Ram Baran Prasad v. Ram Mohit Hazra, (SC) BS109766
SUPREME COURT OF INDIA

Before:- V. Ramaswami, V. Bhargava and Raghubar Dayal JJ.

Civil Appeal No. 609 of 1964. D/d. 6.9.1966.

Ram Baran Prasad - Appellant

Versus

Ram Mohit Hazara and others - Respondents

For the Appellant :- Mr. Bishan Narain, Senior Advocate, (Mr. B. P. Maheswari, Advocate.

For the Respondent Nos. 1 and 2:- Mr, N. C. Chatterjee, Senior Advocate, (Mr. Sukumar Ghose, Advocate.

A. Specific Relief Act, 1877, Sections 23(b) and 27(b) Contract Act, 1872 Sections 37 and 40 Contract for sale - Contract in absence of a contrary intention, express or implied, is enforceable by and against the parties thereto and their legal heirs and legal representatives including assignees and transferees - Pre-emption clause in award of partition not stating anything as to whether it was binding on assignees or successors-in-interest - Held, in the context and circumstances of the case in which partition award was made indicated that pre-emption clause was not merely a personal covenant between the contracting parties but was a covenant binding on assignees or successors-in-interest of original contracting parties. AIR 1961 Calcutta 152, Affirmed.

[Paras 3 and 5]

B. Transfer of Property Act, 1882 Sections 14, 40 and 54 Contract Act, 1872 Section 23 Successions Act, 1925 Section 114 Contract for sale - Rule against perpetuities - Object and scope of - Rule concerns rights of property only and does not affect making of contracts which do not create rights of property - Covenant for pre-emption in a deed of partition unlimited in point of time whether offends rule against perpetuities - Position under English Law as to contract for purchase of real property - Position in India before passing of Transfer of Property Act, 1882 and after its passing - Scope and effect of Sections 40 and 54 that agreement created an interest in the land itself in favour of purchaser - That Rule against perpetuities cannot be applied to covenant for pre-emption even though there is no time limit within which such right has to be exercised.

[Paras 7 and 8]

Cases Referred :-

Walsh v. Secretary of State for India), (1863) 10 HLC 367: 11 ER 1068.

South Eastern Railway Co. v. Associated Portland Cement Manufacturers Ltd.), 1910-1 Ch 12.

Witham v. Vane, William Harry, Earl of Darlington sold in 1824.

London and South Western Railway Co. v. Comm, (1882) 20 ChD 562.

Fati Chand Sahu v. Lilambar Sing Das, (1871) 9 Beng LR 43,3 (PC).

Tripoota Soonduree v. Juggurn Nath Dutt, (1874) 24 Suth WR 321.

Allibhai Mahomed v. Dada Alli Isap, AIR 1931 Bombay 578.

Maharaj Bahadur Singh v. Bal Chand, 48 Ind App 376.

Auad Ali v. Ali Athar, ILR 49 Allahabad 527.

Chinna Munuswami Nayudu v. Sagalaguna Nayudu, ILR 49 Madras 387.

Nobin Chandra Soot v. Nabab Ali Sarkar, (1001) 5 Cal WN 343.

Gopi Ram v. Jeot Ram, ILR 45 Allahabad 478.

JUDGMENT

Ramaswami, J. - This appeal is brought, by special leave, from the judgment of the Calcutta High Court dated November 18, 1959 in First Appeal No. 104 of 1954 affirming the judgment and decree dated February 27, 1954 for the Subordinate Judge, Fifth Court, at Alipore District 24 Paraganas in Title Suit No. 100 of 1952 decreeing the suit for pre-emption in favour of the plaintiffs-respondents Nos. 1 and 2.

