Notice of Motion No.2508 of 2011,Suit No.426 of 2007

13th September, 2013

Petitioner Counsel: Mr. SAKET MONE i/b VIDHI PARTNERS
Respondent Counsel: Mr. ROHAN CAMA a/w Mr. HEMANG RAYTHATTHA and Mr. DAYESH MESTRY i/b RMG, Mr. SUHAS PATIL i/b NAVDEEP VORA

Cases Cited:
B.J. Patel Vs. M/s. Vadilal Dolatram & Sons, AIR 1982 Bombay 66 [Para 9,14]
Shantilal J. Khona Vs. Anandrai S. Dave, 2002(3) Bom. C.R. 346 [Para 9,15]
Vinod Seth Vs. Devinder Bajaj & Anr., 2010 ALL SCR 2356 =2010 (8) SCC 1 [Para 9,16]
Gouri Dutt Maharaj Vs. Sukur Mohammed, AIR (35) 1948 PC 147 [Para 9,11]
Kedarnath Vs. Sheonarain, AIR 1970 SC 1717 [Para 9,12]

JUDGMENT

JUDGMENT :- By this Notice of Motion Defendant No.1 has prayed for dismissal of the suit under Order 7 Rule 11 of the Code of Civil Procedure ( for short CPC ). In the alternative, the Defendant has prayed for a direction to the Plaintiffs to execute and register a deed of cancellation of lis pendens within such time and period as the Court deems fit.

2. The suit is for specific performance of an oral agreement between the Plaintiffs and Defendant No.1 for assignment/ transfer of the immovable property described in Exh.A to the plaint. The oral agreement is said to be evidenced by a draft MOU exchanged between the Plaintiffs and Defendant No.1 which is annexed as Exh.F to the plaint. It is the case of the Plaintiffs that the terms and conditions of the agreement for assignment/transfer were orally finalized between the parties in May 2006 and that all that remained to be done was to execute a written agreement and obtain a written consent of Defendant No.2 i.e. (the head lessor) for such assignment / transfer; that in pursuance of the said agreement a sum of Rs.1 Crore was paid by the Plaintiffs to Defendant No.1 in part payment of consideration; that this agreement was modified in August 2006, the modified agreement being evidenced by the draft MOU forwarded by Defendant No.1 under the cover of its electronic mail message dated 29 August 2006; and that Defendant No.1 has failed to honour the agreement for assignment / transfer despite of the Plaintiffs' readiness and willingness to perform their obligations under the concluded agreement. The Plaintiffs, in the premises, have sought (i) a declaration that, there is a valid concluded and binding contract between the Plaintiffs and Defendant No.1 for assignment/ transfer of the property evidenced by the draft MOU and (ii) specific performance of the said concluded contract by executing a deed of assignment/ conveyance in terms of the draft MOU.

3. Mr.Cama, learned Counsel for Defendant No.1, in support of the Notice of Motion, submits as follows:

a) The plaint discloses no cause of action. On the averments made in the plaint, reliefs claimed in prayers (a) and (b) of the plaint cannot be granted and that, therefore, there is a case for rejection of the plaint under Clause (a) of Order 7 Rule 11 of CPC on the ground of non-disclosure of cause of action;

b) The entire case of the Plaintiffs of there being a concluded contract is on the basis of payment of Rs.1 Crore in part payment of consideration. The Plaintiffs having accepted refund of the said amount after filing of the suit, the entire basis of the suit claim for specific performance has disappeared and therefore, the suit needs to be dismissed by rejection of the plaint under Order 7 Rule 11 of CPC;

c) The Plaintiffs seek specific performance of an MOU which is inadmissible in evidence due to want of payment of stamp duty and that the plaint is liable to be rejected on that ground under Clause (d) of Order 7 Rule 11 of CPC; and

d) In the alternative, there is no prima-facie case for specific performance and the Plaintiffs having accepted refund of the amount paid towards the sale of the property, there is no case even for securing the Plaintiffs towards their alleged charge over the property for part payment of the sale price and that in the premises, Defendant No.1 should be relieved of lis pendens without prescribing any condition.

