R.G. Lakhmidas & Co. v. Sir D.J. Tata

Marten, C.J:—

[His Lordship after dealing with the other points involved in the appeal continued:—]

I have now dealt with all the points raised by the amended summons, and the above findings would normally dispose of them in favour of the defendants. But there is yet another point of importance which was raised by the Bench, and it arises in consequence of a recent decision by their Lordships of the Privy 1926 Council in Dayal Singh v. Indar Singh.

That point is whether the purchasers can recover their deposit inasmuch as the contract was not registered under the Indian Registration Act, 1908. No such point was taken in the Court below. It was not to the interest of either party to do so, and as regards the Court itself, it has been considered by our High Court, and I believe by all Indian Courts, that since 1877 a contract for sale of land is protected by the exemption in section 17(2)(v) of the Indian Registration Act inasmuch as it does not “itself” create any right to land, but merely creates a right to obtain another document which will create such a right. This is borne out by section 54 of the Transfer of Property Act, which provides that such a contract “does not, of itself, create any interest, in or charge on such land”. So, too, the contingent charge given by section 55(6)(b) of the latter Act to the purchaser for his earnest-money in the event of his not having “improperly declined to accept delivery of the property” has been regarded as not created by the contract “itself” within the meaning of the Indian Registration Act. And indeed section 54 of the Transfer of Property Act expressly says that the contract does not of itself create a charge.

In Dayal Singh v. Indar Singh, a purchaser brought a suit for specific performance on a document which expressly acknowledged the receipt by the vendor of Rs. 1,000 for earnest money. But the document contained this passage: “The land has at any rate been sold and the vendee has become entitled to it. I (vendor) am simply entitled to receive Rs. 9,000” (the balance of the purchase money). Subsequently the vendor died: and his representatives pleaded in defence that the document was void for want of registration. They appear to have rested this plea on the allegation that the document effected a sale and was not a mere agreement for sale. The Courts Sib below held, however, that the document was merely an agreement, and this particular finding was assumed by their Lordships of the Privy Council to be correct for the purposes of that case. But the Board then dealt with a point not raised in the Courts below, viz., that the purchaser got a charge for his earnest-money under section 55(6)(b) of the Transfer of Property Act, and that consequently the agreement conferred upon him an interest in land, and not merely the right to obtain another document which would give him that interest. This point their Lordshipsheld to be good in a judgment which concluded as follows (p. 1376):—

“Their Lordships are of opinion that the section applied to the agreement in this case, where the buyer had paid earnest money, and so far from refusing to accept delivery, was pressing for specific performance, and that the agreement did in itself create an interest and therefore did nut allow of the application of section 17(2)(v). It was therefore compulsorily registrable under section 17 and, not having been registered, was inadmissible in evidence under section 49.

Their Lordships will, therefore, humbly advise His Majesty to allow the appeal and to dismiss the suit.”

Now the present case is, I think, distinguishable in this respect, viz., that the suit contract did not acknowledge the receipt of any earnest-money, whereas the contract in the Privy Council case did, and so expressly fell within the opening words of section 17(1)(c). No doubt, in a contract contained in correspondence, one must look at the whole correspondence and not necessarily stop at, say, two letters if subsequent letters show the parties were really still negotiating on material points. (See Hussey v. Horne-Payne and Bristol, Cardiff, and Swansea Aerated Bread Co. v. Maggs(2).) If, however, the two letters show a complete contract, further negotiations between the parties cannot, without the consent of both, get rid of the contract already arrived at. (See Perry v. Suffields, Limited.) But 1 read the purchasers' letter of October 16, and the vendors' reply of October 20, 1923, as an Sir offer and acceptance which made a complete contract. Consequently although the vendors wrote on October 24, acknowledging the receipt of the earnest-money, that letter was not, I think, part of the contract, despite the fact that according to the learned Judge's notes, all there letters “constituting contract” were put in as Exhibit 7. The true test is whether on, say, October 22, 1923, either party could have treated the previous correspondence as mere negotiations, and declined to proceed further. In my opinion they could not. The payment of earnest money though contemplated by the first two letters was not a condition precedent. Its non-payment could at most be a breach of an existing contract.

That being so, the contract, if it required registration at all, would only come within section 17(1)(b). The decision of the Privy Council in 1871 in Futteh Chund Sahoo v. Leelumber Singh Doss shows that prior to the Transfer of Property Act, 1882, a contract acknowledging the payment of the consideration money would require registration as the consideration money “was for what was to be ultimately an absolute sale of the property in question, and what in equity would operate as a sale of the property” (see p. 131). And, doubtless, the ratio decidendi of that case would extend to a contract which did not contain a receipt for any earnest money. But that decision involved the inconvenience of the compulsory registration of two documents, viz., the contract and the conveyance. Accordingly what is now section 17(2)(v) of the Indian Registration Act, 1908, was passed in 1877 to exempt the ordinary contract of sale from registration and to confine registration to the conveyance. (See Chunilal Panalal v. Bomanji, Mancherji Modi.)

