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NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  4509  OF 2007

HANSA V. GANDHI      …APPELLANT

        VERSUS

DEEP SHANKAR ROY & ORS.     ....RESPONDENTS

WITH

CIVIL APPEAL NO. 4510  OF 2007 AND  

CIVIL APPEAL NO. 4511  OF 2007

J U D G M E N T

ANIL R. DAVE, J.

1. Being aggrieved by a common judgment delivered in First  Appeal  

Nos.492, 493 and 499 of 2002, dated 24th August, 2005 by the High Court of  

Judicature  at  Bombay,  these  appeals  have  been  filed  by  the  original  

plaintiffs, who had filed the suits for specific performance.

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2. As the facts involved in all these three appeals are similar in nature,  

all  these  appeals  are  being decided  by  this  common judgment.   For  the  

purpose of clarity, we are referring to all the parties by their description as it   

was  before  the  trial  court.   The  Developer  of  the  property,  original  

Defendant  No.1  is  now  respondent  No.  2  in  all  the  appeals  whereas  

respondent no.1 is a subsequent buyer of the property in question.   M/s.  

O.P. Co-operative Housing Society (hereinafter referred to as ‘the Society’)  

was the owner of the land which was being developed by the Developer.

3. The Developer had entered into an agreement to develop the property  

i.e. land owned by the Society and thereafter to sell the flats constructed on  

the land in question to the intending purchasers in accordance with the terms  

and conditions of the agreement dated 17th April, 1992.

4. Each plaintiff wanted to purchase one flat to be constructed by the  

Developer on the land belonging to the Society, so they had negotiated deals  

with  the  Developer.  As  per  the  understanding  arrived  at  between  each  

plaintiff and the Developer, the plaintiffs had to pay a total consideration of  

Rs.4,40,000/- in respect of each flat in certain installments.  Accordingly,  

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each  plaintiff  had  started  making  payment  to  the  Developer  as  per  the  

amount of installments determined by the Developer.  The Developer had  

executed  a  letter  of  intent  dated  29th September,  1992,  whereby  the  

Developer had  agreed to reserve a flat for each plaintiff .  Reservation of the  

flat was subject to bye-laws of the Society.  Moreover, the reservation made  

by the Developer for the flats was also subject to the terms and conditions  

which had been incorporated in the letter of intent. Initially each plaintiff  

had given a sum of Rs. 88,000/- to the Developer and a receipt had been  

executed by the Developer in respect of the said amount.  Clause No. 3 of  

the  said  letter  of  intent  dated  29.9.1992,  written  by  the  Developer  and  

addressed to the plaintiffs is as under :

“Clause  3  :  We  acknowledge  and  admit  the  receipt  of  Rs.88,000/- (Rupees Eighty Eight Thousand only) from you,  which amount you have paid to us in view of our reserving  the above mentioned flat  in our proposed building on the  basis of the plans shown to you, with a view to securing that  on compliance of all the terms and conditions of Agreement  to Lease executed between the Society and the Corporation,  you shall purchase the said flat and enter into ‘Agreement to  Sale’ with us.”

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Thus, upon compliance of certain terms and conditions referred to in the  

aforestated clause and in the letter of intent, the Developer had agreed to sell  

the flats to the plaintiffs.

5. It was also provided in the letter of intent that the plaintiffs had to bear  

expenses in relation to registration of the document, stamp duty and certain  

other expenditure to be incurred for getting motor and electric connection  

etc. and it was also provided in the letter of intent that delayed payment of  

the installment would attract interest at the rate of 21% p.a. and if two or  

more installments  remained unpaid, the reservation made in respect of the  

flat would stand cancelled.

6. In pursuance of the execution of the aforestated letter of intent, the  

plaintiffs had started paying installments to the Developer.  It may also be  

noted here that due to some litigation which had taken place between some  

persons and the Society before the High Court, the High Court had ordered  

an enquiry.  The said litigation went on till the end of 1996, due to which the  

Developer could not continue his construction activity and that resulted into  

delay in the construction work.  According to the Developer, the said delay  

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had resulted into increase in the cost of construction and therefore, it was  

constrained to increase the price of  the flats and as a result  thereof, the  

amount of installment was also increased from Rs.22,000/- to Rs. 38,500/-.  

The increase in the price of the flats and the amount of installments had been  

opposed by the plaintiffs and they had refused to pay the installments on the  

ground that the increase in the price as well as installments was not justified.  

