Reportable  IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4891 OF 2010 [Arising out of SLP [C] No.6736 of 2009]

Vinod Seth … Appellant

Vs.

Devinder Bajaj & Anr. … Respondents

J U D G M E N T

R.V.RAVEENDRAN, J.

Leave granted. Heard. The validity of a novel and innovative direction  

by  the  High  Court,  purportedly  issued  to  discourage  frivolous  and  

speculative litigation is under challenge in this appeal.  To understand the  

issue, it is necessary to set out the facts and also extract relevant portions of  

the plaint and the impugned orders of the High Court.  

2. The appellant claims to be a builder-cum-real estate dealer. He filed a  

suit  for  specific  performance  of  an  oral  agreement  for  “commercial  

collaboration for business benefits” allegedly entered by the respondents as  

the  owners  in  possession  of  premises  No.A-1/365,  Paschim Vihar,  New  

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Delhi,  with  him.  He  alleged  in  the  plaint,  that  the  following  terms  and  

conditions were orally agreed between the parties:  

“a) The defendants will apply to the DDA for conversion of  the above property from leasehold to freehold and within 2-3  months  the  defendants  will  handover  vacant  physical  possession of the above property to the plaintiff.

b) The plaintiff will reconstruct the above property from his  own money/funds with three storeys i.e.  ground floor,  first  floor and second floor.

c) Out of the said reconstructed three storeyed building, the  plaintiff shall be entitled to own and possess the ground floor;  and the first and second floors will be owned and possessed  by the defendants.

d)  Besides  bearing  the  expenses  of  construction  and  furnishing etc.  of  the proposed three storeyed building,  the  plaintiff  shall  also  pay  a  sum  of  Rs.  3,71,000/-  to  the  defendants  at  the  time  of  handing  over  possession  of  the  above house for reconstruction.

e) Out of the agreed consideration of Rs.3,71,000/-, a sum of  Rs.51,000/-   was  paid  to  the  defendants  in  cash  and  the  remaining consideration of Rs.3,20,000/-  was to be paid to  the defendants at the time of handing over possession of the  above  house  for  reconstruction.  In  token  of  the  same  a  Receipt  for  Rs.51,000/-  was  duly  executed  by  defendant  No.1.

f) On getting conversion of the above property from leasehold  to  freehold,  the  above  agreement/proposed  collaboration  of  the property bearing No. A-1/365, Paschim Vihar, New Delhi  and the above terms and conditions were to be reduced into  writing vide an appropriate Memorandum Of Understanding  to  be  duly  executed  by  the  parties  i.e.  the  builder  and the  owners of the above property.”

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The appellant further alleged that in pursuance of the above, he paid a sum  

of Rs.51,000/- to first respondent in the presence of second respondent and  

two  witnesses  (Sanjay  Kumar  Puri  and  M.R.Arora)  and  that  the  first  

respondent executed the following receipt acknowledging the payment:  

“RECEIPT/PART PAYMENT

Received a sum of Rs.51,000/- (Fifty one thousand only) By Cash/Cheque Cash From Sh. Vinod Seth S/o Sh. Sohan Seth R/o M-231 First Floor,  Guru Harikishan Nagar

           Against Collaboration of Property No. A-1/365 Paschim Vihar

Signature (Devinder Bajaj)/10-6-04

3. The appellant alleged that the respondents failed to comply with the  

agreement and lingered over the matter on one pretext or the other; that the  

appellant came to know subsequently that the property stood in the name of  

the second respondent and not the first respondent; and that the appellant  

therefore  issued  a  notice  dated  9.3.2007 calling  upon the  respondents  to  

comply with the legal formalities to facilitate the collaboration agreement.  

Alleging  that  respondents  failed  to  comply,  the  appellant  filed  a  suit  on  

30.6.2007 for specific performance. We extract below the relevant portion of  

the prayer:  

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“……to  pass  a  decree  of  specific  performance  of  Collaboration  Agreement  entered in  between  the  parties  on 10-6-2004,  as  per  its  terms  and  conditions  in  favour  of  plaintiff  and  against  defendants  specifying that :

a) the defendants to apply immediately with the DDA for conversion  of the above property from leasehold to freehold and immediately  after  such  conversion,  the  defendants  will  handover  vacant  physical  possession  of  the  suit  property  i.e.  House  No.A-1/365  Paschim Vihar Delhi to the plaintiff.

b) that the defendants to immediately apply by submitting building  plan as per Annexure P-3 with the Authorities for sanction of the  building plan.

c) the plaintiff will reconstruct the above property as three storeyed  building  as  per  site/building  plan  from  his  own  money/funds  within one year of handing over of possession by the defendants to  the  plaintiff  and  sanctioning  of  the  building  plan  of  the  suit  property.

d) out of the said reconstructed three storeyed building the plaintiff  shall be entitled to own and possess its ground floor only, and the  first  and  second  floors  will  be  owned  and  possessed  by  the  defendants.

e) besides to bear the expenses of construction etc. of the proposed 3  storeyed complete building, the plaintiff shall also pay a sum of  Rs.3,20,000/-  to  the  defendants  at  the  time  of  handing  over  possession of the above house for reconstruction.

f) the defendants will not transfer the title or possession of the suit  property till execution of the collaboration Agreement but after its  execution, the defendants would be within their full rights to enjoy  lawfully the title and possession of the first floor and second floor  of the building.

g) the plaintiff will be fully entitled for the full title and possession of  the ground floor of the building and the defendants would be left  with no right, title or interest in the property of the ground floor of  the building, however, he would not be entitled for any exclusive  rights in the property of ground floor till the first and second floor  of the building are duly constructed, as per the specifications and  quality  as  that  of  the  ground  floor,  and  handed  over  to  the  defendants.

