LAws Sale Aggrement

7/27/2019 LAws Sale Aggrement

1/45

PROJECT FOR LAWS SUBJECT

TOPIC:

Distinguish between Sale and agreement to sale under sales ofgoods Act with special reference to landmark case laws

SUBMITTED BY:

RAJNEESH

SOUMYA

ROHAN

SHEFALISIDDHARTH

RITIKA


2/45

A "sale" is (colloquially) a completed transaction where the only remaining duties of the

buyer may be timely rejection after inspection, and the only remaining duty of seller is to

honor any express or implied warranty. This assumes the full price was paid during the

sale and the goods were delivered, otherwise, the sale is not technically complete.

An "agreement to sell" is a contract that envisions (or defines) a future sale, thus all

conditions precedent and other terms (delivery, payment, etc), continue to be

"executory", that is, are yet to be fully carried out. A breach of this contract could result

in a court order of specific performance, or for damages caused by the loss of the

opportunity to buy or sell.

CONTRACT OF SALE :-

It is defined in the following words, " A contract whereby the seller transfers or agrees to

transfer the property or the goods to the buyer for a price."

There are two parts of this definition :

1. An actual Sale :-

An actual sale property in goods transfers from sellers to buyers under the contract of

sale.


3/45

Example :- Suppose Miss. Rina enters into contract of sale of horse in the hand of Mr.

Guru against Rs. 30,000. Mr. Guru pays Rs. 30,000 to Miss. Rina and she delivers her

horse to Mr. Guru. It is a sale.

2. An Agreement to Sell :-The contract is called agreement to sell when transfer of property takes place at a future

time subject to some condition to be fulfilled.

Example :- Suppose Miss. Poonam agrees with Mr. Mirza to sell him her house against

Rs. 30 lac after the construction next year.

The following are the main points of distinction between a 'sale' and 'an agreement tosell':

1. Transfer of property (ownership):

In a 'sale', the property in goods passes to the buyer immediately at the time of making

the contract. In other words, a sale implies immediate conveyance of property so that

the seller ceases to be the owner of the goods and the buyer becomes the owner thereof.

It creates a jus in ram, i.e., gives right to the buyer to enjoy goods as against the whole

world.

In 'an agreement to sell', there is no transfer of property to the buyer at the time of thecontract. The conveyance of property takes place later so that the seller continues to be

the owner until the agreement to sell becomes a sale either by the expiry of certain time

or the fulfillment of some condition.

Thus where A agrees to buy 50 kg wheat from B and the wheat is yet to be weighed, the

transaction is an agreement to sell because as per Section 22, in such a case the property

does not pass to the buyer till the goods are weighed and the buyer has notice thereof.

The transaction becomes a sale and the property in the goods passes to the buyer after

the wheat is weighed and the buyer has notice thereof. An agreement to sell creates a

just in personam, that is, it gives a right to either buyer or seller against the other for anydefault in fulfilling his part of the agreement.

It is worth noting that this is the basic point of distinction between a 'sale' and 'an

agreement to sell.' All other points of distinction follow from this basic difference, i.e.,

whether the property in the goods has passed or is yet to pass from seller to buyer, on

the other hand, in case of an agreement to sale where the ownership in the goods is yet

to pass from seller to the buyer, such loss has to be borne by the seller.


4/45

3. Consequences of breach:

In case of sale, if the buyer wrongfully neglects or refuses to pay the price of the goods,

the seller can sue for the price, even though the goods are still in his possession. In case

of an agreement to sell, if the buyer fails to accept and pay for the goods, the seller can

only sue for damages and not for the price, even though the goods are in the possessionof buyer.

4. Right of resale:

In a sale, the property is with the buyer and as such, the seller (in possession of goods

after sale) cannot resell the goods. If he does so, the subsequent buyer having knowledge

of the previous sale does not acquire a title to the goods. The original buyer can sue and

recover the goods from the third person as owner, and can also sue the seller for the

breach of contract as well as for the tort of conversion. The right to recover the goods

from the third person is, however, lost if the subsequent buyer had bought them

bonafide without notice of the previous sale (Sec. 30).

In an agreement to sell, the property in the goods remains with the seller and as such, he

can dispose of the goods as he likes and the original buyer can sue him for the breach of

contract only. In this case, the subsequent buyer gets a good title to the goods,

irrespective of his knowledge of previous sale. Further, goods forming the subject matter

of an agreement to sell can also be attached in execution of a decree of a court of law

against the seller.

5. Insolvency of buyer before he pays for the goods:

In a sale, if the buyer is adjudged insolvent before he pays for the goods, the seller, in theabsence of a 'right of lien' over the goods, must deliver the goods to the Official Receiver

or Assignee. The seller is entitled only to a rateable dividend for the price of the goods.

But in an agreement to sell, in these circumstances, the seller may refuse to deliver the

goods to the Official Receiver or Assignee unless paid for, as ownership has not passed

to the buyer.

6. Insolvency of seller if the buyer has already paid the price:

In a sale, if the seller is adjudged insolvent, the buyer is entitled to recover the goods

from the Official Receiver or Assignee, as the property in the goods rests with the buyer.On the other hand, in an agreement to sell, if the buyer has already paid the price and

the seller is adjudged insolvent, the buyer can only claim a rateable dividend (as a

creditor) and not the goods, because property in them still rests with the seller.


5/45

1. DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL

2. Transfer of property (ownership): - In a 'sale' the property in goods passes to the

buyer immediately at the time of making the contract In 'an agreement to sell' there

is no transfer of property to the buyer at the time of the contract.

3. Risk of loss. The general rule is that unless otherwise agreed, the risk of loss

primarily passes with property (Sec. 26). Thus in case of sale, if the goods are

destroyed the loss falls on the buyer even though the goods may never have come

into his possession because the property in the goods has already passed to the

buyer. On the other hand, in case of an agreement to sell where the ownership in

the goods is yet to pass from the seller to the buyer, such loss has to be borne by the

seller even though the goods are in the possession of the buyer.

DIFFERENCE BETWEEN SALE AND AGREEMENT TO SELL :-

We can analyses the difference by the following facts :

1. Transfer of Goods :-

Sale : In case of sale property is transfers from seller to buyer.

Agreement to sell : In case of agreement only promise is made to transfer the goods.

2. Nature of Performance :-

Sale : A sale is a contract which is being performed.

Agreement to sell : An agreement to sell is a contract which is to be performed.


6/45

3. Rights of Buyer and Seller :-

Sale : Goods become the property of the buyer in case of sale.

Agreement to sell : Goods remain the property of the seller in case of agreement.

4. Insolvency of Buyer :-

Sale : In a sale case seller can use his right of lien or stoppage.

Agreement to sell : In case of agreement seller can refuse to deliver the goods if price

is not paid.

5. Buyer's Default :-

Sale : In case of sale, a seller can claim for the price of goods.

Agreement to sell : In case an agreement the seller can claim only for damages.

6. Seller's Insolvency :-

Sale : In case of sale a buyer has no risk.

Agreement to sell : In case of agreement a buyer can claim only dividend.

7. Seller's Default :-

Sale : In case of sale the buyer has a personal remedy.

Agreement to sell : In case of agreement the buyer can claim only for damages.


7/45

8. Responsibility of Loss :-

Sale : In case of sale the responsibility of loss by accident falls on the buyers.

Agreement to sell : In case an agreement to sell responsibility of loss falls on the

sellers.

Difference between Agreement to SELL and Agreement forSALEThere is a bit of bewilderment and confusion which takes a silent birth in ones mind,whenhe/she is asked to distinguish between Agreement to sell and Agreement for Sale.TheSALE OF GOODS ACT, 1930, groups both under a single generic nameof contractsof sale. However, taking in consideration the scheme followed in EnglishSale of GoodsAct, 1893, it is treated differently in Indian Jurisdictions.The fundamental point of

distinction between remains that of the transfer of the concernedgoods. In anAgreement for Sale (henceforth referred asSale), there is a transfer of property from the goods from seller to buyer, but there is none, incase of Agreement to Sell.Section 77 of the Contract Act defined sale as follows:Sale is the exchange of property for a price. It involves the transfer of the ownershipof thething sold from the seller to the buyer.In order to form Sale, as stated by Benjamin on Sale

1, following conditions must be satisfied:1) An agreement to sale by which alone the property does not pass;

2) An actual sale by which the property passes.By this, we may infer that, when compared, Sale is a more comprehensive and widerterm just because of thefact that it contains agreement to sell within itself.A sale, in an ordinary course, takes place, when by general and mutual agreement goodsaretransferred and respectively appropriated towards the contract2

. While on the other hand, anagreement to sell, is only a promise to sell, which of course,is enforceable by law3For a sale, to be established at a legal platform, there must be an agreement amidst thepartiesfor the sale of the goods in which eventually property passes4


8/45

.If an agreement contemplates that some particular goods or property would pass ona futuredate or on the happening of some eventuality, it would become sale when thatparticulareventuality occurs or whenever that future date comes, till then the sale is deemed asan

agreement to sell.

