S.19(b) Specific Relief Act | To Claim 'Bona Fide Purchaser' Protection, Subsequent Purchaser Must Make Due Inquiries : Supreme Court

In a recent decision, the Supreme Court observed that a 'subsequent purchaser' of immovable property cannot claim the benefit of a 'bona fide' purchaser under Section 19(b) of the Specific Relief Act, 1963 (“Act”) if they fail to exercise due diligence regarding the status of the current possessor of the property they intend to purchase

The bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan observed that a subsequent purchaser who fails to conduct proper inquiries about the title and interest in the immovable property they intend to purchase cannot be deemed a 'bona fide' purchaser under Section 19(b) of the Act.

Section 19(b) of the Act enables enforcement of the agreement to sell against subsequent purchasers unless they are bona fide purchasers who acquire property in good faith, for value, and without notice of the original contract. This protection is an exception to the general rule, placing the burden of proof on the purchaser to establish that they acted in good faith and are innocent purchasers.

In this case, the plaintiff (buyer) and the defendant (seller) had an oral agreement to sell the suit property. Despite a contract with the plaintiff, the defendant sold the property to the appellants (subsequent purchasers). The Aggrieved plaintiff sought specific performance of the agreement.

The trial court ruled in the plaintiff's favor, but the First Appellate Court set aside the decree. On a second appeal, the High Court questioned whether the First Appellate Court had erred in finding the appellants bona fide purchasers under Section 19(b) of the Specific Relief Act, 1963. The High Court held the appellants were not bona fide purchasers, as they failed to inquire into the property's title and possession.

The Supreme Court affirmed the High Court's decision, ruling that the appellants' lack of due diligence disqualified them from protection under Section 19(b). One crucial fact was that the plaintiff's husband was in possession of the property as a mortgagee.

The Court held that the appellants failed to prove they purchased the property in good faith, as they did not inquire into the existing rights and interests in the suit property. It stressed the need for subsequent purchasers to conduct diligent inquiries into the property's status rather than relying solely on the seller's assurances.

Highlighting the evolving nature of property interests, such as a tenant later acquiring ownership, the Court underscored the importance of verifying the title and possession at the time of purchase. Citing R.K. Mohammed Ubaidullah v. Hajee C. Abdul Wahab (2000), it reiterated that actual possession serves as constructive notice of the possessor's title, necessitating thorough investigation by the purchaser.

“A person may enter the property in one capacity and having a kind of interest. But subsequently while continuing in possession of the property his capacity or interest may change. A person entering the property as Tenant later may become usufructuary mortgagee or may be agreement holder to purchase the same property or may be some other interest is created in his favour subsequently. Hence, with reference to subsequent purchaser it is essential that he should make an inquiry as to the title or interest of the person in actual possession as on the date when the sale transaction was made in his favour. The actual possession of a person itself is deemed or constructive notice of the title if any, of a person who is for the time being in actual possession thereof. A subsequent purchaser has to make inquiry as to further interest, nature of possession and title under which the person was continuing in possession on the date of purchase of the property”, the Court said in R.K. Mohammed Ubaidullah's case.

Reference was also made to Ram Niwas v. Bano, 2000 (6) SCC 685 which observed :

"If the purchasers have relied upon the assertion of the vendor or on their own knowledge and abstained from making inquiry into the real nature of the possession of the tenant, they cannot escape from the consequences of the deemed notice under Explanation II to Section 3 of the Transfer of Property Act.”

The Court found that the appellants didn't act honestly to elicit the correct position of the property before purchasing the same, thus it can't be said that they were entitled to claim the benefit of the bona fide purchasers.

In this regard, the Court referred to the famous case of Daniels v. Davison (1809) where the Lord Chancellor held that:

“where there is a tenant in possession under a lease, or an agreement, a person purchasing part of the estate must be bound to inquire on what terms that person is in possession … that a tenant being in possession under a lease, with an agreement in his pocket to become the purchaser, those circumstances altogether give him an equity repelling the claim of a subsequent purchaser who made no inquiry as to the nature of his possession.”

The judgment also made reference to Section 2(11) of the Bhartiya Nyaya Sanhita, 2023 which defines “good faith”, as follows:—

"Nothing is said to be done or believed in “good faith” which is done or believed without due care and attention;”

Section 3(22) of the General Clauses Act defines "good faith" as : A thing shall be deemed to be done in good faith where it is in fact done honestly whether it is done negligently or not.

"The abovesaid definitions and the meaning of the term 'good faith” indicate that in order to come to a conclusion that an act was done in good faith it must have been done with due care and attention and there should not be any negligence or dishonesty. Each aspect is a complement to the other and not an exclusion of the other. The definition of the Penal Code, 1860 emphasises due care and attention whereas General Clauses Act emphasises honesty," the Court observed.

The Court held that the appellant's failure to make the necessary inquiries regarding the plaintiff's rights and the title of the property, entitled the plaintiff to seek the specific performance of the oral agreement.

Accordingly, the appeal was dismissed.

Appearance:

For Petitioner(s) Mr. Vishal Mahajan, Adv. Mr. Anil Kumar, Adv. Ms. Reena Devi, Adv. Mr. Vinod Sharma, AOR

For Respondent(s) Mr. M.L. Saggar, Sr. Adv. Mrs. Tanuj Bagga Sharma, AOR Ms. Armaan Saggar, Adv. Dr. M.K. Ravi, Adv. Mr. Sudarshan Singh Rawat, AOR Mr. Sskhaira, Adv. Mr. Sunny Sachin Rawat, Adv.

Case Title: MANJIT SINGH & ANR. VERSUS DARSHANA DEVI & ORS.

Citation : 2024 LiveLaw (SC) 919

Click here to read/download the judgment