Holding

The agreement is a valid contract for sale, not a loan, and specific performance under Section 20 of the Specific Relief Act is warranted.

Summary

The appellant, a landlord, had taken loans from the respondent, a tenant, and later entered into a written agreement described as a sale of the same property for Rs.45,000, with Rs.15,000 paid as advance. The respondent sued for specific performance under Section 20 of the Specific Relief Act, 1963, after the appellant refused to execute the sale deed upon receipt of the balance. The trial court and High Court held the document to be a sale agreement and decreed specific performance; the appellant appealed, contending the document was a loan agreement and that the court should not exercise its discretionary jurisdiction. The Supreme Court examined the entire document, the parties' intent, and the presence of a default clause, concluding that the agreement was unequivocally a contract for sale, not a loan. It rejected the appellant's arguments, affirmed the lower courts' findings, and dismissed the appeal, noting that a rise in property price does not preclude enforcement of a valid sale agreement.

Issues considered

Whether the instrument in question is an agreement for sale or a loan agreement.
Whether specific performance under Section 20 of the Specific Relief Act, 1963, is appropriate in the present facts.
Whether the default clause in the agreement indicates a loan nature rather than a sale.
Whether the increase in property value bars the court's discretionary jurisdiction to grant specific performance.
Whether the appellant's prior agreements affect the enforceability of the present agreement.

Legislation cited

Specific Relief Act, 1963s. 20, s. 23

Subjects

specific performanceagreement for saleloan agreementlandlord-tenantcontract interpretationSection 20 Specific Relief Actdefault clause

Judgment

A P.S. RANAKRJSHNA REDDY
v.
M.K. BHAGY ALAKSHMI AND ANR.

FEBRUARY 20, 2007

B [S.B. SINHA AND MARKANDEY KA TJU, JJ.]

' I

Specific Relief Act, 1963-Section 20-Specific performance-Landord
'y-
took loan from tenant, Thereafter parties entering into sale agreement and_
·~
loan amount taken as advance amount-Suit for specific prformance of sale
c agreement-Document to be construed as agreement for sale or agreement
for loan-Held: From the agreement it cannot be gathered that the agreement
for sale was not meant to be acted upon-In case of any breach by the buyer-
tenant, seller-landlord could forfeit advance amount-As such parties intended
to lay down their rights and obligations under the contract explicitly-Thus
D agre~ment was an agreement for sale-Deeds and documents-Interpretation
of i--
-.· r-
Appellant owned a residential house. Respondent was in possession of
the property as tenant. Appellant took loan from respondent no. 1 from time '
to time. Thereafter, appellant and respondent entered into a sale agreement.
E Sum paid as loan was treated as advance amount out of total consideration
I-
amount. Respondent paid further sum and issued notice to the appellant
alleging that he was trying to sell the property to the third party. He then
called upon the appellant to execute sale deed on reciept of the balance amount.
Since the appellant did not agree, respondent filed suit for specific
F performance of sale agreement Trial Court decreed the suit. Appellant filed
.>-
first appeal. High Court dismissed the same. Hence the present appeal.

Appellant contended that the trial court as also High Court erred in
construing the documents as an agreement for sale instead and place of an
agreement for loan; that the purported agreement for sale was not meant to
G l>e acted upon; that in view of the default clauses contained in the agreement,
the same could not have been construed to be an agreement for sale; and th.at
it is not a fit case where the Courts below should have exercised their 1-,..._
discretionery jurisdiction under s. 20 of the Specific Relief Act, 1963.