4. On the other hand, Mr Mone, learned Counsel for the Plaintiffs submits as follows:

a) The averments in the plaint disclose a cause of action, namely, a concluded oral agreement, its breach by Defendant No.1 and the Plaintiffs' readiness and willingness to perform their part of the contract. For the purpose of an application under Order 7 Rule 11 of CPC, the averments in the plaint must be taken as true and the defence cannot be considered;

b) The Plaintiffs seek specific performance of an oral agreement. The agreement is not contained in the MOU but only evidenced by it. The MOU, in the premises, need not have been stamped and there cannot be any objection to leading the evidence of the MOU and, therefore, there is no case under Clause (d) of Order 7 Rule 11 of CPC;

c) The Plaintiffs have a bona-fide case for specific performance, and in the alternative, damages in lieu thereof in the suit, which must go to trial and no relief under the circumstances can be granted from lis pendens.

5. The principles on which the plaint can be rejected under Clause (a) of Order 7 Rule 11 of CPC for non-disclosure of cause of action, are well settled. For the purposes of deciding an application under that Rule, it is only the facts pleaded in the plaint and the accompanying documents relied upon in the plaint, which are to be taken into account. The Court must presume those facts as true and cannot look into the defence set out by the Defendant in the Written Statement. The Court needs to consider, whether on the facts pleaded by the Plaintiff, treating them to be true, a cause of action is disclosed or not. On the other hand, whether relief can be granted on the pleaded facts and evidence adduced in support thereof, is a matter which is decided at the trial and not at the threshold when the Court considers the application for rejection of the plaint under Order 7 Rule 11 of CPC.

6. In the light of these principles, it needs to be considered whether on the facts pleaded in this case, any cause of action is disclosed or not. The Plaintiffs have in Para 6 and 7 of the plaint pleaded that, in May 2006 there was a concluded contract arrived at orally between Defendant No.1 and the Plaintiffs for assignment / transfer of the leasehold interest of Defendant No.1 to the Plaintiffs. It is the case of the Plaintiffs that, all terms and conditions of such contract were finalized between the parties and all that remained to be done was to execute a formal agreement and to obtain a written consent of Defendant No. 2, who was the owner - head Lessor of the immovable property, for such assignment/ transfer. It is further alleged by the Plaintiffs in para 7 that, out of the total consideration of Rs.3.33 Crores for assignment / transfer of the said property, Defendant No.1 had already received part payment of about 30 % of the purchase price, i.e. Rs.1 Crore from the Plaintiffs. It is alleged in Para 8 of the plaint that, the draft of the MOU on the basis of the oral agreement was forwarded by Defendant No.1 to the Plaintiffs in July-2006, but that draft MOU was not acceptable to the Plaintiffs as it contained various changes which were not in consonance with what was agreed to between the parties. It is further alleged by the Plaintiffs in para 11 of the plaint that, on 14 August 2006, a meeting was held between the parties, in which the changes sought by Defendant No.1 to the contract concluded between the parties in May - 2006 were agreed to by the Plaintiffs and on the basis of such agreement, a revised draft MOU was prepared between the parties. The revised draft MOU was forwarded by the Plaintiffs to Defendant No.1 with electronic mail message dated 22 August 2006 which is annexed as Exh.F to the plaint. It is further alleged by the Plaintiffs in para 16 of the plaint that, thereafter several meetings were held between the representatives of the Plaintiffs and Defendant No.1, in which Defendant No.1 repeatedly assured the Plaintiffs that, it would complete the transaction as per the terms and conditions set out in the draft MOU. It is alleged by the Plaintiffs in para 17 and 18 of the plaint that, Defendant No.1 sought to return the amount of Rs.1 crore paid by the Plaintiffs to Defendant No.1 towards the sale of the said property resiling from the concluded contract between the parties. The Plaintiffs have averred in paras 19 to 21 of the plaint that, there was a valid, binding, subsisting and concluded contract between the parties for assignment / sale of the property, the terms of which were evidenced by the draft MOU attached to the Electronic Mail Message dated 22 August 2006; that the Plaintiffs were and have at all times been ready and willing to perform all their obligations; that Defendant No.1 was trying to resile from its agreement to assign its rights in respect of the said property to the Plaintiffs; and that in the premises, the Plaintiffs were entitled to specific performance of the oral contract as evidenced by the draft MOU.

