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2008 DIGILAW 472 (KAR)

Sharadamma v. Gunashekar- Respondent

2008-09-05

A.N.VENUGOPALA GOWDA, S.R.BANNURMATH

body2008
JUDGMENT S. R. Bannurmath, J. This appeal is filed by the unsuccessful defendant challenging the judgment and decree, dated 3.4.2007 passed by the learned 11th Additional City Civil Judge, Bangalore City in O.S. 1051/2003. 2. The brief facts giving raise to the present appeal are as follows: The respondent/plaintiff herein had filed a suit for specific performance of the contract against the appellant/ defendant herein in respect of the suit schedule property . It is the contention of the plaintiff that, he entered into an agreement of sale with the appellant/respondent, which came to be reduced into writing on 23.3.2002, for the sale of the suit schedule property, for a consideration of a sum of Rs.3,50,000/-. According to the plaintiff, he paid an advance of Rs.2,50,000/- at the time of execution of the agreement of sale itself and a time limit of eleven months was fixed for the execution of the sale deed and the balance amount was to be paid on the day of registration. According to the plaintiff, as the appellant/defendant herein did not take any steps for the completion of the contract, on 9.11.2002, he was constrained to issue a notice and said notice was returned unserved. According to the plaintiff himself, 3 days prior to the issuance of the notice, the defendant herself had sent a notice on 6.11.2002, denying the agreement of sale to which the plaintiff had issued a suitable reply praying for early execution of the sale deed or in the alternative for refund of the advance consideration along with interest as agreed to. The allegation of the plaintiff is that, inspite of such notice, as the defendant did not come forward to execute the sale deed, he is constrained to file the present suit for specific performance. 3. After service of the notice, the defendant/appellant appeared in the trial Court and filed her written statement inter alia disputing the very fact of the alleged agreement of sale. According to the defendant, there was absolutely no agreement between herself and the plaintiff, for the sale of the property in question. Infact, it is contended that, the plaintiff was an unlicensed money lender and as the defendant was in need of Rs.2,50,000/-, when she approached the plaintiff he agreed to give the loan, but defendant has to furnish the security. Infact, it is contended that, the plaintiff was an unlicensed money lender and as the defendant was in need of Rs.2,50,000/-, when she approached the plaintiff he agreed to give the loan, but defendant has to furnish the security. As such, by way of security, the defendant executed the nominal agreement of sale, which was agreed to be not acted upon. According to the defendant, the property was worth more than Rs. 6 lakhs and as she was in dire need of money, she had agreed for execution of the agreement of sale, which was never intended to be acted upon. It is also contended that, as per the terms of the agreement, in fact the appellant was paying interest on the amount of Rs.2,50,000/- borrowed by her, every month at the rate of 7,500/- and when the defendant insisted upon the receipt for the said interest paid, the plaintiff not only refused to give receipts but also threatened of filing of the suit for specific performance on the basis of the agreement of sale dated 23.3.2002 though initially it was agreed not to be executed. As the defendant smelt ill motives on the part of the plaintiff, even before the expiry of the time, on 6.11.2002 she issued a notice bringing it to the notice of the plaintiff the true nature of the agreement, dated 23.3.2002. In this regard, it is also submitted that, when the plaintiff tried to interfere with the peaceful possession and enjoyment of the property of the defendant, she had to file a police complaint on 2.11.2002. It is contended that, in spite of the knowledge of all these facts, the plaintiff had filed the present false and vexatious suit, only to harass and intimidate the defendant/appellant, especially after the raise in the value of the properties. On these among other grounds, it is contended that, the suit is liable to be dismissed. 4. The trial Court on going through the pleadings of the parties, framed the following issues: “1. Whether the plaintiff proves that the defendant was agreed to sell the suit schedule property for Rs.3,50,000/- and executed an agreement of sale dt: 23.3.2002 by receiving an advance amount of Rs.2,50,000/-? 2. Whether the defendant proves that the agreement of sale dt: 23.3.2002 was executed as a security to the loan availed by her from the plaintiff ? 