H 876
--y

P.S. RANAKRISHNA REDDY v. M.K. BHAGYALAKSHMI 877
Dismissing the appeal, the Court A
._;
-t-
HELD: Original relationship of the parties as landlord and tenant is
not in dispute and also the fact that the appellant intended to convey his right,
title and interest in respect of the said property. Appellant entered into more
than one agreement in respect of the self-same property and took advances in
respect thereof from more tJ!an one person. [Para 10) [881-C-DJ B

1.2. The agreement in question had been described as an agreement for
sale. Appellant admittedly was owner of the property. The agreement shows
-~
that there had been negotiations between the parties as a result where of the
respondent had offered to buy and the appellant had agreed to sell the said
property for a sum of Rs. 45,000/- The terms and conditions stipulated therein
c
were arrived at as a result of the negotiations between the parties. [Para 11 I

1.3. No Part of the agreement supports the submission of the appellant
that the same was not meant to be acted upon. It was signed by the parties.
Two witnesses who had attested the signature of the parties to the agreement D
were examined before the Trial Court It may be that despite the said agreement,
Respondent No. 1 was allowed to continue to remain in possession of the
r premises in question as a tenant and not in part performance of the said
.> agreement for sale, but it was not necessary for the parties to adopt the latter
course only. [Para 12) [881-E-F)
E
1.4. A document, as is well Known, must be read in its entirety. The
intention of the parties must be gathered from the document itself. All parts
of the deed must be read in their entirety so as to ascertain the nature thereof.
.The parties, on a plain reading of the agreement, apparently intended to
continue their relationship as landlord and tenant till a regular deed of sale F
was executed. [Paras 12 and 13) [881-G-H]

1.5. In the event of commission of any breach on the part of respondent,
the appellant was entitled to forfeit the entire amount. The very fact that the
parties intentionally incorporated such default clause deary goes to show that
they intended to lay down their rights and obligations under the contract G
explicity. Therefore, they knew the terms thereof. They understood the same.
There is no uncertainty or vagueness therein. [Para 14j [882-C..J>)

1.6. The agreement has been held to have been executed by the parties
in support whereof large number of witnesses had been examined. The High H
PS. RANAKRISHNA REDDY v. M.K. BHAGYALAKSHMI [S.B. SINHA, l.] 879
10.5.79 Rs. 2900 A
11.5.79 Rs. 100"

2. Admittedly, the parties entered into an agreement for sale on 11.05.1979.
The aforementioned sum of Rs. 15,000/- received by the appellant was treated
to be the amount of advance paid out of the amount of consideration fixed B
in the said agreement of sale i.e Rs. 45,000/-. The relevant terms of the said
agreement are as under :

"Whereas the first party is the absolute owner of house bearing
No. 148, 8th cross N.R. colony, Bangalore-19 more fully described in
the schedule hereunder, having acquired the same under registered C
gift deed, executed by Mrs. 8.N. Vijaya Deva.

Whereas the second party has offered to buy and the first party
has agreed to sell to the second party the schedule property for a sum
of Rs. 45,000/- (Rupees fourty five thousand only.)
D
The first party hereby agreed to sell the schedule property to the
second party on the following terms and conditions.

(a) A sum of Rs. 15,000/- (Rupees fifteen thousand only) has been
paid this day by the second party to the first party which he hereby
acknowledges out of the said price of Rupees Forty Five thousand. E

(b) A further sum of Rs. 5,000/- (Rupees five thousand only) in
respect of the balance of the price shall be paid by the second party
to the first party within one year from this date, i.e., 11-5-79.

(c) The remaining balance of the consideration for the sale, i.e., Rs. F
25,000/- (Rupees twenty five thousand only) shall be paid by the
second party to the first party within five years from this date.

On payment of the full consideration of Rs. 45,000/- to the first
party by the second party in the manner aforesaid the first party shall
execute a registered deed of sale in favour of the second party G
conveying the schedule property to the second party. The expenses
for conveyance for stamp and registration shall be borne by the
second party only but the first party shall apply to the competent
authorities for permission to sell the property to the second party and
take other steps necessary for the purpose.
H
880 SUPREME COURT REPORTS [2007] 2 S.C.R.

A xxx xxx xxx

, The first party shall notify the tenants in the property of the fact
of sale at the time the sale deed is executed in the manner mentioned
above and call upon them to vacate the property and render all
assistance and help to the second party to obtain in vacant possession
B of the schedule property.

