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PETITIONER: SONI LALJI JETHA & ORS.

       Vs.

RESPONDENT: SONI KALIDAS DEVCHAND & ORS,

DATE OF JUDGMENT: 14/10/1966

BENCH: SHELAT, J.M. BENCH: SHELAT, J.M. RAO, K. SUBBA (CJ) BACHAWAT, R.S.

CITATION:  1967 AIR  978            1967 SCR  (1) 873

ACT: Adverse  possession-Agreement to sell mortgaged  properties- Subsequent  sale  to mortgagee in  possession-Possession  of mortgagee, if adverse-Trusts Act (2 of 1882), s. 91-Transfer of Property Act (4 of 1882), s. 40, para 2.

HEADNOTE: The karta of a joint Hindu family executed in 1907 a deed of mortgage  with  possession  in  respect  of  certain  family properties.  After the death of the karta, the  coparceners, by  an agreement of sale in 1930 agreed to sell, subject  to the mortgage, the properties to respondents 1 and 2.  Later, the  coparceners,  by  a  registered  sale  deed,  sold  the properties  to  L  and K, sons of  the  original  mortgagee. Respondents 1 and 2 filed a suit for specific performance of the  earlier agreement.  The suit was decreed.  In the  sale deed obtained from the Court, in pursuance of the decree,  K was  not made one of the conveying parties, but was made  an attesting  witness.   In 1947, respondents 1 and 2  filed  a suit  for  redemption  and possession against  L  and  K.  L contended,  inter alia, that as a result of the  later  sale deed,  he  and  K became absolute owners and  the  right  of redemption by the mortgagors and those claiming through them became  extinguished;  that  his possession,  being  to  the knowledge  of respondents 1 and 2, was adverse against  them and  therefore the suit was barred by limitation;  and  that the  decree  for specific performance could not  affect  the adverse nature of the possession of K and L as K was not one of the conveying parties but only an attesting witness.   In appeal by L, this Court, HELD  : In spite of the existence of a previous contract  of sale,  a sale to a subsequent purchaser even with notice  is not void, but voidable at the instance of the party agreeing to  purchase  under a previous contract and except  for  the obligation arising from s. 91 of the Trust Act and paragraph 2 of s. 40 of the Transfer of Property Act, the title to the property  would  pass  from the  vendor  to  the  subsequent transferee. [879 G-H] The  sale in favour of K and L was nor void but voidable  at the  instance  of  respondents 1 and 2 by  reason  of  their earlier contract and though as between the mortgagors and  K

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and L the sale was valid and binding, it was subject to  the right of specific performance which respondents 1 and 2  had acquired  and K and L being in a fiduciary  position,  their possession  was not adverse as against respondents 1 and  2. Therefore the suit for redemption was not barred even though the statutory period bad expired. [880 E-F] Further, being an attesting witness, K, both for himself and on  behalf  of L, was made fully aware that  the  sale  deed conveying  the  title of the property was  being  passed  in favour  of  respondents 1 and 2 and that the only  right  in them was to receive the mortgage amount and no more. [881 B- C] Lala  Durga  Prasad v. Lala Deep Chand, [1954]  S.C.R.  360, relied on. Gafur  v. Bhukajir Govind, I.L.R. 26 Bom. 159, Sathiraju  v. Venkenna  A.I.R.  1935  Mad. 333 and Appa  Rao  v.  Keerana, A.I.R. 1953 Mad. 409, approved. 7Sup. court/66 -11 874

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 727 of1964. Appeal  by special leave from the judgment and decree  dated December  9, 1957, of the Bombay High Court in Civil  Appeal No. 2 of 1956. Sarjoo Prasad and D. N. Mukherjee, for the appellants. J.   A.  Baxi,  A. Rehman and K. L. Hathi,  for  respondents Nos.  1 and 2. The Judgment of the Court was delivered by Shelat, J. 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 December 11, 1907 in respect of two shops  in Jamnagar in favour of Jetha Roopchand,  to  secure repayment of Rs. 800 advanced to the said family.  The  said mortgage was with possession and was redeemable in 8  years. On August 25, 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, 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 September 10, 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.  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. On October. 1, 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  August  25,  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

