contract.

    8. The learned Counsel for the appellant next contended that since there is no dispute, he had paid the sum of Rs. 7,000 to defendants 1 to 4 and got the sale-deed executed in their favour, though the plaintiff may be entitled to enforce the specific performance of the contract even as against the fifth defendant, defendants 1 to 4 will not be entitled to be paid the sum of Rs. 2,000 already in Court deposit and that that amount will have to be paid to the fifth defendant. Under Section 19 (b) of the Specific Relief Act, 1963, specific performance of a contract may be enforced against my person claiming under either party to the contract of sale by a title arising subsequent to the contract except a transferee for value who has paid his money in good faith and without notice of the original contract. I have already held, accepting the findings of the Courts below, that the fifth defendant had not paid the money in good faith and without notice of the original contract. But still he is a person claiming under the original owner by a title arising subsequently to the contract of sale in favour of the plaintiff. Therefore, specific performance may be enforced even, as against the fifth defendant. This provision, in my opinion., does not in any way affect the passing of the title to the fifth defendant. In fact, Section 91 of the Indian-Trusts Act, 1882, states that where a person acquires property with notice, that any person had entered into an existing contract affecting that property, of which specific performance could be enforced, the former must hold the property for the benefit of the latter to the extent necessary to give effect to the contract. Thus, the sale deed itself though not invalidated and was treated as valid, the plaintiff who is having the agreement to sell was entitled to ask for specific performance even as against the fifth defendant transferee. The Supreme Court in Lala Durga Prasad and Anr. v. Lala Deep Chand and Ors. held that in such a case the proper form of decree was to direct specific performance of the contract between the vendor and the plaintiff and direct the subsequent transferee to join in the conveyance so as to pass on the title which resided in him to the plaintiff. Though the subsequent transferee did not join in any special covenants made between the plaintiff and his vendor, he had to join in the conveyance so as to pass on his title to the plaintiff. The Supreme Court further held that even in such a case the normal rule should be to require that the balance of consideration, be paid to the original owner and it would not be right to lay down that in every case the balance of the purchase money should be paid to the subsequent transferee up to the extent of the consideration paid by him." But the Supreme Court further held that this question might be put as an issue as between the vendor and the subsequent transferee as to whether the amount was to be paid to the subsequent transferee or to the vendor. It was also open to the Court as an equitable relief to direct the amount to be paid to the subsequent transferee if it would appear to be an unjust enrichment to the original vendor or if the equities warranted such a position, the Court had a wide discretion in that regard.

    9. I have considered this question. As already stated, the fifth defendant had paid the sum of Rs. 7,000 and it is also stated that defendants 1 to 3 are not possessed of sufficient means and if this sum of Rs. 2,000 deposited by the plaintiff in Court is also paid to defendants 1 to 3, it will not be possible for the fifth defendant to recover any portion of the consideration paid by him. Though the agreement to sell in favour of the plaintiff was only for a sum of Rs. 1,500 in addition to the sum of Rs. 2,500 received by the vendors as advance from the plaintiff, they have also received a sum of Rs. 7,000 from the fifth defendant. They shall not be unjustly permitted to enrich themselves by requiring the sum of Rs. 2,000 remaining in Court also to be paid to them. 1, therefore, direct that on execution of the sale-deed in favour of the plaintiff, the sum of Rs. 2,000 in Court deposit will have to be paid to the fifth defendant. But this will be without prejudice to the fifth defendant to claim the balance of consideration, paid by him from his vendors.

    10. The decree, therefore, should direct defendants 1 to 3 to execute the sale-deed and the fifth defendant to join in the execution of the sale-deed in favour of the plaintiff and it should also direct the amount in Court deposit to be paid to the fifth defendant instead of to defendants 1 to 3. Subject to this modification in the form of the decree, the second appeal is dismissed. The parties will bear their respective costs throughout.

    11. There are absolutely no merits in the cross-objections. The " cross-objections are also dismissed. But there will be no order as to costs in the cross objections also. No leave both in the second appeal and the cross-objections.

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    Comments

    Annamalai Gounder v. Chinnathambi Gounder And Ors.
    (Sep 14, 1976)