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PETITIONER: RAMBARAN PROSAD

       Vs.

RESPONDENT: RAM MOHIT HAZRA & ORS.

DATE OF JUDGMENT: 06/09/1966

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. BHARGAVA, VISHISHTHA DAYAL, RAGHUBAR

CITATION:  1967 AIR  744            1967 SCR  (1) 293  CITATOR INFO :  F          1977 SC 774  (32)  RF         1980 SC1334  (6)

ACT: Pre-emption-Agreement between parties to give to each  other right  of pre-emption-Whether binds  successors-in-interest- Rule against perpetuities whether offended.

HEADNOTE: There was a partition suit between two brothers T and K. The matter  was  referred to arbitration.  Under the  award  the properties  were  divided into four blocks A, B,  C  and  D. Blocks  A  and  C  went to T, and B  and  D  to  K.  Further according  to  the award, the parties had agreed  that  ’any party  in case of disposing or transferring any  portion  of his  share, shall offer preference to the other party,  that is  each  party shall have the right of  preemption  between each  other’.   Thereafter  T sold Block A to  one  G  after obtaining K’s refusal to preempt the same.  Next year K sold blocks  B and D to certain parties who in turn sold them  to the  plaintiffs.   Some,  years  later G  sold  block  A  to defendant  No.  1.  The plaintiffs thereupon  filed  a  suit against  defendant  No.  1  for  preempting  his   aforesaid purchase.   While the suit was pending in the  trial  court, defendant  No.  I sold block A to defendant No.  2  who  was -also impleaded to the suit.  The trial Judge held that  the covenant  of preemption was binding upon the defendants  who had  notice of that clause and the plaintiffs were  entitled to  the  right  of preemption.  He  further  held  that  the covenant  of  preemption was not hit by  the  rule  ’against perpetuities  and was enforceable -against the assignees  of the  original parties to the contract.  The defendants  took the  matter in appeal to the High Court which dismissed  the appeal.  The defendants came to this Court by way of special leave to appeal. HELD  : (i) It is true that the preemption clause  does  not expressly  state  that it is binding upon the  assignees  or successors-in-interest,  but, having regard to  the  context and  the  circumstances in which the award was made  it  was manifest  that  the preemption clause must be  construed  as binding upon the assignees, or successors-in-interest of the

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original contracting parties. [295 G] Section 23, 27(b) and 37 of the Specific Relief Act lay down that subject to certain exceptions a contract in the absence of   a  contrary  intention  express  or  implied  will   be enforceable by and against the parties and their legal heirs and    legal   representative   including   assignees    and transferees.   In the present case there was nothing in  the language  of the preemption clause or the other  clauses  of the  award  to  suggest that the parties  bad  any  contrary intention.   On  the  other hand a reference  to  the  other clauses  of the award showed that the parties intended  that the obligations and benefit of the contract should go to the assignees and successors-ininterest. [296-H] The  pre-emption clause was based on the ground of  vicinage and  this circumstance also suggested that the intention  of the  parties  was  that the  pre-emption  clause  should  be binding upon the heirs and successors-in- interest     and the assignees of the original parties to the contract.  [298 A] (ii) The  rule  against  perpetuities  does  not  apply   to personal contracts which do   not    create   interest    in property. [298 F] 294 Reading  s. 14 along with s. 54 of the Transfer of  Property Act  it  is  mainfest  that a  mere  contract  for  sale  of immovable  property  does  not create any  interest  in  the immovable property and it therefore follows that the rule of perpetuity  cannot be applied to a covenant  of  pre-emption even though there is no time limit with-in which the  option has to be exercised. [301 H] Accordingly the covenant for pre-emption in the present case did  not offend the rule against perpetuities and could  not be considered to be void in law. (302 D] Case-law referred to. English law distinguished.

