Supreme Court of India
VINOD SETHversusDEVINDER BAJAJ AND ANR.
- Citation
- 2010 INSC 347
- Decided
- 5 July 2010
- Disposal
- Case Partly allowed
Holding
A civil court cannot, under any provision of the CPC, the Transfer of Property Act or the Specific Relief Act, compel a plaintiff to give an undertaking to pay damages if he loses the suit; such an order is beyond its jurisdiction.
Summary
The plaintiff, a builder, sued the owners of a residential property for specific performance of an alleged oral collaboration agreement to develop the land. The High Court, noting the suit's low chance of success and heavy court dockets, ordered the plaintiff to furnish an undertaking to pay Rs.25 lakhs as damages if he lost. The Supreme Court examined whether such an order was within the court's power, considering the enforceability of the oral agreement, the doctrine of lis pendens under Section 52 of the Transfer of Property Act, and the inherent powers under Section 151 of the CPC. It held that no provision in the CPC, the Transfer of Property Act, or the Specific Relief Act authorises a plaintiff to be compelled to give a damages undertaking, deeming the order an unlawful "order in terrorem". The Court allowed the defendants to deal with the property despite the pendency of the suit, subject to a security of Rs.3 lakhs, and set aside the High Court's undertaking direction. The appeal was partly allowed.
Issues considered
- The court's power to direct a plaintiff to furnish an undertaking to pay damages in case of an unsuccessful suit for specific performance.
- Whether the alleged oral collaboration agreement is specifically enforceable under the Specific Relief Act, 1963.
- The applicability and scope of Section 52 of the Transfer of Property Act, 1882 (doctrine of lis pendens) in the present suit.
- The extent of the inherent powers of a civil court under Section 151 of the CPC to issue orders not covered by specific provisions.
- The appropriate remedy for the defendants under the Transfer of Property Act when a suit creates a cloud over the title.
Legislation cited
- Code of Civil Procedure, 1908s. 14(2), s. 151, s. 17(2), s. 17(3), s. 25(1), s. 35, s. 358, s. 35A, s. 39(2)(2), s. 7(11), s. 95
- Specific Relief Act, 1963s. 14(1)(b), s. 14(1)(d), s. 21
- Transfer of Property Act, 1882s. 52
Subjects
specific performanceoral agreementcollaboration agreementlis pendensSection 52 TP Actinherent jurisdictionSection 151 CPCorder in terroremcosts under CPCcivil procedure
Judgment
[2010] 7 S.C.R. 424
A VINOD SETH
V.
DEVINDER BAJAJ AND ANR.
(Civil Appeal No. 4891 of 2010)
JULY 05, 2010
B
[R.V. RAVEENDRAN AND R.M. LODHA, JJ.]
Transfer of Property Act, 1882: s.52 - Suit for specific
performance of oral collaboration agreement for development
C of residential suit premises - No application by plaintiff for
interim relief - High Court directing plaintiff to furnish an
undertaking to pay Rs.25 lakhs to defendants in the event of
losing case observing that prima facie case not in favour of
plaintiff and due to heavy dockets in courts early disposal of
o suit was not possible - Propriety of - Held: There is no
provision in the Code or any substantive law which enable the
Court to issue a direction to a plaintiff in a suit to file an
undertaking that in the event of not succeeding in the suit, he
would pay damages to the defendant - Such power cannot
E be traced even in s. 151 - It is an order in terrorem - Order
punishing a litigant on the ground that the court is not able to
decide the case expeditiously is unwarranted, and beyond its
power - In the facts and circumstances, suit property
exempted from the operation of s.52 and defendants granted
F liberty to deal with the property in any manner they may deem
fit, inspite of the pendency of the suit subject to their furnishing
security of Rs.3 lakhs - Doctrine of tis pendens - Specific
Relief Act, 1963 - s.14(1)(b) and (d) - Code of Civil
Procedure, 1908 - ss.35, 35A, 151, Order 25 r.1 - Damages
G - l!ndertaking - Judgment/Order - Order in terrorem.
Costs: Absence of effective provisions for costs - Need
for reform - The provision for costs as envisaged in ss.35,
35A, 358 have either become infructuous on account of
inflation or are seldom invoked - Lack of appropriate
H 424
VINOD SETH v. DEVINDER BAJAJ AND ANR. 425
provisions relating to costs result in increase in malicious, A
vexatious and frivolous suits - Urgent need for the Legislature
and the law Commission of India to re-visit the provisions
relating to costs and compensatory costs contained in ss.35, ·
35A - Code of Civil Procedure, 1908 - ss. 35, 35A, 358 -
Legislation - Suggestion for. B
Doctrines! Principles: Doctrine of /is pendens -
Applicability of.
The plaintiff-appellant claimed to be a builder-cum-
real estate dealer. The defendants-respondents were the C
owners in possession of the suit premises. According to
the plaintiff, an oral agreement for commercial
collaboraUon for development of residential suit premises
was purportedly entered bbtween him and the
defendants. In terms of the agreement, defendants were · D
required to convert the suit premises from leasehold to
freehold and then hand over vacant physical possession
to the plaintiff. Thereafter plaintiff was to demolish the
said property and reconstruct three storeyed building.
The plaintiff was to keep the ground floor with himself E
and handover first and second floors to the defendants
and also pay to them a sum of Rs.3.71 lacs. Pursuant to
the said terms of the agreement, a sum of Rs.51000 was
paid by the plaintiff to the first defendant who gave a
receipt. The plaintiff alleged that the defendants failed to F
comply with the agreement and subsequently he also
came to know that the property stood in the name of the
second defendant and not the first defendant. The plaintiff
issued a notice dated 9.3.2007 calling upon the
defendants to comply with the legal formalities to facilitate G
the collaboration agreement. Alleging that defendants
failed to comply, the appellant filed a suit on 30.6.2007 for
specific performance. The defendants denied the claim
in toto. When the case came up for framing issues, a
Single Judge of the High Court passed an interim order H
426 SUPREME COURT REPORTS [2010) 7 S.C.R.
A that the plaintiff instituted the suit without moving any
application for interim relief and the suit being in respect
to an immovable property,. even in the absence of any
interim order restraining the defendants from dealing with
the property, would adversely affect the right of
B defendants owing to tl)e pendency of the said suit. It
further held that the likelihood of the plaintiff succeeding
in the suit was remote as such agreements are not
concluded and enforceable till detailed writing is
executed. In the circumstances, the Single Judge
c directed the plaintiff to file an affidavit/undertaking that in
the event plaintiff did not succeed in the suit, he would
pay a sum of Rs. 25 lacs by way of damages to the
defendants. The said amount was arrived at because of
the averments in the plaint that the plaintiff was to spend
Rs. 20 lacs in development of the property and in lieu
0
thereof was to become the owner of the ground floor of
the newly constructed property. Plaintiff filed an intra.
court appeal. The Division Bench dismissed the appeal
holding that the cours~ adopted by the Single Judge was
not without sanction of law and there was merit in the
E said approach looking to the ground realities and heavy
dockets in the Courts. Aggrieved plaintiff filed the instant
appeal. ·
Partly allowing the appeal, the Court
F
HELD: 1.1. It is doubtful whether the collaboration
agreement, as alleged by the plaintiff-appellant, is
specifically enforceable, having regard to the prohibition
contained in section 14(1) (b) and (d) of the Specific Relief
G Act, 1963. The agreement propounded by the appellant
is not a usual agreement for sale/transfer, where the
contract is enforceable and if the defendant fails to
comply with the decree for specific performance, the
court can have the contract performed by appointing a
person to execute the deed of sale/transfer under Order
H
VINOD SETH v. DEVINDER BAJAJ AND ANR. 427
XXI Rule 32(5) CPC. The agreement alleged by the A
appellant is termed by him as a commercial collaboration
agreement for development of a residential property of
the respondents. Under the alleged agreement, the
obligations of the respondents were limited, that is, to
apply to DOA for conversion of the property from B
leasehold to freehold, to submit the construction plan to
the concerned authority for sanction, and to deliver
vacant possession of the suit property to the appellant
for development. But the appellantlplaintiff has to perform
several c;>bligations when the property is· delivered, that c
is, to demolish the existing building, to construct a three-
storeyed building within one year in accordance with the .
agreed plan, deliver the first and second floors to the
respondents and also pay a token cash consideration of
Rs.3, 71,000/-. The performance of these obligations by
0
appellant was dependant upon his personal qualifications
and volition. If the court should decree the suit and direct
specific performance of the "collaboration agreement" by
respondents, it was not practical or possible for the court
to ensure that the appellant would perform his part of the
obligations, that is demolish the existing structure, E
construct a three-storeyed building as per the agreed
specifications within one year, and deliver free of cost,
the two upper floors to the respondents. The alleged
agreement being vague and incomplete, required
consensus, decisions or further agreement on several F
minute details. It would also involve performance of a
continuous duty by the appellant which the court could
not supervise. The performance of the obligations of a
developer/builder under a collaboration agreement
cannot be compared to the statutory liability of a landlord G
to reconstruct and deliver a shop premises to a tenant
under a rent control legislation, which is enforceable
under the statutory provisions of the special law. A
collaboration agreement of the nature alleged by the
appellant is not one that could be !ij)ecifically enforced. H
428 SUPREME COURT REPORTS [2010) 7 S.C.R.
A Further, as the appellant had not made an alternative
prayer for compensation for breach, there was also a bar
in regard to award of any compensation under section
21 of the Specific Relief Act. [Para 8.1) [446-F-H; 447-A-
H; 448-A-B]
B
Abdul Gafur v. State of Uttarakhand 2008 (10) SCC 97,
referred to.
