http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

PETITIONER: KOLLIPARA SRIRAMULU

       Vs.

RESPONDENT: T.   ASWATHANARAYANA & ORS.

DATE OF JUDGMENT: 04/03/1968

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. MITTER, G.K.

CITATION:  1968 AIR 1028            1968 SCR  (3) 387

ACT: Contract-oral  agreement to sell land-Formal document to  be executed later but not actually executed-Mode of payment  of price not settled-contract whether binding. Partition  Act  4 of 1893, s. 2-No  application  made  under section High Court whether empowered to give direction as to allotment of particular area on Partition.

HEADNOTE: On April 15, 1940 respondent No. 1 took on ten years’  lease a site for the purpose of building a cinema theatre, from  a partnership  firm.  He thereafter built a cinema theatre  on the  land.   Appellant No. 1 in 1948 instituted a  suit  for dissolution of the firm and for accounts.  Respondent No.  1 who was impleaded as a defendant resisted the suit.  In 1950 the firm filed a suit to evict the first Respondent from the leased  land.   In  this  suit  appellant  No.  1  was  also impleaded as a defendant and he claim-ad that in addition to his original 23 shares in the firm he had acquired 39 shares by  purchase.   In 1953 respondent No. 1 also filed  a  suit alleging  that  all  the partners of  the  firm  except  the appellant  had  entered into an oral agreement with  him  on July  6, 1952 to sell 137 shares in the site except  the  23 shares  belonging  to appellant No. 1; that  98  shares  had actually been sold to him; that 39 shares had not been  sold to  him  and  had  been instead sold  to  appellant  No.  1. Respondent No. 1 thereafter claimed  specific performance of the  agreement  to  sell the aforesaid 39  shares  by  their owners and contended that the sale of those shares in favour of  appellant  No. 1 was not binding upon  him.   The  trial court  decided against respondent No. 1 but the  High  Court decided  in  his  favour.  In appeal before  the  Court  the following questions came up for consideration : (i)  whether there  was an oral agreement between ’respondent No.  1  and all  partners  of the firm other than appellant No.,  1  for sale of their shares on July 6, 1952; (ii) whether the  oral agreement  was ineffective because the parties  contemplated the  execution of a formal document or because the  mode  of payment of the purchase money was not actually agreed  upon; (iii)  whether in respect of the 39 shares purchased by  him appellant No. 1 was a purchaser without notice; (iv) whether

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

in the absence of an application under s. 2 of the Partition Act 1893 the High Court was right in giving a direction that as  far as possible the site upon which the cinema  building stood should be allotted to the share of respondent No. 1 if it  was  comprised  within the 137 shares to  which  he  was entitled. HELD : (i) On the facts of the case the High Court was right in  holding that there was an agreement to. sell 137  shares in the site to respondent No. 1. (ii) A  mere reference to a future formal contract does  not prevent  the  existence of a binding agreement  between  the parties unless the reference to a future contract is made in such terms as to show that the parties did not intend to  be bound  until  a  formal contract is  signed.   The  question depends  upon the intention of the parties and  the  special circumstances of each particular case.  In the present  case the  evidence did not show that the drawing up of a  written agreement  was a pre-requisite to the coming into effect  of the oral agreement. [393 C-D] 388 Nor  did the absence of a specific agreement as to the  mode of  payment  necessarily  make  the  agreement  ineffective. Since the vital terms of the contract like the price and are of the land and the time for completion of the sale were all fixed.  L394 E] (iii)     The appellant had been unable to establish that in respect of the 39 shares purchased by him he was a purchaser without notice.  L395 A-B] (iv) In  the  absence of an application  by  the  respondent under s. 2 of the- Partition Act the High Court had no power to make a direction as to the particular portion of the site to be allotted to respondent No. 1 on partition. [395 D-E] Rama  Prasada Rao v. Subbaramaiah,(1957) II An.   W.R,  488, Ridgway v.Wharton, 6 H.L.C. 238, Von Hatzfeldt-Wildenburg v. Alexander,  (1912)  1 Ch. 284.  Rossiter v. Miller;  3  A.C. 1124 and Currimbhoy and Company Ltd. v. Creet, 60 I.A.  297, referred to.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  427  and 428 of 1963. Appeals from the judgment and decree dated March 25, 1960 of the  Andhra Pradesh High Court in A.S. Nos. 380 and  38]  of 1956. H.   R.  Gokhale and K. Jayaram, for the appellant (in  both the appeals). S.   T. Desai, P. Parameshwara Rao and R. V. Pillai, for the respondents (in both the appeals). The Judgment of the Court was delivered Ramaswami,  J. The appellant in both the appeals was one  of the  partners in a firm consisting of about thirty  partners which was running a mill named Vasavamba Oil and Rice  Mill’ at  Vijayawada.   The  partnership firm  owned  not  only  a factory  but  also a site of the extent of  about  3845  sq. yards.   The total number of shares in the  partnership  was 160  out  of  which the appellant owned  23  shares.   By  a document dated April 15, 1940, the firm executed a lease  in favour of the 1st respondent and another person of the  area of  the  site  for a period of 10  years.   The  lessee  was permitted  to construct a building for the use of  a  Cinema Theatre.  The annual rent was Rs. 750/-.  In the year  1948, the appellant filed O.S. No. 196 of 1948 in the  Subordinate Judge’s Court, Vijayawada for dissolution of the partnership

