Hemraj vs Rustomji

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 14 February, 1952

Coram: Chandrasekhara Aiyar

This appeal was filed by the defendant challenging the order of the High Court at Nagpur, which had set aside the judgment of the Additional District Judge of Khamgaon that dismissed the plaintiff’s suit. The appellate court permitted the appeal because the suit in the trial court concerned property valued at thirty-five thousand rupees and because the matters raised involved substantial questions of law.

The dispute concerned a ginning and a pressing factory located in Khamgaon. According to the plaintiff, the factories originally belonged to Sir Hukumchand and his son Rajkumarsing, from whom the plaintiff purchased the factories for thirty-five thousand rupees under a registered sale deed dated twenty-six November 1939. A preliminary letter dated three November 1939 set out the terms of the sale, and on the following day possession of the factories was delivered to Seth Chapsi Dhanji, who was to hold the premises on behalf of the plaintiff. Two days later, on six November, Sir Hukumchand executed a second agreement to sell the same factories to the defendant without informing the plaintiff. On seven November the defendant’s men tried to take the factories by force from Chapsi Dhanji, the plaintiff’s representative. The defendant’s agent Nathmal then called upon the police, resulting in proceedings before a first-class magistrate under Section 145 of the Criminal Procedure Code. The magistrate ordered the appointment of receivers to take charge of the factories. In response, the plaintiff sought a declaration that he was the rightful owner of the factories and that the defendant possessed no right, title, or interest therein.

The defendant denied the existence of the plaintiff’s agreement and rejected the fact that Chapsi Dhanji had taken possession on the plaintiff’s behalf. Instead, the defendant produced his own agreement dated six November with Messrs Sarupchand-Hukumchand of Bombay, wherein Sir Hukumchand Sarupchand was described as the sole proprietor. The defendant asserted that this agreement was made with the “consent or approval” and the “knowledge or acquiescence” of the plaintiff. For consideration of forty-five thousand rupees, a cheque for five thousand rupees was given to the solicitors who represented both the vendor and the purchaser. On seven November, the defendant’s clerk Nathmal Chunilal Agarwal went to Khamgaon and took peaceful possession of the factories in the presence of Chapsi Dhanji. The defendant claimed that the sale deed favoring the plaintiff, executed by Sir Hukumchand and his son Rajkumarsing, was fraudulent and collusive. He further argued that because the plaintiff was aware of the defendant’s agreement and because possession was taken in the presence of the plaintiff’s representative, the plaintiff was estopped from contesting the defendant’s title. The allegation of the plaintiff that the defendant took his agreement with knowledge of the plaintiff’s agreement to purchase

The Court observed that the plaintiff’s claim that the defendant acted with knowledge of the plaintiff’s agreement was unfounded. In fact, the plaintiff never actually possessed the factories in question. The defendant had earlier instituted a suit for specific performance in the High Court at Bombay against both Messrs Sarupchand Hukumchand and the plaintiff. The plaintiff, on the other hand, had filed a suit seeking only a bare declaration and not the consequential relief of possession; that suit was held to be untenable. While the pleadings contained as many as fifteen distinct issues, the Court found it unnecessary to address most of them. It was sufficient for the resolution of the present appeal to set out the findings of the trial Court and the High Court on the material points that had been raised before the Court by counsel for the appellant. The District Judge had concluded that the agreement to sell in favour of the plaintiff was genuine and that the plaintiff had paid the full consideration of Rs 35,000. However, the Judge ruled that Exhibit P-15, which the plaintiff relied upon, could not be admitted as evidence because it amounted to a sale deed and therefore required registration. The Judge further stated that the plaintiff had taken possession of the factories through his agent, Chapsi Dhanji, who remained in possession until 7 November. A contract of sale, identified as Exhibit D-83, existed between Sir Hukumchand and the defendant; a cheque for Rs 5,000 had been handed over as part-payment, and Hazari Lal, acting for the vendor, delivered possession of the factories to Nathmal, the defendant’s munim, on 7-11-1939 in the presence of Chapsi Dhanji. According to the trial Court, the defendant’s agreement to purchase was entered into without any knowledge of the plaintiff’s contract, whereas the plaintiff’s own acts and the conduct of Chapsi Dhanji had effectively estopped the plaintiff from later challenging the defendant’s title. On those grounds, the plaintiff’s suit was dismissed.