1.2. The appellant claimed to be a builder and real
estate dealer. If the appellant entered into a collaboration
C agreement orally and could secure a receipt in writing for
Rs.51,000/-, nothing prevented him from reducing the
said terms of the alleged collaboration agreement in the
form of an agreement or Memorandum of Understanding
and have it signed by the owners of the property. No
D reason was forthcoming as to why that was not done.
[Para 8.2) [448-8-C]
1.3. The property stood in the name of second
defendant, but she did not sign the receipt. There was
E nothing to show that the second defendant participated
in the alleged negotiations or authorized her husband-
the first defendant to enter into any collaboration
agreement in respect of the suit property. The receipt
was not signed by the first defendant as Attorney Holder
or as the authorized representative of the owner of the
F property. From the plaint averments it is evident that
plaintiff did not even know who the owner was, at the
time of the alleged negotiations and erroneously
assumed that first defendant was the owner. The
execution of a receipt for Rs.51,000/- by the first
G defendant even if proved, may at best make out a
tentative token payment pending negotiations and
finalization of the terms of an agreement for development
of the property. The agreement is alleged to have been
entered on 10.6.2004. But the plaintiff issued the first
H notice calling upon defendants to perform, only on
VINOD SETH v. DEVINDER BAJAJ AND ANR. 429
9.3.2007 and filed the suit on 30.6.2007. There was no A
correspondence or demand for performance, in writing,
prior to 9.3.2007, even though the alleged agreement was
a commercial transaction. [Paras 8.3, 8.4) (448-D-H]
2. Having regard to the doctrine of /is pendens 8
embodied in section 52 of the Transfer of Property Act,
1882, the pendency of the suit by the plaintiff would affect
the valuable right of the second defendant to deal with
the property in the manner she deemed fit, and restricted
her freedom to sell the property and secure a fair market C
price from a buyer of her choice. When a suit for specific
performance is filed alleging an oral agreement without
seeking any interim relief, the defendant,would not even
have an opportunity to seek a prima facie finding on the
validity of the claim. Filing such a suit is an ingenious
way of creating a cloud over the title to the suit property. D
Such a suit is likely to be pending for a decade or more.
Even if a "defendant-owner asserts that his property is not
subject to any agreement and the said assertion is
ultimately found to be true, his freedom to deal with the
property as he likes or to realize its true market value by E
sale or transfer is adversely affected during the pendency
of the suit. The ground reality is that no third party would
deal with a property in regard to which a suit for specific
performance is pending. This enables an unscrupulous
plaintiff to cajole and persuade a defendant to sell/give F
the property on plaintiff's terms, or force the defendant
to agree for some kind of settlement. It was these
circumstances which persuaded the High Court to find
some way to do justice, leading to the impugned
direction. {Para 9) (449-A-F] G
3. Order XXV Rule 1 CPC provides that at any stage
of a suit, the court may either on its own motion or on
the application of defendant, order the plaintiff for reasons
to b~ recorded, to give security for the payment of all
H
430 SUPREME COURT REPORTS [20101 7 S.C.R.
A costs incurred or likely to be incurred by the defendant.
But the Code, nowhere authorizes or empowers the court
to issue a direction to a plaintiff to file an undertaking to
pay damages to the defendant in the event of being
unsuccessful in the suit. The Code also does not contain
B any provision to assess the damages payable by a
plaintiff to defendant, when the plaintiff's suit is still
pending, without any application by defendant, and
without a finding of any breach or wrongful act and
without an inquiry into the quantum of damages. There
c is also no contract between the parties whfch requires
the appellant to furnish such undertaking. None of the
provisions of either TP Act or Specific Relief Act or any
other substantive law enables the court to issue such an
interim direction to-a plaintiff to furnish an undertaking
to pay damages. In the absence of an enabling provision
0
in the contract or in the Code or in any substantive laws,
a court trying a civil suit, has no power or jurisdiction to
direct the plaintiff, to file an affidavit undertaking to pay
any specified sum to the defendant, by way of damages,
E if the plaintiff does not succeed in the suit. [Paras 11.2,
12) [451-C-H; 452-A]
4.1. As the provisions of the Code are not exhaustive,
section 151 is intended to apply where the Code does
not cover any particular procedural aspect, and interests
F of justice require the exercise of power to cover a
particular situation. Section 151 is not a provision of law
conferring power to grant any kind of substantive relief.
It is a procedural provision saving the inherent power of
the court to make such orders as may be necessary for
G the ends of justice and to prevent abuse of the process
of the court. It cannot be invoked with reference to a
matt1~r which is covered by a specific provision in the
Code. It cannot be exercised in conflict with the general
scheme and intent of the Code. It cannot be used either
H to create or recognize rights, or to create liabilities and
VINOD SETH v. DEVINDER BAJAJ AND ANR. 431
obligations not contemplated by any law. [Para 13) [452- A
B-E]
Padam Sen v. State of Uttar Pradesh AIR 1961 SC 218;
Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hirata/
AIR 1962 SC 527; Ram Chand and Sons Sugar Mills Pvt. B
·Ltd. v. · Kanhayalal Bhargav AIR 1966 SC 1899; Nainsingh v.
Koonwarjee AIR 1970 SC 997, relied on.
4.2. A suit or proceeding initiated in accordance with
law, cannot be considered as an abuse of the process
of court, only on the ground that such suit or proceeding C
is likely to 'cause hardship or is likely to be rejected
ultimately. As there are specific provisions in the Code,
. relating to costs, security for costs and damages, the
court cannot invoke Section 151 on the ground that the
same is necessary for ends of justice. Therefore, a court 0
trying a civil suit, cannot, in exercise of inherent power
under section 151 CPC, make an interim order directing
the plaintiff to file an undertaking that he will pay a sum
directed by the court to the defendant as damages in case
he fails in the suit. [Para 13.4] [454-B•D] E
5.1. The direction to the plaintiff to furnish an
undertaking to pay Rs.25 lakhs to defendants in the event
of losing the case, is an order in terrorem. It is made not
because the plaintiff committed any default, nor because
he tried to delay the proceedings, nor because he filed F
any frivolous applications, but because the court is
unable to find the time to decide the case in view of the
huge pendency. Such an order, punishing a litigant for
approaching the court, on the ground that the court is not
able to decide the .tase expeditiously, is unwarranted, G
unauthorized and beyond the power and jurisdiction of
the court in a civil suit governed by the Code. Such
orders are likely to be branded a-s judicial
highhandedness, or worse, judicial vigilantism. [Para 14)
[454-E-G] H
432 SUPREME COURT REPORTS [2010] 7 S.C.R.
A 5.2. Though the land-grabbers, speculators, false
claimants and adventurers in real estate are to be
discouraged from pressurizing hapless and innocent
property owners to part with their property against their
will, by filing suits which are vexatious, false or frivolous,
B but the method adopted by the High Court is wholly
outside law and cannot be approved. In a suit governed
by the Code, no court can, merely because it considers
it just and equitable, issue directions which are contrary
to or not authorized by law. The High Court can certainly
c innovate, to discipline those whom it considers to be
adventurers in litigation, but it has to do so within the four
corners of law. [Para 15] [454-H; 455-A-D]
Benjamin N. Cardozo in The Nature of the Judicial
Process (Yale University Press 1921 Edition Page 114),
D referred to.
6. The instant case reminds of the adage: "Hard
cases make bad law". The High Court should have
resisted fro'm laying down a 'bad law', which would be
E treated as a precedent and would result in similar
directions by courts, wherever they feel that suits are not
likely to succeed. It would encourage, in fact even force,
the· losing party to file an appeal or further appeal against
the final decision in the suit. This was because no plaintiff
F would like to undertake to pay a large sum as damages,
nor would a defendant like to miss a chance to receive a
large sum as damages. Such orders would also tempt
and instigate both the parties to make attempts to
succeed in the suit by hook or crook, by adopting means
fair or foul. If litigants are to be subjected to such
G directions in terrorem, the litigant public will be dissuaded
from approaching courts, even in regard to bona fide
claims. Such orders may lead to gradual loss of faith in
the judiciary and force litigants to think of extra-judicial
remedies by seeking the help of underworld elements or
H
VINOD SETH v. DEVINDER BAJAJ AND ANR. 433
police to settle/enforce their claims thereby leading to A
break-down of rule of law. No order or direction of the
High Court, even if it is intended to deter vexatious and
frivolous litigation, should lead to obstruction of access
to courts. [Para 16] [455-F-H; 456-A-F]
B
Northern Securities Co. v. United States 193 (1903) US
197; Bellamy v. Sabine 1857 (1) De G & J 566, referred to.