3. Whether the plaintiff proves that the defendant was agreed to sell the suit schedule property for Rs.3,50,000/- and executed an agreement of sale dt: 23.3.2002 by receiving an advance amount of Rs.2,50,000/-? 2. Whether the defendant proves that the agreement of sale dt: 23.3.2002 was executed as a security to the loan availed by her from the plaintiff ? 3. Whether the plaintiff proves that he has been always ready and willing to perform his part of the contract? 4. Is plaintiff entitled the relief of specific performance? 5. To what order or decree ?” 5. The plaintiff in order to substantiate his claim examined himself as P.W.1 and examined P.W.2 - the alleged witness to the agreement of sale, dated 23.3.2002. He bas also got marked Exs.P.1 to P.7. The defendant examined herself and her son as D. Ws.1 and 2 and got marked Exs.D.1 to D.5. 6. The trial Court on assessment of the evidence led by both sides, held all the issues in favour of the plaintiff and accordingly, by the impugned judgment and decree, decreed the suit for specific performance. Hence, the present appeal 7. Sri G. S. Visweswara, learned Senior Counsel appearing for the defendant/ appellant, took us through the entire pleadings and the evidence of both sides inter alia to contended that, the impugned judgement and decree is contrary to law and evidence on record; that the trial Court has committed an illegality and error in decreeing the suit for specific performance, especially when the defendant has successfully shown that, there was no agreement of sale between the parties and the entire transaction was of a loan transaction and the agreement in question was only a security arrangement though title of it is agreement of sale but never intended to be acted upon. Drawing our attention to clauses 4 and 5 of the agreement, it is contended that, under these clauses entire option was given to the defendant/vendor as to the performance indicating that, specific performance of the contract was never intended upon by both parties. According to the learned Senior Counsel, the only option under the deed was available to the purchaser (plaintiff) as to the entitlement of liquidated damages from the vendor (defendant), if the vendor failed to execute the registered deed even when the purchaser is ready with the balance. According to the learned Senior Counsel, the only option under the deed was available to the purchaser (plaintiff) as to the entitlement of liquidated damages from the vendor (defendant), if the vendor failed to execute the registered deed even when the purchaser is ready with the balance. Similarly at clause 5, it is only the vendor, who had option to refund the advance amount within the stipulated period together with the agreed rate of interest at 3% per month or at the rate of 36% per annum. It is submitted that, as against these options given to the vendor, there was no agreement as to any right or option to the plaintiff/purchaser in case of failure of the vendor to execute the alleged sale deed. It is contended that, absence of such clause and the unusual clauses 4 and 5 in the agreement itself clearly indicate that, the parties never intended to treat Ex.P.2 as agreement of sale, but infact the inference was that, it was meant to be only as a security for the loan advanced by the plaintiff to the defendant. It is also contended that, infact much prior to the plaintiff issuing the notice as per Ex. P.4 on 9.11.2002, the intention of the parties was clear when it is the defendant, who issued a notice as per Ex.D.3 (Ex.P.6) on 6.11.2002 disclosing the true intentions of the parties, which was much prior to the filing of the suit on 7.2.2003. Similarly, the understanding of the defendant and the plaintiff also was clear from the fact that, when plaintiff wanted to take disadvantage of the agreement of sale, the defendant had lodged a police complaint on 2.11.2002 as per Ex.P.1. However, no action could be taken by the police as the dispute was of civil nature. Be that as it may. It is contended that, even before the plaintiff tried to establish that Ex.P.2 was an agreement of sale and filed the present suit, the defendant had made it clear to the plaintiff himself as to the real intention between the parties and in spite of the same, the act of filing of the suit and more importantly the decreeing of the suit by the trial Court without consideration of all these aspects has led to the unjust and illegal judgment and decree. In this regard, the learned Counsel relied upon the pronouncement of the Division Bench of this Court in B.R. MULANI Vs. A.B. ASWATBANARAFANA [ILR 1992 KAR 2224]; DADARAO Vs. RAMRAO [ 1999(8) SCC 416 ] and RAMACHANDRAIAH Vs. NAGAPPA NAIDU [ILR 1996 Kar. 570]. In this regard, the