1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUIT NO.697 OF 1981 Image Ads & Communications Pvt.Ltd. .. Plaintiffs Versus Bajaj Leathers Pvt.Ltd. & Anr. .. Defendants Mr.P.G.Lad for plaintiffs Mr.M.L.Palan with Ms.K.C.Nichani for defendants CORAM : S.C.DHARMADHIKARI, J. DATE : 12th January 2009 ORAL JUDGEMENT:- . The plaintiffs have filed the suit claiming a decree for specific performance of an Agreement for Sale of an immovable property being premises No.103, admeasuring 1421 sft., Mittal Chambers, 10th floor, Nariman Point, Mumbai 400 2 021. It is stated by the plaintiff that the first Defendant is a Company Registered under the Company’s Act 1956 and holds membership rights in respect of these premises. The membership rights are conferred by Defendant No.2 which is a society registered as a housing society under the Maharashtra Coop.Societies Act, 1960 (the Act for short). 2. The averments in the plaint with regard to this agreement read thus:- "2. The plaintiffs had entered into an agreement dated 22nd April 1977 with the defendant No.1 for purchasing and acquiring all the rights, title and interest in the office premises bearing No.103, admeasuring about 1421 sq.ft. on the 10th floor of the building known as "Mittal Chambers" situated at Plot No.228, Nariman Point, Bombay 400 021, 3 for a total consideration of Rs.3,55,250/-. The plaintiffs state that under the said agreement, a sum of Rs.71,500/- was to be paid as earnest money calculated at the rate of Rs.50/- per sq.ft. on or before the execution of the said agreement and a sum of Rs.2,84,200/- at the end of three years from the date of execution of the said agreement. The plaintiffs further state that on payment of the earnest money of Rs.71,050/- the plaintiffs were to be put in possession of the said premises. By the said agreement, it was further agreed between the plaintiffs and the defendant No.1 that from 1.4.1977, the plaintiffs were to pay a sum of Rs.2,486.75 per month towards outgoings in respect of the said premises. The plaintiffs were also to pay a sum of Rs.3,197.25 per month towards interest at 13.5% on the said 4 amount of Rs.2,84,000/- till the said balance purchase consideration of Rs.2,84,000/- was paid by the plaintiffs to the defendant No.1 as per the Agreement between the plaintiffs and defendant No.1. The plaintiffs state that in all a total sum of Rs.5684/- per month was to be paid by the plaintiffs to the defendant No.1 on or before the 10th day of each month towards the outgoings and society charges and interest on the balance purchase consideration of Rs.2,84,200/- till the entire purchase consideration is paid. The plaintiffs further state that the defendant No.1 further agreed that on the payment by the plaintiffs of the balance purchase consideration of Rs.2,84,000/- on or before the expiry of the period of three years from the date of the said agreement viz., 22/4/1977 the defendant No.1 shall 5 execute such documents, writings, transfer forms as may be necessary or required by the plaintiffs for effective transfer of the said premises and the shares in the defendant No.2 in the name of the plaintiffs in the records of the defendant No.2 society and in such other records as may be deemed necessary and expedient by the plaintiffs." 3. It is stated that at the time of execution of this agreement, plaintiffs paid Rs.71050 allegedly as earnest money and the first defendant has put them in possession of these premises. Under the agreement, plaintiffs were entitled to carry out certain renovations and installations, fixtures and fittings subject to the by-laws of the society and the Rules and Regulations in that behalf. These premises were occupied since May 1977. 6 4. Incidentally plaintiffs are also a company incorporated under the Companies Act, 1956 as a private limited company carrying on business as Publicity and Advertising Agents. 5. In paras 6 and 7 of the plaint, it is stated that in accordance with the agreement, plaintiffs paid a sum of Rs.5684/- towards interest and outgoings for the month of April 1977. Thereafter, they have been making payment of Rs.5684/- per month regularly. The outgoings and interest charges at the rate of Rs.5684/- per month have been paid upto and inclusive of April 1980. 