JUDGMENT: CIVIL  APPELLATE  JURISDICATION : Civil Appeal  No.  609  of 1964. Appeal  by special leave from the judgment and decree  dated November 11, 1959 of the Calcutta High Court in Appeal  from Original Decree No. 109 of 1954. Bishan Narain and B. P. Maheshwari, for the appellant. N.   C Chatterjee and Sukumar Ghosh, for respondents Nos.  1 and 2. The Judgment of the Court was delivered by Ramaswami, J. This appeal is brought, by special leave, from the  judgment  of the Calcutta High  Court  -dated  November 18,1959  in  First  Appeal No. 104  of  1954  affirming  the judgment   and  decree  dated  February  27,  1954  of   the Subordinate  Judge,  Fifth  Court, at  Alipore  District  24 Parganas  in Title Suit No. 100 of 1952 decreeing  the  suit for pre-emption in favour of the plaintiffsrespondents  Nos. 1 and 2. Two brothers, Tulshidas Chatterjee and Kishorilal Chatterjee owned  certain  properties (land and building)  on  Paharpur Road within Mouza Garden Reach, Khidderpore, in the  suburbs of Calcutta.  In the year 1938 Kishorilal sued for partition of the properties and eventually the matter was referred  to arbitration.   On December 16, 1940, the  arbitrators  filed their award on which a final decree was passed on March  15, 1941  in  the partition suit.  Under the award, two  of  the four  blocks,  A, B, C & D, into which the  properties  were

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divided  by  the arbitrators, namely, blocks A and  C,  were allotted to Tulshidas and the remaining two blocks, B and  D were allotted to Kishorilal.  Two common passages marked  as X  and  Y and a common drain Z were kept joint  between  the parties  for their use.  In the award there was a clause  to the following effect :               "We  further find and report with the  consent               of and approval of the parties that any  party               in  case  of  disposing  or  transferring  any               portion  of his share, shall offer  preference               to  the other party, that is each party  shall               have  the  right of pre-emption  between  each               other." 295 Thereafter, on August 20, 1941 Tulshidas sold his A block to one  Nagendra Nath Ghosh.  This was done after  Kishorilal’s refusal  to pre-empt the same in spite of Tulshidas’s  offer to  him  in terms of he pre-emption clause.   On  April  22, 1942,  Kishorilal  sold,  by the Kobala  (Ex.  1),  his  two blocks, B and D to Rati Raman Mukherjee and others.  On June 21, 1946, the Mukherjees in their turn sold the two blocks B &  D  to  the  plaintiffs by  the  Kobala  [Ex.  1(a)].   On September  20,  1952  Nagendra Nath Ghosh sold  block  A  to defendant  No. 1 and on December 2, 1952, the  present  suit was  filed  by the plaintiffs against  the  said  purchaser- defendant  No.  for preempting his aforesaid  purchase.   On April 7, 1953 while the suit was pending in the trial court, defendant  No.  I sold the disputed property  (block  A)  to defendant   No.  2.  The  plaintiffs  thereafter   made   an application for amendment of the plaint praying for a decree for  pre-emption against defendants Nos. 1 & 2  and  calling upon  them  to  execute  a  conveyance  in  favour  of   the plaintiffs  on payment of the actual consideration paid  for the  property in suit.  On the conclusion of the  trial  the Subordinate Judge held that the covenant of pre-emption  was binding  upon the defendants who had notice of  that  clause and  plaintiffs were entitled to enforce the night  of  pre- emption.,  He further held that the covenant  of  preemption was not hit by the rule against perpetuities and was  enfor- ceable against the assignees of the original parties to  the contract.    Accordingly  a  decree  was  granted   to   the plaintiffs asking them to deposit within one month a sum  of Rs.  14,000 for the purpose of preempting the suit  property and  both  the  defendants  were  directed  to  execute  and register  a Kobala in plaintiffs’ favour within 15  days  of the  deposit  by the plaintiffs.  The  defendants  took  the matter in appeal to the Calcutta High Court which  dismissed the  appeal  and  affirmed the judgment and  decree  of  the Subordinate fudge. On  behalf of the appellant learned Counsel put forward  the argument  that  the covenant for pre-emption  was  merely  a personal  covenant between the contracting parties  and  was not binding against successors-in-interest or the  assignees of  the original parties to he contract.  We are  unable  to accept this submission as correct.  It is true that the pre- emption  clause does not expressly state that it is  binding upon  the assignees or successors-in-interest,  but,  having regard  to  the context and the circumstances in  which  the award  was made, it is manifest that the pre-emption  clause must   be  construed  as  binding  upon  the  assignees   or successors-in-interest of the original contracting parties. Prima  Facie  rights  of  the  parties  to  a  contract  are assignable. section 23(b) of the Specific Relief Act  states :               "23.   Except  as otherwise provided  by  this

