2006 Supreme(SC) 767

2006(7) Supreme 707
SUPREME COURT OF INDIA
(From Allahabad High Court)
S.B. Sinha and P.P. Naolekar, JJ.
Jai Narain Parasrampuria (Dead) & Ors.—Appellants
versus
Pushpa Devi Saraf & Ors.—Respondents
Civil Appeal No. 3801 of 1999
With
Civil Appeal No. 3802 of 1999
Decided on 24-8-2006
Counsel for the Parties :
For the Appellants : Rakesh Dwivedi, J.C. Gupta, Sr. Advocates, Vishwajit Singh, Bijoy Kumar Jain, Mrs. Bharati Tyagi, Mrs. Vimla Sinha, Gaurav Bhatia, Abhishek Chaudhary, Piyush Vats and Ms. Niranjana Singh, Advocates.
For the Respondents : Sudhir Chandra, Sr. Advocate, Manoj Swarup, Somiran Sharma, C.S.N. Mohan Rao, Pramod Dayal and Anil Kumar Gupta-II, Advocates.

IMPORTANT POINTS
1. It is now well settled that compensation can be awarded in lieu of grant of decree of specific performance of contract considering the facts where both the parties are guilty of serious misconduct, both of them have abused the process of court, they having initiated unnecessary nay frivolous proceedings against each other and where both the parties took recourse to abuse of judicial process against the other upon suppression of material fact, which would amount to fraud on court.
2. Inadequate consideration, it is trite, is not a ground for refusing to grant a decree for specific performance of contract.
3. A plea of fraud can be raised even in a collateral proceeding.
4. Mere admission does not create title but while determining such question that intention of the parties as to in whom the title of the property shall vest, the conduct of the parties assumes significance.
5. Section 19(e) of the Specific Relief Act provides for grant of a decree of specific performance of a contract against a company when the promoters of a company before incorporation entered into a contract for the purpose of the company and such contract is warranted by the terms of incorporation.

Headnote:(i) Specific Relief Act, 1963—Section 20—Suit for specific performance—Award of compensation in lieu of grant of decree of specific performance of contract—Conduct of both the parties are blameworthy—Value of property is now said to be a few crores—Balancing of equities in a case of this nature—Respondents ‘Sarafs’, intending to promote a company acquired a property in their capacity of promoters or Directors of the proposed company—On subsequent incorporation of the company, amount of consideration paid to seller of property was repaid to respondents—Property was shown to be that of the company—An agreement of sale of the said property was executed by Sarafs as Directors of the Company in favour of appellants, wherefor total consideration was fixed at Rs.11 lakhs—A resolution to let out property in favour of relation of appellant was also adopted by the company —Dispute raised as regards ownership of the said property by and between the Company on the one hand and the Sarafs on the other—Award made by Arbitrator holding the property to be belonging to Sarafs—Appellants filed a suit for specific performance and then for declaration and for an order praying for an order restraining Sarafs from interfering with their right to manage and maintain the suit property—Several litigations between parties—Trial Court decreed appellants’ suit for specific performance of contract—High Court allowed the appeal holding that trial Court had wrongly exercised its discretionary jurisdiction as appellants were guilty of demolition of existing structures on land—Appeal against—Whether it is a case where appellants are entitled to a decree for specific performance of contract—(No)—Respondents directed to refund the amount of advance and also to pay compensation of Rs. 50,00,000/- to appellants.

       Held : Both the parties hereto are guilty of serious misconduct. Both of them have abused the process of court. They initiated unnecessary nay frivolous proceedings against each another. Both the parties took recourse to abuse of judicial process against the other upon suppression of material fact, which would amount to fraud on court. The question in regard to exercise of discretionary jurisdiction for grant of a decree of specific performance of contract, as envisaged under Section 20 of the Specific Relief Act, must be considered from the said angle.(Para 83)

       Balancing of equities in a case of this nature is a difficult task. It is now well settled that compensation can be awarded in lieu of grant of decree of specific performance of contract. The courts are now evolving separate principles in regard to the remedy of compensation.(Para 85)

       In so far as the principle relating to assessing damages in substitution for an order of specific performance is concerned, the learned Judge opined that a court of equity should follow law and address itself to find the proper substitute, stating that the equitable remedy of specific performance has features markedly different from damages at common law for breach of contract. [See also Horsler and another v. Zorro, 1975 (1) All ER 584.] Having noticed the law operating in the field vis-a-vis the conduct of the parties, we decline to grant a decree for specific performance of contract and opine that in its stead and place a decree for compensation should be granted. (Paras 88 & 89)

       As noticed hereinbefore, the conduct of both the parties are blameworthy. The value of the property is now said to be a few crores. The appellants had deposited a sum of Rs.10 lakhs as far back as on 12.6.1984. The said amount must be directed to be refunded to the appellants with interest @15 per annum. Although we decline to grant any relief of specific performance of contract to which the Appellants were otherwise entitled to, we are of the opinion that it is a fit case where the respondents should be asked to compensate the Appellants. In view of the fact that the Sarafs are also responsible for bringing out such a situation, we are of the opinion that interest of justice would be met if the respondents are directed to pay a sum of Rs.50,00,000/- to the Appellants herein by way of compensation. Such amount should be in addition to the sum of Rs.10,00,000/- deposited by the Appellants together with interest at the rate of 12 per annum thereupon. This order shall not preclude Manoj Kumar Poddar to bring an independent action against the respondents herein, if he so desires.(Para 91)

       Conclusion :

       (i)The property in suit for all intent and purport was acquired for the benefit of the Company.