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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 875 judgment  and  decree  dated August 16,  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  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  Jetha’s  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. On October 8, 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 September  10, 1930 he and Kanji became absolute owners  and the right of redemption by the mortgagors and those claiming through them became extinguished, that Kanji had by an  oral sale  transferred his right, title and interest to  him  and therefore  he was the absolute owner, and lastly that  as  a result  of  the sale deed he acquired  ownership,  that  his possession  was to the knowledge of the plaintiffs  and  was adverse  against them and therefore the suit was  barred  by limitation.  Kanji also filed a written statement supporting Lalji in regard to his having transferred to him his  right, title and interest in the said shops. The  Trial Court held that as Lalji was not a party  to  the former suit the said decree was not binding on him, that  on the  passing of the said sale deed Kanji and  Lalji  claimed their  possession  as  owners,  that  their  possession  was adverse, that the said decree did not affect Lalji’s  title, ripened as a result of adverse possession, that the  present suit ought to have been filed before 1942 and there. fore  a preliminary  decree  for  redemption could  only  be  passed against  Kanji.  On this footing, the Trial Court  dismissed the 876 suit against Lalji.  This decree meant that the Trial  Court did  not accept the contention of Kanji and Lalji  that  the former  had  parted with his right, title  and  interest  in favour  of  Lalji as alleged by them.  Respondents 1  and  2 filed  Appeal  No.  104  of  1951  in  the  District  Court, Jamnagar.   Lalji also filed cross-objections on the  ground

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that  he had purchased Kanji’s right, title and interest  in the  said.  properties before the decree was passed  in  the former  suit  and therefore the decree  being  only  against Kanji  it  was not binding upon him.  By  his  judgment  and decree  dated November 18, 1952 the District  Judge  allowed the  appeal of respondents 1 and 2 holding that Kanji  being the elder brother, became the Karta and manager of the  said joint  family  on the death of the said  Jetha,  that  Kanji represented  the  joint  family and  therefore  it  was  not necessary to join Lalji as a party in the said suit and  the decree  was  valid and binding on both  the  brothers.-  The District  Judge  also rejected Lalji’s plea  of  his  having acquired  Kanji’s interest in the said shops  and  dismissed his cross-objections.  The District Judge held that the sale deed in favour of Lalji and Kanji conferred no right on them as against respondents 1 and 2 and since their agreement was in  point of time earlier than the said sale deed they  were entitled to a decree for specific performance.  He also held that  though 12 years had passed since the execution of  the said  deed  Lalji  could  not  become  the  owner  of  those properties   by  adverse  possession  as   a   mortgagee-in- possession cannot by merely asserting possession as an owner under  an invalid sale convert his possession  into  adverse possession. Lalji filed, a second appeal, being Second Appeal No. 20  of 1953.  By that time various States in Saurashtra had  formed themselves into the United States of Saurashtra.  The appeal was filed in the then High Court of Saurashtra and was heard and  disposed of by a single Judge of that High  Court.   By his judgment and decree dated September 3, 1955 the  learned Single  Judge  allowed  the appeal and  dismissed  the  suit holding  that  though  Lalji  and  Kanji  as  mortgagees  in possession  could  not convert their possession  during  the subsistence of the said mortgage into adverse possession  by assertion  of ownership in the property or otherwise  by  an unilateral act, if by common consent the mortgagors and  the mortgagees agree to put an end to the mortgagees’ estate  by the  mortgagors executing a deed of sale and the  mortgagees assert  their right by ownership under such a sale, even  if such sale were to be declared to be invalid their possession becomes  adverse and such adverse possession ripens  into  a title  if  it continues for the statutory period.   He  also held that the said decree for specific performance declaring the  said sale as invalid had not the effect  of  disturbing the  adverse quality of such possession and that its  effect on  the contrary was to accentuate the adverse character  of such possession. 877 Aggrieved by the said judgment and decree respondents 1  and 2  filed  a  Letters Patent Appeal.  By the  time  the  said appeal  came  up  for hearing the State  of  Saurashtra  had merged   in   the   State  of  Bombay   under   the   States Reorganization  Act and the appeal was heard by  a  Division Bench  of the High Court of Bombay at Rajkot.  The  Division Bench  allowed the appeal, reversed the judgment and  decree passed by the learned Single Judge and restored the judgment and decree passed by the District Judge.  The Division Bench took  into  account the fact of a deed of  conveyance  dated April  29,  1947 having been executed through the  court  in pursuance of the said decree for specific performance by the mortgagors. and signed by Kanji as an attesting witness.  On the strength of this deed the Division Bench held that Kanji and  Lalji  held  the  said  shops  in  their  capacity   as mortgagees  only,  as the said shops were  now  conveyed  to respondents  1 and 2. But the Division Bench also held  that