Satyabrata Ghose vs Mugneeram Bangur & Co., And ... on 16

November, 1953

Equivalent citations: 1954 AIR 44, 1954 SCR 310

Bench: Mukherjea, B.K.

PETITIONER:

SATYABRATA GHOSE

Vs.

RESPONDENT:

MUGNEERAM BANGUR & CO., AND ANOTHER

DATE OF JUDGMENT:

16/11/1953

BENCH:

MUKHERJEA, B.K.

BENCH:

MUKHERJEA, B.K.

BOSE, VIVIAN

BHAGWATI, NATWARLAL H.


9/45

CITATION:

1954 AIR 44 1954 SCR 310

CITATOR INFO :

R 1958 SC 328 (25)

RF 1959 SC 135 (20)

R 1965 SC1523 (1)

R 1968 SC1024 (8)

R 1971 SC1756 (11)

F 1977 SC1019 (1,11)

A 1980 SC1717 (26)

A 1980 SC1717 (26)

ACT:

Indian Contract Act (IX of 1872), s. 56- Agreement to sell land-Doctrine of frustration-

Applicability-Doctrine whether applicable in India- Scope of s. 56 Impossible meaning

of- Agreement for sale of land-Buyer's rights-English and Indian law.

HEADNOTE:

The doctrine of frustration is really an aspect or part of the law of discharge of contract

by reason of supervening impossibility or illegality of the act agreed to be done and

hence comes within the purview of S. 56 of the Indian Contract Act.. The view that s. 56applies only to cases of physical impossibility and that where this section is not

applicable recourse can be had to the principles of English law on the subject of

frustration is not correct. English cases can have only a persuasive value, and are only

helpful in showing how English courts decided cases under similar circumstances.


10/45

Section 56 of the Indian Contract Act lays down a rule of positive law and does not leave

the matter to be determined according to the intention of the parties.

According to the Indian Contract Act. a promise may be express or implied. In cases,

therefore, where the court gathers as a matter of construction that the contract itselfcontained impliedly or expressly a term, according to which it would stand discharged

on the happening of certain circumstances, the dissolution of the contract would take

place under the terms of the contract itself and such cases would be outside the purview

of S. 56 altogether. Although in English law these cases are treated as cases of

frustration, in India they would be dealt with under s. 32 of the Indian Contract Act

which deals with contingent contracts or similar other provisions contained in the Act.

In the large majority of cases however the doctrine of frustration. is applied not on the

ground that the parties themselves agreed to an implied term which operated to release

311

them from the performance of the contract. The relief is given by the court on the

ground of subsequent impossibility when it finds that the whole purpose or basis of a

contract was frustrated by the intrusion or occurrence of an unexpected event or change

of circumstances which was beyond what was contemplated by the parties at the time

when they entered into the agreement. Here there is no question of finding out an

implied term agreed to by the parties embodying a provision for discharge, because theparties did not think about the matter at all nor could possibly have any intention

regarding it. When' such an event or change of circumstance occurs which is so,

fundamental as to be regarded by law as striking at the root of the contract as a whole, it

is the court which can pronounce the contract to be frustrated and at an end. The court

undoubtedly has to examine the contract and the circumstances under which it was

made. The belief, knowledge and intention of the parties are evidence, but evidence only

on which the court has to form its own conclusion whether the changed circumstances

destroyed altogether the basis of the adventure and its underlying object. This may be

called a rule of construction by English Judges but it is certainly not a principle of giving

effect to the intention of the parties which underlies all rules of construction. This is

really a rule of positive law and as such comes within the purview of s. 56 of the Indian

Contract Act.


11/45

The reason underlying the rule of English law that the doctrine of frustration does not

apply to contracts for the sale of land. is that under the English law, ,is soon as the

agreement to sell is complete the buyer becomes the owner of the land in equity. As a

mere agreement to sell does not confer any rights of ownership on the buyer under the

Indian law, the doctrine of frustration is as applicable in India to agreements for sale of

land as in the case of other agreements.

In 1940 as an integral part of a development scheme of an extensive area of land- started

by the defendant company, it entered into a contract with the plaintiff's predecessor for

the sale of a Plot of land to the latter accepting a small sum of money as earnest. It

undertook to construct roads and drains and the conveyance was to be completed soon

after the completion of tile roads on payment of the balance of the Price. As a

considerable portion of the area comporised in the scheme was requisitioned by the

Government for military Purposes in 1941, the company wrote to the defendant that the

road construction could not be taken up for an indefinite period and required him to

treat the agreement as cancelled and receive back his earnest: Held. that having regard

to the nature and terms of the contracts the actual existence of war condition at the time

when it was entered into the extent of the work involved in the scheme fixing no time

limit in the agreement for the construction of the roads etc., and the fact that the order

of requisition was in its very nature of a temporary character, the requisition did not

affect the fundamental basis of the contract; nor

312

did the performance of the contract become illegal by reason of the requisition, and the

contract had not therefore become impossible within the meaning of s. 56 of the Indian

Contract Act.

Joseph Constantine Steamship Co. v. Imperial Smelting Cor- poration Ltd. ([1942] A.C.

154), Tamplin Steamship Co. Ltd. v. Anglo American Products Co. Ltd. ([1916] A.C.

397), Kesari Chand v. Governor General in Council (I.L.R. 1949 Nag. 718),Ganga Saran

v. Ram Charan([1952] S.C.R. 36), Taylor v. Caldwell (3 B. and S. 826), Robinson v.

Davison (L.R. 6 Ex. 269) Denny Mott and Dickson Ltd. v. James B. Frazer & Co. Ltd.

[1944] A.C. 265) referred to.

JUDGMENT:
http://indiankanoon.org/doc/191576/http://indiankanoon.org/doc/191576/http://indiankanoon.org/doc/191576/http://indiankanoon.org/doc/191576/http://indiankanoon.org/doc/191576/http://indiankanoon.org/doc/191576/


12/45

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 80 of 1952. Appeal from the

Judgment and Decree dated the 6th September, 1950, of the High Court of Judicature at

Calcutta (Das Gupta and Lahiri JJ.) in Appellate Decree No. 318 of 1949 from the

Judgment and Decree dated the 25th February, 1949. of the Court of the District Judge

of Zillah 24 Parganas in Title Appeal No. 8 of 1948 arising out of the Judgment and

Decree dated the 10th October, 1947, of the Court of the Additional Subordinate Judge,

7th Court, Alipore.

M.C. Setalvad, Attorney-General for India (Aurobindo Guha and Gobinda Mohan Roy,

with him) for the appellant. Atul Chandra Gupta (Bijan Behari Das Gupta, with him) for

respondent No. 1

1953. November 16. The Judgment of the Court was delivered by

MUKHERJEA J.The facts giving rise to this appeal are, for the most part,

uncontroverted and the dispute between the parties centres round the short point as to

whether a contract for sale of land to which this litigation relates, was discharged and

came to an end by reason of certain supervening circumstances which affected the

performance of a material part of it.