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

and for accounts.  On December 20, 1951 a preliminary decree was granted in that suit.  The first respondent was added as 17th defendant in that suit.  He contended in that suit that the  managing partner of the firm had covenanted to sell  to him  the  site leased out and that in any event he  was  not liable  to eviction in view of the provisions of the  Madras Buildings (Lease and Rent Control) Act.  In 1950, before the passing  of the preliminary decree, a suit was filed in  the District Munsiff’s Court, Vijayawada 389 --O.S. No. 440 of 1950 by the firm and its managing  partner against  the 1st respondent and others seeking to evict  the 1st  respondent.  On December 20, 1951 a preliminary  decree was passed     in  O.S.  No.  196 of 1948 but  it  was  made subject to the rights    of  the 1st respondent and  without prejudice to his contentions.      There was a direction  in the  preliminary  decree  to  sell  the  properties  of  the partnership  firm  and  a receiver was  appointed  for  that purpose.  On February 17, 1952 the appellant was  transposed as the 3rd plaintiff in O.S. No. 440 of 1950 in the District Munsiff’s  Court, Vijayawada.  As the appellant had by  then purchased 39 shares from some of the partners in addition to the 23 shares already owned by him, he claimed partition and separate  possession  of 62 shares belonging to him  in  the said  suit.   To  obtain  this  relief  he  applied  for  an amendment of the plaint which was allowed.  By reason of the said   amendment   the  District  Munsif  ceased   to   have jurisdiction  over  the suit and Therefore he  directed  the return  of  the plaint for presentation to  the  Subordinate Judge’s  Court.  The plaint was therefore filed in the  Sub- ordinate Judge’s court, Vijayawada and numbered as O.S.  203 of  1954.   While  this  litigation was  going  on  the  1st respondent  who had built a Cinema theatre on the  site  was actively  trying to purchase the site from  the  co-sharers. He  filed  O.S. No. 124 of 1953 in the  Subordinate  Judge’s court alleging that all the partners of the firm except  the appellant  had  entered into an oral agreement with  him  on July  6,  1952 to sell 137 shares in the site  and  that  in pursuance of the agreement partners who owned 98 shares  had executed  sale  deeds in his favour and the  other  partners owning  39 shares did not do so.  The 1st respondent  there- fore  claimed specific performance of the agreement to  sell 39 shares owned by the said partners and contended that sale of  those shares in favour of the appellant was not  binding upon him.  The suit was transferred to the District Court of Masulipatam  and  was numbered as O.S. No. 1 of  1956.   The suit  referred  to earlier in which  the  appellant  claimed partition  and recovery of possession of his 62  shares  was also   finally   transferred  to  the  District   Court   of Masulipatam and numbered as O.S. No. 2 of 1956.  As the main dispute  in  both the suits was common, namely  whether  the appellant  was  entitled to the 39 shares purchased  by  him from  the partners owning them or whether by reason  of  the prior  oral agreement the 1st respondent was entitled  to  a conveyance in respect of the shares.  It was agreed  between the parties that evidence should be taken in both the  suits together  and  what was evidence in the one suit  should  be treated  as  evidence in the other suit.   By  his  judgment dated  February 28, 1956, the District Judge held  that  the 1st respondent had not proved the oral agreement of sale  in his favour alleged to have taken place on July 6, 1952.   He therefore dismissed the suit for specific performance, 390 O.S.  No. 1 of 1956.  For the same reasons he held  that  in the  suit  for  partition namely, O.S. No.  2  of  1956  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

