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PETITIONER: RAM NIWAS (DEAD) THROUGH LRS.

       Vs.

RESPONDENT: SMT.BANO & ORS.

DATE OF JUDGMENT:       01/08/2000

BENCH: Shrivaraj V Patil, S.S.M.Quadri

JUDGMENT:

     Syed Shah Mohammed Quadri, J.

     The  scope of Section 19(b) of the Specific Relief Act read  with  Explanation II to Section 3 of the  Transfer  of Property  Act  and  the provisions of Section 20(2)  of  the Specific  Relief  Act,  1963, determine the result  of  this appeal.  It will be apt to begin our discussion with Section 19(b)  of  the  Specific Relief Act, 1963 which  is  in  the following  terms :  19.  Relief against parties and persons claiming  under  them  by  subsequent   title  -  Except  as otherwise  provided by this Chapter, specific performance of a contract may be enforced against-

     (a) *** *** ***

     (b)  any  other person claiming under him by  a  title arising  subsequently  to the contract, except a  transferee for  value who has paid his money in good faith and  without notice of the original contract;

     (c) to (e) *** *** ***

     Section  19 provides the categories of persons against whom  specific  performance of a contract may  be  enforced. Among  them  is included, under clause (b),  any  transferee claiming under the vendor by a title arising subsequently to the  contract  of  which, specific  performance  is  sought. However,  a transferee for value, who has paid his money  in good  faith and without notice of the original contract,  is excluded  from  the  purview of the said  clause.   To  fall within  the  excluded class, a transferee must show  that  : (a)  he  has purchased for value the property (which is  the subject-matter  of the suit for specific performance of  the contract);   (b) he has paid his money to the vendor in good faith;  and (c) he had no notice of the earlier contract for sale (specific performance of which is sought to be enforced against  him).  The said provision is based on the principle of  English  law which fixes priority between a legal  right and  an equitable right.  If A purchases any property from B  and  thereafter B sells the same to C, the sale  in favour  of A, being prior in time, prevails over the  sale in  favour of C as both A and C acquired legal rights. But where one is a legal right and the other is an equitable right  a bona fide purchaser for valuable consideration who

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obtains  a legal estate at the time of his purchase  without notice of a prior equitable right is entitled to priority in equity  as  well  as at law.  [Snells Equity    Thirtieth Edition    p.48].   This principle is embodied  in  Section 19(b) of the Specific Relief Act.  It may be noted here that notice  may  be  (i) actual, (ii)  constructive  or  (iii) imputed.  Section 3 of the Transfer of Property Act defines, inter alia, a person is said to have notice of a fact when he  actually  knows  that  fact,  or  when  but  for  wilful abstention  from an enquiry or search which he ought to have made,  or  gross  negligence, he would have known  it.   And Explanation  II  appended to this definition clause  says  : Any person acquiring any immovable property or any share or interest in any such property shall be deemed to have notice of  the  title,  if any, of any person who is for  the  time being in actual possession thereof. Thus, it is seen that a statutory  presumption of notice arises against any person who acquires any immovable property or any share or interest therein  of the title, if any, of the person who is for  the time  being in actual possession thereof.  The principle  of constructive  notice  of any title which a tenant in  actual possession  may have, was laid down by Lord Eldon in Daniels Vs.   Davison  [(1809) 16 Ves.  249 at P.254].  The  learned law  Lord  observed, Upon one point in this cause there  is considerable  authority for the opinion I hold;  that, where there  is  a  tenant  in  possession under  a  lease  or  an agreement,  a person, purchasing part of the estate, must be bound   to  inquire,  on  what   terms  that  person  is  in possession.  That  principle has been followed  by  various High  Courts in India.  [See :  Faki Ibrahim vs.  Faki Gulam Mohidin  (AIR  1921 Bombay 459);  Mahadeo vs.   S.B.Kesarkar (AIR  1972 Bombay 100);  Tiloke Chand vs.  J.B.Bettie &  Co. (AIR  1926 Calcutta 204);  Parthasaradhi Iyer vs.  Subbaraya Gramani  (AIR 1924 Madras 67) and Mummidi Reddi  Papannagari Yella  Reddy vs.  Salla Subbi Reddy & Ors.  (AIR 1954 Andhra 20)].   This being the position in law, we shall now  advert to  the  facts of this case.  The appellant (referred to  as the  tenant)  is  the unsuccessful plaintiff in  the  suit giving rise to this appeal.  He took on rent a shop situated at  Katlara  Bazar, Loharawali Gali, Merta City (for  short, the  suit shop) from its owner, respondent No.5  (referred to  as, the vendor) and on the material date he was paying rent  of Rs.35/- per month.  On January 25, 1978, he  claims to  have  entered  into  an agreement  with  the  vendor  to purchase  the  suit shop (Ext.1) for a sum of Rs.9200/-  and paid  a  sum  of  Rs.3200/- in cash  and  undertook  to  pay remaining  amount  of Rs.6000/- at the time of execution  of sale  deed.  During the pendency of this appeal, he died and the    appellants   were    substituted    as   his    legal representatives.   The tenant and the vendor are said to  be closely   related     they  are   brothers   as   well   as brothers-in-law.  Respondent Nos.1 to 4 (referred to as the purchasers) purchased the suit shop from the vendor on July 24,  1978  for  a sum of Rs.20,000/- under  Exhibit  4.   On October  12,  1978  the tenant filed the suit  for  specific performance  of Ext.1 against the vendor and the  purchasers and  their  respective husbands - respondent Nos.  6  to  9. The  purchasers  contested the suit denying  genuineness  of Ext.1 and taking the plea that they are bona fide purchasers of  the suit shop for value without notice of Ext.1.  On the basis  of  the pleadings, the trial court  framed  necessary issues.   Issue  Nos.1  and 10, which are  relevant  to  the present  discussion,  read  as  follows   :   1.   Had  the defendant  No.1  agreed  to sell the disputed  shop  to  the plaintiff  on 25.1.78 on the conditions written in para 2 of