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4. The respondents contested the said suit and filed a written statement  

denying the claim in toto.  When the case came up for framing issues,  a  

learned Single Judge of the High Court on perusal of the pleadings passed an  

interim order dated 2.12.2008, relevant portion of which is extracted below :  

“The  agreement  of  such  a  nature,  in  common  parlance  known  as  collaboration  agreement,  requires  detailed  terms  and  conditions  to  be  settled between the parties as to the quality of construction, time period,  alternate accommodation, sharing of the expenses and space in the newly  constructed  building,  etc.  and  ordinarily  specific  performance  of  such   agreements is difficult for the Court to supervise. In the present case all   the terms of the agreement will have to be established by evidence, there   being no document recording the same.

The plaintiff instituted the suit without any application for interim relief  and notice was issued of the suit by the Joint Registrar and the suit has  come up before the Court for the first time.

The suit being with respect to an immovable property, even in the absence  of  any  interim  order  restraining  the  defendants  from dealing  with  the  property,  attracts  Section  52  of  the  Transfer  of  Property  Act  and  the   pendency  of  the  suit  itself  has  a  tendency  of  interference  with  the   defendants’ dealing with their own property and if at all the defendants   are compelled to deal with the same, the defendants are likely to realize   much less than the market value of the property, owing to the pendency of   the said suit.

Prima facie, the likelihood of the plaintiff succeeding in the suit appears to  be  remote.  Such  agreements  are  not  concluded  and  enforceable  till  detailed  writing  as  aforesaid  is  executed.  Even  if  the  averment  of  the  plaintiff of having paid Rs. 51,000/- to the defendants is established, the  same would still not establish a concluded enforceable agreement. The suit  cannot be dismissed at the threshold. The counsel for the plaintiff has also  contended that in law it is permissible to have such an oral agreement.  However, the defendants are likely to suffer considerably merely owing to  the pendency of the present suit. While nearly nothing of the plaintiff is at   stake  in  pursuing  the  present  suit,  the defendants  as  aforesaid  will  be  losers even if ultimately succeed. Courts cannot be silent spectators to the   parties  being  put  on  such  unequal  footing. The  remedy  of  defendants  suing the plaintiffs for damages caused to them, after succeeding in the  present  suit  is  not  efficacious.  Affluent  speculators  in  immovable   

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properties  cannot  be  permitted  to  misuse  the  process  of  the  court  to   compel owners to transact with them only. In the circumstances,  it  is  deemed  expedient  to  direct  the  plaintiff  to  file  an  affidavit/undertaking to this Court to, in the event of not succeeding  in  the  suit  pay  a  sum  of  Rs.  25  lacs  by  way  of  damages  to  the  defendants. If the plaintiff is reasonably confident of the genuineness of  his  case,  the  plaintiff  ought  not  to  suffer  any  harm  by  giving  such  undertaking.  The  said  amount  has  been  arrived  at  because  of  the  averments  in  the  plaint  that  the  plaintiff  was  to  spend  Rs.  20  lacs  in  development of the property and in lieu thereof was to become the owner  of the ground floor of the newly constructed property.

The plaintiff to file the affidavit in terms of above within four weeks from  today. List on 27th January, 2009 for framing of issues.”

(emphasis supplied)

5. The appellant filed an intra-court appeal contending that every person  

has an inherent right to bring a suit of civil nature and there was no provision  

in  law  which  enabled  the  Trial  Court  to  impose  such  a  condition  on  a  

plaintiff requiring an undertaking to pay Rs.25 lakhs by way of damages to  

defendants in the event of failing in the suit. He relied upon the following  

observations of this Court in Abdul Gafur v. State of Uttarakhand [2008 (10)  

SCC 97] :  

“Section 9 of the Code provides that the civil court shall have jurisdiction  to  try  all  suits  of  a  civil  nature  excepting  the  suits  of  which  their  cognizance is either expressly or impliedly barred. To put it differently, as  per Section 9 of the Code, in all types of civil disputes, the civil courts  have inherent jurisdiction unless a part of that jurisdiction is carved out  from  such  jurisdiction,  expressly  or  by  necessary  implication  by  any  statutory provision and conferred on other tribunal or authority. Thus, the  law confers on every person an inherent right to bring a suit of civil nature  of  one’s  choice,  at  one’s peril,  howsoever  frivolous the claim may be,  unless  it  is  barred  by  a  statute.”   (vide  Abdul  Gafur  v.  State  of   Uttarakhand [2008 (10) SCC 97].  In Ganga Bai v. Vijay Kumar [1974 (2)  

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SCC 393] this Court had observed as under: “…… There is an inherent  right in every person to bring a suit of a civil nature and unless the suit is  barred by statute one may, at one’s peril, bring a suit of one’s choice. It is  no answer to a suit, howsoever frivolous to claim, that the law confers no  such right to sue. A suit, for its maintainability requires no authority of  law and it is enough that no statute bars the suit.”  

6. The Division Bench dismissed the appeal by the appellant,  holding  

that the order of the learned Single Judge did not in any way contravene the  

said decision, on the following reasoning:

“We see no contradiction  in  the aforesaid  judgment  and the  impugned  order. The learned Single Judge has not dismissed the suit. We also note  the observations of the Supreme Court that even a frivolous suit can be  bought before the court “at one’s peril”. All that the learned Single Judge  has done at the stage of framing of issues, having prima facie found not  much  merit  in  the  case  of  the  appellant,  considered  it  appropriate  to  impose certain terms and conditions.

We may notice that the provisions of Order 39 of the said Code deals with  temporary  injunctions  and  interlocutory  orders.  Order  39  Rule  2(2)  authorizes the court  to grant injunction on such terms as deems proper  including giving of security. Thus, when the prayer for interim relief has  to be granted, provision has been specifically made authorizing the court  to make orders for keeping accounts, giving security or otherwise as the  court thinks fit.

The appellant has conveniently not filed an interim application to avoid  the rigour of such an order. Normally in a suit for specific performance  and  that  too  dealing  with  an  immovable  property,  a  party  would  seek  interim  protection.  The  appellant  has  not  done  so.  It  is  an  ingenious  method of keeping a suit alive without claiming interlocutory relief and  creating a cloud over a property in view of the provisions of Section 52 of  Transfer of Property Act.

