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CASE NO.:

Appeal (civil) 3801 of 1999

PETITIONER:

Jai Narain Parasurampuria (Dead) & Ors

RESPONDENT:

Pushpa Devi Saraf & Ors

DATE OF JUDGMENT: 24/08/2006

BENCH:

S.B. Sinha & P.P. Naolekar

JUDGMENT:

J U D G M E N T

With

CIVIL APPEAL NO.3802 of 1999

S.B. SINHA, J :

Background facts:

Kanpur is a metropolitan town. The respondents herein were owners

of a house property bearing municipal number 7/169, on a freehold plot

bearing No.22, measuring 2978 sq. yards, situate in Block B, Scheme No.7,

Gutaiyya, Swaroop Nagar in the said town ('the property' for short). The 1st

respondent-Pushpa Devi Saraf and the 2nd respondent-Mohan Lal Saraf

intended to promote a company in the name of the 5th respondent-M/s.

Kanpur Exports (P) Ltd. ('the Company' for short). They filed an

application therefor as promoters of the Company on 15.2.1979. They

acquired the property in their capacity of promoters or Directors of the

proposed company from one Shanti Narain Verma by a registered Deed of

Sale dated 24.2.1979 at a price of Rs.2 lakhs. The said Deed of Sale

contained a clause of re-conveyance of 'the property'.

The Company was incorporated on 19.6.1979. The amount of

consideration paid to said Shanti Narain Verma was repaid by the Company

by two cheques of Rs.1,11,250/- each to Mohan Lal Saraf and Pushpa Devi

Saraf (hereinafter referred to as "Sarafs"). The first balance sheet of the

Company was signed by the 2nd respondent herein on 30.6.1980, wherein

also 'the property' was shown to be that of the company. With a view to do

away with the said clause of re-conveyance, a suit was filed by the Company

against the said Shanti Narain Verma. The said suit was decreed. The First

Directors' Report dated 15.11.1980 and the balance sheet of the Company

for the year ending 30.6.1981, signed by the 2nd respondent herein also

disclosed the property to be that of the Company. Directors of the

Company, viz., 'Sarafs' resolved to sell the property in favour of the

appellants herein. A resolution to let out the property in favour of one

Manoj Kumar Poddar was also adopted by it. A General Power of Attorney

was also executed by the Company in favour of one M.M. Aggarwal who

had specially been invited to attend the said meeting. Pursuant to or in

furtherance of the said resolution, an agreement of sale of the said property

was executed by Sarafs as Directors of the Company, wherefor the total

consideration was fixed at Rs.11 lakhs. Out of the said amount, a sum of

Rs.10 lakhs was paid in advance through Bankers' Cheques and Cash Orders

dated 11.6.1984 and 12.6.1984. The remaining amount of Rupees One lakh

was to be paid at the time of execution and registration of the Deed of Sale.

A registered Deed of Lease pursuant to the said resolution was also

executed and registered in favour of said Shri M.K. Poddar, the sister's son

of the appellant, on the same day. There exists a dispute, to which we would

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advert to at an appropriate stage, as to whether the possession of the property

had been handed over to Shri M.K. Poddar or not.

Proceeding :

The appellants herein issued a notice asking the respondents to

execute a Deed of Sale on 5.8.1984. They also got a public notice published

in Newspaper notifying the execution of the agreement for sale between the

appellants and the contesting respondents. Another Agreement for sale was

purported to have been executed on 4.6.1984 by 'Sarafs' in favour of one

Surendra Kumar Mittal stated to be a close relation (brother-in-law) of

Mohan Kumar Saraf.

The appellants filed a suit against the respondents for injunction.

Subsequently, a relief by way of decree of specific performance of the

agreement for sale was also prayed for. A further prayer was made therein

that the purported Agreement of Sale dated 4.6.1984 executed by the

defendant Nos.2 to 4 in favour of the said Surendra Kumar Mittal was a

sham.

The said M.K. Poddar also instituted a suit for injunction on

25.5.1984, which was numbered as Suit No.612 of 1984, wherein an interim

order of injunction, directing the parties not to interfere with his possession

was passed. In the said suit, an Advocate Commissioner was also appointed.

He found the said M.K. Poddar to be in possession of the property.

A purported dispute, however, was raised as regards ownership of the

said property by and between the Company on the one hand and the Sarafs

on the other. One Shri B.S. Mathur, Advocate was appointed as sole

Arbitrator. He made an Award holding the property to be belonging to

Sarafs. They were directed to refund an amount of Rs.2,22,500/- to the

Company; they having received the same from the Company. The Award

was made Rule of the Court. An Execution Case was filed to execute the

decree. In execution of the said decree a warrant of delivery of Possession

was issued against the Company and M.K. Poddar was said to have been

dispossessed.

M.K. Poddar, indisputably filed an application under Order 21 Rule

99 of the Civil Procedure Code for restoration of possession of the said

property. In response to the notice issued thereupon, the respondents

contended that they intended to raise a multi-storied building upon

demolition of the existing building.

Suits and other proceedings initiated by the appellants :

A suit was filed by the appellants and the said M.K. Poddar in the

Delhi High Court for a declaration that the Decree dated 21.2.1985 passed

by the said Court was obtained by fraud and thus was a nullity. Another suit

was filed by the appellants for declaration and appointment of Receiver

before the Civil Judge, Kanpur Dehat being Suit No.237 of 1989, wherein a

declaration was sought for that the defendants therein, in view of the

Agreement of Sale dated 12.6.1984, had no authority to cause any damage to

the suit property. Symbolic possession was directed to be given in favour of

the appellants therein by an order dated 23.10.1989. However, the said suit

later on was withdrawn. Another suit was filed by the appellants in the

Court of Munsif, Kanpur praying for an order restraining Sarafs from

interfering with their right to manage and maintain the suit property, which

was registered as Original Suit No.2256 of 1989. The said suit was also

dismissed as withdrawn by an order dated 26.8.1991. The appellants also

filed a suit for permanent injunction, which was registered as Suit No.677/91

for restraining the respondents from causing any disturbance in their

peaceful possession. The said suit was also dismissed. It is furthermore not

in dispute that one G.P. Tiwari claiming himself to be the caretaker of the

property filed a suit against the respondents and by an order dated 13.7.1987

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an ex-parte decree was passed in terms of the provisions of the U.P. Rent

Control Act. An application for setting aside the said ex-parte decree was

filed by Mohan Lal Saraf. The first respondent herein also filed a writ

petition for quashing the said ex-parte decree before the Allahabad High

Court, which was numbered as Writ Petition No.21985 of 1989. The said

ex-parte decree was set aside by an order dated 8.2.1990. The said suit was

also withdrawn by G.P. Tiwari. The writ petition filed by respondent No.1

herein was also dismissed as having become infructuous, whereagainst

Pushpa Devi Saraf preferred a Special Leave Petition which was also

dismissed by an order dated 19.9.1990. However, the said order dated

19.9.1990 was recalled by this Court by an order dated and the petition was

disposed of on 14.8.1991, directing the District Judge, Kanpur to nominate a

Receiver for taking charge of the property.

Suit and other proceedings initiated by the respondents :

On 8.7.1980, the Company through its Directors, Sarafs, filed a suit

against Shanti Narain Verma for declaration that the Company was the

absolute owner in possession of the suit premises. However, as noticed

hereinbefore, before the Trial Court, the respondents, inter alia, raised a

contention that the Sarafs were the owners of the suit property and not the

Company. The learned trial Court negatived the said contention. As noticed

hereinbefore, the said suit questioning the grant of symbolic possession was

decreed in favour of the appellants. A writ petition was filed on 9.5.1990

which was numbered as Writ Petition No.24301/89. The order granting

symbolic possession was quashed by the High Court by an order dated

23.10.1989 on the premise that there had been no sufficient service and the

matter was remanded to the Trial Court for fresh consideration thereof. A

Criminal Misc. Writ Petition No.23804/89 was filed in the High Court of

Judicature at Allahabad for a direction that a criminal case be registered for

protection of life and property of the Sarafs and for payment of damages for

damages allegedly caused to them. By an order dated 9.12.1993, the High

Court directed investigation into the allegations made by Sarafs by the

Central Bureau of Investigation. Upon completion of the investigation by

the Central Bureau of Investigation, a charge-sheet was filed against the

appellants and the trial against them is pending.

