Holding

The company is the owner of the property; the promoters are estopped and the corporate veil is lifted, making the arbitration award and decree void, and specific performance is denied in favour of compensation.

Summary

The promoters of a proposed company purchased a house and land before incorporation and later transferred the title to the incorporated company, which was declared the owner by a decree. The promoters, acting as directors, subsequently entered into a sale agreement with the appellants and also leased the property, leading to disputes over ownership and multiple suits, including an arbitration award that declared the promoters owners. The trial court granted specific performance to the appellants, but the High Court reversed, citing demolition of the building and misconduct. The Supreme Court held that the company, not the promoters, was the true owner; the promoters were estopped and the corporate veil was lifted, rendering the arbitration award and related decree void. However, due to the parties' misconduct, the Court declined specific performance and awarded compensation instead.

Issues considered

The true ownership of the property: whether it vested in the company or the promoters/directors.
Applicability of Sections 15(h) and 19(e) of the Specific Relief Act to contracts entered by promoters before incorporation.
Whether the arbitration award and the subsequent decree were void due to fraud and collusion.
Whether the withdrawal of a prior suit bars a fresh challenge to the award and decree under Order 23 Rule 1 of the CPC.
Whether specific performance of the sale agreement should be granted under Section 20 of the Specific Relief Act.
Whether the doctrine of lifting the corporate veil and estoppel applies to the promoters.

Legislation cited

Code of Civil Procedure, 1908s. Order 23 Rule 1
Companies Act, 1956s. 132, s. 138
Indian Evidence Act, 1872s. 44
Specific Relief Act, 1963s. 15(h), s. 19(e), s. 20
Transfer of Property Act, 1882s. 5, s. 54
Urban Land Ceiling Act, 1976s. 26

Subjects

specific performancecorporate veilestoppelpromotersunincorporated companytransfer of propertyfraudarbitration awardcompensationdiscretionary reliefSection 20 Specific Relief Act

Judgment

JAi NARAIN PARASRAMPURIA (DEAD) AND ORS. A
v.
PUSHPA DEVI SARAF AND ORS.

AUGUST 24, 2006

[S.B. SINHA AND P.P. NAOLEKAR, JJ.] B

Specific Relief Act, 1963-Sections l 5(h) and 19 (e)-Transfer of
Property ict, 1882-Sections 5 and 54-Acquisition of property by proposed
proprietors/Directors for unincorporated company-After incorporation of the C
company, property transferred in its favour-By decree of Court Company
declared to be owner of the property-Proprietors/Directors representing the
company to be the owner-Sale of agreement in favour of the aggrieved
party-Further execution of lease and agreement of sale of the same property
in favour of some other parties-Suit by aggrieved party seeking specific
performance of contract-Dispute between company and its Proprietors/ D
Directors as regards ownership of the property-Arbitration-Arbitrator
declaring Proprietors/Directors as owners-Subsequent decree-Suit
questioning the award and decree withdrawn-Criminal trial at the behest of
Proprietors/Directors against the aggrieved party alleging demolition of the
structures over the property, pending-Suit for specific performance of contract E
by aggrieved party decreed-High Court held the aggrieved party not entitled
for the decree-On appeal, held: The aggrieved party was entitled to the
decree of specific performance of the contract-The Company being the owner
of the property was bound to perform the contract-Proprietors !Directors
cannot be held to be owners as they are estoppedfrom denying the title of the
company by their conduct-By applying doctrine of lifting of corporate veil of F
the company it is found that they were attempting to use the personality of the
company for fiirthering their own personal object-The Proprietors/Directors
being alter ego of the company, it was not possible for them to take a different
stand vis-a-vis interest ofthe company-The award and decree pursuant thereto
was fraudulent, and hence a nullity-Withdrawal of suit questioning the award
and decree would not constitute a bar to a second suit questioning the validity G
of the award and decree-Jn view of blameworthy conduct of both the parties,
the grant of specific performance is denied and in its stead a decree of
compensation is granted-Company Law-Doctrine of Lifting of Corporate
veil-Evidence Act, 1872-Section 44-Code of Civil Procedure, 1908-0rder
325 H
326 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A 23. Rule I.
Doctrines/Principles:

Doctrine of Lifting of Corporate Veil-Applicability of Principle of
Eswppel and Acquiescence-Applicability of
B
Evidence-Estoppel and acquiescence-Applicabilil)"-Principles of- >

Held: While applying such procedural laws, the court is concerned with the
conduct of the party for determining permissibility to take different stand in
subsequent proceeding, unless there exists a statutory interdict.

C Wordv and Phrases:

'House '-Meaning of

Respondent Nos. 1 and 2, acquired the property in question in their
capacity as promoters/directors of proposed company by a registered deed
D of sale. The sale deed contained a clause of re-cor.veyance of 'the property'.

After incorporation of the Company, the amount of consideration
paid to the vendor was repaid by the Company to the 1st and 2nd
respondents. In the balance sheets of Company signed by the 2nd
respondent, the property was shown to be that of the Company.
E
In order to do away with the clause of re-conveyance, company
through its Directors filed a suit against the vendor and the same was
decreed declaring the company to be the owner of the land.

Respondent Nos. I and 2 resolved to sell the property in favour of
F the appellants. After receiving the advance from the appellants,
respondents used the amount for redeeming the mortgage of the property
which was charged with the State Bank of India. They also adopted a
resolution to let out the property in favour of one MKP. Pursuant to the
resolution, agreement of sale of the property was executed by respondent
G Nos. 1 and 2 in favour of the appellants. A deed of lease was also executed
in favour of MKP. Another agreement for sale was purported to have been
executed by respondent Nos. I and 2 in favour of SKM.

Appellants filed a suit for injunction seeking relief of decree of
specific performance of the agreement of sale and for declaration that the
H agreement of sale: in favour of SKM was a sham.
JAi NARAIN PARASRAMPURIA (DEAD)v. PUSHPA DEVI SARAF 32 7

MKP also filed a suit seeking direction to the parties not to interfere A
with his possession of the property. Advocate Commissioner appointed in
that matter found MKP in possession of the property.

Respondent Nos. I and 2 inducted an employee of the company as
director of the company. Thereafter the respondents raised a dispute
regarding the ownership of the property between Company on one hand B
and respondent Nos. I and 2 on the other. Sole arbitrator by his award,
held the respondents to be the owners. However, the Arbitrator was not
made aware of the decree declaring the company as owner of the property,
nor was his attention drawn to the proceedings of pending suit filed by
the appellant for specific performance of agreement of sale. The award C
was made rule of the Court and a decree dated 21.2.1985 wa~ passed.

· Appellants and MKP filed a suit before Delhi High Court for a
declaration that decree dated 21.2.1985 was obtained by fraud. Appellants
also filed a suit for declaration that in view of the sale deed the respondents
did not have any authority to cause damage to the property. Therein D
symbolic possession was given to the appellants. However, the suits were
withdrawn. Appellants, thereafter also filed two suits praying for
restraining the respondents from interfering with their right to manage
the property and from causing disturbance in their peaceful possession.
These suits were also withdrawn.
E
A caretaker of the property filed a suit against the respondents
wherein ex-parte decree was passed in terms of U.P. Rent Control Act.
An application for setting aside the ex-parte decree and a Writ Petition
for quashing the ex-parte decree were filed respectively by respondent Nos.
2 and 1. Application was allowed. But the suit was later withdrawn. Writ F
Petition was dismissed, but when the appeal thereagainst Was taken to this
Court, District Judge was directed to nominate a Receiver for taking
charge of the property.

In a Writ Petition by respondents, the order granting symbolic
possession to appellants was quashed by High Court. Another Writ G
Petition was filed by respondents seeking direction that criminal case be
registered for protection of life and property of respondents 1 and 2 and
for payment of damages for the loss caused to them. The Court directed
investigation of the case by CBI. Charge-sheet was filed against the
appellants and the trial is pending. H
328 SUPREME COURT REPORTS (2006) SUPP. 5 S.C.R.

A Trial Court decreed the appellant's suit for specific performance of ..
contract. Division Bench of High Court allowed the appeal thereagainst
holding that trial court wrongly exercised its discretionary jurisdiction
under Section 20 of Specific Relief Act, 1963; as the appellants were guilty
of demolition of the existing structures on the land, and that in view of
B the fact that the appellant had withdrawn the suit questioning the said
award and the decree subsequent to passing of the judgment and decree
of trial court, they became disentitled to question the award. Hence the
present appeals.

Allowing the atJpeals, the Court
c HELD: I. I. The Company was the owner of the property and at all
material times respondent Nos. I and 2 had made representations as such
to the appellants as also to others thereabout. The property in suit for all
intent and purport was acquired for the benefit of the Company. Only
because at the time of acquisition of the property by Sarafs, the Company
D was unincorporated, the same would not mean that no title could have
been passed in favour of the Company. 1342-F-G; 367-E-FI

1.2. In terms of Section IS(h) of the Specific Relief Act, the Promoters
of a company before its incorporation could enter into a contract for the
E benefit of the company and such contract may be warranted by the terms
of incorporation of the company. The said provision is subject to the
proviso that the company should accept the said transaction. In the instant
case, the company upon incorporation has accepted the contract and
communicated such acceptance to the other party. Section 19(e) of the Act
provides for grant of a decree of specific performance of a contract against
F a company when the promoters ofa company before incorporation entered
into a contract for the purpose of the company and such contract is
warranted by the terms of incorporation. The said provision applies herein.

Shamsu Suhara Beevi v. G. Alex and Anr., 120041 8 SCC 569,
G distinguished.
1344-A-DI
-
Weavers Mills Ltd, Rajapalayam v. Balkis Ammal and Ors., AIR (1969)
Mad. 462 and Vali Paltabhirama Rao and Anr. v. Sri Ramanuja Ginning and
Rice. Factory (P.) ltd and Ors., AIR (1984) A.P. 176, referred to.

H 1.3. Transfer of Property Act does not prohibit an oral transfer. The
statute merely provides that if the value of the said property is more than
JAi NARAIN PARASRAMPURlA (DEAD)i·. PUSHPA DEVI SARAF 329
Rs. 100/- a registered document is required to be executed. Section 5 of A
the Transfer of Property Act provides for transfer in favour of the
company which was unincorporated. The effect of the Transfer of Property
oi Act, therefore, postulates transfer in favour of unincorporated company.
It does not create any bar. (346-A-C)

1.4. Section 54 of the Transfer of Property Act, defines sale and B
provides for a procedure as to how the same shall be made. It does not
speak of conveyance of ownership. Seetion 54 of the Transfer of Property
Act does not lay down a law as to whether in all situations an apparent
state of affairs as contained in a deed of sale would be treated to be the
real state of affairs. It does not bar a benami transaction. There is no
embargo in getting a property registered in the name of one \)erson; C
although real beneficiary thereof would be another. (343-B-DJ

2.1. Respondent Nos. 1 and 2, in view of their conduct, were estopped
and precluded from denying and disputing the title of the Company over
the property in dispute. The High Court overlooked the fact that the plaint
was signed by respondent Nos. 1 and 2 and the company was represented D
by them. It is they who had made solemn statement before a competent
court of law that the company was the owner of the property. Hence, they
are bound by the said statement. The principle of estoppel and/or
acquiescence would, thus, be applicable. (346-H; 347-A-B)
Chhaganlal Keshavlal Mehta v. Patel Narandas Haribhai, [1982( 1 SCC E
223 AIR (1982) SC 121, distinguished.
Bank of India and Ors. etc. v. O.P. Swarnakar and Ors. etc., [2003) 2
SCC 721; Indu Shekhar Singh and Ors. v. State of UP. and Ors., (2006) 5
SCALE 107; Pawan Alloys and Casting Pvt. Ltd., Meerut v. UP. State
Electricity Board and Ors., (1997) 7 SCC 251 and Sarat Chunder Dey and F
Ors. v. Gopal Chunder Laha and Ors., (1892) Vol. XIX Law Report 203,
referred to.