7. The narration of the facts pleaded, as shown above, does disclose a cause of action. The Plaintiffs have pleaded a concluded oral contract, its breach by Defendant No.1 and the Plaintiffs' readiness and willingness to perform their part of the oral concluded contract. The facts as pleaded by the Plaintiffs must be taken to be true for the purpose of considering a case for rejection of plaint under Order 7 Rule 11 of CPC. The defence of Defendant No.1 that there was no concluded contract but only negotiation between the parties, in the course of which a sum of Rs.1 Crore was paid by the Plaintiffs to Defendant No.1, cannot be considered for the purpose of an application under Order 7 Rule 11. So also the defence of Defendant No.1 that, the Plaintiffs have by unconditionally accepting the refund of the payment made by the Plaintiffs to Defendant No.1, given a go by to the concluded contract, if any, between the parties and that the whole basis of their claim for specific performance has disappeared as a result, cannot be accepted for the purpose. The event of acceptance of the refund has occurred after filing of the suit and is a matter of defence to the suit for specific performance. It may afford a ground for rejecting the case for specific performance, but not a ground for rejecting the plaint for non disclosure of cause of action on the face of the plaint. In any event, on the date of the suit there was a case for claiming refund of Rs.1 Crore paid by the Plaintiffs to Defendant No.1 as prayed for in prayer (d)(ii) of the plaint.

8. Defendant No.1, alternatively, submits that, the Plaintiffs having sought specific performance of the contract evidenced by the draft MOU, inter alia, by executing a deed of assignment / conveyance in terms of draft MOU, and the draft MOU being unstamped and as such not being admissible in evidence, the plaint ought to be rejected under Clause (d) of Order 7 Rule 11 of CPC. It may be noted that under the provisions of the Bombay Stamp Act, if a document, which is required to be stamped, is insufficiently stamped, the same is not admissible in evidence and liable to be impounded. The admissibility of a document in evidence is a matter pertaining to the trial of the suit. It is not that the Stamp Act bars a suit on an inadequately stamped document. Besides, even under the Stamp Act, after payment of the requisite stamp duty and penalty, the document may be admitted in evidence. Secondly, it is not the case of the Plaintiffs that the concluded contract between the parties is contained in draft MOU. What the Plaintiffs plead is that the draft MOU evidences the terms of the concluded oral contract. The terms of the contract can be proved by oral evidence. The document, namely, the draft MOU is merely said to contain a record of that oral agreement and may only have evidentiary value. These are matters for the Trial Court to decide and do not bear on the admissibility of the plaint under Order 7 Rule 11 of CPC.

9. Alternatively, Defendant No.1 claims relief from lis pendens in terms of prayer clause (d) of the Notice of Motion. It is claimed by Defendant No.1 that, prima-facie the Plaintiffs have no case for specific performance of an agreement for sale of immovable property, and that in the facts of the case, there is no case even for protecting the Plaintiffs towards their alleged charge in respect of the immovable property. Defendant No.1 relies on the cases of B.J. Patel Vs M/s Vadilal Dolatram & Sons, AIR 1982 Bombay 66; Shantilal J. Khona Vs Anandrai S. Dave, 2002(3) Bom. C.R. 346 and Vinod Seth Vs Devinder Bajaj & Anr., 2010 (8) SCC 1 : [2010 ALL SCR 2356] in support of its case that the facts and circumstances warrant an order relieving Defendant No.1 from operation of lis pendens embodied in Section 52 of the Transfer of Property Act, 1882 ( for short TPAct). The Plaintiffs, on the other hand, submit that, Plaintiffs have a bonafide case to go to trial and that the applicability of Section 52 of TPAct does not depend on matters of proof or the strength or weakness of the case of one side or the other. The Plaintiffs rely on the cases Gouri Dutt Maharaj Vs Sukur Mohammed, AIR (35) 1948 PC 147 and Kedarnath Vs Sheonarain, AIR 1970 SC 1717 in support of their case.