We do think that  the courts  cannot look helplessly at  such tactics and  ignore the problem of huge docket, which arises on account of meritless   claims being filed.  The heavy docket does not permit  early disposal of   suits  and thus  parties  may take  advantage  of  keeping  frivolous  claims  alive.  We also cannot  ignore the ground realities  of  the market  which   would persuade third parties to eschew dealing with such a property over   

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which there is a cloud during the pendency of the suit. It is this cloud of   which the appellant can take advantage of to extract some money in case   the relief is frivolous.  

We also find that the appellant really cannot have any grievance since  a condition has not been imposed to deposit any amount which would  make the appellant be out of pocket. The condition is of a much lesser  level of only an undertaking to compensate the respondent in case of  failure in the suit and as the learned Single Judge has rightly observed  that a party coming to court should reasonably be confident of the  genuineness of its case. The figure of Rs. 20 lakhs is based on the claim  of the appellant as noticed by learned Single Judge. We may also add that  Order XXV Rule 1 of the CPC gives power to the Court including suo  moto  power  for  the  plaintiff  to  give  security  for  payment  of  all  costs  incurred and likely to be incurred by the defendant. However, reasons for  such an order are to be recorded. The costs include not only what is spent  in the litigation but also the effect of the continuation of the suit on the  plaintiff and, thus, as per the impugned order, for reasons recorded, the  learned Single Judge has passed the order.

We find that the course adopted by the learned Single Judge is not  without sanction of law and there is merit in this approach looking to  the ground realities mentioned aforesaid.”

(emphasis supplied)

7. The appellant  has challenged the said decision in this  appeal.  This  

Court  directed  notice  on  2.4.2009  on the  special  leave  petition  with  the  

following observations :  

“Though  the  order  appears  to  be  a  just  order,  as  it  involves  a  serious question of law, we direct issuance of notice returnable in  four weeks.

We however make it clear that there will be no order of stay in  regard to the decision of the learned Single Judge affirmed by the  division bench and if the petitioner fails to give an undertaking as  ordered, he will not have the benefit of section 52 of Transfer of  Property Act.”  

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The  respondents  have  remained  ex  parte.  On  the  submissions  of  the  

appellant, the following question arises for our consideration :  

(i) Whether a court has the power to pass an order directing a plaintiff in  

a suit for specific performance (or any other suit), to file an undertaking that  

in the event of not succeeding in the suit, he shall pay Rs.25 lakhs (or any  

other sum) by way of damages to the defendant?

8. We are broadly in agreement with the High Court that on the material  

presently  on record,  the  likelihood of  appellant  succeeding in the suit  or  

securing any interim relief  against the defendants is remote. We may briefly  

set out the reasons therefor.  

8.1) It is doubtful whether the collaboration agreement, as alleged by the  

appellant,  is  specifically  enforceable,  having  regard  to  the  prohibition  

contained in section 14(1) (b) and (d) of the Specific Relief Act, 1963. The  

agreement  propounded  by  the  appellant  is  not  an  usual  agreement  for  

sale/transfer, where the contract is enforceable and if the defendant fails to  

comply with  the  decree  for specific  performance,  the  court  can have the  

contract  performed  by  appointing  a  person  to  execute  the  deed  of  

sale/transfer under Order XXI Rule 32(5) of the Code of Civil Procedure  

(‘Code’ for short). The agreement alleged by the appellant is termed by him  

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as a commercial  collaboration agreement for development of a residential  

property of the respondents. Under the alleged agreement, the obligations of  

the respondents are limited, that is, to apply to DDA for conversion of the  

property from leasehold to freehold, to submit the construction plan to the  

concerned authority for sanction, and to deliver vacant possession of the suit  

property  to  the  appellant  for  development.  But  the  appellant/plaintiff  has  

several  obligations  to  perform when the property  is  delivered,  that  is,  to  

demolish the existing building, to construct a three-storeyed building within  

one year in accordance with the agreed plan, deliver the first and second  

floors  to  the  respondents  and  also  pay  a  token  cash  consideration  of  

Rs.3,71,000/-.  The  performance  of  these  obligations  by  appellant  is  

dependant upon his personal qualifications and volition. If the court should  

decree the suit as prayed by the appellant (the detailed prayer is extracted in  

para  3  above)  and  direct  specific  performance  of  the  “collaboration  

agreement” by respondents, it will not be practical or possible for the court  

to ensure that the appellant will perform his part of the obligations, that is  

demolish the existing structure, construct a three-storeyed building as per the  

agreed specifications within one year, and deliver free of cost, the two upper  

floors  to  the  respondents.  Certain  other  questions  also  will  arise  for  

consideration.  What  will  happen if  DDA refuses  to  convert  the  property  

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from leasehold to freehold? What will happen if the construction plan is not  

sanctioned in the manner said to have been agreed between the parties and  

the respondents are not agreeable for any other plans of construction? Who  

will  decide  the  specifications  and  who  will  ensure  the  quality  of  the  

construction  by  the  appellant?  The  alleged  agreement  being  vague  and  

incomplete,  require  consensus,  decisions  or  further  agreement  on  several  

minute details. It would also involve performance of a continuous duty by  

the appellant which the court will not be able to supervise. The performance  

of the obligations of a developer/builder  under a collaboration agreement  

cannot be compared to the statutory liability of a landlord to reconstruct and  

deliver a shop premises to a tenant under a rent control legislation, which is  

enforceable under the statutory provisions of the special law. A collaboration  

agreement of the nature alleged by the appellant is not one that could be  

specifically enforced. Further, as the appellant has not made an alternative  

prayer for compensation for breach, there is also a bar in regard to award of  

any compensation under section 21 of the Specific Relief Act.   

8.2) The  appellant  claims to  be  a  builder  and real  estate  dealer.  If  the  

appellant  entered  into  a  collaboration  agreement  orally  with  numerous  

details as set out in the plaint (extracted in Para (2) above) and could secure  

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a receipt in writing for Rs.51,000/-, nothing prevented him from reducing  

the  said  terms  of  the  alleged  collaboration  agreement  in  the  form of  an  

agreement  or  Memorandum  of  Understanding  and have  it  signed  by  the  

owners of the property.  No reason is forthcoming as to why that was not  

done.  