Gillett v. Holt and Anr., (20001 2 All. E.R.289 and Chap/ea and Wife
v. The Brunswick Permanent Building Society and Ors., (1881) QBD 696,
referred to. G
2.2. While applying the procedural law like principle of estoppel or
acquiescence, the court would be concerned with the conduct of a party
for determination as to whethe'r he can be permitted to take a different
stand in a subsequent proceeding, unless there exists a statutory interdict.
\347-A-BI H
330 SUPREME COURT REPORTS (2006] SUPP. 5 S.C.R.

A 2.3. In the instant case, it were respondent Nos. 1 and 2 who
represented the company. They had made the representation that the
company was the owner of the property. Such a representation had been
made to the appellant herein not only in terms of the decree obtained in
the suit filed by the company against the vendor, but by reason of execution
B of the other documents including creation of mortgage of the property and
discharge thereof in favour of the State Bank of India. If by reason of such
representation, a third party alters his position, indisputably, the principle
of estoppel would apply. Where there exists a statutory embargo, vesting
of title in a person shall be subject thereto. In this case there did not exist
any statutory embargo in this behalf. (347-E-G(
c 2.4. The doctrine of estoppel by acquiescence was not restricted to
cases where the representor was aware both of what his strict rights were
and that the representee was acting on the belief that those rights would
not be enforced against him. Instead, the court was required to ascertain
whether in the particular circumstances, it would be unconscionable for
D a party to be permitted to deny that which, knowingly or unknowingly,
he had allowed or encouraged another to assume to his detriment.
Accordingly, the principle would apply if at the time the expectation was
encouraged. (348-F-H]

Mahboob Sahab v. Syed Ismail and Ors., (1995( 3 SCC 693, referred
E to.
Taylor Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd., (1981] 1
All ER 897 and Amalgamated Investment and Property Co. Ltd. v. Texas
Commerce International Bank Ltd., (1981 ( I All ER 923, referred to.

3. In a case of this nature, keeping in view the facis and
F circumstances of the case, even the doctrine of lifting the corporate veil
would be applicable. The application of the said doctrine becomes relevant
in view of the fact that in the Memorandum of Association of the company
respondent Nos. I and 2 alone were shown to be the subscriber members
of the company. In the Articles of Association they were naturally inducted
..
G as the first Directors. Subsequently they included their son as a Director;
and it was all the three of the Directors who executed the agreement for
sale. There had, thus, been no shareholder except respondent Nos. I and
2 and their son. Since, they had been attempting to use the personality of
the company for furthering their own personal object the doctrine of lifting
the veil is applicable. They did so lo furtherance of their dishonest and
H fraudulent design. They in fact were the alter ego of the company. It was, .
JAi NARAIN PARASRAMPURIA (DEAD)v. PUS HP A DEVI SARAF 33 J
therefore, impossible for them to take a different stand vis-a-vis the interest A
of the company. [350-F-G; 351-C-FI

Kapi/a Hingorani v. State of Bihar, [20031 6 SCC 1; Union of India
and Ors. v. Mis. Playworld Electronics Pvt. ltd. and Anr., [198913 SCC 181
AIR (1990) SC 202 and State of U.P. and Ors. v. Renusagar Power Co. and
Ors., 119881 4 SCC 59 AIR 1988 SC 1737, referred to. B

Yukong Line Ltd. of Korea v. Rendsburg Investments Corp of Liberia
and Ors., (No. 2) [1998) 4 All ER 82 (QBD), referred to.

4. Withdrawal of suit against award and decree by the appellants
did not create any _embargo in raising a contention that the award of the C
arbitrator and the consequent decree passed were void ab initio and of no
effect. It cannot be said that withdrawal of the Suit, without obtaining
liberty to file a fresh suit would constitute a bar in filing of a second suit
under Order 23, Rule 1 of the Code of Civil Procedure, in the factual
matrix obtaining herein. The appellant contended that the said award and D
the consequent decree passed by the Delhi High Court was a fraudulent
and collusive one. The appellants having obtained a decree, it was not
necessary for them to obtain another decree. It might not have been able
to file another suit, but the same would not mean that they were not
entitled to question the validity or otherwise of the said award in the suit E
for specific performance of contract. If a judgment or decree is vitiated
by fraud, the same would be a nullity. In such an event, Section 44 of the
Indian Evidence Act would be attracted. As a plea of fraud can be raised
even in a collateral proceeding and the trial court having recorded a
specific finding that the jurisdiction of the Delhi Court was created
artificially by including a Delhi property, in respect whereof there was F
no dispute, the said decree must be held to have been obtained by Sarafs
by concealment of material facts and by a collusive and fraudulent
exercise. Fraud vitiated all solemn act. Any order or decree obtained by
practicing fraud is a nullity. [367-G-H; 352-F-G; 351-F-H; 352-DI

Hulas Rai Bai) Nath v. Firm K.B. Bass and Co., [1967) 3 SCR 886, G
distinguished.

Ram Chandra Singh v. Savitri Devi and Ors., 120031 8 SCC 319; Vice
Chairman, Kendriya Vidyalaya Sangathan and Anr. v. Girdhari Lal Yadav,
[20041 6 SCC 325; State of A.P. and Anr. v. T. Suryachandra Rao, [2005) 6 H
.,
332 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A sec 149; Ishwar Dutt v. land Acquisition Collector and Anr., (2005( 7 sec
190; Lillykutty v. Scrutiny Committee, SC and ST Ors., (2005) 8 SC 283; Chief
Engineer, MS.EB. and Anr. v. Suresh Raghunath Bhokare, (20051 10 SCC
465; Smt. Sat.ya v. Shri Teja Singh, I197511 SCC 120; Mahboob Sahab v.
Sayed Ismail and Ors., 1199513 SCC 693 and Asharji Lal v. Smt. Kaili (Dead)
B by LRs., f199514sec163, referred to.

5. The trial court correctly arrived at an opinion that the agreement
in favour of defendant No. 5 was a sham one. The original defendant No.5
did not file any suit for specific performance of contract. The said
agreement for sale had not been acted upon by the parties. The agreement
C for sale in favour of the appellants was not a transaction for loan. The
contention of the respondents that the said agreement was merely one of
loan was an afterthought. 1353-E-F; 354-E-FI

6.1. The conduct of respondent Nos. 1 and 2 was condemnable so
far as they not only raised false and frivolous pleas but also initiated
D frivolous proceedings in courts of law. Not only respondent Nos. 1 and 2
intended to wriggle out of the agreement to sell by appointing their
employee as director of the company. They even intended to play fraud
on the State Bank of India as 'the property' was charged in its favour
and the amount received from the appellant by way of advance, had been
E utilized for the purpose of redeeming the mortgage. (355-C-D; 368-Af

6.2. Before the arbitrator, the company was shown to be the claimant
and thus, the company itself is said to have appointed the sole arbitrator.
Such appointment of the arbitrator, being in the teeth of the decree passed
in Suit filed by the Company against the vendor, arbitration award and
F the decree passed by the Delhi High Court, had rightly been held by the
trial judge as collusive and fraudulent. It was thus a nullity. Even in the
proceedings for making the award a rule of the court before the Delhi High
Court, there was no opposition on the part of the company. Although a
decree for delivery of possession was passed against the company, the lessee
MKP or the appellant had not been made parties therein.
G (355-G-H; 356-A-BI

7. The subject matter of the agreement was not only the house in
question but also the entire lands. The views taken by the High Court were
that as the agreement to sell referred to only the house or the bungalow
as the parties did not agree to sell the land, were wholly unwarranted.
H Apparently the respondents intended to sell what they had purchased.
JAi NA RAIN PARASRAMPURIA (DEAD)''· PUSHPA DEVI SARAF 333
There is nothing in the averments of the agreement to suggest that the A
intention of the respondents was restricted to the house alone and not the
lands. In any event, expression 'the house' will also include the land
appurtenant thereto. The building includes the land on which it stands,
unless by express stipulation it is excluded. (356-C-D; 357-B-CI

Advanced Law Lexicon by P. Ramanatha Aiyar, Volume 2, (2005), B
referred to.

T. Lakshmipathi and Ors. v. P. Nithyananda Reddy and Ors., (20031 5
sec 150, referred to.
8. Circumstances prima facie do not lead to a conclusion that C
respondent Nos. l and 2 were responsible for demolition of the structures
in question. The sequence of events would go to show that the balance in
regard to demolition of the said structure tilts against the Appellants, in
view of the charge-sheet filed by the Central Bureau of Investigation
although the same itself may not be conclusive in nature. There is no
reason for this Court as at present, to take a different view from that of D
the High Court in this behalf. The circumstances are such which leads the
Court to a finding for the purpose of disposal of this case that the
Appellants were responsible for demolishing the building.
(359-E-F; 359-F-H; 360-A-BI

9. t. The conduct of both the parties are blameworthy. Both the E
parties are guilty of serious misconduct. Both of them have abused the
process of court. They initiated unnecessary and frivolous proceedings
against each other. Both the parties took recourse to abuse of judicial
process against the other upon suppression of material fact. It is now well
settled that compensation can be awarded in lieu of grant of decree of F
specific performance of contract. In view of the law operating in the filed
vis-a-vis the conduct of the parties, grant of a decree for specific
performance of contract is declined and in its stead and place a decree
for compensation is granted. (360-C-D; 365-A-B; 367-BI

La/it Kumar Jain and Anr. v. Jaipur Traders Corporation Pit. Ltd., G
(20021 5 SCC 383 and Manjunath Anandappa urf Shivappa Hanasi v.
Tammanasa and Ors., [2003) tO SCC 390, relied on.

P.D'Souza v. Shondrilo Naidu, [2004) 6 SCC 649; Nirmala Anand v.
Advent Corpn. (P) Ltd. and Ors., (2002) 5 SCC 481 and Surinder Singh v.
Kapoor Singh (Dead) through LRs. and Ors., (20051 5 SCC 142, referred H
334 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A to.
Malhotra v. Choudhury, 1197911 All ER 186; Horsier and Anr. v. Zorro, •
(19751 1 All ER 584 and Gillett v. Holt and Anr., 120001 2 All. E.R. 289,
referred to.

B 'Equity' by Snell, page 452 and 'Equitable Remedies' by Spry, referred
•
to.

9.2. It is directed that the amount deposited by the appellant must
be refunded to the appellants with interest @15% per annum. Although
relief of specific performance of contract is declined, to which the
C appellants were otherwise entitled to, but the interest of justice would be
met if the respondents are directed to pay a sum of Rs.50,00,000/- to the
appellants herein by way of compensation, in addition to the refund
amount together with interest at the rate of 12% per annum thereupon.
This order shall not preclude MKP to bring an independent action against
D the respondents herein, if he so desires. (367-B-DI

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 380 I of I999.

From the Judgment and Order dated 8.9.1998 of the High Court of
Judicature at Allahabad in F.A. No. 68 J/92.

E WITH

C.A. No. 3802 of 1999.

Rakesh Owivedi, J.C Gupta, Vishwajit Singh, Bijoy Kumar Jain, Bharati
Tyagi, Vimla Sinha, Gaurav Bhatia, Abhishek Chaudhary, Piyush Vats and
F Niranjana Singh for the Appellants.

Sudhir Chandra, Manoj Swarup, Somiran Sharma, C.S.N. Mohan Rao,
Pramod Dayal and Anil Kumar Gupta-II for the Respondents.

