1. This appeal from a judgment of the District Judge of Dhar, which reversed a judgment of the Munsiff, Dhar, raises the question whether the plaintiff-respondents Shankarlal and Ramkishan, who purchased a house in pursuance of a decree for specific performance of an oral contract to sell the house, concluded between them and Bondar and Chhetar, the owners of the house, are bound by certain mortgages created by the owners in favour of the appellant after the contract to sell.
2. The material facts are that on 27th December 1927 Bondar and Chheetar entered into an agreement with Shankarlal and Ramkishan for the sale of the house to them for Rs. 3500/-. It was agreed between (he parties that out of this consideration Rs. 1100/- would be paid immediately and the remaining amount of Rs. 2400/- would be paid by the purchaser directly to Nathuji, Bhagirath and Ghasiram who had taken earlier two mortgages of the property, one of them executed by Mulchand the father of Bondar and Cheetar, on 24th November 1913 for Rs. 2000/- and the other executed by Bondar and Cheetar on 23rd December 1918 for Rs. 400/-.
After the aforesaid agreement to sell was concluded, proceedings were initiated in the Court of the Munsiff of Dhar by Bondar and Cheetar under the prevailing law in the former Dhar State for registration of a sale-deed in favour of Shankarlal and Ramkishan. These proceedings proved to be abortive as for some reason or another Bondar and Cheetar declined to perform, the contract they had concluded with Shankarlal and Ramkishan. In these proceedings for the registration of a sale-deed in favour of Shankarlal and Ramkishan, the mortgagees Nathuji, Bhagirath and Ghansiram lodged an objection on 18th February 1928 stating that the prospective vendees were not entitled to obtain possession of the properly without redeeming the two mortgages executed by the vendors in their favour in 1913 and 1918.
The registration proceedings were, however, dismissed on 19th February 1941. In the meantime on 4th February 1938 Bondar and Cheetar effected another mortgage on the house in favour of Nathuji, Bhagiram and Ghasiram for Rs. 1922-8-0 and on 14th June 1943 Cheetar alone (Bondar having died in the meantime) made yet another mortgage on the house for Rs. 6422-8-0. In 1944 Shankarlal and Ramkishan instituted a suit against Cheetar in the court of the Munsiff of Dhar for specific performance of the contract of sale dated 27th December 1927 and obtained on 21st June 1944 a decree in their favour.
The decree directed that Shankarlal and Ramkishan should pay Rs. 2400/- to discharge the mortgages in favour of Ghasiram, Nathuji and Bhagirath and obtain possession of the house and Cheetar should execute and register a sale-deed of the house in favour of Shankarlal and Ramkishan. It must be noted that in that suit Ghasiram had made an application on 3rd January 1944 for being made a party to the suit. The application was opposed by Shankarlal and Ramkishan and was rejected by the Court.
After the execution of a sale-deed in their favour by Cheetar, Shankarlal and Ramkishan filed a suit against Cheetar and Ghasiram, out of which this appeal arises, for possession of the house from Ghasiram on payment to him of Rs. 2400/-in respect of the mortgages of 1913 and 1918. At the time of the institution of the suit, Nathuji, Bhagirath and Bondar were dead. Cheetar did not appear and contest the suit and it proceeded ex parte against him. Ghasiram resisted the plaintiffs' claim on various grounds one of them being that the plaintiffs Ramkishan and Shankarlal were not entitled to obtain possession of the property without redeeming in addition to the two mortgages of 1913 and 1918, the other two mortgages of 1938 and 1943.
The suit was dismissed by the Munsiff of Dhar. Thereupon Shankarlal and Ramkishan appealed to the Court of the District Judge of Dhar. The learned District Judge gave to the plaintiffs a decree for possession of the property on payment to Ghasiram Rs. 2400/- in respect of the mortgages of 1913 and 1918 besides Rs. 1816/- on account of interest, and expenditure incurred by the mortgagee on the repairs of the house. It is against this decision of the District Judge of Dhar that the mortgagee Ghasiram has filed this appeal.
