Case: India Financial Assn.,Seventh Day Adven Vs. M.A. Unneerikutty

The plaint schedule property belonged to the appellant No. 1 i.e. Indian Financial Association of Seventh Day Adventists, a Company incorporated under the Companies Act, 1956. The Company was impleaded as defendant No. 1 in the suit and the defendant No. 2 was its Power of Attorney. A school was being run in the property and there were also two other buildings in the property used by the Company. On 15.4.1985, the defendant No. 1 Company passed a resolution deciding to sell the property. A Power of Attorney was executed in favour of defendant No. 2 conferring on him the right to negotiate, enter into an agreement to sell, and sell and dispose of the property for a price acceptable to the Power of Attorney. It may be noted that this Power of Attorney, defendant No. 2, was the Chairman of the North Kerala Section of the defendant No. 1 Company and he had control and management over 70 churches. Thus, defendant No. 2, who was constituted the Power of Attorney, was a prominent person in the defendant No. 1 company and in the Association for whose welfare the company had been incorporated. Defendant No. 2 negotiated with the plaintiff for the sale of property. Negotiations were done with the help of Mr. P.V. George, who was attached to the school run by defendant No. 1 and who was a member of the Association. Defendant No. 2, for and on behalf of defendant No. 1, agreed to sell the property to the plaintiff for a price of rupees eight lakhs. On 17.5.1985 a sum of Rs. 10,000/- was paid as a token of the coming into existence of the agreement and receipt was issued. The receipt was admittedly signed by defendant No. 2 and the witnesses to it are one Sarathchandra and P.V. George referred to earlier. The receipt reads as follows:-Received a sum of Rupees ten thousand (Rs. 10,000/-) as earnest money from Mr. M.A. Uneerikutty, Calicut towards the advance of the sale of land bearing R.S. No. 27/1 having 30 cents of extent which costs 8 lakhs of rupees3. This was followed by another agreement dated 21.5.1985, executed by defendant No. 2, in his capacity as the Power of Attorney Holder of the defendant No. 1, and the plaintiff. In that agreement, after reciting the title of the defendant No. 1- Company represented by its Power of Attorney, it was stated that it had been decided to sell the property to the plaintiff for a consideration of Rupees Eight Lakhs and the plaintiff had agreed to purchase the same. The document also recites that on that day, the defendant No. 1 acting through its Power of Attorney, had received a sum of Rupees Three Lakhs as advance towards the sale price. The document was to be registered on or before 30.9.1985. The Company was to hand over all the title deeds relating to the property, including the encumbrance certificate, within one month before registration of the sale deed. All expenses for registration had to be met by the plaintiff and if the Company failed to complete the registration of the sale deed within the agreed period, the plaintiff had the power to take the necessary legal steps for getting the sale deed registered and in that event, the Company would be liable for the expenses and loss incurred in that behalf. The sum of Rupees Three Lakhs paid as advance was liable to be recovered as charge on the property. If the plaintiff fails to pay the balance consideration of Rupees Five Lakhs to the Company within the agreed period, the plaintiff was liable to the Company for all the losses incurred and the company had the full power to recover all the losses from the plaintiff. As noticed supra, the Power of Attorney signed this agreement on behalf of the defendant No. 1 company and the witnesses to this agreement were also the same two witnesses who had signed as witnesses in the receipt. On the same day, another agreement was also executed by the parties. This agreement indicated that the company would sell and the plaintiff would purchase the property for a price of Rupees Five Lakhs or the price to be adjusted as per the approved survey of the property. The sale was subject to clear title and free from all encumbrances. The agreement recites that the purchaser, the plaintiff, had paid a sum of Rs. 10,000/- by cash and a sum of Rs. 40,000/- by way of cheque dated 31.5.1985 as advance, the receipt of which the Company and the Power of Attorney acknowledged. The balance sale price was to be paid on or before 30.9.1985. The agreement stated that time was of the essence of the contract. Clause 5 of this agreement stated that the Company and its Power of Attorney were to demolish the existing buildings in the schedule property, salvage the same and deliver possession of the land only to the plaintiff at the time of registration of the sale deed. The company was to obtain the Clearance Certificate in terms of Section 230A of the Income Tax Act, 1961. The cost of registration was to be borne by the plaintiff and in the event of default on the part of the company to sell the schedule property after complying with the conditions, the company was liable to return the advance of Rs. 50,000/- as liquidated damages to the plaintiff. In the event of default on the part of the plaintiff to buy the schedule property as per the conditions set out, the plaintiff was to forfeit the advance of Rs. 50,000/- to the company. Thereafter, the company was free to deal with the property as it pleased. It was also provided that either party was entitled to enforce specific performance of the contract. It is seen that on the same day, there is a letter said to have been signed by defendant No. 2. In that letter, it was stated, after referring to Clause 5 of the other agreement that the Power of