appellant was entitled to 62 shares and he granted a  decree for partition and possession thereof as also damages at  the rate  of Rs. 2,000/- per annum from May 1, 1950 to the  date of  the  delivery  of possession of  his  shares.   The  1st respondent  took the matter in appeal before the High  Court of A. P.-A.S. No. 380 of 1956 against O.S. No. 1 of 1956 and A.S.  No.  381  of 1956 against O.S. No. 2 of  1956.   By  a common judgment dated March 25, 1960 the High Court  allowed both  the appeals.  It was held by the High Court  that  the oral  agreement pleaded by the 1st respondent was  true  and that  the appellant was not a bona fide purchaser for  value without notice.  The High Court accordingly decreed the suit for specific performance.  The decree in the partition  suit O.S.  No. 2 of 1956 was therefore varied.   The  appellant’s share was fixed at 23/160th.  A direction was also given  by the  High  Court  that in the actual partition,  as  far  as possible,  the lower court should allow to respondent No.  1 that  portion  of  the  site on  which  the  cinema  theatre building  constructed  by  him stood and  if  that  was  not possible, the trial court may follow the procedure indicated in Rama Prasada Rao v. Subbaramaiah(1). The  first  question to be considered in  these  appeals  is whether  there  was  an  oral  agreement  between  the   1st respondent  and  all  the partners of the  firm  except  the appellant  for  sale  of their shares on July  6,  1952  and whether   respondent   No.  1  was  entitled   to   specific performance  of  that oral agreement.  It was  the  case  of respondent No. 1 that on July 6, 1952 there was a meeting of all the male partners at the house of Desu Virabhadrayya and at  that meeting there was an agreement reached between  all of them (except the appellant) and himself that they  should sell to him their shares (and the shares of those whom  they represented) at the rate of Rs. 3,375/- for eight shares.  A written  agreement  was to be drawn in 2 or 3 days  and  the mode of payment of the purchase money was also to be settled later.  It was further agreed that the sale deeds were to be executed in three months.  In pursuance of the agreement all the co-sharers except defendants 1 to 9 executed sale  deeds and  the plaintiff therefore became the owner of 98  shares. The  first  witness  in  proof of  the  oral  agreement  was respondent No. 1 himself.  He deposed that P.Ws. 5, 6 and 8, Sri Devata Rama Mohana Rao, Sri Addepalli Nageswara Rao  and Sri  Thoomu Srimannarayana respectively were present at  the meeting  of the shareholders.  He also said that  the  first defendant, the son of the 2nd defendant, was there to repre- sent the latter, and that Gopala Krishnaiah, son of the  3rd defendant, and the 7th defendant (who represents the 5th and 6th defen- (1)  [1957] 11 An.  W.R. 488. 391 dants)  and Alavala Subbayya (husband of the  8th  defendant and  father  of  the 9th defendant) were  present  when  the agreement  was settled.  He added that the sale deed was  to be  executed in three months and that draft  agreement,  Ex. A-6  was also prepared 2 or 3 days later.  On behalf of  the appellant reference was made to Ex.  B-1, the deposition  of the  first  respondent in the previous suit, where  he  said that  the agreement was on July 1, 1952 and that he did  not remember  the  names  of the other persons  present  at  the meeting except P.W. 8, Sri Subba Rao Nayudu, Vice  President of  Andhra  Bank.   In  our  opinion,  the  discrepancy  ;Is immaterial  and  the High Court was right in  accepting  the evidence   of  this  witness  as  true.   The  evidence   of respondent  No.  1 is corroborated by P.W. 7 who  said  that except  the women shareholders all other  shareholders  were

