In a recent judgement, the Supreme Court reiterated that once a transaction is found to be impacted by the doctrine of lis pendens, the defences of being a bona fide purchaser and lacking notice of a prior sale agreement are not tenable. This decision was made by a bench comprising Justices Hrishikesh Roy and Pankaj Mithal while hearing an appeal challenging a High Court verdict, which had decreed specific performance of a sale agreement, despite a subsequent sale deed executed during the pendency of the suit.
Background of the Case:
The case stemmed from a sale agreement dated August 17, 1990. The plaintiff filed a suit on December 24, 1992, seeking specific performance of the agreement. The defendant denied executing the agreement. While the suit was pending, another individual, referred to as defendant no. 2, was added to the case after purchasing the land on January 8, 1993. Defendant no. 2 claimed to be a bona fide purchaser without any knowledge of the prior sale agreement.
The trial court, while recognizing the validity of the sale agreement, declined to decree specific performance due to the sale deed executed in favor of defendant no. 2 during the suit’s pendency. The court accepted defendant no. 2’s claim of being a bona fide purchaser without notice of the sale agreement and awarded the plaintiff a refund of the advance amount instead. On appeal, the First Appellate Court took a different view, finding the agreement to be collusive and denying the decree of specific performance.
However, the High Court ruled in favor of the plaintiff, directing specific performance of the agreement. It held that defendant no. 2 was not a bona fide purchaser, reasoning that the sale was conducted just before the defendant’s scheduled court appearance. Additionally, since defendant no. 2 resided in the same village, the High Court doubted his claim of ignorance about the prior agreement.
Supreme Court’s Analysis:
Defendant no. 2 challenged the High Court’s judgement in the Supreme Court. The Supreme Court, at the outset, noted that the First Appellate Court had improperly concluded the sale agreement was collusive, given that the defendants had not filed a cross-appeal or cross-objection challenging the trial court’s findings. The Court stated, “In absence of cross-appeal or cross-objections by the defendants, the First Appellate Court could not have recorded a finding that the subject agreement was a result of collusion between the plaintiff and defendant no. 1.”
The Supreme Court extensively referred to prior rulings on the doctrine of lis pendens, a legal principle embodied in Section 52 of the Transfer of Property Act, 1882. This doctrine prevents any transfer of property rights during the pendency of a legal dispute. The Court underscored that this principle applies regardless of whether the transferee had notice of the ongoing litigation.
Citing cases like Usha Sinha vs. Dina Ram (2008) and Sanjay Verma vs. Manik Roy (2006), the Court emphasised that a purchaser during the pendency of a suit is bound by the outcome of that suit, just as if they were a party to it. The Court further clarified that the doctrine of lis pendens applies even to a purchaser who acts in good faith.
Applying these legal principles to the case at hand, the Supreme Court held that since the sale deed was executed during the pendency of the suit, the doctrine of lis pendens applied, rendering the defence of being a bona fide purchaser irrelevant. Consequently, the High Court was correct in overturning the trial court’s judgment and ordering specific performance of the sale agreement.
Senior Advocate Harin P Raval appeared for the appellant, while Senior Advocate Manoj Swarup represented the respondent in this case.