Judgment of the Court :

On the backdrop of several litigations between the parties and

allegations and counter allegations made by one party against the other

therein, the learned Trial Court decreed the Appellants' suit for specific

performance of contract. The said judgment and decree came to be

challenged before the High Court. A Division Bench of the High Court

allowed the appeal on the premise that the Trial Court had wrongly

exercised its discretionary jurisdiction under Section 20 of the Specific

Relief Act, 1963; as the appellants were guilty of demolition of the existing

structures on the land. The learned Judges of the Division Bench of the

High Court, however, differed in their opinion on other issues.

Both the parties are, thus, before us.

Submissions :

Mr. Rakesh Dwivedi, learned Senior Counsel appearing on behalf of

the appellants raised the following contentions:

i) The High Court committed a serious error in holding that the

Sarafs had purchased the property for the benefit of the Company ignoring

the decree passed in favour of the Company as also the representations made

by the Sarafs to the State Bank of India, before the Courts of Law as also the

society at large.

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(ii) Sarafs were estopped and precluded from denying the title of

the Company and setting up their own title over the property in view of their

representations made to the appellants and the world at large.

iii) Even if Sarafs were owners of the property, the Agreement of

Sale executed in favour of the appellants was valid as the Company itself

was being represented by them who were even otherwise authorized to

execute the Agreement on behalf of the company and, thus, by reason of

their conduct, they must be held to have executed the said Agreement on

their own behalf also.

iv) The Court failed to apply the doctrine of lifting the corporate

veil, as the same was necessary for determining the real issue between the

parties.

(v) Assuming that the Award passed by the Arbitrator, as also the

decree passed by the High Court pursuant thereto are valid in law, in terms

whereof Sarafs were declared to be owners of the property, the agreement of

sale would be binding on them.

vi) The Award and the decree, having been obtained by practicing

fraud as envisaged under Section 44 of the Evidence Act, were void ab initio

and the Trial Court rightly having applied the said principle, the same could

not have been overturned by one of the Judges of the Division Bench of the

High Court.

vii) Withdrawal of Suit No. 1252/85 filed by the appellants for

setting aside the Award and the consequent decree, would not debar the

appellants from raising the said issue as a plea of fraud can be raised at any

stage and even in a collateral proceeding.

viii) The Award and the decree of the Delhi High Court, in any view

of the matter, would not adversely affect the interest of the appellants, which

could not have been relied upon by the respondents as they were not parties

thereto.

ix) Both the Hon'ble Judges of the High Court committed a

manifest error in arriving at a finding that the appellants were responsible for

demolition of the existing structures and institution of the rent case through

G.P. Tiwari.

(x) Even assuming that the said findings are correct, the same by

itself could not have been a ground for denying the appellants the relief by

way of a decree for specific performance of contract.

Mr. Sudhir Chandra, learned Senior Counsel appearing on behalf of

the respondents, on the other hand, would support the impugned judgment

contending :

(i) The High Court has rightly arrived at a finding that the suit

property was demolished on 23.9.1989 illegally by the appellant No.1 and

his associates and thus, they became disentitled from obtaining the

discretionary relief of specific performance of contract;

(ii) The said finding of the High Court being based upon the

materials on record including the judgment of another Division Bench of the

Allahabad High Court passed in Criminal Writ Petition No.23804/89, as also

the charge-sheet issued by the Central Bureau of Investigation upon

investigation made pursuant to the order of the High Court and various other

orders passed by this Court, the impugned judgment should not be interfered

with.

(iii) The High Court rightly came to the conclusion that Shri G.P.

Tiwari was set up by the appellants which would be evident from the fact

that they had a common counsel and, had furthermore approached this Court

as appellants against the orders passed by the High Court.

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(iv) Shri G.P. Tiwari himself having admitted that he had handed

over possession of the suit premises to one of the brothers of the appellant,

collusion between himself and the appellants stood established.

(v) The appellants had abused the process of court, as they not only

got the aforementioned Rent Case No. 99/87 instituted by Shri G.P. Tiwari,

but also initiated multiple proceedings against Sarafs with a view to obtain

ex-parte orders through one Nand Lal Jaiswal, Advocate and in that view of

the matter they were not entitled to any discretionary relief in terms of

Section 20 of the Specific Relief Act, 1963.

(vi) The purported Agreement of Sale dated 12.6.84 was in effect

and substance an agreement of loan.

(vii) The agreement dated 12.6.84 itself having stipulated that in the

event of defect in the right or title of the parties of the first part or the said

Company, or any other encumbrance or legal hurdle in respect of the suit

property, the appellants would have an option to refund the advance money

of Rs.10 lakhs together with interest @18% per annum, no relief by way of

specific performance of contract could have been granted.

In view of the following surrounding and attending circumstances, the

purported agreement to sell should be construed to be an Agreement for

Loan:

(a) Sudhir Kumar Parasrampuria, while examining himself as

P.W.1 in his deposition, categorically stated that he had been informed by

respondent No.2 that the property belonged to the Company as also

individuals which would demonstrate that he was aware of the ownership of

Sarafs thereover;

(b) The said property having not been mentioned in the Articles of

Association of the Company, it could not have been treated to be the owner

thereof in law;

(c) Shanti Narain Verma having sold the property in favour of

Sarafs by a deed of sale dated 24.2.1979 and the Company having

admittedly been incorporated on 19.6.1979, the title in respect thereof did

not vest in the Company and, thus, the provisions of Section 15(h) and 19(e)

of the Specific Relief Act, 1963 would have no application in the instant

case. As on the date of execution of sale, the Company had no funds of its

own and the amount of consideration, admittedly, having been paid by

Sarafs, the Company could not be declared to be the owner thereof by a

Court of law as was purportedly done by reason of the judgment dated

19.8.1987 in the suit filed by the Company against Shanti Narain Verma.

(d) The controversy in Suit No.267/80 being confined to the

applicability of the re-conveyance clause contained in the deed of sale dated

24.2.1979, the question of ownership of the property having been vested in

the Company did not and could not arise and in that view of the matter, the

judgment rendered therein was inadmissible in evidence to prove the

Company's title thereover.

Ownership issue :

The property in question was purchased by the Promoters of the

company, namely, Sarafs. An application for registration of the company

was filed on 15.2.1979 under the Companies Act, 1956 and the company

was registered on 19.6.1979. Sarafs at the relevant were the only Directors

and shareholders of the Company. In the deed of sale, they described

themselves as Promoters/Directors of the company. As on the date of

execution of the deed of sale, the company being not registered, the property

was purchased in the name of the Promoters. In the balance sheet, income

tax return, annual report, audit accounts and other relevant documents, the

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company had been shown to be the owner of the property. On its

registration, the company also paid a sum of Rs.2,22,500/- to Sarafs. The

company in its report dated 15.11.1980 categorically mentioned that it had

acquired fixed assets of Rs.3,03,924/- including free hold land valued at

Rs.1,02,500/- . The balance sheet also mentioned that the disputed property

was the assets of the company. The company had taken a loan from the

State Bank of India, Kanpur Branch upon mortgaging the property as a

security.

We have noticed hereinbefore that a suit was filed by the company

through Sarafs against Shanti Narayan Verma praying for a declaration that

the property belonged to the company. The said suit was decreed by a

judgment dated 19.8.1982 declaring that the company is the absolute owner

thereof. It is also not in dispute that the Board of Directors of the company

adopted a resolution on 6.9.1984 for sale of the said property in favour of the

appellant herein for a sum of Rs.11,00,000/-. The agreement for sale was

signed by the Directors, namely, Pushpa Devi Saraf and Mohan Lal Saraf

and their son Sandeep Saraf. The company also discharged a part of the

debts of State Bank of India, out of the amount of the advance of

Rs.10,00,000/- received by it from the appellants herein. The company had

also adopted another resolution for leasing out the property to Manoj Kumar

Poddar. The deed of lease in favour of Manoj Kumar Poddar was also

signed by Sarafs. In the said documents it was clearly and unequivocally

stated that the property belonged to the company.

It is the company again which executed a general power of attorney in

favour of Shri M.M. Agarwal for executing the deed of sale of the disputed

property in favour of the appellants, upon getting the property released from

the Bank. In the said power of attorney also, the company had been

described as owner of the property.

