CS (OS) No. 2906/95 Page 1 of 33 IN THE HIGH COURT OF DELHI AT NEW DELHI CS (OS) 2906/1995 & I.A. Nos. 13733/2008, 15371/2008, 2551, 3884, 4565 and 4566/2009 Reserved on: 17th September 2009 Decision on: 20th October 2009 J L GUGNANI HUF ..... Plaintiff Through: Mr. Arvind Nigam, Sr. Adv. with Mr. Samrat Nigam, Advocate versus O P ARORA & ANR. ..... Defendants Through: Defendant No. 1 in person. Mr. Ajay Choudhary and Mr. K.L. Mishra, Advocates for D-3. CORAM: HON'BLE DR. JUSTICE S. MURALIDHAR 1.Whether reporters of the local newspapers be allowed to see the judgment? No 2.To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes JUDGMENT 20.10.2009 S. Muralidhar, J. 1. This suit seeks specific performance of an agreement to sell dated 26th November 1994 in respect of a property at E-1/13, Vasant Vihar, New Delhi (the `suit property‟) as well as a decree of permanent injunction restraining the Defendants from parting with or transferring possession of the suit property in favour of any other person. The further prayers are for a declaration that any document executed by Defendant No.1 in favour of Defendant No.2 is null and void; that Defendant No.2 has no right, title or interest in the suit property; further that an enquiry should be ordered into the damages suffered by the Plaintiff and a decree be passed in CS (OS) No. 2906/95 Page 2 of 33 favour of the Plaintiff in terms thereof on account of the breaches by the Defendant No.1 of its obligations under the said agreement to sell. 2. The plaint was originally filed against three Defendants, i.e. Shri O.P. Arora, M/s Gupta Brothers and M/s. Syndicate Bank respectively. The Plaintiff is a Hindu undivided family (HUF) consisting of Shri J.L. Gugnani (the Karta), Ms. Raj Kumari Gugnani, Shri Kundan Lal Gugnani and Shri Yash Pal Gugnani. 3. Defendant No.1 is the owner of the suit property which, at the time of entering into the agreement to sell dated 26th November 1994, was a single-storied building constructed on a plot of land measuring 630 sq. yds. Defendant No.2 was a partnership firm and according to the Plaintiff a trespasser in the suit property. Defendant No.3 Syndicate Bank was sued in its capacity as mortgagee of the suit property, in possession of the title deeds thereto. 4. The Plaintiff‟s case is that by an agreement dated 26th November 1994 the Defendant No.1 agreed to sell the suit property to the Plaintiff HUF for a total consideration of Rs.2.6 crores. According to the Plaintiff, Defendant No.1 represented to the Plaintiff that the suit property was subject to an equitable mortgage in favour of Defendant No.3 for an outstanding credit balance of Rs.90 lakhs. Defendant No.1 agreed to get the suit property released from the mortgagee Syndicate Bank and thereafter execute the sale deed in favour of the Plaintiff. CS (OS) No. 2906/95 Page 3 of 33 5. Cheque No.239209 dated 26th November 1994 for a sum of Rs.75,00,000/- and Cheque No.239210 dated 31st December 1994 for another sum of Rs.75,00,000/- were given by the Plaintiff to the Defendant No.1 at the time of execution of the aforementioned agreement to sell. It was agreed that the balance sum of Rs.1.10 crores would be received by the seller (Defendant No.1) at the time of the registration of the sale deed. It was stated in the agreement that the suit property was lying vacant and was in actual physical possession of the Defendant No.1 and further that he would not induct any other person in the suit property. It was agreed that the actual physical, vacant and peaceful possession of the first floor of the suit property would be delivered to the Plaintiff after the cheque dated 31st December 1994 was encashed. 6. In terms of the agreement to sell, the obligations of Defendant No.1 were to obtain: “1. Sale permission from DDA and Society, in terms of the perpetual sub lease deed. 2. Sale permission from the Competent Authority, of the Urban Land (Ceiling and Regulation 2976 Act of 1976), if applicable to the property. 3. Income Tax Clearance Certificate on Form No.34A under Section 23 of the Income Tax Act, 1961. 4. Permission from Appropriate Authority on Form No.37(1) under Section 269-UC of the Income Tax Act, 1961.” 