2. Two brothers, Tulshidas Chatterjee and Kishorilal Chatterjee owned certain properties (Land and building) on Paharpur Road within Mouza Garden Reach, Khiderpore, in the suburbs of Calcutta. In the year 1938 Kishorilal sued for partition of the properties and eventually the matter was referred to arbitration. On December 16, 1940, the arbitrators filed their award on which a final decree was passed on March 15, 1941 in the partition suit. Under the award, two of the four blocks, A, B, C, and D, into which the properties were divided by the arbitrators, namely, blocks A and C, were allotted to Tulshidas and the remaining two blocks, B and D were allotted to Kishorilal. Two common passages marked as X and Y and a common drain Z were kept joint between the parties for their use. In the award there was a clause to the following effect:

Thereafter, on August 20, 1941 Tulshidas sold his A block to one Nagendra Nath Ghosh. This was done after Kishorilal's refusal to pre-empt the same in spite of Tulshidas's offer to him in terms of the pre-emption clause. On April 22, 1942, Kishorilal sold, by the Kobala (Ex. I), his two blocks, B and D to Rati Raman Mukherjee and others. On June 21, 1946, the Mukerjees in their turn sold the two blocks B and D to the plaintiffs by the Kobala [Ex. 1(a)]. On September 20, 1952 Nagendra Nath Ghosh sold block A to defendant No. 1 and on December 2, 1952, the present suit was filed by the plaintiffs against the said purchaser-defendant No. 1 for pre-empting his aforesaid purchase. On April 7, 1953 while the suit was pending in the trial Court, defendant No. 1 sold the disputed property (block A) to defendant No. 2. The plaintiffs thereafter made an application for amendment of the plaint praying for a decree for pre-emption against defendants Nos. 1 and 2 and calling upon them to execute a conveyance in favour of the plaintiffs on payment of the actual consideration paid for the property in suit. On the conclusion of the trial the Subordinate Judge held that the covenant of pre-emption was binding upon the defendants who had notice of that clause and plaintiffs were entitled to enforce the right of pre-emption. He further held that the covenant of pre-emption was not hit enforceable against the assignees of the original parties to the contract. Accordingly a decree was granted to the plaintiffs asking them to deposit within one month a sum of Rs. 14,000 for the purpose of pre-empting the suit property and both defendants were directed to execute and register a Kobala in plaintiffs' favour within 15 days of the deposit by the plaintiffs. The defendants took the matter in appeal to the Calcutta High Court, which dismissed the appeal and affirmed the judgement and decree of the Subordinate Judge.

3. On behalf of the appellant learned Counsel put forward the argument that the covenant for pre-emption was merely a personal covenant between the contracting parties and was not binding against successors-in-interest or the assignees of the original parties to the contract. We are unable to accept this submission as correct. It is true that the pre-emption clause does not expressly state that it is binding upon the assignees or successors-in-interest, but , having regard to the context and the circumstances in which the award was made, it is manifest that the pre-emption clause must be construed as binding upon the assignees or successors-in-interest of the original contracting parties.

4. Prima facie rights of the parties to a contract are assignable. Section 23 (b) of the Specific Relief Act states:

5. Section 27 (b) of the Act is to the following effect :

Reference should also be made to Sections 37 and 40 of the Contract Act which are to the following effect:

In substance these statutory provisions lay down that, subject to certain exceptions which are not material in this case a contract in the absence of a contrary intention express or implied will be enforceable by and against the parties and their legal heirs and legal representatives including assignees and transferees. In the present case, there is nothing in the language of the pre-emption clause or the other clauses of the award suggest that the parties had any contrary intention. On the other hand a reference to the other clauses of the award shows that the parties intended that the obligations and benefits of the contract should go to the assignees or successors-in-interest. The following clauses of the award are important :

It is obvious that in these clauses the expression "parties" cannot be restricted to the original parties to the contract but must include the legal representatives and assignees of the original parties. There is hence no reason why the same expression should be given a restricted meaning in the pre-emption clause, which is the subject matter of interpretation in the present appeal. On behalf of the respondents Mr. N. C. Chatterji rightly argued that the preparation clause was based upon the ground of vicinage and this circumstance would also suggest that the intention of the parties was that the pre-emption clause should be binding upon the heirs and successors-in-interest and the assignees of the original parties to the Contract We accordingly hold that Mr. Bishen Narain on behalf of the appellant is unable to make good his submissions on this aspect of the case.

