2023 (2) TMI 1187 - HC - Indian Laws

Suit for specific performance - privity of contract or not - plaintiffs were non-suited on the ground that the defendant had agreed to sale the suit property to the plaintiffs only upon formation of Co-operative Housing Society of the tenants in the suit property and so far as plaintiff No. 6 there was no privity of contract between plaintiff No. 6 and the defendant - HELD THAT - There is no evidence to indicate that Girgaum Griha Nirman Mandal was registered as a society when the representations were made by plaintiff Nos. 1 to 5. Nor there is evidence to demonstrate that at any subsequent point of time Girgaum Grihanirman Mandal came to be registered as the Cooperative Society of the sitting tenants in the suit property - The situation which thus obtains is that when the offer was made the plaintiffs knew that all of them were not the tenants of the tenements in the suit property. Secondly they were aware that Girgaum Griha Nirman Mandal was not a society much less of the sitting tenants in the suit property. There is an essential distinction between a fraud or misrepresentation as to the character of the instrument and contents thereof. In the case at hand the defendant was fully aware of the character of the transaction and the jural relationship sought to be established thereunder. The defendant knew that the property was to be conveyed. However the misrepresentation was as to the entity for whom the offer was made and in whose favour the sale was to be effected. Thus the defendant was within its rights in avoiding the agreement as its consent was vitiated by misrepresentation. Consequently it would be unwarranted to delve into the considerations which are germane for determining the exercise of discretion to grant the specific performance of a contract - the Court is not precluded from ordering the refund of the consideration. Absence of prayer does not constitute an impleadment for granting said relief for a substantive reason. The question as to how the defendant had dealt with the said amount ought not preclude the Court from awarding interest. It is more so for the status of the defendant as a public sector enterprise. To this extent the appeal deserves to be allowed.

Summary

Issues Involved:
1. Validity of the agreement for sale.
2. Privity of contract between the parties.
3. Specific performance of the contract.
4. Misrepresentation and fraud.
5. Refund of consideration.

Detailed Analysis:

1. Validity of the Agreement for Sale:
The court examined whether there was a valid agreement for the sale of the suit property. The letter dated 27th February 1981 (Exhibit-29) incorporated all the necessary terms and conditions, establishing a contract for sale. The payment of the entire consideration amount of Rs. 4,25,000/- by the plaintiffs further confirmed the acceptance of the offer. Thus, the court concluded that there was a valid agreement for sale.

2. Privity of Contract Between the Parties:
The court scrutinized the privity of contract between the plaintiffs and the defendant. It was established that the defendant had agreed to sell the property to a cooperative society of the sitting tenants, not to the individual plaintiffs. The plaintiffs' failure to form such a society and the subsequent registration of plaintiff No. 6 (a society) after 25 years did not establish privity of contract with the defendant. Therefore, the court found that there was no privity of contract between plaintiff No. 6 and the defendant.

3. Specific Performance of the Contract:
The court evaluated whether the plaintiffs were entitled to specific performance of the contract. It was determined that the defendant had agreed to sell the property to a cooperative society of the sitting tenants, as evidenced by the terms of the letter dated 27th February 1981 (Exhibit-29) and the subsequent correspondence. The plaintiffs' failure to form such a society and their request for conveyance in their individual names led the court to conclude that they were not entitled to specific performance.

4. Misrepresentation and Fraud:
The court examined the allegations of misrepresentation and fraud by the plaintiffs. It was found that the plaintiffs had represented themselves as acting on behalf of the sitting tenants, which was not entirely true. The Girgaum Griha Nirman Mandal, purportedly representing the tenants, was a partnership firm engaged in real estate business. This misrepresentation vitiated the defendant's consent, rendering the agreement voidable at the defendant's option. The court concluded that the defendant was justified in avoiding the agreement due to this misrepresentation.

5. Refund of Consideration:
Although the plaintiffs did not seek the relief of refund of the consideration in their plaint, the court held that under Section 64 of the Indian Contract Act, the defendant was obligated to restore the benefit derived under the voidable contract. Consequently, the court ordered the defendant to refund the amount of Rs. 4,25,000/- to the plaintiffs along with simple interest at the rate of 6% per annum within six weeks. If the amount was not deposited within the stipulated period, it would carry interest at the rate of 9% per annum till payment and/or realization.

Conclusion:
The appeal was partly allowed, and the suit was partly decreed. The court ordered the defendant to refund the consideration amount with interest, modifying the decree to that extent. The cross-objection by the defendant was dismissed, and the parties were directed to bear their respective costs. The decree was to be drawn accordingly, and any interim applications were disposed of.