7. It was further agreed that after the above permission and any other permission as required in law were obtained, Defendant No.1 would inform the Plaintiff by registered post of the obtaining of such approvals. CS (OS) No. 2906/95 Page 4 of 33 Within thirty days of such intimation, the Plaintiff would pay to Defendant No.1 the balance consideration amount and on receiving the same, Defendant No.1 would execute the sale deed in respect of the suit property in favour of the Plaintiff. It was agreed that if Defendant No.1 failed to do so, the Plaintiff “would be entitled to get the sale deed registered through the Court of law by specific performance of the contract at the costs and expenses of the Vendor”. If after Defendant No.1 had informed the Plaintiff that he had obtained all the necessary permissions, the Plaintiff failed to make the payment of the balance consideration within thirty days, then the Plaintiff would be liable to pay Defendant No.1 interest at 21% on the balance amount for such delayed period. Clause 5 of the agreement stated: “However in the event the vendee is desirous of taking possession of the property pending approval/permission, the vendee can do so by making the balance payment and vendor executing registering all necessary documents, like GPA, will supplementary agreement etc., and as may be desired by the vendees solicitor.” 8. In the preamble clauses of the agreement, it was acknowledged that the suit property was subject to the equitable mortgage in favour of Defendant No.3 Bank for an amount of Rs.90 lakhs and that Defendant No.1 had agreed to get the suit property released from the mortgage before executing the sale deed. In clause 7 of the Agreement to Sell, Defendant No.1 assured the Plaintiff that the suit property was free from all encumbrances, except the equitable mortgage in favour of Syndicate Bank. In terms of the said clause, Defendant No.1 undertook that he CS (OS) No. 2906/95 Page 5 of 33 would be liable and responsible to make good the loss suffered by the Plaintiff if there was any dispute or litigation or acquisition or requisition in respect of the suit property. In clause 8, it was recorded that pending the completion of sale, Defendant No.1 would not enter into any agreement to sell, in respect of the suit property or any part thereof. 9. The first cheque dated 26th November 2004 in the sum of Rs.75 lakhs was encashed by Defendant No.1. According to the Plaintiff, cash in the sum of Rs.14 lakhs was also paid to Defendant No.1. However, no document was produced by the Plaintiff to substantiate this. According to the Plaintiff, despite agreeing to forthwith apply for statutory permissions, Defendant No.1 did not take any steps in that regard. The Plaintiff further discovered that the dues owed by Defendant No.1 to the Syndicate Bank was around Rs.1.5 crores and not Rs.90 lakhs as held out in the agreement. The Plaintiff states that by failing to perform his obligations in terms of the agreement, the bonafides of Defendant No.1 became doubtful. In the circumstances, in order to protect its interests, the Plaintiff by letter dated 31st December 1994 informed its bankers to stop payment of the cheque dated 31st December 1994 for Rs.75 lakhs. The Plaintiff claimed that “due intimation was also given to the defendant verbally”. 10. The Plaintiff states that although the Defendant No.1 failed to apply for the necessary permissions, the Plaintiff on 3rd January 1995 applied to the Appropriate Authority in Form No.37(1) under Section 269-UC of the Income Tax Act, 1961 („Act‟) for a no objection of that Authority. By CS (OS) No. 2906/95 Page 6 of 33 a letter dated 30th January 1995, the Appropriate Authority informed the Plaintiff that without the signatures of the Defendant No.1, the application could not be considered. 11. In the meanwhile, Defendant No.1 wrote to the Plaintiff on 3rd January 1995 protesting against the stoppage of the payment of the said cheque dated 31st December 1994. By letters dated 5th January 1995 and 14th January 1995, the Plaintiff replied to the said letter through counsel pointing out the breaches committed by Defendant No.1. The Plaintiff offered that the matter should be discussed so that an amicable solution could be found. Simultaneously, the Plaintiff published a notice dated 13th January 1995 in a leading English daily informing the public of the agreement to sell entered into between the parties. In the correspondence that ensued between the Plaintiff and Defendant No.1, allegations and counter-allegations were traded. The Plaintiff wrote to the Defendant No.3 Bank on 28th March 1995 seeking information as to the outstanding dues of Defendant No.1. 