In Specific Performance Suits, Advisable To Seek Interim Injunction Against Sale; Doctrine Of Lis Pendens May Not Be Good Enough : Supreme Court

The Supreme Court recently explained the importance of seeking an interim injunction in a suit for specific performance over simply relying on Section 52 of the Transfer of Property Act, 1882 (“TPA”).

The bench, comprising Justice J.B. Pardiwala and Justice R. Mahadevan, observed that although Section 52 TPA takes care of the pendente lite transfers, it may not be effective for taking full care of the plaintiff.

The Court clarified that in a suit seeking specific performance of a sale agreement, if the defendant is not prohibited from transferring the property to a third party, and the third party, unaware of the agreement, invests significantly in improving the property, equity would favor the third party. Consequently, the plaintiff would lose the right to demand specific performance of the contract.

“We may give one appropriate illustration of a suit for specific performance of contract based on an agreement of sale. In a suit wherein the plaintiff prays for specific performance and if the defendant is not restrained from selling the property to a third party and accordingly a third party purchases the same bona fide for value without any notice of the pending litigation and spends a huge sum for the improvement thereof or for construction thereon, the equity in his favour may intervene to persuade the Court to decline, in the exercise of its discretion, the equitable relief of specific performance to the plaintiff at the trial and to award damages only in favour of the plaintiff.”, the court explained.

The Court reasoned that if the remedy available under Section 52 TPA would have taken care of the pendente lite transfers, then the legislature would not have provided in Order 39 Rule 1 CPC for an interim injunction restraining the transfer of suit property in favour of the third party.

“It must be noted that Rule 1 of Order 39 of the Code clearly provides for interim injunction restraining the alienation or sale of the suit property and if the doctrine of lis pendens as enacted in Section 52 of the T. P. Act was regarded to have provided all the panacea against pendente lite transfers, the Legislature would not have provided in Rule 1 for interim! injunction restraining the transfer of suit property. Rule 1 of Order 39, in our view, clearly demonstrates that, notwithstanding the Rule of lis pendens in Section 52 of the T. P. Act, there can be occasion for the grant of injunction restraining pendente lite transfers in a fit and proper case.”, the court observed.

According to the Court, the interlocutory orders passed under Order 39 Rule 1 CPC aim to balance the interests of the plaintiff without letting the creation of equity in the third party's favor so that specific performance of the contract could be easily sought.

"Quite often, in these types of litigations, it is sought to be argued that an injunction restraining the defendant from transferring the suit property was absolutely unnecessary as no post-suit transfer by the defendant can adversely affect the result of the suit because of the provisions of Section 52 of the T. P. Act whereunder all such transfers cannot but abide by the result of the suit. It is true that the doctrine of lis pendens as enunciated in Section 52 of the T. P. Act takes care of all pendente lite transfers; but it may not always be good enough to take fullest care of the plaintiffs interest vis-a-vis such a transfer."

Also From Judgment : Interlocutory Order Passed By Trial Court Can't Be Vacated By Appellate Court Unless Shown To Be Perverse, Arbitrary: Supreme Court

Case Title: RAMAKANT AMBALAL CHOKSI VS HARISH AMBALAL CHOKSI & OTHERS

Citation : 2024 LiveLaw (SC) 939

Click here to read/download the order