1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION SUIT NO. 1414 OF 1979 SUIT NO. 1414 OF 1979 SUIT NO. 1414 OF 1979 Nandkishore Lalbhai Mehta ) of Bombay Indian Inhabitant, ) residing at 301, Jupiter Apartment, ) Cuffe Parade, Bombay 400 005. ).. Plaintiff Versus 1. New Era Farbics Pvt.Ltd., ) a Company registered under the ) provisions of the Companies Act, ) 1956 having its Registered ) Office at Moghul Lane, Tulsi ) Pipe Road, Matunga,Bombay-400 016) 2. Progressive Exports Pvt.Ltd. ) a Company registered under the ) provisions of the Companies Act, ) 1956 having its Registered ) Office at Bajaj Bhavan, Nariman ) Point, Bombay 400 020. ) 3. Concord Motors Ltd. ) a Company registered under the ) provisions of the Companies Act, ) having its Registered Office ) 2 at "D" Block, Shivsagar Estate, ) Dr. Annie Besant Road, Worli, ) Bombay 400 018. )..Defendants Mr. Hiralal Thakker a/w Ms. Mamta Saad & Mr. Faisal Sayyed i/b. M.K.Ambalal & Co. for for the Plaintiff. Mr. Navnit Shah a/w S.Vasoodew & M.M.Vashi i/b. M/s. M.P.Vashi & Associates for the Defendants. CORAM CORAM CORAM: S.K.SHAH,J. S.K.SHAH,J. S.K.SHAH,J. JUDGMENT RESERVED ON : 17.11.2005 JUDGMENT RESERVED ON : 17.11.2005 JUDGMENT RESERVED ON : 17.11.2005 JUDGMENT PRONOUNBCED ON 12.12.2005 JUDGMENT PRONOUNBCED ON 12.12.2005 JUDGMENT PRONOUNBCED ON 12.12.2005 ORAL JUDGMENT : ORAL JUDGMENT : ORAL JUDGMENT : 1. This is the suit for specific performance of the agreement for sale and in the alternative, for refund of earnest money and for damages/compensation. 2. The property involved in this suit (hereinafter referred to as "the suit property") admeasuring 11,244 square yards (0501.45 square metres) or thereabouts bearing New Survey No.179 and Cadastral Survey No.561 of Mahim Division together with the buildings and messuages standing or lying thereon situate at Greater Bombay under "G" Ward Nos. 5546-47-48 and Street Nos. 22-23 and 24 at Lady Hardinge Road, Mahim and the land 3 admeasuring Cadastral Survey No.560 together with buildings and messuages standing or lying thereon situate at Greater Bombay under "G" Ward as described in Exhibit "A" to the plaint. 3. In October, 1977, both the defendants were desirous of selling their respective right, title and interest in their ownership and possession of the suit land. The negotiations were held between the Plaintiff and the Defendants Nos. 1 and 2 and it was resolved under an agreement for sale by Defendants Nos. 1 and 2 in favour of the Plaintiff of their respective rights, title and interests in the suit land. The said agreement was recorded by the Plaintiff by his letter dated 19.10.1977 which was confirmed by the Defendants at the foot thereof. The material terms of the agreement were as under :- (1) The consideration of the land was lumpsum price of Rs.78,06,600/-. Out of the said amount of Rs.11,50,000/- was to be paid as earnest by the Plaintiff to the Defendants in the following manner :- (a) Rs.7,50,000/- were to be paid on confirmation of the letter dated 19.10.77 by the Defendants; 4 (b) The balance of Rs.4,00,000/- were to agreed to be paid by the Plaintiff on or about 24.10.1977 time being the essence of the contract; (2) The sum of Rs.7,50,000/- was to be utilised by the Defendant No.1 for the purpose of carrying out the consent terms arrived at in the High Court Suit No.236 of 1968 and the consent terms arrived at in the Small Causes Court Suit. (3) One half of the balance consideration money was to be paid by the Plaintiff to Defendants on : (a) the permissions under Sections 22 and 27 of the Urban Land (Ceiling & Regulation) Act, 1976 being obtained; (b) the permission for conversion into the residential user of the suit property being obtained; (c) after the defendants have duly settled 5 with their labour and obtained the Labour Authorities’ permission as provided; (d) on vacant possession of the suit land being handed over to the Plaintiff, the balance consideration was agreed to be paid by equal quarterly instalments within one year from the date of possession of the land being handed over to the Plaintiff; (e) the sale of the suit land was to be subject to - (i) permission being obtained under Sections 22 and 27 of the said Urban Land (Ceiling & Regulation) Act, 1976 (ii) subject to the Defendants being able to settle with their labour and the Defendants’ labour agreeing to sell the suit property to the Plaintiff; (iii) subject to the said property being converted from industrial zone into residential zone; 6 (f) If No Objection Certificate and the change of user and the permissions provided were not obtained within the period of 9 months from the date of the letter (agreement) and if the defendants were not able to settle with their