Black's Law Dictionary, referred to.
7. It is well settled that the doctrine of tis pendens C
does not annul the conveyance by a party to the suit, but
only render it subservient to the rights of the other parties
to the litigation. The principle underlying section 52 of TP
Act is based on justice and equity. The operation of the
bar under section 52 is however subject to the power of o
the court to exempt the suit property from the operation
of section 52 subject to such conditions it may impose.
That means that the court in which the suit is pending,
has the power, in appropriate cases, to permit a party to
transfer the property which is the subject-matter of the E
suit without being subjected to the rights of any party to
the suit, by imposing such terms as it deems fit. Having
regard to the facts and circumstances, this was a fit case
where the suit property should be exempted from the
operation of Section 52 of the TP Act, subject to a
F
condition relating to reasonable security, so that the
defendants would have the liberty to deal with the
property in any manner they may deem fit, inspite of the
pendency of the suit. It is admitted by appellant-plaintiff
that under the collaboration agreement, he was required
to invest Rs. 20 lakhs in all, made up of Rs.16,29,000/- for G
construction and Rs.3,71,000/- as cash consideration and
that in lieu of it he will be entitled to ground floor of the
new building to be constructed by him at his own cost.
Treating it as a business venture, a reasonable profit from
such a venture can be taken as 15% of the investment H
434 SUPREME COURT REPORTS [2010] 7 S.C.R.
A proposed, which works out to Rs.3 lakhs. Thel'efore it
would be sufficient to direct the respondents to furnish
security for a sum of Rs. 3 lakhs to the satisfaction of the
court (Single Judge) as a condition for permitting the
defendants to deal with the property during the pendency
B of the suit, under Section 52 ofthe TP Act. [Paras 20, 21]
[458-E-H; 459-A-B]
Need for reform
8.1. High Court made the impugned order probably
C because it felt that in the absence of stringent and
effective provision for costs, on the dismissal of the suit,
it would not be able to compensate the defendants for the
losses/hardship suffered by them, by imposing costs. If
there was an effective provision for levy of realistic costs
D against the losing party, with reference to the conduct of
such party, the High Court, in all probability would not
have ventured upon the procedure it adopted. This draws
attention to the absence of an effective provision for
costs which has led to mushrooming of vexatious,
E frivolous and speculative civil litigation. [Para 22] [459-F-
H; 460-A]
Salem Advocate Bar Association v. Union of India 2005
(6) sec 344, relied on.
F Manindra Chandra Nandi v. Aswini Kumar Acharaya ILR
(1921) 48 Cal. 427, approved
8.2. The provision for costs is necessary to achieve
the following goals : (a) It should act as a deterrent to
G vexatious, frivolous and speculative litigations or
defences . .The spectre of being made liable to pay actual
costs should be such, as to make every litigant think
twice bet.ore putting forth a vexatious, frivolous or
speculative claim or defence; (b) Costs should ensure
that the provisions of the Code, Evidence Act and other
H
VINOD SETH V. D6VINDER BAJAJ AND ANR. 435
laws governing procedure are scrupulously and strictly A
complied with and that parties do not adopt delaying
tactics or mislead the court; (c) Costs should provide
adequate indemnity to the successful litigant for the
expenditure incurred by him for the litigation. This
necessitates the award of actual costs of litigation as B
contrasted from nominal or fixed or unrealistic costs; (d)
The provision for costs should be an incentive for each
litigant to adopt alternative dispute resolution (ADR)
processes and arrive at a settlement before the trial
commences in most of the cases. In many other c
. jurisdictions, in view of the existence of appropriate and
adequate provisions for costs, the litigants are persuaded
to settle nearly 90% of the c1vil suits before they come
up to trial; (e) The provisions relating to costs should not
however obstruct access to courts and justice. Under no 0
circumstances the costs should be a deterrent, to a
citizen with a genuine or bonafide claim, or to any person
belonging to the. weaker sections whose rights have
been affected, from approaching the courts. [Para 23]
[461-E-H; 462-A-D]
E
8.3. At present these goals are sought to be achieved
mainly by sections 35, 35A and 358 read with the relevant
civil rules of practice relating to taxing of costs. Section
35 CPC vests the discretion to award costs in the courts.
It provides that normally the costs should follow the F
event and court shall have full power to determine by
whom or out of what property, and to what extent such
costs are to be paid. Most of the costs taxing rules,
including the rules in force in Delhi provide that each
party should file a bill of cost immediately after the G
judgment is delivered setting out: (a) the court fee paid;
(b) process fee spent; (c) expenses of witnesses; (d)
advocate's fee; and (e) such other amount as may be
allowable under the rules or as may be directed by the
court as costs ..In Delhi, the advocate's fee in regard to
436 SUPREME COURT REPORTS [2010) 7 S.C.R.
A suits the value of which exceeds Rs.5 lakhs is: Rs.14,500/
- plus 1% of the amount in excess of Rs.5 lakhs subject
to a ceiling of Rs. 50,000/-. The prevalent view among
litigants and members of the bar is that the costs
provided for in the Code and awarded by courts neither
B compensate nor indemnify the litigant fully in regard to
the expenses incurred by him. [Para 24) (462-E-H; 463-
A]
8.4. The provision relating to compensatory costs
(Section 35A CPC) in respect of false or vexatious claims
C or defences has become virtually infructuous and
ineffective, on account of inflation. Under the said
section, award of compensatory costs in false and
vexatious litigation, is subject to a ceiling of Rs.3,000/-.
This requires a realistic revision. Section 358 providing
D for costs for causing delay is seldom invoked. It should
be regularly employed, to reduce delay. [Para 26) [463-G-
H; 464-A]
8.5. The lack of appropriate provisions relating to
E costs has resulted in a steady increase in malicious,
vexatious, false, frivolous and speculative suits, apart
from rendering Section 89 CPC ineffective. Any attempt
to reduce the pendency or encourage alternative dispute
resolution processes or to streamline the civil justice
sy\5tem will fail in the absence of appropriate provisions
F relating to costs. There is therefore an urgent need for the
legislature and the Law Commission of India to re-visit the
provisions relating to costs and compensatory costs
contained in Section 35 and 35A CPC. The order of the
Division Bench and Single Judge directing the plaintiff-
G appellant to file an affidavit undertaking to pay Rs. 25
lakhs to defendants-respondents in the event of failure
in the suit is set aside. Instead, the defendants-
respondents are permitted under section 52 of TP Act, to
deal with or dispose of the suit property in the manner
H they deem fit, inspite of the pendency of the suit by the
VINOD SETH v. DEVINDER BAJAJ AND ANR. 437
plaintiff, subject to their furnishing security to an extent A
of Rs. Three lakhs to the satisfaction of the Single Judge.
[Paras 27, 28] [464-B-E]
Case law reference:
2008 (1 O) sec 97 referred to Para 5 B
AIR 1961 SC 218 relied on Para 13.1
AIR 1962 SC 527 relied on Para 13.2
AIR 1966 SC 1899 relied on Para 13.3
c
AIR 1970 SC 997 relied on Para 13.3
193 (1903) us 197 referred to Para 16
1857 (1) De G & J 566 referred to Para 20
ILR (1921) 48 Cal. 427 approved Para 23 D
2005 (6) sec 344 relied on Para 23
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4891 of 2010.
E
From the Judgment & Order dated 27.1.2009 of the High
Court of Delhi at New Delhi in FAO (OS) No. 19 of 2009.
Dr. Kailash Chand for the Appellant.
The Judgment of the Court was delivered by
F
R.V.RAVEENDRAN, J. 1. Leave granted. Heard. The·
validity of a novel and innovative direction by the High Court,
purportedly issued to discourage frivolous and speculative
litigation is under challenge in this appeal. To understand the
issue, it is necessary to set out the facts and also extract G
relevant portions of the plaint and the impugned orders of the
High Court.
2. The appellant claims to be a builder-cum-real estate
dealer. He filed a suit for specific performance of an oral H
438 SUPREME COURT REPORTS [2010] 7 S.C.R
A agreement for "commercial collaboration for business benefits"
allegedly entered by the respondents as the owners in
possession of premises No.A-1/365, Paschim Vihar, New
Delhi, with him. He alleged in the plaint, that the following terms
and conditions were orally agreed between the parties:
B
"(a) The defendants will apply to the ODA for conversion
of the above property from leasehold to freehold and within
2-3 months the defendants will handover vacant physical
possession of the above property to the plaintiff.
c (b) The plaintiff will reconstruct the above property from his
own money/funds with three storeys i.e. ground floor, first
floor and second floor.
(c) Out of the said reconstructed three storeyed building,
D the plaintiff shall be entitl.ed to own and possess the ground
floor; and the first and second floors will be owned and
possessed by the defehdants.