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even  before the execution of the said deed dated April  29, 1947  Kanji and Lalji were not in adverse  possession  since their possession could never amount to adverse possession in law  and therefore Kanji and Lalji were at no point of  time in adverse possession of the said shops. The  appellants then applied for a certificate in  the  High Court  and on its refusal obtained special leave  from  this Court and that is how this appeal has come up before us  for hearing and final disposal. Mr. Sarjooprasad for the appellants criticised the  judgment of  the  Division  Bench as erroneous and in  our  view  his criticism has some justification.  For, while observing that possession  of Kanji and Lalji could at no point of time  be adverse the Division Bench slipped into an error in  failing to  take  into account the legal effect of  the  sale  dated September  10,  1930.   It is true  that  as  mortgagees-in- possession Kanji and Lalji derived their title to possession through  the mortgagors and by virtue of their rights  under the said mortgage.  They were entitled therefore to continue to  be in possession under the said mortgage and so long  as it  subsisted.  By merely asserting rights of  ownership  in the  said shops they could not convert their  possession  as mortgagees and unilaterally alter their lawful possession as mortgagees  into possession hostile to the mortgagors.   But it  is a well settled proposition that a mortgagor can  sell the  mortgaged  property to his mortgagee and thus  put  the mortgagee’s  estate to an end and thereafter all the  right, title  and  interest  in  the property  would  vest  in  the mortgagee.   Such  a  sale would be  valid  and  binding  as between them and henceforth the character of possession as a mortgagee would be converted into possession as an  absolute owner.  Even if such a sale is held -to be voidable and  not binding   on  a  subsequent  purchaser  the   character   of possession based on assertion of absolute ownership 878 by  the  mortgagee does not alter, and  if  that  possession continues  throughout the statutory period it ripens into  a title  to  the  property. In Subbaiya  Pandaram  v.  Mohamad Mustapha Maracayar(1) a suit was brought by the appellant in 1913  against  the respondents for possession  of  immovable property  which  had been dedicated to the  endowment  of  a chattaram  by  deeds  of  trust  executed  in  1890  by  the appellant’s  grandfather.   In  1898  the  first  respondent purchased  part of the property at a sale in execution of  a decree against the appellant’s father and the purchaser  and the  other respondents who claimed under him had since  been in  possession.   In  1904, in a suit  to  which  the  first respondent had been joined as a party at his own request,  a decree  was passed declaring the validity of the said  trust but  no steps had been taken in consequence of  that  decree prior to the instant suit.  The Privy Council observed  that though the real argument in favour of the appellant was that in  the presence of the purchaser it was declared  that  the said  trust was valid and that the said property  was  trust property  the contention that the said declaration  operated as  res judicata against the respondents and prevented  them from asserting that the property was theirs was not tenable:               "At   the  moment  when  it  was  passed   the               possession  of the purchaser was adverse,  and               the  declaration  that the property  had  been               made  subject  to  a  trust  disposition,  and               therefore  ought not to have been seized,  did               not  disturb  or  affect the  quality  of  his               possession, it merely emphasised the fact that               it was adverse.  No further step was taken  in