Attorney, defendant No. 2 agrees to demolish only the church building and the school building and retain building No. 6/64A. There is no dispute that pursuant to the agreement for sale entered into with the plaintiff, the prior documents of title of the Company were handed over to the plaintiff4. Complaining that the defendants were attempting to sell the property to another, the plaintiff filed a suit, O.S. 102 of 1985, in the Court of Subordinate Judge, Calicut for perpetual injunction restraining the defendant No. 1 Company from alienating the said property to any other person. It may be noted that the last day for performance of the agreement was 30.9.1985. It was after the filing of the earlier suit for injunction, that the plaintiff filed the present suit O.S. 188 of 1985 on 16.11.1985 in the Court of Subordinate Judge, Kozhikode for specifically enforcing the agreement for sale. The prayer in the plaint was to direct the defendants to specifically perform the contract sued on by executing and duly registering a sale deed in respect the plaint schedule property in favour of the plaintiff after receiving the balance sale consideration due to them and for possession pursuant to such conveyance. Conveyance was sought of the kanom, improvement and possessory rights of the defendants. There is no specific reference to any building in the plaint schedule5. In the plaint, after setting out details of the agreement between the parties, payment and receipt of Rs. 10,000/- as advance, it was stated that on 21.5.1985 a formal agreement for sale was entered into showing the consideration as Rupees Eight Lakhs including the sum of Rs. 3,10,000/- already paid towards the sale price. The plaint further stated that the total price of Rupees Eight Lakhs was for 30 cents of property and all the improvements thereon, including a Church building, a school building and another building. It was stated that the church and the school were being shifted by the defendant No. 1 from those buildings to some other premises. The plaint further proceeded to state that for reasons best known to them, the defendants wanted modification of the deed by re-fixing the sale consideration to Rupees Five Lakhs and giving liberty to the defendants to pull down and remove the buildings existing in the property, so that the material could be used to build, at another site proposed to be purchased by the defendant No. 1 Company. This agreement was also entered into on the same day and this was the latter agreement and the second agreement. It was asserted that the total consideration paid by the plaintiff to the first defendant as advance came to Rs. 3,50,000/-. If the defendants were to be permitted to remove the buildings and take away the materials, the balance amount payable by the plaintiff to the first defendant company would be Rs. 1,50,000/-. If on the other hand, the defendants did not want to remove the school building and the church building and would have them retained in the property, the plaintiff was ready and willing to pay a further sum of Rs. 4,50,000/- to make the total consideration of Rupees Eight Lakhs for sale of the entire property including all the improvements. It was pleaded that while drafting the second agreement, it was mistakenly stated in Clause 5 that the vendor shall demolish the existing buildings in the schedule property, salvage the same and deliver possession of the land to the vendee. According to the plaint, if this is understood to imply that the land only had been agreed to be sold by the defendants to the plaintiff, that was not correct and to clarify the position arising out of the unclear clause, defendant No. 2 wrote a letter to the plaintiff on the same day. According to the plaint, that letter was intended to make it clear that building No. 6/64A was included in the sale and that the church building and the school building were to be demolished and removed by the defendants. According to the plaintiff since he found that defendant No. 2 and the other representatives of defendant No. 1, namely Sarathchandra and P.V. George who were witnesses to the agreement, were highly educated respectable persons, he did not think it necessary to have a formal agreement drawn up. The plaintiff had no reason to believe that the defendants would go back on their promise. The plaintiff came to know that the defendants have the intention to retract from the agreement. It was in this context that he filed the suit O.S. 102 of 1985 seeking to restrain the defendants from alienating the property. The plaintiff was ready and willing to pay the balance amount due for execution of the sale deed. The plaintiff was always ready and willing to perform his part of the contract. In case the defendants do not agree to demolish and remove the church building and the school building, the plaintiff was ready and willing to pay the further sum of Rupees three lakhs to make the total consideration of Rupees Eight Lakhs for the entire property including all the improvements. Thus, the plaintiff was entitled to a specific performance of the agreement for sale. He valued the suit at Rupees Five Lakhs under Section 42 of the Kerala Court Fees and Suits Valuation Act (in short the Valuation Act) being the consideration for the sale6. In its written statement the defendant No. 1 admitted the receipt and the two agreements for sale. It also admitted that defendant no. 2 had been constituted as the Power of Attorney of the company. It was, however, pleaded that Power of Attorney was void as contrary and opposed to the Memorandum and Articles of Association of the Company. The conditions of Article 19A(i) of the Articles and Memorandum of Association had not been complied with. All actions pursuant to the