To appreciate the merits of controversy, it will be necessary to give a brief narrative of

the material facts. The defendant company, which is the main respondent in this appeal,

is the owner of a large tract of land situated, in the vicinity of the Dhakuria Lakes within

Greater Calcutta. The

313

company started a scheme for development of this land for residential purposes which

was described as Lake Colony Scheme No. I and in furtherance of the scheme the entire

area was divided into a large number of plots for the sale of which offers were invited

from intending purchasers. The company's plan of work seemed to be, to enter intoagree- ments with different purchasers for sale of these plots of land and accept from

them only a small portion of the consideration money by way of earnest at the time of

the agreement. The company undertook to construct the roads and, drains necessary

for making the lands suitable for building and residential purposes and as soon as they

were completed. the purchaser would be called upon to complete the conveyance by


13/45

payment of the balance of the consideration money. Bejoy Krishna Roy, who was

defendant No. 2 in the suit and figures as a pro forma respondent in this appeal, was one

of such purchasers who entered into a contract with the company for purchase of a plot

of land covered by the scheme. His contract is dated the 5th of August, 1940, and he

paid Rs. 101 as earnest money. In the receipt granted by the vendor for this earnest

money, the terms of the agreement are thus set out:--

"Received with thanks from Babu Bejoy Krishna Roy of 28 Tollygunge Circular Road,

Tollygunge, the sum of Rs. 101 (Rupees one hundred and one only) as earnest money

having agreed to sell to him or his nominee 5 K. more or less in plot No. 76 on 20 and 30

ft. Road in Premises No. Lake Colony Scheme No. 1, Southern Block at the average rate

of Rs. 1,000 (Rupees one thousand only) per Cotta. The conveyance must be completed

within one month from the date of completion of roads on payment of the balance of the

consideration money, time being deemed as the Essence of the Contract. In case of

default this agreement will be considered as cancelled with forfeiture of earnest money.

Mokarari Mourashi

314

Terms of payment:One third to be paid at the time of registration and the balance within

six years bearing Rs. 6 per cent. interest per annum".

On 30th November, 1941, the plaintiff appellant was made a nominee by the purchaser

for purposes of the contract and although he brought the present suit in the character of

a nominee, it has been held by the trial judge as well as by the lower appellate court, that

he was really an assignee of Bejoy Krishna Roy in respect to the latter's rights under the

contract. Some time before this date, there was an order passed by the Collector, 24-

Parganas, on 12th of November, 1941 under section 79 of the Defence of India Rules, on

the strength of which a portion of the land covered by the scheme was requisitioned for

military purposes. Another part of the land was requisitioned by the Government on

20th of December, 1941. while a third order of requisition, which related to the balance

of the land comprised in the scheme, was passed sometime later. In November, 1943,

the company addressed a letter to Bejoy Krishna Roy informing him of the

requisitioning of the lands by the Government and stating inter alia that a considerable

portion of the land-appertaining to the scheme was taken possession of by the

Government and there was no knowing how long the Government would retain


14/45

possession of the same. The constructs of the proposed roads and drains, therefore,

could not be taken up during the continuance of the war and possibly for many years

after its termination. In these circumstances,, the company decided to treat the

agreement for sale with the addressee as cancelled and give him the option of taking

back the earnest money within one month from the receipt of the letter. There was offer

made in the alternative that in case the purchaser refused to treat the contract as

cancelled, he could, if he liked, complete the conveyance within one month from the

receipt of the letter by paying the balance of the consideration money and take the land

in the condition in which it existed at that time, the company undertaking to construct

the roads and the drains, as circumstances might permit, after the termination of the

war.

315

The letter ended by saying that in the event of the addressee not accepting either of the

two alternatives, the agreement would be deemed to be cancelled and the earnest money

would stand forfeited. This letter was handed over by Bejoy Krishna to his nominee, the

plaintiff, and there was some correspondence after that, between the plaintiff on the one

hand and the company on the other through their respective lawyers into the details of

which it is not necessary to enter. It is enough to state that the plaintiff refused to accept

either of the two alternatives offered by the company and stated categorically that the

latter was bound by the terms of the agreement from which it could not, in law, resile.On 18th of January, 1946, the suit, out of which this appeal arises, was commenced by

the plaintiff against the defendant company, to which Bejoy Krishna Roy was made a

party defendant and the prayers in the plaint were for a two-fold declaration, namely, (1)

that the contract dated the 5th of August, 1940, between the first and the second

defendant, or rather his nominee, the plaintiff, was still subsisting; and (2) that the

plaintiff was entitled to get a conveyance executed and registered by the defendant on

payment of the consideration money mentioned in the agreement and in the manner

and under the conditions specified therein.

The suit was resisted by the defendant company who raised a large number of defences

in answer to the plaintiff's claim, most of which are not relevant for our present purpose.

The principal contentions raised on behalf of the defendant were that a suit of this

description was not maintainable under section 42 of the Specific Relief Act and that the

plaintiff had no locus standi to institute the suit. The most material plea was that the


15/45

contract of sale stood discharged by frustration as it became impossible by reason of the

supervening events to perform a material part of it. Bejoy Krishna Roy did not file any

written statement and he was examined by the plaintiff as a witness on his behalf. 316

The trial judge by his judgment dated 10th October, 1.947, overruled all the pleas takenby the defendant and decreed the plaintiff's suit. An appeal taken by the defendant to

the Court of the District Judge of 24-Parganas was dismissed on the 25th February,

1949, and the judgment of the trial court was affirmed. The defendant company

thereupon preferred a second appeal to the High Court which was heard by a Division

Bench consisting 'of Das Gupta and Lahiri JJ. The only question canvassed before the

High Court was, whether the contract of sale was frustrated by reason of the requisition

orders issued by the Government? The learned Judges answered this question in the

affirmative in favour of the defendant and on that ground alone dismissed the plaintiff's

suit. The plaintiff has now come before us on the strength of a certificate granted by the

High Court under article 133(I)(c) of the Constitution of India. The learned Attorney

General, who appeared in support of the appeal, has put forward a three-fold contention

on behalf of his client. He has contended in the first place that the doctrine of English

law relating to frustration of contract, upon which the learned Judges of the High Court

based their Decision has no application to India in view of the statutory provision

contained in section 56 of the Indian Contract Act. it is argued in the second place, that

even if the English law Applies, it can have no application to contracts for sale of land

and that is in fact the opinion expressed by the English ,judges themselves. His third

and the last argument is that on the admitted faacts and circumstances of this case there

was no frustrating event which could be said to have taken away the basis of the contract

or tendered its performance impossible in any sense of the word.

The first argument advanced by the learned AttorneyGeneral raises a somewhat

debatable point regarding the true scope and effect of section 56 of the Indian Contract

Act and to what extent, if any, it incorporates the English rule of frustration of contracts.

317

Section 56 occurs in Chapter IV of the Indian Contract Act which relates to performance

of contracts and it purports to deal with one circumstances under which performance of

a, contract is excused or dispensed with on the ground of the contract being-void. The

section stands as follows: "An agreement to do an act impossible in itself is void. A


16/45

contract to do an act which after the contract is made, becomes impossible, or, by reason

of some event which the promiser could not prevent, unlawful, becomes void when the

act becomes impossible or unlawful.

Where one person has promised to do something which he knew, or, with reasonablediligence, might have known, and which the promisee did not know to be impossible or

unlawful, such promisor must make compensation to such promisee for any loss which

such promise sustains through the non-performance of the promise".

The first_paragraph of the section lays down the law in the same way as in England. It

speaks of something which is impossible inherently or by its very nature, and no one can

obviously be directed to an act. The second paragraph enunciates the law relating to

discharge of contract by reason of supervening impossibility or illegality of the act

agreed to be done. The wording of this paragraph is quite general, and though the

illustrations attached to it are not at all happy, they cannotderogate from the general

words used in the enactment. This much is clear that the word "impossible" has not

been used here in the sense of physical or literal impossibility. The performance of an

act may not be literally impossible but it may be impracticbale and useless from the

point of view of the object and purpose which the parties had in view and if an untoward

event or change of circumstances totally upset the very foundation upon which the

parties rested their bargain, it can very well be said that the promisor

L/B(D)2SCI-6(a)

318

found it impossible to do the act which he promised to do. Although various theories

have been propounded by the Judges and jurists in England regarding the juridical basis

of the doctrine of frustration, yet the essential idea upon which the doctrine is based is

that of impossibility of performance of the contract: in fact impossibility and frustration

are often used as interchangeable expressions. The changed circumstances, it is said,make the performance of the contract impossible and the parties are absolved from the

further performance of it as they did not promise to perform an impossibility The

parties shall be excused, as Lord Loreburn says(1),


17/45

"if substantially the whole contract becomes impossible of performance or in other

words impracticable by some cause for which neither was responsible,."