8.3 The  property  stands  in  the  name of  second respondent  (Defendant  

No.2), but she did not sign the receipt. There is nothing to show that the  

second respondent participated in the alleged negotiations or authorized her  

husband-the first  respondent to enter  into any collaboration agreement  in  

respect of the suit property. The receipt is not signed by the first respondent  

as Attorney Holder or as the authorized representative of the owner of the  

property. From the plaint averments it is evident that appellant did not even  

know  who  the  owner  was,  at  the  time  of  the  alleged  negotiations  and  

erroneously assumed that first respondent was the owner.  The execution of  

a receipt for Rs.51,000/- by the first respondent even if proved, may at best  

make out a tentative token payment pending negotiations and finalization of  

the terms of an agreement for development of the property.

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8.4) The agreement is alleged to have been entered on 10.6.2004. But the  

plaintiff issued the first notice calling upon defendants to perform, only on  

9.3.2007 and filed the suit on 30.6.2007. There was no correspondence or  

demand  for  performance,  in  writing,  prior  to  9.3.2007,  even  though  the  

alleged agreement was a commercial transaction.  

9. We also agree with the High Court that having regard to the doctrine  

of lis pendens embodied in section 52 of the Transfer of Property Act, 1882  

(‘TP Act’ for short), the pendency of the suit by the appellant shackled the  

suit property, affected the valuable right of the second defendant to deal with  

the property in the manner she deems fit, and restricted her freedom to sell  

the property and secure a fair market price from a buyer of her choice. When  

a suit for specific performance is filed alleging an oral agreement without  

seeking any interim relief, the defendant will not even have an opportunity  

to seek a prima facie finding on the validity of the claim. Filing such a suit is  

an ingenious way of creating a cloud over the title to the suit property. Such  

a suit, filed in the Delhi High Court, is likely to be pending for a decade or  

more. Even if a defendant-owner asserts that his property is not subject to  

any  agreement  and the  said  assertion  is  ultimately  found to  be  true,  his  

freedom to deal with the property as he likes or to realize its true market  

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value by sale or transfer is adversely affected during the pendency of the  

suit. The ground reality is that no third party would deal with a property in  

regard to which a suit for specific performance is pending. This enables an  

unscrupulous plaintiff  to cajole and persuade a defendant  to sell/give  the  

property on plaintiff’s terms, or force the defendant to agree for some kind  

of settlement. It is these circumstances which persuaded the High Court to  

find  some way  to  do  justice,  leading  to  the  impugned direction.  Having  

broadly agreed with the High Court in regard to the factual position and the  

adverse consequences of the suit,  the question that remains is whether in  

such a situation, the High Court could have issued the impugned interim  

direction.  

10. Every  person  has  a  right  to  approach  a  court  of  law  if  he  has  a  

grievance for which law provides a remedy. Certain safeguards are built into  

the  Code  to  prevent  and  discourage  frivolous,  speculative  and  vexatious  

suits. Section 35 of the Code provides for levy of costs. Section 35A of the  

Code provides  for  levy of  compensatory costs  in respect  of  any false  or  

vexatious  claim.  Order  7  Rule  11  of  the  Code  provides  for  rejection  of  

plaint, if the plaint does not disclose a cause of action or is barred by any  

law. Order 14 Rule 2 of the Code enables the court to dispose of a suit by  

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hearing any issue of law relating to jurisdiction or bar created by any law, as  

a preliminary issue. Even if a case has to be decided on all issues, the court  

has the inherent power to expedite the trial/hearing in appropriate cases, if it  

is of the view that either party is abusing the process of court or that the suit  

is  vexatious.  The court  can secure the evidence (examination-in-chief)  of  

witnesses by way of affidavits and where necessary, appoint a commissioner  

for  recording  the  cross  examination  so  that  it  can  dispose  of  the  suit  

expeditiously.  The court  can punish  an erring plaintiff  adopting delaying  

tactics, by levying costs under Section 35B or taking action under Order 17  

Rules 2 and 3 of the Code. Apart from recourse to these provisions in the  

Code, an aggrieved defendant can also sue the plaintiff for damages, if the  

suit is found to be based on a forged or false document, or if the suit was  

vexatious or frivolous.

11. There are also two other significant provisions in the Code having a  

bearing on the issue. We may refer to them :  

11.1)  Section 95  provides  that  where  in  any  suit  in  which an  arrest  or  

attachment has been affected or a temporary injunction granted, the suit of  

the plaintiff ultimately fails and it appears to the court  that there was no  

reasonable  or  probable ground for instituting the suit,  and the court  may  

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upon  an  application  by  the  defendant,  award  against  the  plaintiff,  such  

amount not exceeding Rs.50,000/- as it deems a reasonable compensation to  

the defendant for the expense or injury caused to him. It further provides that  

an  order  determining  any  such  application  shall  bar  any  suit  for  

compensation in respect of such arrest,  attachment or injunction. In other  

words, if  a suit  is  field without sufficient  grounds and in such a suit  the  

plaintiff  obtains  an  interim  order  of  arrest,  attachment  or  temporary  

injunction, the court can grant compensation up to Rs. 50,000 on application  

by the defendant. Three things are implicit from this provision. The first is,  

if no interim order (of arrest, attachment or injunction) is obtained by the  

plaintiff, the court cannot grant any compensation to defendant. The second  

is that the compensation awardable by the court cannot exceed Rs.50,000/.  

The third is  that  if  a plaintiff  does not  secure an interim order of arrest,  

attachment or temporary injunction but merely files a suit on insufficient or  

false  grounds  the  remedy  of  the  defendant,  if  the  defendant  wants  any  

compensation (other than costs and exemplary costs under Section 35 and  

35A of the Code), he has to file a separate suit.  

11.2) Order XXV Rule 1 of Code provides that at any stage of a suit, the  

court may either on its own motion or on the application of any defendant  

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order  the  plaintiff  for  reasons  to  be  recorded,  to  give  security  for  the  

payment of all costs incurred or likely to be incurred by the defendant.