6. Plaintiffs under the cover of a letter dated 18th April 1980 paid balance consideration by cheque. Balance consideration was Rs.284200/-. The cheque and the letter was handed over in person to the Managing Director of the first defendant and first defendant was 7 requested to complete necessary formalities as per the Agreement. This fact is recorded by letter dated 18th April 1980. In spite of receipt of the cheque for the balance consideration, no steps were taken by first defendant for executing the required documents soasto transfer and assign all their rights, title and interest in the premises. In these circumstances, plaintiffs addressed further letter dated 10th May 1980 and requested the first defendant to inform the society (defendant No.2) about the sale and transfer of the premises, with effect from 18th April 1980 so that future bills for society outgoings so also taxes could be raised on the plaintiffs. 7. In spite of this letter, the necessary documents have not been executed and that is how once again the plaintiffs were constrained to write a letter on 16th September 1980 calling upon the first defendant to complete formalities 8 of transfer of shares in respect of the premises. A copy of this letter was endorsed to defendant No.2 society. On receipt of this letter, defendant No.2 society by letter dated 4th October 1980 addressed to defendant No.1 requested defendant No.1 to inform the society whether the premises were sold in favour of the plaintiffs and if so, necessary transfer deed be sent to the second defendant for completing formalities. 8. It is in these circumstances, it is stated that the plaintiffs have fulfilled all their obligations under the Agreement. Even the society is willing to complete all formalities but defendant No.1 has failed to execute transfer documents so also have the shares assigned and transferred in the name of plaintiffs. They are not even replying to the letters. After setting out that they have been always and are still ready and willing to fulfil all reasonable and 9 lawful requirements that the plaintiffs claim the relief of specific performance and permanent injunction, restraining the first defendant from transferring and assigning their right, title and interest in the suit premises to anybody else other than the plaintiffs. The suit is filed in this Court on 2nd April 1981. 9. The writ of summons was served and the contesting defendant, i.e. defendant No.1 has filed its written statement affirmed on 5th February 1982. In the written statement, apart from the defence of maintainability of the suit on account of non issuance of notice under section 164 of the Act, and the agreement requiring registration under the Maharashtra Ownership of Flats (Regulation of Permission of Construction, Sale, Management and Transfer) Act, 1973 (MOFA for short), it is contended that the claim is barred by gross delay and latches. 10 10. It is contended in paras 5(a) to (c) of the W.S. as under:- "5(a). With reference to paras 2 to 7 of the plaint, this defendant says that the true facts are as under:- (a) Sometime prior to April 1977, the plaintiffs approached this defendant and represented that they were interested to acquire suitable office premises at Nariman Point area but that would take some time, in the meantime they desired to have the suit premises for their office for a temporary period on leave and licence. This defendant was not prepared to give the suit premises to the plaintiffs on leave and licence on account of the generally bitter experience of other persons regarding licences who ones having obtained 11 possession were reluctant to leave the premises and adopted all sorts of tactics and took shelter behind legal technicalities. The plaintiffs however represented that they were a reputed concern and could be relied upon not to go back on their word. The plaintiffs assured this defendant that they would vacate the suit premises and shift to as soon as they had acquired their premises which they promised to do within a short time. In order to further assure this defendant, the plaintiffs suggested that they may enter into an ostensible agreement for sale of the suit premises so that the plaintiffs cannot claim either tenancy or status of a protected licensee. The plaintiffs even got prepared a draft agreement for sale of the suit premises and drew the attention of this defendant to the various clauses 12 which were generally incorporated in the leave and licence agreements and were otherwise inconsistent with the concept of sale of ownership premises." (b) This defendant, therefore, was induced to rely upon and accept the said premises and assurances given by the plaintiffs. This defendant therefore, accepted the aforesaid suggestion of the plaintiffs and signed the agreement, Exh.A to the plaint. (c) This defendant says that some of the clauses of the said agreement, Exh.A to the plaint clearly establish that the said agreement is not a genuine agreement for sale as falsely and dishonestly claimed by the plaintiffs but is only a camouflage for an agreement of leave and licence. This defendant would like