Specific Performance, Sham Deeds, and Subsequent Purchasers: Key Legal Clarifications

Introduction

This article provides an in-depth analysis of a significant judgment that dissects crucial aspects of specific performance actions in real estate. The decision offers authoritative guidance on challenging the genuineness of written agreements, the concept of constructive notice for subsequent purchasers, and the procedural requirements for enforcing agreements to sell when statutory restrictions on transfer exist.

1. Factual Background and Procedural History

The dispute originated from a registered agreement for sale dated December 7, 1981, wherein the first defendant agreed to sell his Bhumidhari land, measuring 2.90 acres, in village Jauniwala, Tehsil Kashipur, District Nainital, to the plaintiffs (Karan Singh and Murari Singh) for Rs. 20,300/-. An advance of Rs. 7,000/- was paid, with the balance payable upon execution of the sale deed, which was stipulated to occur within three years. According to the plaintiffs, they repeatedly requested the first defendant to execute the sale deed, including through notices which he allegedly refused to accept.

However, on September 6, 1983, and December 12, 1983, the first defendant executed two separate registered sale deeds, transferring the entire suit property to the second, third, and fourth defendants. The suit for specific performance of the 1981 agreement, along with a prayer for possession, was filed by the plaintiffs on December 17, 1983. The averments regarding the subsequent alienations were incorporated into the plaint via an amendment ordered on July 28, 1984, with the plaintiffs contending that these subsequent sale deeds were collusive.

The defendants, including the legal representative (LR) of the deceased first defendant and the subsequent purchasers (second to fourth defendants), filed separate written statements. The first defendant’s LR claimed the suit agreement was fictitious. The second and third defendants contended it was a forged document and was never intended to be acted upon, alleging that no money was ever paid by the plaintiffs. Notably, the second plaintiff, Murari Singh, deposed in favour of the defendants, stating that the suit agreement was merely a deterrent to prevent the first defendant (his relative) from alienating the land due to his alleged bad habits, and that the agreement was not intended to be acted upon.

The Trial Court, in its judgment, found the execution of the suit agreement proved. Relying on Section 92 of the Indian Evidence Act, 1872, it held that evidence contrary to the written terms was inadmissible. It also concluded that, due to the Uttar Pradesh Civil Laws (Reforms and Amendment) Act, 1976, making agreements for sale compulsorily registrable, the subsequent purchasers (second to fourth defendants) were deemed to have constructive notice of the prior agreement under Section 3 of the Transfer of Property Act, 1882. Thus, they were not bona fide purchasers without notice. The Trial Court also found that the plaintiffs were ready and willing to perform their part of the contract and accordingly decreed specific performance, directing all defendants to execute the sale deed and deliver possession.

This decision was upheld by the Additional District Judge, Nainital, in the First Appeal. The Second Appeal filed by the second to fourth defendants before the High Court was also dismissed, affirming the concurrent findings of the lower courts. Aggrieved, the second to fourth defendants preferred the present Civil Appeal before the Supreme Court, which had initially granted a stay on the operation of the impugned decrees.

2. Identification of Legal Issues

The Supreme Court meticulously identified and addressed the following key legal questions:

• Evidentiary Admissibility of “Sham” Plea: Whether a contention that a suit agreement was “sham” or “bogus” and not intended to be acted upon can be raised and proved through evidence, notwithstanding the provisions of Sections 91 and 92 of the Indian Evidence Act, 1872.
• Factual Basis of “Sham” Agreement: Based on the evidence and pleadings, whether the suit agreement was, in fact, sham and not intended to be acted upon.
• Bona Fide Purchaser Status: Whether the second to fourth defendants qualified as bona fide purchasers for value without notice of the prior suit agreement.
• Necessity of Prayer for Cancellation of Subsequent Deeds: Whether the plaintiffs were disentitled to a decree of specific performance due to the absence of a specific prayer for the cancellation or setting aside of the two subsequent sale deeds executed by the first defendant.
• Statutory Bar on Transfer: Whether the provisions of the Uttaranchal (The Uttar Pradesh Zamindari Abolition and Land Reforms Act, 1950) (Adaption and Modification order, 2001) (Amendment) Ordinance, 2003 (referred to as the “Zamindari Abolition Act”), created a bar on the execution of the sale deed in terms of the suit agreement, particularly concerning the non-agriculturist status of the plaintiff.
• Entitlement to Specific Performance: Whether the plaintiffs were ultimately entitled to a decree of specific performance, and if so, to what extent, considering the conduct of the second plaintiff.