In case the first party shall commit breach of the agreement, he
shall, besides refunding the sum he has received under this agreement,
to the second party, shall in addition pay a sum of rupees ten thousand
as damages. In case the second party commits breach of this agreement
C she shall forfeit a sum of Rs. ten thousand out of the amounts paid."

3. Although a period of five years was fixed for execution of the sale
deed on payment of the balance sum, admittedly, the appellant herein has
received it further sum of Rs. 5,0001- from Respondent No. I.
D
4: It is furthermore not in dispute that the respondents served a notice
upon the appellant on or before 29 .5 .I 98 I alleging that he had been making
attempts to sell the property to third parties.

5. Appellant was called upon to execute a registered deed of sale on
E receipt of the balance amount and as he did not agree thereto, the respondent
No. 1 filed a suit for specific performance of the said agreement of sale dated
11.05.1979.

'6. The said suit was decreed by the learned Trial Judge by a judgment
F and decree dated 05.04.1989. A first appeal preferred thereagainst by the )--
appellant has been dismissed by the High Court by reason of the impugned
judgment.

7. Mr. G.V. Chandrashekhar, learned counsel appearing on behalf of the
appellant, submitted that the learned Trial Judge as also the High Court
G committed a serious error in construing the said document as an agreement
for sale in stead and place of an agreement for loan. It was urged that having
regard to the fact that diverse amounts had been taken by the appellant from
the respondents as also the fact that similar agreements for sale were entered
into by and between the appellant and other persons categorically demonstrate
that he had merely borrowed some amount and the purported agreement for
H sale was not meant to be acted upon. The learned counsel urged that in view
P.S. RANAKRISHNA REDDY v: MK BHAGYALAKSHMI [S.B SINHA, J] 881
_,. of the default clauses contained in the agreement, the same could not have A
i-
been construed to be an agreement for sale. Strong reliance in this behalf has
been placed on Dadarao and Anr. v. Ramrao and Ors., [1999] 8 SCC 416.

8. In any event, it was urged that it is not a fit case where the Courts
below should have exercised their discretionary jurisdiction under Section 20
of the Specific Relief Act, 1963. B

9. Mr. S.N. Bhat, learned counsel appearing on behalf of the respondents,
on the other hand, supported the judgment.

10. Original relationship of the parties as landlord and tenant is not in
dispute. The fact that the appellant intended to convey his right, title and c
interest in respect of the said property is also hot in dispute. As noticed
hereinbefore, he entered into more than one agreement in respect of the self-
same property and took advances in respect thereof from more than one
person.

11. The agreement in question has been described as an agreement for
D
..,. sale. Appellant admittedly was owner of the property. The agreement shows
that there had been negotiations between the parties as a result whereof the
·-' respondent herein had offered to buy and the appellant had agreed to sell the
said property for a sum of Rs. 45,000/-. The terms and conditions stipulated
therein were arrived at as a result of the negotiations between the parties. E
12. No part of the agreement supports the contention of Mr.
Chandrashekhar that the same was not meant to be acted upon. It was signed
by the parties. Two witnesses who had attested the signature of the parties
-(_
to the agreement were examined before the Trial Court. It may be that despite
the said agreement, Respondent No. I was allowed to continue to remain in F
possession of the premises in question as a tenant and not in part performance
of the said agreement for sale, but it was not necessary for the parties to
adopt the latter course only. The parties, on a plain reading of the agreement,
apparently intended to continue their relationship as landlord and tenant till
a regular deed of sale was executed.
G
----;4
13. A document, as is well known, must be read in its entirety. The
intention of the parties, it is equally well settled, must be gathered from the
document itself. All parts of the deed must be read in their entirety so as to
ascertain the nature thereof.
H
&82 SUPREME COURT REPORTS [2007] 2 S.C.R.