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

present  at the meeting of July 6, 1952 and the subject  for consideration was the sale of the site of the cinema theatre to  respondent No. 1. He added that the price of  the  whole site  was  fixed at Rs. 67,500/- and that all  the  partners except the appellant agreed to sell, away their shares.   On behalf  of the appellant reference was made to the  counter- affidavit, B-4 dated January 5, 1953 filed in  interlocutory proceedings  on  behalf of P.W. 7, but there is  no  serious contradiction  between the evidence of that witness  in  Ex. B-4  and  the evidence of P.W. 7 in the present  suit.   The High Court was highly impressed with the evidence of P.W.  7 and  we see no reason for taking a different view in  regard to the credibility of this witness.  P.W. 8 was also present at  the meeting on July 6, 1952.  His evidence  corroborates that  of  respondent  No. 1. He said that  the  son  of  the appellant   was  present  at  the  meeting  and  the   women shareholders  were represented by some men on their  behalf. It  is true that P.W. 8 is the cousin brother of  respondent No. 1, but this can be no ground in itself for rejecting his testimony.    P.Ws  2  and  3  have  also  given   important corroborative  evidence.   P.W. 2, Sri D. Subba Rao  is  the Subordinate  Judge  of Bapatla.  He deposed that  the  first respondent told him that there was an oral agreement for the purchase of the shares concluded in the first week of  July, 1952.  Exhibit A-22 dated July 9, 1952, a letter written  by P.W.  2 to respondent No. 1 supports the evidence of P.W.  2 P.W.  3, Sri S. Narayana Rao, a District Judge and a  family friend  of  respondent  No. 1 also  testified  that  he  was informed  of  the negotiations by the first  respondent  for purchasing  the  shares and he was also told  by  the  first respondent  about the conclusion of the agreement.   Exhibit A-26  dated  July 14, 1952, a letter written by him  to  the first respondent. supports this evidence.  P.Ws. 2 and 3 are highly respectable witnesses and the High Court was right in taking  the view that their evidence  strongly  corroborates the  case of respondent No. 1 with Tegard to the  conclusion of  the  oral  agreement  for sale on  July  6,  1952.   The evidence of respon- 392 dent  No. 1 is also corroborated by the evidence of P.Ws.  5 and 6 Sri Devata Rama Mohana Rao and Sri Addepalli Nageswara Rao which has been believed by the High Court.  On behalf of the  appellant  it was said that respondent No.  1  has  not given any reason in the plaint or in the evidence as to  why a written agreement was not entered into.  There may be some force  in  this argument.  But no such question was  put  to P.W.  1  in crossexamination, nor was he asked to  give  any explanation.   On  the  other  hand,  there  are   important circumstances   indicating  that  the  case  of  the   first respondent  with  regard  to the oral  agreement  is  highly probable.  In the, first place, respondent No. 1 had built a valuable cinema theatre building on the-disputed site and he had very strong reasons to make an outright purchase of  the site  otherwise  he would be placed in  a  precarious  legal position.   Negotiations  for  purchase were  going  on  for several years past and considering this background, the case of  the first respondent with regard to the  oral  agreement appears  highly  probable.  P.W. 2 a Subordinate  Judge  and P.W.  3,  a District Judge have both  given  evidence  which corroborates the case of respondent No. 1 with regard to the conclusion  of the oral agreement on July 6, 1952 and  there is  no  reason  suggested on behalf  of  the  appellant  for discarding  their evidence.  It is also important to  notice that 20 out of 30 shareholders executed sale deeds in favour of  the first respondent after the date of the alleged  oral