labour and get them to agree to the same, the Plaintiff would not be bound to complete the sale and the agreement would survive only to the extent of return for earnest money which would be paid within six months from the expiry of the aforesaid period of 9 months with interest at the rate of 18% per annum and till the said sum with interest thereon is duly and fully repaid, the Defendants would not be entitled to do any act, deed, matter or thing whereby or by reason whereof the security created in favour of the Plaintiff would be affected or jeopardised in any manner whatsoever; (g) In order to secure the repayment of the sum of Rs.11,50,000/-, the Defendants would hypothecate by an unattested Deed of 7 Hypothecation the machines set out in the said agreement (h) The letter dated 19.10.1977 written by the Plaintiff to the defendants containing these terms of the agreement was duly confirmed by the Defendants at the foot of the said agreement/ letter. By a letter of hypothecation also dated 19.10.1977, the Defendants duly hypothecated the machines set out therein as security for repayment of the amounts mentioned above. 3. Pursuant to the said agreement, the Plaintiff paid a sum of Rs.7,50,000/- as part of earnest money and on 20.10.1977, the Defendants acknowledged receipt of the cheque for the said amount. The Defendants also further stated in the said letter, that a decree in the Small Causes Court Suit would be obtained at the earliest and the Defendants’ Advocate would hand over the cheque for Rs.7,50,000/- to the Advocate for lessees of the suit property. Thereafter, on 24.10.1977, the plaintiff’s Advocate sent another 8 cheque for Rs.4 lakhs by way of payment of the remaining amount of earnest money. Pursuant to the agreement, the suit in the Small Causes Court was compromised by a consent decree passed on 7.11.1977 and the Defendants by their Advocate’s letter dated 8.11.1977, intimated to the Plaintiff about the compromise decree and about the sum of Rs.7,50,000/- paid by the Plaintiff having been utilsied by the Defendants for payment as provided in the suit agreement dated 19.10.1977. By the same letter, the Defendants also intimated to the Plaintiff the balance of Rs.4 lakhs was appropriated as per the suit agreement. By the said letter, the Defendants also communicated to the Plaintiff that the Plaintiff had meetings with the Defendants’ Advocate and it was requested to the Advocate to call upon the Defendants to take up the settlement with the labour and also on various permissions to be obtained. 4. It is further undisputed that the plaintiff’s Architect in consultation with the defendants and their representatives had made applications to the authorities under the Town Planning Act for change of user of the said property from industrial to residential zone. The Plaintiff by his Advocate’s letter dated 16.11.1977 also requested the defendants to forward to them the requisite letters by the 9 concerned authorities authorising the transfer of the said property from industrial user into the residential use. Thereafter by another letter dated 16.11.1977, the Advocate for the defendants forwarded to the Advocate for the plaintiff a copy of the defendants’ letter dated 8.11.1977 addressed to the Mill Mazdoor Sabha, Bombay intimating the said Mill Mazdoor Sabha about the agreement for sale of the suit property and requesting them to give consent to the same. 5. It is alleged by the plaintiff that thereafter it appears that the defendants received letter dated 5.12.1977 from the said Mill Mazdoor Sabha alleging that they were not agreeable to the defendant no.1 selling the said Mill premises to the Plaintiff. The defendants’ Advocate by letter dated 15.12.1977 forwarded a copy of the letter dated 5.12.1977 and further intimated the Plaintiff that in view of the alleged refusal by the labour union, the suit agreement for sale between the parties stood cancelled and the defendants would return the sum of Rs.11,50,000/- with interest thereon. The plaintiff immediately orally and then by his Advocate’s letter dated 23.12.1977 requested the defendants’ Advocate and the defendants to hold meeting of the parties to consider the letter dated 5.12.1977. The Plaintiff 10 alleged that inspite of such request having been made, the defendants by their letter dated 19.12.1977 already informed the Town Planning authorities that the defendants did not desire to have the user of the said property converted from industrial or commercial to residential zone and that they were withdrawing the application made by the plaintiff’s architect for such change of user. The plaintiff alleged that the defendants have already started resorting to acts contrary to the terms and