1. Mortgagee's sons purchased mortgaged property via sale deed despite a prior agreement to sell to third parties; subsequent suit for redemption and possession. (Para 1 , 2 , 3 )
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1966 Supreme(SC) 281
SUPREME COURT OF INDIA
K. SUBBA RAO, C.J.I., J.M.Shelat, R.S.Bachawat, JJ.
Soni Lalji Jetha
Versus
Soni Kalidas Devchand
Case No. : 727 of 1964
Date of Decision : 10/14/66
Advocates Appeared: Baxi J.A. : Hathi K.L. : Mukherjee D.N. : Prasad Sarjoo : Rehman A.
Advocates:
A.Rehman, D.N.MUKHERJI, J.A.Baxi, K.L.Hathi, SARJU PRASAD
A.Rehman, D.N.MUKHERJI, J.A.Baxi, K.L.Hathi, SARJU PRASAD
A subsequent purchaser of property with notice of a prior enforceable contract for sale holds the property as a trustee for the prior contract holder under Section 91 of the Indian Trusts Act. Consequently, their possession is fiduciary and not adverse, preventing the acquisition of title by adverse possession.
Headnote:(A) Transfer of Property Act, 1882 - Sections 40 and 54 - Indian Trusts Act, 1882 - Section 91 - Specific Relief Act, 1877 - Section 3 - Mortgagees in possession - Subsequent sale of mortgaged property - Adverse possession - Subsequent purchaser with notice of prior agreement - Fiduciary relationship - Possession not adverse. (Paras 8, 9, 11)
(B) Adverse Possession - A mortgagee-in-possession cannot unilaterally convert lawful possession into adverse possession by merely asserting ownership. However, a sale of the mortgaged property by the mortgagor to the mortgagee converts the character of possession to that of an absolute owner. Even if such a sale is voidable, the possession based on assertion of ownership may ripen into title if it continues for the statutory period, provided there is no fiduciary obligation. (Para 8)
(C) Subsequent Purchaser with Notice - Where a person acquires property with notice of an existing contract for sale of which specific performance could be enforced, the purchaser holds the property for the benefit of the prior contract holder to the extent necessary to give effect to the contract under Section 91 of the Indian Trusts Act. Such a purchaser is in a fiduciary position, and consequently, their possession cannot be deemed adverse against the party entitled to specific performance. (Paras 9, 10, 11)
Facts of the case:
A property was mortgaged with possession. Subsequently, the mortgagors entered into an agreement to sell the property to certain parties. Later, the mortgagors executed a registered sale deed in favor of the mortgagees. The prior agreement holders obtained a decree for specific performance. A subsequent suit for redemption and possession was filed. The mortgagees claimed that their possession, following the sale deed, had become adverse and ripened into title, barring the suit by limitation.
Findings of Court:
The court found that while a sale to a mortgagee generally changes the nature of possession, in this case, the mortgagees purchased the property with notice of a prior agreement. Under the law, they held the property as trustees for the benefit of the prior agreement holders.
Issues: Whether the possession of the mortgagees, who purchased the property via a sale deed despite a prior agreement to sell to others, was adverse and whether such possession could ripen into title to bar a suit for redemption.
Ratio Decidendi: A subsequent purchaser who acquires property with notice of a prior contract for sale holds the property as a trustee for the benefit of the prior contract holder under Section 91 of the Indian Trusts Act. Being in a fiduciary position, the possession of such a purchaser is not adverse against the prior contract holder, and therefore, the statutory period for limitation does not run against the latter. (Paras 10, 11)
Result: Appeal fails and is dismissed with costs.
Legal Category Hierarchy
- property law
- equity and trusts
- practice and procedure
Table of Contents
2. Whether a sale deed in favor of mortgagees converts their possession into adverse possession, barring a subsequent suit for redemption by limitation. (Para 3 , 4 , 5 )
3. A sale from mortgagor to mortgagee converts possession to ownership, but a purchaser with notice of a prior contract holds the property as a trustee. (Para 8 , 9 , 10 , 11 )
4. A purchaser with notice of a prior contract for specific performance holds the property in a fiduciary capacity, rendering their possession non-adverse against the prior contractee. (Para 11 )