There cannot, therefore, be any doubt whatsoever that for all intent

and purport the Company was the owner of the property and at all material

times Sarafs had made representations as such to the appellants as also to

others thereabout.

Unincorporated Corporation issue :

At the time when the property was released from the charge held by

the State Bank of India, a notice in terms of Section 138 of the

Companies Act was issued by Shri Mohan Lal Saraf. In the registers

maintained by the Registrar of the Companies under Section 132 of the

Companies Act, it was shown that a charge of the said property had been

made in favour of the State Bank of India.

Under the English Common Law, an unincorporated corporation

could not have become an owner of the property. The law in India,

however, is different.

Before we advert to the statutes operating in the field, in passing we

may notice a wholly untenable submission of Shri Sudhir Chandra that an

unregistered deed of sale only having been executed in favour of the

company by Sarafs, no title passed to the company in view of Section 54 of

the Transfer of Property Act. Section 54 of the Transfer of Property Act,

defines sale and provides for a procedure as to how the same shall be made.

It does not speak of conveyance of ownership. Section 54 of the Transfer of

Property Act does not lay down a law as to whether in all situations an

apparent state of affairs as contained in a deed of sale would be treated to be

the real state of affairs. It does not bar a benami transaction. There is no

embargo in getting a property registered in the name of one person; although

real beneficiary thereof would be another.

Sections 15(h) and 19(e) of the Specific Relief Act, 1963 read as

under :-

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"15. Who may obtain specific performance. - Except

as otherwise provided by this Chapter, the specific

performance of a contract may be obtained by \026

xx xxx xxx xxx

(h) when the promoters of a company have, before its

incorporation, entered into a contract for the

purposes of the company, and such contract is

warranted by the terms of the incorporation, the

company :

Provided that the company has accepted the

contract and has communicated such acceptance to

the other party to the contract."

"19. Relief against parties and persons claiming

under them by subsequent title. - Except otherwise

provided by this Chapter, specific performance of a

contract may be enforced against \026

xxx xxx xxx xxx

(e) when the promoters of a company have, before its

incorporation, entered into a contract for the

purpose of the company and such contract is

warranted by the terms of the incorporation, the

company :

Provided that the company has accepted the

contract and communicated such acceptance to the

other party to the contract."

In terms of Section 15(h) of the Specific Relief Act, the Promoters of

a company before its incorporation could enter into a contract for the benefit

of the company and such contract may be warranted by the terms of

incorporation of the company. The said provision is subject to the proviso

that the company should accept the said transaction. In the instant case,

indisputably it was done. Section 19(e) of the Act provides for grant of a

decree of specific performance of a contract against a company when the

promoters of a company before incorporation entered into a contract for the

purpose of the company and such contract is warranted by the terms of

incorporation. The said provision applies herein.

In Weavers Mills Ltd., Rajapalayam vs. Balkis Ammal & Ors.

[AIR 1969 Mad. 462], the Madras High Court clearly held that Section 19(e)

of the Specific Relief Act carves out an exception from the common law of

England, stating :

"While we accept the position that a promoter is

neither an agent nor a trustee of the company under

incorporation, we are inclined to think that in respect of

transactions on behalf of it, he stands in a fiduciary

position. For the plaintiff-company Sections 92 and 94

of the Indian Trusts Act, 1882, were relied upon. It

seems to us that neither of these sections is of assistance

to it. These sections, as we think, contemplate

transactions as between persons in existence. In any

case, it seems to us that no trust as defined by Section 3

of the Act is brought about by the purchases made by the

promoters. The legal position of a promoter in relation to

his acts, particularly purchase of immoveable properties

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on behalf of the company under incorporation, is a

peculiar one not capable of being brought into any

established or recognised norms of the law as to its

character as an agent or a trustee. But, at the same time,

it is impossible, to our minds, to deny that he does stand

in a certain fiduciary position in relation to the company

under incorporation. When he does certain things for the

benefit of it, as for instance, purchase of immoveable

properties, he is not at liberty to deny that benefit to the

company when incorporated. We are prepared to hold

that in such a case the benefit of the purchase will pass

on to the company when incorporated."

The said decision has been followed by a Division Bench of the

Andhra Pradesh High Court in Vali Pattabhirama Rao & Anr. vs. Sri

Ramanuja Ginning & Rice. Factory (P.) Ltd. & Ors. [AIR 1984 A.P.

176], wherein it was held :

"Thus, we hold that if the constitution of the

partnership firm is changed into that of a company by

registering it under Part 9 of present Act (Part 8 of

previous Act), there shall be statutory vesting of title of

all the property of the previous firm in the newly

incorporated company without any need for a separate

conveyance."

The company upon incorporation has accepted the contract and

communicated such acceptance to the other party. Besides that, purchase of

the property was for the purpose of the company. Submissions of Mr.

Sudhir Chandra that acquisition of a property for the benefit of the company

must find place in the articles of association of the company, is wholly

misplaced. What is meant by acceptance of the contract by the company

which is to be warranted by its incorporation, is that it is not ultra vires the

purpose for which the company had been incorporated. The distinction

sought to be made by the learned counsel between Section 27 of the Specific

Relief Act, 1877 and Section 19 of the 1963 Act is not of much significance.

Under the 1877 Act, not only ratification and adoption of the contract was

mandatory, such contract was to be warranted by the terms of the

incorporation. The words 'ratified and adopted" have been dropped from

the main section and in Section 19 of the 1963 Act, a proviso has been added

that the company has accepted the contract and communicated such

acceptance to the other party of the contract. An express ratification of the

contract, therefore, is no longer warranted. In view of the fact that the

Company, in the suit filed against Verma, sought for a declaration that it was

the owner of the property, the same, in our opinion, would amount to

acceptance of the contract and communication thereof to the other party

thereto.

Reliance placed by the learned senior counsel for the respondent on

Shamsu Suhara Beevi v. G. Alex & Anr. [(2004) 8 SCC 569, para 11] is

not apposite, wherein it was held :

"\005On equitable considerations court cannot ignore or

overlook the provisions of the statute. Equity must yield

to law."

In the said decision this Court was not concerned with the

interpretation of Section 19(e) of the Specific Relief Act.

Transfer of Property Act does not prohibit an oral transfer. The

statute merely provides that if the value of the said property is more than

Rs.100/- a registered document is required to be executed. Section 5 of the

Transfer of Property Act provides for transfer in favour of the company

which was unincorporated. The effect of the Transfer of Property of Act,

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therefore, postulates transfer in favour of unincorporated company. It does

not create any bar.

Our attention was drawn to a statement made by the appellant No.1

before the trial court in cross-examination. He stated that Sarafs had

informed him that the company was the owner. He, however, volunteered

that he himself as also the company became owners. He probably gave the

said answer having regard to the fact that an agreement for sale had been

executed in his favour; and furthermore Manoj Kumar Poddar had been

granted a lease and thus, he also became the owner thereof. His claim may

not be correct in law, but by reason thereof, it cannot be said that the

representation made by Sarafs that the company was the owner of the

property had been whittled down or the appellants were all along aware that

Sarafs were the owners thereof.

The High Court, therefore, in our opinion committed a gross error in

opining that the object and purport of the proceedings in OS No.267 of 1980

was mainly for seeking foreclosure of the right of reconveyance of Vendor

S.N. Verma.

Estoppel issue :

It may be true that no issue as regards title between Sarafs and the said

S.N. Verma having been framed in O.S.No.267 of 1980, the principle of res

judicata is not applicable. In the said proceedings, however, Sarafs as also

the said S.N. Verma being parties, there cannot be any doubt or dispute

whatsoever that a claim was laid by the company that it was the owner of the

property which was accepted not only by Verma but also by Sarafs. The

Sarafs or Verma did not deny or dispute the same. In fact company spoke

only through Sarafs. The High Court overlooked the fact that the plaint was

signed by Sarafs and the company was represented by them. It is they who

had made solemn statement before a competent court of law that the

company was the owner of the property. Hence, they are bound by the said

statement. The principle of estoppel and/or acquiescence would, thus, be

applicable.

While applying the procedural law like principle of estoppel or

acquiescence, the court would be concerned with the conduct of a party for

determination as to whether he can be permitted to take a different stand in a

subsequent proceeding, unless there exists a statutory interdict. If principle

of estoppel applies, Sarafs will not be permitted by a court of law to raise the

contention that the company was not the owner of the property.

