THE CORRESPONDENCE, RBANMS EDUCATIONAL INSTITUTION versus B. GUNASHEKAR & ANOTHER

Summary

A suit for bare permanent injunction filed by holders of an agreement to sell, executed by third parties who were not impleaded, against a charitable educational institution in admitted possession since 1905, was held liable to rejection under Order VII Rule 11(a) and (d) CPC. Under Section 54 of the Transfer of Property Act an agreement to sell creates no interest in the property; it gives only personal rights against the vendor (and the limited shield of Section 53A), so the plaintiffs had no locus or enforceable right against a third party in possession, no declaration of title was sought though title was in dispute, and the cause of action was fictitious. Noting the claimed cash payment of Rs. 75 lakh, the Court issued directions requiring courts and Sub-Registrars to report cash transactions of Rs. 2 lakh and above to the Income Tax authorities for verification under Section 269ST.

Issues

1. Whether a plaint seeking a permanent injunction against a third party in possession, founded solely on an agreement to sell executed by persons not party to the suit, discloses a cause of action or is barred by law so as to warrant rejection under Order VII Rule 11(a) and (d) CPC.
2. Whether an agreement to sell confers on the proposed purchaser any right, title or interest enforceable against a third party who claims independent title and possession, having regard to Sections 7, 53A and 54 of the Transfer of Property Act, 1882.
3. Whether a suit for bare injunction, without seeking a declaration of title, is maintainable where the plaintiffs are not in possession and the defendant's title and century-long possession raise a cloud over the vendors' title (Section 41(j) and Section 34 of the Specific Relief Act, 1963).
4. What directions should issue where a plaint claims payment of consideration in cash exceeding the limit in Section 269ST of the Income Tax Act, 1961.

Provisions considered

• Order VII Rule 11(a) and (d), Code of Civil Procedure, 1908The plaint shall be rejected where it does not disclose a cause of action or appears from its statements to be barred by any law. Applying Dahiben, T. Arivandandam and allied decisions, the Court held the plaint must be read meaningfully with the documents it relies on; clever drafting creating an illusion of a cause of action must be nipped in the bud, clauses (a) and (d) may overlap where drafting veils an implied legal bar, and a pure question of law should be decided at the threshold rather than putting the defendant to trial. (¶¶ 14, 14.1, 15, 15.2.1, 15.2.3, 17, 19)
• Section 54, Transfer of Property Act, 1882A sale of tangible immovable property worth Rs. 100 or more can be made only by registered instrument, and a contract for sale does not of itself create any interest in or charge on the property (Rambhau Namdeo Gajre, Suraj Lamp, Shakeel Ahmed). The Court held the plaintiffs' claim was impliedly barred by Section 54: the agreement gave them no transferable interest or title and hence no right to sue the appellant. (¶¶ 15, 15.1, 15.2.1, 15.2.2, 16)
• Section 53A, Transfer of Property Act, 1882Part performance protects a transferee who has taken possession and performed or is willing to perform his part, but only as a shield against the transferor and persons claiming under him. The Court listed its conditions and held the protection is not available against a third party with an adverse claim, such as the appellant in possession. (¶¶ 15, 15.1, 16)
• Section 7, Transfer of Property Act, 1882Only the owner or a person authorised by him can transfer property. Until a sale deed is executed, the right to protect the property vests in the vendor alone; the respondents, having no privity with the appellant and no right under the agreement, lacked locus, and only their vendors could have sued for a declaration. (¶ 15.2.1)
• Section 41(j) and Section 34, Specific Relief Act, 1963Section 41(j) prohibits an injunction where the plaintiff has no personal interest in the matter, understood as a legally enforceable right. Mere agreement holders have no such interest against third parties. No declaratory relief under Section 34 was sought although title was in dispute, so a suit for bare injunction was not maintainable (Anathula Sudhakar, Jharkhand State Housing Board). (¶¶ 15.2.1, 15.2.4, 15.2.5)
• Section 17, Registration Act, 1908A sale deed amounting to conveyance must be registered under Section 17; an agreement for sale, though also requiring registration, is merely a contractual document and not a conveyance. (¶ 15.1)
• Sections 269ST and 271DA, Income Tax Act, 1961Section 269ST, inserted by the Finance Act, 2017 with effect from 01.04.2017, bars receipt of Rs. 2,00,000 or more in cash in the specified circumstances, and Section 271DA imposes a penalty equal to the amount received. The plaint's claim of Rs. 75 lakh paid in cash both raised suspicion and displayed a violation of law, prompting the Court to issue reporting directions to courts, Sub-Registrars and Income Tax authorities. (¶¶ 15.2.1, 18.1, 20)
• Section 35A, Code of Civil Procedure, 1908The Court found this a fit case for compensatory costs on the respondents for speculative litigation against a charitable institution but refrained from imposing them, cautioning that future misuse of process may invite exemplary costs. (¶ 18)
• Article 141, Constitution of IndiaThe ratio of this Court's decisions binds irrespective of the stage at which it is invoked; the contention that precedents on agreements to sell rendered after trial cannot be applied at the Order VII Rule 11 stage was rejected. (¶ 15.2.3)

