Unbanked Rs 5 crore cheque sinks oral land-sale decree; Supreme Court calls concurrent findings perverse
Justices J.B. Pardiwala and K. Vinod Chandran set aside concurrent decrees for specific performance, holding the suit barred under Order II Rule 2 and the oral contract unproved.
A decree of specific performance built on an oral agreement for the sale of immovable property, granted by a trial court and affirmed on appeal, has been set aside by the Supreme Court on two independent grounds. The suit was barred because the plaintiff had earlier sued for an injunction over the same refusal without asking for specific performance or taking leave at the time of institution; and the oral contract itself was never proved, in a case where a cheque for Rs 5,00,00,000 said to be the advance was never presented to the bank on which it was drawn. Justices J.B. Pardiwala and K. Vinod Chandran described the concurrent findings as perverse. The judgment was authored by Justice Vinod Chandran.
Two suits over the same refusal
The plaintiff company's case was that the sale was concluded at a series of meetings in late 2006 and early 2007, that Rs 5,11,000 was paid in cash as a token advance, and that a cheque for Rs 5 crore was handed over as a further advance. Property and revenue documents were sent by a letter dated 25 November 2006. On 8 May 2007, the plaintiff said, the first defendant refused to honour the agreement.
The plaintiff's first suit sought a permanent injunction alone, restraining the first defendant and its agents, servants and contractors from alienating the property, changing its nature or building on it. That suit was later withdrawn on the ground that settlement talks were running, with a pursis asking to file afresh. The second suit, for specific performance, followed. It was filed in 2007 and amended in 2011.
For the appellants, Mr Mihir Thakore argued that the second suit was barred: the cause of action for specific performance had arisen before the first suit, as the pleadings in that suit themselves showed, no leave had been taken, and the relief was therefore deemed relinquished under Order II Rule 2 of the Code of Civil Procedure, 1908. Mr Deven Parikh, for the plaintiff-respondents, answered that the governing provision was Order XXIII Rule 1(3), that the pursis had sought liberty and that liberty could be inferred from the withdrawal order, and that a fresh suit filed within limitation could not be shut out.
Leave belongs at the institution of the suit, not its withdrawal
The Court accepted that liberty to sue afresh could be inferred: the withdrawal was ordered on the basis of the pursis, which plainly asked to file again, even though the order did not say so expressly. That inference, however, did not answer the objection.
Order II Rule 2 requires every suit to include the whole of the claim the plaintiff is entitled to make on the cause of action, and bars a later suit for any portion omitted or relinquished. Sub-rule (3) permits a plaintiff who confines himself to some of the available reliefs to sue later for the rest, but only if he does so with the leave of the court. On the record, the refusal had already come, with a challenge that the property would be sold at a higher price and the plaintiff could do as it liked. The relief of specific performance was both available and claimable when the injunction suit was filed. It was not claimed, and no leave was sought then. The liberty obtained at the time of withdrawal, the Court held, does not cure the absence of leave at the time of institution.
The Court then separated the two provisions. Order II Rule 2 governs the case where a prior suit did not seek all the reliefs available on the cause of action, and a second suit lies only if leave was obtained when the first was filed. Order XXIII Rule 1(3) governs withdrawal with leave to institute a fresh suit, and leave there is granted on the court's satisfaction that sufficient grounds exist for a fresh suit on the subject-matter or part of the claim — not on a new relief. Because the second suit added the very relief omitted from the first, Rule 1(3) had no application and the bar in Order II Rule 2 applied.
Why the earlier decisions did not help the plaintiff
The Court worked through the authorities in which the bar had been held not to apply, and found each turned on a cause of action that arose only later. In Rathnavati, the sale to another buyer was disclosed in the written statement filed in the injunction suit. In Sucha Singh Sodhi v. Baldev Raj Walia, the plaintiff learned from the written statement that the owner had sold to a second defendant, and the Court there held the condition for invoking Order II Rule 2 is that the relief claimed in the second suit was also available in the first on the causes of action then pleaded. In Cuddalore Powergen Corporation Ltd., specific performance had been legally unavailable at the time of the first suit because a government order had barred registration of conveyances in the village, and the Court cautioned against letting the rule be bogged down by technicalities.
Application of the rule, the Court said, turns on facts. Here the facts ran the other way: the cause of action was complete, the relief was open, and nothing stood in the plaintiff's path except its own omission.
The burden of proving a contract no one wrote down
The Court then addressed the contract, and began by affirming that a suit for specific performance may rest on an oral agreement. Following Brij Mohan v. Sugra Begum, reiterated in K. Nanjappa v. R.A. Hameed, it recorded that a plaintiff relying on an oral agreement alone carries a heavy burden to prove consensus ad idem on the vital and fundamental terms, with any later writing being a formality that records what was already settled. Strict proof is the norm and inference is impermissible.
The pleadings did not meet it. The first suit asserted three meetings; the second initially pleaded two, was amended to three, and then departed from that again. Evidence that the first meeting took place at the official residence of a witness appeared in no plaint at all. No specific date was pleaded for execution of the sale agreement after payment of the consideration.
The cheque was decisive. It was said to be dated 5 January 2007, and the first refusal, on the earlier plaint, came on 8 May 2007. Neither plaint said anything about the cheque being presented. An advance of Rs 5 crore left un-encashed through those four months, the Court held, is a clear indication that there was no concluded contract.
Three witnesses, and what their evidence was worth
The oral contract was sought to be proved through three witnesses. The first represented the plaintiff company and was an interested witness whose testimony, uncorroborated, could not amount to sufficient proof. The third, a director, had no direct knowledge and deposed to what the first had told him.
The second was a former State Finance Minister who was Governor of Karnataka when he deposed, and at whose residence the first meeting was said to have taken place. The Court made short work of the weight claimed for him. His presence at the meetings was never pleaded, nor was any reason pleaded for why such a functionary was needed in a land deal. His evidence that the ninth defendant agreed over the telephone was hearsay, since nothing showed how he knew who was on the line. As to the submission that his standing added force to the account, the Court held that the status of a witness is irrelevant to his oral testimony, as there is no presumption that a person of political standing will speak the truth in court. The related argument — that no written agreement was drawn because the contract was made in his presence — was rejected for want of pleadings and legal sanctity, the more so because the first plaint had itself described a second meeting before a solicitor to prepare the title and sale deed.
The trial court had leaned on the evasive answers of the ninth and second defendants in the witness box. However recalcitrant those witnesses were, the Court held, their conduct cannot found an inference of a concluded contract, because the proof must come from the plaintiff. The letter of 25 November 2006 merely transmitted documents, with a caution about keeping copies, and its two attesting witnesses were impleaded as defendants without any relief claimed against them and never examined; they are now dead. The trial court had also relied on an affidavit of a defendant who never entered the box.
On authority, the negotiator was the son-in-law of the man said to have agreed to the sale and held no office in the company. No authorisation was produced, and his own affidavit spoke of coordinating between the two sides without a deal materialising. A matrimonial relationship, the Court held, confers no power to deal with a company's assets, and a plaintiff who relied on his promises did so at its peril. Having found the suit not maintainable and the contract unproved, the Court left open the question of the ninth respondent's authority under Section 46 of the Companies Act, 1956.
Order
The appeal was allowed. The orders of the trial court and the impugned order of the High Court were set aside and the suit for specific performance was dismissed. Because the Court was not satisfied that the meetings occurred as pleaded, it declined to find even the token advance of Rs 5,11,000 proved as paid, and held that no question of refunding any advance arose, the Rs 5 crore cheque never having been presented. The parties were left to bear their respective costs, and pending applications stood rejected.