In Joseph Constantine Steamship Line Limited v. Imperial Smelting Corporation

Ltd.(2), Viscount Maugham obseryed that the "doctrine of frustration is only a specialcase of the discharge of contract by an impossibility of performance arising after the

contract was made." Lord Porter agreed with this view and rested the doctrine on the

same basis. The question was considered and discussed by a Division Bench of the

Nagpur High Court in Kesari Chand v. Governor- General in Council(3) and it was held

that the doctrine of frustration comes into play when a contract becomes impossible of

performance, after it is made, on account of circumstances beyond the control of the

parties. The doctrine is a special case of impossibility and as such comes under section

56 of the Indian Contract Act. We are in entire agreement with this view which is

fortified by a recent pronouncement of this court inGanga Saran v. Ram Charan(4),

where Fazl

(1) See Tamplin Steamship Co. Ltd. v. Anglo-Mexican Petroleum Products Co.

Ltd.[1916] 2 A.C. 397, 403. (2) [1942] A.C. 154 at 168.

(3) I.L.R. 1949 Nag. 718.

(4) [1952] S.C.R. 36 at 52.

319

Ali J., in speaking about frustration, observed in his judgment as follows:

"It seems necessary for us to emphasise that so far as the courts in this country are

concerned, they must loot primarily to the law as embodied in sections 32 and 56 of the

Indian Contract Act, 1872."

We hold, therefore, that the doctrine of frustration is really an aspect or part of the law

of discharge of contract by reason of supervening impossibility or illegality of the act

agreed to be done and hence comes within the purview of section 56 of the Indian

Contract Act. It would be incorrect to say that section 56 of the Contract Act applies only

to cases of physical impossibility and that where this section is not applicable, recourse

can be had to the principles of English law on the subject of frustration. It must be held
http://indiankanoon.org/doc/191576/http://indiankanoon.org/doc/191576/http://indiankanoon.org/doc/191576/http://indiankanoon.org/doc/191576/


18/45

also that to the extent that the Indian Contract Act deals with a particular subject, it is

exhaustive upon the same and it is not permissible to import the principles of English

law dehors these statutory provisions. The decisions of the English courts possess only a

persuasive value and may be helpful in showing how the courts in England have decided

cases under circumstances similar to those which have come before our courts.

It seems necessary however to clear up some misconception which is likely to arise

because of the complexities of the English law on the subject. The law of frustration in

England developed, as is well known, under the guise of reading implied terms into

contracts. The court implies a term or exception and treats that as part of the contract.

In the case of Taylor v. Caldwell(1), Blackburn J. first formulated the doctrine in its

modern form. The court there was dealing with a case where a music hall in which one

of the contracting parties had agreed to give concerts on certain specified days was

accidentally burnt by fire. It was held that such a contract must be regarded "as subject

to an implied condition that the parties shall be excused, in case, before breach,

performance becomes impossible from perishing of the thing without

(1) 3 B & S. 826.

320

default of. the contractor." Again in Robinson v. Davison(1) there was a contract

between the plaintiff and the defendant's wife (as the agent of her husband) that she

should play the piano at a concert to be given by the plaintifl on a specified day. On the

day in question she was unable to perform through illness. The contract did not contain

any term as to what was to be done in case of her being too ill to perform. In an action

against the defendant for breach of contract, it was held that the wife's illness and the

consequent incapacity excused her and that the contract was in its nature not absolute

but conditional upon her being well enough to perform. Bramwell B. pointed out in

course of his judgment that in holding that the illness of the defendant incapaciated her

from performing the agreement the court was not really engrafting a new term upon an

express contract. It was not that the obligation was absolute in the original agreement

and a new condition was subsequently added to it; the whole question was whether the

original contract was absolute or conditional and having regard to the terms of the

bargain, it must be held to be conditional.


19/45

The English law passed through various stages of development since then and the

principles enunciated in the various decided authorities cannot be said to be in any way

uniform. In many of the pronouncements of the highest courts in England the doctrine

of frustration was held "to be a device by which the rules as to absolute contracts are

reconciled with a special exception which justice demands"(2). The court, it is said,

cannot claim to exercise a dispensing power or to modify or alter contracts. But when an

unexpected event or change of circumstance occurs, the possibility of which the parties

did not circumstance occurs, the possibility contract is taken to be not what the parties

actual intended, but what they as fair and reasonable men would presumably have

intended and agreed upon, if having such possibility in view they had made express

provsion as to their rights and liabilities in the event of such occurrence(1). As Loard

Wright (1) (1871) L.R. 6 Exch. 269.

(2) Vide Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C. 497 at 510.

(3) Vide Dahl v. Nelson, Donkinand Co. (1881) 6 App. Cas. 38 at 59.

321

observed in Joseph Constantine Steamship Co. v. Imperial Smelting Corporation

Ltd.(1).

"In ascertaining the meaning of the contract and its application to the actual

occurrences, the court has to decide, not what the parties actually intended but what as

reasonable men they should have intended. The court personifies for this purpose the

reasonable man." Lord Wright clarified the position still further in the later case of

Denny, Mott and Dickson Ltd. v. James B. Fraser & Co. Ltd.(1), where he made the

following observations:

"Though it has been constantly said by high authority, including Lord Sumner, that the

explanation of the rule is to be found in the theory that it depends on an implied con-dition of the contract, that is really no explanation. It only pushes back the problem a

single stage. It leaves the question what is the reason for implying a term. Nor can I

reconcile that theory with the view that the result does not depend on what the parties

might, or would, as hard bargainers, have agreed. The doctrine is invented by the court

in order to supplement the defects of the actual contract...... To my mind the theory of


20/45

the implied condition is not really consistent with the true theory of frustration. It has

never been acted on by the court as a ground of decision, but is merely stated as a

theoretical explanation."

In the recent case of British Movietonews Ltd. v. London and District Cinemas Ltd.(1),Denning L. J. in the Court of Appeal took the view expressed by Lord Wright as stated

above as meaning that "the court really exercises a qualifying power-a power to qualify

the absolute., literal or wide terms of the contract in order to do what is just and

reasonable in the new situation". "The day is gone," (1) [1942] A.C. 154 at 185.

(2) [1944] A.C. 265 at 275.

(3) [1951] 1 K. B. 190.

L/ B(D) 2SCI-7

322

the learned Judge went on to say, "when we can excuse an unforeseen injustice by

saying to the sufferer 'it is your own folly, you ought not to have passed that form of

words. You ought to have put in a clause to protect yourself'. We no longer credit a party

with the foresight of a Prophet or his lawyer with the draftsmanship of a Chalmers. We

realise that they have their limitations and make allowances accor- dingly. It is better

thus. The old maxim reminds us that he who clings to the letter clings to the dry and

barren shell and misses the truth and substance of the matter. We have of late paid heed

to this warning, and we must pay like heed now."

This decision of the Court of Appeal was reversed by the House of Lords and Viscount

Simon in course of his judgment expressed disapproval of the way in which the law was

stated by Denning L.J. It was held that there was no change in the law as a result of

which the courts could exercise a wider power in this regard than they used to do

previously. "The principle remains the same", thus observed his Lordship. "Particular

applications of it may greatly vary and theoretical lawyers may debate whether the rule

should be regarded as arising from implied term or because the basis of the contract no

longer exists. In any view, it is a question of construction as Lord Wright pointed out in

Constantine's case and as has been repeatedly asserted by other masters of law."(1)


21/45

These differences in the way of formulating legal theories really do not concern us so

long as we have a statutory provision in the Indian Contract Act. In deciding cases in

India the only doctrine that we have to go by is that of supervening impossibility or

illegality as laid down in section 56 of the Contract Act taking the word "Impossible" in

its practical and not literal sense. It must be borne in mind, however, that section 56

lays down a rule of positive law and does not leave the matter to be determined

according to the intention of the parties.

(1) [1952] A.C. 166 at 184.