12. The Plaintiff claims that some time in April 1995, the Defendant No.1 approached the Plaintiff and agreed to resolve the disputes. The Plaintiff states that Defendant No.1 expressed his willingness to perform his obligations under the agreement to sell. According to the Plaintiff, as a first step, Defendant No.1 agreed to apply to the Income-tax authorities for permission to sell under Section 269 UC. The Plaintiff states that thereupon they jointly signed and executed forms and under the cover of the letter dated 26th April 1995, the Plaintiff once again submitted the CS (OS) No. 2906/95 Page 7 of 33 concerned forms to the income-tax authorities. The Plaintiff claims that the income-tax authority granted permission on 31st July 1995. A photocopy of the permission purporting to be a certificate issued under Section 269 UC (3) of the Act as issued by the Appropriate Authority, has been placed on record. However, the Plaintiff has failed to place on record the original of this document. 13. The Plaintiff claims that thereafter on 30th November 1995, the Karta of the Plaintiff HUF, on a visit to the suit property, was shocked to see the board of M/s. Gupta Brothers (Defendant No.2). According to the Plaintiff it was evident from this that the suit property was not in the possession of Defendant No.1. According to the Plaintiff, on 7th June 1995 it received an undated letter from the Advocate for the Defendant No.1 in which it was alleged that the Plaintiff had failed to perform his part of the contract. It was stated therein that “as already communicated to your client, the agreement stood cancelled on account of the breaches committed by your client of the said agreement, which position stood accepted by your client and that is the reason your client slept over the same”. This was denied by the Plaintiff by a letter dated 28th June 1995. On 18th July 1995, the lawyer for the Defendant No.1 again wrote to the lawyer for the Plaintiff reiterating that the agreement to sell stood cancelled. 14. The reliefs in the present suit have been claimed on the basis of the above averments. The suit first came to be listed before this Court on 14th December 1995 and while directing the summons to issue, an ad interim CS (OS) No. 2906/95 Page 8 of 33 ex parte injunction was granted restraining the Defendants from creating any third party rights and from entering into any other agreement with any other party including the Defendant No.2. 15. In the written statement filed by Defendant No.1, it was categorically denied that the parties had jointly applied to the income-tax authorities for permission on 26th April 1995. Defendant No.1 denied being aware of any such letter or the filing of any Form 37-I with the income-tax authority either on 3rd January 1995 or thereafter. The stand of Defendant No.1 was that inasmuch as the Plaintiff did not have the balance sum of Rs.75 lakhs available on 31st December 1994, he got the encashment of the cheque of that date stopped. Since this was a condition precedent for Defendant No.1 to take further steps, the Plaintiff had by committing the most fundamental and essential breach of the agreement to sell, frustrated its compliance. The case of Defendant No.1 was that on account of this breach by the Plaintiff, Defendant No.1 suffered huge losses since he had made commitments in the hope that he would be able to redeem the mortgage with the Defendant No.3 Bank. 16. An application (IA 3854/1996) was filed on behalf of Defendant No.2 under Order VII Rule 11 CPC for rejection of the plaint. This was heard on 10th September 1996 along with the application under Order XXXIX Rules 1 and 2 CPC (IA No.12510/1995) filed by the Plaintiff. This Court prima facie concluded on the basis of the pleadings on record that “the case of the plaintiff-applicant that the first defendant joined with the applicant in applying to the appropriate authority is not correct”. It was CS (OS) No. 2906/95 Page 9 of 33 noticed by this court in its order dated 10th September 1996 that in view of the Plaintiff having issued instructions to his bankers to stop payment of the cheque dated 31st December 1994 he had “acted in violation of the provisions of the agreement and, therefore, he cannot claim the equitable relief of specific performance”. Clarifying that this was only a prima facie view, this Court held that the balance of convenience was also not in favour of the Plaintiff. 17. In the same order, it was noted by the court that the counsel for the Defendant No.1 had offered to return Rs.75 lakhs to the Plaintiff. However, the learned counsel for the Plaintiff refused to receive the amount. It was then directed that Defendant No.1 would deposit the said sum of Rs.75 lakhs in a fixed deposit in his name for a period of three years and would deposit in court the fixed deposit receipt issued by the bank. IA 12510 of 1995 under Order 39 Rule 1 and 2 CPC was accordingly dismissed. 