The plaintiffs had paid about ten installments till 10th January, 1997.  In view  

of the fact that the entire amount payable as per the letter of intent and the  

understanding arrived at  among the plaintiffs  and the Developer  had not  

been paid,  the Developer did not allot or sell any flat to the plaintiffs and  

therefore, a Civil Suit No. 149 of 1998 had been filed by Mrs. Hansa V.  

Gandhi (who has filed Civil Appeal No. 4509 of 2007 herein) with a prayer  

for  specific  performance  of  the  agreement  for  sale  of  the  flat  or  in  the  

alternative, to refund the price already paid  to the Developer along with  

damages,  which according to the plaintiff  was Rs.10,00,000/-.   Similarly,  

other plaintiffs had also filed suits for specific performance/damages.

7. It  is  important  to note  that  when the plaintiffs had stopped paying  

installments  to  the  Developer,  the  Developer  had  entered  into  another  

agreement with the present respondent No.1 in each appeal for sale of the  

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flats with increased price, which were to be constructed and allotted to the  

plaintiffs.   All  these  buyers  are  described  hereinafter  as  ‘Subsequent  

Buyers’, who were defendant No.3 in the suits.

8. The  Developer  had  filed  written  statements  before  the  trial  court  

denying  its  liability  on  the  ground  that  by  virtue  of  letter  dated  19 th  

December, 1997, it had cancelled the reservation of flats in question made  

for the plaintiffs.   Thus, the understanding arrived at among the Developer  

and the plaintiffs in pursuance of the letter of intent had come to an end and  

as  there  was  no subsisting  agreement  with  regard  to  sale  of  the  flats  in  

question with any of the plaintiffs, there was no question of either specific  

performance of the contract or about breach of the contract resulting into  

payment of damages by the Developer.

9. It  was  contended  on  behalf  of  the  Subsequent  Buyers,  who  had  

purchased the flats from the Developer that they were bonafide purchasers  

for consideration without notice.  It was specifically stated by them that they  

had no notice with regard to the earlier transactions which the plaintiffs had  

entered into with the Developer.  It was also submitted that the agreement  

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between each plaintiff and the Developer, if any, had never been registered  

as  required  under  the  provisions  of  the  Maharashtra  Ownership  of  Flats  

(Regulation of Promotion of Construction, Sale, Management and Transfer)  

Act, 1963 (hereinafter referred to as ‘the Act’) and therefore, it cannot be  

presumed that  the  Subsequent  Buyers  had any notice  with  regard  to  the  

earlier  transactions,  especially  when they were never  informed about  the  

earlier transactions either by the Developer or by the original plaintiffs.  It  

was further submitted on behalf of the Subsequent Buyers that they had paid  

the entire amount of consideration of Rs. 6,37,000/- and they were also put  

in  possession  of  their  respective  flats  and  therefore,  they  were  bonafide  

purchasers for consideration. Thus, the agreement with regard to sale of the  

flats,  by  the  Developer  to  the  Subsequent  Buyers  could  not  have  been  

questioned and they had legal  and legitimate right to have occupation of  

their respective flats.

10. After framing necessary issues and upon considering the evidence led  

before the trial court, the trial court decreed the suits whereby the Developer  

was directed to specifically perform the contract with regard to sale of the  

flats  in  favour  of  the  plaintiffs  upon  payment  of  unpaid  amount  of  

consideration by them.

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11. Being aggrieved by the judgment and decree of the trial court,  the  

Subsequent Buyers filed the First Appeals, referred to hereinabove, before  

the High Court.   As the facts  in  respect  of  each First  appeal  were quite  

similar, the High Court thought it proper to decide all the three First Appeals  

by  a  common judgment,  which  was delivered  on 24th August,  2005 and  

validity of the said judgment is challenged in these civil appeals filed before  

this Court.

12. After hearing the concerned parties and looking at the facts of the case  

and after  considering the judgment delivered by the trial  court,  the High  

Court  allowed the  appeals.   The  judgments  and decrees which had been  

passed in favour of the plaintiffs by the trial court had been set aside and it  

was directed by the High Court that the plaintiffs would be entitled to get  

refund of the amount paid by them to the Developer with interest at the rate  

of 9% per annum from the date on which the letter of termination of the  

agreement was sent by the Developer to the plaintiffs till the date of payment  

of the said amount.   