Upon appeal, the learned judges of the High Court reversed most of the findings of the trial Court. They held that Exhibit P-15 represented an agreement to sell rather than a completed sale, and therefore it was admissible as evidence. The High Court noted that, besides Exhibit P-15, there existed a substantial body of evidence establishing the existence of such an agreement. According to the High Court, possession had been handed over to Chapsi Dhanji on 4-11-1939. The bargain with the defendant, evidenced by Exhibit D-83, was subject to Sir Hukumchand being able to complete the sale by establishing a good title; the defendant was aware of the plaintiff’s earlier contract. The High Court further found that the plaintiff had not consented to the defendant’s contract but had, in fact, protested against it, and that Chapsi Dhanji had not been dispossessed. Based on these conclusions, the plaintiff’s suit was decreed in his favour. At the hearing of the present appeal, counsel for the appellant examined the relevant documents in great detail and advanced three principal arguments. First, he contended that the plaintiff, who acted as Sir Hukumchand’s lawyer and was present in Calcutta from 3 November to 8 November, must have known of the sale contract with the defendant and had, either actively or passively, consented to it. Second, he asserted that the factories had not actually passed into the possession of Chapsi Dhanji on 4 November as the plaintiff claimed. Third, he argued that possession was taken by Nathmal on behalf of the defendant on 7 November in the presence of Chapsi Dhanji without any protest, and that Exhibit P-15 was a sale rather than merely a contract of sale, thereby giving the defendant’s title under Exhibit D-83 precedence under Section 53A of the Transfer of Property Act.

The appellant asserted three separate contentions. First, it was argued that the individual who resided in the same house from the 3rd of November until the 8th of November must have been aware of the sale contract concluded with the defendant at the Bombay office, and that such awareness, whether expressed actively or merely implied, amounted to consent to that contract. Second, the appellant claimed that the factories had not, in reality, been transferred into the possession of Chapsi Dhanji, who acted as the plaintiff’s representative, on the 4th of November as the plaintiff had alleged. Third, the appellant maintained that possession of the factories had been taken over by Nathmal on behalf of the defendant on the 7th of November, and that this takeover had occurred in the presence of Chapsi Dhanji without any objection or protest from him. In addition, the appellant contended that Exhibit P-15 should be treated as a final sale rather than merely a contract of sale, and that, consequently, the title claimed by the defendant under Exhibit D-83 ought to prevail over the plaintiff’s title by virtue of the provisions of Section 53A of the Transfer of Property Act.

The Court was unable to accept any of these submissions. Referring to the observations of the High Court, the Court reiterated that Exhibit P-15 was a simple contract of sale that created no interest in or charge upon the property, distinguishing it clearly from an actual sale. The Court noted that the document contained certain matters that are not normally found in a formal deed of sale, and it also referred to a clause indicating that a formal sale deed was to be executed in the future on a registered stamp paper; these circumstances reinforced the view that Exhibit P-15 was only a contract of sale.

Both the High Court and this Court concurred that the plaintiff’s contract of sale was genuine and that it had been concluded on the 3rd of November. The defendant’s contract, by contrast, came into existence only on the 6th of November. Accordingly, the defendant could not press that his later contract should take precedence over the earlier contract of the plaintiff, which was subsequently perfected by a regular conveyance embodied in Exhibit P-30 dated 26-11-1939, unless the defendant could demonstrate that the plaintiff had consented to the defendant’s transaction, thereby becoming estopped. No evidence was produced to show such consent or any knowledge that might imply acquiescence. The mere fact that the plaintiff was present in Calcutta with Sir Hukumchand on the 6th of November was insufficient to infer that the plaintiff had given consent or possessed knowledge of the defendant’s arrangement.

Conversely, the Court possessed clear documentary evidence to the contrary, namely Exhibit P-74. This exhibit showed that as soon as the plaintiff learned that Sir Hukumchand was attempting, through his Bombay branch, to negotiate a fresh sale contract with other parties, the plaintiff dispatched a telegram on the evening of the 6th of November to “Raoraja,” the telegraphic address of Sir Hukumchand’s Bombay firm. The telegram read: “KHAMGAON FACTORY ALREADY PURCHASED BY ME. YOU CANNOT SELL WITHOUT ASKING ME. WIRE BEST OFFER OVER FIFTY THOUSAND AND SELL ONLY AFTER SECURING MY CONSENT.” This communication clearly indicates that, far from agreeing to the defendant’s sale, the plaintiff was actively asserting his rights under his own contract. The Court therefore concluded that, after having agreed to sell the properties to the plaintiff, Sir Hukumchand could not legitimately revert to a new contract of sale with the defendant without the plaintiff’s consent.

