Excel Dealcomm Private Limited Vs. Asset Reconstruction Company (India) Limited and Others - Court Judgment

I.P. MUKERJI, J.

BASIC FACTS

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI Act) 2002 is a much dreaded Act.

Under it the bank or a financial institution has enormous powers to sell the assets of a defaulting borrower and realise their debt without recourse to a court of law. Such a borrower happened to be Uniworth Apparel Limited, the third defendant. The bank or financial institution was I.C.I.C.I. Bank Ltd.

Now, this Act empowers such a lender to transfer or assign their rights in, the property of the borrower, mortgaged or pledged with them or given to them otherwise as security for the loan, in favour of purchasers. I.C.I.C.I. Bank Ltd. had such a right over the properties mentioned in Schedule I to Annexure ‘A’ of the plaint, belonging to the third defendant.The properties included immovable properties at plot no. A/606, TTC Industrial Area, MIDC, New Mumbai, Maharashtra. It appears that this bank had the right to sell those properties. I.C.I.C.I. Bank Ltd. assigned their rights in the above property in favour of the first defendant.

The first defendant allegedly entered into an agreement with the plaintiff, on 13^th February, 2007, for sale of those properties in their favour for a consideration of Rs. 7.50 crores. The statute also gave them this power. According to this agreement this defendant was required to issue a sale certificate in favour of the plaintiff. The plaintiff thought that it had performed its obligations under the agreement, that the first defendant was obliged to issue the sale certificate and that they were wilfully not doing the same.

In or about December 2007, the plaintiff brought this suit in this Court, claiming specific performance of the agreement.

More than three yearsafter institution of the suit, on 10th February, 2011, the first defendant sold the above properties to the fourth defendant. Initially the plaint had three defendants. After the sale the plaint was amended to add the fourth defendant. On or about 11th February, 2011 this application was filed by the plaintiff to restrain the fourth defendant from selling, transferring, encumbering or otherwise dealing with the said properties.

SUBMISSIONS:

Plaintiff

Mr. Bimal Kumar Chatterjee, learned Senior Advocate for the plaintiff makes submissions on some fine legal principles.

He shows me Section 19 (b) of the Specific Relief Act, 1963. He submits that any purchaser claiming under a seller is amenable to specific performance of a contract which the seller may have executed with another party unless the property has been purchased by the purchaser in good faith and without notice of the contract which the seller has with the other party. My attention was drawn to paragraph 4 (a) of the Affidavit-in-Opposition of the fourth defendant where it is only stated that they were a bona fide purchaser for value. Mr. Chatterjee submitted that this assertion in the Affidavit-in-Opposition is plainly indicative of the fact that this defendant had notice of the transaction. That is why whether the fourth defendant had notice was not averred.

Then he cites Section 91 of the Indian Trusts Act, 1882. He argues that the fourth defendant had notice of the earlier transaction of the first defendant with the plaintiff.With notice of that contract the fourth defendant entered into an agreement for sale of the self-same property with the first defendant. Therefore, the fourth defendant is to hold the property as trustee for the plaintiff. The principles of law as stated in paragraph 13 of Vasantha Vishwanathan and others vs. V.K. Elayalwar and others reported in AIR 2001 SC 3367 were pointed out by Mr. Chatterjee. He also referred me to the case of Sm. Muktakesi Dawn and others vs. Haripada Mazumdar and another reported in AIR 1988 Cal 25, a decision of the Division Bench of this Court which says that in addition to the protection under Section 52 of the Transfer of Property Act an order of injunction may be required to be passed by the Court to prevent creation of third party interest and for protection of the property which is subjudice.

Mr. Chatterjee further submitted that the first defendant acted in terms of the said agreement as would appear from their statement in paragraph 12 of the Affidavit-in- Opposition. Paragraph 12 is inserted later on, in this judgment.

When the cheque for Rs.9.5 crores was sent to this defendant by the plaintiff by their letter dated 16th February, 2007, the first defendant made no protest to the effect that there was no concluded contract.

He showed me Clause 9 (ix) and Clause 4 of the agreement being the forum selection clause.

He also argued that in the Order VII Rule 11 application the first defendant had relied on these clauses to argue before the Court that it had no jurisdiction to entertain the suit.Rules of Estoppel and those relating to approbation and reprobation at the same time prevent the first defendant from urging that there was no concluded contract.