12. But the Code, nowhere authorizes or empowers the court to issue a  

direction to a plaintiff to file an undertaking to pay damages to the defendant  

in  the  event  of  being  unsuccessful  in  the  suit.  The  Code  also  does  not  

contain  any  provision  to  assess  the  damages  payable  by  a  plaintiff  to  

defendant, when the plaintiff’s suit is still pending, without any application  

by  defendant,  and  without  a  finding  of  any  breach  or  wrongful  act  and  

without an inquiry into the quantum of damages. There is also no contract  

between the parties which requires the appellant to furnish such undertaking.  

None of the provisions of either TP Act or Specific Relief Act or any other  

substantive  law enables  the  court  to  issue such an interim direction  to  a  

plaintiff  to  furnish an undertaking to pay damages.  In  the  absence of  an  

enabling provision in the contract or in the Code or in any substantive laws a  

court trying a civil suit, has no power or jurisdiction to direct the plaintiff, to  

file an affidavit undertaking to pay any specified sum to the defendant, by  

way of damages, if the plaintiff does not succeed in the suit. In short, law  

does  not  contemplate  a  plaintiff  indemnifying a  defendant  for  all  or  any  

losses sustained by the defendant on account of the litigation, by giving an  

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undertaking at the time of filing a suit or before trial, to pay damages to the  

defendants in the event of not succeeding in the case.

13. We will next examine whether the power to make such an order can  

be traced to Section 151 of the Code, which reads: “Nothing in this Code  

shall be deemed to limit or otherwise affect the inherent power of the court  

to make such orders as may be necessary for the ends of justice or to prevent  

abuse of the process of the court.” As the provisions of the Code are not  

exhaustive, section 151 is intended to apply where the Code does not cover  

any particular procedural aspect, and interests of justice require the exercise  

of power to cover a particular situation. Section 151 is not a provision of law  

conferring power to grant any kind of substantive relief. It is a procedural  

provision saving the inherent power of the court to make such orders as may  

be necessary for the ends of justice and to prevent abuse of the process of the  

court. It cannot be invoked with reference to a matter which is covered by a  

specific provision in the Code. It cannot be exercised in conflict with the  

general scheme and intent of the Code. It cannot be used either to create or  

recognize rights, or to create liabilities and obligations not contemplated by  

any law.  

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13.1) Considering the scope of Section 151, in Padam Sen v. State of Uttar   

Pradesh (AIR 1961 SC 218), this Court observed:

“The inherent powers of the court are in addition to the powers  specifically  conferred  on  the  court  by  the  Code.  They  are  complementary to those powers and therefore it must be held that  the court is free to exercise them for the purposes mentioned in   S.151 of the Code when the exercise of those powers is not in any   way in conflict with what has been expressly provided in the Code   or against the intentions of the Legislature.”

xxx     xxx     xxx

The inherent powers saved by S.151 of the Code are with respect  to the procedure to be followed by the Court in deciding the cause  before it. These powers are not powers over the substantive rights   which any litigant possesses. Specific powers have to be conferred  on  the  courts  for  passing  such orders  which would  affect  such   rights of a party.”

(emphasis supplied)

13.2) In Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal – AIR  

1962 SC 527, this court held :  

“…..that the inherent powers are not in any way controlled by the  provisions  of  the  Code as  has  been specifically  stated  in  S.151  itself.  But  those  powers  are  not  to  be  exercised  when  their  exercised  may  be  in  conflict  with  what  had  been  expressly  provided in the Code or against the intentions of the legislature.”  

13.3) In Ram Chand and Sons Sugar Mills Pvt. Ltd.v. Kanhayalal Bhargav   

-   AIR 1966 SC 1899 this court reiterated that the inherent power of the  

court is in addition to and complementary to the powers expressly conferred  

under  the  Code  but  that  power  will  not  be  exercised  if  its  exercise  is  

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inconsistent with, or comes into conflict with any of the powers expressly or  

by  necessary  implication  conferred  by  the  other  provisions  of  the  Code.  

Section 151 however is not intended to create a new procedure or any new  

right or obligation.  In  Nainsingh v. Koonwarjee – AIR 1970 SC 997, this  

Court observed:

“Under the inherent power of Courts recognized by Section 151 CPC,  a  Court  has  no power  to do that  which is  prohibited by the  Code.  Inherent jurisdiction of the Court must be exercised subject to the rule  that if the Code does contain specific provisions which would meet the  necessities  of  the  case,  such  provisions  should  be  followed  and  inherent jurisdiction should not be invoked. In other words the court  cannot make use of the special provisions of Section 151 of the Code  where a party had his remedy provided elsewhere in the Code….”

13.4) A  suit  or  proceeding  initiated  in  accordance  with  law,  cannot  be  

considered as an abuse of the process of court, only on the ground that such  

suit  or  proceeding  is  likely  to  cause  hardship  or  is  likely  to  be  rejected  

ultimately.  As there are specific provisions in the Code, relating to costs,  

security for costs and damages, the court cannot invoke Section 151 on the  

ground that the same is necessary for ends of justice. Therefore, we are of  

the view that a court trying a civil suit, cannot, in exercise of inherent power  

under section 151 of the Code, make an interim order directing the plaintiff  

to file an undertaking that he will pay a sum directed by the court to the  

defendant as damages in case he fails in the suit.

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14. The direction to the plaintiff to furnish an undertaking to pay Rs.25  

lakhs to defendants in the event of losing the case, is an order in terrorem. It  

is made not because the plaintiff committed any default, nor because he tried  

to delay the proceedings, nor because he filed any frivolous applications, but  

because the court is unable to find the time to decide the case in view of the  

huge pendency. (The division bench has supported the order of the learned  

Single Judge on the ground that ‘the heavy docket  does not permit  early  

disposal of suits and thus parties may take advantage of keeping frivolous  

claims alive’). Such an order, punishing a litigant for approaching the court,  

on the ground that the court  is not able to decide the case expeditiously,  is  

unwarranted,  unauthorized  and beyond  the  power  and jurisdiction  of  the  

court  in  a  civil  suit  governed by the  Code.  Such orders  are  likely  to  be  

branded as judicial highhandedness, or worse, judicial vigilantism.  

