Silla Chandra Sekharam vs Ramchandra Sahu

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 398 of 1962

Decision Date: 24 April 1964

Coram: Raghubar Dayal, K.C. Das Gupta, Subbarao K. Gupta

In the matter of Silla Chandra Sekharam versus Ramchandra Sahu, the Supreme Court rendered its decision on 24 April 1964. The bench that heard the appeal comprised Justice Raghubar Dayal and Justice K.C. Das Gupta. The appeal, designated as Civil Appeal No. 398 of 1962, was filed by special leave against the judgment and decree dated 7 January 1959 pronounced by the Orissa High Court in the appeal from Original Decree No. 57 of 1953. Counsel for the appellant were instructed, while counsel for the respondent represented the other side.

The core dispute concerned the interpretation of section 18(a) of the Specific Relief Act, 1877. The respondent, Ramchandra Sahu, had executed an agreement to sell his house to the appellant on 21 February 1951. The agreement stipulated that, in order to meet family necessities and discharge certain loans, the respondent and his mother would execute a deed of sale in favour of the appellant within one year of the agreement, for a sum of Rs 6,000. The respondent failed to execute the deed of sale, prompting the appellant to institute a suit for specific performance of the contract. The trial court held that the proposed sale was not for legal necessity and therefore decreed the suit in part: it directed the respondent to execute a sale deed alienating his interest in the entire house and ordered that the appellant would be entitled to possession of the house jointly with the respondent’s mother.

The appellant appealed the trial court’s order to the High Court. During the pendency of that appeal the respondent’s mother died, and the appellant’s sole contention before the High Court was that, having now perfected his title to the whole house, the respondent should be compelled to sell the entire property. The High Court rejected this contention, holding that section 18(a) of the Specific Relief Act did not apply because the provision, the court reasoned, operated only after an actual sale or lease of the property had taken place.

Upon granting special leave, the Supreme Court examined the construction of the phrase “subsequently to the sale or lease” in section 18(a). The Court held that the High Court was incorrect in refusing to apply the provision. It explained that the expression refers to events occurring subsequent to the contract to sell or let, not merely to the consummation of a sale or lease. Consequently, the clause could not be limited to situations where the sale had already been completed. The Court cited the precedent set in Kalyanpur Lime Works Ltd. v. State of Bihar (1954 S.C.R. 958) to support this interpretation. Accordingly, the Supreme Court held that section 18(a) was applicable to the facts of the present case and that the respondent should be ordered to sell the entire house to the appellant.

The agreement declared that the respondent possessed sole ownership and enjoyment of the house, which he described as his paternal property, and that he acted as the Managing Member and Karta of the family. It further provided that, in order to meet family necessities and to discharge certain loans, the respondent would sell the undisputed house to the appellant for a sum of Rs 6,000, on the condition that both he and his mother would execute a deed of sale in favor of the appellant within one year from the date of execution of the agreement. The respondent failed to execute the required sale deed, and consequently the appellant instituted a suit seeking specific performance of the contract. The trial Court held that the contemplated sale was not required for any legal necessity and therefore decreed the suit in part. The Court ordered that the appellant deposit the amount of Rs 6,000, reduced by the Rs 300 that had been paid to the Sub‑Registrar at the time the agreement was executed and further reduced by the costs awarded to the appellant against the respondent. The Court directed that the respondent, designated as defendant No 1, should execute the sale deed to alienate his interest in the entire house as covered by the agreement, and that the appellant would be entitled to obtain possession of the house jointly with defendant No 2, the mother of the respondent. The appellant appealed to the High Court against the dismissal of his suit concerning the sale of half of the house. While the appeal was pending, the respondent’s mother died, and the appellant’s sole argument before the appellate court became that the respondent, having perfected his title to the whole house, should be compelled to sell the entire property. The High Court rejected this contention, holding that section 18(a) of the Specific Relief Act did not apply because the provision becomes operative only after an actual sale has taken place, and consequently dismissed the appeal. The present appeal was filed against that order. Section 18(a) of the Act states: “Where a person contracts to sell or let certain property, having only an imperfect title thereto, the purchaser or lessee (except as otherwise provided by this Chapter) has the following rights: (a) if the vendor or lessor has subsequently to the sale or lease acquired any interest in the property, the purchaser or lessee may compel him to make good the contract out of such interest.” The question before the Court was whether the phrase “subsequently to the sale or lease” refers to the time after the contract to sell or let is made, or to the time after the actual sale deed or lease deed is executed by the vendor or lessor in pursuance of that contract. The appellant contended that the phrase means “subsequently to the contract to sell or let,” whereas the respondent maintained that it means “subsequently to the actual sale or lease.”