It is one thing to say that the property did not vest in the company as

there was a statutory embargo in that behalf; but it is another thing to say

that a person is estopped from raising a question of title. The provisions of

the Indian Evidence Act are clear like Section 116, whereby in certain

situation a person may be estopped from pleading a title in himself.

We are, however, not oblivious of the principle of law that mere

admission does not create title but while determining such a question that

intention of the parties as to in whom the title of the property shall vest, the

conduct of the parties assumes significance.

In the instant case, it was Sarafs who represented the company. They

had made the representation that the company was the owner of the property.

Such a representation had been made to the appellant herein not only in

terms of the decree obtained in the said O.S. No.267 of 1980, but by reason

of execution of the other documents including creation of mortgage of the

property and discharge thereof in favour of the State Bank of India. If by

reason of such representation, a third party alters his position, indisputably,

the principle of estoppel would apply. We may, however, hasten to add that

where there exists a statutory embargo, vesting of title in a person shall be

subject thereto. We have, however, in this case, no doubt whatsoever that

there did not exist any statutory embargo in this behalf.

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In Bank of India & Ors. etc. vs. O.P. Swarnakar & Ors. etc.

[(2003) 2 SCC 721], this Court took notice of the following passage from

Halsbury's Law of England, 4th Edn., Vol.16 (Reissue), para 957 at p.844:

"On the principle that a person may not approbate

and reprobate a special species of estoppel has arisen.

The principle that a person may not approbate and

reprobate expresses two propositions:

(1) That the person in question, having a choice

between two courses of conduct is to be treated as

having made an election from which he cannot

resile.

(2) That he will be regarded, in general at any rate, as

having so elected unless he has taken a benefit

under or arising out of the course of conduct,

which he has first pursued and with which his

subsequent conduct is inconsistent."

In Gillett v Holt and another [2000 (2) All. E.R.-289], the Court of

Appeal, upon referring to a large number of decisions, developed the

doctrine of proprietary estoppel opining:

"The overwhelming weight of authority shows that

detriment is required. But the authorities also show that

it is not a narrow or technical concept. The detriment

need not consist of the expenditure of money or other

quantifiable financial detriment, so long as it is

something substantial. The requirement must be

approached as part of a broad inquiry as to whether

repudiation of an assurance is or is not unconscionable in

all the circumstances."

In Indu Shekhar Singh & Ors. vs. State of U.P. & Ors. [2006 (5)

SCALE 107], this Court stated :

"They, therefore, exercised their right of option.

Once they obtained entry on the basis of election, they

cannot be allowed to turn round and contend that the

conditions are illegal."

In Pawan Alloys and Casting Pvt. Ltd. , Meerut vs. U.P. State

Electricity Board & Ors. [(1997) 7 SCC 251], this Court applied the

principle of promissory estoppel.

The doctrine of estoppel by acquiescence was not restricted to cases

where the representor was aware both of what his strict rights were and that

the representee was acting on the belief that those rights would not be

enforced against him. Instead, the court was required to ascertain whether in

the particular circumstances, it would be unconscionable for a party to be

permitted to deny that which, knowingly or unknowingly, he had allowed or

encouraged another to assume to his detriment. Accordingly, the principle

would apply if at the time the expectation was encouraged. [See also Taylor

Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd. (1981) 1 All ER

897.]

Similarly, in Amalgamated Investment & Property Co. Ltd. vs.

Texas Commerce International Bank Ltd. [(1981) 1 All ER 923], it was

held :

"Where the estoppel alleged was founded on active

encouragement or representations made by the

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representator, it was only unconscionable for the

representator to enforce his strict legal rights if the

representee's conduct was influenced by the

encouragement or the representation. However, it was

not necessary for the encouragement or representation to

have been the initial cause of the representee's conduct in

order to be unconscionable but merely that his conduct

was so influenced by the encouragement or

representation that it would be unconscionable for the

representor to enforce his legal rights."

Mr. Sudhir Chandra placed strong reliance in Mahboob Sahab v.

Syed Ismail & Ors. [(1995) 3 SCC 693], wherein this Court was dealing

with the issue of res judicata.

As in this case, we have already held that the principle of res judicata

may not have any application, it is not necessary to advert thereto. It is also

not a case where fraud was alleged, as was the fact involved therein.

Reliance placed on Chhaganlal Keshavlal Mehta vs. Patel

Narandas Haribhai [(1982) 1 SCC 223 : AIR 1982 SC 121] was

misplaced. Therein it was held that a person is entitled to plead estoppel in

his individual character and not as a representative of his assignee. In this

case ingredients constituting an estoppel and in particular the representation

made by Sarafs that it was the company which was the owner of the

property, were raised specifically.

In the context of the present case it is of some significance to note the

following observations made in Chapleo and Wife v. The Brunswick

Permanent Building Society and Others [1881 QBD 696]:

"\005Being not incorporated the individual members might

be liable like any other individuals for what has been

done under an implied authority given to their agent to

borrow. That the borrowing power was exceeded is a

matter which could only be known to the officers of the

society, and not to the persons who lent their money, and

the society must be liable for the fraud or wrongful act of

their agent who was held out as having authority to

borrow for the society\005"

It was further held :

"It must be taken that when the directors

represented that they had authority which they had not,

by reason of the limit to borrowing having been passed,

they nevertheless warranted to the plaintiff Chapleo that

they had that authority. Therefore upon that ground they

are liable."

The Judicial Committee in Sarat Chunder Dey and Others v. Gopal

Chunder Laha and Others [(1892) Vol. XIX Law Report 203], as regards

the conditions of estoppel under the Evidence Act, opined :

"\005The law of this country gives no countenance to the

doctrine that in order to create estoppel the person whose

acts or declarations induced another to act in a particular

way must have been under no mistake himself, or must

have acted with an intention to mislead or deceive. What

the law and the Indian statute mainly regard is the

position of the person who was induced to act; and the

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principle on which the law and the statute rest is, that it

would be most inequitable and unjust to him that if

another, by a representation made, or by conduct

amounting to a representation, has induced him to act as

he would not otherwise have done, the person who made

the representation should be allowed to deny or repudiate

the effect of his former statement, to the loss and injury

of the person who acted on it. If the person who made

the statement did so without full knowledge, or under

error, sibi imputet. It may, in the result, be unfortunate

for him, but it would be unjust, even though he acted

under error, to throw the consequences on the person

who believed his statement and acted on it as it was

intended he should do."

Lifting the Corporate Veil :

In a case of this nature, keeping in view the facts and circumstances of

the case, even the doctrine of lifting the corporate veil would be applicable.

We would, in this regard, notice some precedents operating in the

field.

In Kapila Hingorani vs. State of Bihar [(2003) 6 SCC 1], this Court

opined :

"It is now well settled that the corporate veil can in

certain situations be pierced or lifted. The principle

behind the doctrine is a changing concept and it is

expanding its horizon as was held in State of U.P. v.

Renusagar Power Co. The ratio of the said decision

clearly suggests that whenever a corporate entity is

abused for an unjust and inequitable purpose, the court

would not hesitate to lift the veil and look into the

realities so as to identify the persons who are guilty and

liable therefor."

{See also Union of India & Ors. vs. M/s. Playworld Electronics

Pvt. Ltd. & Anr. [(1989) 3 SCC 181 : AIR 1990 SC 202], State of U.P. &

Ors. vs. Renusagar Power Co. & Ors. [(1988) 4 SCC 59 : AIR 1988 SC

1737] and Yukong Line Ltd. of Korea v. Rendsburg Investments Corp

of Liberia and Others (No 2) [(1998) 4 All ER 82 (QBD)}

The application of the said doctrine becomes relevant in view of the

fact that in the Memorandum of Association of the company Sarafs alone

were shown to be the subscriber members of the company. In the Article of

Association they were naturally inducted as the first Directors. Subsequently

they included their son as a Director; and it was all the three of the Directors

who executed the agreement for sale. There had, thus, been no shareholder

except Sarafs. Since, they had been attempting to use the personality of the

company for furthering their own personal object the doctrine of lifting the

veil is applicable. They did so in furtherance of their dishonest and

fraudulent design. They in fact were the alter ego of the company. It was,

therefore, impossible for them to take a different stand vis-`-vis the interest

of the company

Withdrawal of suit \026 effect of :

One of the judges of the High Court in the impugned judgment opined

that in view of the fact that the appellant had withdrawn the suit questioning

the said award and the decree subsequent to passing of the judgment and

decree of the trial court, they became disentitled to raise the said question.