323

In the latest decision of the House of Lords referred to above, the Lord Chancellor puts

the whole doctrine upon the principle of construction. But the question of construction

may manifest itself in two totally different ways. In one class of cases the question may

simply be, as to what the parties themselves had actually intended and whether or not

there as a condition in the contract itself, express or implied, which operated, according

to the agreement of the Parties themselves to release them from their obligations; this

would be a question of construction pure and simple and the ordinary rules of

construction would have to be applied to find out what the real intention of the parties

was. According to the Indian Contract Act, a promise may be express or implied(1). In

cases, therefore, where the court gathers as a matter of construction that the contractitself contained impliedly or expressly a term, according to which it would stand

discharged on the happening of certain circumstances the dissolution on of the contract

would take place under the terms of the contract itself and such cases would be outside

the purview of section 56 altogether. Although in English law these cases are treated as

cases of frustration, in India they would be dealt with under section 32 of the Indian

Contract Act which deals with contingent contracts or similar other provisions

contained in the Act. In the large majority of cases however the doctrine of frustration is

applied not on the ground that the parties themselves agreed to an implied term which

operated to release them from the performance of the contract. The relief is given by the

court on the ground of subsequent impossibility when it finds that the whole purpose or

basis of a contract was frustrated by the intrusion or occurrence of an unexpected event

or change of circumstances which was beyond what was contemplated by the parties at

the time when they entered into the agreement. Here there is no question of finding out

an implied term agreed to by the parties embodying a provision for discharge, because


22/45

the parties did not think about the matter at all nor could possibly have any intention

regarding it. When such an event or change of (1) Vide section 9.

L/B(D)2SCI-7(a)

324

circumstance occurs which is so fundamental as to be regarded by law as striking at the

root of the contract as a whole, it is the court which can pronounce the contract to be

frustrated and at an end. The court undoubtedly has to examine the contract and the

circumstances under which it was made. The belief, knowledge and intention of the

parties are evidence, but evidence only on which the court has to form its own

conclusion whether the changed circumstances destroyed altogether the basis of the

adventure and its underlying object(1). This may be called a rule of construction by

English Judges but it is certainly not a, principle of giving effect to the intention of the

parties which underlies all rules of construction. This is really a rule of positive law and

as such comes within the purview of section 56 of the Indian Contract Act.

It must be pointed out here that if the parties do contemplate the possibility of an

intervening circumstance which might affect the performance of the contract, but

expressly stipulate that the contract would stand despite such circumstances, there can

be no case of frustration because the basis of the contract being to demand performance

despite the happening of a particular event, it cannot disappear when that event

happens. As Lord Atkinson said in Matthey v. Curling(1), "a person who expressly

contracts absolutely to do a thing not naturally impossible is not excused for

nonperformance because of being prevented by the act of God or the King's

enemies......... or vis major". This being the legal position, a contention in the extreme

form that the doctrine of frustration as recognised in English law does no come at all

within the purview of section 56 of the Indian Contract Act cannot be accepted.. The

second contention raised by the Attorney General can be disposed of in few words. It is

true that in England the judicial opinion generally expressed is, that the doctrine of

frustration does not operate in the case of contracts for (1) Vide Morgan v. Manser

(1947] 2 AU E.R. 666. (2) [1922] 2 A.C. 180 at 234.

325


23/45

sale of land(1). But the reason underlying this view is that under the English law as soon

as there is a concluded contract by A to sell land to B at certain price, B becomes in

equity, the owner of the land, subject to his obligation to pay the purchase money'. On

the other hand, A in spite of his having the legal estate holds the same in trust for the

purchaser and whatever rights he still retains in the land are referable to his right to

recover and receive the purchase money. The rule of frustration can only put an end to

purely contractual obligations, but it cannot destroy an estate in land which has already

accrued in favour of a contracting party. According to the Indian law, which is embodied

in section 54 of the Transfer of Property Act, a contract for sale of land does not of itself

create any interest in the property which is the subject-matter of the contract. The

obligations of the parties to a contract for sale of land are, therefore, the same as in

other ordinary contracts and consequendy there is no conceivable reason why the

doctrine of frustration should not be applicable to contracts for sale of land in India.This contention of the Attorney General must, therefore, fail.

We now come to the last and most important point in this case which raises the question

as to whether, as a result of the requisition orders, under which the lands comprised in

the development scheme of the defendant company were requisitioned by Government,

the contract of sale between the defendant company and the plaintiff's predecessor

stood dissolved by frustration or in other words became impossible of performance.

It is well settled and not disputed before us that if and when there is frustration thedissolution of the contract occurs automatically. It does not depend, as does rescission

of a contract on the ground of repudiation or breach, or on the choice or election of

either party. It depends on the effect

(1) Vida Billington Estates Co. v. Stonfield Estate Ltd. [1952] 1 All E.R.853.

326

of what has actually happened on the possibility of performing the contrat (1). Whathappens generally in such cases and has happened here is that one party claims that the

contract has been frustrated while the other party denies it. The issue has got to be

decided by the court "ex post facto, on the actual circumstances of the case"(2). We will

now proceed to examine the nature and terms of the contract before us and the

circumstances under which it was entered into to determine whether or not the


24/45

disturbing element,which is allowed to have happened here, has substantially prevented

the performance of the contract as a whole.

It may be stated at the outset that the. contract before us cannot be looked upon as an

ordinary contract for sale and purchase of a piece of land; it is an integral part of adevelopment scheme started by the defendant company and is one of the many

contracts that have been entered into by a large number of persons with the company.

The object of the company was undoubtedly to develop a fairly extensive area which was

still undeveloped and make it usable for residential purposes by making roads and

constructing drains through it. The purchaser. on the other hand, wanted the land in

regard to which he entered into the contract to be developed and make ready for

building purposes before he could be called upon to complete the purchase. The most

material thing which deserves notice is, that there is absolutely no time limit within

which. the roads and drains are to be made. The learned District Judge of Alipore, who

heard the appeal, from the trial court's judgment found it as a fact, on the evidence in

the record, that there was not an understanding between the parties on this point. As a

matter of fact, the first requisition order was passed nearly 15 months after the contract

was made and apparently no work was done by the defendant company in the

meantime. Another important thing that requires notice in this con (1) Per Lord Wright

in Denny, Mott and Dicksom Ltd. v. Jameso B. Fraser and Co., Ltd. [1944] A.C. 265,

274, (2) Ibid.

327

nection is that the war was already on, when the parties entered into the contract.

Requisition orders for taking temporary possession of lands for war purposes were

normal events during this period. Apart from requisition orders there were other

difficulties in doing construction work at that time because of the scarcity of materials

and the various restrictions which the Government had imposed in respect of them.

That there were certain risks and difficulties involved in carrying on operations like

these, could not but be in the contemplation of the parties at the time when they entered

into the contract, and that is probably the reason why no definite time limit was

mentioned in the contract within which the roads and drains are to be completed. This

was left entirely to the convenience of the company and as at matter of fact the

purchaser did not feel concerned about it. It is against this background that we are to


25/45

consider to what extent the passing of the requisition orders affected the performance of

the contract in the present case.

The company, it must be admitted, bad not commenced the development work when the

requisition order was passed in November, 1941. There was no question, therefore, ofany work or service being interrupted for an indefinite period of time. Undoubtedly the

commencement of the work was delayed but was the delay going to be so great and of

such a character that it would totally upset the basis of the bargain and comercial object

which the parties had in view? The requisition orders, it must be remembered, were' by

their very nature, of a temporary character and the requisitioning authorities could, in

law, occupy the position of a licensee in regard to the requisitioned property. The order

might continue during the whole period of the war and even for some time after that or

it could have been withdrawn before the war terminated. If there was a definite time

limit agreed to by the parties within which the construction work was to be finished, it

could be said with perfect propriety that delay for an indefinite period would

328

make the performance of the contract impossible within the specified time and this

would seriously affect the object and purpose of the venture. But when there is no time

limit whatsoever in the contract, nor even an understanding between the parties on

that point and when during the war the parties could naturally anticipate restrictions ofvarious kinds which would make the carrying on of these operations more tardy and

difficult than in times of peace, we do not think that the order of requisition affected the

fundamental basis upon which the agreement rested or struck at the roots of the

adventure.

The learned Judges of the High Court in deciding the case against the plaintiff relied

entirely on the time factor. It is true that the parties could not contemplate an absolutely

unlimited period of time to fulfil their contract. They might certainly have in mind a

period of time which was reasonable having regard to the nature and magnitude of the

work to be done as well as the conditions of war prevailing at that time. Das Gupta, J.,

who delivered the judgment of the High Court, says first of all that the company had in

contemplation a period of time not much exceeding 2 or 3 years as the time for

performance of the contract; the purchaser also had the same period of time in


26/45

contemplation. The learned Judge records his finding on the point in the following

words:

"My conclusion on a consideration of the surrounding circumstances of the contract is

that the parties contemplated that the roads and drains would be constructed and theconveyance would be completed in the not distant future."