conditions of the suit agreement. The plaintiff by letter dated 6.1.78 stated that he would attend on 9.1.1978 at about 11 a.m. the factory premises of the defendant No.1 so that he could be furnished with all necessary papers, correspondence and documents with the said Mill Mazdoor Sabha. By that letter, the defendants were also requested to write necessary letters to authorities under the Town Planning Act to keep the matter pending and not to treat the withdrawal of any application for change of user. The plaintiff alleged that instead of waiting till 9.1.78 for the meeting to be held at the factory premises, the defendants by their reply dated 7.1.1978 stated that they have handed over to the plaintiff a complete copy of the correspondence between them and the representatives of the Union. The plaintiff alleged that inspite of this correspondence, the defendants by their Advocate’s 11 letter dated 16.12.78 stated that in view of the letter received by them from Mill Mazdoor Sabha, the agreement for sale dated 19.10.1977 between the parties stood cancelled and that the defendants would be returning the sum of Rs.11,50,000/- as provided in the agreement. The defendants stated in the said letter that the labour union’s refusal contained in the letter dated 5.12.1977 was final. 6. The plaintiff further alleged that by plaintiff’s Advocate’s letter dated 4.2.1978, in reply to the defendants’’ leter dated 16.1.1978, recorded the correct facts and that in fact negotiations between the parties were going on . However, the defendants by their letter dated 9.2.1978 forwarded Bank draft of Rs.1 lakh in favour of the plaintiff’s Advocate purporting to be a part-payment of the principal sum of Rs.11,50,000/-. The plaintiff alleged that they however did not encash the draft and communicated the defendants by reply dated 10.2.1978 that the agreement for sale was valid and subsisting and thus returned the draft of Rs.1 lakh to the defendants. The plaintiff alleged that thereafter various attempts were made by and between the parties to try and amicably settle the matter by negotiations, but the negotiations did not fructify. 12 7. The plaintiff alleges that at all material times and even now he was ready and wiling to perform his part of the agreement for sale and to carry out the same and pay the balance price as per the agreement. He further contends that the defendants however wrongfully backed out of the said agreement for sale on the false and wrong pretext. The plaintiff further alleges that at the instigation of the defendants in collusion with the said Mill Mazdoor Sabha has allegedly refused to give its permission for the same. The plaintiff further alleges that the said refusal of the Mill Mazdoor Sabha to consent to the sale has been instigated by the defendants and the same is collusive and that the same is made a false pretext to enable the defendants to back out of the said agreement dishonestly and wrongfully. The plaintiff further alleges that in any event, the suit agreement provided that the sale was subject to the defendants being able to settle with their labour and the defendants’ labour agreeing to the sale contemplated under the agreement was intended and meant for the benefit of the plaintiff. The plaintiff further alleges that therefore by letter dated 19.4.1978, addressed to the defendants’ Advocate he waived the benefit of the stipulation under the agreement for sale and expressed his willingness to complete the sale although the defendants’ labour did not agree to the said sale. 13 The defendants however by their Advocate’s reply dated 26.4.1978 wrongfully denied that the stipulation regarding the defendants’ labour was for the plaintiff’s benefit and that the plaintiff could waive the said stipulation. The plaintiff alleges that he was ready and wiling to waive and/or waived the said condition. The plaintiff further alleges that the defendants have dishonestly backed out of the suit agreement for sale and are refusing to perform and carry out their part of the said agreement for sale on false plea, pretext and excuse. Hence, the plaintiff filed the suit for specific performance of the suit agreement and in the alternative prayed for refund of earnest money with interest and also for damages/compensation. 