In so opining, the High Court committed a manifest error. The appellant had

contended that the said award and the consequent decree passed by the Delhi

High Court was a fraudulent and collusive one. The appellants having

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obtained a decree, it was not necessary for them to obtain another decree. It

might not have been able to file another suit, but the same would not mean

that they were not entitled to question the validity or otherwise of the said

award in the suit for specific performance of contract. If a judgment or

decree is vitiated by fraud, the same would be a nullity. In such an event,

Section 44 of the Indian Evidence Act would be attracted. As a plea of fraud

can be raised even in a collateral proceeding and the trial court having

recorded a specific finding that the jurisdiction of the Delhi Court was

created artificially by including a Delhi property, in respect whereof there

was no dispute, the said decree must be held to have been obtained by Sarafs

by concealment of material facts and by a collusive and fraudulent exercise.

In the arbitration proceedings, Sarafs stated that the agreement dated

12.06.1984 was in fact a sale transaction. In paragraph 8 of the written

statement, the stand taken by them was that the agreement was a sham

document entered into by and between the parties so as to enable them to

secure removal of padlocks by State Bank of India, Kanpur.

In the said written statement itself they, however, disclosed about the

execution of an agreement for sale in favour of the defendant no.5. The said

agreement was registered on 29.09.1984 i.e. much after the execution of

agreement for sale dated 12.6.1984 as also after the institution of the suit.

It is now well settled that fraud vitiated all solemn act. Any order or

decree obtained by practicing fraud is a nullity. {See - (1) Ram Chandra

Singh vs. Savitri Devi & Ors. [(2003) 8 SCC 319] followed in (2) Vice

Chairman, Kendriya Vidyalaya Sangathan & Anr. vs. Girdhari Lal

Yadav [(2004) 6 SCC 325]; (3) State of A.P. & Anr. vs. T. Suryachandra

Rao [(2005) 6 SCC 149]; (4) Ishwar Dutt vs. Land Acquisition Collector

& Anr. [(2005) 7 SCC 190]; (5) Lillykutty vs. Scrutiny Committee, SC &

ST Ors. [(2005 (8) SC 283]; (6) Chief Engineer, M.S.E.B. & Anr. vs.

Suresh Raghunath Bhokare [(2005) 10 SCC 465]; (7) Smt. Satya vs. Shri

Teja Singh [(1975) 1 SCC 120]; (8) Mahboob Sahab vs. Sayed Ismail &

Ors. [(1995) 3 SCC 693]; and (9) Asharfi Lal vs. Smt. Koili (Dead) by

LRs. [(1995) 4 SCC 163].}

The submission of Mr. Sudhir Chandra that withdrawal of the Suit

No.1252 of 1985 without obtaining liberty to file a fresh suit would

constitute a bar in filing of a second suit under Order 23, Rule 1 of the Code

of Civil Procedure, in the factual matrix obtaining herein, cannot be

accepted. By withdrawal of the said suit, the appellant did not and could not

have given up their right to contend that the said award and decree were

fraudulent.

It was not necessary for the appellants to reserve their right to raise

the said contention by instituting another suit as they had earlier done it in

their suit. In fact they had already obtained the decree for specific

performance of the agreement to sell.

In that view of the matter, the decision of this Court in Hulas Rai

Baij Nath vs. Firm K.B. Bass & Co. [(1967) 3 SCR 886], relied on by the

Sudhir Chandra is not applicable.

Nature of transaction :

One of the learned Judges of the High Court also held that the said

agreement dated 12.06.1984 was in fact an agreement for obtaining loan.

There was no warrant for such a proposition. Clause 7 of the agreement on

the basis whereof such a finding was arrived at reads as under :

"(7) That it is further agreed that in case any defect in

the right or title of the parties of the first part or the said

company is found or any other encumbrance or legal

hurdle is found in respect of the said house property then

in both the circumstances the second party shall have

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option for the refund of advance money of Rs.10 lacs

together with interest @ 18% per annum."

It is interesting to note that the sale deed dated 24.02.1979 whereby

Sarafs purchased the property also contain an identical clause. Such types of

clauses normally are found in the agreement so as to enable the vendee to

protect his interest against the defects in vendor's title, if any. The

agreement records the valuation of property at Rs.11 lakhs. The respondents

relying on or on the basis of another purported agreement dated 04.06.1984

executed by Sarafs in favour of their son-in-law, original defendant No.5,

S.K. Mittal stated that the property was worth Rs.25 lakhs. The trial court,

in our opinion, correctly arrived at an opinion that the said agreement was a

shame one. The original defendant No.5 did not file any suit for specific

performance of contract. The said agreement for sale had not been acted

upon by the parties. Reliance placed on the said agreement by a learned

Judge of the High Court was, therefore, unwarranted.

The High Court in its judgment did not show as to how the said

finding of the learned trial court in that behalf was wrong. Moreover, except

the said agreement, no other legal evidence was brought on record to

establish as to what was the actual market value of the property.

The value of the property, as noticed hereinbefore, was only Rs.2

lakhs in the year 1979. Within a period of 5 years thereof as per the

agreement for sale, its price went up five times over the original. It is,

wholly unlikely that the property which was valued at Rs.2 lakhs in 1979,

would be worth Rs.25 lakhs in 1984.

In any view of the matter inadequate consideration by itself would not

lead to the conclusion that the same was an agreement of loan. Inadequate

consideration, it is trite, is also not a ground for refusing to grant a decree for

specific performance of contract.

Clause 5 of the said agreement required the company to satisfy the

appellants in regard to the ownership of the company in the said property

and the same was free from encumbrances, the reason wherefor is not far to

seek. The provisions of the Urban Land Ceiling Act were in force.

Permission was required for completing the said transaction both under the

Urban Land Ceiling (Regulation) Act, 1976 as also under the Income Tax

Act. In terms of Sections 26 of 1976 Act, a notice was required to be served

on the competent authority. At least the parties appear to have proceeded on

that basis. Strong reliance has been placed on the circumstance that when an

advertisement issued in the newspaper on 5.8.1984 notifying the existence of

agreement for sale between the appellants and the respondents, Sarafs

responded thereto alleging that the said transaction was a loan transaction.

By reason of such self-serving statement alone, an agreement for sale validly

entered into by and between the parties would not be treated to be a loan

agreement. It is furthermore interesting to note that in the said purported

response to the advertisement published in the paper also, Sarafs did not

raise any plea that the company had already entered into an agreement for

sale of property with a third person or that the dispute as regard title thereof

was pending adjudication before an arbitrator. If Sarafs claimed themselves

to be the owner of the said property, they should have challenged the

subsequent agreement also. The contention of the respondents that the said

agreement was merely one of loan was an afterthought.

Conduct of Sarafs :

It is in the aforementioned situation, the conduct of Sarafs assumes

significance. The agreement for sale was executed on 12.6.1984, pursuant to

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the resolution of the Board of Directors dated 08.6.1984, which was

followed by execution of a General Power of Attorney in favour of M.M.

Agarwal for the purpose of redeeming the mortgage from State Bank of

India, Kanpur and other purposes. They evidently with a design either to

defraud the State Bank of India or for other purposes best known to them,

purported to have inducted Vijay Kumar as Director of the company on

4.6.1984. Soon thereafter a purported dispute was raised on 6.6.1984 by and

between the said Vijay Kumar on the one hand and Sarafs on the other, as

regards the ownership of the property. One B.S. Mathur, Advocate, was

appointed as arbitrator on 7.6.1984. If the said documents were in existence

on 8.6.1984, Sarafs themselves could not have been a party to the resolution

in regard to the execution of the agreement for sale of the company's

property in favour of the appellant as also letting out of the same to Manoj

Kumar Poddar. It has not been denied nor disputed that the said Vijay

Kumar was merely an employee.

The arbitrator was appointed in undue haste. Within a few days, so

many events took place, which itself is a pointer to the evil design on the

part of Sarafs. It is of some significance to note that the appointment of Shri

Vijay Kumar as Director of the company was intimated to the Registrar of

the Companies on 29.9.1984, and the same had been received in his office

only on 7.1.1985.