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             Chapter,   the  specific  performance   of   a               contract may be obtained by-               296               (a)......................................               (b)   the  representative in interest, or  the               principal,  of  any party thereto  :  provided               that,  where the learning, skill, solvency  or               any  personal  quality  of  such  party  is  a               material ingredient in the contract, or  where               the contract provides that his interest  shall               not   be  assigned,  his   representative   in               interest  or  his principal shall not  be  en-               titled   to   specific  performance   of   the               contract,  unless where his part  thereof  has               already been performed               Section  27(b) of the Act is to the  following               effect               "27.   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 ;"               Reference should also be made to ss. 37 and 40               of  the Indian Contract Act which are  to  the               following effect               "37.   The parties to a contract  must  either               perform, or offer to perform, their respective               promises, unless such performance is dispensed               with  or excused under the provisions of  this               Act, or of any other law.               Promises  bind  the  representatives  of   the               promisers  in  case  of  the  death  of   such               promisers   before   performance,   unless   a               contrary intention appears from the contract."               "40.   If  it appears from the nature  of  the               case that it was the intention of the  parties               to any contract that any promise contained  in               it   should  be  performed  by  the   promisor               himself, such promise must be performed by the               promisor.  In other cases, the promisor or his               representatives may employ a competent  person               to perform it." In  substance  these  statutory provisions  lay  down  that, subject to certain exceptions which are not material in this case,  a  contract in the absence of  a  contrary  intention express  or implied will be enforceable by and  against  the parties  and  their legal heirs  and  legal  representatives including  assignees and transferees.  In the present  case, there  is nothing in the language of the pre-emption  clause or  the  other  clauses of the award  to  suggest  that  the parties  had  any contrary intention.  On the other  hand  a reference  to the other clauses of the award shows that  the parties intended that the 29 7 obligations  and  benefit of the contract should go  to  the assignees or successors-in-interest.  The following  clauses of the award are important :               "We  find  and report that 6’  six  feet  wide               common passage marked ’X’ measuring 12 ch.  36               sq.  ft. in the plan -and colored  with  Burnt               sienna  shall ever remain as such to  all  the

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             blocks  the  owners whereof shall  have  every               right to take underground water pipes electric               connections  etc. and the parties  shall  have               never any right either to obstruct or to close               any part of the same.               The parties shall be at liberty to fill up the               tank  portion  allotted  in  their  respective               shares  at their own costs.  The common  walls               and   structures   according  to   the   above               allotments  shall  have to be  maintained  and               kept in proper condition by both parties.               We further find and report that the  partition               line  in  the inner courtyard shall  be  drawn               east  to west as shown in the plan  just  over               the  middle of the pit situated at  the  north               west  corner  of the inner courtyard  for  the               drainage  of water.  There must be an  opening               in  the  partition  wall that  may  be  raised               thereon over the mouth of the pit in order  to               have  a free access for the drainage of  water               of  both  parties through the said  pit  which               shall have to be maintained as such for ever.               With  the consent of the parties we  find  and               award   that   the  parties   shall   complete               construction  of new structures or  demolition               of  any existing structures, in terms of  this               award within one year from this date, that  is               16th  day  of  December,  1940.   During  this               period  of  one  year  parties  shall   remain               entitled to use and enjoy the entire  property               as allotted, but immediately after the  expiry               of the said period of one year plaintiff shall               have   every  right  to  close  or   otherwise               obstruct the defendant from enjoyment of  that               portion   of  the  structure  privy  or   land               exclusively allotted to him and the  defendant               shall  have  the  same right  as  against  the               plaintiff   in   respect  of  his   share   of               structures  and land exclusively  allotted  to               his share in terms of the award." It is obvious that in these clauses the expression "parties" cannot be restricted to the original parties to the contract but must include the legal representatives and assignees  of the original parties.  There is hence no reason why the same expression should be given a restricted meaning in the  pre- emption clause which is the subjectmatter of  interpretation in the present appeal.  On behalf of the respondents Mr.  N. C. Chatterjee rightly argued that the pre-emp- 298 tion  clause was based upon the ground of vicinage and  this circumstance  would also suggest that the intention  of  the parties  was that the pre-emption clause should  be  binding upon the heirs and successors-in-interest and the  assignees of  the  original parties to the contract.   We  accordingly hold  that Mr. Bishen Narain on behalf of the  appellant  is unable  to  make good his submission on this aspect  of  the case. We  pass  on to consider the next question which  arises  in this  appeal,  namely, whether the covenant  of  pre-emption offends the rule against perpetuities and is therefore  void and  not enforceable even against the  original  contracting parties. "A  perpetuity", as defined by Lewis in his well-known  book on "Perpetuities" (p. 164), is ’a future limitation, whether executory  or  by way of remainder, and of  either  real  or

