Doctrine of Lis Pendens vis-à-vis Specific Performance

Section 52 of the Transfer of Property Act, 1882 [“the Act”] embodies the doctrine of Lis Pendens which states that during the pendency in any court of any suit in which any right to immovable property is directly and specifically in question, the property cannot be transferred or otherwise dealt with by any party to the suit or proceedings¹. The principle enshrined in Section 52 is founded on justice, equity and good conscience with the objective that the decision of a court in a suit should be binding not only on the litigating parties but also on those who derive title pendente lite so as to avoid multiplicity of proceedings and do complete justice between the parties². A three judge bench of the Supreme Court in the matter of M/s Siddamsetty Infra Projects Pvt. Ltd. vs Katta Sujatha Reddy & Ors.³ held that the following conditions ought to be fulfilled for the doctrine of lis pendens to apply-

There must be a pending suit or proceeding;
the suit or proceeding must be pending in a competent court;
The suit or proceeding must not be collusive⁴;
The right to immovable property must be directly and specifically in question in the suit or proceeding;
The property must be transferred by a party to the litigation;
The alienation must affect the rights of any other party to the dispute⁵.

When does the ‘pendency of suit’ commence?

The ‘pendency of suit or proceeding’ is a crucial factor which needs to be determined in order to attract the application of Section 52 of the Act as it can only be invoked when an immovable property has been transferred ‘during pendency of the suit or proceeding’ and not in a case in which the immoveable property has been transferred prior to the inception of the suit proceedings (in which case Section 19(b) of Specific Relief Act, 1963 may be attracted). The explanation to Section 52 clarifies that the pendency of a suit or litigation shall be deemed to commence from the date of the presentation of the plaint or the institution of the proceeding in a court of competent jurisdiction and to continue until suit or proceedings has been disposed of by a final decree. In Siddamsetty (supra) a three judge bench of the Supreme Court dismissed the suit for specific performance filed by the Plaintiff. Being aggrieved, the Appellant/Plaintiff filed a Review Petition before the Supreme Court on which the Registry marked certain defects. In the meanwhile, the vendors sold the property to a third party. In Review proceedings the Supreme Court set aside the earlier judgment and allowed the suit for specific performance. The Respondents argued that the Lis Pendens would not apply as the Review Petition was lying in defective state in the registry when the subject immovable property was sold to the third party. Rejecting the argument, the Supreme Court held that the doctrine of Lis Pendens kicks in at the stage of “institution” and not at the stage when notice is issued by the this court. Thus, Section 52 of the Transfer of Property Act would apply to the third-party purchaser once the sale was executed after the review petition was instituted before this court. Any transfer that is made during the pendency is subject to the final result of the litigation.

Fate of the immovable property transferred during pendency of litigation

In Thomson Press (India) Ltd. vs. Nanak Builders and Investors⁶ the Defendants/Vendors sold the suit property to the third party/Appellant during the pendency of a suit for specific performance filed by the Plaintiff in which an injunction order was passed restraining the Defendant from alienating the suit property. The Supreme Court relied upon Durga Prasad & Anr. vs Deep Chand & Ors⁷ wherein the Supreme Court held that in such circumstances the proper form of decree is to direct the specific performance of the contract between the vendor and the Plaintiff and direct the subsequent transferee to join in the conveyance so as to pass on the title which resides in him to the Plaintiff. The Supreme Court also clarified that the import of Section 52 does not annul the subsequent sale deed but only renders it subservient to the rights of the other parties to the litigation. The subsequent transfer pending litigation is not void ab initio, however, the purchaser of such suit property takes the bargain subject to the rights of the Plaintiff in the pending suit. In G.T. Girish vs Y. Subba Raju and Anr.⁸, the Supreme Court reiterated that the transfer of property is not void merely because it is made during pendency of suit, however, it is subject to the outcome of the pending litigation.

Plea of Bonafide Purchaser

The subsequent transferee who has come into possession of the suit property pending litigation often sets up the defense of bonafide purchaser of the property. Section 19(b) of the Specific Relief Act, 1963 stipulates that the specific performance of the contract can be enforced against any other person claiming under him by a title arising subsequently to the contract except a transferee for value who has paid money in good faith and without notice of the original contract. Prima facie reading of the section postulates that a suit for specific performance cannot be decreed against the subsequent transferee if he is able to prove that he purchased the property in good faith without notice of the original contract. Section 41 of the Transfer of Property Act, in similar lines, provides that if an ostensible owner of the immovable property transfers it for consideration, such transfer shall not be held voidable on the ground that the transferor was not authorized to make it, provided that the transferee had undertaken all the due diligence to ascertain whether the transferor had power to make the transfer. Section 19(b) and Section 41 of the respective Acts are grounded on the principle that the rights of the subsequent transferee in the immovable property ought to be protected and such transfer ought not be annulled in his favour merely because the property was under a dispute prior to the transfer. So long the subsequent transferee is able to prove that he had taken all the care and due diligence to ascertain the title of the immovable property, he would be accorded protection under Section 19(b) of Specific Relief Act or Section 41 of the Transfer of Property Act, as the case may be.