8. Both the defendants by their common Written Statement resisted the suit. While admitting to have executed the suit agreement in favour of the plaintiff, they contend that by letter dated 5.12.1977 of Mill Mazdoor Sabha, the labour had refused to consent for the sale of the suit property to the plaintiff as the same was communicated by them to the plaintiff by their letter dated 15.12.1977 and also communicated to the plaintiff that the suit agreement stood cancelled. They further contend that a meeting between the Union of the 1st defendant’s labour and 14 the plaintiff was held on 9.1.1978 and the matter was discussed and even thereafter the representative of the Union of the 1st Defendant’s labour by its letter dated 10.1.1978 addressed to the 1st defendant recorded that the labour was not agreeable to the sale as contemplated in the suit agreement. The defendants had forwarded that letter to the plaintiff along with their letter dated 16.1.78. As such, the contention of the defendants is that the said agreement for sale stood cancelled and the plaintiff is only entitled to refund of earnest money with agreed rate of interest. They contend that along with the defendant No.1’s attorneys’ letter dated 9.2.1978, the plaintiff was sent a draft of Rs.1 lakh which was towards the refund of earnest money of Rs.11,50,000/-, but the plaintiff returned the same. They contend that since the suit agreement stood cancelled and terminated, there is no valid and subsisting agreement for sale between the parties. The plaintiff, therefore, is not entitled to the relief of specific performance. 9. They further contend that since the defendant No.1 labour union by their letter dated 5.12.1977, refused to consent for sale, the suit agreement stood cancelled and, therefore, the defendant No.1 was well within his right to the Town Planning Authorities that they did not desire to change the user of the suit 15 property from industrial or commercial to the residential. 10. The defendants further deny that the plaintiff was at all material times ready and willing to carry out his part of the agreement. They contend that since the suit agreement stood cancelled on the 1st defendant’s labour refusing to agree to the sale of the suit land, the question of readiness and willingness on the part of the plaintiff did not arise. They further deny that the refusal of the latter to the sale of the suit property was instigated by the defendants on the false pretext to enable the defendants to resile from the suit agreement as alleged by the plaintiff. They further deny that the plaintiff suffered any loss or he is entitled to any damages/compensation claimed by the plaintiff. They therefore contend that the plaintiff’s suit for specific performance be dismissed as also the plaintiff’s claim for damages/compensation. 11. In view of these pleadings, the following issues are framed against which I have recorded my findings for the reasons below :- ISSUES FINDINGS ISSUES FINDINGS ISSUES FINDINGS 16 1. Whether the letter dated 19th In the October 1977 records the affirmative. Agreement arrived at between the Plaintiff and the Defendants for sale of the suit property on the terms and conditions contained therein as alleged in paragraph 19 & 20 of the Plaint ? 2. Whether by letter of hypothecation In the dated 19.10.1977 Defendants duly affirmative hypothecated the machines set out therein as a security for repayment of the amount of Rs.11,50,000/- as alleged in paragraph 21 of the Plaint ? 3. Whether the Plaintiffs paid to the In the Defendants aggregate sum of affirmative Rs.11,50,000/- as earnest money as provided in the said Agreement for Sale dated 19.10.1977 as alleged in paragraph 22 of the Plaint ? 4. Whether the Plaintiff was at all In the material times and even now is ready affirmative and willing to carry out his obligations under the said Agreement dated 19.10.1977 as alleged in paragraph 33 of the Plaint ? 5. Whether the condition in the Agreement In the for Sale which provided that the sale affirmative was subject to the Defendants being able to settle with their labour and obtaining their consent to the sale was intended and meant for the benefit of the Plaintiffs as alleged in paragraph 33 of the Plaint ? 6. Whether the Plaintiffs were entitled In the to waive and have in fact waived the affirmative benefit of the said condition referred to in Issue No.5 above ? 7. Whether the alleged refusal of Mill In the Mazdoor Sabha to consent to the sale affirmative of the suit property to the Plaintiffs has been instigated by the Defendants and/or the same is collusive and/or made a false pretext to enable the Defendants to back out of the said 17 Agreement for Sale as alleged in paragraph 33 of the Plaint ? 8. Whether the Defendants have committed In the breach of the Agreement for Sale affirmative as alleged in paragraph 33 of the Plaint ? 9. Whether the Defendants are bound and In the liable to specifically perform and affirmative carry out their part of the Agreement for Sale and to complete the sale as stated in paragraph 34 of the Plaint ? 