This finding is inconclusive and goes contrary to what has been held by the District

Judge who was undoubtedly the last court of facts. In our opinion, having regard to the

nature and terms of the contract, the actual existence of war conditions at the time when

it was entered into, the extent of the work involved in the development scheme and last

though not the least the total absence of any definite period of time agreed to by the

parties within which the work was

329

to be completed, it cannot be said that the requisition order vitally affected the contract

or made its performance impossible.

Mr. Gupta, who appeared for the respondent company. put forward an alternative

argument that even if the performance of the contract was not made impossible. it

certainly became illegal as a result of the requisition order and con- sequently the

contract became void under section 56 of the Indian Contract Act as soon as the

requisition order was made. In support of his contention the learned counsel placed

reliance upon certain provisions of the Defence of India Rules and also upon illustration

(d) to section 56 of the Contract Act. All that the Defence Regulations show is that the

violation of a requisition order could be punished as a criminal offence. But no matter in

whichever way the requisition order could be enforced, in substance it did nothing else

but impose a prohibition on the use of the land during the period that it remained in

force. The effect of such prohibition on the performance of the contract, we have

discussed above, and we do not think that the mere fact that the requisition order wascapable of being enforced by a criminal sanction made any difference in this respect. In

any view this question was not raised in any of the courts below and has not been

indicated even in the respondent's statement of the case. We do not think that it would

be proper to allow this question to be raised for the first time before us, as it requires

consideration of the different provisions of the Defence of India Act and also of the


27/45

implication of illustration (d) appended to section 56 of the Contract Act. In our

opinion, the events which have happened here cannot be said to have made the

performance of the contract impossible and the contract has not been frustrated at all.

The result is that the appeal is allowed, the judgment and decree of the High Court of

Calcutta are set aside and those of the courts below restored. The plaintiff will have his

costs in all the courts.

Appeal allowed.

Agent for the appellant: S. C. Banerjee.

Agent for the respondent No. I : R. R. Biswas. 330

Suraj Lamp & Industries (P) ... vs State Of Haryana & Anr. on 11

October, 2011

Author: R V Raveendran

Bench: R.V. Raveendran, A.K. Patnaik, H.L. Gokhale

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (C) NO.13917 OF 2009


28/45

Suraj Lamp & Industries Pvt. Ltd. .....Petitioner Vs.

State of Haryana & Anr. ....Respondents J U D G M E N T

R. V. Raveendran J.

By an earlier order dated 15.5.2009 [reported in Suraj Lamp & Industries Pvt.Ltd.

vs. State of Haryana & Anr. - 2009 (7) SCC 363], we had referred to the ill - effects

of what is known as General Power of Attorney Sales (for short `GPA Sales') or Sale

Agreement/General Power of Attorney/Will transfers (for short `SA/GPA/WILL'

transfers). Both the descriptions are misnomers as there cannot be a sale by execution of

a power of attorney nor can there be a transfer by execution of an agreement of sale and

a power of attorney and will. As noticed in the earlier order, these kinds of transactions

were evolved to avoid prohibitions/conditions regarding certain transfers, to avoid

payment of stamp duty and registration charges on


29/45

2

deeds of conveyance, to avoid payment of capital gains on transfers, to invest

unaccounted money (`black money') and to avoid payment of `unearned increases' due

to Development Authorities on transfer.

2. The modus operandi in such SA/GPA/WILL transactions is for the vendor or person

claiming to be the owner to receive the agreed consideration, deliver possession of the

property to the purchaser and execute the following documents or variations thereof:

(a) An Agreement of sale by the vendor in favour of the purchaser confirming the terms

of sale, delivery of possession and payment of full consideration and undertaking to

execute any document as and when required in future.

Or

An agreement of sale agreeing to sell the property, with a separate affidavit confirming

receipt of full price and delivery of possession and undertaking to execute sale deed

whenever required.

(b) An Irrevocable General Power of Attorney by the vendor in favour of the purchaser

or his nominee authorizing him to manage, deal with and dispose of the property

without reference to the vendor.

Or

A General Power of Attorney by the vendor in favour of the purchaser or his nominee

authorizing the attorney holder to sell or transfer the property and a Special Power of

Attorney to manage the property.

(c) A will bequeathing the property to the purchaser (as a safeguard against the

consequences of death of the vendor before transfer is effected).


30/45

3

These transactions are not to be confused or equated with genuine transactions where

the owner of a property grants a power of Attorney in favour of a family member or

friend to manage or sell his property, as he is not able to manage the property or executethe sale, personally. These are transactions, where a purchaser pays the full price, but

instead of getting a deed of conveyance gets a SA/GPA/WILL as a mode of transfer,

either at the instance of the vendor or at his own instance.

Ill-Effects of SA/GPA/WILL transactions

3. The earlier order dated 15.5.2009, noted the ill-effects of such SA/GPA/WILL

transactions (that is generation of black money, growth of land mafia and

criminalization of civil disputes) as under: "Recourse to `SA/GPA/WILL'

transactions is taken in regard to freehold properties, even when there is no bar or

prohibition regarding transfer or conveyance of such property, by the following

categories of persons: (a) Vendors with imperfect title who cannot or do not want to

execute registered deeds of conveyance.

(b) Purchasers who want to invest undisclosed wealth/income in immovable properties

without any public record of the transactions. The process enables them to hold any

number of properties without disclosing them as assets held.

(c) Purchasers who want to avoid the payment of stamp duty and registration charges

either deliberately or on wrong advice. Persons


31/45

4

who deal in real estate resort to these methods to avoid multiple stamp

duties/registration fees so as to increase their profit margin. Whatever be the intention,

the consequences are disturbing and far reaching, adversely affecting the economy, civilsociety and law and order. Firstly, it enables large scale evasion of income tax, wealth

tax, stamp duty and registration fees thereby denying the benefit of such revenue to the

government and the public. Secondly, such transactions enable persons with

undisclosed wealth/income to invest their black money and also earn profit/income,

thereby encouraging circulation of black money and corruption.

This kind of transactions has disastrous collateral effects also. For example, when the

market value increases, many vendors (who effected power of attorney sales without

registration) are tempted to resell the property taking advantage of the fact that there is

no registered instrument or record in any public office thereby cheating the purchaser.

When the purchaser under such `power of attorney sales' comes to know about the

vendors action, he invariably tries to take the help of musclemen to `sort out' the issue

and protect his rights. On the other hand, real estate mafia many a time purchase

properties which are already subject to power of attorney sale and then threaten the

previous `Power of Attorney Sale' purchasers from asserting their rights. Either way,

such power of attorney sales indirectly lead to growth of real estate mafia and

criminalization of real estate transactions."

It also makes title verification and certification of title, which is an integral part of

orderly conduct of transactions relating to immovable property, difficult, if not

impossible, giving nightmares to bonafide purchasers wanting to own a property with an

assurance of good and marketable title.


32/45

5

4. This Court had therefore requested the learned Solicitor General to give suggestions

on behalf of Union of India. This Court also directed notice to States of Delhi, Haryana,

Punjab, Uttar Pradesh to give their views on the matter. The four states have respondedand confirmed that SA/GPA/WILL transfers required to be discouraged as they lead to

loss of revenue (stamp duty) and increase in litigations due to defective title. They also

referred to some measures taken in that behalf. The measures differ from State to State.

In general, the measures are: (i) to amend Registration Act, 1908 by Amendment Act 48

of 2001 with effect from 24.9.2001 requiring documents containing contract to transfer

for consideration (agreements of sale etc.) relating to any immoveable property for the

purpose of section 53A of the Act, shall be registered; and (ii) to amend the stamp laws

subjecting agreements of sale with delivery of possession and/or irrevocable powers of

attorney in favour of non-family members authorizing sale, to the same stamp duty as

deed of conveyance. These measures, no doubt, to some extent plugged the loss of

revenue by way of stamp duty on account of parties having recourse to SA/GPA/WILL

transactions, instead of executing deeds of conveyance. But the other ill-effects

continued. Further such transaction which was only prevalent in Delhi and the

surrounding areas have started spreading to other States also. Those with ulterior

motives


33/45

6

either to indulge in black money transactions or land mafia continue to favour such

transactions. There are also efforts to thwart the amended provisions by not referring to

delivery of possession in the agreement of sale and giving a separate possession receiptor an affidavit confirming delivery of possession and thereby avoiding the registration

and stamp duty. The amendments to stamp and registration laws do not address the

larger issue of generation of black money and operation of land mafia. The four States

and the Union of India are however unanimous that SA/GPA/WILL transactions should

be curbed and expressed their willingness to take remedial steps.

