1. This second appeal raises an interesting question on which, it is staled before me by counsel appearing at the Bar, there is no direct decision of any Court in India. The dispute relates to a house in Circle No. 17/23 at Nagpur originally of the ownership of the Hajrabi and her son Shaikh Hussain. On 3rd September 1946 Hajrabi and Shaikh Hussain agreed to sell the house to the plaintiff for Rs. 925. On 5th September 1945, one Chand Mohmad, who will hereafter be referred to as the first defendant, persuaded Hajrabi and Shaikh Hussain to sell the house to him. On 7th November 1943 the plaintiff was intimated about the sale to the first defendant but the plaintiff obtained on 6th December 1945 a sale deed of the house from Hajrabi and Shaikh Hussain in purported fulfilment of the obligation under the agreement dated 3rd September 1945.
The plaintiff then filed civil suit No. 12-A of 1949 in the Court of die 3rd Civil Judge, Class II, Nagpur, for a declaration that ho is the owner of the house purchased by him from Hajrabi and Shaikh Hussain (who were impleaded as defendants 2 and 3) and that the first defendant had acquired no right or title thereto under the sale deed dated 5-9-1955 the sale deed having been taken by the first defendant with due notice of the agreement dated 3rd September 1945 in plaintiff's favour. The plaintiff also claimed an injunction restraining the first defendant from disturbing the plaintiff's possession of the house in suit.
2. The first defendant denied the agreement for sale of the property dated 3rd September 1945 set up by the plaintiff and contended that in any event he had no notice of the agreement and that he had purchased the house bona fide for valuable consideration from defendants 2 and 3. He also contended that the suit for a mere declaration of title was not maintainable.
3. The learned trial Judge held that the defendants 2 and 3 had on 3rd September 1945 agreed to sell the house for Rs. 925 to the plaintiff, and the first defendant had, when he obtained the sale deed from defendants 2 and 3, notice of the agreement of sale. The learned Judge also held that the plaintiff was at the date of the suit in possession, and a suit for mere declaration of title and injunction was maintainable. Accordingly, he passed a decree declaring that the plaintiff was the owner of the house and granted an injunction restraining the first defendant from interfering with the plaintiff's possession. This decree was confirmed in appeal to the District Court at Nagpur. The learned Additional District Judge agreed with the view of the trial Court that decree was in fact an agreement between the plaintiff and defendants 2 and 3 for sale of the house on 3rd September 1945, and that the first defendant had with full notice of the agreement bought the house from defendants 2 and 3. The learned Judge also held in view of section 40 of the Transfer of Property Act that the right vested in the plaintiff could be enforced against the first defendant who was a transferee with, notice. Holding that the suit for a declaration and injunction was maintainable, the learned appellate Judge confirmed the decree passed by the trial Court
4. In this second appeal, Mr. Chandurkar has contended that the plaintiff's suit for a declaration of tide and injunction could not be maintained. It was urged that the proper remedy of the plaintiff was to sue for specific performance of the agreement. Counsel submitted that the title of the property vested in the first defendant under the conveyance dated 5th September 1945 and thereafter defendants 2 and 3 were incompetent to convey title under the sale deed dated 5th December 1945. Indisputably an agreement to sell immoveable property does not create any interest in the buyer and the title continues to remain in the owner till the formalities prescribed by Section 54 of the Transfer of property Act are complied with. Undoubtedly by the sale-deed dated 5th September 1945 the first defendant became the owner of the house.
But when on 6th December 1945 defendants 2 and 3, in pursuance of a pre-existing obligation, again purported to convey the house to the plaintiff, in my judgment, the plaintiff was entitled to set up the right acquired by him against the first defendant even though the sale deed in favour of the first defendant was earlier in point of time. Section 40 of the Transfer of Property Act, in so far as it is material, provides:
'..... ..where a third person is entitled to the benefit of an obligation arising out of contract, and annexed to the ownership of immovable property, but not amounting to an interest therein or easement thereon, such right or obligation may be enforced against a transferee with notice thereof ......' The plaintiff was entitled to the benefit of the obligation arising out of the contract, which by the contract of sale became annexed to the ownership of the house by virtue of section 40 of the Transfer of Property Act, and it could in law be enforced against the transferee with notice thereof. The first defendant, on the findings of the Courts below, was a transferee with notice of the benefit of the obligation in favour of the plaintiff, and if the right enforceable by virtue of section 40 of the Transfer of Property Act is an effective right, the Court will declare the right in favour of the plaintiff, the earlier conveyance in favour of defendant No. 1 notwithstanding. The circumstance that the first defendant had obtained an earlier conveyance in his favour does not in my view confer upon him an indefeasible title to the house. It was conceded and in my judgment, rightly that if defendants 2 and 3 had failed to carry out their obligation, the plaintiff could have sued them for specific performance of the agreement, and to the action for specific performance the plaintiff could implead the first defendant and lawfully claim a decree for specific performance against him relying upon the agreement and the notice thereof.