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personal  property  which  is not to vest  until  after  the expiration  of,  or will not necessarily  vest  within,  the period  fixed  and prescribed by law for  the  ,creation  of future estates and interests’.  The rule as formulated falls within the branch of the law of property and its true object is  to restrain the creation of future conditional  interest in   property.   The  rule  against  perpetuities  is,   not concerned with contracts as such or with contractual  rights and obligations as such.  Thus a contract to pay money to  a person,  his heirs or, legal representatives upon  a  future contingency,  which may happen beyond the period  prescribed would  be perfectly valid (Walsh v. Secretary of  State  for India)(1).   It is therefore well-established that the  rule of perpetuity concerns rights of property only and does  not affect the making of contracts which do not create rights of property. The  rule  does not therefore apply  to  personal  contracts which ,do not create interest in property (See the  decision of  the Court of Appeal in South Eastern Railway Company  v. Associated  Portland  Cement  Manufacturers  Ltd.)(2),  even though  the contract may have reference to land.  In  Witham v.  Vane,(3) William Harry, Earl of Darlington sold in  1824 the manor of Hutton Henry and other heriditaments to  George Silvertop.  In the conveyance there was a covenant that  the said  Earl, his heirs, executors, administrators or  assigns would pay six pence for each chaldron of coal which would be wrought  or gotten out of the lands so sold and which  would be  shipped  for  sale,  to  George  Silvertop,  his  heirs, executors, administrators or assigns.  The covenant was  en- forced in 1883 at the instance of an assignee from the legal representatives of George Silvertop against the executors of the Earl.  The Lord Chancellor (Earl of Silborne)  overruled the  plea  that  the  covenant  offended  the  rule  against perpetuities on the ground (1) (1863) 10 H.L.C. 367; 11 E.R. 1068. (2) [1910] 1 Ch. 12. (3)  (1883) Challies Law of Real Property, 3rd.   Ed.,  App. V., p. 440. 299 that,  though the covenant had relation to land, it did  not amount to a reservation of any interest in land. In  English law a contract for purchase of real property  is regarded  as creating an equitable interest, and if, in  the absence of a time limit, it is possible that the option  for repurchase  might be exercised beyond the prescribed  period fixed  by the perpetuity rule, the covenant is  regarded  as altogether void.  It has therefore been held that a covenant for  pre-emption unlimited in point of time is bad as  being obnoxious  to the rule against perpetuities.  The point  was settled  by the Court of appeal in London and South  Western Railway  Company  v. Gomm(1) which is  the  leading  English authority on the point.  In that case, the plaintiff company conveyed  certain  lands  to  Powell  in  1865,  and  Powell covenanted with the company that he, his heirs, and assigns, would  at  any time, on receipt of Pound 100,  reconvey  the lands to the company.  In 1879, the defendant Gomm purchased the  land  from  Powell’s heirs with  notice  of  the  above covenant,  and  in  1880 the company gave  the  defendant  a notice to reconvey the land, and on his refusal brought  the suit for specific performance.  Kay J. gave the plaintiff  a decree,  being of the opinion that, as the covenant did  not create  any  estate  or interest in the  land,  it  was  not obnoxious  to the rule against perpetuities.  This  decision was  reversed by the Court of appeal, and it was  held  that the option to purchase created an equitable interest in  the