10. In the event of Court not granting Does not specific performance of the said arise. Agreement for Sale, whether the Defendants are bound and liable to refund the sum of Rs.11,50,000/- with interest thereon at the rate of 18% per annum as claimed in paragraph 35 of the Plaint ? 11. Whether the Plaintiffs are entitled Does not to have the repayment of the said arise. sum of Rs.11,50,000/- plus interest aggregating to Rs.12,67,100/- with further interest duly secured by a a charge on the suit property as claimed in paragraph 36 of the Plaint? 12. Whether the Defendants are bound or Does not liable to pay to the Plaintiffs a sum arise. of Rs.78,06,600/- or any other sum as and by way of damages for breach of the said Agreement for Sale as claimed in paragraph 38 of the Plaint? 13. Whether the Agreement for Sale dated In the 19.10.1977 stood cancelled and negative. terminated for the reasons alleged in paragraphs 16 & 17 of the Written Statement ? 14. What reliefs the Plaintiffs are As per entitled to ? order. ISSUE NO.1: ISSUE NO.1: ISSUE NO.1: 12. As stated hereinabove, after negotiations were 18 held, the Plaintiff had sent the details of the terms and conditions agreed during the negotiations by reducing them into writing in the form of a letter dated 19.10.1977 and they were sent to the Defendants Nos. 1 and 2 and in approval thereof, both the defendants had signed the letter. The said agreement in the form of a letter is produced at Exhibit "P-1". This has not been disputed by the defendants. 13. In this regard, however, without there being any pleading, a contention was raised by the learned Counsel for the defendants that the agreement was not a concluded contract. The thrust of the agreement is on clause 10 of the agreement which mentions as under :- "The other terms and conditions and default Clauses as are usual in an Agreement for Sale, will be incorporated in the said Agreement and all the terms mentioned hereinabove and in the Agreement for Sale to be executed as herein provided will bind all persons, firms or companies, claiming by through or under me." It was, therefore, vehemently submitted on behalf of the defendants that as the terms and conditions of agreement for sale were to be decided subsequent to 19 the suit agreement, Exhibit "P-1" and therefore his submission is that the suit agreement at Exhibit "P-1" was not a concluded contract or concluded agreement. 14. The learned Counsel for the defendants also relied on the admission given by the plaintiff’s witness (P.W.1) N.L. Mehta that further agreement was also to be made. The P.W.1, Mr. Mehta also admitted in cross-examination that the suit agreement was conditional agreement. The learned Counsel for the defendants pointed out that three conditions were incorporated in the agreement which were to be performed and the suit agreement was subject to those three conditions which were put. Those three conditions were as under :- (1) The sale shall be subject to the permission being obtained under Sections 22 and 27 of the Urban Land (Ceiling & Regulation) Act, 1976; (2) The sale shall be subject to the property being converted from industrial zone to residential use; and (3) The sale shall be subject to your (defendants) being able to settle with your (defendants) labour and labour agreeing to the sale contemplated herein. 20 It is vehemently submitted on behalf of the defendants that the suit agreement was subject to these conditions and therefore conditional agreement cannot be specifically performed. 15. As against this, the learned Counsel for the plaintiff submits that there is no pleading to the effect that the suit agreement was not a concluded agreement or a concluded contract. Moreover, he further submits that in the Written Statement, it was however admitted by the defendants that this concluded agreement was executed between the parties and it stood cancelled as a result of the labour union of the defendants not having consented for the sale. 16. The learned Counsel for the plaintiff also submitted that future contract that was to be executed as per clause 10 of the suit agreement was a formal contract and that does not mean that the suit agreement was not a concluded contract. 17. In support of the contentions raised by the defendants, the learned Counsel for the defendants relied on a decision of the Supreme Court in the case of Ganesh Shet vs. Dr. C.S.G.K.Setty & Others Ganesh Shet vs. Dr. C.S.G.K.Setty & Others Ganesh Shet vs. Dr. C.S.G.K.Setty & Others, reported in (1998) 5 SCC 381. The facts of the said case before the Apex Court were, in fact, different. 21 There was overwhelming evidence that the contract was not concluded. The draft agreement was waiting confirmation and it is under those circumstances that it was held that the agreement was not concluded. In the