The plaintiff was therefore entitled to enforce the right under the agreement of sole by virtue of paragraph 2 of section 40 of the Transfer of Property Act against the first defendant, and there is no reason to suppose that the right can be enforced only by a suit for specific performance against the original owner. In this case, the plaintiff is absolved from tile necessity of filing a suit for specific performance. Defendants 2 and 3 realised the error of their ways and executed a conveyance in favour of the plaintiff, and the contract has now merged in the conveyance but the merger does not extinguish the plaintiff's right to avail himself of the benefit of the obligation in their favour.
If under a decree for specific performance, the title of the first defendant was liable to be defeated, I fail to understand why that title cannot be defeated by the sale deed executed by defendants 2 and 3 in favour of the plaintiff in recognition of the obligation under the earlier agreement. Section 91 of the Indian Trusts Act also conies in aid of the plaintiff. That section imposes upon a person acquiring property with notice that another person has entered into an existing contract affecting that property, an obligation to hold the property for the benefit of the other person to the extent necessary to give effect to the contract, provided the contract is one of which specific performance can be enforced.
The obligation to hold the property purchased subject to an earlier contract attaches, if the contract is an existing contract and can be specifically enforced. Mr. Chandurkar conceded that he was unable to find any decided case which directly supported the submission made by him; but he invited my attention to two decisions which it was urged had an indirect bearing. The first decision is Sadei Sahu v. Chandramani Dei : AIR1948Pat60 . That was a case in which the owner agreed to sell certain immovable property to the plaintiff, and in breach of the obligation undertaken by him, the owner sold the property to another person. The plaintiff did not file a suit against the purchaser and allowed the right to obtain specific performance of the agreement to be barred by the law of limitation. The question arose whether the plaintiff was still entitled to rely upon Section 91 of the Trusts Act.
The Court held that the words 'to the extent necessary to give effect to the contract' in that section meant to the extent necessary to give effect to the only means that exist of enforcing the contract, namely, a suit for specific performance''. It was observed that once the remedy by way of specific performance was barred under Article 113, Limitation Act, the plaintiff to whom the vendor first contracted to sell the property had no further or other remedy such as a suit for possession. That case, in my judgment, has no application.
That was a case in which out of the two competing claimants one was entitled only to a contract enforcement of which was barred by the law of limitation and the other had a conveyance in his favour. The claimant who had obtained conveyance in his favour was in possession and the only right which the claimant with a contract in his favour had was to obtain specific performance of the agreement, but he permitted that right to become ineffective by the expiry of the period of limitation.
Undoubtedly Section 40 of the Transfer of Property Act enables the benefit of an obligation arising out a contract annexed to the ownership of immovable property to be enforced against the transferee with notice; but if by reason of the law of limitation, the right to enforce has ceased to be effective, that section cannot come to the aid of the party entitled to the benefit of the obligation. In the present case, the plaintiff does not merely rely upon the benefit of an obligation arising out of the contract but he relies upon the benefit of the obligation together with the conveyance which effectuates that benefit.
5. The second case on which reliance was sought to be placed by Mr. Chandurkar is a judgment of their Lordships of the Supreme Court in Durga Prasad v. Deep Chand : 1SCR360 . That was a case in which the Court was concerned with the form of a decree to be passed for specific performance in favour of a person who has agreed to purchase property and since the date of the agreement the property has been sold by the owner to another. Mr. Justice Bose, in delivering the judgment of the Court, observed that 'the proper form of decree is to direct specific performance of the contract between the vendor and the prior transferee and direct the subsequent transferee to join in the conveyance so as to pass on the title which resides in him to the prior transferee'.
It was also observed that 'the subsequent transferee does not join in any special covenants made between the prior transferee and his vendor; all he does is to pass on his title to the prior transferee.' In that case the Court was concerned to set out the form of the decree in cases where the plaintiff had not obtained a sale deed in his favour and was seeking to enforce an agreement to sell against a transferee of the property with notice of the agreement under Section 27 of the Specific Relief Act.
The observations made in that case can, in my judgment, have no hearing on the principle applicable to this case where the benefit of the obligation arising out of a contract and annexed to the owner is merged in a sale-deed in favour of the person entitled to the benefit and he is seeking to enforce his right against a person who has purchased the property with notice of the contract. In my view, the learned appellate Judge was right in holding that the plaintiff was entitled to the declaration he has claimed.
6. The appeal, therefore, fails and is dismissed with costs.
7. Appeal dismissed