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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE SRINIVASAN & THE HONOURABLE MR. JUSTICE S.S. SUBRAMANI
Mrs.Shoba Viswanathan
Versus
D.P.Kingsley
O.S.A. No.107 of 1993
Decided On : 26-04-1996
SPECIFIC PERFORMANCE - SALE OF HOUSE - FOREIGN NATIONAL - RESERVE BANK OF INDIA PERMISSION - PUBLIC POLICY - CONFIDENTIAL RELATIONSHIP - UNFAIR ADVANTAGE - DISCRETION OF COURT: 1. A sale of immovable property by a foreigner in India requires permission from the Reserve Bank of India (RBI) under Section 31 of the Foreign Exchange Regulation Act (FERA), 1973. Any transaction without permission is prohibited and may attract penal consequences. 2. The court, while exercising its discretion under Section 20 of the Specific Relief Act, 1963, must consider whether it should be a party to a transaction for which permission from the RBI has not been obtained. 3. The imposition of a penalty for non-compliance with FERA provisions does not necessarily imply a prohibition of the act. However, if the penalty is imposed to protect the public interest, the act may be considered prohibited and unenforceable. 4. Public policy is a variable concept that evolves with changing societal norms and economic conditions. Courts have the duty to adapt the principles of public policy to new situations, but they should do so cautiously and avoid creating new heads of public policy. 5. A contract that is contrary to public policy or public interest is unenforceable. This includes contracts that violate mandatory statutory provisions or are intended to circumvent such provisions. 6. In cases involving a confidential relationship, such as between a landlord and tenant, the party in a position of trust has a duty to act in good faith and provide accurate information to the other party. Failure to do so may render the contract unenforceable. 7. The court has the discretion to refuse specific performance if the plaintiff has acted unfairly or taken advantage of the defendant's trust and confidence. 8. In the present case, the plaintiff, a tenant in possession of the defendant's property, exploited the defendant's trust and confidence by offering a low price for the property based on inaccurate valuation reports. The plaintiff also failed to disclose the true market value of the property to the defendant's husband, who had come to India with a Power of Attorney to execute the sale deed. 9. The court held that the plaintiff's conduct amounted to an unfair advantage and that the contract was unenforceable. The court also noted that the transaction violated the provisions of FERA, as the defendant, a foreign national, did not have permission from the RBI to sell the property. 10. The court dismissed the plaintiff's suit for specific performance and awarded costs to the defendant.
Fact of the Case:
The plaintiff, a tenant in possession of the defendant's property, entered into negotiations with the defendant, a foreign national, for the purchase of the property. The plaintiff obtained valuation reports from two appraisers and offered a price based on the average of those valuations. The defendant accepted the offer, and the plaintiff's advocate prepared a draft sale deed. However, before the sale deed could be executed, the defendant's husband discovered that the market value of the property was significantly higher than the price offered by the plaintiff. The defendant then withdrew her acceptance of the offer and sent a telex message to stop the execution of the sale deed. The plaintiff filed a suit for specific performance, seeking a decree directing the defendant to execute the sale deed. The defendant contested the suit, arguing that the contract was unenforceable due to the plaintiff's misrepresentation and unfair advantage, and that the transaction violated the provisions of FERA.
Finding of the Court:
The court found that the plaintiff had exploited the defendant's trust and confidence by offering a low price for the property based on inaccurate valuation reports. The court also found that the plaintiff had failed to disclose the true market value of the property to the defendant's husband, who had come to India with a Power of Attorney to execute the sale deed. The court held that the plaintiff's conduct amounted to an unfair advantage and that the contract was unenforceable. The court also noted that the transaction violated the provisions of FERA, as the defendant, a foreign national, did not have permission from the RBI to sell the property.
Issues: 1. Whether the contract for the sale of the property was enforceable, given the plaintiff's misrepresentation and unfair advantage. 2. Whether the transaction violated the provisions of FERA, and if so, whether this rendered the contract unenforceable.