Defendant No. 1:

Mr. Jishnu Saha learned advocate, on behalf of the first defendant made the following submissions:

a) There was no concluded contract between the parties by the document dated 13^th February, 2007. This document described the contents thereto as a “term sheet”.According to Blacks Law Dictionary “term sheet” means information provided in a document or in a letter of intent. A letter of intent was equivalent to a “subject to contract” clause. This is not a concluded contract as held in the case of Alpenstow Ltd and another vs. Regalian Properties plc reported in 1985(2) ALL ER 545. He also referred me to a part of the document from the first page of the alleged agreement to argue that there was no contract.

b) The alleged agreement was unstamped and has no evidentiary value.

c) Although the plaintiff forwarded a cheque for Rs. 9.5 crores, the first defendant did not encash the same.

Defendant No. 4:

Thereafter submissions were made on behalf of the fourth defendant by Mr. Abhrajit Mitra, learned Advocate assisted by Mr. Soumya Roy Choudhury. They made the following submissions:

a) The property is situated in Maharashtra. Section 52 of the Transfer of Property Act, 1882 was amended by the Bombay Amendment Act of 1939 so as to affect its operation in Maharashtra. That amendment says that only if the suit instituted by a party is registered under Section 18 of the Indian Registration Act, 1908 can the restraint of Section 52 upon the parties to the suit be operative. The suit in question was not so registered. Therefore, the fourth defendant is permitted to transfer this property to any other person. They cited paragraph 37 of the case of Anand Nivas Private Ltd. vs. Anandji Kalyanji’s Pedhi and others reported in AIR 1965 SC 414 to submit that this registration under Section 18 of the Indian Registration Act was necessarily to be effected at the citus of the immovable property.

b) A party seeking injunction has to make the necessary averments in the pleadings regarding transfer of the property. He has to aver whether the transferee took it with or without notice, with or without consideration, innocently or not and so on. They relied on Atkin’s forms of pleadings to show that these averments have to be made. Mr. Mitra cited Purna Chandra Mukerji and another vs. Gopendra Krishna Kundu and others reported in AIR 1926 Cal 744 and Sanga Thevar vs. Thanukodi Ammal and others reported in AIR 1954 Mad 116 to submit that the averments whether the transfer was with or without notice or for value or not or to an innocent purchaser or not were absolutely necessary.

c) I was also shown Section 13 (6) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 to submit that the transfer in their favour tantamounted to transfer by the original owner, being the third defendant and any further transfer would also have the same effect. No injunction or any other relief was being claimed against the third defendant but it was claimed against the fourth defendant which was not permissible in law.

DISCUSSION AND CONCLUSIONS:

Certain common law equitable principles of great vintage and enormous value have been grafted into our law. They, inter alia, find place in various statutes. The principles to be applied in this case arise from the issue: whether the fourth defendant, which claims to be an innocent purchaser without notice and for value, of the property can be protected in the litigation for specific performance of the agreement for sale of the same property between the owner of the property, being the first defendant and the prior intending purchaser being the plaintiff?

The principles of equity are these. Any person claiming title to a property from another person is liable in a suit for specific performance relating to that property between that another person and some other person. An exception is a transferee for value, who has paid money in good faith and without notice of the original contract. This is provided in Section 19(b) of the Specific Relief Act, 1963. A guilty purchaser is to hold the property as trustee for the first intending purchaser. This is provided in Section 91 of the Indian Trusts Act, 1882 (See also the case of Vasantha Vishwanathan and others vs. V.K. Elayalwar and others reported in AIR 2001 SC 3367 Paragraph 13). Then, Section 52 of the Transfer of Property Act, 1882 prohibits transfer or dealing with a property which is the subject matter of litigation by any party to it without the leave of the Court.

In my opinion, the above principles are entwined with one another. I would like to say that the doctrine of lis pendis applies to any immovable property in litigation. The immovable property may or may not be the subject matter of an agreement for sale of a property. Say a partition and administration suit. Therefore, in those cases neither Section 91 of the Indian Trust Act, 1882 nor Section 19(b) of the Specific Relief Act, 1963 would apply. Conversely in a suit for specific performance all three Acts will normally apply.