10. Section 52(1) of TPAct, as amended in State of Maharashtra, reads as under;

"Transfer of Property pending suit relating thereof .....(1) During the pendency in any Court having authority within the limits of Indian excluding the State of Jammu and Kashmir or established beyond such limits by the Central Government of any suit or proceeding which is not collusive and in which any right to immovable property is directly and specifically in question, if a notice of the pendency of such a suit or proceeding is registered under section 18 of the Indian Registration Act, 1808, the property after the notice is so registered cannot be transferred or otherwise dealt with by any party to the suit or proceeding so as to affect the right of any other party thereof under the decree or order which may be made therein; except under the authority of the Court and on such terms as it may impose"

11. The applicability of Section 52 was considered by Privy Council in case of Gouri Dutt Maharaj (supra). After considering the broad purpose of Section 52, Privy Council held as follows;

"The broad purpose of S.52 is to maintain the status quo unaffected by the act of any party to the litigation pending its determination. The applicability of the section cannot depend on matters of proof or the strength or weakness of the case on one side or the other in bona fide proceedings. To apply any such test is to misconceive the object of the enactment".

12. The principle that the doctrine of lis pendens applies irrespective of strength or weakness of the case on one side or the other was confirmed by the Supreme Court in the case of Kedarnath Vs Sheonarain (supra). In that case, the Supreme Court held as follows;

" .... the doctrine of lis pendens applies irrespective of the strength or weakness of the case on one side or other. See Gouri Dutt Maharaj V. Sukur Mohammed, 75 Ind App 165 = (AIR 1948 PC 147). There is, however, one condition that the proceedings must be bona fide"

13. It is no doubt true, having regard to the law enunciated by the Privy Council and the Supreme Court in the cases noted above, that the doctrine of lis pendens as contained in Section 52 of TPAct applies irrespective of the weakness or strength of the Plaintiff's case, the only caveat being that the proceedings filed by the Plaintiff must be bona fide. What this means is that in a proceeding filed bona fide the doctrine applies, if the conditions laid down therein are satisfied, namely, (i) that the suit or proceeding must be pending, (2) that such suit or proceeding must not be collusive, (3) that the suit or proceeding must be one in which the right to immovable property is directly and substantially in question, and (4) a notice of pendency of the suit is registered (applicable under the Maharashtra Amendment). Once these conditions are satisfied, the property cannot be transferred or otherwise dealt with by any party to the suit or proceeding so as to affect any rights of the other party under any decree or order which may be passed therein. But we are not concerned here with the applicability of Section 52 of TPAct. Section 52 surely applies in our case. But Section 52 itself provides for the Court granting relief from lis pendens by authorizing a party to transfer the property on such terms as it may deem fit to impose. What we are concerned with is what are the circumstances in which, and the terms on which, the Court can in an appropriate case grant such relief.

14. This question was considered by our Court in two cases, which will be presently noted. In the case of B.J.Patel (supra ), a learned Single Judge of this Court considered the principles applicable to granting of relief from lis pendens in the following words:

"4. The principles applicable to granting of relief from lis pendens are not available in any reported case nor are they given in the section. This being free from any reported case I have to form my own view as to what are the principles which are to be applied. Though, there cannot be an exhaustive enumeration of principles one thing is clear that this is a discretionary order and lis pendens is a rule and relief is an exception and strong grounds must be made out to deprive the plaintiff of the fruits of litigation.

