In Property Dispute, Suit Parties Must File Encumbrance Certificate To Avoid Multiple Proceedings And Ease Future Litigation: Andhra Pradesh HC

While hearing a property dispute case, the Andhra Pradesh High Court emphasized on the value of encumbrance certificates observing that to avoid multiplicity of proceedings, the parties should file the encumbrance certificate along with the plaint, which can also help ease future litigation.

The high court said that while allowing a revision plea, moved by the plaintiff against an order of the trial court which had dismissed her application to bring on record subsequent purchasers of the property in question. The court however imposed cost of Rs. 25,000 on the plaintiff while noting that she had filed the application at the fag end of the suit and there were laches on her part. For context, an encumbrance certificate helps ascertain whether a property is free of any outstanding liabilities.

The court thus emphasized that the plaintiff while initiating a suit needs to be diligent in finding out who is the owner of the property at the filing of the suit.

Justice Subba Reddy Satti in its order said, "A necessary party ought to be joined as a party to the suit, and in whose absence, an effective decree cannot be passed by the Court. A proper party is a person whose presence would enable the Court to completely, effectively and properly adjudicate upon all matters and issues, though he may not be a person in favour of or against whom a decree is to be made...Normally in a suit for the specific performance of a contract, the contracting parties alone are proper and necessary. The Court will not adjudicate third-party rights. However, in cases of the one on hand, even the purchaser of the property from the same vendor is a necessary party. By arranging the purchaser, after the agreement of sale, valuable judicial time can be saved. In fact, such a step is not difficult if one verifies the encumbrance certificate, which will reflect all the registered transactions. The importance of arranging the subsequent purchaser as a party defendant is discussed...If proper parties are shown, looking at the encumbrance certificate, the time spent in interlocutory applications can be avoided be it pending the suit or after the decree. This procedure may also inspire confidence in the general public. 'Let the litigant not miss faith in the system”.

On Encumbrance certificates

The high court said that encumbrance certificate sometimes "plays a vital role" and indicates the "bona fides of the parties" with respect to the efforts put in by them regarding verifying the information, particularly in the context of Section 3 of The Transfer of Property Act, which deals with constructive notice of certain things as to registered transactions.

"Of course, the Courts, normally at the numbering stage may not insist on filing of encumbrance certificate. The duty is not confined to the Court. Every stakeholder must be fair and dutiful towards the judicial institution. When a litigant is expecting relief from the judicial system, he/she/it is supposed to be diligent. One who is not diligent cannot claim that he is bona fide. A person, before, initiating litigation does not care to verify antecedents of the property viz., the subject matter of the litigation, by making reasonable and possible enquiries which one could easily make, he/she cannot subsequently blame anybody. The principles of fairness, good conscience, and equity, demand that one must be fair to the Court," the court observed.

It further said that a party filing a suit for specific performance, if verified by obtaining an Encumbrance Certificate as to right being intact with his vendor, can easily know if any other person is having interest and if such interest is after the interest of the plaintiff (the person initiating litigation).

In such a case, the court said, even the subsequent purchaser can be added and the subsequent purchaser becomes not merely a proper "but a necessary party" to the litigation.

"The Encumbrance Certificate may not disclose everything, may not be totally reliable, and may have its defects. However, the Encumbrance Certificate would indicate at least fairness and bona fides on the part of the stakeholders concerned if obtained, verified and enclosed with his plaint. Such exercise is advisable with the changing trends in civil litigation and the same will avoid delays...To avoid the multiplicity of the proceedings, the parties should file the encumbrance certificate along with the plaint, which will ease future litigation," it added.

Background

The revisionist before the high court had filed a suit before the trial court seeking specific performance of a 2015 agreement of sale against the sole defendant for a property valued at Rs. 19,30,000.

At the time of the agreement of sale, the plaintiff paid Rs.2,00,000 as advance and the balance sale consideration had to be paid on or before December 2015. The defendant approached the plaintiff and requested to arrange some sale consideration amount and the plaintiff paid Rs.2,50,000/- through her husband in September 2015 and the defendant passed on a receipt, which was scribed by her husband.

In January 2016, the defendant received Rs.1,50,000 from the plaintiff's husband and passed a receipt in the presence of witnesses. The said receipt was scribed by the defendant's husband. Thus, the defendant received a total amount of Rs.6,00,000 from the plaintiff. The plaintiff claimed that the defendant failed to perform her part of the contract and hence, the plaintiff issued a legal notice in March 2016.

The defendant in her written statement said that the plaintiff did not come to the Court with clean hands. Despite requests made by the defendant, the plaintiff failed to perform her part of the contract. The defendant approached the plaintiff to perform her part of the contract before December 2015, however, the plaintiff failed to perform the same. The defendant denied the receipts said to have been issued by her husband. The defendant to meet expenses, sold away the plaint schedule property to third parties and the said fact is known to the plaintiff and eventually, prayed to dismiss the suit.

The plaintiff initiated a suit and filed an interlocutory application to implead the subsequent purchasers, which the trial court dismissed. Challenging the said dismissal, the plaintiff approached the High Court by way of a revision petition.

Findings

The high court said that the plaintiff, before filing the suit ought to have verified the encumbrances over the property. It said that had the plaintiff verified the encumbrance certificate, he would have impleaded, the subsequent purchaser of the property, after the agreement to sell before filing the suit, as a party defendant.

"Normally, the Trial Courts do not insist on filing an Encumbrance Certificate at the stage of numbering the suit. However, in cases of this nature, by insisting upon the filing of an encumbrance certificate, the dispute can be adjudicated efficiently. The Advocate should have advised the plaintiff to get the encumbrance certificate so that the present situation could have been avoided," it said.

"The case at hand is a classic example. As discussed supra, despite the specific averment in the written statement, I.A. was filed at the fag end of the suit. Of course, as discussed supra, there are laches on the part of the plaintiff. However, the Hon'ble Apex Court dealt with the necessity of arranging the subsequent purchaser from the same vendor in a suit for specific performance about six decades back," the court added.

In the case at hand, the court said that despite the written statement filed by the defendant, the revisionist-plaintiff waited till the suit was coming up for arguments and filed the application for adding subsequent purchasers, which shows that the "plaintiff is not diligent".

However, to avoid multiplicity of the proceedings coupled the court deemed it appropriate to add the subsequent purchasers of the suit property as necessary parties for proper adjudication of the suit.

"Since the plaintiff procrastinated filing of application, this Court deems it appropriate to impose costs in the interests of justice and equity. The trial Court failed to exercise the jurisdiction vested with it and hence the order under revision is liable to be set aside," it said.

The court imposed a cost of Rs. 25,000 on the plaintiff, payable to the District Legal Services Authority within three weeks.

The high court directed that the Plaintiff shall file a neat copy of the plaint. It asked the Trial Court to issue notice to the proposed parties. It said that since the suit was filed in 2018 the trial Court shall dispose it of as expeditiously as possible.

Case title: GOLIVI RAMANAMMA vs. CHALLA LAKSHMI and Others

Counsel for petitioner: Aravala Rama Rao

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