Later still the Transfer of Property Act, 1882, was passed, and as regards this Presidency it has been in force since January 1, 1898. Consequently since that date, by virtue of section 54, a contract of sale does not of itself create any interest in or charge on the land sold. It would, therefore, seem to follow from section 54 that such a contract is not one of those “instruments which purport or operate to create…any interest…” in land within the meaning of Section 17(1)(b) of the Indian Registration Act, and, therefore, does not require registration under that Clause. Or that alternatively it is exempted by section 17(2)(v) as “not itself creating…any…interest…but merely creating a right to obtain another document” which will create such interest.

This view obtains support from Maung Shive Goh v. Maung Inn, where their Lordships of the Privy Council in an appeal from Burma would seem to be of opinion that, having regard to section 54, the English doctrine that in equity the purchaser is the owner of the land from the date of the contract and the vendor merely a trustee for him does not now apply to India. If that is so, then it would seem to follow that their Lordships recognised that the ratio decidendi in Futteh Chund Sahoo v. Leelumber Singh Doss(3) can no longer prevail in those parts of India, where section 54 has come into operation, for the contract could no longer operate in equity as a sale or transfer of ownership of the property.

I recognize that in Bapu Apaji v. Kashinath Sadoba(4), our Full Bench has decided that a vendor owes certain fiduciary duties to his purchaser which may he pleaded in defence to an ejectment suit brought by the vendor in breach of those duties. In that particular case the purchaser was still entitled to specific performance; Sir and the principle has been extended by Sir Norman Macleod and Mr. Justice Shah, in Venkatesh v. Mallappa, to a case where the purchaser's right to specific performance has become barred by time. But having regard to section 54 of the Transfer of Property Act, the true distinction would appear to be that pointed out by their Lordships of the Privy Council during the argument of the above appeal from Burma (Maung Shwe Goh v. Maung Inn), viz., that the purchaser gets no interest in the res but only a personal right against his vendor. Thus at p. 181, the Lord Chancellor (Lord Buckmaster) says:—

“Is not the English doctrine based on this, that the purchaser is the owner and entitled to enter….It seems that in India he [the purchaser] has not the right to enter.”

And Lord Wrenbury adds:—

“If no has no interest in the res, he has no right to enter. His interest in the res only dates from the registration of the transfer.”

In that case no point as to registration appears to have been raised, although like in Dayal Singh v. Indar Singh, it was a purchaser's action for specific performance, and the contract sued on contained an acklowledgment by the vendor that he had already received Rs. 50,000 out of the purchase money (see Maung Shwe Goh v. Maung Inn). The fact that the sale was by a mortgagor to his mortgagee does not affect the question of registration. And if it be said that in Maung Shwe Goh v. Maung Inn, the Board were only considering a point arising in execution of a decree (see p. 184), it may be answered that the decree itself, which was for specific performance, had been previously confirmed by the Board in Davis v. Maung Shwe Gow, in a detailed judgment. As there is nothing in the reports to shew that the contract of April 4, 1906, was ever registered, the case is difficult to reconcile with the decision in Dayal Singh v. Indar Singh.

It may be argued that sub-sections (b) and (c) of section 17(1) both refer to the “creation”, & c., of an interest in land, and that consequently both sub-sections must be read alike: and that an interest in land, present or future, is either created in both cases or in none. But as I read sub-section (c), it is intended to catch written receipts for the purchase money “on account of the creation of any…interest” in land. Accordingly I do not think its operation should be confined to those cases where the interest in land has already been created. On the other land, in sub-section (b) one has to see whether the contract itself operates to create, & c., any interest in land.

Unfortunately neither section 54 of the Transfer of Property Act, nor the two previous decisions of the Board in the Burma case (Maung Shwe Goh v. Maung Inn and Davis v. Maung Shwe Go) would appear to have been brought to the attention of their Lordships who decided Dayal Singh v. Indar Singh, for otherwise in a case of this far-reaching importance a reference to them might have been expected in the judgments delivered. This may, [think, justify us in refusing to extend the decision in Dayal Singh v. Indar Singh beyond any case to which it strictly applies, until their Lordships have had an opportunity of further enunciating the law on the point. Accordingly, in the present case, [think, we are not bound to extend that decision to a contract registrable, if at all, under section 17(1)(b). So, too, in Vallabhdas Gordhandas v. Mnlchand Hemraj, we recently refused to extend the decision to a case where the vendor was suing for specific performance, and where in our judgment the purchaser had improperly declined to accept delivery of the property, and consequently was not entitled to the charge under section 55(6)(b) of the Transfer of Property Act on which the decision in Dayal Singh v. Indar Singh was based.