(d} Besides bearing the expenses of construction and
furnishing etc. of the proposed three storeyed building, the
E plaintiff shall also pay a sum of Rs. 3,71,000/- to the
defendants at the time of handing over possession of the
above house for reconstruction.
(e) Out of the agreed consideration of Rs.3,71,000/-, a
F sum of Rs.51,000/- was paid to the defendants in cash and
the remaining consideration of Rs.3,20,000/- was to be
paid to the defendants at the time of handing over
possession of the above house for reconstruction. In token
of the same a Receipt for Rs.51,000/- was duly executed
G by defendant No.1.
(f) On getting conversion of the above property from
leasehold to freehold, the above agreement/proposed
collaboration of the property bearing No. A-1/365, Paschim
Vihar, New Delhi and the above terms and conditions were
H to be reduced into writing vide an appropriate
VINOD SETH v. DEVINDER BAJAJ AND ANR. 439
[R.V. RAVEENDRAN, J.]
Memorandum Of Understanding to be duly executed by the A
parties i.e. the builder and the owners of the above
property."
The appellant further alleged that in pursuance of the above,
he paid a sum of Rs.51,000/- to first respondent in the presence B ,
of second respondent and two witnesses (Sanjay Kumar Puri
ahd M.R.Arora) and that the first respondent executed the
following receipt acknowledging the payment:
"RECEIPT/PART PAYMENT
c
Received a sum of Rs.51,000/- (Fifty one thousand only)
By Cash/Cheque Cash
From Sh. Vined Seth S/o Sh. Schan Seth R/o M-231 First
Floor, D
Guru Harikishan Nagar ·
Against Collaboration of Property No. A-1/365 Paschim
Vihar
E
Signature (Devinder Bajaj)/10-6-04
3. The appellant alleged that the respondents failed to
comply with the agreement and lingered over the matter on one
pretext or the other; that the appellant came to know F
subsequently that the property stood in the name of the second
respondent and not the first respondent; and that the appellant
therefore issued a notice dated 9.3.2007 calling upon the
· respondents to comply with the legal formalities to facilitate the
collaboration agreement. Alleging that respondents failed to G
comply, the appellant filed a suit on 30.6.2007 for specific
performance. We extract below the relevant portion of the
prayer:
" ...... to pass a decree of specific performance of
H
440 SUPREME COURT REPORTS [2010] 7 S.C.R.
A Collaboration Agreement entered in between the parties
on 10-6-2004, as per its terms and conditions in favour of
plaintiff and against defendants specifying that :
(a) the defendants to apply immediately with the ODA
for conversion of the above property from leasehold
B
to freehold and immediately after such conversion,
the defendants will handover vacant physical
possession of the suit property i.e. House No.A-1/
365 Paschim Vihar Delhi to the plaintiff.
c (b) that the defendants to immediately apply by
submitting building plan as per Annexure P-3 with
the Authorities for sanction of the building plan.
(c) the plaintiff will reconstruct the above property as
D three storeyed building as per site/building plan
from his own money/funds within one year of
handing over of possession by the defendants to
the plaintiff and sanctioning of the building plan of
the suit property.
E (d) out of the said reconstructed three storeyed building
the plaintiff shall be entitled to own and possess its
ground floor only, and the first and second floors will
be owned and possessed by the defendants.
F (e) besides to bear the expenses of construction etc.
of the proposed 3 storeyed complete building, the
plaintiff shall also pay a sum of Rs.3,20,000/- to the
defendants at the time of handing over possession
of the above house for reconstruction.
G (f) the defendants will not transfer the title or
possession of the suit property till execution of the
collaboration Agreement but after its execution, the
defendants would be within their full rights to enjoy
lawfully the title and possession of the first floor and
H second floor of the building.
VINOD SETH v. DEVINDER BAJAJ AND ANR. 441
[R.V. RAVEENDRAN, J.]
(g) the plaintiff will be fully entitled for the full title and A
possession of the ground floor of the building and
the defendants would be left with no right, title or
interest in the property of the ground floor of the
building, however, he would not be entitled for any
exclusi\le rights in the property of ground floor till the B
first and second floor of the building are duly
constructed, as per the specifications and quality
as that of the ground floor, and handed over to the
defendants.
4. The respondents contested the said suit and filed a
c
written statement denying the claim in toto. When the case
came up for framing issues, a learned Single Judge of the High
Court on perusal of the pleadings passed an interim order dated
2.12.2008, relevant portion of which is extracted below :
D
"The agreement of such a nature, in common parlance
known as collaboration agreement, requires detailed terms
and conditions to be settled between the parties as to the
quality of construction, time period, alternate
accommodation, sharing of the expenses and space in the E
newly constructed building, etc. and ordinarily specific
performance of such agreements is difficult for the Court
to supervise. Jn the present case all the terms of the
agreement will have to be established by evidence, there
being no document recording the same. F
The plaintiff instituted the suit without any application for
interim relief and notice was issued of the suit by the Joint
Registrar and the suit has come up before the Court for
the first time.
G
The suit being with respect to an immovable property,
even in the absence of any interim order restraining the
defendants from dealing with the property, attracts Section
52 of the Transfer of Property Act and the pendency of
the suit itself has a tendency of interference with the H
442 SUPREME COURT REPORTS (2010] 7 S.C.R.
A defendants' dealing with their own property and if at all
the defendants are compelled to deal with the same, the
defendants are likely to realize much less than the
market value of the property, owing to the pendency of
the said suit.
B
Prima facie, the likelihood of the plaintiff succeeding in the
suit appears to be remote. Such agreements are not
concluded and enforceable till detailed writing as aforesaid
is executed. Even if the averment of the plaintiff of having
paid Rs. 51,000/- to the defendants is established, the
c same would still not establish a concluded enforceable
agreement. The suit cannot be dismissed at the threshold.
The counsel for the plaintiff has also contended that in law
it is permissible to have such an oral agreement. However,
the defendants are likely to suffer considerably merely
D owing to the pendency of the present suit. While nearly
nothing of the plaintiff is at stake in pursuing the present
suit, the defendants as aforesaid will be losers even if
ultimately succeed. Courts cannot be silent spectators to
the parties being put on such unequal footing. The
E remedy of defendants suing the plaintiffs for damages
caused to them, after succeeding in the present suit is not
efficacious. Affluent speculators in immovable properties
cannot be permitted to misuse the process of the court
to compel owners to transact with them only. In the
F circumstances, it is deemed expedient to direct the
plaintiff to file an affidavit/undertaking to this Court
to, in the event of not succeeding in the suit pay a
sum of Rs. 25 lacs by way of damages to the
defendants. If the plaintiff is reasonably confident of the
G genuineness of his case, the plaintiff ought not to suffer any
harm by giving such undertaking. The said amount has
been arrived at because of the averments in the plaint that
the plaintiff was to spend Rs. 20 lacs in development of
the property and in lieu thereof was to become the owner
H of the ground floor of the newly constructed property.
VINOD SETH v. OEVINDER BAJAJ AND ANR. 443
[R.V. RAVEENDRAN, J.] S
The plaintiff to file the affidavit in terms of above within four A
weeks from today. List ·on 27th January, 2009 for
framing of issues."
(emphasis supplied)
q. The appellant filed an intra-court appeal contending that B
every perso11 has an inherent right to bring a suit of civil nature
and there was no provision in law which enabled the Trial Court.
to impose such a condition on a plaintiff requiring an
undertaking to pay Rs.25 lakhs py way of damages to
defendants in the event of failing in the syit. He relied upon the C
following observations of this Court in Abdul Gafi.Jr v. State of
Uttarakhand [2008 (10) SCC 97] :
"Section 9 of the Code provides that the civil court shall
have jurisdiction to try all suits of a civil nature excepting 0
the suits of which their cognizance is either expressly or
impliedly barred. To put it differently, as per Section 9 of
the Code, in all types of civ.il disputes, the civil courts have
inherent jurisdiction unless a part of that jurisdiction is
carved out from such jurisdiction, expressly or by E
necessary implication by any statutory provision and
conferred on other tribunal or authority. Thus, the law
confers on every person an inherent right to bring a suit of
~iyil nature of one's choice, at one's peril, howsoever
frivolous the claim may be, unless it is barred by a statute."
(vide Abdul Gafur v, State of Uttarakhand [2008 (10) SCC F
97]. In Ganga Bai v. Vijay Kumar [1974 (2) SCC 393] this
Court had observed as under: ''. . .' ... There is an inherent
right in every person to bring a suit of a civil nature and
unless the suit is barred by statute one may, at one's peril,
t:>ring a suit of one!s choice. It is no answer to a suit, G
howsoever frivolous to claim, that the law confers no such
right to sue. A suit, for its maintainability requires no
authority of law and it is enough that no statute bars the
suit."
