Institute of Legal and Management Studies

In a significant ruling interpreting Section 19(b) of the Specific Relief Act, 1963, the Supreme Court has held that a subsequent purchaser who relies unquestioningly on the assertions of the vendor, without exercising due diligence or making reasonable inquiries, cannot claim protection as a bona fide purchaser for value without notice.

The Bench of Justices JB Pardiwala and R Mahadevan, rejected the claim of subsequent purchasers who contended that they were entitled to protection under Section 19(b) against a prior agreement to sell. The Court found that the subsequent purchasers were aware of a previous agreement to sell, which was unilaterally cancelled by the vendor. Since the cancellation was unilateral, it was illegal and hence the original vendees had the right to seek specific performance , the Court held.

Background Of The Case

The dispute arose out of an Agreement to Sell (ATS) executed in April 2000 for about 354 acres of agricultural land in Haveri district, Karnataka. The original vendors agreed to sell the land to certain vendees for a consideration of around Rs. 26 lakh and accepted an advance of Rs. 2 lakh. Later, in 2003, the vendors unilaterally terminated the agreement claiming they were “unable to execute the sale deed” due to a status quo order in a pending suit and the death of one of the vendors. Despite this, the vendees continued to assert their rights under the agreement. Meanwhile, in 2007, the same land was sold to new purchasers. Thereafter, the original vendees filed Suit No. 36 of 2007 seeking specific performance of the ATS. The trial court rejected their suit for specific performance and granted alternative relief for refund of earnest money and damages. The High Court allowed the vendees' appeals, held subsequent purchasers were not bona fide purchasers for value without notice, and directed them to execute sale deeds in favour of original vendees. Challenging this, the subsequent purchasers approached the Supreme Court, contending that the agreement cannot be enforced against them as they are bona fide purchasers for value, having no notice of the original contract, and hence protected as per Section 19(b).

Termination Notice Itself Revealed Vendor's Unilateral Act

The Supreme Court noted that the termination notice shown by the vendors to the appellant made it clear that it was unilateral, and hence susceptible to legal challenge.

The very language of the termination notice relied upon by the subsequent purchasers should have prompted them to make inquiries. The notice stated that the vendors were “unable to execute a sale deed” due to a status quo order in an earlier suit and the death of one of the vendors, and that they “could not wait indefinitely.”

According to the Court, these reasons reflected mere personal inconvenience of the vendors, not any default on the part of the original vendees. The so-called termination was therefore “unilateral and self-serving.”

“Upon a bare reading of the said notice of termination, the subsequent purchasers ought to have made inquiries to ascertain whether the original vendees had challenged the termination by any subsequent communication,” the Court noted.

Failure To Make Inquiry Defeats Good Faith Claim

The Supreme Court emphasized that a purchaser who merely accepts the vendor's version and avoids making further inquiry cannot be treated as acting in good faith.

“It is a trite law that a subsequent purchaser who relies merely on the assertions of the vendor or who chooses to remain content with his own limited knowledge while consciously abstaining from making further inquiry into the subsisting interests in the property cannot escape the consequences of deemed notice,” the Court said, adding that equity will not assist a transferee who deliberately avoids the truth that lies open to discovery.

"Thus, a purchaser who has before him a document which on its very face shows the termination to be unilateral and rooted in the vendors' inconvenience cannot by shutting his eyes claim the benefit of “good faith”."

Means To Verify Were Available

The judgment also highlighted that the termination notice itself contained the names and addresses of the original vendees, giving the subsequent purchasers a direct means of contacting them to verify whether the sale agreement had indeed been terminated or whether the earnest money had been refunded.

“Their deliberate abstention from this inquiry despite having the means readily available cannot be dismissed as mere oversight. It would constitute, in the words of Sir James Wigram VC, a 'designed abstention for the very purpose of avoiding notice',” the Court remarked.

Referring to earlier precedents including Ram Niwas v. Bano, Durg Singh v. Ganeshram, and Jammula Rama Rao v. Rukmini Bai, the Bench reiterated that to invoke Section 19(b) protection, a purchaser must establish:

(a) purchase for value;

(b) payment made in good faith; and

(c) absence of notice of the earlier contract.

'Notice' can also be constructive or imputed notice.

From the facts, the Court found that the subsequent purchasers were aware that:

-there existed an Agreement to Sell dated 28.04.2000;

-the original vendees had paid earnest money of Rs. 2 lakh;

-the vendors had sought to terminate the agreement due to their own inability arising from a status quo order; and

-the vendees continued to contest proceedings relating to the property until 2005, well after the termination notice.

These facts, the Court held, were sufficient to arouse suspicion and mandate further inquiry by any prudent purchaser. The failure to do so destroyed any claim of bona fides.

Concluding that the purchasers had “ample opportunity to become aware of the facts but abstained from making any such inquiries,” the Court declared that they could not seek refuge under Section 19(b).

“It is therefore beyond cavil that the subsequent purchasers cannot take shelter under Section 19(b) of the Act of 1963. Far from showing honesty and due care, their conduct reveals studied indifference to facts which were staring them in the face,” the Court said.

Also from the judgment - Unilateral Termination Of Agreement To Sell Invalid If Contract Doesn't Allow It : Supreme Court

Cause Title: K. S. MANJUNATH AND ORS. Versus MOORASAVIRAPPA @ MUTTANNA CHENNAPPA BATIL SINCE DECEASED BY HIS LRS AND ORS.

Citation : 2025 LiveLaw (SC) 1084

Click here to read the judgment