5. Appeal dismissed; the suit for redemption is not barred by limitation. (Para 13 )
6. Can a mortgagee convert possession to adverse possession?
A mortgagee cannot unilaterally convert possession to adverse by merely asserting ownership. However, if the mortgagor sells the property to the mortgagee, the possession becomes that of an absolute owner, which can ripen into title via adverse possession if the sale is not challenged. (Para 8 )
7. Does a decree for specific performance interrupt adverse possession?
A decree for specific performance or a declaration that a sale is invalid does not disturb or interrupt the adverse quality of possession unless it results in the actual recovery of possession. (Para 8 )
8. What is the legal status of a subsequent purchaser who buys property with notice of a prior contract?
Such a sale is voidable, not void. Under Section 91 of the Indian Trusts Act and Section 40 of the Transfer of Property Act, the subsequent purchaser holds the property as a trustee for the benefit of the prior contractee. (Para 9 , 10 , 11 )
9. Does the fiduciary relationship of a trustee prevent adverse possession?
Yes, because a purchaser with notice of a prior contract is in a fiduciary position, their possession is not adverse against the person entitled to specific performance, and thus the statutory period for limitation does not run. (Para 11 )
J.M.SHELAT, J.
(1) ONE Soni Virji Sundarji for himself and on behalf of the Hindu joint family of which he was the Karta executed a deed of mortgage dated 11/12/1907 in respect of two shops in Jamnagar in favour of Jetha Roopchand, to secure repayment of Rs. 800.00 advanced to the said family. The said mortgage was with possession and was redeemable in 8 years. On 25/08/1930 the coparceners of Virji, who had died in the meantime, by an agreement of sale agreed to sell and respondents 1 and 2 agreed to purchase the said two shops together with certain other properties for Rs. 3,200.00, subject of course to the said mortgage. In spite of the said agreement of sale the coparceners of Virji by a registered deed of sale dated 10/09/1930 sold the said shops and the said properties to Lalji Jetha and Kanji Jetha, the sons of said Jetha Roopchand, for Rs. 3,400.00. The said Lalji and Kanji both died and the appellants and respondents 3(1) to 3(9) are the heirs and legal representatives of the said Lalji and Kanji respectively.
(2) ON 1/10/1930, respondents 1 and 2 filed a suit being suit No. 263 of Samwat Year 1987 (1931 A.D.) for specific performance of the said agreement dated 25/08/1930 against the said mortgagors and the said Kanji, being defendant No. 5 therein. Lalji, however, was not made a party defendant. Respondents 1 and 2 alleged in the suit inter alia that as Kanji was anxious to purchase the said shops, he, in collusion with the said mortgagors and with mala fide intention, sought to purchase the said properties for a sum higher than the one agreed to by them and got the mortgagors to commit breach of the said agreement in order to deprive them of the benefit of the said agreement. The plaint contained a prayer for specific performance against the mortgagees being defendants 1 to 4 and for a decree against Kanji to hand over possession of the said shops on respondents 1 and 2 paying off the amount due under the said mortgage. The basis of the suit thus was that Kanji had not acquired any ownership in the said shops and only possessed the mortgagees rights therein. The Trial court declined to grant specific performance and awarded damages. On appeal by respondents 1 and 2 the Joint Civil Judge by his judgment and decree dated 16/08/1943 reversed the judgment and decree of the Trial court dismissing the suit and allowing the appeal passed a decree for specific performance against the said mortgagors. The defence of Kanji that he was a bona fide purchaser without notice was rejected. The Joint Civil Judge observed in his judgment as follows:- `All the equities in the case are in favour of the plaintiffs and I therefore pass a decree for specific performance of the contract as prayed for by them in their plaint subject of course to the modification mentioned above re, their deferred right to secure possession of the shops later on after redeeming the same from the 5th defendant.` He directed Kanji on payment of Rs. 2,065.00 to him by respondents 1 and 2 to hand over possession of the said shops and also directed that : `all the defendants respondents should execute the necessary registered formal sale deeds about all the five properties in favour of the plaintiffs subject of course to Kanji Jethas right to continue in possession of the two shops till the plaintiffs redeem the mortgage of 1907 Ex. 21.` Neither Kanji nor the mortgagors filed any appeal against the said judgment and decree and therefore that decree became final and binding as between the parties.
(3) ON 8/10/1947 respondents 1 and 2 filed Suit No. 283 of 1949 for redemption and possession against Kanji and Lalji. In his written statement Lalji alleged that since he was not -a party to the earlier suit the said decree was not binding upon him, that as a result of the said deed of sale dated 10/09/1930 he and Kanji became absolute owners and the right of redemption by the mortgagors and those claiming through them became extin