15. We appreciate  the anxiety  shown by the High Court  to discourage  

land-grabbers,  speculators,  false  claimants  and  adventurers  in  real  estate  

from pressurizing hapless and innocent property owners to part with their  

property  against  their  will,  by  filing  suits  which  are  vexatious,  false  or  

frivolous. But we cannot approve the method adopted by the High Court  

which is wholly outside law. In a suit governed by the Code, no court can,  

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merely because it considers it just and equitable, issue directions which are  

contrary to or not authorized by law. Courts will do well to keep in mind the  

warning  given  by  Benjamin  N.  Cardozo  in  The  Nature  of  the  Judicial   

Process : (Yale University Press -1921 Edition Page 114) :

“The Judge even when he is free, is still  not wholly free. He is not to  innovate at pleasure. He is not a knight-errant roaming at will in pursuit of  his own ideal of beauty or of goodness. He is to draw his inspiration from  consecrated principles. He is not to yield to spasmodic sentiment, to vague  and unregulated benevolence. He is to exercise a discretion informed by  tradition, methodized by analogy, disciplined by system, and subordinated  to “the primordial necessity of order in social life”.

The High Court can certainly innovate, to discipline those whom it considers  

to be adventurers in litigation, but it has to do so within the four corners of  

law.  

16. This  case  reminds  us  of  the  adage:  “Hard  cases  make  bad  law”.  

Black’s Law Dictionary defines a ‘hard case’ thus : “A law suit involving  

equities that tempt a judge to stretch or even disregard a principle of law at  

issue --- hence the expression “Hard cases make bad law”. Justice Holmes  

explained  and  extended  the  adage  thus  :  (See  his  dissenting  opinion  in  

Northern Securities Co. v. United States 193 (1903) US 197) :  

“Great  cases, like hard cases make bad law. For great cases are called  great,  not by reason of their  real importance in shaping the law of the  future, but because of some accident of immediate overwhelming interest  which appeals to the feelings and distorts the judgment. These immediate  interests  exercise  a  kind  of  hydraulic  pressure  which  makes  what  

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previously was clear seem doubtful, and before which even well settled  principles of law will bend.”

This  is  certainly  a  hard case.  The High Court  should have resisted from  

laying down a ‘bad law’, which will be treated as a precedent and will result  

in similar directions by courts, wherever they feel that suits are not likely to  

succeed. It would encourage, in fact even force, the losing party to file an  

appeal or further appeal against the final decision in the suit. This is because  

no plaintiff  would like to undertake to pay a large sum as damages,  nor  

would a defendant like to miss a chance to receive a large sum as damages.  

Such orders would also tempt and instigate both the parties to make attempts  

to succeed in the suit by hook or crook, by adopting means fair or foul. If  

litigants are to be subjected to such directions in terrorem, the litigant public  

will  be  dissuaded  from approaching  courts,  even  in  regard  to  bona  fide  

claims. Such orders may lead to gradual loss of faith in the judiciary and  

force  litigants  to  think  of  extra-judicial  remedies  by  seeking  the  help  of  

underworld elements or police to settle/enforce their claims thereby leading  

to break-down of rule of law. No order or direction of the High Court, even  

if it  is intended to deter vexatious and frivolous litigation, should lead to  

obstruction of access to courts.  

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17. We may also examine the matter from another angle. Can the court  

insist  upon  the  plaintiff  to  give  an  undertaking  to  pay  compensation  to  

defendant on the event of dismissal of the suit, irrespective of the reasons for  

the dismissal of the suit?  If the plaintiff furnishes such an undertaking and  

proceeds with the suit and is able to establish the oral agreement as pleaded  

by him, but the court dismisses the suit either because it holds that the prayer  

is  barred  under  section  14(1)(b)  and  (d)  of  the  Specific  Relief  Act,  or  

because it decides not to exercise discretion to grant specific performance  

under section 20(2) of the Specific Relief Act, should the plaintiff be made  

liable to pay Rs.25 lakhs as compensation to the defendants?  

18. The attempt of the Division Bench to support the order of the learned  

Single Judge with reference to Order XXV Rule 1 of the Code is clearly  

erroneous. The said provision, as noticed above, only enables the court to  

require  the  plaintiff  to  furnish  security  for  payment  of  costs  incurred  or  

likely to be incurred by the defendant.  

19. If the High Court felt that the prayer in the suit was vexatious or not  

maintainable, it could have considered whether it could reject the suit under  

Order 7 Rule 11 of the Code holding that the plaint  did not disclose the  

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cause of action for grant of the relief sought or that the prayer was barred by  

section 14(1)(b) and (d) of the Specific Relief Act. Alternatively, the court  

could have framed issues and heard the issue relating to maintainability as a  

preliminary issue and dismiss the suit if it was of the view that it had no  

jurisdiction  to  grant  specific  performance  as  sought,  in  view  of  the  bar  

contained in section 14(1)(b) and (d) of the Specific Relief Act. If it was of  

the  prima  facie  view  that  the  suit  was  a  vexatious  one,  it  could  have  

expedited  the  trial  and  dismissed  the  suit  by  awarding  appropriate  costs  

under section 35 of the Code and compensatory costs under section 35A of  

the Code.  Be that as it may.  