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the  plaint  and  put the plaintiff in possession  as  owner after  taking  Rs.3200/-  in  its lieu,  and  entrusted  the tenancy  deed (letter) written by him and his father,  dated Baisakhi Sudi 9 Samvat 2029, to the plaintiff?

     10.   Have  the  defendants Nos.2 to 5  purchased  the disputed  shop  after  paying  full price and  had  they  no knowledge of the alleged agreement to sell?

     On  December 15, 1984, after considering the  evidence placed  before  it, the trial court found all the issues  in favour  of the plaintiff and decreed the suit.  Dissatisfied with  the  judgment  and  decree of  the  trial  court,  the purchasers  filed appeal (S.B.  Civil First Appeal  No.7/85) in  the  High Court of judicature for Rajasthan at  Jodhpur. By his judgment dated August 4, 1987, a learned Single Judge of  the High Court, on reappraisal of the evidence and after referring  to Section 19(b) of the Specific Relief Act, held that the contesting respondents were bona fide purchasers of the  suit  shop and they paid consideration  of  Rs.20,000/- without  having knowledge of the said agreement (Ex.1).   He held  that the registered sale deed (Ext.4) in favour of the purchasers could not be cancelled and the relief of specific performance  could  not be granted in favour of the  tenant. The  appeal  was thus allowed on August 4, 1987.   Assailing that  judgment of the learned Single Judge, the tenant filed Special  Appeal  No.27  of 1987 before the  High  Court.   A Division Bench, having agreed with all the findings recorded by the learned Single Judge, dismissed the appeal on January 29,  1990.   The Division Bench, however, held  that  simply because  an enquiry from the tenant had not been made as  to his real equitable interest in the property, it could not be taken or presumed that the defendants vendees had knowledge of  the earlier transaction and pointed out that the  vendor gave  out  that  the  tenant  was his  brother  as  well  as sister-in-laws  husband  and the documents were  with  him, which  he would take back and deliver to them so, there  was no need to make further enquiry.  It also held, the conduct of  the  plaintiff  has been elaborately dealt with  by  the learned  Judge and on that basis, it has been found that the version  which  the plaintiff has given is not  trustworthy. Besides  that we may also state that the relief of  specific performance  is an equitable relief.  It would not be proper exercise  of  discretion  in granting  equitable  relief  of cancellation  of  the sale deed in the circumstances of  the case.  Thus,  the  Division Bench dismissed the  appeal  on January  29, 1990.  From that judgment of the Division Bench arises the present appeal, at the instance of the tenant, by special  leave.   Mr.Sanjeev K.Kapoor, the  learned  counsel appearing  for  the  appellants, invited  our  attention  to Explanation  II to Section 3 of the Transfer of Property Act and  submitted that both the learned Single Judge as well as the  Division  Bench  erred in not taking note of  the  said provision  while holding that the purchasers are covered  by clause  (b)  of Section 19 of the Special Relief Act,  1963. There is nothing in the conduct of the tenant, submitted the learned counsel, which would disentitle him to the relief of specific  performance  of contract for  sale.   Ms.Madhurima Tatia,  the  learned  counsel appearing for  the  purchasers (contesting  respondents),  argued that both the  vendor  as well  as the tenant were close relations and the latter  was in  possession  as a tenant of the former, and  these  facts were known to the purchasers, so Explanation II to Section 3 of  the Transfer of Property Act would have no  application; in view of the close relationship between the vendor and the

