The Supreme Court of India, in its recent judgment in Manjit Singh & Anr. vs. Darshana Devi & Ors1., has reaffirmed that mere acquisition of property under a registered document is insufficient to claim protection under Section 19(b) of the Specific Relief Act, 1963 ("SRA"). It is paramount for the subsequent purchaser to prove that they acted in good faith and without notice after undertaking due inquiry.
The Court held that the failure to investigate the legal status and possession of the property before concluding the purchase negates the claims of the purchaser having acted without notice, thus denying them the benefits of Section 19(b) of the SRA.
Section 19(b) of SRA2 provides an exception to the general rule of specific performance. It allows for enforcement of an agreement to sell against subsequent purchasers unless they are bona fide purchasers. Such purchasers must have acted in good faith, paid valuable consideration, and lacked notice of the original contract.
The Dispute
The purchaser (the plaintiff) and the seller entered into an unregistered sale deed on February 12, 1986 in relation to the suit property ("Sale Deed 1"). Subsequently, the seller transferred the property to the appellants (subsequent purchasers) under a registered sale deed dated August 29, 1986. The plaintiff filed for specific performance of Sale Deed 1.
The Trial Court ruled in favour of the plaintiff. The subsequent purchasers preferred an appeal before the District Court which set aside the order of the Trial Court. On appeal by the plaintiff, the High Court of Punjab and Haryana at Chandigarh, reinstated the findings of the Trial Court. The High Court also observed that the subsequent purchasers could not be said to be bona fide purchasers as per Section 19(b) of the SRA on the basis of the following facts:
- One of the subsequent purchasers admitted that the seller was his uncle.
- The husband of the plaintiff was mortgagee in possession of the suit property, and the subsequent purchasers made no inquiry from the mortgagee with regard to title of the property.
- There was no prior agreement to sell between the seller and the subsequent purchasers.
- There was no evidence of purchase consideration having been paid by the subsequent purchasers to the seller.
The key issue for examination by the Supreme Court was whether the subsequent purchasers (the appellants) had acted in good faith, for valuable consideration, and without notice of the prior agreement, in order to seek protection under Section 19(b) of the SRA.
Supreme Court's Ruling
The Supreme Court dismissed the appellants' claim for protection as a bona fide purchaser. The Court placed reliance on its judgement in R.K. Mohammed Ubaidullah vs. Hajee C. Abdul Wahab3 for interpretation of Section 19(b) of the SRA. The Court observed that Section 19(b) of the SRA is an exception from the general rule of allowing specific performance of contracts. To claim such exception, the onus is on the subsequent purchaser to prove that they purchased the property in good faith and also as bona fide purchaser for value.
The Court further examined the meaning of 'good faith' (as used in Section 19(b)) by referring to the definition of the term under the General Clauses Act, 18974 and the Bhartiya Nyaya Sanhita, 20235. The Court observed that for a purchaser to prove that their actions were undertaken in good faith, they would have to demonstrate honesty, attention, due care and lack of negligence.
Section 19(b) also requires that the consideration should have been discharged by the subsequent purchasers. The facts did not support such claim of the subsequent purchasers.
The Court also examined the scope of the words "without notice of the original contract" in Section 19(b). The Transfer of Property Act, 1882 provides that "a person is said to have notice" of a fact when he actually knows that fact, or when, but for wilful abstention from an enquiry or search which he ought to have made, or gross negligence, he would have known it.
Further, Explanation II to this definition specifically notes that any person acquiring any immoveable property or any share or interest in any such property shall be deemed to have notice of the title, if any, of any person who is for the time being in actual possession thereof.
The Court emphasised on the effect of abstention on the part of the subsequent purchasers to make enquiries with regard to the rights of any other party in the property. The Court relied on the decisions in the landmark judgement in Daniels vs. Davison6 which has been referred to in a number of judgements in India, and also in Ram Niwas vs. Bano7 and noted that where a subsequent purchaser relies upon the assertion of the seller or on their own knowledge and abstains from making inquiry into the real nature of the possession of a tenant of the property, they cannot escape from the consequences of the deemed notice under Explanation II to Section 3 of the Transfer of Property Act.
The possession of the suit property by the plaintiff's husband as a mortgagee was constructive notice to the subsequent purchasers. The court emphasized that subsequent purchasers are under a duty to investigate the nature of possession of the property in question. The failure of the subsequent purchasers to inquire into the rights of the person in possession demonstrated negligence on their part.
The Court upheld the findings of the High Court of Punjab & Haryana which dismissed the appeal of the subsequent purchasers inter alia on the grounds of familial relationship between the seller and one of the appellants, coupled with inconsistencies in payment details, which indicated collusion between the seller and the subsequent purchasers and undermined their claim of being bona fide purchasers.
Takeaways for Purchasers
This judgment reinforces the need for vigilance in transactions involving immoveable properties, serving as a reminder that ignorance, whether wilful or negligent, has legal consequences. The actions of a purchaser will be tested on the touchstone of good faith, to protect the rights of original contracting parties, to ensure that their equitable interests are not overridden by negligent or collusive conduct.
Footnotes
1. Civil Appeal No. 13066/2024, Supreme Court of India.
2. Section 19 of Specific Relief Act, 1963: Relief against parties and persons claiming under them by subsequent title.
"Except as otherwise provided by this Chapter, specific performance of a contract may be enforced against—
(a) either party thereto;
(b) any other person claiming under him by a title arising subsequently to the contract, except a transferee for value who has paid his money in good faith and without notice of the original contract;
...."
3. (2000) 6 SCC 402
4. Section 3(2) of General Clauses Act, 1897: "A thing shall be deemed to be done in good faith where it is in fact done honestly whether it is done negligently or not."
5. Section 2(11) of Bhartiya Nyaya Sanhita, 2023: "Nothing is said to be done or believed in "good faith" which is done or believed without due care and attention;"
6. (1809) 16 Ves Jun 249: 33 ER 978
7. 2000 (6) SCC 685
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