Ratio Decidendi: 1. A contract that is contrary to public policy or public interest is unenforceable. This includes contracts that violate mandatory statutory provisions or are intended to circumvent such provisions. 2. In cases involving a confidential relationship, such as between a landlord and tenant, the party in a position of trust has a duty to act in good faith and provide accurate information to the other party. Failure to do so may render the contract unenforceable. 3. The court has the discretion to refuse specific performance if the plaintiff has acted unfairly or taken advantage of the defendant's trust and confidence.
Final Decision: The court dismissed the plaintiff's suit for specific performance and awarded costs to the defendant.
S.S. Subramani, J.
Defendant in C.S. No.239 of 1982, on the file of this Court, is the appellant. Plaintiff therein is the respondent.
2. For the sake of convenience, in this appeal parties will be referred to as they are arrayed in the suit.
3. Plaintiff filed the above suit for the following reliefs: “(1) for specific performance of the contract for sale of the house and premises No. 106, Harrington Road, Madras-31 and in default direct the office of the Hon’ble Court to have the sale deed executed in favour of the plaintiff; (2) for a declaration that the plaintiff is the owners of the house and premises No.106, Harrington Road, Madras-31 from 1st December, 1981; (3) for any other relief or reliefs this Hon’ble court may deem just and proper; and (4) for costs of this suit”.
4. The suit was filed on 24. 1982, on the following allegations:
The schedule property admittedly belongs to the appellant and the same was taken on lease by Needle Industries (India) Limited, for accommodating the office- cum-residence of its Director and Secretary, and he came to occupy the premises from February, 1977. The initial period of tenancy with the company was for three years. The company terminated the lease with effect from 37. 1981 and the plaintiff also ceased to be in the service of the company. With the consent of the defendant, plaintiff continued to be the tenant of the house on the same terms and conditions which were then subsisting between the defendant and the company. Sometime in the year 1978, the company enquired with the defendant whether the schedule premises will be sold to it, and the defendant agreed for the same. It is said that the defendant also was requested to furnish details of the property. However, the idea of purchasing the property by the company fell out, though as per Engineer’s valuation, at that time the value of the property was Rs.2,15,062. It is further alleged that the defendant’s husband came to India in the middle of 1980 and he called on the plaintiff. He expressed his desire that the property be sold to the plaintiff and not to the company. The price offered at that time was Rs.2,70,000. It is said that the plaintiff was not in a position to raise necessary funds at that time and, therefore, the transaction could not materialise. But in January, 1981, certain developments happened in the company and the employment of the plaintiff in the company was insecure. The services of the plain-tiff in the company were about to be terminated after paying him some monetary compensation. It is said that it was under those circumstances, plaintiff wanted to purchase the property and on 30.1.1981, evidenced by Ex.P-1 or Ex.D-13, plaintiff wrote to defendant whether she was still interested in selling the house. He also enquired whether there was any possibility of the defendant visiting India so as to negotiate the deal and for a personal discussion in the matter. On receipt of Ex.P-1, defendant, as per Ex.P-2, dated 22. 1981, informed the plaintiff that she was interested in selling the house. In that letter, it is further said that the schedule property be valued by two authorised appraisers, and the defendant agreed that such valuation could be at her expenses. Pursuant to the same, plaintiff got two valuation reports, evidenced by Exs.P-4 and P-5.
As per Ex.P-4, the property was valued at Rs.3,10,443 (rounded off to Rs.3,10,500) and as per Ex.P-5, it was valued at Rs.3,69,433. It is said that these valuation reports were sent to the defendant by the plaintiff.
5. During the relevant time, the original tenant, i.e., the company gave notice to the defendant regarding its intention to terminate the tenancy with effect from 8. 1981. At that time, plaintiff informed the defendant that he is interested in continuing the tenancy and requested that he may be allowed to continue to be in the building. Ex.D-5, dated 25. 1981 is the letter written by the plaintiff wherein he said that whatever happened regar
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