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13. The  learned  counsel  appearing  for  the  appellants  i.e.  the  original  

plaintiffs mainly submitted that the Subsequent Buyers were not bonafide  

purchasers without notice because they did not make sufficient enquiry with  

regard  to  the  earlier  transactions  which  had  been  entered  into  by  the  

Developer with the plaintiffs.   According to the learned counsel,  had the  

Subsequent Buyers made detailed enquiry with regard to the records of the  

Developer, they would have surely ascertained the facts with regard to the  

letters of intent sent to the plaintiffs by the Developer but by not doing so,  

the Subsequent Buyers had shown gross negligence and therefore, it cannot  

be said that the Subsequent Buyers were bonafide purchasers without any  

notice with regard to earlier transactions entered into between the Developer  

and  the  plaintiffs.   The  counsel  further  submitted  that  the  burden  of  

establishing the bonafides of the Subsequent Buyers was on them and the  

said burden had not been discharged by them and therefore, the High Court  

was  in  error  while  observing  that  the  Subsequent  Buyers  were  bonafide  

purchasers without any notice.

14. It  was  also  submitted  by  the  learned  counsel  that  the  Subsequent  

Buyers had not adduced any evidence with regard to payment of purchase  

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price to the Developer and therefore, it could not have been said that the  

Subsequent Buyers were buyers in good faith for valuable consideration.

15. On the other hand, it had been submitted on behalf of the Subsequent  

Buyers i.e. respondent no. 1 in each appeal that the plaintiffs never averred  

in  their  respective  plaints  that  the  Subsequent  Buyers  were  not  bonafide  

purchasers  having  no  notice  with  regard  to  the  earlier  transactions.   In  

absence of such pleadings before the trial court, the plaintiffs could not have  

advanced any argument with regard to bonafides of the Subsequent Buyers.  

To substantiate the aforestated submission, the learned counsel had relied  

upon  a  judgment  delivered  in  the  case  of  Ram  Swarup  Gupta  (dead)   

through LRs. Vs.    Bishun Narain Inter College and Ors  .  [(1987) 2 SCC  

555] to the effect that in absence of pleadings, the court would not deal with  

the matter  not pleaded or the concerned party would not be permitted to  

make out a case beyond its pleadings.  Some other judgments were also cited  

to substantiate the aforestated submissions.

16. It  was  mainly submitted by the learned counsel  appearing for  the  

Subsequent  Buyers  that  in  absence  of  any registration  of  the  agreement,  

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entered  into  between  the  plaintiffs  and  the  Developer,  the  Subsequent  

Buyers could not have got any opportunity to find out existence of the letter  

of intent or an agreement, if any, entered into between the plaintiffs and the  

Developer.  According to the learned counsel, registration of a document is a  

notice to all concerned persons and in absence of registration of the so called  

agreement,  it  cannot  be  presumed  that  the  Subsequent  Buyers  had  any  

knowledge  with  regard  to  the  earlier  transactions.   The  burden  of  proof  

would  be  on  the  plaintiffs  to  establish  that  the  Subsequent  Buyers  had  

knowledge about the earlier transactions entered into by the Developer with  

the plaintiffs.

17. The counsel appearing for the Subsequent Buyers further submitted  

that  Section  4(1)  of  the  Act  makes  it  mandatory  to  get  the  agreement,  

between the purchaser of the flat and the Developer, registered but in the  

instant case there was no registration as required under Section 4(1) of the  

Act, the plaintiffs could not have acquired any right in the flats.  

18. Thus, the sum and substance of the submissions made on behalf of the  

Subsequent  Buyers was that  being bonafide purchasers  for  consideration,  

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they had a better right in respect of the flats in question, especially when the  

plaintiffs had stopped paying installments which were due and payable by  

them to the Developer and in view of the letter of cancellation written by the  

Developer to the plaintiffs. If there was any agreement or if the plaintiffs had  

any right to purchase the flats in question, by virtue of the letter  dated 19th  

December, 1997, cancelling the allotment, the so called right had come to an  

end and thereafter the plaintiffs did not have any enforceable right in respect  

of the flats in question.   

19. We have heard the learned counsel for the parties at length and have  

perused the judgments of the courts below and the judgments referred to by  

the learned counsel.

20. Upon thoughtful consideration, we are of the view that the High Court  

was not in error while allowing the First Appeals filed by the Subsequent  

Buyers for the reasons stated by it in the impugned judgment.