5. This being a discretionary relief, it must depend on the several circumsstances which inter alia, can be, the nature of the plaintiff's case and the defence, the nature of property market and the circumstances of the defendants. If the Court is convinced on the affidavits and the pleadings that even if all the evidence was led by the parties there is a very strong probability that the plaintiff will lose the matter, it will be a very important factor, possibly conclusive for granting relief. The Court will also have to consider the inconvenience and injustice that is likely to be caused to the defendants if the relief is not granted and balance it with the inconvenience and injustice that is likely to be caused to the plaintiff if the relief from lis pendens is granted"

15. In the case of Shantilal J. Khona (supra), a learned Single Judge of this Court considered various aspects which are required to be borne in mind when the Court considers an application for relief from lis pendens. The learned Judge spelt out these aspects as follows:

"While considering the issue to my mind this Court must pose to itself, atleast the following questions which are not exhaustive:-

(i) Is it a requirement of the section that a party can be relieved of lis pendens only on a Court imposing conditions. Is imposition of condition a pre-requisite?

(ii) Whether on the facts as pleaded will the plaintiff prima facie, be entitled to the relief of specific performance of the contract.

(iii) If the Court comes to the conclusion that specific relief cannot be granted, then whether considering the alternative relief of damages which the plaintiff in the suit for specific performance is entitled to, whether the plaintiff should be secured.

(iv) If to be secured should it only be the market value of the property on the date of the suit at time when the suit is filed be considered"

16. In a recent Judgment, the Supreme Court in the case of Vinod Seth Vs Devinder Bajaj, [2010 ALL SCR 2356] (supra) held as follows:

"The principle underlying section 52 of TP Act is based on justice and equity. The operation of the bar under section 52 is however subject to the power of the court to exempt the suit property from the operation of section 52 subject to such conditions it may impose. That means that the court in which the suit is pending, has the power, in appropriate cases, to permit a party to transfer the property which is the subject-matter of the suit without being subjected to the rights of any party to the suit, by imposing such terms as it deems fit"

17. The doctrine of lis pendens confers on the Plaintiff a valuable statutory right. If the conditions of applicability of the doctrine are satisfied, the subsequent transfers of property are not binding on him and he can enforce his rights in the suit against all subsequent transferees without initiating any proceedings against the subsequent transferees. This statutory right is, however, subject to the power of the Court to exempt the suit property from the operation of the doctrine in an appropriate case on such terms and conditions as the Court may deem fit and proper. This essentially means that the matter of relief from lis pendens is within the discretion of the Court and in an appropriate case, the Court may authorize the Defendant to deal with the suit property without being affected with the Plaintiffs' statutory right under the doctrine of lis pendens.

18. With these principles in mind, it now needs to be seen whether Defendant No.1 has made out any case for exercise of that discretion by this Court and relieve the Defendant from lis pendens on terms, if any.