learned Counsel also drew our attention to Section 23 of the Specific Relief Act, 1963 (hereinafter referred to as ‘the Act’) inter alia to contend that, while considering the suit for specific performance, the Court is required to look into the terms of the contract and attending circumstances to find out the true nature of the agreement and if the Court having regard to the terms of contract and other attending circumstances, is satisfied that, the sum was named only for the purpose of securing the performance of contract and not the purpose of giving to the party in default an option of paying money in lieu of specific performance, specific performance should be denied. Another circumstances pointed out from the evidence as to the true nature of the agreement - Ex.P.2 is from the fact that, admittedly the defendant is running a school in the suit premises and after obtaining the loan of Rs. 2,50,000/- from the plaintiff, she had put up an additional floor on the existing structure. If really the intention of the defendant and for that matter the plaintiff was to sell and purchase the property respectively, the defendant would not have invested the money in putting up additional structure and the plaintiff would not have permitted her to do so, which according to the defendant, clearly indicates that, the amount mentioned in Ex.P.2 was only towards the loan transaction for the purpose of improvement of the existing building and it was never meant to be acted upon as agreement of sale. The learned Counsel also contended that, as in the suit schedule premises, the defendant is running a school wherein nearly 300 children are studying, the Court below has not considered the hardship that would be caused to her and failure on the part of the trial Court in exercising the judicious discretion as required under Section 20 of the Act, the impugned judgment and decree are illegal and unsustainable. It is also submitted that, even though the trial Court bad framed the additional issue in respect of the alternate prayer for refund, not answering the same by the trial Court indicates non application of mind and even on this count, the impugned judgment and decree are liable to be set aside. 8. On the other hand, Sri Subba Rao, learned Senior Counsel appearing for the plaintiff/ respondent argued in support of the findings of the trial Court and decree passed in his favour. 9. It is submitted that, the decision relied upon by the defendant/appellant in the case of DADARAO Vs. RAMRAO [ 1999(8) SCC 416 ] has been held as per incurium in the later decision of P. D’SOUZA Vs. SHONDRlLO NIDU [ 2004 (6) SCC 649 ) and as such, it will not help the appellant to take his case any further. It is submitted that, the intention of the parties has to be gathered by bare reading of the document - Ex.P.2 and as its nomenclature or title and the terms and conditions put therein clearly indicate that, that eyes opened the defendant to entered into an agreement of sale, which was rightly noted by the trial Court and as such, the present appeal is devoid of merits. It is submitted that. so far as clauses 4 and 5 of the agreement pointed out by the appellant is concerned, they clearly indicate that they are only penal clauses meant for in case, the defendant failed to perform his part of contract and merely because option is given to the vendor that does not mean that the Court should not decree the suit for specific performance. The learned Counsel has relied upon the pronouncement in the case of P.D’SOUZA Vs. SHONDRILO NAIDU [ 2004 (6) SCC 649 ], P.S. RAMAKRISHNA REDDY Vs. M.K. BHAGYALAKSHMI [AIR 2007 SC 1256] in this regard. 10. We have heard both the Counsel at length and perused the records. 11. At the outset, we have to note that the pronouncement in the case of DADARAO RAMRAO [ 1999(8) SCC 416 ] has been distinguished and declared as per incurium in the later decision in the case of P.D’SOUZA Vs. SHONDRILO NAIDU [ 2004 (6) SCC 649 ] and as such, the same is of no use for the appellant’s contentions. 12. SHONDRILO NAIDU [ 2004 (6) SCC 649 ] and as such, the same is of no use for the appellant’s contentions. 12. However, the Division Bench of this Court in the case M.R.MULANI Vs. DR. A.B. ASWATHNARAYANA [ILR 1992 Kar 224] has held that, where the agreement provides option to the vendor to repay the money advanced or sell property and the parties have understood the agreement in that manner and conducted themselves in conformity with such option, whether it would not be just and proper to grant the decree for specific performance as it would be contrary to the terms of the agreement and would take away the right of the prospective vendor to exercise his option and payoff the amount and thereby save the property. The scope of this question was further considered by the Apex Court vis-a.