In this matter the Court found that the expression “subsequent to the actual sale or lease” should be understood in the sense advocated by the appellant, that is, it refers to a time after the execution of the sale deed or lease deed and not merely after the contract to sell or let. The Court’s conclusion is supported by the earlier decision of this Court in Kalyanpur Lime Works Ltd. v. State of Bihar (1). In that case the Government had agreed to let certain lands to Kalyanpur Lime Works Ltd., but the lease could not be executed because the Court had declared the forfeiture of an earlier lessee’s lease to be invalid. When the earlier lease finally expired, Kalyvanpur Lime Works Ltd. sought the execution of its lease for the period during which it would have continued had the lease been granted in 1934. The Court held that the facts fell within section 18(a) of the Specific Relief Act. At page 972 the Court observed: “We agree with the High Court that section 18(a) of the Specific Relief Act applies to the case. That section lays down that where a person contracts to sell or let certain property having only imperfect title thereto, if the vendor or lessor has subsequently to the sale or lease acquired any interest in the property, the purchaser or lessee may compel him to make good the contract out of such interest.” The Court further explained that when the Government entered into the contract to grant leases in 1934 it possessed only an imperfect title, because it was unable to grant a fresh lease while the earlier lease to Kuchwar Co. was still in force. Although the Government believed it had the authority to forfeit the earlier lease and actually ordered the forfeiture, the Court later found that the forfeiture was legally invalid and consequently restored the rights of the previous lessees. This situation, the Court clarified, was one of imperfect title rather than absolute lack of title, and therefore fell squarely within the ambit of section 18(a). After 31 March 1948, when the Kuchwar Co. leases expired, the obstacle preventing the Government from granting new leases was removed, and the Lime Company’s entitlement to have its lease revived became operative. The Government, however, resisted this right and instead granted the leases to defendant No. 2. The Patna High Court correctly held that section 18(a) applied to the facts and that, although defendant No. 1 was unable to grant a lease at the time it had agreed to do so, the impediment had now been removed. Because a suit for specific performance was not barred, the Lime Company was entitled to sue for that relief. The Supreme Court affirmed the view of the High Court that section 18(a) was attracted to the present facts and that the contract whose specific performance could be decreed in favour of the plaintiff was the one embodied in Exhibits 22 and 22(a).

The respondent argued that in the earlier case it had not been submitted before this Court that section 18(a) was inapplicable because no lease in favour of Kalyanpur Lime Works Ltd. had ever been executed, and therefore the present issue had not been addressed. The respondent further maintained that the Patna High Court had not actually applied the provisions of section 18(a) to the facts but had instead granted specific performance on the broader principle that a purchaser in a contract to sell, entered into under the circumstances of the case, was entitled to sue for specific performance against any interest the vendor might later acquire in the property; the High Court’s reasoning was said to be supported by the commentary in Article 994 of Fry’s “Specific Performance”, Fifth Edition. In view of these submissions the Court chose to examine the question directly. Sections 12 to 20 of Chapter XI of the Act enumerate the contracts that may be specifically enforced. Section 18(a) specifically contemplates the rights of a purchaser or lessee where the vendor possesses an imperfect title to the property that he has agreed to sell or let. The language of the provision clearly refers to the rights of a prospective purchaser or lessee, not to those who have already obtained the sale or lease pursuant to the contract. When the vendor has fully performed the sale or lease, the purchaser or lessee has no remaining relief to seek by way of specific performance, because the contractual obligations have been satisfied. Conversely, if the vendor fails to perform according to the contract, the purchaser or lessee must obtain enforcement through the Court, and the Court may decline to enforce the contract. Moreover, the Court is constrained by sections 14 to 17, which limit enforcement even where the vendor held a perfect title, except in the narrow situations described in sections 14, 15 and 16. Section 14 addresses situations where the unperformable portion of the contract is of trivial value and can be compensated by money. Section 16 concerns the specific performance of a distinct and independent portion of a contract when another portion cannot or should not be specifically performed; such cases are not expected to give rise to circumstances where subsection (a) of section 18 would apply. Section 15, on the other hand, deals with the specific performance of a contract where the unperformed portion is substantial, and the Court possesses discretion to order the defaulting party to perform as much of the contract as possible, provided the plaintiff relinquishes any further claims for performance or monetary compensation for loss caused by the default.

