1997 (12) TMI 34 - HC - Income Tax

Issues Involved:
1. Appointment of a receiver for the suit property and grant of injunction.
2. Specific performance of an oral agreement for sale.
3. Refund of the amount deposited by the defendants.
4. Legality and enforceability of the oral agreement under the Income-tax Act.
5. Conduct of the defendants in relation to the court's orders.
6. Plaintiff's entitlement to withdraw the suit and claim the deposited amount.
7. Application of Section 65 of the Indian Contract Act.

Issue-wise Detailed Analysis:

1. Appointment of a Receiver for the Suit Property and Grant of Injunction:
The plaintiff sought the appointment of a receiver and an injunction for the suit property. Initially, an ad interim injunction was granted on November 22, 1995, with the defendants agreeing to deposit Rs. 19 lakhs in court. The defendants failed to deposit the amount within the stipulated time, leading to further hearings and adverse comments on their conduct. Ultimately, the Court Receiver was appointed, but the order was subject to automatic vacation upon deposit of the amount, which the defendants again failed to comply with. The court maintained the injunction against creating third-party rights in the suit property.

2. Specific Performance of an Oral Agreement for Sale:
The plaintiff filed a suit for specific performance of an oral agreement for the sale of the suit property, alternatively seeking damages and refund of Rs. 20,08,661.67. The defendants argued that the consideration was Rs. 1,94,00,000, whereas the plaintiff claimed it was Rs. 74 lakhs. The court noted that the oral agreement was void under sections 269UC and 269UL of the Income-tax Act, as the consideration exceeded Rs. 10 lakhs, requiring a written agreement and a no-objection certificate from the appropriate authority.

3. Refund of the Amount Deposited by the Defendants:
The plaintiff sought the refund of Rs. 19 lakhs deposited by the defendants. The court observed that the defendants deposited the amount to avoid the appointment of a receiver and not as an admission of any contractual obligation. The court held that under Section 65 of the Indian Contract Act, the defendants were obligated to return the amount received under a void agreement. However, the court decided to retain the amount in the suit account until the final hearing.

4. Legality and Enforceability of the Oral Agreement under the Income-tax Act:
The court found that the oral agreement was void ab initio under the Income-tax Act, as it lacked the necessary written agreement and no-objection certificate for transactions exceeding Rs. 10 lakhs. Therefore, the plaintiff could not seek specific performance of such an agreement, as it would lead to an infringement of the law.

5. Conduct of the Defendants in Relation to the Court's Orders:
The defendants' conduct was repeatedly criticized for failing to comply with the court's orders to deposit Rs. 19 lakhs. The court noted that the defendants made statements to avoid adverse orders but did not follow through, raising an inference of bad faith. The appellate court also dismissed their appeal and rejected their prayers for a stay of the order and to prevent dispossession.

6. Plaintiff's Entitlement to Withdraw the Suit and Claim the Deposited Amount:
The plaintiff sought to withdraw the suit and claim the deposited amount. The court held that the plaintiff could not unilaterally withdraw the suit along with the refund of the amount, as the final relief had to be decided at trial. The court retained the amount in the suit account and dismissed the plaintiff's draft notice of motion for withdrawal.

7. Application of Section 65 of the Indian Contract Act:
The court agreed with the plaintiff's counsel that under Section 65 of the Indian Contract Act, the defendants could not retain the amount received under a void agreement. The court emphasized that the defendants must restore the advantage received, but the final decision on the refund would be made at the trial.

Conclusion:
The court made Notice of Motion No. 3239 of 1995 absolute in terms of prayer clause (b) (excluding "dealing with") and retained the deposited amount in a fixed deposit. The court dismissed the plaintiff's draft notice of motion for withdrawal and emphasized that the final decision on the refund and potential prosecution under section 276 of the Income-tax Act would be made at trial. No order as to costs was issued, and a certified copy was expedited.

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