On the other hand, we reject the argument that Dayal Singh v. Indar Singh is not binding on us because it was heard ex parte, and consequently the Board had no arguments from counsel in support of the view which has prevailed in India since 1877. In our judgment it would normally be our duty to follow any decision of the Privy Council whether or no all parties were represented by counsel before their Lordships.

One further point I may mention. It may be urged that as soon as any purchase money was paid, the purchaser got a contingent charge under section 55(6)(b) of the Transfer of Property Act, and that thereupon the contract required registration. But in my view the necessity for registration must be determined at the date of the instrument and not by subsequent events. Consequently in the present case I do not think that the payment of earnest money on October 24, 1923, rendered the antecedent contract of October 20 registrable. To hold otherwise would cause great confusion in practice, and might easily lead to hardship on individuals, to say nothing of difficulties as to the time within which the registration must be effected. It may, however, be that the letter of October 24, 1923, acknowledging the receipt of the earnest-money, required itself registration under section 17(1)(c) in the view of Dayal Singh v. Indar Singh and was accordingly inadmissible in evidence. But, even if that is so, Sir the point is immaterial, for para. 2 of the plaint contains a clear admission by the plaintiffs that the defendants paid the Rs. 40,000 “as and by way of earnest money”.

On the other hand, under the peculiar circumstances of the present case, we have thought it right to consider the question whether the contract itself required registration, notwithstanding the admission in the pleadings as to its existence. In the result, we think the contract did not require registration. I is unnecessary, therefore, to pursue the question as to the effect of the pleaded admissions in this respect. But I may point out that the parties were not content with their pleadings. The two letters themselves were tendered and admitted in evidence as part of Exhibit 7 on the adjourned hearing on November 16, 1925.

Kemp, J.:—[His Lordship after dealing with the other points involved in the appeal continued:—] It remains to give an answer to question No. 5, and here we have to consider the effect of the decision in Dayal Singh v. Indar Singh and whether it applies to the present case Turning to the judgment in that case it is clear that under the agreement for sale there the receipt of Rs. 1,000 by way of earnest-money was acknowledged and their Lordships held that the agreement did in itself create an interest which was compulsorily registrable under section 17(2)(v) of the Indian Registration Act. I take that case to decide that although an agreement for the sale of immoveable property does not of itself, by virtue of section 54 of the Transfer of Property Act, create any interest in or charge on such property, nevertheless if by it any purchase money is acknowledged to have been received, the agreement would require registration under section 17 of the Indian Registration Act as creating a charge on immoveable property under section 55 of the Transfer Sir of Property Act. An agreement for the sale of immoveable property cannot, if not compulsorily registrable when made, subsequently have to be registered by virtue of anything done under it. Section 17(1)(b) of the Indian Registration Act appears to me to refer to a non-testamentary instrument which at its inception creates a charge in immoveable property. In the present case the contract was created, if at all, by the letters of October 16 and 20, 1923. On the latter date no part of the purchase price had been paid under the agreement and indeed the earnest money was not paid until October 24, 1923. The contract, if it was compulsorily registrable, was so on October 20, 1923. It appears to me, therefore, that the circumstances of the present case do not come within the ambit of the decision in the Privy Council case cited to us.

In Maung Shwe Goh v. Maung Inn, the agreement for sale provided that if certain mortgage moneys were not repaid by a certain date the mortgagor agreed to sell the mortgage land for the amount due on the mortgage plus a further sum. There the agreement did acknowledge the receipt of a portion of the price, viz., the mortgage money, and provided for payment of a further sum in the event of the mortgage moneys not being repaid by the specified date. That decision was given in execution proceedings arising from the decision of the Board in Davis v. Maung Shwe Go where no objection was taken that the contract should have been registered under section 17 of the Indian Registration Act. In Maung Shwe Goh v. Maung Inn, the remarks of their Lordships show that an agreement for the sale of immoveable property does not, under section 54 of the Transfer of Property Act, in India, create in favour of the purchaser any interest in the res.

I have, with great respect, some difficulty in reconciling the decision in Davis v. Maung Shwe Go with their Lordships' decision in Dayal Singh's case except on the assumption that the point was not present to the minds of their Lordships or the eminent counsel who argued the appeal in the former case. We find that the purchaser here has not been in default and the agreement contained in the two letters of October 16 and 20, 1923, does not require registration.

Solicitors for appellants:— Messrs Unwalla Peerozshah and Papa.

Solicitors for respondents:— Messrs Wadia, Ghandy & Co.

Appeal allowed.

J.S.K