H
444 SUPREME COURT REPORTS [2010] 7 S.C.R
A 6. The Division Bench dismissed the appeal by the
appellant, holding that the order of the learned Single Judge
did not in any way contravene the said decision, on the following
reasoning:
"We see no contradiction in the aforesaid judgment and
B
the impugned order. The learned Single Judge has not
dismissed the suit. We also note the observations of the
Supreme Court that even a frivolous suit can be bought
before the court "at one's peril". All that the learned Single
Judge has done at the stage of framing of issues, having
c prima facie found not much merit in the case of the
appellant, considered it appropriate to impose certain
terms and conditions.
We may notice that the provisions of Order 39 of the said
D Code deals with temporary injunctions and interlocutory
orders. Order 39 Rule 2(2) authorizes the court to grant
injunction on such terms as deems proper including giving
of security. Thus, when the prayer for interim relief has to
be granted, provision has been specifically made
E authorizing the court to make orders for keeping accounts,
giving security or otherwise as the court thinks fit.
The appellant has conveniently not filed an interim
application to avoid the rigour of such an order. Normally
in a suit for specific performance and that too dealing with
F an immovable property, a party would seek interim
protection. The appellant has not done so. It is an ingenious
method of keeping a suit alive without claiming
interlocutory relief and creating a cloud over a property in
view of the provisions of Section 52 of Transfer of Property
G Act.
We do think that the courts cannot look helplessly at such
tactics and ignore the problem of huge docket, which
arises on account of meritless claims being filed. The
H heavy docket does not permit early disposal of suits and
VINOD SETH v. DEVINDER BAJAJ AND ANR. 445
[R.V. RAVEENDRAN, J.]
thus. parties may, take advantage of keeping frivolous A
claims alive. We also cannot ignore the ground realities
of the market which would persuade third parties to
eschew dealing with such a property over which there is a
cloud during the pendency of the suit. It is this cloud of
which the appellant can take advantage of to extract some B
money in case the relief is frivolous.
We also find that the appellant really cannot have any
grievance since a condition has not been imposed to
deposit any amount which would make the appellant be C
out of pocket. The condition is of a much lesser level of
only an undertaking to compensate the respondent in
case of failure in the suit and as the learned Single Judge
has rightly observed that a party coming to court should
reasonably be confident of the genuineness of its case.
The figure of Rs. 20 lakhs is based on the claim of the D
appellant as noticed by learned Single Judge. We may
also add that Order XXV Rule 1 of the CPC gives power
to the Court including suo moto power for the plaintiff to
give security for payment of all costs incurred and likely to
be incurred by the defendant. However, reasons for such E
an order are to be recorded. The costs include not only
what is spent in the litigation but also the effect of the
continuation of the suit on the plaintiff and, thus, as per the
impugned order, for reasons recorded, the learned Single
Judge has passed the order. F
We find that the course adopted by the learned Single
Judge is not without sanction of law and there is merit in
this approach looking to the ground realities mentioned
aforesaid."
G
(emphasis supplied)
7. The appellant has challenged the said decision in this
appeal. This Court directed notice on 2.4.2009 on the special
leave petition with the following observations : H
446 SUPREME COURT REPORTS [2010] 7 S.C.R.
A ''Though the order appears to be a just order, as it involves
a serious question of law, we direct issuance of notice
returnable in four weeks.
We however make it clear that there will be no order of
stay in regard to the decision of the learned Single Judge
8
affirmed by the division bench and if the petitioner fails to
give an undertaking as ordered, he will not have the benefit
of section 52 of Transfer of Property Act."
The respondents have remained ex parte. On the
c submissions of the appellant, the following question arises
for our consideration :
(i) Whether a court has the power to pass an order directing
a plaintiff in a suit for specific performance (or any other
D suit), to file an undertaking that in the event of not
succeeding in the suit, he shall pay Rs.25 lakhs (or any
other sum) by way of damages to the defendant?
8. We are broadly in agreement with the High Court that
on the material presently on record, the likelihood of appellant
E succeeding in the suit or securing any interim relief against the
defendants is remote. We may briefly set out the reasons
therefor.
(8.1) It is doubtful whether the collaboration agreement, as
F alleged by the appellant, is specifically enforceable, having
regard to the prohibition contained in section 14(1) (b) and (d)
of the Specific Relief Act, 1963. The agreement propounded
by the appellant is not an usual agreement for sale/transfer,
where the contract is enforceable and if the defendant fails to
G comply with the decree for specific performance, the court can
have the contract performed by appointing a person to execute
the deed of sale/transfer under Order XXI Rule 32(5) of the
Code of Civil Procedure ('Code' for short). The agreement
alleged by the appellant is termed by him as a commercial
H collaboration agreement for development of a residential
VINOD SETH v. DEVINDER BAJAJ AND ANR. 447
[R.V. RAVEENDRAN, J.]
property of the respondents. Under the alleged agreement, the A
obligations of the respondents are limited, that is, to apply to
ODA for conversion of the property from leasehold to freehold,
to submit the construction plan to the concerned authority for
sanction, and to deliver vacant possession of the suit property
to the appellant for development. But the appellant/plaintiff has B
several obligations to perform when the property is delivered,
that is, to demolish the existing building, to construct a three·
storeyed building within one year in accordance with the agreed
plan, deliver the first and second floors to the respondents and
also pay a token cash consideration of Rs.3,71,000/-, The C
performance of these obligations by appellant is dependant
upon his personal qualifications and volition. If the court should
decree the suit as prayed by the appellant (the detailed prayer
is extracted in para 3 above) and direct specific performance
of the "collaboration agreement" by respondents, it will not be
practical or possible for the court to ensure that the appellant
0
will perform his part of the obligations, that is demolish the
existing structure, construct a three-storeyed building as per the
agreed specifications within one year, and deliver free of cost,
the two upper floors to the respondents. Certain other questions
also will arise for consideration. What will happen if ODA E
refuses to convert the property from leasehold to freehold?
What will happen if the construction plan is not sanctioned in
the manner said to have been agreed between the parties and
the respondents are not agreeable for any other plans of
construction? Who will decide the specifications and who will . F
ensure the quality of the construction by the appellant? The
alleged agreement being vague and incomplete, require
consensus, decisions or further agreement on several minute
details. It would also involve performance of a continuous duty
by the appellant which the court will not be able to supervise. G
The performance of the obligations of a developer/builder under
a collaboration agreement cannot be compared to the statutory
liability of a landlord to reconstruct and deliver a shop premises
to a tenant under a rent control legislation, which is enforceable
under the statutory provisions of the special law. A collaboration H
448 SUPREME COURT REPORTS [2010] 7 S.C.R.
A agreement of the nature alleged by the appellant is not one that
could be specifically enforced. Further, as the appellant has not
made an alternative prayer for compensation for breach, there
is also a bar in regard to award of any compensation under
section 21 of the Specific Relief Act.
B (8.2) The appellant claims to be a builder and real estate
dealer. If the appellant entered into a collaboration agreement
orally with numerous details as set out in the plaint (extracted
in Para (2) above) and could secure a receipt in writing for
Rs.51,000/-, nothing prevented him from reducing the said
C terms of the alleged collaboration agreement in the form of an
agreement or Memorandum of Understanding and have it
signed by the owners of the property. No reason is forthcoming
as to why that was not done.
o 8.3. The property stands in the name of second
respondent (Defendant No.2}, but she did not sign the receipt.
There is nothing to show that the second respondent
participated in the alleged negotiations or authorized her
husband-the first respondent to enter into any collaboration
E agreement in respect of the suit property. The receipt is not
signed by the first respondent as Attorney Holder or as the
authorized representative of the owner of the property. From
the plaint averments it is evident that appellant did not even
know who the owner was, at the time of the alleged negotiations
and erroneously assumed that first respondent was the owner.
F The execution of a receipt for Rs.51,000/- by the first respondent
even if proved, may at best make out a tentative token payment
pending negotiations and finalization of the terms of an
agreement for development of the property.
G (8.4) The agreement is alleged to have been entered on
10.6.2004. But the plaintiff issued the first notice calling upon
defendants to perform, only on 9.3.2007 and filed the suit on
30.6.2007. There was no correspondence or demand for
performance, in writing, prior to 9.3.2007, even though the
H alleged agreement was a commercial transaction.
VINOD SETH v. DEVINDER BAJAJ AND ANR. 449
[R.V. RAVEENDRAN, J.]
9. We also agree with the High Court that having regard A
to the doctrine of /is pendens embodied in section 52 of the
Transfer of Property Act, 1882 ('TP Act' for short), the pendency
of the suit by the appellant shackled the suit property, affected
the valuable right of the second defendant to deal with the
property in the manner she deems fit, and restricted her B
freedom to sell the property and secure a fair market price from
a buyer of her choice. When a suit for specific performance is
filed alleging an oral agreement without seeking any interim
relief, the defendant will not even have an opportunity to seek
a prima facie finding on the validity of the claim. Filing such a c
suit is an ingenious way of creating a cloud over the title to the
suit property. Such a suit, filed in the Delhi High Court, is likely
to be pending for a decade or more. Even if a defendant-owner
asserts that his property is not subject to any agreement and
the said assertion is ultimately found to be true, his freedom to
0
deal with the property as he likes or to realize its true market
value by sale or transfer is adversely affected during the
pendency of the suit. The ground reality is that no third party
would deal with a property in regard to which a suit for specific·
performance is pending. This enables an unscrupulous plaintiff E
to cajole and persuade a defendant to sell/give the property on
plaintiffs terms, or force the defendant to agree for some kind
of settlement. It is these circumstances which persuaded the
High Court to find some way to do justice, leading to the
impugned direction. Having broadly agreed with the High Court
in regard to the factual position and the adverse consequences F
of the suit, the question that remains is whether in such a
situation, the High Court could have issued the impugned
interim direction.