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land  which attracted the operation of the perpetuity  rule. Sir George Jessel M. R. observed, in his judgment, that  the right to call for a conveyance of land was an equitable  in- terest or equitable estate.  There was no doubt about it  in an ordinary case of contract for purchase, and an option for repurchase  did  not stand on a different footing.   In  the course of his judgment the learned Master of Rolls  observed as follows :               "Whether the rule applies or not depends  upon               this as it appears to me, does or does not the               covenant give an interest in the land ? If  it               is  a bare or more personal contract it is               of  course not obnoxious to the rule,  but  in               that  case  it is impossible to  see  how  the               present  appellant can be bound.  He  did  not               enter  into  the  contract,  but  is  only   a               purchaser  from  Powell who did.  If it  is  a               mere  personal contract it cannot be  enforced               against  the assignee.  Therefore the  company               must  admit  that it somehow binds  the  land.               The right to call for a conveyance of the land               is an equitable interest or equitable  estate.               In  the  ordinary  case  of  a  contract   for               purchase there is no doubt about this, and  an               option  of purchase is not different,  in  its               nature.  A person exercising the option has to               do,  two things; he has to give notice of  his               intention to,,               (1) [1882] 20 Ch.  D. 562.               M1 5Sup C1/66-6               300               purchase,  and to pay the purchase money;  but               as  far as the man who is liable to convey  is               concerned,  his  estate or interest  is  taken               away  from  him without his consent,  and  the               right to take it away being vested in another,               the  covenant giving the option must give  the               other an interest in land." In  the case of an agreement for sale entered into prior  to the  passing  of the Transfer of Property Act,  it  was  the accepted  doctrine  in India that the agreement  created  an interest in the land itself in favour of the purchaser.  For instance, in Fati Chand Sahu v. Lilambar Sing Das(1) a  suit for  specific  performance  of  a  contract  for  sale   was dismissed  on the ground that the agreement, which was  held to create an interest in the land, was not registered  under s.  17,  cl.  (2) of the Indian Registration  Act  of  1866. Following this principle, Markby J. in Tripoota Soonduree v. Juggur  Nath Dutt(2) expressed the opinion that  a  covenant for pre-emption contained in a deed of partition, which  was unlimited in point of time, was not enforceable in law.  The same view was taken by Baker J. in Allibhai Mahomed Akuji v. Dada  Allis  Isaac(3)  where  the  option  of  purchase  was contained  in a contract entered into before the passing  of the  Tranfer of Property Act.  The decision of the  Judicial Committee in Maharaj Bahadur Singh v. Bal Chanad(4) was also a decision relating to a contract of the year 1872.  In that case,  the  proprietor of a hill entered into  an  agreement with a society of Jains that, if the latter would require  a site thereon for the erection of a temple, he and his  heirs would   grant  the  site  free  of  cost.   The   proprietor afterwards  alienated the hill.  The society, through  their representatives, sued the alienees for possession of a  site defined  by  boundaries, alleging notice to  the  proprietor requiring that site and that they had taken possession,  but