Section 15 addresses a situation in which the portion of a contract that remains unperformed is substantial. In such cases, the Court possesses discretionary authority to order the defaulting party to specifically perform that portion of the contract which is still capable of being performed, on the condition that the plaintiff surrenders any further claim to performance and also relinquishes any right to monetary compensation for either the shortfall or for any loss or damage suffered because of the defendant’s default. The Court further observed that once a matter has been adjudicated under Section 15, no separate action may be brought under clause (a) of Section 18. By analysing the two possible circumstances—first, where the party who is selling or letting the property fulfills his own obligations under the agreement, and second, where the Court compels that party to fulfil the agreement either in whole or in part—the Court concluded that there is no occasion to invoke specific performance of a contract with respect to a property over which the seller or lessor originally possessed imperfect title. Consequently, the Court held that clause (a) of Section 18 cannot be limited only to cases in which a genuine sale or lease of the property has already occurred.

The Court explained that if clause (a) of Section 18 were to apply after the completion of a sale or lease, where the vendor or lessor subsequently acquires an interest in the very property about which he initially had imperfect title, a significant overlap would arise between the provisions of clause (a) of Section 18 and Section 43 of the Transfer of Property Act. Section 43 is triggered when a person fraudulently or mistakenly represents that he is authorized to transfer certain immovable property and proceeds to effect such transfer for consideration, whereas clause (a) of Section 18 becomes relevant when a person with imperfect title actually sells or leases the property. The Court noted that every conveyance or lease implicitly carries a representation that the grantor is competent to deal with the property, thereby creating an overlap between the two statutory provisions. Nevertheless, the Court distinguished the substantive rights created by the two provisions. Under Section 43, the transferee may, at his option, have the transfer operate upon any interest that the transferor later acquires in the property during the subsistence of the transfer contract, and may require the transferor to deliver such subsequently acquired property. By contrast, a purchaser or lessee invoking clause (a) of Section 18 may compel the seller or lessor to satisfy the contract out of any later‑acquired interest. The Court emphasized that the operation of Section 43 does not require a court’s intervention; the transfer functions automatically, and the transferee may directly demand delivery of the appropriate interest from the transferor.

In the situation governed by section forty‑three, the transferor is required simply to deliver the property to the transferee, and the transferee may obtain the conveyance without any judicial intervention. By contrast, when the purchaser or the lessee possesses the right described in clause (a) of section eighteen, that party must approach the Court in order to compel the vendor or the lessor to perform the contract concerning the interest that the vendor or lessor acquires at a later stage. Consequently, the purchaser or lessee seeks judicial enforcement of the contract, and the contract referred to in clause (a) of section eighteen must be understood as a contract to sell or to let, rather than as a contract of sale or lease that, if executed voluntarily, would already encompass the entire property that was the subject of the agreement. If such a voluntary contract were enforced by the Court, there would be no occasion for clause (a) of section eighteen to operate at all. The expression used in clause (a) of section eighteen should therefore be interpreted in a manner that avoids any overlap with the provisions of section forty‑three of the Transfer of Property Act, because the legislature ordinarily does not intend to create duplicate rules for the same circumstance. The use of the words “vendor or lessor” in clause (a) does not, by itself, dictate that the phrase “subsequently to the sale or lease” should be given a meaning limited to the period after the actual sale or lease has taken place. The sections that precede section eighteen deal with specific performance of contracts in a general sense and therefore employ the expression “party to a contract.” Section eighteen, however, is concerned exclusively with contracts to sell or to let, and it appropriately uses the simple terms “vendor” or “lessor” for the party who agrees to sell or let the property, and “purchaser” or “lessee” for the party who agrees to buy or to take the property on lease. There is no inconsistency in using these expressions provided that the reader understands to whom each term refers. In fact, the terms “purchaser” and “lessee” can rightly be applied to the persons who have agreed to purchase or to take the property on lease. A related reference can be made to clause (d) of section eighteen, which also employs the words “vendor or lessor.” That clause provides that when a vendor or lessor sues for specific performance of the contract and the suit is dismissed on the ground that the vendor or lessor has an imperfect title, the defendant is entitled to a return of any deposit paid and to a lien over that deposit against the interest of the vendor or lessor in the property that was agreed to be sold or let. This makes clear that the words “vendor or lessor” in that clause refer to the party who contracted to sell or let the property but failed to fulfil his contractual obligations. Section twenty‑five of the Act likewise uses the expression “vendor or lessor” for a person who has not actually transferred the property by sale or lease, and it provides, among other things, that a contract for the sale or letting of property cannot be specifically enforced in favour of a vendor or lessor who falls within the scope of clauses (a) to (c) of that section.