3. Arguments of the Parties

Arguments on Behalf of the Appellants (Maharaj Singh & Ors. – Second to Fourth Defendants):

The appellants advanced several contentions to challenge the grant of specific performance:

• Sham and Bogus Agreement: They argued that the suit agreement was “sham and bogus” and not intended to be acted upon. They contended that Sections 91 and 92 of the Evidence Act do not preclude leading evidence to demonstrate that the parties never intended to contract on the terms set forth in the document. Reliance was placed on Privy Council’s decision in Tyagaraja Mudaliyar and Anr. v. Vedathanni and Krishnabai Bhritar Ganpatrao Deshmukh v. Appasaheb Tuljaramarao Nimbalkar & Ors.
• Factual Support for “Sham” Plea: They pointed to the depositions of the second plaintiff (Murari Singh), who was the first defendant’s uncle, and Bhagwati Devi (the first defendant’s mother). They claimed these depositions showed that the first defendant had “many vices,” and the agreement was a mere “fictitious” document executed by the second plaintiff (Murari Singh) without consideration, with the object of deterring the first defendant from selling the property to fund his “bad lifestyle.” The first plaintiff, being a “well-known person,” was allegedly included to exert pressure.
• Bona Fide Purchasers: They asserted their status as bona fide purchasers for value, claiming ignorance of the “sham” suit agreement.
• Lack of Prayer for Cancellation: They argued that the plaintiffs were disentitled to specific performance because they did not specifically pray for the setting aside or cancellation of the two subsequent registered sale deeds in their favour. For this, reliance was placed on B. Vijaya Bharathi v. P. Savitri & Ors.
• Bar under Zamindari Abolition Act: They contended that the first plaintiff was not an “agriculturist” as defined under Section 3(a) of the Zamindari Abolition Act. Therefore, in light of Section 154-B of the said Act, the sale deed could not be executed in terms of the suit agreement.
• Lack of Readiness and Willingness: Though not explicitly detailed in the summary, it was an underlying argument that the plaintiffs were not ready and willing.
• Non-Contest by First Plaintiff’s LRs: They noted that the legal representatives of the first plaintiff had not contested the appeal, suggesting a lack of interest in the relief.

Arguments on Behalf of the Respondents (Karan Singh & Ors. – Original Plaintiffs):

While the judgment does not explicitly detail the respondents’ arguments in a separate section, their successful contentions in the lower courts, affirmed by the Supreme Court, can be inferred:

• Genuineness of Agreement: The plaintiffs would have asserted the genuineness and enforceability of the 1981 agreement.
• Inadmissibility of Oral Evidence: They would have argued, as the Trial Court accepted, that oral evidence to contradict or vary the terms of a written agreement is inadmissible under Sections 91 and 92 of the Evidence Act.
• Constructive Notice to Subsequent Purchasers: They would have contended that due to the compulsory registration of agreements to sell in the State, the subsequent purchasers had constructive notice of their prior agreement, thus precluding them from claiming bona fide status.
• No Need for Cancellation of Subsequent Deeds: The plaintiffs would have argued that a separate prayer for cancellation of subsequent sale deeds is not necessary in a specific performance suit, relying on the established principle that a specific performance decree can direct the subsequent purchaser to join in the conveyance.
• Readiness and Willingness: They would have demonstrated their continuous readiness and willingness to perform their part of the contract.
• Zamindari Abolition Act: They would have argued that the Act’s bar applies only to the execution of the sale deed, not the agreement to sell, and that the decree could be made contingent on obtaining necessary permissions.