to 13 point out the following salient features among the clauses of the said agreement, Exh.A to the plaint. (i) payment of interest every month clearly indicates that the said payment was a licence fee which is payable every month. Normally and ordinarily, interest is paid either quarterly, six monthly or yearly and in any event, there is a provision made for quarterly rests or six monthly rests or yearly rests which provision is significantly absent in this particular case. The sum of Rs.2,84,200/- was fixed as a hypothetical or imaginary figure to arrive at a sum equivalent to Rs.3,197.25 for licence fees calculated at the rate of Rs.2.25 per sq.ft. per month. (ii) Under the Income Tax Act, the 14 party paying interest to a limited company is obliged to deduct 20% tax plus surcharge at source before making the payment. In the present case, since the amount of Rs.3,197.25 payable every month was not the amount of interest but was only a sum towards licence fees, no provision was made for the deduction of income tax and no tax was ever deducted by the plaintiff before making the payment. (iii) Clause 6 of the agreement, Exh.A to the plaint is a very unusual one inasmuch as it does not provide for the completion of the sale in a normal manner i.e. within a particular time. On the contrary, this clause provides for the completion of sale "at the end of three years.". This only indicates that the agreement was leave and licence for a 15 period of three years. (iv) In clause 7 of the said agreement, Exh.A to the plaint, a power is given to the purchaser, i.e. the plaintiffs to unilaterally terminate the agreement. Such power is an anti thesis in an agreement for sale. There is no reason why if the said agreement was a genuine agreement for sale, the plaintiffs should be conferred such a power to unilaterally terminate the agreement. (v) There is no provision in the said agreement, Exh.A to the plaint, for interest on the earnest money in the event of sale not being completed due to any default on the part of the vendor. The reason for absence of the said provision is that the agreement was not a 16 genuine agreement for sale. (vi) Clause 12 provides for an indemnity which is not necessary in an agreement for sale. (vii) The provision of clauses 13 and 15 as also other clauses are common in leave and licence agreements and are not compatible with the concept of an agreement for sale. (viii) There is no provision in the said agreement for sale of shares of the 2nd defendant society which is the only saleable asset to which the right to occupy the suit premises is attached. In fact, there can be no agreement for sale of the premises itself but it is to be a sale of shares with an incidental right to occupy the premises attached to the 17 said shares. The agreement in question does not provide for any sale of the shares for consideration. This defendant says that the agreement for sale of the premises is itself not a proper or a legal one and there is no valid agreement for sale of the shares of the second defendant society." 11. It is in this backdrop that the first defendant reminded the plaintiffs that three years licence period is about to come to an end and they enquired as to whether the plaintiffs would be handing over possession of the suit premises. However, it is urged that some time was sought by the plaintiffs for shifting to other premises but that time was not granted. Therefore, the plaintiffs with a view to show their bonafides, promised to send a cheque for Rs.284200/- to be retained by the first defendant as further security and upon the assurance that 18 they would vacate within one year, failing which the amounts will stand forfeited, that the first defendant agreed to accommodate them. 12. However, the letter dated 18th April 1980 forwarding the cheque falsely stated that it was towards the balance of the alleged purchase price. It was objected to by the first defendant and, therefore, a meeting took place. There were certain discussions and with the intervention of a common friend, it was ultimately decided that the plaintiffs will not agitate their false and frivolous claims. Assuming that the agreement was an agreement for sale of the suit premises. It is contended that it is significant that the suit was not filed for nearly one year. For all these reasons, the agreement is sham and bogus and it was agreed that the same will not be acted upon. Therefore, it is not binding and is also not enforceable against the first defendant. Hence, the suit be dismissed with costs. Rest of 19 the contents of the written statements contain only denials. This written statement was duly filed and was served on the plaintiffs. 