3. These being the relevant facts, the only question that was presented before me for consideration is whether the plaintiffs are under a liability to redeem the mortgages of 1938 and 1943 effected on the property by Bondar and Chitar subsequent to the oral agreement for the sale of the property concluded by them with the plaintiffs and whether the plaintiffs are entitled to possession of the property without redeeming these mortgages.
4. It was argued by Mr. Sanghi, learned counsel for the appellant, that having regard to the provisions of Section 48 of the Registration Act, the registered mortgage documents of 1938 and 1943 would take effect against the oral agreement to sell in favour of the plaintiffs as the oral agreement was not followed by delivery of possession of the property to the plaintiffs and that even if there had been delivery of possession, is would not have operated as a valid transfer.
It was further said that the oral agreement to sell did not create any interest in the property in the prospective vendees and that the appellant, who unsuccessfully applied to be made a party in the suit for specific performance, was not bound by the decree obtained by the plaintiffs therein. In support of his contention, Mr. Sanghi relied on Waman Ramchand v. Dhondiba Krishnaji, ILR 4 Bom 126 and Kala Chand v. Jagannath AIR 1927 P. C. 108.
5. In reply, Mr. Chaphekar, learned counsel for the respondents, submitted that the mortgages of 1938 and 1943 were not binding on the plaintiffs; that on 27th December 1927 the Transfer of Property Act was not in force in the former Dhar State when the oral contract to sell was concluded and there could be a valid oral contract to sell; that the transfer of title by the sale-deed executed in favour of the plaintiffs in 1944 in pursuance of the decree for specific performance related back to the date of the oral agreement to sell; and that the sale-deed itself mentioned 27th December 1927 as the date on which the sale had been concluded.
It was further urged that the case was governed by Section 27(b) of the Specific Relief Act and not by Section 48 of the Registration Act which did not affect cases where a subsequent transferee had taken his transfer with notice of the oral agreement. It was pointed out that the lower court had found as a fact that the appellant took the mortgages of 1938 and 1943 with notice of the oral agreement to sell in favour of the plaintiffs
6. In my judgment, the claim of the appellant that the mortgages executed in 1938 and 3.943 were binding on the plaintiff-respondents must fail. It has been found by the lower Court that the appellant had knowledge of the contract for the sale of the house concluded between the plaintiffs and Bondar and Cheetar in 1927 when he took the two mortgages in 1938 and 1943. This is clear from the fact that in the proceedings commenced by Bondar and Cheetar in the Court of the Munsiff of Dhar for the registration of a sale-deed in favour of the plaintiffs consequent to the oral agreement for sale of the house to them, the appellant, Nathuji and Bhagirath lodged on 18th February 1928 an objection before the Munsiff that the plaintiffs were not entitled to purchase the property without redeeming the mortgages executed in their favour by Bondar and Cheetar and by their father Mulchand in 1913 and 1918.
This finding about the knowledge of the appellant has not been challenged before me and indeed could not be. If thus the appellant had notice of the agreement to sell, then under Section 27(b) of the Specific Relief Act the registered mortgages of 1938 and 1943 cannot prevail as against the plaintiffs and they are not bound by those mortgages notwithstanding the fact that the oral contract for sale of the property did not create any interest in the property in them.
7. Section 27(b) of the Specific Relief Act reads as follows;
"Section 27. Except as otherwise provided by this Chapter, specific performance of a contract may be enforced against
(a) ....... ....... ......
(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."
It is plain from this provision that an oral agreement to sell takes effect to the extent to which it is enforceable against the subsequent transferee with notice of the oral agreement. Though a contract for sale of immoveable property does nor create any interest in such property in the vendee, Section 27(b) of the Specific Relief Act recognises the principle that if there is a clear valid contract for sale, the properly is in equity transferred to the purchaser by the contract as the vendor then becomes a trustee for him and cannot be permitted in deal with the property so as to defeat the rights of the prospective vendee and inconvenience him.