Not only Sarafs intended to wriggle out of the agreement to sell, they

even intended to play fraud on the State Bank of India as 'the property' was

charged in its favour and the amount received from the appellant by way of

advance, had been utilized for the purpose of redeeming the mortgage.

The arbitrator made an award on 20.11.1984. It has not been denied

or disputed that the decree dated 19.8.1982 passed in O.S. No.267 of 1980

had not been placed before the arbitrator. Attention of the arbitrator had also

not been drawn to the proceedings of pending suit filed by the appellant

herein for specific performance of the said agreement of sale dated

12.6.1984 being O.S. No.537 of 1984. The arbitrator furthermore was not

made known about the pendency of another suit filed by Manoj Kumar

Poddar against the company being Suit No.612 of 1984 and the order of ex

parte injunction passed therein on 31.8.1984. The arbitrator while passing

an award on 20.11.1984 might not have any other option but to declare

Sarafs to be the owners of the property as the purported lis between the

parties went uncontested. Interestingly by reason of the said award, Sarafs

were directed to refund Rs.2,22,500/- to the company, which had been paid

to them. The company did not raise any objection evidently because nobody

else could factually represent it before the arbitrator; all the parties being on

the same side.

It is interesting to note that before the arbitrator, the company was

shown to be the claimant and thus, the company itself is said to have

appointed Shri Mathur as sole arbitrator. Such appointment of the arbitrator,

being in the teeth of the decree passed in Suit No.267 of 1980, arbitration

award and the decree passed by the Delhi High Court, had rightly been held

by the learned trial judge as collusive and fraudulent. It was thus a nullity.

Even in the proceedings for making the award a rule of the court before the

Delhi High Court being Suit No.1857-A of 1984, there was no opposition on

the part of the company. Although a decree for delivery of possession was

passed against the company, the lessee Shri Manoj Kumar Poddar or the

appellant had not been made parties therein. We would have occasion to

deal with the effect of our discussions hereafter.

Subject matter of the agreement :

One of the learned Judges of the High Court also opined that as the

agreement to sell referred to only the house or the bungalow, the parties did

not agree to sell the land. We have gone through the agreement for sale and

are of the opinion that the views taken by the learned judge were wholly

unwarranted. Apparently the respondents intended to sell what they had

purchased. There is nothing in the averments of the agreement to suggest

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that the intention of the respondents was restricted to the house alone and not

the lands. There was no basis for arriving at the said findings. In any event,

expression 'the house' will also include the land appurtenant thereto.

In P. Ramanatha Aiyar's Advanced Law Lexicon, Volume 2, 2005,

the word "house" has been defined to mean :

"HOUSE" means a house suitable for occupation by a

Military Officer or a military mess. The term includes

the land and buildings appurtenant to a house.

[Cantonment (House Accommodation) Act (6 of 1923),

S. 2(f)]

"HOUSE" includes any building or part of a building

with its appurtenances and outhouses used for any

purpose whatsoever [Orissa House Rent Control Act,

1967 (4 of 1968), S. 2(3)].

"HOUSE" includes \026

(a) any part of a building occupied or intended to be

occupied as a separate dwelling, and

(b) any yard, garden, outhouses and appurtenances

belonging to it or usually enjoyed with it [Housing

Act, 1996 (c. 52 1996), S. 6B(1)]"

In 'Word and Phrases, Permanent Edition, Volume 19A, it is stated :

"The word "building" necessarily embraces the

foundation on which it rests; and the cellar, if there be

one, under the edifice, is also included in the term

"house" or "building". If there be a cellar, the word

"building" includes it, unaffected by the height above the

foundation Benedict v. Ocean Ins. Co., 31 N.Y. 389,

394."

Furthermore, it is now well settled that the building includes the land

on which it stands, unless by express stipulation it is excluded. [See T.

Lakshmipathi & Ors. vs. P. Nithyananda Reddy & Ors. (2003) 5 SCC

150, paras 19 to 24]

Re : Demolition of the building:

Both the learned judges of the High Court found that the appellants

were responsible for demolition of the building forming the part of the

property.

Before adverting to the said question, we may, at the cost of

repetition, notice the contentions, which, according to Mr. Dwivedi,

sufficiently indicate that Sarafs alone were responsible therefor.

On the basis of the Award of the Arbitrator, a decree was passed by

the Delhi High Court on 21.2.1985. Sarafs executed the said decree. A

warrant of delivery of possession was issued against the Company. Pursuant

thereto or in furtherance thereof Manoj Kumar Poddar was said to have

been dispossessed, despite an order of interim injunction passed in Suit

No.612 of 1984 on 19.10.1984 operating in this behalf. An application for

restoration of possession was filed by the said Manoj Kumar Poddar under

Order 21 Rule 99 of the Code of Civil Procedure in the said execution case,

which was registered as Miscellaneous Case No.184/74 of 1985. In the said

application, Sarafs were sought to be restrained from damaging and

destroying any portion of the suit property and from parting with the

possession. An order of injunction restraining Sarafs from causing any

damage or destruction and parting with the possession of the suit property

was passed.

In response to the said application, Sarafs contended that they were

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required to execute a project of construction work. The contentions of

Sarafs were noted by the learned trial Judge in the following words:

"The opp. parties maintained that they have to

execute project of construction work in place of existing

disputed building. It is therefore, clear that the opp.

parties No.1 and 2 have intention to demolish or change

the nature of the existing premises."

It was further opined:

"The applicant would suffer irreparable injury in

case the opp. parties are successful in demolishing the

building."

The said findings by itself, as was submitted by Mr. Dwivedi, in our

opinion, would not be sufficient to draw an inference that Sarafs were

responsible for demolition of the building. We are not oblivious of the fact

that thereafter G.P. Tiwari instituted Rent Case numbered as Rent Case

No.99/87 against the Sarafs. The appellants were not impleaded as parties

therein. G.P. Tiwari was allegedly the caretaker of the building. An ex-

parte order was passed on 25.8.1989 directing eviction of Sarafs and

granting possession of the premises in his favour. The said order was

implemented and possession of the said premises was delivered on

23.9.1989. It is not in dispute that the building was demolished on the same

day. It is furthermore not in dispute that Mohan Lal Saraf filed an

application for setting aside the said ex-parte order dated 23.9.1989. On

24.9.1989, in relation to the said order, Smt. Pushpa Devi Saraf also filed a

Writ Petition being W.P. No.21985/89 for quashing of the ex-parte order

dated 25.8.1989. The ex-parte order was recalled. The writ petition was

dismissed only on the premise that the ex-parte order had been recalled. In

fact, the Rent Case itself was withdrawn by G.P. Tiwari on 8.2.1990. The

respondents contended that G.P. Tiwari was the man of the appellants. We

have, in this behalf, hereinbefore noticed the conduct on the part of the

appellants. One of the appellants and G.P. Tiwari filed a special leave

petition together. They had also engaged the same counsel for defending

themselves in the proceedings before this court.

It has been found by the High Court while determining the writ

petition that Sarafs had represented before various authorities, Government

functionaries and police complaining about the said unauthorized demolition

of the structure. Collusion of the police authorities with the appellants had

also been alleged, although not substantiated. Only on 23.9.1989 a First

Information Report was lodged. Charge-sheets were filed against the

appellants in terms of an order dated 9.12.1993 in Criminal Writ Petition

No.23804/89, in terms whereof the Central Bureau of Investigation was

directed to record a First Information Report against the appellants and

others. It is not disputed that in April, 1994, the Central Bureau of

Investigation, after investigation filed a charge-sheet against the appellants

for demolition of the said building and for alleged commission of other

offences relating to theft, criminal conspiracy, trespass, etc. It is also not in

dispute that in the said proceedings, charges have been framed and a large

number of witnesses have already been examined.