19. Though the Plaintiff has alleged in para 6 of the plaint that, there was already a concluded contract between the parties for sale of the property as of May-2006, what the Plaintiff seeks specific performance of is not the contract of May 2006 but the oral agreement concluded in August 2006. This oral agreement is said to be evidenced by the draft MOU which is forwarded with the mail of Defendant No.1 on 22 August 2006. The mail of 22 August 2006 describes the MOU as a revised draft MOU proposed to be executed between the parties. The draft itself which is annexed to this mail is titled as a "without prejudice draft". The fundamental terms of consideration as well as the manner of payment thereof are shown in blank in the "without prejudice draft". Apart from these, there are several other blanks in the "without prejudice draft". The Plaintiffs' mail forwarding the "without prejudice draft" is replied by Defendant No. 1 through his mail dated 29 August 2006 suggesting that the revised draft forwarded by the Plaintiffs was not acceptable to the Defendant No.1. Defendant No.1, in turn, suggested changes in the draft, which, if were not accepted by the Plaintiffs, would call for refund of all amounts paid by the Plaintiffs pending negotiations. The course of conduct of the parties including correspondence annexed to the plaint, clearly shows that prima-facie there is no credible case of a concluded contract of sale between parties. What emerges from the correspondence between the parties is that, there were negotiations between the parties pending which payment of Rs.1 Crore was made by the Plaintiffs to Defendant No.1 on an adhoc basis. What is further pertinent to note is that, after failure of these negotiations, Defendant No.1 has refunded the sum of Rs.1 Crore paid by the Plaintiffs to Defendant No.1 and within a few days of filing of the suit, the Plaintiffs have accepted this payment unconditionally. The averment of Defendant No.1 in its affidavit in support of the Notice of Motion that the said amount has been accepted by the Plaintiffs, has not been controverted by the Plaintiffs in their reply. It is not the case of the Plaintiffs in their reply that, the amount was accepted without prejudice to the rights and contentions of the Plaintiffs in the suit herein. In these premises, there is no prima-facie case of a subsisting and binding concluded contract, which can be specifically enforced. A learned Single Judge of this Court, whilst considering the plaintiffs' application for interim relief, has also come to the conclusion that, oral agreement as contended by the Plaintiffs was not prima-facie shown to exist and there was no case for specific performance. Equally, there is no case for award of damages as claimed by the Plaintiffs in clause (ii) of prayer (d) of the plaint, since these damages are claimed as compensation in lieu of specific performance. The only relief that the Plaintiffs would have been entitled to as on the date of the suit is refund of the amount of Rs.1 crores paid by the Plaintiffs to Defendant No.1 together with interest. This amount of Rs.1 crore has alrady been recovered by the Plaintiffs after the filing of the suit. On the other hand, valuable property of Defendant No. 1, which was on the Plaintiffs' own showing worth about Rs.3.33 crores in May 2006, being locked-up in litigation and with a registered lis pendens, Defendant No.1 has been put to severe prejudice in the matter of disposal thereof. The particulars in this behalf are given by Defendant No.1 in para 4(i) of its affidavit in support of the Notice of Motion.

20. In that view of the matter, it is clear that prima-facie specific relief or damages in view thereof cannot be granted. Even if the Plaintiffs were to lead all the evidence in support of their case that there was a binding, subsisting and enforceable oral contract, there is a very strong probability that the Plaintiffs would fail in the suit. There is, therefore, a case for relieving Defendant No.1 from lis pendens. The question now is on what terms should such relief be granted. It may be noted, at the outset, in this behalf that, the court has come to the conclusion that prima facie specific performance cannot be granted in this case, not on the ground that the contract made out by the Plaintiffs is not capable of being specifically enforced, but that prima-facie there is no valid agreement between the parties. Consequently, the amount of Rs.1 Crore said to be a payment made in the course of negotiations between the parties has already been refunded by Defendant No.1 and Plaintiffs have accepted such refund. At the highest the Plaintiffs have a claim for payment of interest on this amount between the dates of payment and refund. Defendant No.1 has offered to deposit a sum of Rs.8,00,000/- which represents interest at the rate of 12 % p.a. on the amount of Rs.1 Crore paid by the Plaintiffs to Defendant No.1 on 22 May 2006 and refunded by the latter on 29 January 2007. The deposit of this amount of Rs. 8,00,000/- should take care of the Plaintiffs' claim towards interest, if any, on the amount of Rs.1 Crore paid by the Plaintiffs to Defendant No.1.

21. In the light of foregoing observations, the following order is passed.

(a) On Defendant No.1 making payment of Rs.8,00,000/- (Rs. Eight Lacs) in Court within a period of six weeks from today, Defendant No.1 shall be entitled to deal with suit property, as it may deem fit, without the same being subject to the operation of lis pendens under Section 52 of the Transfer of Property Act, 1882;

(b) The amount deposited by Defendant No.1 shall be invested for a period of one year in a fixed deposit of a Nationalized Bank renewable thereafter for successive periods of one year;

(c) On the application of the Plaintiffs, the operation of this order is stayed for a period of four weeks from today.

(d) On the joint request of the parties, the hearing of the suit is expedited.

(e) Notice of Motion is disposed of accordingly.

(f) There shall be no order as to costs.

Ordered accordingly.