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             consequence  of  that  declaration  until  the               present  proceedings were instituted, when  it               was too late." This  decision  was followed in  Dagadabhai  v.  Sakharam(2) where  the  High Court of Bombay held that if a  decree  for possession in plaintiff’s favour does not in fact result  in the defendant giving up possession of the property or having possession of the property taken from him, it cannot be said that it had interrupted possession; nor can it in law affect the nature of the possession, unless it does so in fact.  On this  basis the High Court held that the possession  of  the defendant must be deemed to have been adverse throughout and could  not be said to have been interrupted by the  mortgage decree.  (See also Bogilal v. Ratanlal).(3) The  observation made  by the High Court that possession of Kanji  and  Lalji was  at no point of time adverse is clearly contrary to  the decision  of the Privy Council and the two decisions of  the High  Court of Bombay which were binding on them.  The  fact that  a decree for specific performance was passed  in  Suit No.  263  of  S.Y. 1987 would not affect  the  character  of possession  of  Kanji and Lalji nor  would  the  declaration therein made that the sale deed in their favour was not (1) 50 I.A. 295 at 299.          (2) A.I.R. 1948 Bom. 149. (3)  A.I.R. 1939 Bom. 261. 879 valid ’and binding on respondents 1 and 2 have the effect of altering  the  character of  their  possession.   Therefore, except for the rights and equities in favour of  respondents 1  and 2 by virtue of the agreement of sale of August  1930, the sale in favour of Kanji and Lalji by the mortgagors  was a  valid  sale  and conveyed title in  the  shops  in  their favour.   So far there would be no difficulty in the way  of Mr. Sarjooprasad. But  paragraph 2 of s. 40 of the Transfer of  Property  Act, 1882 in clear terms lays down that where a third. person  is entitled  to  the benefit of an obligation  arising  out  of contract and annexed to the ownership of immovable property, but  not  amounting to an interest therein,  such  right  or obligation  may  be  enforced against a  transferee  of  the property affected thereby, but not against a transferee  for consideration and without notice of the right or  obligation nor  against such property in his hands.  It is a  right  no doubt  arising  from  contract and the  person  agreeing  to purchase  the  property  thereunder  does  not  acquire  any interest  in  the property.  Section 54 of the  Transfer  of Property Act in terms provides that such a contract of  sale does  not create as in English law any equitable  estate  in the  immovable property which is the subject matter  of  the contract.   But  as  aforesaid,  the  contract  creates   an obligation which is recognised by section 3 of the  Specific Relief  Act, 1877 and section 91 of the Indian  Trusts  Act, 1882.   Section  3  of the Specific Relief  Act  defines  an "obligation" as including every duty enforceable by law  and a "trustee" as including every person holding expressly,  by implication   or  constructively  a   fiduciary   character. Illustration (g) to that section reads as follows :               "A buys certain land from B, with notice  that               B  has already contracted to buy it.  A  is  a               trustee, within the meaning of this Act for B,               of the land so bought." This  principle  is  embodied in section 91  of  the  Indian Trusts  Act  which lays down that where  a  person  acquires property with notice that another person has entered into an existing contract affecting that property, of which specific performance  could  be enforced, the former  must  hold  the