The Judgment of the Court was delivered by
G S.B. SINHA, J. Background facts:

Kanpur is a metropolitan town. The respondents herein were owners of
a house property bearing municipal number 7/169, on a freehold plot bearing
No.22, measuring 2978 sq. yards, situate in Block B, Scheme No. 7, Gutaiyya,
H Swaroop Nagar in the said town ('the property' for short). The I st respondent-
JAi NARAIN PARASRAMPURIA(DEAD)v. PUSHPA DEVI SARAF[S.B. SINHA,J.) 335
Pushpa Devi Saraf and the 2nd respondent-Mohan Lal Saraf intended to A
promote a company in the name of the 5th respondent-Mis. Kanpur Exports
(P) Ltd. ('the Company' for short). They filed an application therefor as
promoters of the Company on 15.2.1979. They acquired the property in their
capacity of promoters or Directors of the proposed company from one Shanti
Narain Verma by a registered Deed of Sale dated 24.2.1979 at a price of Rs.2 B
lakhs. The said Deed of Sale contained a clause of re-conveyance of 'the
property'.

The Company was incorporated on 19.6.1979. The amount of
consideration paid to said Shanti Narain Verma was repaid by the Company
by two cheques of Rs. I, 11,250/- each to Mohan Lal Saraf and Pushpa Devi C
Saraf (hereinafter referred to as "Sarafs"). The first balance sheet of the
Company was signed by the 2nd respondent herein on 30.6.1980, wherein
also 'the property' was shown to be that of the company. With a view to do
away with the said clause of re-conveyance, a suit was filed by the Company
against the said Shanti Narain Verma. The said suit was decreed. The First
Directors' Report dated 15 .11.1980 and the balance sheet of the Company for D
the year ending 30.6.198 I, signed by the 2nd respondent herein also disclosed
the property to be that of the Company. Directors of the Company, viz.,
'Sarafs' resolved to sell the property in favour of the appellants herein. A
resolution to let out the property in favour of one Manoj Kumar Poddar was
also adopted by it. A General Power of Attorney was also executed by the E
Company in favour of one M.M. Aggarwal who had specially been invited
to attend the said meeting. Pursuant to or in furtherance of the said resolution,
an agreement of sale of the said property was executed by Sarafs as Directors
of the Company, wherefor the total consideration was fixed at Rs.I I lakhs.
Out of the said amount, a sum of Rs. I 0 lakhs was paid in advance through
Bankers' Cheques and Cash Orders dated 11.6.1984 and 12.6.1984. The F
remaining amount of Rupees One lakh was to be paid at the time of execution
and registration of the Deed of Sale.

A registered Deed of Lease pursuant to the said resolution was also
executed and registered in favour of said Shri M.K. Poddar, the sister's son
of the appellant, on the same day. There exists a dispute, to which we would G
advert to at an appropriate stage, as to whether the possession of the property
had been handed over to Shri M.K. Poddar or not.

Proceeding :

H
336 SUPREME COURT REPORTS (2006] SUPP. 5 S.C.R.

A The appellants herein issued a notice asking the respondents to execute
a Deed of Sale on 5.8.1984. They also got a public notice published in
Newspaper notifying the execution of the agreement for sale between the
appellants and the contesting respondents. Another Agreement for sale was
purported to have been executed on 4.6.1984 by 'Sarafs' in favour of one
B Surendra Kumar Mittal stated to be a close relation (brother-in-law) of Mohan
Kumar Saraf.

The appellants filt:d a suit against the respondents for injunction.
Subsequently, a relief by way of decree of specific performance of the
agreement for sale was also prayed for. A further prayer was made therein
C that the purported Agreement of Sale dated 4.6.1984 executed by the defendant
Nos.2 to 4 in favour of the said Surendra Kumar Mittal was a sham.

The said M.K. Poddar also instituted a suit for injunction on 25.5.1984,
which was numbered as Suit No.612 of 1984, wherein an interim order of
injunction, directing the parties not to interfere with his possession was passed.
D Jn the said suit, an Advocate Commissioner was also appointed. He found the
said M.K. Poddar to be in possession of the property.

A purported dispute, however, was raised as regards ownership of the
said property by and between the Company on the one hand and the Sarafs
on the other. One Shri B.S. Mathur, Advocate was appointed as sole Arbitrator.
E He made an Award holding the property to be belonging to Sarafs. They
were directed to refund an amount of Rs.2,22,500/- to the Company; they
having received the same from the Company. The Award was made Rule of
the Court. An Execution Case was filed to execute the decree. In execution
of the said decree a warrant of delivery of Possession was issued against the
F Company and M.K. Poddar was said to have been dispossessed.

M.K. Poddar, indisputably filed an application under Order 21 Rule 99
of the Civil Procedure Code for restoration of possession of the said property.
In response to the notice issued thereupon, the respondents contended that
they intended to raise a multi-storied building upon demolition of the existing
G building.
...
Suits and other proceedings initiated by the appellants :

A suit was filed by the appellants and the said M.K. Poddar in the Delhi
High Court for a declaration that the Decree dated 21.2.1985 passed by the
H said Court was obtained by fraud and thus was a nullity. Another suit was
JAi NARAIN PARASRAMPURIA(DEAD}r. PUSHPA DEVI SARAF [S.li. SINHA, J.] 33 7
filed by the appellants for declaration and appointment of Receiver before the A
Civil Judge, Kanpur Dehat being Suit No.237 of 1989, wherein a declaration
was sought for that the defendants therein, in view of the Agreement of Sale
dated 12.6.1984, had no authority to cause any damage to the suit property.
Symbolic possession was directed to be given in favour of the appellants
therein by an order dated 23.10.1989. However, the said suit later on was B
withdrawn. Another suit was filed by the appellants in the Court of Munsif,
Kanpur praying for an order restraining Sarafs from interfering with their
right to manage and maintain the suit property, which was registered as
Original Suit No.2256of1989. The said suit was also dismissed as withdrawn
by an order dated 26.8.1991. The appellants also filed a suit for permanent
injunction, which was registered as Suit No.677/91 for restraining the C
respondents from causing any disturbance in their peaceful possession. The
said suit was also dismissed. It is furthermore not in dispute that one G.P.
Tiv:ari claiming himself to be the caretaker of the property filed a suit against
the respondents and by an order dated 13. 7.1987 an ex-parte decree was
passed in terms of the provisions of the U.P. Rent Control Act. An application
for setting aside the said ex-parte decree was filed by Mohan Lal Saraf. The D
first respondent herein also filed a writ petition for quashing the said ex-parte
decree before the Allahabad High Court, which was numbered as Writ Petition
No.21985 of 1989. The said ex-parte decree was set aside by an order dated
8.2.1990. The said suit was also withdrawn by G.P. Tiwari. The writ petition
filed by respondent No. I herein was also dismissed as having become E
infructuous, whereagainst Pushpa Devi Saraf preferred a Special Leave Petition
which was also dismissed by an order dated 19.9.1990. However, the said
order dated 19.9.1990 was recalled by this Court by an order dated and the
petition was disposed of on 14.8.1991, directing the District Judge, Kanpur
to nominate a Receiver for taking charge of the property.
F
Suit and other proceedings initiated by the respondents :

On 8.7.1980, the Company through its Directors, Sarafs, filed a suit
against Shanti Narain Venna for declaration that the Company was the absolute
owner in ~,ossession of the suit premises. However, as noticed hereinbefore,
before the Trial Court, the respondents, inter alia, raised a contention that the G
Sarafs were the owners of the suit property and not the Company. The learned
trial Court negatived the said contention. As noticed hereinbefqre, the said
suit questioning the grant of symbolic possession was decreed in favour of
the appellants. A writ petition was filed on 9.5.1990 which was numbered as
Writ Petition No.24301/89. The order granting symbolic possession was H
338 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A quashed by the High Court by an order dated 23.10.1989 on the premise that
there had been no sufficient service and the matter was remanded to the Trial
Court for fresh consideration thereof. A Criminal Misc. Writ Petition No.23804/
89 was filed in the High Court of Judicature at Allahabad for a direction that
a criminal case be registered for protection of life and property of the Sarafs
B and for payment of damages for damages allegedly caused to them. By an
order dated 9.12.1993, the High Court directed investigation into the allegations
made by Sarafs by the Central Bureau of Investigation. Upon completion of
the investigation by the Central Bureau of Investigation, a charge-sheet was
filed against the appellants and the trial against them is pending.

C Judgment of the Court :

On the backdrop of several litigations between the parties and allegations
and counter allegations made by one party against the other therein, the
learned Trial Court decreed the Appellants' suit for specific performance of
contract. The said judgment and decree came to be challenged before the
D High Court. A Division Bench of the High Couii allowed the appeal on the
premise that the Trial Court had wrongly exercised its discretionary jurisdiction
under Section 20 of the Specific Relief Act, 1963; as the appellants were
guilty of demolition of the existing structures on the land. The learned Judge~
of the Division Bench of the High Court, however, differed in their opinion
on other issues.
E
Both the parties are, thus, before us.

Submissions :

Mr. Rakesh Dwivedi, learned Senior Counsel appearing on behalf of
F the appellants raised the following contentions:
(i) The High Court committed a serious error in holding that the Sarafs
had purchased the property for the bt<lefit of the Company ignoring the
decree passed in favour of the Company as also the representations made by
G the Sarafs to the State Bank of India, before the Courts of Law as also the
society at large.

(ii) Sarafs were estopped and precluded from denying the title of the
Company and setting up their own title over the property in view of their
representations made to the appellants and the world at large.
H
.IAI NARAIN PARASRAMPURIA(DEAD)1·. PUSH PA DEVI SARAF [S.B. SINHA, J.] 339
(iii) Even if Sarafs were owners of the property, the Agreement of Sale A
executed in favour of the appellants was valid as the Company itself was
being represented by them who were even otherwise authorized to execute
the Agreement on behalf of the company and, .thus, by reason of their conduct,
they must be held to have executed the said Agreement on their own behalf
also.
B
(iv) The Court failed to apply the doctrine of lifting the corporate veil.
as the same was necessary for determining the real issue between the parties.

(v) Assuming that the Award passed by the Arbitrator, as also the
decree passed by the High Court pursuant thereto are valid in law, in terms C
whereof Sarafs were declared to be owners of the prope11y, the agreement of
sale would be binding on them.

(vi) The Award and the decree, having been obtained by practicing
fraud as envisaged under Section 44 of the Evidence Act, were void ab initio
and the Trial Court rightly having applied the said principle, the same could D
not have been overturned by one of the Judges of the Division Bench of the
High Court.

(vii~ Withdrawal of Suit No. 1252/85 filed by the appellants for setting
aside the Award and the consequent decree, would not debar the appellants
from raising the said issue as a plea of fraud can be raised at any stage and E
even in a collateral proceeding.

(viii) The Award and the decree of the Delhi High Court, in any view
of the matter, would not adversely affect the interest of the appellants, which
could not have been relied upon by the respondents as they were not parties
thereto. F
(ix) Both the Hon'ble Judges of the High Court committed a manifest
error in arriving at a finding that the appellants were responsible for demolition
of the existing structures and institution of the rent case through G.P. Tiwari.

(x) Even assuming that the said findings are correct, the same by itself G
could not have been a ground for denying the appellants the relief by way
of a decree for specific performance of contract.