5. The State of Haryana has however taken a further positive step by reducing the stamp

duty on deeds of conveyance from 12.5% to 5%. A high rate of stamp duty acts as a

damper for execution of deeds of conveyance for full value, and encourages

SA/GPA/WILL transfers. When parties resort to SA/GPA/WILL transfers, the adverse

effect is not only loss of revenue (stamp duty and registration charges) but the greater

danger of generation of `black' money. Reducing the stamp duty on conveyance to

realistic levels will encourage public to disclose the maximum sale value and have the

sale deeds registered. Though the reduction of the stamp duty, may result in an

immediate reduction in the revenue by way of stamp duty, in the long run it


34/45

7

will be advantageous for two reasons: (i) parties will be encouraged to execute registered

deeds of conveyance/sale deeds without any under valuation, instead of entering into

SA/GPA/WILL transactions; and (ii) more and more sale transactions will be done byway of duly registered sale deeds, disclosing the entire sale consideration thereby

reducing the generation of black money to a large extent. When high stamp duty is

prevalent, there is a tendency to undervalue documents, even where sale deeds are

executed. When properties are undervalued, a large part of the sale price changes hand

by way of cash thereby generating `black' money. Even when the state governments take

action to prevent undervaluation, it only results in the recovery of deficit stamp duty and

registration charges with reference to the market value, but the actual sale consideration

remains unaltered. If a property worth `5 millions is sold for `2 millions, the

Undervaluation Rules may enable the state government to initiate proceedings so as to

ensure that the deficit stamp duty and registration charges are recovered in respect of

the difference of `3 millions. But the sale price remains `2 millions and the black money

of 3 millions generated by the undervalued sale transaction, remains undisturbed.


35/45

8

6. In this background, we will examine the validity and legality of SA/GPA/WILL

transactions. We have heard learned Mr. Gopal Subramanian, Amicus Curiae and noted

the views of the Government of NCT of Delhi, Government of Haryana, Government ofPunjab and Government of Uttar Pradesh who have filed their submissions in the form

of affidavits.

Relevant Legal Provisions

7. Section 5 of the Transfer of Property Act, 1882 (`TP Act' for short) defines `transfer of

property' as under:

"5. Transfer of Property defined : In the following sections "transfer ofproperty" means an act by which a living person conveys property, in present or in

future, to one or more other living persons, or to himself [or to himself] and one or more

other living persons; and "to transfer property" is to perform such

act." xxx xxx Section 54 of the TP Act defines `sales' thus:

"Sale" is a transfer of ownership in exchange for a price paid or promised or

part-paid and part-promised.

Sale how made. Such transfer, in the case of tangible immoveable property of the value

of one hundred rupees and upwards, or in the case of a reversion or other intangible

thing, can be made only by a registered instrument.

In the case of tangible immoveable property of a value less than one hundred rupees,

such transfer may be made either by a registered instrument or by delivery of the

property.


36/45

9

Delivery of tangible immoveable property takes place when the seller places the buyer,

or such person as he directs, in possession of the property.

Contract for sale.-A contract for the sale of immovable property is a contract that a sale

of such property shall take place on terms settled between the parties.

It does not, of itself, create any interest in or charge on such property." Section

53A of the TP Act defines `part performance' thus : "Part Performance. - Where

any person contracts to transfer for consideration any immoveable property by writing

signed by him or on his behalf from which the terms necessary to constitute the transfer

can be ascertained with reasonable certainty,

and the transferee has, in part performance of the contract, taken possession of the

property or any part thereof, or the transferee, being already in possession, continues in

possession in part performance of the contract and has done some act in furtherance of

the contract, and the transferee has performed or is willing to perform his part of the

contract,

then, notwithstanding that where there is an instrument of transfer, that the transfer

has not been completed in the manner prescribed therefor by the law for the time being

in force, the transferor or any person claiming under him shall be debarred from

enforcing against the transferee and persons claiming under him any right in respect of

the property of which the transferee has taken or continued in possession, other than a

right expressly provided by the terms of the contract :

Provided that nothing in this section shall affect the rights of a transferee for

consideration who has no notice of the contract or of the part performance

thereof."

8. We may next refer to the relevant provisions of the Indian Stamp Act, 1999 (Note :

Stamp Laws may vary from state to state, though generally the


37/45

10

provisions may be similar). Section 27 of the Indian Stamp Act, 1899 casts upon the

party, liable to pay stamp duty, an obligation to set forth in the instrument all facts and

circumstances which affect the chargeability of duty on that instrument. Article 23prescribes stamp duty on `Conveyance'. In many States appropriate amendments have

been made whereby agreements of sale acknowledging delivery of possession or power

of Attorney authorizes the attorney to `sell any immovable property are charged with

the same duty as leviable on conveyance.

9. Section 17 of the Registration Act, 1908 which makes a deed of conveyance

compulsorily registrable. We extract below the relevant portions of section 17.

"Section 17 - Documents of which registration is compulsory- (1) The following

documents shall be registered, namely:--

xxxxx

(b) other non-testamentary instruments which purport or operate to create, declare,

assign, limit or extinguish, whether in present or in future, any right, title or interest,

whether vested or contingent, of the value of one hundred rupees and upwards, to or in

immovable property. xxxxx

(1A) The documents containing contracts to transfer for consideration, any immovable

property for the purpose of section 53A of the Transfer of Property Act, 1882 (4 of 1882)

shall be registered if they have been executed on or after the commencement of the

Registration and Other Related laws (Amendment) Act, 2001 and if such documents are

not registered on or after such commencement, then, they shall have no effect for the

purposes of the said section 53A.


38/45

11

Advantages of Registration

10. In the earlier order dated 15.5.2009, the objects and benefits of registration wereexplained and we extract them for ready reference : "The Registration Act, 1908,

was enacted with the intention of providing orderliness, discipline and public notice in

regard to transactions relating to immovable property and protection from fraud and

forgery of documents of transfer. This is achieved by requiring compulsory registration

of certain types of documents and providing for consequences of non-registration.

Section 17 of the Registration Act clearly provides that any document (other than

testamentary instruments) which purports or operates to create, declare, assign, limit or

extinguish whether in present or in future "any right, title or interest"

whether vested or contingent of the value of Rs. 100 and upwards to or in immovable

property.

Section 49 of the said Act provides that no document required by Section 17 to be

registered shall, affect any immovable property comprised therein or received as

evidence of any transaction affected such property, unless it has been registered.

Registration of a document gives notice to the world that such a document has been

executed. Registration provides safety and security to transactions relating to

immovable property, even if the document is lost or destroyed. It gives publicity and

public exposure to documents thereby preventing forgeries and frauds in regard to

transactions and execution of documents. Registration provides information to people

who may deal with a property, as to the nature and extent of the rights which persons

may have, affecting that property. In other words, it enables people to find out whether

any particular property with which they are concerned, has been subjected to any legal

obligation or liability and who is or are the person/s presently having right, title, and

interest in the property. It gives solemnity of form and perpetuate documents which are

of legal importance or relevance by recording them, where people may see the record

and enquire and ascertain what the particulars are and as far as land is concerned what

obligations exist with regard to them. It ensures that every person dealing with

immovable property can rely with confidence upon the statements contained in the

registers (maintained under the said Act) as a full and complete account of all

transactions by which the title to the property may be affected and secure


39/45

extracts/copies duly certified."


40/45

12

Registration of documents makes the process of verification and certification of title

easier and simpler. It reduces disputes and litigations to a large extent.

Scope of an Agreement of sale

11. Section 54 of TP Act makes it clear that a contract of sale, that is, an agreement of

sale does not, of itself, create any interest in or charge on such property. This Court

inNarandas Karsondas v. S.A. Kamtam and Anr.(1977) 3 SCC 247, observed:

A contract of sale does not of itself create any interest in, or charge on, the property.