But in this case a complication has arisen. Section 52 of the Transfer of Property Act, 1882 was amended by the Bombay Amendment Act of 1939 in the manner shown in italics:

“52. Transfer of property pending suit relating thereto.—(1) During the pendency in any court having authority within the limits of India excluding the State of Jammu and Kashmir or established beyond such limits by the Central Government of any suit or proceeding which is not collusive and in which any right to immovable property is directly and specifically in question, if a notice of the pendency of such suit or proceeding is registered under Section 18 of the Indian Registration Act, 1908, the property after the notice is so registered cannot be transferred or otherwise dealt with by any party to the suit or proceeding so as to affect the rights of any other party thereto under any decree or order which may be made therein, except under the authority of the court and on such terms as it may impose.

(2) Every notice of pendency of a suit or proceeding referred to in sub-section (1) shall contain the following particulars, namely:

(a) the name and address of the owner of immovable property or other person whose right to the immovable property is in question;

(b) the description of the immovable property, the right to which is in question;

(c) the court in which the suit or proceeding is pending;

(d) the nature and title of the suit or proceeding; and

(e) the date on which the suit or proceeding was instituted.

 (emphasis supplied) ”

Section 52 of the Transfer of Property Act, 1882 as amended by the Bombay Amendment Act of 1939 has application with regard to properties situated in the State of Maharashtra.(See the case of Anand Nivas Private Ltd. vs. Anandji Kalyanji’s Pedhi and others reported in AIR 1965 SC 414)

Section 19(b) of the Specific Relief Act, 1963 or the Indian Trusts Act, 1882, both being Central statutes have not been amended.

The position as a result of this, is that there may be atleast three types of situations with regard to an agreement for sale of an immovable property. The first is when the agreement for sale was entered into before institution of the suit. In a case of specific performance of an agreement for sale that is invariably the case. Such is the case in this suit. The first defendant and the plaintiff entered into the alleged agreement for sale on 13th February, 2007. The second possibility is that during pendency of a suit concerning a property an agreement for sale is entered into by a party and the property is sold or proposed to be sold. The third type of case is when the agreement for sale was made before institution of the suit, sale was made to a third party during the pendency of the suit and there is a possibility of the purchaser making a further sale during such pendency. This is also the case in this suit, after transfer of the property in favour of the fourth defendant.

In the second of those cases in a contest over a Maharashtra property the Maharashtra Amendment would seem to exclude the operation of Section 19(b) of the Specific Relief Act, 1963 and Section 91 of the Indian Trusts Act, 1882, if the suit was registered. This is because the amendment says that protection against third party rights is available only if the suit is registered.

As this suit was not registered, there would be no Section 52 protection for the plaintiff, in my opinion.

If the first and third are the case, i.e., when some rights are created before institution of the suit, by execution of an agreement for sale with regard to a Maharashtra property, then such an agreement would seem to be protected by the said sections of the Specific Relief Act, 1963 and the Indian Trusts Act, 1882 on the principle that valuable rights have accrued prior to institution of the suit which are not stated to be taken away by the Bombay Amendment to the Transfer of Property Act, 1882.

For protection of the property and the rights of the parties, for preventing creation of undesirable third party interests and a multiplicity of complex proceedings, the Court can grant an injunction upon the intending transferee or the transferees, restraining them from further alienating, encumbering or dealing with the property in question. (See the case of Sm. Muktakesi Dawn and others vs. Haripada Mazumdar and another reported in AIR 1988 Cal 25)

But any proposition of law is conditional upon establishment of facts which are essential for its operation.

They are, whether a) the plaintiff has been able to make out a prima facie case? b) the fourth defendant is not an innocent transferee, and not somebody without notice of the alleged agreement between the plaintiff and the first defendant?

First the prima facie case. Mr. Jishnu Saha, learned Advocate for the first defendant argued that there was no concluded contract between them and the plaintiff. He referred to an expression in the agreement at page 35 of the petition that it was intended to be a “term sheet”. He referred to Black’s Law Dictionary for the meaning of the word “term sheet”. Black’s Law Dictionary describes term sheet as information provided in a document or a letter of intent. He interpreted term sheet to be equivalent to “subject to contract clause” in a transaction between the parties. He cited the case of Alpenstow Ltd and another vs. Regalian Properties plc reported in AIR 1985 (2) ALL . ER 545 page 551(d-j) to argue that the alleged agreement of 13th February, 2007 was just a “term sheet” or certain terms “subject to contract” and could not be a concluded contact between the parties. He also referred to the last paragraph of the first page of the alleged agreement mentioned above to strengthen his argument that there was no concluded contract.

Theoretically there is a lot of substance in the argument of Mr. Saha.