If the subsequent transferee has taken the transfer with notice of the contract for the sale of the property, he is liable to the same equities as the party from whom he has taken the transfer. If the subsequent transferee cannot show that he is a bona fide transferee for consideration and without notice of the agreement to sell, his transfer can legitimately be said to be one obtained in fraud of the right created in favour of a third party under the agreement to sell.
Here it has been found that the appellant got the two mortgages executed in his favour in 1938 and 1943 with full knowledge of the fact that an agreement for the sale of the house had been concluded in 1927 between the mortgagors and the plaintiffs. That being so, under Section 27(b) of the Specific Relief Act the two mortgages in question cannot be held to be binding on the plaintiffs.
8. On behalf of the appellant, reliance was placed on Section 48 of the Registration Act for the contention that the plaintiffs were bound by the said mortgages inasmuch as the oral agreement to sell the property was not followed by any delivery of possession and that the agreement also did not constitute a valid transfer of property under any law then in force in the former Dhar State. In my opinion, Section 48 of the Registration Act has no applicability here. That Section does not deal with cases where the subsequent transferee obtains a registered document with notice of the oral agreement and thus in fraud of the right created in favour of a third party under the oral agreement.
It only provides that a registered document relating to property shall prevail over any oral agreement or declaration relating to the property unless the oral agreement or declaration is followed by delivery of possession and constitutes a valid transfer. This has been made very clear in, ILR 4 Bom 126 cited by the learned counsel for the appellant, In that case Westropp J. after referring to certain English decisions went on to say ;
"Section 48 of the Indian Registration Act (VIII of 1871) provides that a document, duly registered under that Act shall 'take effect' against an oral agreement unaccompanied by possession, but that provision cannot be properly applied to a registered document which has been given, accepted and registered in fraud of a third party, as is the case with the registered deed of sale which has been given by the first defendant, and accepted by the other defendants, with full notice of the prior contract of sale to the plaintiff by the first defendant .... ....... The object of that section was to prevent fraud; the application of it in favour of the second, third and fourth defendants would be to render fraud triumphant."
These observations amply show that Section 48 of the Registration Act does not apply to a case where the subsequent transferee had obtained his transfer with notice of the prior oral agreement and in fraud of the right created in favour of a third party under the oral agreement. The principle laid down in ILR 4 Bom 126 has been followed in many cases which have been noted in Chitale's Registration Act (second edition) at page 367, and recently in Mummidi Reddi v. Salla Subbi Reddy, AIR 1954 Andhra 20. The instant case is covered by Section 27(b) of the Specific Relief Act and not by Section 48 of the Registration Act and as the appellant had notice of the prior oral agreement to sell in favour of the plaintiffs when he took the two mortgages in 1938 and 1943, the plaintiffs are not bound by them.
9. The fact that when the appellant Ghasiram had applied to be made a party in the suit for the specific performance of the contract to sell, his application was opposed by the present plaintiffs and that he was not made a party does not in any way alter the position. In AIR 1927 P. C. 108, on the basis of which it was argued that the decree for specific performance obtained by the plaintiffs was not binding against the appellant, it was with reference to the question of res judicata that it was observed that a person who applied to be made a party in a suit but was refused is not bound by the decision in the suit.
The decree for specific performance, which the plaintiffs obtained, directed the vendors to execute a sale-deed of the property in favour of the plaintiffs and the plaintiffs were directed to pay Rs. 2400/- to the appellant in respect of the mortgages on 1913 and 1918. The appellant not being concerned with the contract of sale itself, the question of his being bound by the decree in so far as it directed the vendors to execute a sale-deed in favour of the plaintiffs does not at all arise.
In so fur as the decree directed the plaintiffs to pay Rs. 2400/- to the appellant, the decision in the suit on that point has not been treated as excluding the appellant from claiming that he is entitled to receive from the plaintiffs in addition to Rs. 2400/- the amount due to him under the mortgages subsequent to the oral agreement to sell. No court has held that the appellant cannot, because of the decision in the suit brought by the plaintiffs for the specific performance of the contract to sell in their favour, now be heard to say that he is entitled to receive from the plaintiffs more than Rs. 2400/-.