10. Every person has a right to approach a court of law if G
he has a grievance for which law provides a remedy. Certain
safeguards are built into the Code to prevent and discourage
frivolous, speculative and vexatious suits. Section 35 of the
Code provides for levy of costs. Section 35A of the Code
provides for levy of compensatory costs in respect of any false H
450 SUPREME COURT REPORTS [2010] 7 S.C.R.
A or vexatious claim. Order 7 Rule 11 of the Code provides for
rejection of plaint, if the plaint does not disclose a cause of
action or is barred by any law. Order 14 Rule 2 of the Code
enables the court to dispose of a suit by hearing any issue of
law relating to jurisdiction or bar created by any law, as a
B preliminary issue. Even if a case has to be decided on all
issues, the court has the inherent power to expedite the trial/
hearing in appropriate cases, if it is of the view that either party
is abusing the process of court or that the suit is vexatious. The
court can secure the evidence (examination-in-chief) of
c witnesses by way of affidavits and where necessary, appoint
a commissioner for recording the cross examination so that it
can dispose of the suit expeditiously. The court can punish an
erring plaintiff adopting delaying tactics, by levying costs under
Section 358 or taking action under Order 17 Rules 2 and 3 of
the Code. Apart from recourse to these provisions in the Code,
0
an aggrieved defendant can also sue the plaintiff for damages,
if the suit is found to be based on a forged or false document,
or if the suit was vexatious or frivolous.
11. There are also two other significant provisions in the
E Code having a bearing on the issue. We may refer to them :
(11.1) Section·95 provides that where in any suit in which
an arrest or attachment has been affected or a temporary
injunction granted, the suit of the plaintiff ultimately fails and it
F appears to the coortr:hat there was no reasonable or probable
ground for instituting the suit, and the court may upon an
application by the defendant, award against the plaintiff, such
amount not exceeding Rs.50,000/- as it deems a reasonable
compensation to the defendant for the expense or injury caused
G to him. It further provides that an order determining any such
application shall bar any suit for compensation in respect of
such arrest, attachment or injunction. In other words, if a suit is
field without sufficient grounds and in such a suit the plaintiff
obtains an interim order of arrest, attachment or temporary
injunction, the court can grant compensation up to Rs. 50,000
H
VINOD SETH v. DEVINDER BAJAJ AND ANR. 451
[R.V. RAVEENDRAN, J.]
on application by the defendant. Three things are implicit from A
this provision. The first is, if no interim order (of arrest,
attachment or injunction) is obtained by the plaintiff, the court
cannot grant any compensation to defendant. The second is
that the compensation awardable by the court cannot exceed
Rs.50,000/. The third is that if a plaintiff does not secure an B
interim order of arrest, attachment or temporary injunction but
merely files a suit on insufficient or false grounds the remedy
of the defendant, if the defendant wants any compensation
(other than costs and exemplary costs under Section 35 and
35A of the Code), he has to file a separate suit.
c
(11.2) Order XXV Rule 1 of Code provides that at any
stage of a suit, the court may either on its own motion or on
the application of any defendant order the plaintiff for reasons
to be recorded, to give security for the payment of all costs
incurred or likely to be incurred by the defendant. D
12. But the Code, nowhere authorizes or empowers the
COl.!rt to issue a direction to a plaintiff to file an undertaking to
pay damages to the defendant in the event of being
unsuccessful in the suit. The Code also does not contain any E
provision to assess the damages payable by a plaintiff to
defendant, when the plaintiffs suit is still pending, without any
application by defendant, and without a finding of any breach
or wrongful act and without an inquiry into the quantum of
damages. There is also no contract between the parties which
F
requires the appellant to furnish such undertaking. None of the
provisions of either TP Act or Specific Relief Act or any other
substantive law enables the court to issue such an interim
direction to a plaintiff to furnish an undertaking to pay damages. -
In the absence of an enabling provision in the contract or in the
Code or in any substantive laws a court trying a civil suit, has G
no power or jurisdiction to direct the plaintiff, to file an affidavit
undertaking to pay any specified sum to the defendant, by way
of damages, if the plaintiff does not succeed in the suit. In short,
law does not contemplate a plaintiff indemnifying a defendant
H
452 SUPREME COURT REPORTS (2010) 7 S.C.R.
A for all or any losses sustained by the defendant on account of
the litigation, by giving an undertaking at the time of filing a suit
or before trial, to pay damages to the defendants in the event
of not succeeding in the case.
13. We will next examine whether the power to make such
8 an order can be traced to Section 151 of the Code, which
reads: "Nothing in this Code shall be deemed to limit or
otherwise affect the inherent power of the court to make such
orders as may be necessary for the ends of justice or to prevent
abuse of the process of the court." As the provisions of the
C Code are not exhaustive, section 151 is intended to apply
where the Code does not cover any particular procedural
aspect, and interests of justice require the exercise of power
to cover a particular situation. Section 151 is not a provision
of law conferring power to grant any kind of substantive relief.
D It is a procedural provision saving the inherent power of the
court to make such orders as may be necessary for the ends
of justice and to prevent abuse of the process of the court. It
cannot be invoked with reference lo a matter which is covered
by a specific provision in the Code. It cannot be exercised in
E conflict with the general scheme and intent of the Code. It cannot
be used either to create or recognize rights, or to create
liabilities and obligations not contemplated by any law.
(13.1.) Considering the scope of Section 151, in Padam
F Sen v. State of Uttar Pradesh (AIR 1961 SC 218), this Court
observed:
"The inherent powers of the court are in addition to the
powers specifically conferred on the court by the Code.
They are complementary to those powers and therefore it
G must be held that the court is free to exercise them for the
purposes mentioned in S. 151 of the Code when the
exercise of those powers is not in any way in conflict with
what has been expressly provided in the Code or against
the intentions of the Legislature."
H
VINOD SETH v. DEVINDER BAJAJ AND ANR. 453
[R.V. RAVEENDRAN, J.]
xxxxxxxxx A
The inherent powers saved by S.151 of the Code are with
respect to the procedure to be followed by the Court in
deciding the cause before it. These powers are not powers
over the substantive rights which any litigant possesses. B
Specific powers have to be conferred on the courts for
passing such orders which would affect such rights of a
party."
(emphasis supplied)
c
(13.2) In Manohar Lal Chopra v. Rai Bahadur Rao Raja
Seth Hirata/ - AIR 1962 SC 527, this court held :
" ..... that the inherent powers are not in any way controlled
by the provisions of the Code as has been specifically D
stated in S.151 itself. But those powers are not to be
exercised when their exercised may be in conflict with what
had been expressly provided in the Code or against the
intentions of the legislature."
(13.3) In Ram Chand and Sons Sugar Mills Pvt. Ltd. v. E
Kanhayalal Bhargav - AIR 1966 SC 1899 this court reiterated
that the inherent power of the court is in addition to and
complementary to the powers expressly conferred under the
Code but that power will not be exercised if its exercise is
inccnsistent with, or comes into conflict with any of the powers F
expressly or by necessary implication conferred by the other
provisions of the Code. Section 151 however is not intended
to create a new procedure or any new right or obligation. In
Nainsingh v. Koonwarjee - AIR 1970 SC 997, this Court
observed: G
"Under the inherent power of Courts recognized by Section
151 CPC, a Court has no power to do that which is
prohibited by the Code. Inherent jurisdiction of the Court
must be exercised subject to the rule that if the Code does
contain specific provisions which would meet the H
454 SUPREME COURT REPORTS [2010] 7 S.C.R.
A necessities of the case, such provisions should be followed
and inherent jurisdiction should not be invoked. In other
words the court cannot make use of the special provisions
of Sec_tion 151 of the Code where a party had his remedy
provided elsewhere in the Code .... "
B
(13.4) A suit or proceeding initiated in accordance with
law, cannot be considered as an abuse of the process of court,
only on the ground that such suit or proceeding is likely to cause
hardship or is likely to be rejected ultimately. As there are
C specific provisions in the Code, relating to costs, security for
costs and damages, the court cannot invoke Section 151 on
the ground that the same is necessary for ends of justice.
Therefore, we are of the view that a court trying a civil suit,
cannot, in exercise of inherent power under section 151 of the
~ Code, make an interim order directing the plaintiff to file an
D undertaking that he will pay a sum directed by the court to the
defendant as damages in case he fails in the suit.