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

agreement  on July 6, 1952.  The fact that the  shareholders sold  their  shares  at the identical  price  to  the  first respondent  and  the others sold at the same  price  to  the appellant  is  only explicable on the  hypothesis  that  the price  was fixed by agreement between all  the  shareholders willing  to sell i.e., all those other than  the  appellant. The  last  of  the  sale deeds executed  in  favour  of  the appellant  or the first respondent are Exs.  A-1 1 and  A-12 dated February 28, 1953.  There is evidence that prices were rising  meanwhile  and there are the circumstance  that  the vendors  chose to sell at the same price renders  it  highly probable that there was an earlier binding agreement.  It is also  an important circumstance against the appellant,  that none  of the women shareholders has appeared in  the  witnes box  to rebut the evidence tendered on behalf of  respondent No. 1. There was evidence given on behalf of respondent  No. 1 that the women partners had authorised the men partners to represent them at the meeting but none of the women partners entered  the  witness box to deny  such  authorisation.   On behalf  of  the  appellant  reliance  was  placed  upon  the circular  letter, Ex.  A-15 purported to be written  by  one Gopi Setti Venkata Subba Rao, one of the shareholders.   The document is not signed by respondent No. 1. It appears to be a  notice  prepared  by  one  of  the  shareholders  to   be circulated  inter  se among them and refers to the  mode  of payment  of the purchase money agreed to between  respondent No. 1 393 and  the  persons selling the shares.  The  High  Court  has observed  tive.   The mere omission to settle  the  mode  of payment  does  no, case of respondent No. 1 and  we  see  no reason to take a different view as regards the effect of Ex. A-15. We  proceed  to consider the next question raised  in  these appeals,  namely whether the oral agreement was  ineffective because  the parties contemplated the execution of a  formal document  or  because the mode of payment  of  the  purchase money  was  not actually agreed upon.  It was  submitted  on behalf  of the appellant that there was no contract  because the  sale  was conditional upon a  regular  agreement  being executed and no such agreement was executed We do not accept this  argument  as correct.  It is well-established  that  a mere reference to a future formal contract will not  prevent a  binding bargain between the parties.  The fact  that  the parties  refer to the preparation of an agreement  by  which the  terms agreed upon are to be put in a more formal  shape does not prevent the existence of a binding contract.  There are. however, cases where the reference to a future contract is  made in such terms as to show that the parties  did  not intend to be bound. until a formal contract is signed.   The question  depends upon the intention of the parties and  the special circumstances of each particular case.  As  observed by  the  Lord  Chancellor (Lord  Cranworth)  in  Ridgway  v. Wharton  (1)  the  fact  of  a  subsequent  agreement  being prepared may be evidence that the previous negotiations  did not amount to a concluded agreement, but the mere fact  that persons  wish to have a formal agreement drawn up  does  not establish  the  proposition that they cannot be bound  by  a previous   agreement   In   Von   Hatzfeldt-Wildenburg    v. Alexander(1) it was stated by Parker, J. as follows :               "It   appears  to  be  well  settled  by   the               authorities  that if the documents or  letters               relied   on   as   constituting   a   contract               contemplate  the execution of a  further  con-               tract between the parties, it is a question of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

