Kapilaben & Ors. vs Ashok Kumar Jayantilal Sheth through Poa Gopalbhai Madhusudan Patel & Ors.

Specific performance of contract – Agreement to sell disputed property in the year 1986 between original vendor and original vendees – Sale was to be executed upon receipt of remaining consideration from the original vendees within stipulated time – The original vendees thereafter in the year 1987 executed four agreements to sell the four different portions of the property in dispute to the vendees in the present case (i.e. respondent Nos.1) – The vendees under 1987 agreement were required to start a housing project on the land in question – Suit for specific performance of 1986 agreement was filed by the original vendee against the original vendor – The vendees under 1987 agreements also filed suit for specific performance of the 1987 agreements – Original vendees withdrew their suit for specific performance of 1986 agreement and the vendees in respect of 1987 agreements sought impleadment as co-plaintiffs in that suit – Trial court rejected the withdrawal application and allowed the impleadment application – High Court reversing the order of trial court allowed the withdrawal application and rejected impleadment applications – The order of High Court was affirmed by Supreme Court – Vendees of 1987 agreement amended their suit for specific performance of 1987 agreement seeking execution of 1986 agreement on the basis of assignment made in their favour – Trial court dismissed the suits – Appellate Court affirmed the finding of trial court – High Court allowed the case of vendees of 1987 agreement – Appeal to Supreme Court by the original vendors – Held: There was no privity of contract between the appellants (original vendors) and respondent No.1 (vendees in 1987 agreement) as neither appellants were party to 1987 agreements, nor respondent Nos.1 were party to the 1986 agreement – Hence respondent Nos.1 cannot seek specific performance of 1986 or 1987 agreements against the appellants except by suing as representative-in-interest or the original vendees u/s. 15(b) of the Specific Relief Act – The term ‘representative-in-interest’ includes the assignee of a contractual interest – Whether or not an assignee can seek specific performance would depend upon the construction of the contract – In the facts of the present case, 1987 agreements were not a case of assignment, but were independent agreements for sale which were contingent upon the execution of 1986 agreement – Therefore, the only way respondent Nos.1 could seek specific performance of the 1986 agreement was by proving the appellants’ knowledge of and consent to transfer of the original vendees’ rights and liabilities to respondent Nos.1 – In the present case, appellants have neither by words nor by conduct, consented to the assignment of the 1986 agreement in favour of respondent Nos.1 – 1987 agreements were contingent contracts – Once 1986 agreement was cancelled, the original vendees’ rights thereunder ceased to exist – Due to subsequent withdrawal of the suit for specific performance of 1986 agreement abandoning their rights, enforcement of 1987 agreements has become impossible – Thus, 1987 agreements are void and unenforceable as provided u/ss. 32 and 35 of the Contract Act – However, it prima facie seems that the original vendees relinquished their rights in the 1986 agreements to frustrate the performance of 1987 agreements, original vendees are directed to reimburse earnest money and 9% interest per annum and pay compensation of Rs.1,80,000/- with interest @ 9% per annum – Specific Performance Act, 1963 – s.15(b) – Contract Act, 1872 – ss.32, 35 and 40 – Transfer of Property Act, 1882 – s.40.

Contract:

Assignability of Contract – Held: Promisor cannot assign contract to the third party without consent of the promisee. Words and Phrases:

‘Representative-in-interest’ – Meaning of in the context of contract.

Partly allowing the appeals, the Court

HELD: 1.1 Upon considering the facts and circumstances of the present case, it is evident that there is no privity of contract between the appellants and respondent Nos. 1. Respondent Nos. 1 were not the party to the 1986 agreement. Vice versa, the appellants were not party to the 1987 agreements, though whether or not they had knowledge of the same is disputed. Hence, respondent Nos. 1 cannot seek specific performance of the 1986 agreement, or for that matter, the 1987 agreements, against the appellants, except by suing as ‘representatives-in-interest’ of the original vendees under Section 15(b) of the Specific Relief Act. [Para 7] [236-B-D]

The Indian Contract and Specific Relief Acts by Pollock and Mulla by (R. Yashod Vardhan, and Chitra Narayan eds., 15th edn., Vol. I) 730 – referred to.

1.2 The term ‘representative-in-interest’ includes the assignee of a contractual interest. Though the provisions of the Contract Act do not particularly deal with the assignability of contracts, this Court has opined time and again that a party to a contract cannot assign their obligations/liabilities without the consent of the other party. Even in a case of assignment of rights simplicitor, such assignment would necessarily require the consent of the other party to the contract if it is of a ‘personal nature’. [Paras 7, 8] [263-F-H; 265-A-B]

1.3 The rule stated in Section 15(b) of the Specific Relief Act is that any interest in a contract can be specifically enforced by the assignee thereof, except where the ‘personal quality’ of the party is a material ingredient in the contract; or where the contract, expressly or by necessary implication, prohibits the beneficiary from transferring their contractual interest to third parties. Hence Section 15(b) does not contradict the general law on assignability of contracts as laid down by this Court, but rather clarifies that the same conditions will have to be satisfied if an assignee seeks to secure specific performance of the assigned contract. [Para 9] [265-D-G]