13. In the light of the rival contentions, this Court framed the following issues:- "(1) Whether the plaintiffs prove that they have carried out obligation on their part as per agreement dated 22.4.1977 and are entitled for specific performance of the said agreement? (2) Whether the plaintiffs are entitled for transfer of right, title and interest in the premises No.103, 10th floor, Mittal Chambers, Nariman Point, Mumbai 400 021? (3) Whether the plaintiffs are entitled for permanent injunction 20 restraining the defendant No.1 from transferring and assigning right, title and interest in the premises No.103, 10th floor, Mittal Chambers, Nariman Point, Mumbai 400 021? (4) Whether defendant No.1 proves that the agreement dated 22/4/1977 is camouflage document and not disclosing the correct transaction between plaintiff and defendant? (5) Whether the defendants prove that the suit is not maintainable for want of notice under section 164 of the Maharashtra Coop.Societies Act, 1960? (6) Whether the defendants prove that they have given premises to the plaintiffs on leave and licence? 21 (7) What order? 14. On behalf of the plaintiffs, one C.D.Ramchandran, Chairman and Managing Director stepped into the witness box. His examination in chief is on affidavit which is fairly elaborate. 15. Consistent with the plaint averments, he deposed that the agreement is one for sale of an immovable property. The sale price of the suit premises was fixed at Rs.355250/-. The rate was fixed at Rs.250/- sft., and Rs.71050 (Rs.50/- per sft.) was paid as an earnest money on execution of this agreement and the balance amount of Rs.284200/- was to be paid at the end of three years. Further, the agreement is with regard to putting the plaintiff in possession, payment of outgoings by them and interest at 13.5 % on the balance sum, which works out to Rs.3197.25/- per month. This amount was to be paid till the balance purchase price was paid. The witness 22 confirms that the society outgoings are Rs.5625/- per month which are evidenced by receipts. 16. The agreement and the receipts are exhibited by consent. Agreement is Exh.P-1 and, thereafter, the receipts follow. Even the correspondence ending on 4th October 1980 is also exhibited by consent. Thus, the plaintiffs’ documentary evidence is Exh.P-1 to P-65. There is no other witness examined by the plaintiffs. 17. Equally, on behalf of the defendant No.1, their Managing Director stepped into witness box and his examination in chief is also on affidavit affirmed on 9th March 2006. He tenders a copy of the letter dated 29th December 1981 which was exhibited as Exh.D-1. 18. The first defendant cross examined the plaintiffs’ witness and in the cross the witness states that plaintiff’s company is in the 23 business of advertising and public relations since 1974. Initially, it was a proprietary concern and later on it was converted into a private limited company. That was in 1975. Initially, its registered office was at 38, Amita, Gen.J.Bhosale Marg, Mumbai and thereafter it shifted to the present premises i.e. suit premises. The plaintiffs have their branches at Chennai, Bangalore. The witness has admitted that the plaintiffs have their department and office at Mittal Chambers, 3rd floor & 4th floor and third floor of Raj Mahal Building at Churchgate. 19. The witness admits that the plaintiffs were introduced to defendants through some brokers, names of the brokers are given in para 7 of P.W.1’s cross examination. Further, it is stated that the plaintiffs were searching for property for office purposes during emergency and at that time, the witness was introduced to the 24 Managing Director of the Defendant No.1. There were three/four meetings and at such meetings, plaintiffs were not accompanied by brokers, although, it is true that it is stated that the meetings were in connection with the purchase of property for office purpose. Ultimately, in paras 10, 11, 13 and 14 this is what is stated. "(10) I say that I did not have full money to make full payment for purchase of suit property. Therefore, Mr.Pahlaj Bajaj of Defendants offered the said suit property to plaintiffs on hire purchase basis at Rs.250/- per sq.ft. taking into consideration the interest component for deferred payments. I say that in all four people including myself and Mr.Pahlaj Bajaj of defendants were present in the meeting. I say that I remember, one broker, Mr.Rukhana was present and other person I do not 25 remember. "(11) According to me, the documents relating to the purchase of the suit property were prepared by Mr.Pahlaj Bajaj of defendants. I say that the draft copy of the said document relating to the purchase of the suit property was received