Mr. Sudhir Chandra, learned Senior Counsel appearing on behalf of the
respondents, on the other hand, would support the impugned judgment H
340 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A contending :
(i) The High Court has rightly arrived at a finding that the suit property
.was demolished on 23.9.1989 illegally by the appellant No. I and his associates
and thus, they became disentitled from obtaining the discretionary relief of
specific performance of contract;
B
(ii) The said finding of the High Court being based upon the materials
on record including the judgment of another Division Bench of the Allahabad
High Court passed in Criminal Writ Petition No.23804/89, as also the charge-
sheet issued by the Central Bureau of Investigation upon investigation made
C pursuant to the order of the High Court and various other orders passed by
this Court, the impugned judgment should not be interfered with.

(iii) The High Court rightly came to the conclusion that Shri G.P.
Tiwari was set up by the appellants which would be evident from the fact that
they had a common counsel and, had furthermore approached this Court as
D appellants against the orders passed by the High Court.
(iv) Shri G.P. Tiwari himself having admitted that he had handed over
possession of the suit premises to one of the brothers of tile appellant, collusion
between himself and the appellants stood established.

(v) The appellants had abused the process of court, as they not only got
E
the aforementioned Rent Case No. 99/87 instituted by Shri G.P. Tiwari, but
also initiated multiple proceedings against Sarafs with a view to obtain ex-
parte orders through one Nand Lal Jaiswal, Advocate and in that view of the
matter they were not entitled to any discretionary relief in terms of Section
20 of the Specific Relief Act, 1963.
F
(vi) The purported Agreement of Sale dated 12.6.84 was in effect and
substance an agreement of loan.

(vii) The agreement dated 12.6.84 itself having stipulated that in the
event of defect in the right or title of the parties of the first part or the said
G Company, or any other encumbrance or legal hurdle in respect of the suit
property, the appellants would have an option to refund the advance money
of Rs. I 0 lakhs together with interest @18% per annum, no relief by way of
specific performance of contract could have been granted.

In view of the following surrounding and attending circumstances, the
H
JAi NARAIN PARASRAMPURIA(DEAD}v. PUSHPADEVI SARAF [S.B. SINHA,!.] 34 J
pLrported agreement to sell should be construed to be an Agreement for A
Loan:

(a) -Sudhir Kumar Parasrampuria, while examining himself as P. \V. I in
his deposition, categorically state.d that he had been informed by respondent
No.2 that the property belonged to the Company as also individuals which
would demonstrate that he was aware of the ownership of Sarafs thereover; B
(b) The said property having not been mentioned in the Articles of
Association of the Company, it could not have been treated to be the owner
thereof in law;

(c) Shanti Narain Verma having sold the property in favour of Sarafs C
by a deed of sale dated. 24.2.1979 and the Company having admittedly been
incorporated on 19 .6.1979, the title in respect thereof did not vest in the
Company and, thus, the provisions of Section 15(h) and 19(e) of the Specific
Relief Act, 1963 would have no application in the instant case. As on the date
of execution of sale, the Company had no funds of its own and the amount D
of consideration, admittedly, having been paid by Sarafs, the Company could
not be declared to be the owner thereof by a Court of law as was purportedly
done by reason of the judgment dated 19.8.1987 in the suit filed by the
Company against Shanti Narain Verma.

(d) The controversy in Suit No.267/80 being confined to the applicability E
of the re-conveyance clause contained in the deed of sale dated 24.2.1979,
the question of ownership of the property having been vested in the Company
did not and could not arise and in that view of the matter, the judgment
rendered therein was inadmissible in evidence to prove the Company's title
thereover.
F
Ownership issue :

The property in question was purchased by the Promoters of the
company, namely, Sarafs. An application for registration of the company was
filed on 15.2.1979 under the Companies Act, 1956 and the company was
registered on 19.6.1979. Sarafs at the relevant were. the only Directors and G
shareholders of the Company. In the deed of sale, they described themselves
as Promoters/Directors of the company. As on the date of execution of the
deed of sale, the company being not registered, the property was purchased
in the name of the Promoters. In the balance sheet, income tax return, annual
report, audit accounts and other relevant documents, the company had been H
342 SUPREME COURT REPORTS [2006) SUPP. 5 S.C.R.

A shown to be the owner of the property. On its registration, the co.npany also
paid a sum of Rs.2,22,500/- to Sarafs. The company in its report dated
15.11.1980 categorically mentioned that it had acquired fixed assets of
Rs.3,03,924/- including free hold land valued at Rs. I ,02,500/- . The balance
sheet also mentioned that the disputed property was the assets of the company.
B The company had taken a loan from the State Bank of India, Kanpur Branch
upon mortgaging the property as a security.

We have noticed hereinbefore that a suit was filed by the company
through Sarafs against Shanti Narayan Verma praying for a declaration that
the property belonged to the company. The said suit was decreed by a judgment
C dated 19.8.1982 declaring that the company is the absolute owner thereof. It
is also not in dispute that the Board of Directors of the company adopted a
resolution on 6.9.1984 for sale of the said property in favour of the appellant
herein for a sum of Rs.11,00,000/-. The agreement for sale was signed by the
Directors, namely, Pushpa Devi Saraf and Mohan Lal Saraf and their son
Sandeep Saraf. The company also discharged a part of the debts of State
D Bank of India, out of the amount of the advance of Rs.10,00,000/- r~ceived
by it from the appellants herein. The i:ompany had also adopted another
resolution for leasing out the property to Manoj Kumar Poddar. The deed of
lease in favour of Manoj Kumar Poddar was also signed by Sarafs. In the
said documents it was clearly and unequivocally stated that the property
E belonged to the company.

It is the company again which executed a general power of attorney in
favour of Shri M;M. Agarwal for executing the deed of sale of the disputed
property in favour of the appellants, upon getting the property released from
the Bank. In the said power of attorney also, the company had been described
F as owner of the property.

There cannot, therefore, be any doubt whatsoever that for all intent and
purport the Company was the owner of the property and at all material times
Sarafs had made representations as such to the appellants as also to others
thereabout.
G
Unincorporated Corporation issue :

At the time when the property was released from the charge held by the
State Bank of India, a notice in terms of Section 138 of the Companies Act
was issued by Shri Mohan Lal Saraf. In the registers maintained by the
H Registrar of the Companies under Section 132 of the Companies Act, it was
JAi NARAIN PARASRAMPURIA(DEAD)l'. PUSHPA DEVI SARAF [S.B. SINHA,J.] 343

shown that a charge of the said property had been made in favour of the State A
Bank of India.

Under the English Common Law, an unincorporated corporation could
not have become an owner of the property. The law in India, however, is
different.
B
Before we advert to the statutes operating in the field, in passing we
may notice a wholly untenable submission of Shri Sudhir Chandra that an
unregistered deed of sale only having been executed in favour of the company
by Sarafs, no title passed to the company in view of Section 54 of the
Transfer of Property Act. Section 54 of the Transfer of Property Act, defines C
sale and provides for a procedure as to how the same shall be made. It does
not speak of conveyance of ownership. Section 54 of the Transfer of Property
Act does not lay down a law as to whether in all situations an apparent state
of affairs as contained in a. deed of sale would be treated to be the real state
of affairs. It does not bar a benami transaction. There is no embargo in
getting a property registered in the name of one person; although real D
beneficiary thereof would be another.

Sections 15(h) and 19(e) of the Specific Relief Act, 1963 read as under:-

"15. Who may obtain specific performance. - Except as otherwise
provided by this Chapter, the specific performance of a contract may E
be obtained by

xx xxx xxx xxx
(h) when the promoters of a company have, before its incorporation,
entered into a contract for the purposes of the company, and F
such contract is warranted by the terms of the incorporation, the
company:
Provided that the company has accepted the contract and has
communicated such acceptance to the other party to the contract."
"19. Relief against parties and persons claiming under them by G
subsequent title. - Except otherwise provided by this Chapter, specific
performance of a contract may be enforced against -

xxx xxx xxx. xxx

(e) when the promoters of a company have, before its incorporation, H
344 SUPREME COURT REPORTS (2006] SUPP. 5 S.C.R.

A entered into a contract for the purpose of the company and such
contract is warranted by the terms of the incorporation, the
company :
Provided that the company has accepted the contract and
communicated such acceptance to the other party to the contract."
B In terms of Section l 5(h) of the Specific Relief Act, the Promoters of
a company before its incorporation could enter into a contract for the benefit
of the company and such contract may be warranted by the terms 0f
incorporation of the company. The said provision is subject to the proviso
that the company should accept the said transaction. In the instant case,
C indisputably it was done. Section 19(e) of the Act provides for grant of a
decree of specific performance of a contract against a company when the
promoters of a company before incorporation entered into a contract for the
purpose of the company and such contract is warranted by the terms of
incorporation. The said provision applies herein.

D In Weavers Mills ltd., Rajapa!ayam v. Balkis Ammal & Ors., AIR
(1969) Mad. 462, the Madras High Court clearly held that Section 19(e) of
the Specific Relief Act carves out an exception from the common law of
England, stating :

"While we accept the position that a promoter is neither an agent
E nor a trustee of the company under incorporation, we are inclined to
think that in respect of ~ransactions on behalf of it, he stands in a
fiduciary position. For the plaintiff-company Sections 92 and 94 of
the Indian Trusts Act, 1882, were relied upon. It seems to us that
n~ither of these sections is of assistance to it. .These sections, as we
think, contemplate transactions as between persons in existence. In
F
any case, it seems to us that no trust as defined by Section 3 of the
Act is brought about by the purchases made by the promoters. The
legal position of a promoter in relation to his acts, particularly purchase
of immoveable properties on behalf of the company under
incorporation, is a peculiar one not capable of being brought into any
G established or recognised norms of the law as to its character as an
agent or a trustee. But, at the same time, it is impossible, to our
minds, to deny that he does stand in a certain fiduciary position in
relation to the company under incorporation. When he does certain
things for the benefit of it, as for instance, purchase of immoveable
properties, he is not at liberty to deny that benefit to the company
H
JAi NARAIN PARASRAMPURIA (DEAD)v. PUSHPA DEVI SARAF is B SINHA, J l 345

when incorporated. We are prepared to hold that in such a case the A
benefit of the purchase will pass on to the company when
incorporated."

The said decision has been followed by a Division Bench of the Andhra
Pradesh High Court in Vali Pattabhirama Rao & Anr. v. Sri Ramanuja Ginning
& Rice Factory (P.) ltd & Ors., AIR (1984) A.P. 176, wherein it was held B

"Thus, we hold that if the constitution of the partnership firm is
changed. into that of a company by registering it under. Part 9 of
present Act (Part 8 of previous Act), there shall be statutory vesting
of title of all the property of the previous firm in the newly incorporated C
company without any need for a separate conveyance."

The company upon incorporation has accepted the contract and
communicated such acceptance to the other party. Besides that, purchase of
the property was for the purpose of the company. Submissions of Mr. Sudhir D
Chandra that acquisition of a property for the benefit of the company must
find place in the articles of association of the company, is wholly misplaced.
What is meant by acceptance of the contract by the company which is to be
warranted by its incorporation, is that it is not ultra vires the purpose for
which the company had been incorporated. The distinction sought to be made
by the learned counsel between Section 27 of the Specific Relief Act, 1877 E
and Section 19 of the 1963 Act is not of much significance. Under the 1877
Act, not only ratification and adoption of the contract was mandatory, such
contract was to be warranted by the terms of the incorporation. The words
'ratified and adopted" have been dropped from the main section and in Section
19 of the 1963 Act, a proviso has been added that the company has accepted
the contract and communicated such acceptance to the other party of the F
contract. An express ratification of the contract, therefore, is no lo11ger
warranted. In view of the fact that the Company, in the suit filed against
. Verma, sought for a declaration that it was the owner of the property, the
same, in our opinion, would amount to acceptance of the contract and
communication thereof to the other party thereto. G
Reliance placed by the learned senior counsel for the respondent on
Shamsu Suhara Beevi v. G. Alex & Anr., (2004] 8 SCC 569, para 11 is not
apposite, wherein it was held :

" ... On equitable considerations court cannot ignore or overlook the H
346 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A provisions of the statute. Equity must yield to law."