             construction  whether  the  execution  of  the               further contact is a condition or term of  the               bargain or whether it is a mere expression  of               the desire of the parties as to the manner  in               which  the transaction already agreed to  will               in fact go through.  In the former case  there               is no enforceable contract either because  the               condition  is unfulfilled or because  the  law               does not recognize a contract to enter into  a               contract.   In  the  latter case  there  is  a               binding contract and the reference to the more               formal document may be ignored." In  other words, there may be a case where the signing of  a further formal agreement is made a condition or term of  the bargain, and (1) 6 H.L.C. 238,63. (2) [1912] 1 C.H.. 284,288. 394 if the formal agreement is not approved and signed there  is no concluded contract.  In Rossier v. Miller(1) Lord  Cairns said               "If  you  find not an  unqualified  acceptance               subject to the condition that an agreement  is               to  be  prepared and agreed upon  between  the               parties, and until that condition is fulfilled               no contract is to arise then you cannot find a               concluded contract." In Currimbhoy and Company Ltd. v. Creet 2  the Judicial Com- mittee expressed the view that the principle of the  English law which is summarised in the judgment of Parker, J. in Von Hatzfeldt-Wildenburg  v. Alexander(3) was be  applicable  in India.   The question in the present appeals is whether  the execution  of  a  formal  agreement was  intended  to  be  a condition  of the bargain dated July 6, 1952 or  whether  it was  a  mere expression of the desire of the parties  for  a formal agreement which can be ignored.  The evidence adduced on behalf of respondent No. 1 does not show that the drawing up of a written agreement was a pre-requisite to the  coming into  effect  of the oral agreement.  It  is  therefore  not possible to accept the contention of The appellant that  the oral  agreement was ineffective in law because there  is  no execution  of any formal written document.  As  regards  the other point, it is true that there is no specific  agreement with  regard  to  the  mode of payment  but  this  does  not necessarily  make  the  agreement  ineffective.   The   mere omission  to settle the mode of payment does not affect  the completeness of the contract because the vital terms of  the contract  like the price and area of the land and  the  time for  completion of the sale were all fixed.  We  accordingly hold that Mr. Gokhale is unable to make good his argument on this aspect of the case. We  shall next deal with the question whether the  appellant was  a bona fide purchaser for value without notice  of  the prior  oral agreement.  The first sale deed obtained by  the appellant  was  on  July 29, 1952.  P.W.  2  stated  in  his evidence that the appellant told him that he had been  aware of the agreement in favour of respondent No. 1. at the  time of  the purchases under Exs.  B-6 to B-10.  It is true  that P.W, 2 added that the appellant did not say distinctly  that he  was  aware of the agreement between the  respondent  and defendants 1 to 9. Upon this point the appellant himself was unable  to  remember  Whether he had told  P.W.  2  to  that effect.   In any case, P.Ws. 5 and 6 deposed that they  went to the appellant on July 7, 1952 and asked him to. part with his  shares in favour of respondent No. 1. It is not  denied

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

by the appellant that he met P.Ws. 5 and 6 on July 7,  1952. It is also (1) 3 A.C. 1124.         (2) 60 I.A. 297. (3)  [1912] 1 Ch. 284. 395 significant  that the purchase money paid by  the  appellant was very nearly the same as that payable under the agreement in respondent No. 1’s favour.  On the basis of his  evidence the High Court reached the conclusion that the appellant had notice  of  the prior oral agreement.  We see no  reason  to differ from the finding of the High Court on this point. It  was finally contended that the High Court ought  not  to have  given any direction that as far as possible  the  site upon which the cinema building stands should be allotted  to the share of respondent No. 1 if it is comprised within  the 137  shares  to  which he was entitled.  It  was  stated  on behalf  of the appellant that there was no equity in  favour of respondent No. 1 as he was a lessee for 10 years and  all the constructions were made with the full knowledge that  he was a lessee for a limited period.  In any case, it was said that  the appellant should have been given permission  under s.  3  of the Partition Act (Partition Act No. IV  of  1893) when respondent No. 1 himself invoked the provisions of s. 2 of that Act.  It was also argued that the High Court had  no jurisdiction  to  modify any portion of the  judgment  dated March  25,  1960 by a subsequent order dated June  21,  1960 without  an  application for review.  In  our  opinion,  the contention  put forward on behalf of the appellant is  well- founded  and since no application was made on behalf of  the first  respondent under s. 2 of the Partition Act we are  of opinion  that the following direction of the High  Court  in the preliminary decree should be deleted               "(7)  That  the lower Court shall  as  for  as               possible allot to the appellant the site  upon               which  the  appellants’  buildings  stand  and               further  direct that if that procedure  cannot               be  adopted  conveniently  or  equitably   the               procedure  laid down in the judgment  reported               in 1957(2) A.W.R. page 488 be followed." It  will,  of  course,  be  open  to  the  parties  to  make representations  and  for the High Court to  give  equitable directions  in  the allotment of shares to be  made  in  the final Partition decree. Subject  to  this modification, we affirm the  judgment  and decree of the High Court of Andhra Pradesh in A.S. Nos.  380 and  381  of  1956 dated March 25, 1960  and  dismiss  these appeals with costs-there will be one hearing fee. G.C.                        Appeals dismissed. L6Sup,C.1/68-13 396