1.4 In the modern context where parties frequently enter into complex commercial transactions, it is perhaps not so convenient to pigeonhole contracts as being either ‘general’ or of ‘personal nature’ or as involving the assignment of purely ‘rights’ or ‘obligations’. It is possible that a contract may involve a bundle of mutual rights and obligations which are intertwined with each other. Where the conferment of a right or benefit is contingent upon, or coupled with, the discharge of a burden or liability, such right or benefit cannot be transferred without the consent of the person to whom the co-extensive burden or liability is owed. [Para 10] [266-A-D]

1.5 It would be inequitable for a promisor to contract out his responsibility to a stranger if it is apparent that the promisee would not have accepted performance of the contract had it been offered by a third party. This is especially important in business relationships where the pre-existing goodwill between parties is often a significant factor influencing their decision to contract with each other. This principle is already enshrined in Section

40 of the Contract Act. The promisor ‘may employ a competent person’, or assign the contract to a third party as the case may be, to perform the promise only if the parties did not intend that the promisor himself must perform it. Hence in a case where the contract is of personal nature, the promisor must necessarily show that the promisee was agreeable to performance of the contract by a third person/assignee, so as to claim exemption from the condition specified in Section 40 of the Contract Act. If the promisee’s consent is not obtained, the assignee cannot seek specific performance of the contract. [Para 10] [266-D-H; 267-A-B]

1.6 Hence, whether or not an assignee can seek specific performance would depend upon the construction of the contract in each case. The Court would have to determine the nature of interest sought to be transferred, whether such interest was meant to be enforceable only between the parties to the contract and whether the contract expressly or by necessary implication bars assignment of such interest. [Para 11] [267-A-C]

1.7 In the present case, the 1986 agreement provided that the Appellants shall execute sale deed in favour of the original vendees or ‘name proposed by the vendee’ subject to the assurance that the latter would pay the remaining consideration and betterment tax within the stipulated time, and that the former would obtain the necessary permissions for construction on the suit property. The term ‘name proposed by the vendee’ in the 1986 agreement refers to a nominee to be proposed at the time of execution of the sale deed and not a subsequent assignee. At the same time, it is true the 1986 agreement does not contain any express bar against assignability. [Para 11] [267-C-E]

1.8 It cannot be said that in every case where there is no express bar against assignability stipulated in the contract, assignment of the interest therein should be upheld without looking at the context in which the parties contracted with each other. It has to be seen whether the terms of the contract, and the circumstances in which the contract was entered into, lead to an inference that the parties did not intend to make their interest therein assignable. [Para 11] [267-F-H]

1.9 Section 40 of the Transfer of Property Act states that a contract for sale of immovable property is a contract that “a sale shall take place on terms settled between the parties”. It is a settled position that such a contract does not by itself create any interest in or charge on the property. The buyer only obtains a right to get the sale deed executed, upon fulfilment of the applicable terms and conditions as consented to by all the parties. Hence the 1986 agreement, being an agreement to sell the suit property, is a clear case of a contract combining mutual rights and obligations. The original vendees were to obtain the right to get the sale deed executed in respect of the suit property upon fulfilment of the conditions specified in the 1986 agreement. [Para 12] [268-E-H]

1.10 Upon comparison of the 1986 agreement and the 1987 agreements, it is found that the 1987 agreements amount to nothing but a substitution of liabilities wherein Respondent Nos.

1 have assumed the same obligations which the original vendees were supposed to have performed under the 1986 agreements. This includes not only the obligation to pay betterment tax but also the obligation to reimburse the cost of acquiring planning permissions and to get the suit property levelled for the purpose of construction. Additionally, the 1987 agreements also provide that the plaintiffs can prepare the scheme for construction of housing society on the suit property, get the members of the society registered and execute agreements with them, and publish advertisement boards regarding the scheme. Hence this is not a case of assignment of agreement for sale simplicitor, but assignment of what is akin to a development agreement for a housing scheme on the suit property. A contract of this nature is ordinarily based upon certain personal understanding between the parties regarding the course of business to be undertaken on the suit property. [Para 12] [269-A-D]

1.11 It is not disputed that the original vendees had not fulfilled their obligations under the 1986 agreement prior to the purported ‘assignment’ under the 1987 agreements. Hence they had not ‘performed their part of the contract’ as required under Section 15(b) of the Specific Relief Act. Applying the law, the assignment of such a contract cannot be enforced without proving that it was with the knowledge and consent of the original owners/Appellants. [Para 12] [269-D-F]

1.12 Under the 1987 agreements, payment of the remaining consideration amount is to be made to the original vendees, not the appellants, and possession of the suit property is to be handed over by the original vendees. Even the consideration to be paid was twice the rate as specified in the 1986 agreement. The 1987 agreements nowhere provide for discharge of the original vendees’ pending obligations towards the appellants by respondent Nos. 1. Hence, the 1987 agreements were not a case of assignment but appear to be independent agreements for sale which were contingent on the execution of the 1986 agreement. Therefore, the only way respondent Nos. 1 can seek specific performance of the 1986 agreement against the appellants is by proving the appellants’ knowledge of and consent to transfer of the original vendees’ rights and liabilities to respondent Nos. 1. [Para 13] [269-E-H]