14. The direction to the plaintiff to furnish an undertaking
to pay Rs.25 lakhs to defendants in the event of losing the case,
E is an order in terrorem. It is made not because the plaintiff
committed any default, nor because he tried to delay the
proceedings, nor because he filed any frivolous applications,
but because the court is unable to find the time to decide the
case in view of the huge pendency. (The division bench has
F supported the order of the learned Single Judge on the ground
that 'the heavy docket does not permit early disposal of suits
and thus parties may take advantage of keeping frivolous claims
alive'). Such an order, punishing a litigant for approaching the
court, on the ground that the court is not able to decide the case
G expeditiously, is unwarranted, unauthorized and beyond the
power and jurisdiction of the court in a civil suit governed by
the Code. Such orders are likely to be branded as judicial
highhandedness, or worse, judicial vigilantism.
15. We appreciate the anxiety shown by the High Court to
H discourage land-grabbers, speculators, false claimants and
VINOD SETH v. DEVINDER BAJAJ AND ANR. 455
[R.V. RAVEENDRAN, J.]
adventurers in real estate from pressurizing hapless and A
innocent property owners to part with their property against their
will, by filing suits which are vexatious, false or frivolous. But
we cannot approve the method adopted by the High Court
which is wholly outside.law. In a suit governed by the Code, no
court can, merely because it considers it just and equitable, B
issue directions which are contrary to or not authorized by law.
Courts will do well to keep in mind the warning given by
Benjamin N. Cardozo in The Nature of the Judicial Process :
(Yale University Press -1921 Edition Page 114):
"The Judge even when he is free, is still not wholly free.
c
He is not to innovate at pleasure. He is not a knight-errant
roaming at will in pursuit of his own ideal of beauty or of
goodness. He is to draw his inspiration from consecrated ·
principles. He is not to yield to spasmodic sentiment, to
vague and unregulated benevolence. He is to exercise a D
discretion informed by tradition, methodized by analogy,
disciplined by system, and subordinated to "the primordial
necessity of order in social life".
The High Court can certainly innovate, to discipline those whom E
it considers to be adventurers in litigation, but it has to do so
within the four corners of law.
16. This case reminds us of the adage: "Hard cases make
bad law". Black's Law Dictionary defines a 'hard case' thus :
"A law suit involving equities that tempt a judge to stretch or F
even disregard a principle of law at issue - hence the
expression "Hard cases make bad law". Justice Holmes
explained and extended the adage thus : (See his dissenting
opinion in Northern Securities Co. v. United States 193 (1903)
US 197): G
"Great cases, like hard cases make bad law. For great
cases are called great, not by reason of their real
importance in shaping the law of the future, but because
of some accident of immediate overwhelming interest H
456 SUPREME COURT REPORTS [2010] 7 S.C R.
A which appeals to the feelings and distorts the judgment.
These immediate interests exercise a kind of hydraulic
pressure which ma~es what previously was clear seem
doubtful, and before which even well settled principles of
law will bend."
B
This is certainly a hard case. The High Court should have
resisted from laying down a 'bad law', which will be treated as
a precedent and will result in similar directions by courts,
wherever they feel that suits are not likely to succeed. It would
encourage, in fact even force, the losing party to file an appeal
C or further appeal against the final decision in the suit. This is
because no plaintiff would like to undertake to pay a large sum
as damages, nor would a defendant like to miss a chance to
receive a large sum as damages. Such orders would also
tempt and instigate both the parties to make attempts to
D succeed in the suit by hook or crook, by adopting means fair
or foul. If litigants are to be subjected to such directions in
terrorem, the litigant public will be dissuaded from approaching
courts, even in regard to bona fide claims. Such orders may
lead to gradual loss of faith in the judiciary and force litigants
E to think of extra-judicial remedies by seeking the help of
underworld elements or police to settle/enforce their claims
thereby leading to break-down of rule of law. No order or
direction of the High Court, even if it is intended to deter
vexatious and frivolous litigation, should lead to obstruction of
F · access to courts.
17. We may also examine the matter from another angle.
Can the court insist upon the plaintiff to give an undertaking to
pay compensation to defendant on the event of dismissal of the
G suit, irrespective of the reasons for the dismissal of the suit? If
the plaintiff furnishes such an undertaking and proceeds with
the suit and is able to establish the oral agreement as pleaded
by him, but the court dismisses the suit either because it holds
that the prayer is barred under section 14(1)(b) and (d) of the
Specific Relief Act, or because it decides not to exercise
H
VINOD SETH v. DEVINDER BAJAJ AND ANR. 457
[R.V. RAVEENDRAN, J.]
discretion to grant specific performance under section 20(2) of A
the Specific Relief Act, should the plaintiff be made liable to
pay Rs.25 lakhs as compensation to the defendants?
18. The attempt of the Division Bench to support the order
of the learned Single Judge with reference to Order XXV Rule B
1 of the Code is clearly erroneous. The said provision, as
noticed above, only enables the court to require the plaintiff to
furnish security for payment of costs incurred or likely to be
incurred by the defendant.
19. If the High Court felt that the prayer in the suit was C
vexatious or not maintainable, it could have considered whether
it could reject the suit under Order 7 Rule 11 of the Code holding
that the plaint did not disclose the cause of action for grant of
the relief sought or that the prayer was barred by section
14(1)(b) and (d) of the Specific Relief Act. Alternatively, the court D
could have framed issues and heard the issue relating to
maintainability as a preliminary issue and dismiss the suit if it
was of the view that it had no jurisdictioh t.:i grant specific
performance as sought, in view of the bar contained in section
14(1 )(b) and (d) of the Specific Relief Act. If it was of the prima E
,,facie view that the suit was a vexatious one, it could have
expedited the trial and dismissed the suit by awarding
appropriate costs under section 35 of the Code and
compensatory costs under section 35A of the Code. Be that
as it may. F
20. Having found that the direction of the High Court is
unsustainable, let us next examine whether we can give any
relief to defendants within the four corners of law. The reason
for the High Court directing the plaintiff to furnish an undertaking
to pay damages in the event of failure in the suit, is that Section G
52 of the Transfer of Property Act would apply to the suit
property and the pendency of the suit interfered with the
defendant's right to enjoy or deal with the property. Section 52
of TP Act provides that during the pendency in any court of any
suit in which any right to immovable property is directly and H
458 SUPREME COURT REPORTS (201 O] 7 S.C.R.
A specifically in question, the property cannot be transferred or
otherwise dealt with by any party to the suit or proceedings so
as to affect the rights of any other party thereto under any
decree or order which may be made therein except under the
authority of the court and on such terms as it may impose. The
B said section incorporates the well-known principle of /is
pendens which was enunciated in Bellamy v. Sabine [1857
( 1) De G & J 566] :
"It is, as I think, a doctrine common to the Courts both of
Law and Equity, and rests, as I apprehend, upon this
c foundation - that it would plainly be impossible that any
action or suit could be brought to a successful termination,
if alienations pendente lite were permitted to prevail. The
plaintiff would be liable in every case to be defeated by
the defendant's alienating before the judgment or decree,
D and would be driven to commence his proceedings .de
novo, subject again to be defeated by the same course
of proceeding."
It is well-settled that the doctrine of /is pendens does not annul
E the conveyance by a party to the suit, but only renders it
subservient to the rights of the other parties to the litigation.
S~ction 52 will not therefore render a transaction relating to the
suit property during the pendency of the suit void but render the
transfer inoperative insofar as the other parties to the suit.
F Transfer of any right, title or interest in the suit property or the
consequential acquisition of any right, title or interest, during the
pendency of the suit will be subject to the decision in the suit.
21. The principle underlying section 52 of TP Act is based
on justice and equity. The operation of the bar under section
G 52 is however subject to the power of the court to exempt the
suit property from the operation of section 52 subject to such
conditions it may impose. That means that the court in which
the suit is pending, has the power, in appropriate cases, to
permit a party to transfer the property which is the subject-
H matter of the suit without being subjected to the rights of any
VINOD SETH v. DEVINDER BAJAJ AND ANR. 459
[R.V. RAVEENDRAN, J.]
part to the suit, by imposing such terms as it deems fit. Having A
regard to the facts and circumstances, we are of the view that
this is a fit case where the suit property should be exempted
from the operation of Section 52 of the TP Act, subject to a
condition relating to reasonable security, so that the defendants
will have the liberty to deal with the property in any manner they B
may deem fit, inspite of the pendency of the suit. The appellant-
plaintiff has alleged that he is a builder and real estate dealer.
It is admitted by him that he has entered into the transaction
as a commercial collaboration agreement for business benefits.
The appellant has further stated in the plaint, that under the c
collaboration agreement, he is required to invest Rs. 20 lakhs
in all, made up of Rs.16,29,000/- for construction and
Rs.3,71,000/- as cash consideration and that in lieu of it he will
be entitled to ground floor of the new building to be constructed
by him at his own cost. Treating it as a business venture, a
0
reasonable profit from such a venture can be taken as 15% of
the investment proposed, which works out to Rs.3 lakhs.