20. Having found that the direction of the High Court is unsustainable, let  

us next examine whether we can give any relief to defendants within the four  

corners  of  law.  The  reason  for  the  High  Court  directing  the  plaintiff  to  

furnish an undertaking to pay damages in the event of failure in the suit, is  

that  Section 52  of  the  Transfer  of  Property  Act  would  apply  to  the  suit  

property and the pendency of the suit interfered with the defendant’s right to  

enjoy or deal with the property. Section 52 of TP Act provides that during  

the  pendency in  any court  of  any suit  in  which any right  to  immovable  

property  is  directly  and  specifically  in  question,  the  property  cannot  be  

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transferred or otherwise dealt with by any party to the suit or proceedings so  

as to affect the rights of any other party thereto under any decree or order  

which may be made therein except under the authority of the court and on  

such terms as it may impose. The said section incorporates the well-known  

principle of  lis pendens  which was enunciated in  Bellamy v. Sabine [1857  

(1) De G & J 566] :

“It is, as I think, a doctrine common to the Courts both of Law and Equity,  and rests, as I apprehend, upon this foundation – that it would plainly be  impossible  that  any  action  or  suit  could  be  brought  to  a  successful  termination,  if  alienations  pendente  lite were  permitted  to  prevail.  The  plaintiff would be liable in every case to be defeated by the defendant’s  alienating  before  the  judgment  or  decree,  and  would  be  driven  to  commence his proceedings  de novo, subject again to be defeated by the  same course of proceeding.”   

It  is  well-settled  that  the  doctrine  of  lis  pendens does  not  annul  the  

conveyance by a party to the suit, but only renders it subservient to the rights  

of the other parties to the litigation. Section 52 will not therefore render a  

transaction relating to the suit property during the pendency of the suit void  

but render the transfer inoperative insofar as the other parties to the suit.  

Transfer of any right, title or interest in the suit property or the consequential  

acquisition of any right, title or interest, during the pendency of the suit will  

be subject to the decision in the suit.  

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21. The principle underlying section 52 of TP Act is based on justice and  

equity.  The operation of the bar under section 52 is however subject to the  

power of the court to exempt the suit property from the operation of section  

52 subject to such conditions it may impose. That means that the court in  

which the suit is pending, has the power, in appropriate cases, to permit a  

party to transfer the property which is the subject-matter of the suit without  

being subjected to the rights of any part to the suit, by imposing such terms  

as it deems fit. Having regard to the facts and circumstances, we are of the  

view that this is a fit case where the suit property should be exempted from  

the operation of Section 52 of the TP Act, subject to a condition relating to  

reasonable security, so that the defendants will have the liberty to deal with  

the property in any manner they may deem fit, inspite of the pendency of the  

suit. The appellant-plaintiff has alleged that he is a builder and real estate  

dealer. It is admitted by him that he has entered into the transaction as a  

commercial collaboration agreement for business benefits. The appellant has  

further  stated  in  the  plaint,  that  under  the  collaboration  agreement,  he  is  

required  to  invest  Rs.  20  lakhs  in  all,  made  up  of  Rs.16,29,000/-  for  

construction and Rs.3,71,000/- as cash consideration and that in lieu of it he  

will be entitled to ground floor of the new building to be constructed by him  

at his own cost. Treating it as a business venture, a reasonable profit from  

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such  a  venture  can  be  taken  as  15% of  the  investment  proposed,  which  

works  out  to  Rs.3  lakhs.  Therefore  it  would  be  sufficient  to  direct  the  

respondents to furnish security for a sum of Rs. 3 lakhs to the satisfaction of  

the court (learned Single Judge) as a condition for permitting the defendants  

to deal with the property during the pendency of the suit, under Section 52 of  

the TP Act.  

The need for reform :

22. Before concluding, it is necessary to notice the reason why the High  

Court was trying to find some way to protect the interests of defendants,  

when it felt that they were being harassed by plaintiff. It made the impugned  

order because it felt that in the absence of stringent and effective provision  

for costs, on the dismissal of the suit, it would not be able to compensate the  

defendants for the losses/hardship suffered by them, by imposing costs. If  

there was an effective provision for levy of realistic costs against the losing  

party, with reference to the conduct of such party, the High Court, in all  

probability would not have ventured upon the procedure it  adopted.  This  

draws attention to the absence of an effective  provision for costs which has  

led to mushrooming of vexatious, frivolous and speculative civil litigation.  

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23. The principle  underlying levy of  costs  was explained in  Manindra  

Chandra Nandi v. Aswini Kumar Acharaya – ILR (1921) 48 Cal. 427 thus:  

“We must remember that whatever the origin of costs might have been,  they are now awarded, not as a punishment of the defeated party but as a  recompense to the successful party for the expenses to which he had been  subjected, or, as Lord Coke puts it, for whatever appears to the Court to be  the  legal  expenses  incurred by the  party  in  prosecuting  his  suit  or  his  defence. * * * * The theory on which costs are now awarded to a plaintiff  is that default of the defendant made it  necessary to sue him, and to a  defendant is that the plaintiff sued him without cause; costs are thus in the  nature  of  incidental  damages  allowed to  indemnify  a  party  against  the  expense of successfully vindicating his rights in court and consequently  the party to blame pays costs to the party without fault. These principles  apply, not merely in the award of costs, but also in the award of extra  allowance or special  costs.  Courts  are  authorized to allow such special  allowances,  not  to  inflict  a  penalty  on  the  un-successful  party,  but  to  indemnify  the  successful  litigant  for  actual  expenses  necessarily  or  reasonably incurred in what are designated as important cases or difficult  and extraordinary cases.”

In  Salem Advocate Bar Association v. Union of India [2005 (6) SCC 344]  

this after noticing that the award of costs is in the discretion of the court and  

that there is no upper limit in respect of the costs awardable under Section  

35 of the Code, observed thus:  

“Judicial notice can be taken of the fact that many unscrupulous parties  take advantage of the fact that either the costs are not awarded or nominal  costs  are  awarded against  the  unsuccessful  party.  Unfortunately,  it  has  become a  practice  to  direct  parties  to  bear  their  own costs.  In  a  large  number of cases, such an order is passed despite Section 35 (2) of the  Code. Such a practice also encourages the filing of frivolous suits. It also  leads to the taking up of frivolous defences. Further, wherever costs are  awarded,  ordinarily  the  same  are  not  realistic  and  are  nominal.  When  Section 35(2) provides for cost to follow the event, it is implicit that the  costs have to be those which are reasonably incurred by a successful party  except in those cases where the court in its discretion may direct otherwise  by recording reasons therefor. The costs have to be actual reasonable costs  including  the  cost  of  the  time  spent  by  the  successful  party,  the  

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transportation and lodging, if any, or any other incidental costs besides the  payment of the court fee, lawyer’s fee, typing and other costs in relation to  the  litigation.  It  is  for  the  High  Courts  to  examine  these  aspects  and  wherever necessary make requisite rules, regulations or practice direction  so  as  to  provide  appropriate  guidelines  for  the  subordinate  courts  to  follow.”