resolution of the Company dated 15.4.1985 deciding to sell the property were invalid in law and were otherwise ineffective and void. The agreements referred to in the plaint were thus void ab initio and were not enforceable under law. It transpires that the sale agreements referred to in the plaint were drawn up at the same time and place as parts of the same transaction with the plaintiff conspiring with Mr. P.V. George, who was at that time attached to the school of the defendant No. 1. There was a conspiracy to commit fraud and to cheat the defendant No. 1 and deprive the State Government of the legitimate stamp duty payable. The sale agreements were set up and devised by the plaintiff with objects which were opposed to public policy and were prohibited by statutes like Kerala Stamp Act and Income Tax Act, 1961 and were void under Section 24 of the Indian Contract Act, 1872 (in short the Contract Act). The three buildings in the property were solid constructions. The demolition of the buildings was inconceivable and defendant No. 2 was never authorized to demolish or consent to demolition of the buildings. The alleged agreements to take the property after demolition of the buildings was a transaction devised by the plaintiff for infringing law and hence could not be enforced. The two agreements referred to in the plaint were brought into existence on account of the undue influence, coercion and fraud played by the plaintiff and George. The truth as gathered from defendant No. 2 was that at the time of the two agreements. Rupees Three lakhs was made over in cash by the plaintiff to George, who managed to obtain three demand drafts, each for a sum of Rupees one Lakh, from the Malabar Gramin Bank, Kozhikode, where the school run by the first defendant company had its accounts. The paying of Rupees Three Lakhs in cash violated the provisions of the Income Tax Act, 1961. The clause about demolition of the building was fraudulently introduced into the agreement where the consideration for sale was fixed at Rupees Five Lakhs. The agreements were vitiated by fraud and were void and unenforceable. The case of the plaintiff that the earlier agreement was modified by the subsequent agreement was not supported by the recitals in the subsequent agreement. Defendant No. 1 did not intend to sell the property and did not take any steps to sell the property and the filing of O.S. 102 of 1985 was wholly ill-conceived. The plaintiff has come to court with unclean hands. Defendant No. 1 had no intention to retain the monies received. Defendant No. 1 was willing to refund all the monies received in conformity with any condition that may be imposed by the Court. The suit was speculative. The frame of the suit was not proper7. Defendant No. 2, in addition to adopting the written statement filed on behalf of defendant No. 1 stated that he bonafide believed that the conditions prescribed in the Articles and Memorandum of Association of the defendant No. 1 Company for sale of the property had been duly complied with. He was completely misled by P.V. George to enter into two agreements on the same day as part of the same transaction. He had already requested defendant No. 1 to refund to the plaintiff all the amounts received from the plaintiff. The suit was liable to be dismissed8. The High Court held that the view of the trial court that Exhibit A-5 was executed to defraud payment of Stamp duty and the Income Tax and it was opposed to public policy in the background of Section 23 of the Contract Act, is not tenable. It was noted that the suit was one for specific performance of contract and there was full disclosure of both Exhibits A-4 and A-5 in the plaint. It was noted that there was no case of inadequacy of price, on the facts, Section 20 of the Specific Relief Act, 1963 (in short Specific Relief Act) was not applicable. The agreement was for sale of the property for a price of Rs. 8 lakh and the substantial portion of the amount has been paid as advance. The evidence clearly established that the plaintiff was already ready and willing to pay the balance. The suit for specific performance of contract was decreed. Direction was also given for payment of the balance court fee on the plaint as well as in the appeal on the basis that the consideration for sale is Rs. 8 lakh and not Rs. 5 lakhs.

Reasoning: 17. The term public policy has an entirely different and more extensive meaning from the policy of the law. Winfield defined it as a principle of judicial legislation or interpretation founded on the current needs of the community. It does not remain static in any given community and varies from generation to generation. Judges, as trusted interpreters of the law, have to interpret it. While doing so precedents will also guide them to a substantial extent19. The doctrine of public policy may be summarized thus: Public policy or the policy of the law is an illusive concept: it has been described as untrustworthy guide. variable quality, uncertain one, unruly house, etc., the primary duty of a Court of a law is to enforce a promise which the parties have made and to uphold the sanctity of contract which form the basis of society, but it certain cases, the Court may relieve them of their duty on a rule founded on what is called the public policy, but the doctrine is extended not only to harmful cases but also to harmful tendencies. This doctrine of public policy is only a branch of common law, and just like any other branch of common law it is governed by precedents. The principles have been crystallized under different heads and though it is permissible for Courts to expound and apply them to different situations, it should only be invoked in clear and incontestable cases of harm to the public.