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property  for  the  benefit  of the  latter  to  the  extent necessary to give effect to the contract. In  Lala Durga Prasad & Anr., v. Lala Deep Chand &  Ors.(1)- this Court after considering these provisions observed  that in spite of the existence of a previous contract of sale,  a sale to a subsequent purchaser even with notice is not  void but  voidable  at  the instance of  the  party  agreeing  to purchase  under  a  previous contract  and  except  for  the obligation  arising  from section 91 of the Trusts  Act  and paragraph  2 of section 40 of the Transfer of  Property  Act the title to the property would pass from the vendor to  the subsequent transferee.  In Gafur v. Bhikaji Govind & Ors.(2) the facts were almost (1) [1954] S. C.R. 360. (2) 26 I.L.R. Boni. 159. 880 similar  to  the  facts  in the  present  case.   The  first defendant there had entered into an agreement dated June 25, 1895 to sell certain land to the plaintiff.  On December 19, 1895  he  sold  the  land  to  the  second  defendant  by  a registered   deed.   The  plaintiff  then  sued  the   first defendant  for specific performance and got a  decree  dated March  8, 1897 in execution of which conveyance of the  land was executed to him by the court.  On his failing to  obtain possession  from the second defendant he filed a  suit.   It was found as a fact that the second defendant had  purchased the  said land in December 1895 with notice of  the  earlier agreement  of June 1895 with the plaintiff.  The High  Court held  that the plaintiff was entitled to possession  and  as the  second  defendant  had purchased  with  notice  of  the plaintiffs contract he held the property for the benefit  of the plaintiff to the extent necessary to give effect to that contract.   In  Sathiraju v. Venkanna(1) the High  Court  of Madras  similarly observed that as a result of s. 91 of  the Trusts  Act  the  natural result of a  person  purchasing  a property with notice of a prior contract in another person’s favour  is  that the purchaser holds the  property  for  the benefit of the latter to the extent necessary to give effect to the contract.  But for all other purposes and as  between the purchaser and the vendor, the purchaser is the owner and that is the reason why in such circumstances the decree in a suit  for specific performance must direct the purchaser  to join  in execution of the conveyance. (See also Appa Rao  v. Veeranna).(2) It  is thus clear that though the sale dated  September  10, 1930 in favour of Kanji and Lalji was not void but  voidable at  the instance of respondents 1 and 2 by reason  of  their earlier  contract and though as between the  mortgagors  and Kanji  and  Lalji  the sale was valid  and  binding  it  was subject   to  the  right  of  specific   performance   which respondents  1 and 2 had acquired and Kanji and Lalji  being in a fiduciary position, their possession was not adverse as against  respondents  1  and 2.  Therefore  their  suit  for redemption  cannot  be  said to be barred  even  though  the statutory  period had expired.  We thus arrive at  the  same result  which  the High Court reached  though  on  different reasons. The  contention of Mr. Sarjooprasad, however, was  that  the said  decree  for  specific performance  cannot  effect  the adverse nature of possession of Kanji and Lalji as even when respondents 1 and 2 obtained the deed of sale from the court in  April  1947  Kanji was not made  one  of  the  conveying parties  but was made an attesting witness.  As pointed  out in  Lala  Durga Prasad’s(3) case the logical  course  is  to provide  in  such  a decree that both the  vendors  and  the

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subsequent purchaser should join in the deed of  conveyance. The decree for specific performance did in fact provide that all  the  defendants in that suit that is,  including  Kanji should (1)  A.I.R. 1935 Mad. 333. (2) A.I.R. 1953 Mad. 409. (3) [1944] S.C.R. 360. 881 sign  the deed of conveyance.  But it appears  that  through some  misconception  Kanji  was not made  to  join  in  that conveyance  and was only made to attest that document.   But that  would  not, in our view, make any  difference  in  the conclusion  that as between Kanji and Lalji on the one  hand and  respondents 1 and 2 on the other the possession of  the former  could  not  be adverse and therefore  there  was  no question  of the suit of respondents 1 and 2 for  redemption being  barred  by limitation.  Further, being  an  attesting witness,  Kanji both for himself and on behalf of Lalji  was made  fully aware that the sale deed conveying the title  of the property was being passed in favour of respondents 1 and 2 and that the only right henceforth in them was to  receive the mortgage amount and no more. For the reasons aforesaid, the appeal fails and is dismissed with costs. Y.P.                            Appeal dismissed. 882