A 14. The purported default clause, to which our attention has been drawn
by Mr. Chandrashekhar, does not lead to the conclusion that the same was
a contract of loan. By reason thereof, the respective liabilities of the parties
were fixed. Jn the event, the provisions of the said contract were breached,
the damage which might have been suffered by one party by reason of act
B of omission or commission on the part of the other in the matter of performance
of the terms and conditions thereof had been quantified. The quantum of
damages fixed therein was the same for both the parties. The submission of
Mr. Chandrashekhar that in view of the fact that parties had agreed that in
the event of breach on the part of the appellant, the respondent would be
entitled to claim damages for a sum of Rs. 10,000/- only and, thus, the said
C agreement for sale was not meant to be acted upon cannot be accepted. If
the said contention is accepted, the damages quantified in the event of any
breach on the part of Respondent No. 1 cannot be explained. It is clear that
in the event of commission of any breach on the part of respondent, the
appellant was entitled to forfeit the entire amount of advance. The very fact
that the parties intentionally incorporated such default clause clearly goes to
D show that they intended to lay down their rights and obligations under the
contract explicitly. They, therefore, knew the terms thereof. They understood
the same. There is no uncertainty or vagueness therein.
"-
15. The decision of this Court in Dadarao (supra), whereupon reliance
E has been placed by Mr. Chandrashekhar is wholly misplaced. The term of the
agreement therein was absolutely different. We need not dilate on the said
decision in view of the fact that in a subsequent decision of this Court in P.D'
Souza v. Shondrilo Naidu, [2004] 6 SCC 649, it has been held to have been
rendered per incuriam, stating:
)--
F "34. In Dadarao whereupon Mr Bhat placed strong reliance, the binding
decision of M.L. Devender Singh4 was not noticed. This Court
furthennore failed to notice and consider the provisions of Section 23
of the Specific Relief Act, 1963. The said decision, thus, was rendered
per incuriam.

G 35. Furthermore, the relevant term stipulated in Dadarao was as under:
(SCC p. 417, para2)

Tukaram Devsarkar, aged about 65, agriculturist, r/o Devsar, purchaser
(ghenar) Balwantrao Ganpatrao Pande, aged 76 years, r/o Dijadi, Post
Devsar, vendor (denar), who hereby give in writing that a paddy field
H situated at Dighadi Mouja, Survey No. 7/2 admeasuring 3 acres
• P.S RANAKRISHNA REDDY"· M.K. BHAGYALAKSHMI [S.B. SINHA, J.] 883
+- belonging to me hereby agree to sell to you for Rs 2000 and agree to A

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receive Rs 1000 from you in presence ofV.D.N. Sane. A sale deed shall
be made by me at my cost by 15-4-1972. In case the sale deed is not
made to you or if you refuse to accept, in addition of earnest money
an amount of Rs. 500 shall be given or taken and no sale deed will
be executed. The possession of the property has been agreed to be
delivered at the time of ;mrchase. This agreement is binding on the
B
legal heirs and successors and assigns.( emphasis supplied)
--{ Interpreting the said term, it was held: (SCC p. 418, paras 6-7)

.. 6. The relationship between the parties has to be regulated by the
tenns of the agreement between them. Whereas the defendants in the c
suit had taken up the stand that the agreement dated 24-4-1969 was
really in the nature of a loan transaction, it is the plaintiff who
contended that it was an agreement to sell. As we read the agreement,
it contemplates th.at on or before 15-4-1972 the sale deed would be
executed. But what is important is that the agreement itself provides
D
.... as to what i~ to happen if either the seller refuses to sell or the
purchaser refuses to buy. In that event the agreement provides that
) in addition to the earnest money of Rs 1000 a sum of Rs 500 was to
be given back to Tukaram Devsarkar and that no sale deed will be
executed. The agreement is very categorical in envisaging that a sale
deed is to be executed only if both the parties agree to do so and in E
the event of any one of them resiting from the same there was to be
no question of the other party being compelled to go ahead with the
execution of the sale deed. In the event of the sale deed not being
executed, Rs 500 in addition to the return of Rs 1000, was the only
sum payable. This sum of Rs 500 perhaps represented the amount of
--I
quantified damages or, as the defendants would have it, interest
F
payable on Rs 1000.