The Court observed that section 27A employs the terms “lessor and lessee” in provisions that relate to a contract for letting even though, in the present case, no lease had been executed. The Court suggested that there might be another rationale for retaining the expression “sale or lease” in clause (a) of section 18. To explain this, the Court referred to section 13 of the Specific Relief Act together with illustration (a) which states: “13. Notwithstanding anything contained in section 56 of the Indian Contract Act, a contract is not wholly impossible of performance because a portion of its subject‑matter, existing at its date, has ceased to exist at the time of the performance.” The illustration then explains that if a contract is made to sell a house to B for one lakh rupees and the house is destroyed by a cyclone the day after the contract, B may still be required to perform his part by paying the purchase price. The Court further cited the note in the eighth edition of Pollock & Mulla’s commentary on the Specific Relief Act, which explains that illustration (a) assumes that a contract for the sale of a house, by itself, transfers the beneficial interest to the purchaser, making him an equitable owner in the English sense. The note added that this was the law before the Transfer of Property Act 1882 came into force. Under section 54 of that Act, a contract for the sale of immovable property does not, by itself, create any interest in or charge on the property. Moreover, section 55(5) provides that the risk of destruction rests with the purchaser only from the date when ownership is deemed to have passed upon execution of a proper conveyance by the vendor, as indicated in section 55(l)(d). Consequently, the Court concluded that the illustration cannot now be applied where the Transfer of Property Act governs.

Turning to the question of why the expression “sale or lease” continues in clause (a) of section 18, the Court noted that, as illustration (a) to section 13 is retained in the Act, the same may be true of the phrase “sale or lease.” At the time clause (a) of section 18 was enacted, it appears that some form of beneficial interest was considered to pass to the person who agreed to purchase the property merely by the agreement to sell. The respondent had argued that clause (a) of section 18 applies only when the person contracting to sell or let possesses an imperfect title, and not where the person is entirely without entitlement, as alleged in the present suit because Ramchandra allegedly had no title to half of the house. The Court indicated that it was unnecessary to resolve that precise question. In the Court’s view, it could not be said that Ramchandra had no interest in half of the house; rather, he held an interest in the whole house, as did his mother. The Court explained that, if an actual partition were to occur, each party’s interest would be fixed at one‑half. Moreover, if Ramchandra was not competent to transfer title to the entire house during his mother’s lifetime, that circumstance would mean he held an imperfect title. Accordingly, the Court inferred that Ramchandra acquired title to the portion of the house after his mother’s death, obligating him to fulfil his contractual obligations from the property he subsequently acquired.

Because Ramchandra’s mother was deceased, the Court considered that he possessed only an imperfect title to her share of the house. Consequently, the Court opined that, upon his mother’s death, Ramchandra acquired both title and interest in the portion of the house that had been divided in a private partition after the parties entered into the contract to sell. The Court therefore concluded that Ramchandra must fulfil his contractual obligation by delivering the property that he obtained after the contract was executed.

The respondent submitted that it should not be assumed that Ramchandra automatically received title to the property belonging to his mother, suggesting that the mother might have left a will disposing of her share. The Court observed that no such allegation of a will was ever raised before the High Court, where the respondent had instead asserted that Ramchandra had already obtained title to that portion of the house. The appellant, relying on this alleged circumstance, chose not to argue the appeal on the basis of the ground stated in the memorandum of appeal, namely that Ramchandra had agreed to sell for reasons of legal necessity. The Court found no persuasive force in that contention and therefore rejected it.

Accordingly, the Court held that the High Court erred in failing to apply clause (a) of section 18 of the Act to the facts of the present case. The appeal was therefore allowed, the orders of the lower courts were set aside, and the plaintiff’s suit was decreed. The Court ordered that, after deducting the Rs 300 already paid to the respondent at the time of executing the sale agreement from a total sum of Rs 6,000, the appellant must pay the balance within one month from the date the costs are taxed. Upon receipt of that payment, the respondent will be directed to execute a sale deed conveying the entire house covered by the agreement in favour of the appellant. The appellant will also recover the costs awarded by the trial Court and the costs of this appeal, while each party will bear its own costs of the appeal in the High Court. The Court further stipulated that if the appellant fails to deposit the stipulated amount within the stipulated time, his suit will be dismissed with costs payable throughout. The appeal was thus allowed.