by me before execution. I say that after one or two days deliberations, plaintiffs were asked to execute the said document relating to the purchase of the suit property. "(13) I deny that the defendants did not agree to sell the suit property to the plaintiffs. I deny that defendants had only agreed to give temporarily the suit property to the plaintiffs." "(14) I say that the draft of the 26 document exhibited as P-3 was handed over to plaintiffs by defendants and I had only purchased the Stamp Paper. I say that to the best of my recollection, I had purchased only one stamp paper. I say that I do not recollect the place from where I had purchased the stamp paper and the exact data when I had purchased the same." 20. The witness has admitted that he does not remember who typed Exh.P-3. The document was signed and attested in the presence of all four people involved in execution and it was signed in the office of the first defendant. It is stated that the draft of the document was prepared by M/s.Mathubhai Jamietram & Madan who are Solicitors for the defendants and the witness states that the defendants must have instructed them to prepare the documents. However, once again, the witness reiterates that he does not 27 remember who typed Exh.P-3. It is admitted in para 17 that the payment made under Exh.P-3 is not reflected anywhere except in the document itself. The witness states that the entry of Rs.71050/- is reflected in the plaintiffs’ books of accounts. The books of accounts are audited and filed before the statutory authorities. The witness admits that books of accounts are important documents for the purpose of the suit and further admits that the plaintiffs have not relied upon books of accounts in the present suit. In para 20, the witness admits that receipts in respect of payment made from August 1979 to November 1979 and January to April 1980 have not been produced. The witness admits that though payments were made, there is no official receipt issued in respect of these payments. In paras 21 and 22, the witness states thus:- "21. I say that I have not paid the fees for preparation and drafting of the 28 said agreement exhibited as P-3. I deny that M/s.Matubhai Jamietram & Madan, were the Solicitors of the plaintiffs. I say that the amount if paid to the Solicitors would be reflected in the books of accounts maintained by the plaintiffs. It is correct to say that there is no clause in the said agreement exhibited as P-3 for transfer of shares of the cooperative society. I deny that the parties never contemplated any agreement for sale but for leave and licence only. I say that the date of last payment of Rs.2,84,200/- was 18.4.1980." "22. I say that my relationship with the defendants right from the beginning till 18.4.1980 was neutral. I say that I never met the defendants prior to 18.4.1980 as there was no need to meet the defendants. I say that there was no 29 need to meet the defendants for completion of the agreement of sale. I deny that there was no agreement of sale between the plaintiffs and the defendants and therefore there was no need to meet the defendants." 21. In para 23 of the cross examination, to a suggestion given to the witness, whether there was any contract with the defendants before giving the cheque of Rs.2,84,200/- on 18th April 1980, he denies that suggestion. Further, he denies that in the second week of April 1980, defendant reminded the plaintiffs about expiry of three years period and that the plaintiffs had to hand over possession of the premises. It is stated by him that there was no talk or discussion with regard to handing over the premises back to the first defendant and this answer is given to a suggestion made to him. 30 22. With regard to value of the suit property, the witness gives the manner in which the calculation is made and the figure of Rs.2,55,780 is arrived at. But, he further admits in the cross examination that there is no basis for this calculation. The witness states that the plaintiffs have no answer as to why there was any delay in encashing the cheque, despite the reminder addressed on 10th May 1980. 23. In para 25 of the cross examination, the witness denies a suggestion that the cheque of Rs.2,84,200 was kept as security with the defendants for extending the licence period for three years. However, the witness adds that it was a purported licence period. He denies the suggestion that the plaintiffs agreed to vacate the suit premises after a period of one year, failing which the cheque would be forfeited. The witness states that he does not recollect receiving any letter dated 29th December 1981. 31 He denies the suggestion that the statements recorded and the letter