1.13 It is true that Section 15(b) does not stipulate in what form the promisee’s ‘acceptance’ of performance by a representative-in-interest of the promisor should be communicated. It may be either through express written consent, or implied from the actions of the promisee; though as a matter of caution, the former mode of acceptance would inevitably have higher evidentiary value. However in the present case, as the trial court and the District Judge have rightly appreciated on facts, the appellants have not either by words or by conduct, consented to the assignment of the 1986 agreement in favour of respondent Nos. 1. [Para 14] [270-A-C]

1.14 Respondent Nos. 1 had conceded before the trial court that the appellants had given their signatures on the layout plan for the housing scheme on the suit property to the original vendees, not to respondent Nos. 1. Even the advertisement regarding the housing scheme nowhere indicates that the appellants/original owners were developing the project on the suit property in partnership with respondent Nos. 1. Thus, there was no valid assignment of rights flowing from the 1986 agreement to respondent Nos. 1, and they cannot seek specific performance against the appellants. [Para 14] [270-E-G]

1.15 The 1987 agreements are clearly contingent contracts inasmuch as they could only be enforced had the original vendees obtained the right to get the sale deed executed, and taken possession of the suit property as per the terms of the 1986 agreement. Once the 1986 agreement was cancelled by the appellants, the original vendees’ rights thereunder ceased to exist. [Para 16] [271-D-F]

Khardah Company Ltd v. Raymon & Co (India) Private Ltd., AIR 1962 SC 1810 : [1963] SCR 183 – followed. Indu Kakkar v. Haryana State Industrial Development Corporation Ltd. and Another (1999) 2 SCC 37 : [1998] 3 Suppl. SCR 277 – relied on.

Shyam Singh v. Daryao Singh (Dead) By LRs. and Others (2003) 12 SCC 160 : [2003] 5 Suppl. SCR

784 ; Ram Baran Prasad v. Ram Mohit Hazra and Others AIR 1967 SC 744 : [1967] SCR 293 –

distinguished.

2.1 Respondent Nos. 1 have admitted in their plaints that the Town Planning Scheme was finalized prior to the 1986 agreement. Hence the deadline stipulated under the 1986 agreement for payment of remaining consideration by the original vendees, i.e., within three months of finalization of the Scheme, has long since lapsed. Since the original vendees never paid the remaining consideration within the time specified in the 1986 agreement, their rights thereunder never fructified. [Para 17] [272-A-C]

2.2 Even assuming that the original vendees acquired some interest in the suit property, the subsequent withdrawal of the suit SCS No. 194/1988 shows that the original vendees do not intend to enforce the 1986 agreement. The trial court has found that though the suit property de jure vested with the concerned Government Authority under the Town Planning Scheme, the de facto possession of the property remains with the Appellants and the original vendees have not taken possession thereof. Furthermore, both the trial court and the District Judge have on facts found that the original vendees have not shown any readiness or willingness to pay the remaining consideration to the appellants. Hence since the original vendees have abandoned their rights under the 1986 agreement, enforcement of the 1987 agreements has become virtually impossible and respondent Nos. 1 cannot seek specific performance of the latter. Consequently the 1987 agreements are void and unenforceable as provided under Sections 32 and 35 of the Contract Act. [Para 17] [272-B-F]

2.3 Given that the withdrawal of the suit for specific performance of 1986 agreement has attained finality before this Court, and the trial court and the High Court have concurrently found in the separate application made by the plaintiffs in the present suit, by orders dated 24.1.2008 and 25.3.2008 respectively, that the original vendees cannot be compelled to continue their suit against their desire, interference with the same is not warranted. [Para 18] [273-B-C]

3.1 Though on facts and law, respondent Nos.1 are not entitled to specific performance of the 1986 and 1987 agreements, prima facie it does appear that the appellants and the original vendees have colluded to frustrate performance of the 1987 agreements. The trial court has rightly directed the original vendees to reimburse earnest money of Rs. 5000 paid by respondent Nos. 1 towards each of the 1987 agreements with an interest of 9% p.a. from 14.9.1987 till the date of realization. [Para 19] [273-C-E]

3.2 Since the original vendees seem to have relinquished their rights in the 1986 agreement so as to frustrate performance of the 1987 agreements, it would be just, in these circumstances, to award compensation to the Plaintiffs for the loss of opportunity and inconvenience suffered by them. Though no remedy is available as against the Appellants on account of absence of privity of contract, it is apposite to direct the original vendees, that is, respondent Nos. 3-11 in the four appeals, to pay Rs. 1,80,000/-, with interest at the rate of 9% per annum from the date of the suits, as damages to the Plaintiffs/respondent Nos.

1 in these appeals. High Court is also directed to expeditiously release and remit back the consideration amount deposited by respondent Nos. 1 in lieu of specific performance. [Para 19] [273G-H; 274-A-B]

Habiba Khatoon v. Ubaidul Huq and Others (1997) 7 SCC 452 : [1997] 3 Suppl. SCR 251 – referred to.