4. Court’s Analysis and Reasoning

The Supreme Court systematically addressed each question, providing comprehensive reasoning:

• Sham and Bogus Agreement (Questions a & b):
  
  
  • Interpretation of Sections 91 & 92 Evidence Act: The Court reiterated the well-settled law from Tyagaraja Mudaliyar that Sections 91 and 92 of the Evidence Act do not prevent parties from adducing evidence to show that they never “agreed to contract on the terms set forth in the document.” This clarifies that while oral evidence cannot contradict a written contract’s terms, it can establish whether a contract, as a whole, was intended to be operative or merely a sham.
  • Factual Scrutiny: However, on facts, the Court found the “sham” plea unconvincing. It noted that the written statements of the first defendant’s LR and the other defendants presented inconsistent pleas (fictitious agreement vs. forged document). Crucially, the detailed story about the first defendant’s “vices” and the agreement being a “deterrent” was raised for the first time in evidence by the first defendant’s mother, rather than in the pleadings. The Court held this to be an “afterthought” and inconsistent with the other defendants’ “forgery” plea. Therefore, the Court concluded that the suit agreement could not be held as bogus or sham.
• Bona Fide Purchasers (Question c):
  
  
  • The Court confirmed the concurrent findings of the lower courts that agreements for sale were compulsorily registrable in Uttar Pradesh at the relevant time (post-1976 amendment).
  • Constructive Notice: Applying Explanation 1 to Section 3 of the Transfer of Property Act, 1882, the Court held that the subsequent purchasers (second to fourth defendants) were deemed to have “constructive notice” of the duly registered suit agreement. The absence of a plea by these defendants that they conducted a search in the Sub-Registrar’s office further weakened their claim.
  • Conclusion: The second to fourth defendants could not be considered bona fide purchasers who paid consideration in good faith without notice of the prior agreement.
• Necessity of Prayer for Cancellation of Subsequent Deeds (Question d):
  
  
  • Reliance on Lala Durga Prasad: The Court referred to the three-Judge Bench decision in Lala Durga Prasad & Ors. v. Lala Deep Chand & Ors. (1953), which clearly laid down the proper form of decree in such cases. This precedent dictates that specific performance should be directed against the vendor, and the subsequent transferee should be directed to join in the conveyance to pass the title residing in them to the plaintiff. This approach avoids complications that might arise from cancelling the subsequent sale deed and ensures that the court does not “remake” the contract.
  • Distinguishing B. Vijaya Bharathi: The Court expressly stated that the two-Judge Bench decision in B. Vijaya Bharathi v. P. Savitri & Ors., which suggested the necessity of praying for cancellation of subsequent deeds, was not a binding precedent because it failed to consider the larger bench decision in Lala Durga Prasad.
  • Conclusion: There was no requirement for the plaintiffs to include a prayer for cancellation or setting aside of the subsequent sale deeds. Section 19(b) of the Specific Relief Act, 1963, allows specific performance against a subsequent transferee who is not a bona fide purchaser without notice.
• Statutory Bar under Zamindari Abolition Act (Question e):
  
  
  • The Court examined Section 154-B of the Zamindari Abolition Act, which prohibits the sale or transfer of agricultural land to a non-agriculturist.
  • Agreement vs. Sale Deed: It clarified that an agreement for sale, under Section 54 of the Transfer of Property Act, does not transfer property or create an interest therein. Therefore, the embargo under Section 154-B(1) applies only to the execution of the sale deed, not the agreement for sale.
  • Implied Obligation to Seek Permission: Citing Rojasara Ramjibhai Dahyabhai v. Jani Narottamdas Lallubhai and another and the Privy Council’s Motilal v. Nanhelal, the Court reiterated the principle of an “implied covenant” on the vendor’s part to do all things necessary to give effect to the agreement, including obtaining necessary government permission for the transfer.
  • Conclusion: A decree for specific performance can be passed contingent upon the grant of permission from the State Government or Competent Authority, and the vendor (and those claiming through him) can be directed to apply for such permission.
• Entitlement to Specific Performance (Question f):
  