In the said decision this Court was not concerned with the interpretation
of Section 19(e) of the Specific Relief Act.

Transfer of Property Act does not prohibit an oral transfer. The statute
B merely provides that if the value of the said property is more than Rs.100/
- a registered document is required to be executed. Section 5 of the Transfer
of Property Act provides for transfer in favour of the company which was
unincorporated. The effect of the Transfer of Property of Act, therefore,
postulates transfer in favour of unincorporated company. It does not create
any bar.
c
Our attention was drawn to a statement made by the appellant No. I
before the trial court in cross-examination. He stated that Sarafs had informed
him that the company was the owner. He, however, volunteered that he
himself as also the company became owners. He probably gave the said
D answer having regard to the fact that an agreement for sale had been executed
in his favour; and furthermore Manoj Kumar Poddar had been granted a lease
and thus, he also became the owner thereof. His claim may not be correct in
law, but by reason thereof, it cannot be said that the representation made by
Sarafs that the company was the owner of the property had been whittled
down or the appellants were all along aware that Sarafs were the owners
E thereof.
The High Court, therefore, in our opinion committed a gross error in
opining that the object and purport of the proceedings in OS No.267 of 1980
was mainly for seeking foreclosure of the right of reconveyance of Vendor
S.N. Verma.
F
Estoppel issue :

It may be true that no issue as regards title between Sarafs and the said
S.N. Verma having been framed in O.S.No.267 of 1980, the principle of res
judicata is not applicable. In the said proceedings, however, Sarafs as also
G the said S.N. Verma being parties, there cannot be any doubt or dispute
whatsoever that a claim was laid by the company that it was the owner of the
property which was accepted not only by Verma but also by Sarafs. The
Sarafs or Verma did not deny or dispute the same. In fact company spoke
only through Sarafs. The High Court overlooked the fact that the plaint was
H signed by Sarafs and the company was represented by them. It is they who
JAi NARAIN PARASRAMPURIA (DEAD)r. PUSHPA DEVI SARAF [SB. SINHA,J.] 34 7
had made solemn statement before a competent court of law that the company A
was the owner of the property. Hence, they are bound by the said statement.
The principle of estoppel and/or acquiescence would, thus, be applicable.

While applying the procedural law like principle of estoppel or
acquiescence, the court would be concerned with the conduct of a party for
determination as to whether he can be permitted to take a different stand in B
a subsequent proceeding, unless there exists a statutory interdict. If principle
of estoppel applies, Sarafs will not '.Je permitted by a court of law to raise the
contention that the company was not the owner of the property.

It is one thing to say that the property did not vest in the company as C
there was a statutory embargo in that behalf; but it is another thing to say that
a person is estopped from raising a question of title. The provisions of the
Indian Evidence Act are clear like Section 116, whereby in certain situation
a person may be estopped from pleading a title in himself.

We are, however, not oblivious of the principle of law that mere D
admission does not create title but while determining such a question that
intention of the parties as to in whom the title of the property shall vest, the
conduct of the parties assumes significance.

In the instant case, it was Sarafs who represented the company. They
had made the representation that the company was the owner of the property. E
Such a representation had been made to the appellant herein not only in terms
of the decree obtained in the said O.S. No.267 of 1980, but by reason of
execution of the other documents including creation of mortgage of the
property and discharge thereof in favour of the State Bank of India. If by
reason of such representation, a third party alters his position, indisputably, p
the principle of estoppel would apply. We may, however, hasten to add that
where there exists a statutory embargo, vesting of title in a person shall be
subject thereto. We have, however, in this case, no doubt whatsoever that
there did not exist any statutory embargo in this behalf.

In Bank of India & Ors. etc. v. O.P. Swarnakar & Ors. etc., [2003] 2 G
SCC 721, this Court took notice of the following passage from Halsbury's
law of England, 4th Edn., Vol.16 (Reissue), para 957 at p.844:

"On the principle that a person may not approbate and reprobate
a special species of estoppel has arisen. The principle that a person
may not approbate and reprobate expresses two propositions: H
348 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A (I) That the person in question, having a choice between two courses
of conduct is to be treated as having made an election from
which he cannot resile.

(2) That he will be regarded, in general at any rate, as having so
elected unless he has taken a benefit under or arising out of the
B course of conduct, which he has first pursued and with which his
subsequent conduct is inconsistent."

In Gillett v. Holt and Anr., [2000] 2 All. E.R.-289, the Court of Appeal,
upon referring to a large number of decisions, developed the doctrine of
proprietary estoppel opining:
c
"The overwhelming weight of authority shows that detriment is
required. But the authorities also show that it is not a narrow or
technical concept. The detriment need not consist of the expenditure
of money or other quantifiable financial detriment, so long as it is
something substantial. The requirement must be approached as part
D of a broad inquiry as to whether repudiation of an assurance is or is
not unconscionable in all the circumstances."

In fndu Shekhar Singh & Ors. v. State of U.P. & Ors., (2006) 5 SCALE
I07, this Court stated :
E "They, therefore, exercised their right of option. Once they
obtained entry on the basis of election, they cannot be allowed to turn
round and contend that the conditions are illegal."

In Pawan Alloys and Casting Pvt. Ltd , Meerut v. U.P. State Electricity
F Board and Ors., [1997) 7 sec 251, this Court applied the principle of
promissory estoppel.

The doctrine of estoppel by acquiescence was not restricted to cases
where the representor was aware both of what his strict rights were and that
the representee was acting on the belief that those rights would not be enforced
G against him. Instead, the court was required to ascertain whether in the
particular circumstances, it would be unconscionable for a party to be permitted
to deny that which, knowingly or unknowingly, he had allowed or encouraged
another to assume to his detriment. Accordingly, the principle would apply
if at the time the expectation was encouraged. [See also Taylor Fashions Ltd
v. Liverpool Victoria Trustees Co. Ltd. [1981] I All ER 897]
H
JAi NARAIN PARASRAMPURIA (DEAD)1'. PUS HPA DEVI SARAF [S.B. SINHA. J] 349
Similarly, in Amalgamated Investment & Property Co. Ltd v. Texas A
Commerce International Bank ltd., [I 981) I All ER 923, it was held :

"Where the estoppel alleged was founded on active encouragement
or representations made by the representator, it was only
unconscionable for the representator to enforce his strict legal rights
if the representee's conduct was influenced by the encouragement or· B
the representation. However, it was not necessary for the
encouragement or representation to have been the initial cause of the
. representee's conduct in order to be unconscionable but merely that
his conduct was so influenced by the encouragement or representation
that it would be unconscionable for the representor to enforce his C
legal rights."

Mr. Sudhir Chandra placed strong reliance in Mahboob Sahab v. Syed
ls mail & Ors., [ 1995] 3 SCC 693, wherein this Court was dealing with the
issu.e of res judicata.
D
As in this case, we have already held that the principle of res judicata
may not have any application, it is not necessary to advert thereto. It.is also
not a case where fraud was alleged, as was the fact involved therein.

Reliance placed on Chhaganlal Keshav/al Mehta v. Patel Narandas
Haribhaz~ (1982] I SCC 223: AIR (1982) SC 121 was misplaced. Therein E
it was held that a person is entitled to plead estoppel in his individual character
and not as a representative of his assignee. In this case ingredients constituting
an estoppel and in particular the representation made by Sarafs that it was the
company which was the owner of the property, were raised specifically .
•
In the context of the present case it is of some significance to note the F
following observations made in Chapleo and Wife v. The Brunswick Permanent
Building Society and Ors., (188I) QBD 696:

" ... Being not incorporated the individual members might be liable
like any other individuals for what has been done under an implied G
authority given to their agent to borrow. That the borrowing power
was exceeded is a matter which could only be known to the officers
of the society, and not to the persons who lent their money, and the
society must be liable for the fraud or wrongful act of their agent who
was held out as having authority to borrow for the society ..."
..... H
It was further held :
350 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

- A "It must be taken that when the directors represented that they
had authority which they had not, by reason of the limit to borrowing
having been passed, they nevertheless warranted to the plaintiff
Chapleo that they had that authority. Therefore upon that ground they
are liable."

B The Judicial Committee in Sarai Chunder Dey and Ors. v. Gopal
Chunder laha and Ors., (1892) Vol. XIX Law Report 203, as regards the
conditions of estoppel under the Evidence Act, opined :

"... The law of this country gives no countenance to the doctrine that
in order to create estoppel the person whose acts or declarations
c induced another to act in a particular way must have been under no
mistake himself, or must have acted with an intention to mislead or
deceive. What the law and the Indian statute mainly regard is the
position of the person who was induced to act; and the principle on
which the law and the statute rest is, that it would be most inequitable
D and unjust to him that if another, by a representation made, or by
conduct amounting to a representation, has induced him to act as he
would not otherwise have done, the person who made the
representation should be allowed to deny or repudiate the effect of
his former statement, to the loss and injury of the person who acted
on it. If the person who made the statement did so without full
E knowledge, or under error, sibi imputet. It may, in the result, be
unfortunate for him, but it would be unjust, even though he acted
under error, to throw the consequences on the person who believed
his statement and acted on it as it was intended he should do."

F lifting the Corporate Veil :

In a case of this nature, keeping in view the facts and circumstances of
the case, even the doctrine of lifting the corporate veil would be applicable.

We would, in this regard, notice some precedents operating in the field.
G In Kapi/a Hingorani v. State of Bihar, [2003] 6 SCC I, this Court
opined :

"It is now well settled that the corporate veil can in certain
situations be pierced or lifted. The principle behind the doctrine is a
H changing concept and it is expanding its horizon as was held in State ....
JAi NARAIN PARASRAMPURIA (DEAD)". PUSHPA DEVI SARAF [S.B. SINHA, l] 35 J
of U.P. v. Renusagar Power Co. The ratio of the said decision clearly A
suggests that whenever a corporate entity is abused for an unjust and
inequitable purpose, the court would not hesitate to lift the veil and
look into the realities so as to identify the persons who are guilty and
liable therefor."

[See also Union of India & Ors. v. Mis. Playworld Electronics Pvt. ltd B
& Anr.. [1989] 3 SCC 181 : AIR (1990) SC 202, State of U.P. & Ors. v.
Renusagar Power Co. & Ors., [1988] 4 SCC 59: AIR (1988) SC 1737 and
Yukong line Ltd of Korea v. Rendsburg Investments Corp. of Liberia and
Ors., (No 2) [1998] 4 All ER 82 (QBD)]

The application of the said doctrine becomes relevant in view of the C
fact that in the Memorandum of Association of the company Sarafs alone
were shown to be the subscriber members of the company. In the Article of
Association they were naturally inducted as the first Directors. Subsequently
they included their son as a Director; and it was all the three of the Directors
who executed the agreement for sale. There had, thus, been no shareholder D
except Sarafs. Since, they had been attempting to use the personality of the
company for furthering their own personal object the doctrine of lifting the
veil is applicable. They did so in furtherance of their dishonest and fraudulent
design. They in fact were the alter ego of the company. It was, therefore,
impossible for them to take a djfferent stand vis-a-vis the interest of the
~~ E
Withdrawal of suit-effect of :

One of the judges of the High Court in the impugned judgment opined
that in view of the fact that the appellant had withdrawn the suit questioning
the said award and the decree subsequent to passing of the judgment and F
decree of the trial court, they became disentitled to raise the said question.
In so opining, the High Court committed a manifest error. The appellant had
contended that the said award and the consequent decree passed by the Delhi
High Court was a fraudulent and collusive one. The appellants having obtained
a decree, it was not necessary for them to obtain another decree. It might not G
have been able to file another suit, but the same would not mean that they
were not entitled to question the validity or otherwise of the said award in
the suit for specific performance of contract. If a judgment or decree is
vitiated by fraud, the same would be a nullity. In such an event, Section 44
of the Indian Evidence Act would be attracted. As a plea of fraud can be
H
352 SUPREME COURT REPORTS [2006) SUPP. 5 S.C.R.