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tenant  and  the pleas taken by the purchasers, the  learned Single  Judge ought to have considered the evidence  himself and  recorded  a  clear  finding on issue  No.1  instead  of assuming the finding in favour of the appellant and deciding the  question  of actual knowledge for purposes  of  Section 19(b)  of  the  Specific Relief Act, 1963.   Even  otherwise also,  she argued, both the learned Single Judge as well  as the  Division  Bench  declined to  grant  the  discretionary relief  of  specific performance having regard to the  close relationship  between  the vendor and the tenant, the  price mentioned  in Ext.1 and the price paid by the purchasers and the  conduct of the tenant so, this court need not interfere in the judgment under appeal.  On the above contentions, the point  that  falls  for  consideration  is  :   Whether  the appellant  (tenant)  is entitled to specific performance  of Ext.1?   The  purchasers have acquired a legal  right  under sale  deed (Ext.4).  The right of the tenant under Ext.1, if it  is  true and valid, though earlier in time, is  only  an equitable  right  and it does not affect the  purchasers  if they  are  bona fide purchasers for  valuable  consideration without  notice of that equitable right.  The foundation  of the  claim  of the tenant is the existence of  an  equitable right under Ext.1.  We have referred to the pleadings of the parties,  the relevant issues and the findings of the courts on  this facet.  The trial court found issue No.1 in  favour of the plaintiff.  The learned Single Judge having noted the plea  in  the written statement that the  purchasers  denied execution  of  any agreement by the vendor in favour of  the tenant  and  stated  that  any such  alleged  agreement  was forged, observed :  It may be mentioned that I have assumed the  original contract because although Smt.Bano and  others have  challenged it on the ground that it was fictitious and not  genuine, the finding of the lower court on this  aspect of  the  case that there was agreement to sell  between  Ram Narain  and  Satya  Narain calls for  no  interference.  It appears to us that he assumed the finding of the trial court as  correct  and proceeded to decide the  appeal  presumably because on issue No.10, he found that the purchasers did not have actual knowledge of Ext.1.  In our considered view, the learned  Single Judge ought to have considered the  evidence and  recorded  his  own  positive finding  on  the  question whether  Ext.1 was a true and valid agreement.  This feature of  the  case  was not adverted to by  the  Division  Bench. Therefore,  issue  No.1 has to be considered afresh  by  the learned Single Judge.  Both the learned Single Judge as well as  the  learned  Judges of the Division Bench of  the  High Court  dealt  with the question whether the  purchasers  had actual  knowledge  of  Ext.1, the earlier contract,  and  on evidence  found  that  the  purchasers   did  not  have  any knowledge  of it.  But they failed to notice the  provisions of  Explanation II to Section 3 of the Transfer of  Property Act  which is germane on the point of notice.  Indeed, issue No.10  was  not properly framed.  The word  notice  should have been used in issue No.10 instead of knowledge because Section  19(b) uses the word notice.  From the  definition of  the  expression,  a person is said to have  notice  in Section  3 of the Transfer of Property Act, it is plain that the  word  notice  is  of   wider  import  than  the  word knowledge.   A  person may not have actual knowledge of  a fact  but  he  may have notice of it having  regard  to  the aforementioned  definition  and Explanation II thereto.   If the  purchasers have relied upon the assertion of the vendor or  on their own knowledge and abstained from making enquiry into  the real nature of the possession of the tenant,  they cannot  escape  from the consequences of the  deemed  notice

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under  Explanation  II  to  Section 3  of  the  Transfer  of Property  Act.   On  this point, in the light of  the  above discussion,  we  hold that the purchasers will be deemed  to have  notice  of  Ext.1, should it be found to be  true  and valid.    The  last  point,  whether   on  the   facts   and circumstances  of  this case, it will be just and proper  to grant  discretionary  relief of the specific performance  of the  contract  in  favour  of  the  tenant  or  will  it  be inequitable  to enforce Ext.1 against the purchasers remains to  be  decided?  The Division Bench in agreement  with  the learned Single Judge took the view that the plaintiff is not entitled to the relief of specific performance of Ext.1.  As on the question of genuineness and validity of Ext.1, we are remanding  the case to the learned Single Judge.  We do  not propose to express any opinion on this point and leave it to be  decided  afresh  with  reference to  the  provisions  of Section  20(2)  of  the Specific Relief Act by  the  learned Single Judge after recording finding on issue No.1.  For the above  reasons,  we set aside the judgment and order of  the Division Bench confirming the judgment of the learned Single Judge  and  remand the case to the learned single Judge  for his  decision  on  (i)  issue  No.1  and  (ii)  whether  the plaintiff  is  entitled  to   the  discretionary  relief  of specific  performance of a contract in the light of  Section 20(2)  of  the Specific Relief Act in accordance  with  law. The  appeal is accordingly allowed but in the  circumstances of the case we make no order as to costs.