Holding

The agreement of sale is a valid, enforceable pre‑emptive covenant and is not void for fraud or for contravention of the rule against perpetuity.

Summary

The deceased respondent and Smt. Reshambai jointly purchased 9 acres of land. Reshambai executed an agreement of sale in favour of the appellant, promising to convey her share to the respondent, but later refused to execute the deed, alleging fraud and that the agreement was void under the rule against perpetuity. The respondent filed a suit for specific performance. The trial and appellate courts held the agreement valid; the Supreme Court affirmed that the agreement was a legitimate pre‑emptive covenant, not a prohibition on alienation, and that the rule against perpetuity does not apply because no interest in land was created. Consequently, the covenant binds both Reshambai and the subsequent purchaser, and the appeal was dismissed.

Issues considered

Whether the agreement of sale was obtained by fraud and therefore void.
Whether the agreement imposes a perpetual restriction on alienation, violating the rule against perpetuity.
Whether a pre‑emptive covenant in a sale agreement is enforceable against a subsequent purchaser with notice.

Legislation cited

Specific Relief Act, 1963
Transfer of Property Act, 1882s. 14, s. 40, s. 54

Subjects

specific performanceagreement of salepre‑emptive rightrule against perpetuityTransfer of Property Actjoint ownershipfraudenforceabilitysubsequent purchaser

Judgment

\_
A SHRI SHIVJI
v.
SHRI RAGHUNATH (DEAD) AND ORS.

FEBRUARY 20, 1997 -
B (K. RAMASWAMY ANDS. SAGHIR AHMAD, JJ.]

Specific Relief Act, 1963 :

Suit for specific performance of contract-Joint purchasers of
C land-Agreement of sale executed by of them of the defendant, that she would
convey her share in the property, to the other plaintiff-respondent--Oefendant
attempting to ~ell the land to third party and refusing to execute the sale deed
in terms of the agreement of sale-Suit for specific performance by respon-
dent-Defendant's plea that the agreement of sale was executed by playing
-
fraud on her and that the document was void by operation of rule against
D perpetuity, rejected by trial court and the appellate courts-Held, in view of
concuJTent finding offact recorded by the courts below that the agreement of
sale was a valid deed, it is not a prohibition on her right to alienate the
property to anybody except the respondent-It is a fetter on her right to deal
-
with her share in the property and a liability burdened with the land-When
E the appellant purchased the property, being a subsequent purchaser, he pur-
chased it with notice of the said agreement for sale, so he could not get any
valid title; and the agreement is valid and binds the appellant and the
defendant.

F
Transfer of Property Act, 1882 : --
Ss. 14, 40 and 54-Rule against perpetui(JAgreement of sale-Held,
where a contract has been executed in which no interest in presaenti has been
created, the rule of pe1petuity has no application-The agreement is in the
nature of a pre-emptive right created in favour of the co-owne~It is enforce-
G able as and when an attempt is made by the co-owner to alienate the land to _,
third parties.

Rambaran v. Ram Mohit, [1967] 1SCR293, relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 539 of
H 1986.
314
SHNJI v. RAGHUNATH 315

From the Judgment and Order dated 28.8.85 of the Madhya Pradesh A

-
High Court in S.A. No. 323 of 1974.

Y.P. Rao for the Appellant.

Vivek Gambhir for the Respondents.
B
The following Order of the Court was delivered :