-vis., Sections 20, 23 and 10 explanation in the case of M.L. DEVENDER SINGH Vs. SYED KHAJA [ AIR 1973 SC 2457 ], the Honble Supreme Court held thus: “16. The position stated above is in conformity with the principles found stated in Sir Edward Fry’s “Treatise on the Specific Performance of Contracts. (Sixth Edn. At p. 65). It was said there: “The question always is: What is the contract? Is it that one certain act shall be done, with a sum annexed, whether by way of penalty or damages, to secure the performance of this very act? Or, is it that one of the two things shall be done at the election of the party who has to perform the contract, namely, the performance of the act or the payment of the sum of money? If the former, the fact of the penal or other like sum being annexed will not prevent the Court’s enforcing performance of the very act, and thus carrying into execution the intention of the parties; if the latter, the contract is satisfied by the payment of a sum of money, and there is no ground for proceeding against the party having the election to compel the performance of the other alternative. From what has been said it will be gathered that contracts of the kind now under discussion are divisible into three classes: (i) Where the sum mentioned is strictly a penalty- a sum named by way of securing the performance of the contract, as the penalty is a bond; (ii) Where the sum named is to be paid as liquidated damages for a breach of the contract; (iii) Where the sum named is an amount the payment of which may be substituted for the performance of the act at the election of the person by whom the money is to be paid or the act done. Where the stipulated payment comes under either of the two first mentioned heads, the Court will enforce the contract, if in other respects it can and ought to be enforced, just in the same way as a contract not to do a particular act, with a penalty added to secure its performance or a sum named as liquidated damages, may be specifically enforced by means of an injunction against breaking it. On the other hand, where the contract comes under the third head, it is satisfied by the payment of the money, and there is no ground for the Court to compel the specific performance of other alternative of the contract”. (emphasis supplied) 13. In our view, on going through the terms of the agreement in detail, we find that the present agreement squarely falls in the category No.3 as observed by the Apex Court in Devender Singh’s case. The law laid down by the Apex Court in the aforesaid case viz., is that - Mere specification of a sum of money to be paid for breach in order to compel the performance of the contract does not by itself remove the strong presumption contemplated by the use of the words “unless and until the contrary is proved”. The sufficiency or insufficiency of any evidence to remove such a presumption is a matter of evidence. It is only when payment is an alternative to carrying out the other terms of the contract, it would exclude, by the terms of the contract itself, specific performance of the contract to convey a property. The jurisdiction of the Court to decree specific relief is discretionary and must be exercised on sound and reasonable grounds “guided by judicial principles and capable of correction by a Court of appeal”. The jurisdiction of the Court to decree specific relief is discretionary and must be exercised on sound and reasonable grounds “guided by judicial principles and capable of correction by a Court of appeal”. Of course, as observed by the Hon’ble Supreme Court, the Court is required to determine this aspect on the facts and circumstances of each case before it, to find out whether specific performance of contract to convey a property ought to be granted or not. 14. On detail reading of Ex.P.2 and especially clauses 4 and 5 therein, in our view, clearly indicates that the intention of the party was never to go for sale of the property. Clause 5 of the agreement gives an option to the vendor to refund the advance sale consideration amount even before the time fixed for the alleged performance. Clause 4 of the said agreement further clearly indicates that, even in case where vendor fails to execute the registered sale deed and even where the purchaser is ready with the balance sale consideration within the stipulated period, then the vendor is only required to refund the advance sale consideration along with liquidated damages at the rate of 3% per month or month or 36% per annum. In our view, as against these two clear options available to the vendor, there is absolutely no clause indicating the right of the purchaser to