A raised even in a collateral proceeding and the trial court having recorded a
specific finding that the jurisdiction of the Delhi Court was created artificially
by including a Delhi property, in respect whereof there was no dispute, the
said decree must be held to have been obtained by Sarafs by concealment of
material facts and by a collusive and fraudulent exercise.

B In the arbitration proceedings, Sarafs stated that the agreement dated
I2.06. I984 was in fact a sale transaction. In paragraph 8 of the written
statement, the stand taken by them was that the agreement was a sham
document entered into by and between the parties so as to enable them to
secure removal of padlocks by State Bank of India, Kanpur.
c In the said written statement itself they, however, disclosed about the
execution of an agreement for sale in favour of the defendant no.5. The said
agreement was registered on 29 .09 .1984 i.e. much after the execution of
agreement for sale dated 12.6.1984 as also after the institution of the suit.

D It is now well settled that fraud vitiated all solemn act. Any order or
decree obtained by practicing fraud is a nullity. [See - (I) Ram Chandra
Singh v. Savitri Devi & Ors., [2003) 8SCC319 followed in (2) Vice Chairman,
Kendriya Vidyalaya Sangathan & Anr. v. Girdhari Lal Yadav, (2004) 6 SCC
325; (3) State of A.P. & Anr. v. r Suryachandra Rao. (2005) 6 SCC 149;
(4) IshwarDutt v. Land Acquisition Collector & Anr., (2005) 7 SCC 190; (5)
E Lillykutty v. Scrutiny Commit/ee, SC & ST Ors., (2005) 8 SC 283; (6) Chief
Engineer, M.S.E.B. & Anr. v. Suresh Raghunath Bhokare, (2005) IO SCC
465; (7) Smt. Satya v. Shri Teja Singh. (1975) I SCC 120; (8) Mahboob
Sahab v. Sayed Ismail & Ors.. (1995) 3 SCC 693); and (9) Asharji Lal v.
Smt. Kaili (Dead) by LRs .. (1995) 4 SCC 163.)

F The submission of Mr. Sudhir Chandra that withdrawal of the Suit
No.1252of1985 without obtaining liberty to file a fresh suit would constitute
a bar in filing of a second suit under Order 23, Rule I of the Code of Civil
Procedure, in the factual matrix obtaining herein, cannot be accepted. By
withdrawal of the said suit, the appellant did not and could not have given
G up their right to contend that the said award and decree were fraudulent.

It was not necessary for the appellants to reserve their right to raise the
said contention by instituting another suit as they had earlier done it in their
suit. In fact they ha9 already obtained the decree for specific perfonnance of
the agreement to sell.
H
JAi NARAIN PARASRAMPURIA(DEAD)v. PUSHPADEVI SARAF [S.B. SINHA,J] 353

In that view of the matter, the decision of this Court in Hulas Rai Baij A
Nath v. Firm KB. Bass & Co .. [1967] 3 SCR 886, relied on by the Sudhir
Chandra is not applicable.

Nature of transaction :

One of the learned Judges of the High Court also held that the said B
agreement dated 12.06.1984 was in fact an agreement for obtaining loan.
There was no warrant for such a proposition. Clause 7 of the agreement on
the basis whereof such a finding was arrived at reads as under:

"(7) That it is further agreed that in case any defect in the right or
title of the parties of the first part or the said company is found or any C
other encumbrance or legal hurdle is found in respect of the said
house property then in both the circumstances the second party shall
have option for the refund of advance money of Rs. I0 lacs together
with interest @ 18% per annum."

It is interesting to note that the sale deed dated 24.02.1979 whereby D
Sarafs purchased the property also contain an identical clause. Such types of
clauses normally are found in the agreement so as to enable the vendee to
protect his interest against the defects in vendor's title, if any. The agreement
records the valuation of property at Rs. I I lakhs. The respondents relying on
or on the basis of another purported agreement dated 04.06.1984 executed by E
Sarafs in favour of their son-in-law, original defendant No.5, S.K. Mittal
stated that the property was worth Rs.25 lakhs. The trial court, in our opinion,
correctly arrived at an opinion that the said agreement was a shame one. The
original defendant No.5 did not file any suit for specific performance of
contract. The said agreement for sale had not been acted upon by the parties.
Raliance placed on the said agreement by a learned Judge of the High Court F
was, therefore, unwarranted.

The High Court in its judgment did not show as to how the said finding
of the learned trial court in that behalf was wrong. Moreover, except the said
agreement, no other legal evidence was brought on record to establish as to G
what was the actual market value of the property.

The value of the property, as noticed herein before, was only Rs.2 lakhs
in the year 1979. Within a period of 5 years thereof as per the agreement for
sale, its price went up five times over the original. It is, wholly unlikely that
) the property which was valued at Rs.2 lakhs in 1979, would be worth Rs.25 H
354 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A lakhs in 1984.

In any view of the matter inadequate consideration by itself would not
lead to the conclusion that the same was an agreement of loan. Inadequate
consideration, it is trite, is also not a ground for refusing to grant a decree
for specific performance of contract.
B
Clause 5 of the said agreement required the company to satisfy the
appellants in regard to the ownership of the company in the said property and
the same was free from encumbrances, the reason wherefor is not far to seek.
The provisions of the Urban Land Ceiling Act were in force. Permission was
C required for completing the said transaction both under the Urban Land Ceiling
(Regulation) Act, 1976 as also under the Income Tax Act. In terms of Section
26 of 1976 Act, a notice w:is required to be served on the competent authority.
At least the parties appear to have proceeded on that basis. Strong reliance
has been placed on the circumstance that when an advertisement issued in the
newspaper on 5.8.1984 notifying the existence of agreement for sale between
D the appellants and the respondents, Sarafs responded thereto alleging that the
said transaction was a loan transaction. By reason of such self-serving statement
alone, an agreement for sale validly entered into by and between the parties
would not be treated to be a loan agreement. It is furthennore interesting to
note that in the said purported response to the advertisement published in the
paper also, Sarafs did not raise any plea that the company had already entered
E into an agreement for sale of property with a third person or that the dispute
as regard title thereof was pending adjudication before an arbitrator. IfSarafs
claimed themselves to be the owner of the said property, they should have
challenged the subsequent agreement also. The contention of the respondents
that the said agreement was merely one of loan was an afterthought.
F Conduct of Sorafs :

It is in the aforementioned situation, the conduct of Sarafs assumes
significance. The agreement for 3ale was executed on 12.6.1984, pursuant to
the resolution of the Board of Directors dated 08.6.1984, which was followed
G by execution of a General Power of Attorney in favour of M.M. Agarwal for
the purpose of redeeming the mortgage from State Bank oflndia, Kanpur and
other purposes. They evidently with a design either to defraud the State Bank
of India or for other purposes best known to them, purported to have inducted
Vijay Kumar as Director of the company on 4.6.1984. Soon thereafter a
purported dispute was raised on 6.6.1984 by and between the said Vijay
H
JAi NARAIN PARASRAMPURIA(DEAD)v. PUSHPA DEVI SARAl'[S.B. SlNHA, J] 355
Kumar on the one hand and Sarafs on the other, as regards the ownership of A
the property. One B.S. Mathur, Advocate, was appointed as arbitrator on
7.6.1984. If the said documents were in existence on 8.6.1984, Sarafs
themselves could not have been a party to the resolution in regard to the
execution of the agreement for sale of the company's property in favour of
the appellant as also letting out of the same to Manoj Kumar Poddar. lt has B
not been denied nor disputed that the said Vijay Kumar was merely an
employee.

The arbitrator was appointed in undue haste. Within a few days, so
many events took place, which itself is a pointer to the evil design on the part
of Sarafs. It is of some significance to note that the appointment of Shri Vijay C.
Kumar as Director of the company was intimated to the Registrar of the
Companies on 29.9.1984, and the same had been received in his office only
on·7. 1.1985.

Not only Sarafs intended to wriggle out of the agreement to sell, they
even intended to play frl!ud_ on the State Bank of India as 'the property' was D
charged in its favour and the amount received from the appellant by way of
advance, had been utilized for the purpose of redeeming the mortgage.

The arbitrator made an award on 20.11.1984. It has not been denied or
disputed that the decree dated 19.8.1982 passed in O.S. No.267 of 1980 had
not been placed before the arbitrator. Attention of the arbitrator had also not E
been drawn to the proceedings of pending suit filed by the appellant herein
for specific performance of the said agreement of sale dated 12.6.1984 being
O.S. No.537 of 1984. The arbitrator furthermore was not made known about
the pendency of another suit filed by Manoj Kumar Poddar against the
company being Suit No.612 of 1984 and the order of ex parte injunction F
passed therein on 31.8.1984. The arbitrator while passing an award on
20.11.1984 might not have any other option but to declare Sarafs to be the
owners of the property as the purported lis between the parties went
• uncontested. Interestingly by reason of the said award, Sarafs were directed
to refund Rs.2,22,500/- to the company, which had. been paid to them. The
company did not raise any objection evidently because nobody el~e could G
factually represent it before the arbitrator; all the parties being on the same
~~ .
It is interesting to note that before the arbitrator, the company was
shown to be the claimant and thus, 'the company itself is said to have appointed
Shri Mathur as sole arbitrator. Such appointment of the arbitrator, being in H
356 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A the teeth of the decree passed in Suit No.267 of 1980, arbitration av:ard and
the decree passed by the Delhi High Court, had rightly been heid by the
learned trial judge as collusive and fraudulent. It was thus a nullity. Even in
the proceedings for making the award a rule of the court before the Delhi
High Court being Suit No.1857-A of 1984, there was no opposition on the
B part of the company. Although a decree for delivery of possession was passed
against the company, the lessee Shri Manoj Kumar Poddar or the appellant
had not been made parties therein. We would have occasion to deal with the
effect of our discussions hereafter.

Subject matter of the agreement :

c One of the learned Judges of the High Court also opined that as the
agreement to sell referred to only the house or the bungalow, the parties did
not agree to sell the land. We have gone through the agreement for sale and
are of the opinion that the views taken by the learned judge were wholly
unwarranted. Apparently the respondents intended to sell what they had
D purchased. There is nothing in the avcrments of the agreement to suggest that
the intention of the respondents was restricted to the house alone and not the
lands. There was no basis for arriving at the said findings. In any event,
expression 'the house' will also include the land appurtenant thereto.