It is true that Sudhir Parasrampuria filed a suit in the Court of Civil

Judge, Kanpur Dehat against Sarafs and also against the said G.P. Tiwari for

a declaration that they had no right to damage the property and for its

preservation through a Receiver contending that the Sarafs had got the house

demolished through G.P. Tiwari who was their dummy. An interim order

was passed in the said suit on 23.10.1989 permitting grant of symbolic

possession to the appellants. But the said order, admittedly, had been set

aside by the High Court by an order dated 9.5.1990 in Writ Petition

No.21985/89 on the ground that service of notice had not been properly

effected upon Sarafs and the matter was remanded to the competent court,

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but, in the meantime, the suit itself was withdrawn by an order dated

30.5.1990. G.P. Tiwari, in response to the application for recalling the ex-

parte order passed in Rent Case No.99/87, stated that he had been appointed

as caretaker by Manoj Kumar Poddar. It is not in dispute that Manoj Kumar

Poddar is a cousin of Sudhir Parasrampuria. We may moreover notice that

against the order dated 9.12.1993 passed by the Allahabad High Court,

special leave petitions were filed by G.P. Tiwari and also by A.C. Verma,

Civil Judge, Kanpur, which were dismissed. Circumstances pointed out

hereinbefore prima facie do not lead to a conclusion that Sarafs were

responsible for demolition of the structures in question.

In view of the pendency of the criminal case, we do not intend to

express a definite opinion on one way or the other on the said issue. The

sequence of events noticed hereinbefore would go to show that the balance

in regard to demolition of the said structure tilts against the Appellants, in

view of the charge-sheet filed by the Central Bureau of Investigation

although the same itself may not be conclusive in nature. There is no reason

for us, as at present advised, to take a different view from that of the High

Court in this behalf.

There are other circumstances too which cannot be ignored.

The possession of the land in question was directed to be delivered by

the Civil Court in favour of G.P. Tiwari. On the same date, the buildings

were demolished. The respondents, therefore, on the said date were armed

with the orders of the court; the Appellants were not. The circumstances are

such which lead us to a finding for the purpose of disposal of this case that

the Appellants were responsible for demolishing the building.

For the aforementioned reasons, we would uphold the findings of the

High Court that the Appellants were responsible for demolition of the

structures standing on the land in question.

Discretionary relief:

Both the parties hereto are guilty of serious misconduct. Both of them

have abused the process of court. They initiated unnecessary nay frivolous

proceedings against each another. Both the parties took recourse to abuse of

judicial process against the other upon suppression of material fact, which

would amount to fraud on court. The question in regard to exercise of

discretionary jurisdiction for grant of a decree of specific performance of

contract, as envisaged under Section 20 of the Specific Relief Act, must be

considered from the said angle.

Section 20 of the Specific Relief Act reads thus:

"20. Discretion as to decreeing specific performance.-

(1) The jurisdiction to decree specific performance is

discretionary, 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.

(2) The following are cases in which the court may

properly exercise discretion not to decree specific

performance:-

(a) where the terms of the contract or the conduct of

the parties at the time of entering into the contract

or the other circumstances under which the

contract was entered into are such that the contract,

though not voidable, gives the plaintiff an unfair

advantage over the defendant; or

(b) where the performance of the contract would

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involve some hardship on the defendant which he

did not foresee, whereas its non-performance

would involve no such hardship on the plaintiff; or

(c) where the defendant entered into the contract

under circumstances which though not rendering

the contract voidable, makes it inequitable to

enforce specific performance.

Explanation 1.- Mere inadequacy of consideration,

or the mere fact that the contract is onerous to the

defendant or improvident in its nature, shall not be

deemed to constitute an unfair advantage within the

meaning of clause (a) or hardship within the meaning of

clause (b).

Explanation 2.- The question whether the

performance of a contract would involve hardship on the

defendant within the meaning of clause (b) shall, except

in cases where the hardship has resulted from any act of

the plaintiff subsequent to the contract, be determined

with reference to the circumstances existing at the time of

the contract.

(3) The court may properly exercise discretion to

decree specific performance in any case where the

plaintiff has done substantial acts or suffered losses in

consequence of a contract capable of specific

performance.

(4) The court shall not refuse to any party specific

performance of a contract merely on the ground that the

contract is not enforceable at the instance of the party."

Balancing of equities in a case of this nature is a difficult task. It is

now well settled that compensation can be awarded in lieu of grant of decree

of specific performance of contract. The courts are now evolving separate

principles in regard to the remedy of compensation. (See Snells' Equity,

page 452.) The learned author cites various cases to make home the point

stating:

"18-17 A monetary award which is made in

substitution for (or in addition to) non-monetary

relief will frequently be determined on the basis

of pecuniary performance or pecuniary

rescission; but, in some cases, may also be

determined by reference to the loss which has

been suffered.

18-18 (a) Pecuniary performance. Pecuniary

performance is a money substitute for the thing

which the defendant would have been required

to do, had specific relief been ordered. It is to

be determined by identifying the difference

between two values: (i) the value of the

claimant's right to performance of the

obligation and (ii) the value of the performance

which the defendant is able to give. Where the

defendant is not able to perform the obligation,

the amount of the award will represent the

value of the claimant's right to performance : in

such a case, an order for pecuniary performance

will be for a sum corresponding with the value

of the claimant's right to performance. The

position is similar where the court declines to

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grant non-monetary relief and thereby (in

effect) releases the defendant from the need to

perform the obligation in the future."

In Spry's Equitable Remedies, it is stated:

"In considering what circumstances induce the

court, as a matter of discretion, to award equitable

damages rather than relief in specie it must be borne in

mind that when once the general conditions for the

exercise of equitable jurisdiction have been established,

that is, the inappropriateness of damages in respect of a

matter coming within a recognized head of relief, prima

facie there arises a right to specific performance or to an

injunction, as the case may require. So it was observed

by Lord Langdale, "I conceive the doctrine of the court to

be this, that the court exercises a discretion, in cases of

specific performance, and directs a specific performance

unless it should be what is called highly unreasonable to

do so." Similarly reference has been made to "the rule

that where the plaintiff has established the invasion of a

common law right, and there is ground for believing that

without an injunction there is likely to be a repletion of

the wrong, he is, in the absence of special circumstances,

entitled to an injunction against such repetition."

On the one hand it is clear that the passage of

provisions for equitable damages did not affect these

general principles. So it has been affirmed that the

authorities show "that Lord Cairns' Act did not

revolutionise the principles upon which the equitable

jurisdiction had been administered up to that time and

that some special case must be shown before the court

should exercise the jurisdiction under the Act". On the

other hand, in cases where an injunction or an order of

specific performance would be granted if there were no

power to grant damages the statutory power of the court

to award damages may, in special circumstances, be of

critical weight. It may induce the court to conclude that

any inconvenience or hardship which would be caused to

the plaintiff if he were obliged to accept merely an award

of damages would be so far outweighed by the hardship

that would be caused to the defendant if specific

enforcement were granted that damages constitute the

most appropriate remedy. Hence where the court would

otherwise have granted specific relief the importance of a

power to grant equitable damages is found to lie

primarily in its relation to considerations of hardship

between the parties and to the balance of convenience."

In Gillett (supra), it was pointed out:

"Since Mr. Gillett has established his claim to

equitable relief, this court must decide what is the most

appropriate form for the relief to take. The aim is (as Sir

Arthur Hobhouse said in Plimmer v Mayor of Wellington

(1884) 9 App Cas 699 at 714) to 'look at the

circumstances in each case to decide in what way the

equity can be satisfied'. The court approaches this task

in a cautious way, in order to achieve what Scarman LJ

(in Crabb v Arun DC [1975] 3 All ER 865 at 880, [1976]

Ch 179 at 198) called 'the minimum equity to do justice

to the plaintiff'. The wide range of possible relief

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appears from Snell's Equity (30th edn, 1999) pp 641-

643."

For the aforementioned purpose it is necessary to have a broad

approach, as was observed in Gillett (supra). Therein it was further held:

"That is in my view the maximum extent of the

equity. The court's aim is, having identified the

maximum, to form a view as to what is the minimum

required to satisfy it and do justice between the parties.

The court must look at all the circumstances, including

the need to achieve a 'clean break' so far as possible and

avoid or minimize future friction (see Pascoe v Turner

[1979] 2 All ER 945 at 951, [1979] 1 WLR 431 at 438-

439)."

In Malhotra v Choudhury 1979 (1) All ER 186, Stephenson, LJ., in

the fact situation obtaining therein, opined:

"But as counsel for the plaintiff pointed out, the

question which the judges were summoned by their

Lordships to answer and which was proposed for their

consideration was 'Whether, upon a contract for the sale

of real estate, where the vendor, without his default [my

emphasis], is unable to make a good title, the purchaser is

by law entitled to recover damages for the loss of his

bargain?' That is the question which was answered in

the judgment of Pollock B, which was also the judgment

of Kelly CB, Keating and Brett, JJ, and the question as it

was stated by both Denman J and Pigott B. I note this is

the way in which the rule is stated in Williams on

Contract of Sale of Land, cited by Megarry J in Wroth v

Tyler:

'Where the breach of contract is occasioned

by the vendor's inability, without his own fault

[my emphasis], to show a good title, the purchaser

is entitled to recover as damages his deposit, if

any, with interest, and his expenses incurred in

connection with the agreement, but not more than

nominal damages for the loss of his bargain.'