take steps for specific performance in case the alleged vendor failed to perform her part. Such clause is normally found in agreement of sale and on the other hand. clauses 4 and 5 being most unusual, it can be gathered that, the intention of the parties was never to sell and purchase of the property in dispute, but Ex.P.2 was executed towards security of the amount of Rs.2,50,000/- advanced and admittedly paid to the defendant by the purchaser. This intention is further clear from the conduct of the parties also. As rightly pointed out by the learned Counsel for the appellant, if really this was an agreement for sale, the purchaser would not have permitted the vendor to make alterations or put up construction in the property in dispute after the alleged agreement and similarly if really the defendant had intention of selling, she would not have spent money by putting up construction in the existing structure, which ultimately would have gone to the alleged purchaser. The fact that immediately after receiving the sum of Rs.2,50,000/- from the plaintiff, the defendant put up construction, is not disputed by the plaintiff and in fact, in his cross-examination, he admits to the same. 15. Similarly, even before the plaintiff woke up by issuing legal notice dated 9.11.2002, the conduct of the party is relevant to be noted. Seven days prior to the said notice - Ex.P.4 issued by the plaintiff on 2.2.2002, the defendant has in fact lodged a police complaint narrating the circumstances under which Ex.P.2 came into existence, the subsequent conduct of the plaintiff in using the security document as agreement of sale and thereby forcing the defendant to lodge a police complaint in this regard. Thereafter, on 6.11.2002, in fact the defendant has issued a notice as per Ex.D.3 wherein again the circumstances as now contended have been narrated in detail. No doubt the plaintiff has replied to this as per Ex.P.4 mentioning that it was only an agreement of sale and not loan transaction, which is based on only title of the deed - Ex.P.2 and the alleged agreement of sale. In our view, on detail consideration, we find that, by reading clauses 4 and 5 in Ex.P.2 and the surrounding circumstances and the conduct of the parties, it was only a loan transaction and Ex.P.2 came to be executed as or by way of security and both the parties never intended to act upon it as an agreement of sale. The possibility of subsequent dispute between the parties because of the alleged not giving the receipts for the interest paid, it has resulted in the present suit. By reading the clauses in the agreement especially clauses 4 and 5, as there is no clause giving any right to the purchaser for enforcing the alleged agreement and on the other hand as both the contracting parties themselves agreed that in the event of breach, the only remedy would be by way of compensation for the loss incurred, in our opinion, the aggrieved party in such circumstances is legally estopped from claiming anything other than such compensation or damages. 16. In our view, non consideration of these aspects by the trial Court in their proper perspective has resulted in the unjust and illegal decree. 16. In our view, non consideration of these aspects by the trial Court in their proper perspective has resulted in the unjust and illegal decree. Even otherwise, we find that the trial Court has failed to exercise its discretion under Section 20 of the Act properly as the Section directs the jurisdiction to decree a suit for specific performance is discretion and the Court is not bound to grant such relief merely because it is lawful to do so; but the discretion of the Court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a Court of appeal. In our view, the trial Court has failed to exercise this jurisdiction properly. 17. Looking at the case from any angle, we find that the impugned judgment and decree is unsustainable in the light of the findings above and as such” the same are liable to be set aside. 18. In the result and for the reasons stated above, the appeal is allowed in part in the following terms: a) The judgment and decree dated 3.4.2007 passed in O.S. No. 1051/2003 by the XI Additional City Civil Judge, Bangalore decreeing the suit for specific performance is set aside and in substitution of the same, the defendant is directed to pay a sum of Rs. 2,50,000/- (Rupees two lakhs fifty thousand only) with interest at the agreed rate of 3% per month from 23.03.2002 till the date of actual payment. b) The defendant/ appellant is also directed to pay to the plaintiff a sum of Rs. 20,000 /- (Rupees twenty thousand only) as damages. c) In the circumstances of the case, the parties are directed to bear their respective costs throughout.