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HIGH COURT OF JUDICATURE AT BOMBAY
D.Y. CHANDRACHUD & M.S. SONAK, JJ.
Shantilal J. Shah & Others
Versus
Jitendra Sanghavi & Others
Appeal (Lodging) No.82 of 2013 in Notice of Motion No.2055 of 2012 in Suit No.1963 of 2012 With Notice of Motion (Lodging) No.326 of 2013
Decided on: 23-09-2013
An agent, having no interest in property under agreement between owner and developer for development of building, cannot invoke Section 202 of Act. - Section 202 of the Contract Act, 1872 provides that where an agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest. As held in the judgment of the Supreme Court in Seth Loon Karan Sethiya v. Ivan E. John and others, AIR 1969 SC 73, "it is settled law that there where the agency is created for valuable consideration and authority is given to effectuate a security or to secure interest of the agent, the authority cannot be revoked". Before Section 202 can be invoked, the agent must have an interest in the property. The agreement for development, which was entered into between the parties does not create any interest of the agent in the property. The power which is conferred upon the developer to negotiate or settle with the tenants and to obtain a surrender of the tenancy rights was to effectuate and facilitate the redevelopment of the property and would not by itself create prima facie an interest in the property. It is not possible to come to conclusion that appellants were conferred with an interest in the property under the terms of the development agreement.
Specific Relief Act, 1963 - Section 34 - Specific performance of agreement for development of building. -
Failure of developer to fulfil his obligation under agreement with owner of building, disentitled developer to seek enforcement of specific performance of agreement. - The provision of constructed area to the owners was, therefore, an intrinsic part of the consideration payable under the agreement. Under Clause 6, the developer was vested with the authority to negotiate with the tenants/occupants by offering them permanent alternate accommodation or by obtaining a surrender of tenancy rights. Clause 11 required the developer to make his best endeavours to obtain a Commencement Certificate within six months from the date of obtaining vacant and peaceful possession and to complete the construction within 30 months from the date of obtaining the Commencement Certificate, time being the essence of the contract. Admittedly, the appellants did not enter into any settlement with the tenants. Out of 19 tenements, 13 are occupied by the tenants while six are in the occupation of the owners. The appellants failed to submit sanctioned plans to the Municipal Corporation. No construction was carried out.
It is impossible to come to the conclusion that Clause 20 of the agreement has effect of conferring upon the appellants an unbridled right to decide whether or not to develop the property and that even if, the appellants were not to develop the property, all that the owners would be entitled to is to continue in occupation of the premises in their possession. The intent of the parties must be construed by the reading agreement as a whole.
The subject-matter of the agreement is the development of accessed building, which admittedly as the agreement recites is in a dilapidated condition. It would be far fetched to presume that the parties contemplated that the owners would have no more than a right to continue in occupation despite the failure of the developer to carry on development and that the owners, tenants and occupants should only wait, stand by and see the building in their occupation collapsing, as a result of the dilapidated position of the structure. Such an interpretation which will lead to an absurdity must be avoided and the agreement between the parties should be attributed a business meaning.
The interpretation of such agreements must be infused with a robust common sense. Ordinary persons, when they enter into such agreements particularly in the island city with its corrosive and saline conditions of weather expect expeditious redevelopment. The interpretation suggested by the appellants will leave the owners and tenants to the mercy of the builder. That was obviously not the intent as reflected in the terms of the agreement, noted earlier. Clause 20 refers to a situation where building plans could not be sanctioned and/or approved by the Municipal Corporation, which presumes that the building plans have been submitted to the Municipal Corporation, in the first place, but have not been sanctioned for reasons beyond the control of the developer. Clause 20 would not apply to a situation where there is a failure on the part of the developer to negotiate with the tenants and to submit building plans for sanction.
Key Points: - The court holds that an agent with no interest in the property cannot invoke Section 202 of the Contract Act, 1872 when the agency lacks an interest in the subject matter. (!) - The trial court and appellate court found that the developer’s failure to negotiate with tenants, obtain sanctioned plans, and commence construction weighed against granting injunctive relief or specific performance. (!) (!) (!) - Clause 20 does not confer an unbridled right to avoid development; the agreement must be interpreted as a whole with a business-like interpretation, considering the subject matter and intentions of the parties. (!) (!) (!) - The court affirmed dismissal of the appeal and upheld the view that no prima facie case for injunctive relief was made due to the developer’s breach over four years. (!) (!)
(Dr. D.Y. Chandrachud, J.)
1. The Appeal arises from an order of a learned Single Judge declining relief in a Motion which was taken out by the Appellants in a suit for specific performance. The Plaintiffs are in Appeal.
2. Respondents 1 to 3 are the owners of a property known as Padmavati Sadan at Matunga, Mumbai. An agreement was entered into between the Appellants and Respondents 1 to 3 for development of the property on 25 September 2007. The agreement records that the building is a cessed building in the occupation of tenants/occupants and is in a dilapidated condition requiring heavy repairs and/or reconstruction or redevelopment. By the agreement, the owners conferred upon the Appellants full development rights. The total consideration for the agreement was Rs.1.38 Crores in addition to which, as stipulated in Clause 2(b) and Clause 2(c) of the agreement, the owners were entitled to ownership rights in a carpet area ad-measuring 2000 sq. ft. of residential accommodation and of 800 sq. ft. for commercial use in the building which was to be constructed by the Appellants. Under Clause 6, the Appellants were to negotiate with the tenants/occupants by offering them permanent alternate accommodation on ownership basis or by a surrender of tenancy rights. The Appellants were to be entitled to effect a transfer of tenancy rights from the tenants/occupants.
Clause 11 of the Agreement provided as follows :
“11. The Developers shall immediately commence the development work at their own costs and risk on the said property and make best endeavour to obtain Commencement Certificate within 6 months from the date of obtaining vacant and peaceful possession of the entire property, which may be extendable mutually and complete the same within a period of 30 months from the date of obtaining Commencement Certificate from the MCGM time being the essence of the contract. The Developers shall endeavor to obtain Occupation Certificate from the MCGM within a period of 30 months from the date of obtaining Commencement Certificate. The Developers shall indemnify and keep indemnified the Owners in respect of breach of any of the terms and conditions of the sanctioned plans while commencing, continuing and completing the construction work on the said property and/or any terms of this Agreement”.
Clause 20 provided as follows:
“20. It is specifically agreed between the Parties hereto that, if for any reason the building plan could not be sanctioned and/or approved by the MCGM, then, in that event, this Agreement shall not come to an end or terminated. The Owners shall be entitled to retain the entire amount paid under this Agreement to them by the Developers as also the possession of the premises in their possession/occupation if not handed over to the Developers and the Development rights granted under these presents shall vest with the Developers herein forever.”
Under Clause 22, an Irrevocable General Power of Attorney was to be executed by Respondents 1 to 3 in favour of the Appellants.
Clause 2 (e) stipulated that the consideration of Rs.1.38 Crores was not to be refunded by the owners to the developers even if the developers do not complete or develop the property for any reason whatsoever.
3. In pursuance of the agreement, an amount of Rs.1.38 Crores was paid by the Appellants. An irrevocable power of attorney was executed by the owners in favour of the Appellants.
4. Admittedly, the Appellants neither entered into any settlement with the tenants or occupants, nor did they commence construction upon the property. As a matter of fact, it is also not in dispute that the Appellants did not submit any building plans to the Municipal Corporation for sanction. In a letter dated 17 December 2010 addressed to the Income Tax Officer, the Appellants referred to the fact that there was “an extremely slow progress” or “no progress” in the implementation of the Development Agreement for the following reasons:
“Since this Development Agreement wa
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