7. If the agreement had not stipulated as to what is to happen in the
event of the sale not going through, then perhaps the plaintiff could
have asked the Court for a decree of specific performance but here the
G
parties to the agreement had agreed that even if the seller did not

--- want to execute the sale deed he would only be required to refund the
amount of Rs 1000 plus pay Rs 500 in addition thereto. There was thus
no obligation on Balwantrao to complete the sale transaction.

36. Apart from the fact that the agreement of sale did not contain a
H
884 SUPREME COURT REPORTS [2007] 2 S.C.R.
..
A similar clause, Dadarao does not create a binding precedent having ·-+
not noticed the statutory provisions as also an earlier binding

B
precedent."

16. We may furthermore notice that recently in Jai Narain Parasrampuria
(Dead) and Ors. v. Pushpa Devi Saraf and Ors., [2006] 7 SCC 756, this Court
categorically opined that a stipulation in regard to payment of damages by
-
one party of the contract to the other does not establish that the same was
not an agreement for sale stating:
r
"59. One of the learned Judges of the High Court also held that the
said agreement dated 12-6-1984 was in fact an agreement for obtaining
c 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
D found or any other encumbrance or legal hurdle is found in
respect of the said house property then in both the circumstances i
the second party shall have option for the refund of advance
money of Rs. I0 lakhs together with interest @ 18% per annum." '
60. It is interesting to note that the sale deed dated 24-2-1979
E whereby Sarafs purchased the property also contains 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
the vendor's title, if any. The agreement records the valuation of
property at Rs. 11 lakhs. The respondents relying on or on the basis
)-
F of another purported agreement dated 4-6-1984 executed by Sarafs in
favour of their son-in-law, Original Defendant 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 sham
one. Original Defendant 5 did not file any suit for specific performance
of contract. The said agreement for sale had not been acted upon by
G the parties. Reliance placed on the said agreement by a learned Judge
of the High Court was, therefore, unwarranted."
.....
17. The contention of the appellant has been rejected both by the
learned Trial Judge as also by the High Court upon assigning sufficient and
cogent reasons. The agreement has been held to have been executed by the
H
P.S. RANAKRISHNA REDDY 1•. M.K. BHAGYALAKSHMI [S.B. SINHA, J.l 885
parties in support whereof large number of witnesses had been examined. The A
High Court, in particular in its judgment, has categorically opined that when
the respondents served a notice upon the appellant on 29.05.1981, it was
expected of the appellant to raise a contention that the said agreement was
a sham one or nominal one and was not meant to be acted upon but it was
not done. Failure on the part of the appellant to do so would give rise to an B
inference that the plea raised in the suit was an afterthought.

l 8. The findings of facts by both the Courts are concurrent ones and
in our opinion no case has been made out to interfere therewith by this Court.

19. Submission of Mr. Chandrashekhar to the effect that having regard
to the rise in price of an immovable property in Bangalore, the Court ought C
not to have exercised its discretionary jurisdiction under Section 20 of the
Specific Relief Act is stated to be rejected. We have noticed hereinbefore that
the appellant had entered into an agreement for sale with others also. He had,
even after 11.5.1979, received a sum of Rs. 5,000/- from the respondent. He ·
with a view to defeat the lawful claim of Respondent No. I had raised a plea D
of having executed a prior agreement for sale in respect of self-same property
in favour of his son-in-law who had never claimed any right thereunder or
filed a suit for specific performance of contract. The Courts below have
categorically arrived at a finding that the said contention of the appellant was
not acceptable. Rise in the price of an immovable property by itself is not a
ground for refusal to enforce a lawful agreement of sale. [See P.D' Souza E
(supra) and Jai Narain Parasrampuria (supra)]

20. For the reasons aforementioned, there is no merit in this appeal
which is dismissed accordingly. In the facts and circumstances of this case,
however, there shall be no order as to costs.
F
N.J. Appeal dismissed.