In P. Ramanatha Aiyar's Advanced Law Lexicon, Volume 2, 2005, the
E word "house" has been defined to mean : c::

"HOUSE" means a house suitable for occupation by a Military Officer
or a military mess. The term includes the land and buildings
appurtenant to a house. [Cantonment (House Accommodation) Act (6
of 1923), S. 2(t)]
F
"HOUSE" includes any building or part of a building with its
appurtenances and outhouses used for any purpose whatsoever [Orissa
House Rent Control A.ct, 1967 (4 of 1968), S. 2(3)]. •
"HOUSE" includes -
G (a) . any part of a building occupied or intended to be occupied as a
separate dwelling; and
(b) any yard, garden, outhouses and appurtenances belonging to it or
usually enjoyed with it [Housing Act, 1996 (c. 52 1996), S.
68(1)]"
H
JAI NARAIN PARASRAMPURIA (DEAD)1•. PUSHPA DEVI SARAF [S.B. SINHA. J ] ) 57

In 'Word and Phrases' Permanent Edition, Volume 19A, it is stated : A
"The word "building" necessarily embraces the foundation on
which it rests; and the cellar, ifthere be one, under the edifice, is also
included in the term "house" or "building". If there be a cellar, the
word "building" includes it, unaffected by the height above the
foundation Benedict v. Ocean Ins. Co., 31 N.Y. 389, 394." B
Furthermore, it is now well settled that the building includes the land
on which it stands, unless by express stipulation it is excluded. [See T
Lai\shmipathi & Ors. v. P. Nithyananda Reddy & Ors., [2003] 5 SCC 150,
paras 19 to 24]
c
Re : Demolition of the building:

Both the learned judges of the High Court found that the appellants
were responsible for demolition of the building forming the part of the
property.
D
Before adverting to the said question, we may, at the cost of repetition,
notice the contentions, which, according to Mr. Dwivedi, sufficiently indicate
that Sarafs alone were responsible therefor.

On the basis of the Award of the Arbitrator, a decree was passed by the
Delhi High Court on 21.2.1985. Sarafs executed the said decree. A warrant E
of delivery of possession was issued against the Company. Pursuant thereto
or in furtherance thereof Manoj Kumar Poddar was said to have been
dispossessed, despite an order of interim injunction passed in Suit No.612 of
1984 on 19.10.1984 operating in this behalf. An application for restoration
of possession was filed by the said Manoj Kumar Poddar under Order 21 F
Rule 99 of the Code of Civil Procedure in the said execution case, which was
registered as Miscellaneous Case No.184174 of 1985. In the said application,
Sarafs were sought to be restrained from damaging and destroying any portion
of the suit property and from parting with the possession. An order of
injunction restraining Sarafs from causing any damage or destruction and
parting with the possession of the suit property was passed. G
In response to the said application, Sarafs contended that they were
required to execute a project of construction work. The contentions of Sarafs
were noted by the learned trial Judge in the following words:

H
358 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A "The opp. parties maintained that they have to execute project of
construction work in place of existing disputed building. It is therefore,
clear that the opp. parties No. I and 2 have intention to demolish or
change the nature of the existing premises."

It was further opined:
B
"The applicant would suffer irreparable injury in case the opp.
parties are successful in demolishing the building.''

The said findings by itself, as was submitted by Mr. Dwivedi, in our
opinion, would not be sufficiert to draw an inference that Sarafs were
C responsible for demolition of the building. We are not oblivious of the fact
that thereafter G.P. Tiwari instituted Rent Case numbered as Rent Case No.99/
87 against the Sarafs. The appellants were not impleaded as part!es therein.
G.P. Tiwari was allegedly the caretaker of the building. An ex-parte order
was passed on 25.8.1989 directing eviction of Sarafs and granting possession
of the premises in his favour. The said order was implemented and possession
D of the said premises was delivered on 23.9. 1989. It is not in dispute that the
building was demolished on the same day. It is tilrthermore not in dispute
that Mohan Lal Saraf filed an application for setting aside the said ex-parte
order dated 23.9.1989. On 24.9.1989, in relation to the said order, Smt.
Pushpa Devi Saraf also filed a Writ Petition being W.P. No.21985/89 for
E quashing of the ex-parte order dated 25.8.1989. The ex-parte order was
recalled. The writ petition was dismissed only on the premise that the ex-
parte order had been recalled. In fact, the Rent Ca~e itself was withdrawn by
G.P. Tiwari on 8.2. I990. The respondents contended that G.P. Tiwari was the
man of the appellants: We have, in this behalf, hereinbefore noticed the
conduct on the part of the appellants. One of the appellants and G.P. Tiwari
F filed a special leave petition together. They had also engaged the same counsel
for defending themselves in the proceedings before this court.

It has been found by the High Court while determining the writ petition
that Sarafs had represented before various authorities, Government
G functionaries and police complaining about the said unauthorized demolition
of the structure. Collusion of the police authorities with the appellants had
also been alleged, although not substantiated. Only on 23.9. I989 a First
Information Report was lodged. Charge-sheets were filed against the appellants
in terms of an order dated 9.12.1993 in Criminal Writ Petition No.23804/89,
in terms whereof the Central Bureau of Investigation was directed to record
H
JAi NARAIN PARASRAMPURIA (DEAD)1·. PUSHPA DEVI SARAF [S.B. SINHA, J.] 359
a First lnfonnation Report against the appellants and others. [t is not disputed A
that in April, 1994, the Central Bureau of Investigation, after investigation
filed a charge-sheet against the appellants for demolition of the said building
and for alleged commission of other offences relating to theft, criminal
conspiracy, trespass, etc. It is also not in dispute that in the said p~oceedings,
charges have been framed and a large number of witnesses have already been B
examined.

It is true that Sudhir Parasrampuria filed a suit in the Court of Civil
Judge, Kanpur Dehat against Sarafs and also against the said G.P. Tiwari for
a deciaration that they had no right to damage the property and for its
preservation through a Receiver contending that the Sarafs had got the house C
demolished through G.P .. Tiwari who was their dummy. An interim order was
passed in the said suit on 23.10.1989 permitting grant of symbolic possession
to the appellants. But the said order, admittedly, had been set aside by the
High Court by an order dated 9.5.1990 in Writ Petition No.21985/89 on the
ground that service of notice had not been properly effected upon Sarafs and
the matter was remanded to the competent court, but, in the meantime, the D
suit itself was withdrawn by an order dated 30.5.1990. G.P. Tiwari, in response
to the application for recalling the ex-parte order passed in Rent Case No.99/
87, stated that he had been appointed as caretaker by Manoj Kumar Poddar.
It is not in dispute that Manoj Kumar Poddar is a cousin of Sudhir
Parasrampuria. We may moreover notice that against the order dated 9.12.1993 E
passed by the Allahabad High Court, special leave petitions were filed by
G.P. Tiwari and also by A.C. Venna, Civil Judge, Kanpur, which were
dismissed. Circumstances pointed out hereinbefore primafacie do not lead to
a conclusion that Sarafs were responsible for demolition of the structures in
question.
F
In view of the pendency of the criminal case, we do not intend to
express a definite opinion on one way or the other on the said issue. The
sequence of events noticed hereinbefore would go to show that the balance
in regard to demolition of the said structure tilts against the Appellants, in
view of the charge-sheet filed by the Central Bureau of Investigation although G
the same itself may not be conclusive in nature. There is no reasor for us,
as at present advised, to take a different view from that of the High Court in
this behalf.

There are other circumstances too which cannot be ignored.
H
The possession of the land in question was directed to be delivered by
360 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.
..
A the Civil Court in favour of G.P. Tiwari. On the same date, the buildings
were demolished. The respondents, therefore, on the said date were armed
with the orders of the court; the Appellants were not. The circumstances are
such which lead us to a finding for the purpose of disposal of this case that
the Appellants were responsible for demolishing the building.

B For the aforementioned reasons, we would uphold the findings of the
High Court that the Appellants were responsible for demolition of the structures
standing on the land in question.

c
Discretionary relief

Both the parties hereto are guilty of serious misconduct. Both of them
-
have abused the process of court. They initiated unnecessary nay frivolous
proceedings against each other. Both the parties took recourse to abuse of
judicial process against the other upon suppression of material fact, which
would amount to fraud on court. The question in regard to exercise of
-
D discretionary jurisdiction for grant of a decree of specific performance of
contract, as envisaged under Section 20 of the Specific Relief Act, must be
considered from the said angle.

Section 20 of the Specific Relief Act reads thus:

E "20. Discretion as to decreeing specific performance.- (I) The
jurisdiction to decree specific performance is discretionary, and the
court is not bound to grant such relief merely because it is lawful to
do so; but the discretion of the court is not arbitrary but sound and
reasonable, guided by judicial principles and capable of correction by
a court of appeal.
F
(2) The following are cases in which the court may properly
exercise discretion not to decree specific performance:-
(a) where the terms of the contract or the conduct of the parties at
the time of entering into the contract or the other circumstances
G under which the contract was entered into are such that the
contract, though not voidable, gives the plaintiff an unfair
advantage over the defendant; or
(b) where the performance of the contract would involve some
hardship on the defendant which he did not foresee, whereas its
H non-performance would involve no such hardship on the plaintiff;
361

-
JAi NARAIN PARASRAMPURIA (DEAD)v. PUSHPA DEVI SARAF [S.B. SINHA, J.]

or A
(c) where the defendant entered into the contract under circumstances
which though not rendering the contract voidable, makes it
•.
inequitable to enforce specific performance.

Explanation /.- Mere inadequacy of consideration, or the mere B
fact that the contract is onerous to the defendant or improvident in its
nature, shall not be deemed to constitute an unfair advantage within
the meaning of clause (a) or hardship within the meaning of clause
(b).

Explanation 2. - The question whether the perfonnance of a contract C
would involve hardship on the defendant within the meaning of clause
(b) shall, except in cases where the hardship has resulted from any
act of the plaintiff subsequent to the contract, be detennined with
reference to the circumstances existing at the time of the contract.

(3) The court may properly exercise discretion to decree specific D
performance in any case where the plaintiff has done substantial acts
or suffered losses· in consequence of a contract capable of specific
performance.

(4) The court shall not refuse to any party specific perfonnance
.. of a contract merely on the ground that the contract is not enforceable E
at the instance o.'.' the party."

Balancing of equities in a case of this nature is a difficult task. It is now
well settled that compensation can be awarded in lieu of grant of decree of
specific performance of contract. The courts are now evolving separate
principles in regard to the remedy of compensation. (See Snells' Equity, page F
452.) The learned author cites various cases to make home the point stating:

"18-17 A monetary award which is made in substitution for (or in
addition to) non-monetary relief will frequently be detennined
on the basis of pecuniary performance or pecuniary
rescission; but, in some cases, may also be detennined by G
reference to the loss which has been suffered.

I 8- I 8 (a) Pecuniaiy performance. Pecuniary· perfonnance is a money
substitute for the thing which the defendant would have been
required to do, had specific relief been ordered. It is to be H
detc;:rrnined by identifying the difference between two values:
362 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A (i) the value of the claimant's right to performance of the
obligation and (ii) the value of the performance which the
defendant is able to give. Where the defendant is not able to
perform the obligation, the amount of the award will represent
the value of the claimant's right to performance : in such a -
case, an order for pecuniary performance will be for a sum
B corresponding with the value of the claimant's right to
performance. The position is similar where the court declines
to grant non-monetary relief and thereby (in effect) releases
the defendant from the need to perform the obligation in the
future."
c In Spry 's Equitable Remedies, it is stated:

"In considering what circumstances induce the court, as a matter
of discretion, to award equitable damages rather than relief in specie
it must be borne in mind that when once the general conditions for
D the exercise of equitable jurisdiction have been established, that is,
the inappropriateness of damages in respect of a matter coming within
a recognized head of relief, prima facie there arises a right to specific
performance or to an injunction, as the case may require. So it was
observed by Lord Langdale, "I conceive the doctrine of the court to
be this, that the court exercises a discretion, in cases of specific
E performance, and directs a specific performance unless it should be
what is called highly unreasonable to do so." Similarly reference has
been made to "the rule that where the plaintiff has established the
invasion of a common law right, and there is ground for believing
that without an injunction there is likely to be a repletion of the
F wrong, he is, in the absence of special circumstances, entitled to an
injunction against such repetition."