  
  • The Court affirmed the concurrent findings of the three lower courts regarding the first plaintiff’s readiness and willingness, finding no reason to disturb them.
  • Effect of Co-Plaintiff’s Non-Interest: However, considering the second plaintiff’s conduct of not supporting the first plaintiff and effectively siding with the defendants, and the High Court’s observation on undivided shares (deemed equal shares under Section 45 of the Transfer of Property Act), the Court held that the decree for specific performance should be restricted.
  • Conclusion: The decree should be for the undivided one-half share in the suit property in favour of only the first plaintiff, as the second plaintiff was no longer interested in obtaining specific performance. The first plaintiff would have the liberty to file a separate suit for general partition to secure possession of the undivided share.

5. Final Conclusion and Holding

The Supreme Court partly allowed the appeal, significantly modifying the decrees passed by the lower courts.

The Court held that:

• The suit agreement was not sham or bogus.
• The subsequent purchasers were not bona fide purchasers without notice due to the compulsory registration of the prior agreement.
• The plaintiffs were not required to pray for the cancellation of the subsequent sale deeds to seek specific performance, reaffirming the principle from Lala Durga Prasad.
• The bar under the Zamindari Abolition Act would apply only at the stage of execution of the sale deed, and the defendants (and first defendant’s LR) could be directed to apply for the necessary government permission as an implied obligation. The specific performance decree would be contingent upon obtaining such permission.
• Specific performance was granted only in favour of the first plaintiff (Karan Singh) and limited to his one-half undivided share in the suit property, due to the second plaintiff’s lack of interest.

The final directions included:

• Legal representative of the first defendant and the second to fourth defendants are directed to execute a sale deed for one-half undivided share in favour of the first plaintiff.
• Defendants must jointly apply for State Government permission under Section 154-B(2)(h) of the Zamindari Abolition Act within two months. If they fail, the executing Court can appoint a Commissioner.
• If permission is finally rejected, the first plaintiff is entitled to a refund of Rs. 7,000/- (advance) with 8% interest from the suit filing date against the first defendant’s LR (liability restricted to inherited estate).
• If permission is granted, the sale deed must be executed within three months.
• The suit stood dismissed concerning the second plaintiff.
• The first plaintiff will not be entitled to seek possession in execution of this decree but will be at liberty to file a suit for general partition for his undivided share.
• No costs were awarded.

This judgment provides critical clarifications on several contentious areas of specific performance law, re-establishing the authority of older, larger bench precedents and detailing the practical implications of statutory restrictions and co-plaintiff conduct.

FAQs:

1. Can a written agreement for property sale be legally challenged as a sham?

Yes, a written agreement for a property sale can be legally challenged as a “sham” if it can be proven that the parties never genuinely intended for the agreement to be acted upon, but such claims must be clearly pleaded and supported by strong evidence.

2. What is the impact of a registered agreement on later property buyers?

A registered agreement for property sale provides “constructive notice” to any subsequent buyers, meaning they are legally presumed to be aware of the prior agreement, which can prevent them from claiming to be “bona fide purchasers without notice.”

3. Do I need to get a prior sale deed canceled to enforce a specific performance contract?

No, in a specific performance suit against a vendor who has subsequently sold the property, it is generally not necessary to explicitly pray for the cancellation of the later sale deed. The court can direct the subsequent buyer to join in the conveyance to pass the title to the plaintiff.

4. How do land transfer restrictions affect agreements for sale?

Land transfer restrictions, such as those prohibiting sales to non-agriculturists, typically apply to the actual execution of the sale deed, not the initial agreement for sale. A court can decree specific performance contingent on obtaining the necessary government permission, as the vendor has an implied duty to apply for it.

5. What happens in a specific performance suit if one of the plaintiffs is no longer interested in buying the property?

If one co-plaintiff in a specific performance suit is no longer interested in purchasing the property, the court can still grant specific performance for the interested plaintiff’s share (e.g., an undivided half share), but the interested plaintiff may need to file a separate suit for partition to secure physical possession.

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