Held

• An agreement to sell does not create any interest in or charge on immovable property under Section 54 of the Transfer of Property Act. It creates at best personal rights enforceable against the vendor (specific performance) and the limited shield of Section 53A against the transferor; it confers no right on the proposed purchaser to sue a third party who is the owner or in possession, or who claims to be so. In such cases the vendor, not the proposed transferee, must approach the court. (¶¶ 15, 15.1, 15.2.1, 15.2.2, 16)
• The plaint suffered from fatal, incurable defects: no privity between the plaintiffs and the defendant; the vendors not impleaded; no registered sale deed in the plaintiffs' favour; the plaintiffs not in possession while the defendant's possession since 1905 was admitted in the plaint; no declaration of title sought although title was under a cloud; and a dispute as to the identity of the property itself. The cause of action was therefore fictitious and the suit barred by law, and the High Court's view that an agreement to sell creates an 'enforceable right' requiring trial could not be countenanced. (¶¶ 15.2.1, 15.2.2, 15.2.4, 15.2.5, 16)
• Under Order VII Rule 11 the court confines itself to the plaint and its documents and does not consider the defence, but it need not accept patently untenable claims or shut its eyes to settled law and put the parties to trial where the suit is barred and the cause of action illusory. Clauses (a) and (d) can be mutually inclusive where clever drafting veils an implied bar; the court must lift the veil and reject the plaint at the threshold. The binding ratio of precedents applies irrespective of the stage at which it is relied upon. (¶¶ 14.1, 15, 15.2.3, 17)
• A suit for bare injunction by a proposed transferee not in possession against a defendant in settled possession for over a century is not maintainable; Section 41(j) of the Specific Relief Act bars an injunction where the plaintiff has no legally enforceable personal interest, and where the defendant raises a genuine dispute over title the plaintiff must seek a declaration. (¶¶ 15.2.4, 15.2.5)
• Litigation of this kind between the plaintiffs and absent vendors was found to be champertous and inequitable, and charitable institutions must be protected from speculative suits that drain their resources; though a fit case for costs under Section 35A CPC, the Court refrained from imposing them with a caution against future misuse of process. (¶¶ 15.2.3, 18)
• Directions issued: (A) whenever a suit claims that Rs. 2,00,000 or more was paid in cash towards any transaction, the court must intimate the jurisdictional Income Tax Department to verify any violation of Section 269ST; (B) on receiving such information the Income Tax authority shall take steps following due process; (C) whenever a document presented for registration recites cash consideration of Rs. 2,00,000 or more for conveyance of immovable property, the Sub-Registrar shall intimate the jurisdictional Income Tax authority; (D) where an Income Tax authority learns of such a cash payment from any other source, the registering authority's failure to report it shall be brought to the Chief Secretary of the State/UT for disciplinary action. (¶¶ 18.1, 20, 21)

Result

Appeal allowed. The High Court's order dated 02.06.2022 in CRP No. 130 of 2021 and the trial court's order dated 11.06.2021 set aside; the Order VII Rule 11(a) and (d) application allowed and the plaint in O.S. No. 25968 of 2018 rejected. The directions in paragraph 18.1 to be communicated by the High Court Registrars, Chief Secretaries and the Principal Chief Commissioner of Income Tax to the district judiciary, registration officials and Income Tax officers for periodical audit; Registrar (Judicial) to circulate the judgment. Parties to bear their own costs; pending applications disposed of.