18. As regards the application (IA No.3854 of 1996) filed by Defendant No.2 under Order VII Rule 11 CPC, it was the contention of the Defendant No.2 that the Plaintiff was aware of the agreement in favour of Defendant No.2 even at the time of entering into the agreement to sell dated 26th November 1994. It was observed by this Court that “if the second defendant has got an agreement with the first defendant it is for him to sue the first defendant for the specific relief. He cannot file application under Order 7 Rule 11 CPC and seek an adjudication on the question which is the prior agreement as between the two”. Accordingly CS (OS) No. 2906/95 Page 10 of 33 the said application was dismissed without prejudice to the rights of Defendant No.2 to claim appropriate relief. 19. An appeal FAO (OS) No.367 of 1996 was filed by the Plaintiff against the aforementioned order dated 10th September 1996 in which it was directed by the Division Bench that status quo would be maintained by the parties till the next date of hearing. However, on 19th February 1998 the suit itself was dismissed for non-prosecution. IA No.1691 of 1998 was filed thereafter by the Plaintiff for restoration of the suit. This also was dismissed in default on 14th September 1998. A fresh application (IA 9920/98) was thereafter filed on 2nd November 1998. In the meanwhile, since the suit itself had been dismissed, FAO (OS) No.367 of 1996 was dismissed on 15th February 1999. Meanwhile, in the application for restoration of the suit, despite several adjournments the Defendant was not served. Accordingly IAs 1601/98 and IA 9920/98 were both dismissed for non-prosecution by this court on 3rd December 1999. A further application IA 12754/1999 was thereafter allowed by this Court on 9th February 2000. The earlier applications for restoration were restored subject to the payment by the Plaintiff of Rs.5000 as costs. IA 1691/1998 was thereafter allowed by order dated 9th October 2002 subject to the costs of Rs.2000/-. The delay in filing the application for restoration was also allowed subject to the costs of Rs.1,000/-. 20. It may be mentioned that the plaintiff filed an IA No.10122/2002 for striking out the defence of Defendant No.1 since he had not deposited Rs.75 lakhs pursuant to the order dated 10th September 1996. On 16th CS (OS) No. 2906/95 Page 11 of 33 February 2004 a statement was made by counsel for defendant No.1 that he would be depositing the said amount. He was directed to deposit it within a week with the Registrar General of this Court and the amount was directed to be kept in a fixed deposit and kept renewed till further orders. Counsel appearing for Defendant No.2 stated that he would be filing an application for deletion of his name from the array of parties. On the next date, i.e., 9th March 2004 this court was informed that in compliance with the earlier orders, the Defendant No.1 had deposited Rs.75 lakhs. The said amount was directed to be kept in fixed deposit for a period of six months and kept renewed till further orders of the Court. IA 10122/2002 was disposed of as having become infructuous. 21. On 27th September 2004, the Court while considering IA 6443/2004 filed by the Plaintiff issued a direction to the Defendant No.1 not to demolish the structures on the suit property. At that stage, this Court was informed by the counsel for Defendant No.1 that the suit property had already been demolished and the Defendant No.1 was in the process of re-constructing the same. The court then appointed a Local Commissioner to visit the suit property and file a report. On 20th April 2005, the Court dismissed IA 3031/2005 filed by the Plaintiff seeking a decree on admissions under Order XII Rule 6 CPC. It was observed by the Court that “perusal of the written statement filed shows that there are serious issues which have to be contested between the parties. I do not find any admission of the defendant”. 22. On 27th September 2005, the Court disposed of IA 8432/2004 filed by CS (OS) No. 2906/95 Page 12 of 33 Defendant No.2 seeking deletion on the ground that Defendant No.2 had abandoned its claim in the suit property and had no interest therein. It was also stated that the Defendant No.2 was not in possession of the suit property and, therefore, there was no cause of action as far as Defendant No.2 was concerned. The learned counsel for the plaintiff did not object to the deletion of Defendant No.2. Accordingly, the Defendant No.2 was deleted from the array of parties. Consequently in the present suit since then there have been only two defendants. 