       (ii)Only because at the time of acquisition of the property by Sarafs, the Company was unincorporated, the same would not mean that no title could have been passed in favour of the Company.

       (iii)In view of their conduct, Sarafs were estopped and precluded from denying and disputing the title of the Company over the property in dispute.

       (iv)Withdrawal of suit No. 1252 of 1982 by the appellants did not create any embargo in raising a contention that the award of the arbitrator and the consequent decree passed were void ab initio and of no effect.

       (v)The agreement for sale dated 11.6.1984 was not a transaction for loan.

       (vi)Sarafs conduct was condemnable so far as they not only raised false and frivolous pleas but also initiated frivolous proceedings in courts of law.

       (vii)The subject matter of the agreement was not only the house in question but also the entire lands.

       (viii)Prima facie the demolition of the house took place at the instance of the appellants.

       (ix)However, it is not a case where the appellants are entitled to a decree for specific performance of contract.

       (x)The respondents should refund the amount of advance of Rs. 10,00,000/- (ten lakhs) with interest at the rate of 12 per annum and furthermore pay compensation to the extent of Rs. 50,00,000/- (fifty lakhs).(Para 92)

       (ii) Transfer of Property Act, 1882—Section 5—Transfer of property in favour of a company which was unincorporated—Permissible—The Act does not create a bar—Under the English Common Law, an unincorporated corporation could not have become an owner of the property—Under the Indian Law, in terms of Section 15(h) of the Specific Relief Act, Promoters of a company before its incorporation could enter into a contract for the benefit of the company—Such contract may be warranted by the terms of incorporation of the company—Specific Relief Act, 1963—Section 15(h).

       Held : Under the English Common Law, an unincorporated corporation could not have become an owner of the property. The law in India, however, is different.(Para 20)

       In terms of Section 15(h) of the Specific Relief Act, the Promoters of a company before its incorporation could enter into a contract for the benefit of the company and such contract may be warranted by the terms of incorporation of the company. The said provision is subject to the proviso that the company should accept the said transaction. In the instant case, indisputably it was done. Section 19(e) of the Act provides for grant of a decree of specific performance of a contract against a company when the promoters of a company before incorporation entered into a contract for the purpose of the company and such contract is warranted by the terms of incorporation. The said provision applies herein.(Para 23)

       Transfer of Property Act does not prohibit an oral transfer. The statute merely provides that if the value of the said property is more than Rs.100/- a registered document is required to be executed. Section 5 of the Transfer of Property Act provides for transfer in favour of the company which was unincorporated. The effect of the Transfer of Property of Act, therefore, postulates transfer in favour of unincorporated company. It does not create any bar. (Para 29)

       (iii) Evidence Act, 1872—Section 116—Estoppel—Applicability of procedural law like principle of estoppel or acquiescence—Court would be concerned with conduct of a party for determination as to whether he can be permitted to take a different view in a subsequent proceeding, unless there exists a statutory interdict—Provisions of Section 116 of the Act are clear whereby in certain situation a person may be estopped from pleading a title in himself—Mere admission does not create title but while determining such a question that intention of the parties as to in whom title of the property shall vest, conduct of the parties assumes significance.

       Held : While applying the procedural law like principle of estoppel or acquiescence, the court would be concerned with the conduct of a party for determination as to whether he can be permitted to take a different stand in a subsequent proceeding, unless there exists a statutory interdict. If principle of estoppel applies, Sarafs will not be permitted by a court of law to raise the contention that the company was not the owner of the property. It is one thing to say that the property did not vest in the company as there was a statutory embargo in that behalf; but it is another thing to say that a person is estopped from raising a question of title. The provisions of the Indian Evidence Act are clear like Section 116, whereby in certain situation a person may be estopped from pleading a title in himself. We are, however, not oblivious of the principle of law that mere admission does not create title but while determining such a question that intention of the parties as to in whom the title of the property shall vest, the conduct of the parties assumes significance.(Paras 33 to 35)

       The doctrine of estoppel by acquiescence was not restricted to cases where the representor was aware both of what his strict rights were and that the representee was acting on the belief that those rights would not be enforced against him. Instead, the court was required to ascertain whether in the particular circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he had allowed or encouraged another to assume to his detriment. Accordingly, the principle would apply if at the time the expectation was encouraged.(Para 41)

       (iv) Companies Act, 1956—Lifting the corporate veil—Applicability of the doctrine—Where Directors had been attempting to use personality of the company for furthering their own personal object, the doctrine of lifting the veil is applicable.(Para 52)

       (v) Words and Phrases—Word ‘House’—Meaning—Held, House includes building or part of building with its appurtenances and outhouses.(Para 71)

       (vi) Words and Phrases—Word ‘Building’—Meaning—Building includes land on which it stands, unless by express stipulation it is excluded.(Para 72)