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been  dispossessed.  It was held by the  Judicial  Committee that the suit must fail.  The Judicial Committee was of  the opinion  that  the  agreement conferred on  the  society  no present   estate   or  interest  in  the   site,   and   was unenforceable  as a covenant, since it did not run with  the land,  and  infringed  the rule  against  perpetuity.   Lord Buckmaster who pronounced the opinion of the Judicial  Corn- mittee observed as follows               "Further,  if the case be regarded in  another               lightnamely,  an  agreement to grant  ’in  the               future  whatever land might be selected  as  a               site for a temple-as the only interest created               would  be  one to take effect by  entry  at  a               later date, and as this date is uncertain, the               provision  is obviously bad as  offending  the               rule  against perpetuities, for  the  interest               wouldnot then vest in presenti, but  (1) (1871) 9 B.L.R. 433. (2)  (1875) 24  W.R.               321.  (3) A.L.R. 1931 Bom. 578.     (4)   48   I.A.               376.                                    301               would vest at the expiration of an  indefinite               time which might extend beyond the  expiration               of the proper period." But  there has been a change in the legal position in  India since the passing of the Transfer of Property Act.   Section 54  of the Act states that a contract for sale of  immovable property  "does  not, of itself, create any interest  in  or charge  on  such property".  Section 40 of the Act  is  also important and reads as follows :               "40.  Where, for the more beneficial enjoyment               of his own immovable property, a third  person               has,  independently  of any  interest  in  the               immovable  property  of  another  or  of   any               easement  thereon,  a right  to  restrain  the               enjoyment in a particular manner of the latter               property, or               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 or easement thereon,               such  right  or  obligation  may  be  enforced               against a transferee with notice thereof or  a               gratuitous 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." The  second paragraph of s. 40 taken with  the  illustration establishes two propositions : (1) that a contract for  sale does not create any interest in the land, but is annexed  to the ownership of the land and (2) that the obligation can be enforced against a subsequent gratuitous transferee from the vendor  or a transferee for value but with notice.   Section 14 of the Act states as follows :               "14.   No transfer of property can operate  to               create  an  interest which is to  take  effect               after  the  lifetime of one  or  more  persons               living  at the date of such transfer, and  the               minority  of  some  person  who  shall  be  in               existence  at the expiration of  that  period,               and  to  whom,  if he attains  full  age,  the               interest created is to belong."

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Reading  s. 14 along with s. 54 of the Transfer of  Property Act its manifest that a mere contract for sale of  immovable property  does  not  create any interest  in  the  immovable property   and  it  therefore  follows  that  the  rule   of perpetuity  cannot be applied to a covenant  of  pre-emption even  though there is no time limit within which the  option has  to be exercised.  It is true that the second  paragraph of s. 40 of the Transfer of Property Act make 302 a  substantial  departure  from  the  English  law,  for  an obligation  under  a contract which creates no  interest  in land but which concerns land is made enforceable against  an assignee  of  the land who takes from  the  promiser  either gratuitously or takes for value but with notice.  A contract of this nature does not stand on the same footing as a  mere personal  contract,  for  it  can  be  enforced  against  an assignee  with  notice.   There is  a  superficial  kind  of resemblance  between the personal obligation created by  the contract  of  sale described under s. 40 of  the  Act  which arises out of the contract, and annexed to the ownership  of immovable property, but not amounting to an interest therein or easement thereon and the equitable interest of the person purchasing under the English Law, in that both these  rights are  liable to be defeated by a purchaser for value  without notice.   But the analogy cannot be carried further and  the rule  against perpetuity which applies to equitable  estates in  English  law  cannot be applied to a  covenant  of  are- emption  because  s.  40 of the statute does  not  make  the covenant  enforceable  against the assignee on  the  footing that it creates an interest in the land. We are accordingly of the opinion that the covenant for pre- emption  in  this  case does not  offend  the  rule  against perpetuities  and  cannot be considered to be void  in  law. The  view  that  we  have expressed  is  borne  out  by  the decisions of the Calcutta High Court in Ali Hossain Miya  v. Raj  Kumar Haldar(1), of the Allahabad High Court  in  Aulad Ali  v. Ali Athar(2) and of the Madras High Court in  Chinna Munuswami  Nayudu v. Sagalaguna Nayudu.(1) Mr. Bishen  Narain relied  on the decision of the Calcutta High Court in  Nobin Chandra Soot v. Nabab Ali Sarkar(4) and the judgment of  the Allahabad  High Court in Gopi Ram v. Jeot Ram(5).   For  the reasons we have already stated we hold that the later  deci- sions  in Ali Hossain Miya v. Raj Kumar Haldar(1) in  Chinna Munuswami  Nayudu v. Sagalaguna Nayudu,(3) and in Aulad  Ali v. Ali Athar,(2) correctly state the law on the point. For  the reasons expressed we hold that the decision of  the High Court is correct and this appeal must be dismissed with costs. G. C.                                  Appeal dismissed. (1) I.L.R. (1943) 2 Cal, 605. (2) I.L.R. 49 All. 527. (3) 1. L.R. 49 Mad. 387. (4) 5 C.W.N. 343. (5)  I.L.R. 45 All. 478.                             303