It is not necessary to decide how far the words 'without

his default' go, if I am right in thinking that inability

without default is what one has to consider as attracting

the rule in Bain v Fothergill.

There may be cases in which there has been no

lack of bona fides, yet the rule in Bain v Fothergill has

been excluded. I would not however venture to suggest

that anything less than lack of good faith could exclude

the rule. But it seems from later decisions that fraud, in

the full sense of that word such as would found an action

for deceit, may not be necessary to exclude the rule. No

doubt Blackett-Ord V-C had in mind that fraud must be

strictly alleged and proved in all ordinary circumstances.

But in my judgment, unwillingness to use best

endeavours to carry out a contractual promise is bad

faith, and for there to be bad faith which takes the case

out of this exceptional rule it is not necessary that there

should be either a deliberate attempt to prevent title being

made good or anything more than the unwillingness

which I find it inevitable to infer in this case. If a man

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makes a promise and does not use his best endeavours to

keep it, it cannot take much and, in my judgment, may

not need more to make him guilty of bad faith and to

entitle the victim of his bad faith to his full share of

damages to compensate him for what he has lost by

reason of that breach of contract and bad faith."

In so far as the principle relating to assessing damages in substitution

for an order of specific performance is concerned, the learned Judge opined

that a court of equity should follow law and address itself to find the proper

substitute, stating that the equitable remedy of specific performance has

features markedly different from damages at common law for breach of

contract. [See also Horsler and another v Zorro, 1975 (1) All ER 584.]

Having noticed the law operating in the filed vis-`-vis the conduct of

the parties, we decline to grant a decree for specific performance of contract

and opine that in its stead and place a decree for compensation should be

granted.

What should be the amount of compensation is now the question.

Law as declared by this Court is that the quantum and measure of

damages would vary from case to case.

We may notice a few of them.

In Lalit Kumar Jain & Anr. vs. Jaipur Traders Corporation Pvt.

Ltd. [(2002) 5 SCC 383], this Court, while directing dismissal of the suit,

opined:

"\005.However, in view of the fact that the defendants are

not free from blame as discussed above and they have

utilized the property to the best of their advantage right

from day one without, at the same time, paying the

balance sale price for several years, we put it to the

counsel for the appellants whether they are willing to pay

to the plaintiff a substantial amount over and above the

sale price already deposited in the Court, in order to do

justice to the parties. In fact, in the course of arguments

by the learned counsel for the appellants, there was an

indication that the appellants were prepared to offer a

reasonable amount, without prejudice to their

contentions. The learned counsel for the appellants has

filed a letter dated 18-4-2002 stating that "the appellants

can pay and agree to pay a further sum of Rs.35 lakhs

(Rupees thirty-five lakhs) in 3 instalments of Rs.15 lakhs

and Rs.10 lakhs and Rs.10 lakhs", in three weeks, by the

end of August and by the end of November 2002

respectively. When we suggested to the learned counsel

that it would be fair if some more amount is offered, the

learned counsel for the appellants agreed on behalf of his

clients for payment of Rs.40 lakhs in lump sum within a

period of six months commencing from today. Having

regard to the offer made in the letter coupled with the

oral representation made today and to mete out justice to

the parties, we direct that the undertaking to pay the sum

of Rs.40 lakhs within six months should form part of the

decree in the suit. This shall be in addition to the sale

price already deposited in the Court. The same shall be

deposited in the Court within a period of six months and

the plaintiffs are entitled to withdraw the same in

addition to the amount already deposited."

In Manjunath Anandappa urf Shivappa Hanasi vs. Tammanasa &

Ors. [(2003) 10 SCC 390], was a member, a decree for specific performance

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was declined as the plaintiff did not approach the court within a reasonable

time.

In P.D'Souza vs. Shondrilo Naidu [(2004) 6 SCC 649], this Court

rejected the contention that inadequacy of consideration may be ground for

refusing relief of specific performance, which may cause hardship stating:

"It is not a case where the defendant did not

foresee the hardship. It is furthermore not a case that

non-performance of the agreement would not cause any

hardship to the plaintiff. The defendant was the landlord

of the plaintiff. He had accepted part-payments from the

plaintiff from time to time without any demur

whatsoever. He redeemed the mortgage only upon

receipt of requisite payment from the plaintiff. Even in

August, 1981 i.e. just two months prior to the institution

of suit, he had accepted Rs.20,000 from the plaintiff. It

is, therefore, too late for the appellant now to suggest that

having regard to the escalation in price, the respondent

should be denied the benefit of the decree passed in his

favour. Explanation I appended to Section 20 clearly

stipulates that merely inadequacy of consideration, or the

mere fact that the contract is onerous to the defendant or

improvident in its nature would not constitute an unfair

advantage within the meaning of sub-section (2) of

Section 20."

The Court noticed that somewhat a different note was struck in

Nirmala Anand vs. Advent Corpn. (P) Ltd & Ors. [(2002) 5 SCC 481]

and opined:

"The said decision cannot be said to constitute a

binding precedent to the effect that in all cases where

there had been an escalation of prices, the court should

either refuse to pass a decree on specific performance of

contract or direct the plaintiff to pay a higher sum. No

law in absolute terms to that effect has been laid down by

this Court nor is discernible from the aforementioned

decision."

In Surinder Singh vs. Kapoor Singh (Dead) through LRs. & Ors.

[(2005) 5 SCC 142], it was emphasized that discretionary jurisdiction must

be exercised reasonably and having regard to the fact situation obtaining in

each case. The present market value of the property is also a relevant fact.

The prices must have gone up manifold. It is situate in a metropolitan town.

It has a great potential value.

As noticed hereinbefore, the conduct of both the parties are

blameworthy. The value of the property is now said to be a few crores. The

appellants had deposited a sum of Rs.10 lakhs as far back as on 12.6.1984.

The said amount must be directed to be refunded to the appellants with

interest @15% per annum. Although we decline to grant any relief of

specific performance of contract to which the Appellants were otherwise

entitled to, we are of the opinion that it is a fit case where the respondents

should be asked to compensate the Appellants. In view of the fact that the

Sarafs are also responsible for bringing out such a situation, we are of the

opinion that interest of justice would be met if the respondents are directed

to pay a sum of Rs.50,00,000/- to the Appellants herein by way of

compensation. Such amount should be in addition to the sum of

Rs.10,00,000/- deposited by the Appellants together with interest at the rate

of 12% per annum thereupon. This order shall not preclude Manoj Kumar

Poddar to bring an independent action against the respondents herein, if he

so desires.

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Conclusion:

(i) The property in suit for all intent and purport was acquired for the

benefit of the Company.

(ii) Only because at the time of acquisition of the property by Sarafs,

the Company was unincorporated, the same would not mean that

no title could have been passed in favour of the Company.

(iii) In view of their conduct, Sarafs were estopped and precluded from

denying and disputing the title of the Company over the property

in dispute.

(iv) Withdrawal of suit No. 1252 of 1982 by the appellants did not

create any embargo in raising a contention that the award of the

arbitrator and the consequent decree passed were void ab initio and

of no effect.

(v) The agreement for sale dated 11.6.1984 was not a transaction for

loan.

(vi) Saraf's conduct was condemnable so far as they not only raised

false and frivolous pleas but also initiated frivolous proceedings in

courts of law.

(vii) The subject matter of the agreement was not only the house in

question but also the entire lands.

(viii) Prima facie the demolition of the house took place at the instance

of the appellants.

(ix) However, it is not a case where the appellants are entitled to a

decree for specific performance of contract.

(x) The respondents should refund the amount of advance of

Rs.10,00,000/- (ten lakhs) with interest and furthermore pay

compensation to the extent of Rs.50,00,000/- (fifty lakhs).

The appeals are allowed to the aforementioned extent. However, in

the facts and circumstances of these cases, the parties shall bear and pay

their own costs.