Substitution allowed. This appeal by special leave arises from the
judgment of the single Judge of the High Court of M.P. passed on August
28, 1985 dismissing the second appeal.
c
The appellant is a subsequent purchaser from Smt. Reshambai, wife
of Ramaji Gujar. The admitted facts are that the deceased respondent and
Reshambai had purchased jointly, an extent of 9 acres 2 decimals of land
under sale deed dated August 26, 1966. There was a contemporaneous
agreement of sale executed by Reshambai in favour of the appellant D
agreeing to convey her share in the property under the sale deed in terms
of the agreement to the respondent. Pursuant to the sale, it is not in
dispute, there was an oral arrangement under which the parties came to
be in respective possession of the land comprised in the sale deed. When
Reshambai attempted to sell the land to the appellant, notice was issued E
by the respondent on January 20, 1969 calling upon her to execute the sale
deed in terms of the agreement of sale. In her reply dated January 24, 1969,
she denied having agreed to sell the land to him and refused to execute
the sale. Reshambai also denied her liability to execute the sale deed. As
a consequence, the respondent had filed the suit for specific performance.
The defence taken in the,suit was that the agreement of sale was a F
fraudulent document brought into existence to defeat her right and that
she was not liable to execute the sale deed. The other defence taken was
that the document was void by operation of rule against perpetuity. Further

- contention raised was that since the agreement put an embargo on her right
to alienate the property, it was void. All the courts below have negatived G
her right and decreed the suit. .Thus this appeal by special leave .

.The question is : whether the document, viz., agreement'to sell was
executed by playing fraud on her? Finding of fact recorded by all the courts
is in the affirmative. Therefore, it need not be considered by this Court.
Further the defence that the suit also puts perpetual restriction on her right H
316 SUPREME COURT REPORTS [1997] 2 S.C.R.

A of alienation and is, therefore, void, also has no force for the reason that
one~ reshambai was found to have executed the agreement for saleand the
same was found to be a valid deed, the covenant became a 'contract
between the parties. As a consequence, it is not a prohibition on her right
to alienate the property to anybody except the respondent. On the other
B hand, it is a fetter on her right to deal with her share in the property and
a liability burdened with the land. When the respondent purchased the
property, being a subsequent purchaser, he purchased it with notice of the
said agreement for sale. So he could not get any valid title unless it is
proved that the agreement was unenforceable. So the agreement is valid
and binds the appellant and Reshambai.
c
The only other question is : whether it is violative of rule against
perpetuity. This controversy is no longer res integra. This Court is Ram-
baran v. Ram Mohit, reported in [1967] 1 SCR 293 has considered the effect
of Sections 14, 40 and 54 of the Transfer of Property Act and held thus :
D
"Readings. 14 along withs. 54 of the Transfer of Property Act its
manifest that a mere contract for sale of immovable property does
not create any interest in the immovable property and it therefore
follows that the rule of perpetuity cannot be applied to a covenant
of pre-emption even though there is no time limit within which the
E option has to be exercised. It is true that the second paragraph of
s. 40 of the Transfer of Property Act make a substantial departure
from the English law, for an obligation under a contract which
creates no interest in land but which concerns land is made
. enforceable against an assignee of the land who takes from the
F promisor either gratuitously or takes for value but with notice. A
contract of this nature does not stand on the same footing as a
mere personal contract, for it can be enforced against an assignee
.with notice. There is a superficial kind of resemblance between
the personal obligation created by the contract of sale described
under s. 40 of the Act which arises out of the contract, and annexed
G to the ownership of immovable property, but not amounting to an
interest therein or easement thereon and the equitable interest of
. the person purchasing under the English Law, in that both these
.rights are liable to be defeated by a purchaser for value without
notice. But the analogy cannot be carried further and the rule
H against perpetuity which applies to equitable estates in English
SHIVJI v. RAGHUNATI:l 317

law cannot be applied to a covenant of pre-emption because s. 40 A
of the statute does not make the covenant enforceable against the
assignee on the footing that it creates an interest in the land.

We are accordingly of the opinion that the covenant for pre-
emption in this case does not offend the rule against perpetuities
and cannot be considered to be void in law." B
In the light of the above law, when a contract has been executed in
which no interest in presaenti has been created, the rule of perpetuity has
no application. As a result, the agreement is in the nature of a pre-emptive
right c~eated in favour of the co-owner. Therefore, it is enforceable as and
when an attempt is made by the co-owner to alienate the land to third C
parties. Therefore, rule against perpetuity has no application to the facts
in this case.

. The appeal is accordingly dismissed. But m the circumstances
without costs.
D
R.P. Appeal dismissed.