This is expressly declared in Section 54 of theTransfer of Property Act. See Rambaran

Prosad v. Ram Mohit Hazra[1967]1 SCR

293. The fiduciary character of the personal obligation created by a contract for sale is

recognised in Section 3 of the Specific Relief Act, 1963, and in Section 91 of the Trusts

Act. The personal obligation created by a contract of sale is described in Section 40 of

the Transfer of Property Act as an obligation arising out of contract and annexed to the

ownership of property, but not amounting to an interest or easement therein." In

India, the word `transfer' is defined with reference to the word `convey'. The word

`conveys' in section 5 of Transfer of Property Act is used in the wider sense of conveying

ownership... ...that only on execution of conveyance ownership passes from one party to

another...."In Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra[2004 (8) SCC

614] this Court held:

"Protection provided under Section 53A of the Act to the proposed transferee is a

shield only against the transferor. It disentitles the transferor from disturbing the

possession of the proposed transferee who is put in possession in pursuance to such an

agreement. It has nothing to do with the ownership of the proposed transferor who

remains full owner of the
http://www.indiankanoon.org/doc/1222516/http://www.indiankanoon.org/doc/1222516/http://www.indiankanoon.org/doc/1222516/http://www.indiankanoon.org/doc/1950151/http://www.indiankanoon.org/doc/1950151/http://www.indiankanoon.org/doc/1950151/http://www.indiankanoon.org/doc/1950151/http://www.indiankanoon.org/doc/1678794/http://www.indiankanoon.org/doc/1678794/http://www.indiankanoon.org/doc/1678794/http://www.indiankanoon.org/doc/1678794/http://www.indiankanoon.org/doc/1950151/http://www.indiankanoon.org/doc/1950151/http://www.indiankanoon.org/doc/1222516/


41/45

13

property till it is legally conveyed by executing a registered sale deed in favour of the

transferee. Such a right to protect possession against the proposed vendor cannot be

pressed in service against a third party." It is thus clear that a transfer ofimmoveable property by way of sale can only be by a deed of conveyance (sale deed). In

the absence of a deed of conveyance (duly stamped and registered as required by law),

no right, title or interest in an immoveable property can be transferred.

12. Any contract of sale (agreement to sell) which is not a registered deed of conveyance

(deed of sale) would fall short of the requirements of sections 54 and 55 of TP Act and

will not confer any title nor transfer any interest in an immovable property (except to

the limited right granted under section 53A of TP Act). According to TP Act, an

agreement of sale, whether with possession or without possession, is not a conveyance.

Section 54 of TP Act enacts that sale of immoveable property can be made only by a

registered instrument and an agreement of sale does not create any interest or charge on

its subject matter.

Scope of Power of Attorney

13. A power of attorney is not an instrument of transfer in regard to any right, title or

interest in an immovable property. The power of attorney is


42/45

14

creation of an agency whereby the grantor authorizes the grantee to do the acts specified

therein, on behalf of grantor, which when executed will be binding on the grantor as if

done by him (see section 1A and section 2 of the Powers of Attorney Act, 1882). It isrevocable or terminable at any time unless it is made irrevocable in a manner known to

law. Even an irrevocable attorney does not have the effect of transferring title to the

grantee.In State of Rajasthan vs. Basant Nehata- 2005 (12) SCC 77, this Court held :

"A grant of power of attorney is essentially governed by Chapter X of the Contract

Act. By reason of a deed of power of attorney, an agent is formally appointed to act for

the principal in one transaction or a series of transactions or to manage the affairs of the

principal generally conferring necessary authority upon another person. A deed of

power of attorney is executed by the principal in favour of the agent. The agent derives a

right to use his name and all acts, deeds and things done by him and subject to the

limitations contained in the said deed, the same shall be read as if done by the donor. A

power of attorney is, as is well known, a document of convenience.

Execution of a power of attorney in terms of the provisions of the Contract Act as also

the Powers-of-Attorney Act is valid. A power of attorney, we have noticed hereinbefore,

is executed by the donor so as to enable the donee to act on his behalf. Except in cases

where power of attorney is coupled with interest, it is revocable. The donee in exercise of

his power under such power of attorney only acts in place of the donor subject of courseto the powers granted to him by reason thereof. He cannot use the power of attorney for

his own benefit. He acts in a fiduciary capacity. Any act of infidelity or breach of trust is

a matter between the donor and the donee."

An attorney holder may however execute a deed of conveyance in exercise of the power

granted under the power of attorney and convey title on behalf of the grantor.
http://www.indiankanoon.org/doc/1422834/http://www.indiankanoon.org/doc/1422834/http://www.indiankanoon.org/doc/1422834/http://www.indiankanoon.org/doc/1422834/


43/45

15

Scope of Will

14. A will is the testament of the testator. It is a posthumous disposition of the estate ofthe testator directing distribution of his estate upon his death. It is not a transfer inter

vivos. The two essential characteristics of a will are that it is intended to come into effect

only after the death of the testator and is revocable at any time during the life time of the

testator. It is said that so long as the testator is alive, a will is not be worth the paper on

which it is written, as the testator can at any time revoke it. If the testator, who is not

married, marries after making the will, by operation of law, the will stands revoked. (see

sections 69 and 70 of Indian Succession Act, 1925). Registration of a will does not make

it any more effective. Conclusion

15. Therefore, a SA/GPA/WILL transaction does not convey any title nor create any

interest in an immovable property. The observations by the Delhi High Court, inAsha

M. Jain v. Canara Bank- 94 (2001) DLT 841, that the "concept of power of

attorney sales have been recognized as a mode of transaction" when dealing with

transactions by way of SA/GPA/WILL are unwarranted and not justified, unintendedly

misleading the general public into thinking that SA/GPA/WILL transactions are some

kind of a recognized or accepted mode of transfer and that it can be a valid substitute for

a sale deed. Such decisions to the extent they recognize or accept SA/GPA/WILLtransactions as concluded transfers, as contrasted from an agreement to transfer, are

not good law.

16. We therefore reiterate that immovable property can be legally and lawfully

transferred/conveyed only by a registered deed of conveyance. Transactions of the

nature of `GPA sales' or `SA/GPA/WILL transfers' do not convey title and do not

amount to transfer, nor can they be recognized or valid mode of transfer of immoveable

property. The courts will not treat such transactions as completed or concluded

transfers or as conveyances as they neither convey title nor create any interest in an

immovable property. They cannot be recognized as deeds of title, except to the limited

extent of section 53A of the TP Act. Such transactions cannot be relied upon or made the

basis for mutations in Municipal or Revenue Records. What is stated above will apply

not only to deeds of conveyance in regard to freehold property but also to transfer of

leasehold property. A lease can be validly transferred only under a registered
http://www.indiankanoon.org/doc/1858249/http://www.indiankanoon.org/doc/1858249/http://www.indiankanoon.org/doc/1858249/http://www.indiankanoon.org/doc/1858249/http://www.indiankanoon.org/doc/1858249/http://www.indiankanoon.org/doc/1858249/


44/45

Assignment of Lease. It is time that an end is put to the pernicious practice of

SA/GPA/WILL transactions known as GPA sales.

17. It has been submitted that making declaration that GPA sales and SA/GPA/WILL

transfers are not legally valid modes of transfer is likely to create hardship to a largenumber of persons who have entered into such transactions and they should be given

sufficient time to regularize the transactions by obtaining deeds of conveyance. It is also

submitted that this decision should be made applicable prospectively to avoid hardship.

18. We have merely drawn attention to and reiterated the well-settled legal position that

SA/GPA/WILL transactions are not `transfers' or `sales' and that such transactions

cannot be treated as completed transfers or conveyances. They can continue to be

treated as existing agreement of sale. Nothing prevents affected parties from getting

registered Deeds of Conveyance to complete their title. The said `SA/GPA/WILL

transactions' may also be used to obtain specific performance or to defend possession

under section 53A of TP Act. If they are entered before this day, they may be relied upon

to apply for regularization of allotments/leases by Development Authorities. We make it

clear that if the documents relating to`SA/GPA/WILL transactions' has been accepted

acted upon by DDA or other developmental authorities or by the Municipal or revenue

authorities to effect mutation, they need not be disturbed, merely on account of this

decision.

19. We make it clear that our observations are not intended to in any way affect the

validity of sale agreements and powers of attorney executed in genuine transactions. For

example, a person may

LAws Sale Aggrement

Documents

Transcript of LAws Sale Aggrement