Therefore it would be sufficient to direct the respondents to
furnish security for a sum of Rs. 3 lakhs to the satisfaction of
the court (learned Single Judge) as a condition for permitting E
the defendants to deal with the property during the pendency
of the suit, under Section 52 of the TP Act.
The need for reform :
22. Before concluding, it is necessary to notice the reason F
why the High Court was trying to find some way to protect the
interests of defendants, when it felt that they were being
harassed by plaintiff. It made the impugned order because it
felt that in the absence of stringent and effective provision for
costs, on the dismissal of the suit, it would not be able to G
compensate the defendants for the losses/hardship suffered by
them, by imposing costs. If there was an effective provision for
levy of realistic costs against the losing party, with reference
to the conduct of such party, the High Court, in all probability
would not have ventured upon the procedure it adopted. This H
460 SUPREME COURT REPORTS [2010] 7 S.C.R.
A draws attention to the absence of an effective provision for
costs which has led to mushrooming of vexatious, frivolous and
speculative civil litigation.
23. The principle underlying levy of costs was explained
in Manindra Chandra Nandi v. Aswini Kumar Acharaya - ILR
8
(1921) 48 Cal. 427 thus:
"We must remember that whatever the origin of costs
might have been, they are now awarded, not as a
punishment of the defeated party but as a recompense to
c the successful party for the expenses to which he had been
subjected, or, as Lord Coke puts it, for whatever appears
to the Court to be the legal expenses incurred by the party
in prosecuting his suit or his defence. ****The theory on
which costs are now awarded to a plaintiff is that default
D of the defendant made it necessary to sue him, and to a
defendant is that the plaintiff sued him without cause; costs
are thus in the nature of incidental damages allowed to
indemnify a party against the expense of successfully
vindicating his rights in court and consequently the party
E to blame pays costs to the party without fault. These
principles apply, not merely in the award of costs, but also
in the award of extra allowance or special costs. Courts
are authorized to allow such special allowances, not to
inflict a penalty on the un-successful party, but to indemnify
the successful litigant for actual expenses necessarily or
F
reasonably incurred in what are designated as important
cases or difficult and extraordinary cases."
In Salem Advocate Bar Association v. Union of India [2005
(6) sec 344] this after noticing that the award of costs is in
G the discretion of the court and that there is no upper limit in
respect of the costs awardable under Section 35 of the Code,
observed thus:
"Judicial notice can be taken of the fact that many
H unscrupulous parties take advantage of the fact that either
VINOD SETH v. DEVINDER BAJAJ AND ANR. 461
[R.V. RAVEENDRAN, J.]
the costs are not awarded or nominal costs are awarded A
against the unsuccessful party. Unfortunately, it has
.become a practice to direct parties to bear their own costs.
In a large number of cases, such an order is passed
despite Section 35 (2) of the Code. Such a practice also
encourages the filing of frivolous suits. It also leads to the B
taking up of frivolous defences. Further, wherever costs
are awarded, ordinarily the same are not realistic and are
nominal. When Section 35(2) provides for cost to follow
the event, it is implicit that the costs have to be those which
are reasonably incurred by a successful party except in c
those cases where the court in its discretion may direct
otherwise by reco(ding reasons therefor. The costs have
to be actual reasonable costs including the cost of the time
spent by the successful party, the transportation and
lodging, if any, or any other incidental costs besides the 0
payment of the court fee, lawyer's fee, typing and other
costs in relation to the litigation. It is for the High Courts to
examine these aspects and wherever necessary make
requisite rules, regulations or practice direction so as to
provide appropriate guidelines for the subordinate courts E
to follow."
23. The provision for costs is intended to achieve the
following goals :
(a) It should act as a deterrent to vexatious, frivolous and F
speculative litigations or defences. The spectre of being
made liable to pay actual costs should be such, as to make
every litigant think twice before putting forth a vexatious,
frivolous or speculative claim or defence.
(b) Costs should ensure that the provisions of the Code, G
Evidence Act and other laws governing procedure are
scrupulously and strictly complied with and that parties do
not adopt delaying tactics or mislead the court.
(c) Costs should provide adequate indemnity to the H
462 SUPREME COURT REPORTS [2010] 7 S.C.R.
A successful litigant for the expenditure incurred by him for
the litigation. This necessitates the award of actual costs
of litigation as contrasted from nominal or fixed or
unrealistic costs.
B (d) The provision for costs should be an incentive for each
litigant to adopt alternative dispute resolution (ADR)
processes and arrive at a settlement before the trial
commences in most of the cases. In many other
jurisdictions, in view of the existence of appropriate and
adequate provisions for costs, the litigants are persuaded
c to settle nearly 90% of the civil suits before they come up
to trial.
(e) The provisions relating to costs should not however
obstruct access to courts and justice. Under no
D circumstances the costs should be a deterrent, to a citizen
with a genuine or bonafide claim, or to any person
belonging to the weaker sections whose rights have been
affected, from approaching the courts.
E 24. At present these goals are sought to be achieved
mainly by sections 35,35A and 358 read with the relevant civil
rules of practice relating to taxing of costs. Section 35 of the
Code vests the discretion to award costs in the courts. It
provides that normally the costs should follow the event and
court shall have full power to determine by whom or out of what
F property, and to what extent such costs are to be paid. Most of
the costs taxing rules, including the rules in force in Delhi
provide each party should file a bill of cost immediately after
the judgment is delivered setting out: (a) the court fee paid; (b)
process fee spent; (c) expenses of witnesses; (d) advocate's
G fee; and (e) such other amount as may be allowable under the
rules or as may be directed by the court as costs. We are
informed that in Delhi, the advocate's fee in regard to suits the
value of which exceeds Rs.5 lakhs is : Rs.14,500/- plus 1% of
the amount in excess of Rs.5 lakhs subject to a ceiling of Rs.
H 50,000/-. The prevalent view among litigants and members of
VINOD SETH v. DEVINDER BAJAJ AND ANR. 463
[R.V. RAVEENDRAN, J.]
the bar is that the costs provided for in the Code and awarded A
by courts neither compensate nor indemnify the litigant fully in
regard to the expenses incurred by him.
25. The English civil procedure rules provide that a court
in deciding what order, if any, to make ' in exercising its
9
discretion about costs should have regard to the following
circumstances: (a) the conduct of all the parties; (b) whether a
party has succeeded on part of his case, even if he has not
been wholly successful; and (c) any payment made into court
or admissible offer to settle made by a party which is drawn to
the courts attention. 'Conduct of the parties' that should be taken C
note by the court includes : (a) conduct before, as well as
during, the proceedings and in particular the extent to which the
parties followed the relevant pre-action protocol; (b) whether it
was reasonable for a party to raise, pursue or contest a
particular allegation or issue; (c) the manner in which a party D
has pursued or defended his case or a particular allegation or
issue; and (d) whether a claimant who has succeeded in his
claim, in whole or in part, exaggerated his claim. Similar
provisions, with appropriate modifications may enable proper
and more realistic costs being awarded. As Section 35 of the E
Code does not impose any ceiling the desired object can be
achieved by the following : (i) courts levying costs, following the
result, in all cases (non-levy of costs should be supported by
reasons); and (ii) appropriate amendment to Civil Rules of
Practice relating to taxation of costs, to make it more realistic F
in commercial litigation.
26. The provision relating to compensatory costs (Section
35A of the Code) in respect of false or vexatious claims or
defences has become virtually infructuous and ineffective, on G
account of inflation. Under the said section, award of
compensatory costs in false and vexatious litigation, is subject
to a ceiling of Rs.3,000/-. This requires a realistic revision
keeping in view, the observations in Sa/em Advocates Bar
Association (supra). Section 358 providing for costs for
H
464 SUPREME COURT REPORTS [2010] 7 S.C.R.
A causing delay is seldom invoked. It should be regularly
employed, to reduce delay.
27. The lack of appropriate provisions relating to costs has
resulted in a steady increase in malicious, vexatious, false,
frivolous and speculative suits, apart from rendering Section 89
8
of the Code ineffective. Any attempt to reduce the pendency
or encourage alternative dispute resolution processes or to
streamline the civil justice system will fail in the absence of
appropriate provisions relating to costs. There is therefore an
urgent need for the legislature and the Law Commission of India
C to re-visit the provisions relating to costs and compensatory
costs contained in Section 35 and 35A of the Code.
gonclusion
26. In the result, we allow this appeal in part, set aside the
0
order of the Division Bench and Learned Single Jddge
directing the plaintiff-appellant to file an affidavit undertaking to
pay Rs. 25 lakhs to defendants-respondents in the event of
failure in the suit. Instead, we permit the defendants-
E respondents under section 52 of TP Act, to deal with or
dispose of the suit property in the manner they deem fit, in spite
of the pendency of the suit by the plaintiff, subject to their
furnishing security to an extent of Rs. Three lakhs to the
satisfaction of the learned Single Judge.
F D.G. Appeal partly allowed.
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