21. It is not in dispute that the letter of intent was issued by the Developer  

to the plaintiffs wherein certain conditions had been incorporated and upon  

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fulfillment of those conditions, agreements for sale of the flats were to be  

executed. Upon perusal of the letter of intent closely, one would find that  

certain conditions had been incorporated in the letter of intent.  The said  

conditions clearly imposed a duty on the part of the intended purchasers to  

make payment of all the installments payable in respect of the purchase price  

of the flat.  It is also not in dispute that it was open to the Developer to vary  

the price or the area to be covered by a flat in certain cases.  It is not in   

dispute that the Developer had raised the price because of the delay caused  

on account of the litigation faced by the Society.  On account of the delay  

caused in construction of the flats, the cost had gone up and therefore, the  

Developer  had asked for  a  rise  in  the price  which was approved by the  

majority of the intended purchasers of the flats.  Accordingly, all the other  

purchasers  had started  paying the  increased  price  of  installments  but  the  

plaintiffs had refused to the same and in fact they had stopped paying the  

installments which were becoming due and payable after the price had been  

increased.  It is also worth noticing that the plaintiffs did not make payment  

even as per the rate prescribed under the letter of intent and the terms and  

conditions agreed upon by them with the Developer.

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22. It  is  a  fact  that  the  plaintiffs  had  not  entered  into  any  formal  

agreement with regard to the purchase of the flats with the Developer.  The  

mere letter of intent, which was subject to several conditions, would not give  

any right to the plaintiffs for purchase of the flats in question till  all  the  

conditions incorporated in the letter of intent were fulfilled by the plaintiffs  

i.e. the proposed purchasers.  It is also a fact that all the conditions, which  

were to be fulfilled, had not been fulfilled by the plaintiffs.

23. According to the provisions of Section 4 (1) of the Act, the agreement,  

if any, executed between the plaintiffs on one hand and the developer on the  

another, ought to have been registered with the sub-Registrar.

24. In absence of such a registered document, the plaintiffs would not get  

any right in respect of the flats, which they intended to purchase.  Moreover,  

in absence of the registration, the Subsequent Buyers could not have got an  

opportunity to inspect the agreement and there could not be any presumption  

that the Subsequent Buyers knew about the agreement.

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25. The letter of intent cannot be said to be an agreement to sell for the  

simple reason that according to the contents of the letter of intent, only upon  

payment of the entire purchase price, the Developer and the plaintiffs were  

to enter into an agreement with regard to sale of the flats.  This fact clearly  

denotes  that  no  agreement  to  sell  had  been  entered  into  between  the  

plaintiffs  and  the  Developer  and  in  absence  of  such  agreements,  in  our  

opinion, there cannot be any right in favour of the plaintiffs with regard to  

specific performance of any contract. Thus, in our opinion, the High Court  

did not commit any error while coming to the conclusion that there was no  

binding contract  or agreement in existence between the plaintiffs and the  

Developer and therefore, the trial court could not have decreed the suit for  

specific performance.

26. As no averment was made by the plaintiffs in their plaints that the  

Subsequent  Buyers  were  not  bonafide  purchasers  for  consideration,  the  

Subsequent Buyers could not have adduced any evidence to show that they  

were bonafide purchasers for consideration.  Had such a plea been raised by  

the plaintiffs in their pleadings, the Subsequent Buyers could have adduced  

necessary evidence to prove their cases.  In such cases, normally the burden  

of proof would lie on the plaintiffs unless there is a registered document so  

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as to raise a presumption that the Subsequent Buyers had knowledge with  

regard to the earlier transaction. Such a burden of proof was not discharged  

by the plaintiffs and therefore, we are also of the view that the Subsequent  

Buyers were bonafide buyers for consideration.

27. The learned counsel  for the Subsequent Buyers relied upon several  

judgments and the propositions laid down in the said judgments are clear to  

the   effect  that  if  the  contention  of  the  plaintiffs  is  that  the  Subsequent  

Buyers are not bonafide purchasers, the plaintiffs must have pleading to that  

effect.

28. In view of the above circumstances, in our opinion, the High Court  

was right in allowing the appeals and directing the Developer to return the  

amount of the purchase price received by it from the plaintiffs with interest  

at  the rate  of  9% p.a.  from the date  when the letter  of  cancellation was  

written by the Developer to the plaintiffs.  In our opinion, the said direction  

is just and proper however, looking to the rising price and inflationary trend  

in  the  country,  we partly  modify  the  judgment  by  increasing the rate  of  

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interest from 9% p.a. to 12% p.a.   The said amount shall be paid to the  

plaintiffs by the Developer within two months from today.

29.      Looking into the aforestated facts, we are of the view that the High  

Court  did  not  commit  any error  while  allowing the  appeals.   Subject  to  

aforestated modification with regard to the rate of interest, the appeals are  

dismissed with no order as to costs.

 ………..……………......................J.

                                                        (R.M. LODHA)

                           ………...........................................J.

                                                            (ANIL R. DAVE)

           …….…..……………......................J.

         (RANJAN GOGOI)

New Delhi April 18, 2013

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