But unfortunately his clients according to available records have prima facie acted in a manner so as to suggest that they assumed an agreement for sale to exist between them and the plaintiff. Mr. Chatterjee drew my attention to a letter of the plaintiff dated 16^th February, 2007 at page 53 of the petition, with which was annexed a cheque being paid by them as consideration for the above alleged agreement. There was no protest to this letter by the first defendant to the effect that there was no concluded contract between the parties.

The averments in paragraph 12 of the Affidavit-in-Opposition of the first defendant are very crucial. They are as follows:

“12. As the adjustment break up given by the plaintiff by its letters dated 16th February, 2007 and 5th March, 2007 were not acceptable by the defendant No. 1 It required the plaintiff to file a revised proposal with substantial with substantial improvement on or before 31st March, 2007. It was also accordingly intimated to the plaintiff that the said cheque No. 7178759 had not been banked by the defendant No. 1 till date. This is also material suppression, which in itself disentitles the plaintiff to any relief in the instant application.”

I also accept Mr. Chatterjee’s contention that in their application under Order VII Rule 11 of the Code of Civil Procedure, challenging the jurisdiction of this Court to try the suit, the first defendant had relied upon the forum selection clause of the self-same agreement, namely, Clause 9(ix) and Clause 4. The rules of estoppel or those relating to approbation and reprobation at the same time would prevent first defendant from urging this defence, in my opinion.

Therefore, prima facie, the plaintiff and first defendant acted according to the agreement of 2007.

Now, the issue regarding the guilt of the fourth defendant has to be examined.

It is true that Atkin’s Form No. 26 in Court Forms in Civil Proceedings prescribes pleading the knowledge of the defendant. It has not been so pleaded in the application by the plaintiff. In the decision in the case of Purna Chandra Mukerji and another vs. Gopendra Krishna Kundu and others reported in AIR 1926 Cal 744 the Division Bench of this Court recognised that pleading knowledge or notice of the purchaser was necessary. However, I find as shown to me by Mr. Chatterjee that in paragraph 4 (a) of the Affidavit-in-Opposition of the fourth defendant that they have only stated they were a bona fide purchaser. In my opinion a person is deemed to know the law. And in this case, the affidavit is of a limited company. Omission to state that they purchased the property without notice, while stating that they purchased the property as a bona fide purchaser tend to prima facie show that they had notice of the transaction between the plaintiff and the first defendant.

Mr. Saha has raised two further issues regarding non-payment of stamp duty on the alleged agreement of 13th February, 2007.

I am of the further opinion that the plaintiff has prima facie been able to make out the existence of the agreement for sale of 13th February, 2007. But the existence and purport of the agreement have to be more fully brought out at the trial of the suit. It is true that the agreement is unstamped but it is also true that an unstamped agreement can be impounded by the Court, thereafter stamped and tendered in evidence. All these may or may not happen at the trial of the suit.

Furthermore, although I am prima facie of the opinion that the plaintiff has been able to show that the fourth defendant had notice and knowledge of the agreement between the plaintiff and the first defendant, notice to the fourth defendant or absence thereof or the fourth defendant being a bona fide purchaser for value or not being so, will be fully established at the trial.

I also taken into account that the agreement between the plaintiff and the first defendant was of 13th February, 2007; the suit was filed on 17th December, 2007. After filing of this suit the plaintiff did not take any steps to obtain an order of injunction restraining the first defendant from transferring the property. The transfer in favour of the fourth defendant was made on 10th February, 2011. This application was filed on 11th February, 2011. In my opinion the above is considerable lapse on the part of the plaintiff.

But consideration of the above prima facie case and the balance of convenience lead me to the conclusion that an order of injunction has to be passed restraining the fourth defendant from transferring, encumbering or otherwise dealing with the property till disposal of the suit, so that further third party interests are not created. For, according to my above opinion if the plaintiff succeeds in the suit the property has to be transferred to them, by any transferee.

But in the facts and circumstance of the case the suit has to be expedited and the above order of injunction should be restricted in its operation to six months from date.

Let written statements be filed by the first and fourth defendant within eight weeks from date. Cross order for discovery to be made within two weeks thereafter, inspection forthwith. Service of the writ of summons, if not already served on these defendants be dispensed with. The returnable date of the writ of summons on the second and fourth defendants is extended till 15th June, 2012. The said defendants may also file their written statements and discover documents within the time prescribed for the first and fourth defendants. This application is allowed to the above extent.

Urgent certified photocopy of this judgment and order, if applied for, to be provided upon complying with all formalities.