On the one hand it is clear that the passage of provisions for
equitable damages did not affect these general principles. So it has
been affirmed that the authorities show "that Lord Cairns' Act did not
G revolutionise the principles upon which the equitable jurisdiction had
been administered up to that time and that some special case must be
shown before the court should exercise the jurisdiction under the
Act". On the other hand, in cases where an injunction or an order of
specific performance would be granted if there were no power to
H grant damages the statutory power of the court to award damages
may, in special circumstances, be of critical weight. It may .induce the
JAi NARAIN PARASRAMPURIA (DEAD)v. PUSHPA DEVI SARAF [S.B. SINHA,].] 363
court to conclude that any inconvenience or hardship which would be A
caused to the plaintiff if he were obliged to accept merely an award
of damages would be so far outweighed by the hardship that would
be caused to the defendant if specific enforcement were granted that
damages constitute the most appropriate remedy. Hence where the
court would otherwise have granted specific relief the importance of B
a power to grant equitable damages is found to lie primarily in its
relation to considerations of hardship between the parties and to the
balance of conve.tience."

In Gillett (supra), it was pointed out:

"Since Mr. Gillett has established his claim to equitable relief, C
this court must decide what is the most appropriate form for the relief
to take. The aim is (as Sir Arthur Hobhouse said in Plimmer v. Mayor
of Wellington, (1884) 9 App Cas 699 at 714) to 'look at the
circumstances in each case to decide in what way the equity can be
satisfied'. The court approaches this task in a cautious way, in order D
to achieve what Scarman LJ (in Crabb v. Arun DC, (1975] 3 All ER
865 at 880, [I 976] Ch 179 at 198) called 'the minimum equity to do
justice to the plaintiff. The wide range of possible relief appears
from Snell's Equity (30th edn, 1999) pp. 641-643."

For the aforementioned purpose it is necessary to have a broad approach, E
as was observed in Gillett (supra). Therein it was further held:

"That is in my view the maximum extent of the equity. The
court's aim is, having identified the maximum, to form a view as to
what is the minimum required to satisfy it and do justice between the F
parties. The court must look at all the circumstances, including the
need to achieve a 'clean break' so far as possible and avoid or minimize
future friction (see Pascoe v. Turner, (1979] 2 All ER 945 at 951,
(1979] 1 WLR 431 at 438-439)."

In Malhotra v. Choudhury, [1979] (1) All ER 186, Stephenson, LJ., in G
the fact situation obtaining therein, opined:

"But as counsel for the plaintiff pointed out, the question which
the judges were summoned by their Lordships to answer and which
was proposed for their consideration was 'Whether, upon a contract
for the sale of real estate, where the vendor, without his default [my H
364 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A emphasis], is unable to make a good title, the purchaser is by law
entitled to recover damages for the loss of his bargain?' That is the
question which was answered in the judgment of Pollock B, which
was also the judgment of Kelly CB, Keating and Brett, JJ, and the
question as it was stated by both Denman J and Pigott B. I note this
is the way in which the rule is stated in Williams on Contract of Sale
B of Land, cited by Megarry J in Wroth v. Tyler:

'Where the breach of contract is occasioned by the vendor's
inability, without his nwn fault [my emphasis], to show a good title,
the purchaser is entitled to recover as damages his deposit, if any,
c with interest, and his expenses incurred in connection with the
agreement, but not more than nominal damages for the loss of his
bargain.'

It is not necessary to decide how far the words 'without his default'
go, if I am right in thinking that inability without default is what one
D has to consider as attracting the rule in Bain v Fothergill.

There may be cases in which there has been no lack of bonafides,
yet the rule in Bain v Fothergill has been excluded. I would not
however venture to suggest that anything less than lack of good faith
could exclude the rule. But it seems from later decisions that fraud,
E in the full sense of that word such as would found an action for
deceit, may not be necessary to exclude the rule. No doubt Blackett-
Ord V-C had in mind that fraud must be strictly alleged and proved
in all ordinary circumstances. But in my judgment, unwillingness to
use best endeavours to carry out a contractual promise is bad faith,
and for there to be bad faith which takes the case out of this exceptional
F rule it is not necessary that there should be either a de.liberate attempt
to prevent title being made good or anything more than the
unwillingness which I find it inevitable to infer in this case. If a man
makes a promise and does not use his best endeavours to keep it, it
cannot take much and, in my judgment, may not need more to make
G him guilty of bad faith and to entitle the victim of his bad faith to his
full share of damages to compensate him for what he has lost by
reason of that breach of contract and bad faith."

In so far as the principle relating to assessing damages in substitution
for an order of specific performance is concerned, the learned Judge opined
H that a court of equity should follow law and address itself to find the proper
JAi NARAIN PARASRAMPURIA (DEAD)v. PUSHPA DEVI SARAF [S.B. SINHA. J.] 365
substitute, stating that the equitable remedy of specific perfonnance has features A
markedly different from damages at common law for breach of contract. [See
also Horsier and Anr. v. Zorro, [1975] I All ER 584.]

Having noticed the law operating in the filed vis-a-vis the conduct of
the parties, we decline to grant a decree for specific perfonnance of contract
and opine that in its stead and place a decree for compensation should be B
granted.

What should be the amount of compensation is now the question.

Law as declared by this Court is that the quantum and measure of
damages would vary from case to case. C

We may notice a few of them.

In la/it Kumar Jain & Anr. v. Jaipur Traders Corporation Pvt. ltd.,
[2002] 5 SCC 383, this Court, while directing dismissal of the suit, opined:
D
" .... However, in view of the fact that the defendants are not free from
blame as discussed above and they have utilized the property to the
best of their advantage right from day one without, at the same time,
paying the balance sale price for several years, we put it to the counsel
for the appellants whether they are willing to pay to the plaintiff a
substantial amount over and above the sale price already deposited in E
the Court, in order to do justice to the parties. In fact, in the course
of arguments by the learned counsel for the appellants, there was an
indication that the appellants were prepared to offer a reasonable
amount, without prejudice to their contentions. The learned counsel
for the appellants has filed a letter dated 18-4-2002 stating that "the p
appellants can pay and agree to pay a further sum of Rs.35 lakhs
(Rupees thirty-five lakhs) in 3 instalments of Rs.15 lakhs and Rs. JO
lakhs and Rs. I 0 lakhs", in three weeks, by the end of August and by
the end of November 2002 respectively. When we suggested to the
learned counsel that it would be fair if some more amount is offered,
the learned counsel for the aIJpellants agreed on behalf of his clients G
for payment of Rs.40 lakhs in lump sum within a period of six months
commencing from today. Having regard to the offer made in the
letter coupled with the oral representation made today and to mete
out justice to the parties, we direct that the undertaking to pay the
sum of Rs.40 lakhs within six months should form part of the decree H
366 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A in the suit. This shall be in addition to the sale price already deposited
in the Court. The same shall be deposited in the Court within a period
of six months and the plaintiffs are entitled to withdraw the same in
addition to the amount already deposited ..."'

In Manjunath Anandappa urf Shivappa Hanasi v. Tammanasa & Ors.,
B [2003] 10 sec 390, was a member, a decree for specific performance was
declined as the plaintiff did not approach the court within a reasonable time.

In P.D'Souza v. Shondrilo Naidu, [2004] 6 SCC 649, this Court rejected
the contention that inadequacy of consideration may be ground for refusing
C relief of specific performance, which may cause hardship stating:

"It is not a case where the defendant did not foresee the hardship.
It is furthermore not a case that non-performance of the agreement
would not cause any hardship to the plaintiff. The defendant was the
landlord of the plaintiff. He had accepted part-payments from the
plaintiff from time to time without any demur whatsoever. He
D
redeemed the mortgage only upon receipt of requisite payment from
the plaintiff. Even in August, 1981 i.e. just two months prior to the
institution of suit, he had accepted Rs.20,000 from the plaintiff. It is,
therefore, too late for the appellant now to suggest that having regard
to the escalation in price, the respondent should be denied the benefit
E of the decree passed in his favour. Explanation I appended to Section
20 clearly stipulates that merely inadequacy of consideration, or the
mere fact that the contract is onerous to the defendant or improvident
in its nature would not constitute an unfair advantage within the
meaning of sub-section (2) of Section 20."
F The Court noticed that somewhat a different note was struck in Nirmala
Anand v. Advent Corpn. (P) Ltd & Ors., [2002] 5 SCC 481 and opined:

"The said decision cannot be said to constitute a binding precedent
to the effect that in all cases where there had been an escalation of
prices, the court should either refuse to pass a decree on specific
G performance of contract or direct the plaintiff to pay a higher sum.
No law in absolute terms to that effect has been laid down by this
Court nor is discernible from the aforementioned decision."

In Surinder Singh.v. Kapoor Singh (Dead) through LRs. & Ors., [2005]
H 5 SCC 142, it was emphasized that discretionary jurisdiction must be exercised
JAi NARAIN PARASRAMPURIA (DEAD)v. PUSHPA DEVI SARAF [S.B.SINHA, J.] 367
reasonably and having regard to the fact situation obtaining in each case. The A
present market value of the property is also a relevant fact. The prices must
have gone up manifold. It is situate in a metropolitan town. It has a great
potential value.

As noticed hereinbefore, the conduct ofboth the parties are blameworthy. B
The value of the property is now said to be a few crores. The appellants had
deposited a sum of Rs. I0 lakhs as far back as on 12.6.1984. The said amount
must be directed to be refunded to the appellants with interest @15% per
annum. Although we decline to grant any relief of specific performance of
contract to which the Appellants were otherwise entitled to, we are of the
opinion that it is a fit case where the respondents should be asked to C
compensate the Appellants. In view of the fact that the Sarafs are also
responsible for bringing out such a situation, we are of the opinion that
interest of justice would be met if the respondents are directed to pay a sum
of Rs.50,00,000/- to the Appellants herein by way of compensation. Such
amount should be in addition. to the sum of Rs. I0,00,000/- deposited by the D
Appellants together with interest at the rate of 12% per annum thereupon.
This order shall not preclude Manoj Kumar Poddar to bring an independent
action against the respondents herein,· if he so desires.

Conclusion:

(i)
E
The property in suit for all intent and purport was acquired for
the benefit of the Company.
(ii) Only because at the time of acquisition of the property by Sarafs,
the Company was unincorporated, the same would not mean that
no title could have been passed in favour of the Company. F
(iii) In view of their conduct, Sarafs were estopped and precluded
from denying and disputing the title of the Company over the
property in dispute.
(iv) Withdrawal of suit No. 1252 of 1982 by the appellants did not
create any embargo in raising a contention that the award of the G
arbitrator and the consequent decree passed were void ab initio
and of no effect.
~
(v) The agreement for sale dated 11.6.1984 was not a transaction for
loan.
H
368 SUPREME COURT REPORTS [2006) SUPP. 5 S.C.R.

A (vi) Sarafs conduct was condemnable so far as tpey not only raised
false and frivolous pleas but also initiated frivolous proceedings
in courts of law.
(vii) The subject matter of the agreement was not only the house in
question but also the entire lands.
B (viii)Primafacie the demolition of the house took place at the instance
of the appellants.
(ix) However, it is not a case where the appellants are entitled to a
decree for specific performance of contract.
C (x) The respondents should refund the amount of advance of
Rs.10,00,000/- (ten lakhs) with interest at the rate of 12% per
annum and furthermore pay compensation to the extent of
Rs.50,00,000/- (fifty lakhs).

The appeals are allowed to the aforementioned extent. However, in the
facts and circumstances of these cases, the parties shall bear and pay their
own costs.

K.K.T. Appeals allowed.