23. The provision for costs is intended to achieve the following goals :

(a)  It  should  act  as  a  deterrent  to  vexatious,  frivolous  and  speculative  

litigations or defences. The spectre of being made liable to pay actual costs  

should be such, as to make every litigant think twice before putting forth a  

vexatious, frivolous or speculative claim or defence.

(b)  Costs should ensure that the provisions of the Code, Evidence Act and  

other laws governing procedure are scrupulously and strictly complied with  

and that parties do not adopt delaying tactics or mislead the court.

(c)  Costs should provide adequate indemnity to the successful litigant for  

the  expenditure  incurred  by  him  for  the  litigation.  This  necessitates  the  

award of actual costs of litigation as contrasted from nominal or fixed or  

unrealistic costs.

(d) The provision  for  costs  should  be an incentive  for  each litigant  to  

adopt  alternative  dispute  resolution  (ADR)  processes  and  arrive  at  a  

settlement before the trial commences in most of the cases. In many other  

jurisdictions, in view of the existence of appropriate and adequate provisions  

for costs, the litigants are persuaded to settle nearly 90% of the civil suits  

before they come up to trial.  

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(e) The provisions relating to costs should not however obstruct access to  

courts and justice. Under no circumstances the costs should be a deterrent, to  

a citizen with a genuine or bonafide claim, or to any person belonging to the  

weaker  sections  whose  rights  have  been  affected,  from  approaching  the  

courts.  

24. At present these goals are sought to be achieved mainly by sections  

35,35A and 35B read with the relevant  civil  rules  of  practice  relating to  

taxing of costs. Section 35 of the Code vests the discretion to award costs in  

the courts. It provides that normally the costs should follow the event and  

court shall have full power to determine by whom or out of what property,  

and to what extent such costs are to be paid.  Most of the costs taxing rules,  

including the rules in force in Delhi provide each party should file a bill of  

cost immediately after the judgment is delivered setting out: (a) the court fee  

paid; (b) process fee spent; (c) expenses of witnesses; (d) advocate’s fee; and  

(e) such other amount as may be allowable under the rules or as may be  

directed by the court as costs. We are informed that in Delhi, the advocate’s  

fee in regard to suits the value of which exceeds Rs.5 lakhs is : Rs.14,500/-  

plus 1% of the amount in excess of Rs.5 lakhs subject to a ceiling of Rs.  

50,000/-. The prevalent view among litigants and members of the bar is that  

the costs provided for in the Code and awarded by courts neither compensate  

nor indemnify the litigant fully in regard to the expenses incurred by him.  

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25. The  English  civil  procedure  rules  provide  that  a  court  in  deciding  

what order, if any, to make in exercising its discretion about costs should  

have regard to the following circumstances: (a) the conduct of all the parties;  

(b) whether a party has succeeded on part of his case, even if he has not been  

wholly successful; and (c) any payment made into court or admissible offer  

to settle made by a party which is drawn to the courts attention. ‘Conduct of  

the parties’ that should be taken note by the court  includes : (a) conduct  

before,  as well  as during,  the proceedings and in particular  the extent  to  

which the parties followed the relevant pre-action protocol; (b) whether it  

was reasonable for a party to raise, pursue or contest a particular allegation  

or issue; (c) the manner in which a party has pursued or defended his case or  

a  particular  allegation  or  issue;  and  (d)  whether  a  claimant  who  has  

succeeded in his claim, in whole or in part, exaggerated his claim. Similar  

provisions,  with  appropriate  modifications  may  enable  proper  and  more  

realistic costs being awarded. As Section 35 of the Code does not impose  

any ceiling the desired object can be achieved by the following : (i) courts  

levying costs, following the result, in all cases (non-levy of costs should be  

supported by reasons); and  (ii)  appropriate amendment to Civil Rules of  

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Practice relating to taxation of costs, to make it more realistic in commercial  

litigation.  

26. The  provision  relating  to  compensatory  costs  (Section  35A of  the  

Code)  in  respect  of  false  or  vexatious  claims  or  defences  has  become  

virtually infructuous and ineffective, on account of inflation. Under the said  

section,  award of  compensatory costs  in false and vexatious litigation,  is  

subject to a ceiling of Rs.3,000/-. This requires a realistic revision keeping in  

view,  the  observations  in  Salem  Advocates  Bar  Association  (supra).  

Section  35B providing  for  costs  for  causing delay  is  seldom invoked.  It  

should be regularly employed, to reduce delay.  

27. The lack of appropriate provisions relating to costs has resulted in a  

steady  increase  in  malicious,  vexatious,  false,  frivolous  and  speculative  

suits, apart from rendering Section 89 of the Code ineffective. Any attempt  

to reduce the pendency or encourage alternative dispute resolution processes  

or  to  streamline  the  civil  justice  system  will  fail  in  the  absence  of  

appropriate provisions relating to costs. There is therefore an urgent need for  

the legislature and the Law Commission of India to re-visit the provisions  

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relating to costs and compensatory costs contained in Section 35 and 35A of  

the Code.

Conclusion

26. In the result, we allow this appeal in part, set aside the order of the  

Division Bench and Learned Single Judge directing the plaintiff-appellant to  

file an affidavit undertaking to pay Rs. 25 lakhs to defendants-respondents in  

the event of failure in the suit. Instead, we permit the defendants-respondents  

under section 52 of TP Act, to deal with or dispose of the suit property in the  

manner they deem fit, in spite of the pendency of the suit by the plaintiff,  

subject to their furnishing security to an extent of Rs. Three lakhs to the  

satisfaction of the learned Single Judge.  

                                                                  ……………………..J.

    (R V Raveendran)

New Delhi;        ……………………..J. July 5, 2010.           (R M Lodha)

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