23. An application (IA 4258/2004) was filed by the Defendant No.1 praying that the relief for specific performance of the agreement to sell dated 26th November 1994 should be declined to the Plaintiff since he had also prayed in the alternative for the relief of damages and further that the Defendant No.1 had already deposited Rs.75 lakhs in this Court by way of refund. This application was, however, dismissed by this court on 16th November 2005 noting that the question whether the plaintiff was entitled to specific performance of the agreement to sell could be decided “only after adjudicating all the pleas and contentions of the parties and not at an interim stage on the basis of the pleas of the defendant that he has refunded the amount received by him by depositing the same in the Court”. 24. On 21st April 2006, this Court disposed of IA 1588/2005 filed by the Plaintiff seeking a direction to the Defendant No.1 to deposit a sum of Rs.2.70 crores which, according to the Plaintiff, was the interest earned by the Defendant No.1 on the sum of Rs.75 lakhs that was supposed to CS (OS) No. 2906/95 Page 13 of 33 have been deposited by the Defendant No.1 in this Court on 10th September 1996. It was directed that the Registry would keep the said amount in a fixed deposit till the disposal of the suit. The question whether Defendant No.1 was liable to pay any interest on the said sum in the event of the suit being decreed in the alternative would be decided at the time of the disposal of the suit. 25. In IAs 6443/2004, 5463/2005 and 6708/2005 the prayers of the Plaintiff were for maintenance of the status quo in respect of the suit property and for appointment of a receiver. As regards the prayer by Defendant No.1 for vacation of the ad interim injunction, the court in its order dated 21st April 2006 noted that the suit property had been demolished and that Defendant No.1 was seeking to raise a construction thereon. It was observed that it could not serve anybody‟s interest if the land was not constructed upon. Defendant No.1 was accordingly permitted to construct upon the suit property at his own risks and costs and that it would not create any equities in his favour and would be subject to the final outcome of the suit. The Defendant was also restrained from transferring or alienating the suit property or from parting with possession in favour of anybody else. It was noted that the Defendant No.1 had entered into agreement with one M/s. Kataria Constructions Pvt. Ltd., who had filed a Suit CS(OS) No.1080 of 2005 in this Court and an interim injunction had been granted in that suit on 8th August 2005 directing the Defendant No.1 to maintain status quo. Consequently, it was felt that there was no need to appoint any receiver. CS (OS) No. 2906/95 Page 14 of 33 26. Thereafter, this court framed the following issues by the order dated 21st April 2006: “1. Whether the suit for performance of the agreement dated 26th November, 1994 is not maintainable under the provisions of the Specific Relief Act, as alleged in the objections? OPD 2. Whether Defendant No.1 had made any misrepresentation about the mortgage/charge of the suit property with the Syndicate Bank at the time of signing the agreement dated 26th November, 1994 and the extent thereof? If so, its effect? OPP 3. Whether Defendant No.1 complied with his obligation under Clause 2 of the agreement to sell dated 26th November, 1994 within time, and if so, its effect? OPD 4. Whether the Plaintiff has been ready and willing to perform his part of the agreement to sell dated 26th November, 1994, if so to what effect? OPP 5. Whether Defendant No.1 has created any third party interest in favour of Defendant No.2 prior to 26th November, 1994, if so, its effect? OPD 6. Whether the Plaintiff is entitled to specific performance of the agreement to sell dated 26th November, 1994 as prayed? OPP 7. Whether the Plaintiff is entitled to the relief of permanent injunction as prayed? OPP 8. Whether the Plaintiff is entitled to any amount towards damages? OPP 9. Whether the Plaintiff is entitled to interest? If so, at what amount, rate and period? OPP 10. Whether the Plaintiff has not approached this Court with clean hands? OPD CS (OS) No. 2906/95 Page 15 of 33 11. Relief. 27. It is also noted in the said order that apart from the suit filed by M/s. Kataria Constructions CS(OS)No.1080/2005) there was another suit filed by the Plaintiff against M/s Krishna Estates being Suit No.2110 of 2002 seeking specific performance of agreement in respect of the suit property. Defendant No.1 had filed Crl.Mic.No.2923/2005 under Section 340 CrPC which was directed to be taken up along with the suit at the time of final disposal. 28. On behalf of the Plaintiff Mr. J.L. Gugnani was examined as PW1. His cross-examination was completed after several orders passed by