In this case the Court observed that the question of why Sir Hukumchand might have entered into a fresh transaction after having already sold the factory to the plaintiff was a legitimate question that required an answer, even though it is difficult to read the minds and motives of businessmen. The Court noted that after the sale to the plaintiff, Sir Hukumchand did not wish any portion of the factory expenses to be borne by him. The Court described that Chapsi Dhanji, who resided a short distance from the factory in one of Sir Hukumchand’s houses, was required to vacate that house and that even the furniture in that house was to be sold. The Court inferred that a person who was so careful about small sums of money might have thought that, despite the agreement favourable to the plaintiff, he could still arrange a fresh deal if that deal would bring him more than the price paid by the plaintiff. The Court added that Sir Hukumchand was on intimate terms of friendship with the plaintiff and possibly believed that the plaintiff could be persuaded to relinquish his rights. This suggestion was reflected in a telegram, Exhibit P-63, sent by Sir Hukumchand from Calcutta to Hazarilal at Khamgaon, the wording of which was somewhat quaint: “Though sold Jalesab me owner Jalesabs property and Jallsab ours try best if gin press offer forty thousand or more take pakka offer advertise all papers our name stating send pakka offer shall receive remittances and give possession at once comply instructions dont delay.” The Court further noted that even after the contract with the defendant had been concluded, Sir Hukumchand sent Exhibit D-29 to his Bombay branch directing them to obtain a still better price exceeding Rs. 45,000/-. When the plaintiff began to show unexpected resistance, Sir Hukumchand dispatched another telegram, Exhibit D-21, to the Bombay branch stating: “Dont consider Jallsabs telegram, we accepted your offer take money write Hazarimalji Dammaniji Khamgaon to give purchaser possession this our final telegram wire.” The Court observed that it was obvious that Sir Hukumchand’s expectation that the plaintiff would be pliable was not fulfilled, and from the afternoon of the 6th each party pursued his own interest, probably without the other's knowledge. The Court found little doubt that Chapsi Dhanji took possession on behalf of the plaintiff, as held by both lower Courts. The correspondence among the plaintiff, Chapsi Dhanji, Hazarilal and Sir Hukumchand at Calcutta, Bombay and Indore fully established this fact, rendering it unnecessary to refer to the documents in detail. The Court also found it equally clear that on 7 November the representative of the defendant, Nathmal, entered into possession based on a letter he carried from the Bombay branch addressed to Hazarilal. Hazarilal, bound by duty to obey his master’s orders regardless of his personal approval, could do nothing. The Court noted that Chapsi Dhanji, who continued to frequent the factories after 7 November, was more or less a silent spectator of the events. In his evidence he stated that he protested to Hazarilal about possession being handed over to the defendant’s agent, but Hazarilal told him that probably the second sale must have taken place with the plaintiff’s consent and that he was advised to write to his own master.

In this case, the Court observed that the second sale could only have been effected with the plaintiff’s consent, and that the plaintiff had been advised to write to his own master. The Court found that this assertion was supported by a letter written by Chapsi Dhanji to the plaintiff, dated 7 November 1939 and marked P-26. Subsequently, the plaintiff sent a telegram, marked P-28 and dated 11 November 1939, asking Chapsi Dhanji why he had vacated possession of the factory without the plaintiff’s permission. In the telegram the plaintiff directed Chapsi Dhanji to take possession of the factory immediately. Chapsi Dhanji’s reply, exhibited as P-29, stated: “Received, I did not give possession of gin-press factory; have posted men, Anandilals men are there….” The Court held that, on the basis of these documents, the High Court was correctly justified in concluding that there was no dispossession of Chapsi Dhanji. Even if any dispossession had occurred, the Court noted that it could not have been with Chapsi Dhanji’s consent.

The Court further held that Section 53A of the Transfer of Property Act did not apply to the present dispute. That provision, the Court explained, governs contracts for the transfer of immovable property that are in writing but remain unregistered, and it sets out the rights and obligations of the transferor and any person claiming under the transferor, as well as those of the transferee and any person claiming under the transferee. The Court pointed out that a “person claiming under the transferor” is a person whose title arises after the date of the original transfer, not before it. The proviso to the section protects a bona-fide transferee for value who had no notice of the original contract, even where part performance of the unregistered contract gave the transferee certain rights against the transferor. The Court noted that no such parties were present in the present case. The plaintiff, the Court said, relied on a genuine contract of sale that pre-dated the defendant’s contract. Under Section 27 of the Specific Relief Act, the Court observed, had the plaintiff not obtained a registered conveyance, he could have instituted a suit for specific performance against Sir Hukumchand and the defendant, who claimed a title arising after the plaintiff’s contract. The Court found that the defendant was not a transferee for value who had paid money in good faith; rather, the defendant possessed only a contract of sale, not a completed sale, and out of the agreed consideration of Rs 45,000 only Rs 5,000 had been paid by way of a cheque. The High Court, the Court noted, had further found that the defendant entered into his contract with knowledge of the plaintiff’s earlier title. Accordingly, the Court agreed with the High Court’s conclusion and dismissed the appeal, awarding costs to the successful party.