6. We pass on to consider the next question which arises in this appeal, namely, whether the covenant of pre-emption offends the rule against perpetuities and is, therefore, void and not enforceable even against the original contracting parties.

7. "A perpetuity", as defined by Lewis in his well-known book on "Perpetuities" (p. 164), is a future limitation, whether executory or by way of remainder, and of either real or personal property which is not to vest until after the expiration of, or will not necessarily vest within, the period fixed and prescribed by law for the creation of future estates and interests'. The rule as formulated falls within the branch of the law of property and its true object is to restrain the creation of future conditional interest in property. The rule against perpetuities is not concerned with contract as such or with contractual rights and obligations as such. Thus a contract to pay money to a person, his heirs or legal representatives upon a future contingency, which may happen beyond the period prescribed would be perfectly valid (Walsh v. Secretary of State for India), (1863) 10 HLC 367: 11 ER 1068. It is , therefore , well established that the rule of perpetuity concerns rights of property only and does not affect the making of contracts which do not create rights of property.

8. The rule does not therefore apply to personal contracts which do not create interest in property (See the decision of the Court of Appeal in South Eastern Railway Co. v. Associated Portland Cement Manufacturers Ltd.), 1910-1 Ch 12 ,even though the contract may have reference to land. In Witham v. Vane, William Harry, Earl of Darlington sold in 1824 the manor of Hutton Henry and other hereditaments to George Silvertop. In the conveyance there was a convenant that the said Earl, his heirs, executors, administrators or assigns would pay six pence for each chaldron of coal which would be wrought or gotten out of the lands so sold and which would be shipped for sale, to George Silvertop, his heirs, executors, administrators or assigns. The covenant was enforced in 1883 at the instance of an assignee from the legal representatives of George Silvertop against the executors of the Earl. The Lord Chancellor (Earl of Silborne) overruled the plea that the covenant offended the rule against perpetuities on the ground that though the covenant had relation to land, it did not amount to a reservation of any interest in land.

9. In English law a contract for purchase of real property is regarded as creating, an equitable interest, and if, in the absence of a time limit, it is possible that the option for repurchase might he exercised beyond the prescribed period fixed by the perpetuity rule, the covenant is regarded as altogether void. It has, therefore, been held that a, covenant for pre-emption unlimited in point of time is bad as being obnoxious the rule against perpetuities. The point was settled by the Court of appeal in London and South Western Railway Co. v. Comm, (1882) 20 ChD 562, which is the leading English authority on the point. In that case, the plaintiff company conveyed certain lands to Powell in 1865 and Powell covenanted with the company that he, his heirs, and assigns, would at any time. on receipt of # I00, recovery the lands to the company, In 1879, the defendant Comm purchased the land from Powell's heirs with notice of the above covenant, and in 1880 the company gave, the defendant 'a notice to recover the land, and on his refusal brought the suit for specific performance. Kay, J. gave the plaintiff a decree, being of the opinion that, as the covenant did not create any estate or interest in the land, it was not obnoxious to the rule against perpetuities. This decision was reversed by the Court of appeal. and it was held that the option to purchase created an equitable interest in the land which attracted the operation of the perpetuity rule. Sir George Jessel M. R. observed, in his judgment, that the right to call for a conveyance of land was an equitable interest or equitable estate. There was no doubt about it in an ordinary case of contract for purchase, and an option for repurchase did not stand on a different footing. In the course of his judgment the learned Master of Rolls observed as follows:

10. In the case of an agreement for sale entered into prior to the passing of the Transfer of Property Act. it was the accepted doctrine in India that the agreement created an interest in the land itself in favour of the purchaser. For instance, in Fati Chand Sahu v. Lilambar Sing Das, (1871) 9 Beng LR 43,3 (PC), a suit for specific performance of a Contract for sale was dismissed on the ground that the agreement. which was held to create an interest in the land was not registered under Section 17, Clause (2) of the Indian Registration Act of 1866. Following this principle, Mr. Markby, J in Tripoota Soonduree v. Juggurn Nath Dutt, (1874) 24 Suth WR 321, expressed the opinion that a covenant for pre-emption contained in a deed of partition, which was unlimited in point of time, was not enforceable in law. The same view was taken by Baker, J. in Allibhai Mahomed v. Dada Alli Isap, AIR 1931 Bombay 578, where the option of purchase was contained in a contract entered into before the passing of the Transfer of Property Act. The decision of the Judicial Committee in Maharaj Bahadur Singh v. Bal Chand, 48 Ind App 376, was also a decision relating to a contract of the year 1872. In that case, the proprietor of a hill entered into an agreement with a society of Jains that, if the latter would require a site thereon for the reaction of a temple, he and his heirs would grant the site free of cost. The proprietor afterwards alienated the hill. The society, through their representatives, sued the alienees for possession of a site defined by boundaries, alleging notice to the proprietor requiring that site and that they had taken possession, but been dispossessed. It was held by the Judicial Committee that the suit must fail. The Judicial Committee was of the opinion that the agreement conferred on the society no present estate or interest in the site, and was unenforceable as a covenant, since it did not run with the land, and infringed the rule against perpetuity. Lord Buckmaster who pronounced the opinion of the Judicial Committee observed as follows :

11. But there has been a change in the legal position in India since the passing of the Transfer of Property Act. Section 54 of the Act states that a contract for sale of immovable property "does not of itself, create any interest in or charge on such property". Section 40 of the Act is also important and reads as follows :

The second paragraph Section 40 taken with the illustration establishes two propositions (1) that a contract for sale does not create any interest in the land, but is annexed to the ownership of the land, and (2) that the obligation can be enforced against a subsequent gratuitous transferee from the vendor or a transferee for value but with notice. Section 14 of the Act states as follows :

Reading Section 14 along with Section 54 of the Transfer of Property Act it is manifest that a mere contract for sale of immoveable property does not create any interest in the immoveable property and it, therefore, follows that the rule of perpetuity cannot be applied to a covenant of pre-emption even thought there is no time limit within which the option has to be exercised. It is true that the second paragraph of Section 40 of the Transfer of Property Act makes a substantial departure from the English law, for an obligation under a contract which creates no interest in land but which concerns land is made enforceable against an assignee of the land who takes from the promissory either gratuitously or takes for value but with notice. A contract of this nature does not stand on the same footing as a mere personal contract, for it can be enforced against an assignee with notice. There is a superficial kind of resemblance between the personal obligation created by the contract of sale described under Section 40 of the Act which arises out of the contract, and annexed to the ownership of immoveable property, but not amounting to an interest therein or easement thereon and the equitable interest of the person purchasing under the English Law, in that both these rights are liable to be defeated by a purchaser for value without notice. But the analogy cannot be carried further and the rule against perpetuity which applies to equitable estates in English law cannot be applied to a covenant of premption because Section 40 of the statute does not make the covenant enforceable against the assignee on the footing that it creates an interest in the land.

12. We are accordingly of the opinion that the covenant for pre-emption in this case does not offend the rule against perpetuities and cannot be considered to be void in law. The view that we have expressed is borne out by the decisions of the Calcutta High Court in Ali Hossain Miya v, Raj Kumar Haldar, ILR (1943) 2 Cal 605, of the Allahabad High Court in Auad Ali v. Ali Athar, ILR 49 Allahabad 527, and of the Madras High Court in Chinna Munuswami Nayudu v. Sagalaguna Nayudu, ILR 49 Madras 387. Mr. Bishen Narain relied on the decision of the Calcutta High Court in Nobin Chandra Soot v. Nabab Ali Sarkar, (1001) 5 Cal WN 343, and the Jndgmentof the Allahabad High Court in Gopi Ram v. Jeot Ram, ILR 45 Allahabad 478. For the reasons we have already stated we hold that the later decisions in ILR (1943), 2 Cal 605 supra. in 11, R49 Mad 387, supra and in ILR 49 AII 527, supra, correctly state the law on the point.

13. For the reasons expressed we hold that the decision of the High Court is correct and this appeal must be dismissed with costs.

Appeal dismissed.