Section 52 of Transfer of Property Act overrides Section 19(b) of Specific Relief Act & Section 41 of the Transfer of Property Act

In Ram Peary & Ors vs Gauri & Ors.⁹, a full bench of Allahabad High Court was convened to answer the question whether Section 52 of the Transfer of Property Act is subject to Section 19(b) of the Specific Relief Act. The Court relied upon the ration laid down in Durga Prasad (supra) and observed that the subsequent sale of the suit property pending litigation is treated as if “it never had any existence”. Therefore the Court held that that the subsequent transferee, even though he had obtained the transfer without notice of the original contract, cannot set up against plaintiff-contractor any right; for it would defeat the rule of lis pendens which is founded upon public policy. And considered in that manner, Section 52 of the Transfer of Property Act is not subject to Section 19(b) of the Specific Relief Act. Therefore, it is immaterial whether the subsequent transferee had notice of the pending litigation or the dispute pertaining to the immovable property between the parties to the suit. Once the sale of the suit property takes place pending litigation, it is hit by Section 52 of the Transfer of Property Act. The Supreme Court in Guruswamy Nadar vs P. Lakshmi Ammal¹⁰, relying upon Ram Peary (supra) further reiterated that even though in the facts and circumstances of the said case the subsequent purchaser has purchased the property in good faith, however, the principle of lis pendens will still be applicable notwithstanding the fact that under Section 19(b) his rights could be protected. The Delhi High Court, held similarly in the matter of GLS Foils Products Pvt. Ltd. vs FWS Turnit Logistic Park LLP and Ors¹¹. The Kerala High Court in Padmaja vs Eratti Sajeev and Ors¹² expounded upon the provisions of Section 52 of the Transfer of Property Act and Section 19(b) of Specific Relief Act and explicated that both these provisions operate in different fields viz-

In other words, the moment the suit is filed, the parties are governed by Section 52 of the Transfer of Property Act and would not be governed by Section 19(b) of the Specific Relief Act. Section 52 of the Transfer of Property Act overrides Section 19(b) of the Specific Relief Act. Both these provisions operate in different fields. Section, 19(b) would have application to a transaction before suit while Section 52 operates against a transfer subsequent to the institution of the suit. So long as the subsequent transferee does not claim under a transfer which came into existence before the institution of the suit, he cannot claim to be a transferee for value in good faith as provided in Section19(b) of the Specific Relief Act.

In Chander Bhan vs Mukhtar Singh¹³, the Supreme Court further observed that once the subsequent transfer, pending litigation, is held to be illegal in view of Section 52 of Transfer of Property Act then the defense taken by the subsequent transferee that he is bonafide purchaser for valuable consideration and entitled to protection under Section 41 of the Transfer of Property Act, is liable to be rejected.

Recently, the Supreme Court in the matter of Ramakant Ambalal Choksi vs Harish Ambala Choksi & Ors.¹⁴ observed that although the doctrine of lis pendens as enunciated in Section 52 of the Transfer of Property Act takes care of all pendent lite transfer; but it may not always be good enough to take fullest care of the Plaintiff’s interest vis-a-vis such transfer. The Supreme Court opined that while filing a suit for specific performance, the Plaintiff should also seek an injunction restraining the Defendant from transferring the suit property during pendency of the suit proceedings. The Court gave the following illustration to support its reasoning-

“45… In a suit wherein the plaintiff prays for specific performance and if the defendant is not restrained from selling the property to a third party and accordingly a third party purchases the same bona fide for value without any notice of the pending litigation and spends a huge sum for the improvement thereof or for construction thereon, the equity in his favour may intervene to persuade the Court to decline, in the exercise of its discretion, the equitable relief of specific performance to the plaintiff at the trial and to award damages only in favour of the plaintiff “

Therefore, the Supreme Court was of the view that if in a suit for specific performance, the Plaintiff has not sought injunction restraining the Defendant from transferring the property pendente lite and a subsequent purchaser purchases the suit property pendent lite bona fide without notice of the pending litigation, and also invests huge sum in improving the property, then the court would be disinclined to set aside such transfer pendent lite and award damages to the Plaintiff as an alternative relief.

This observation of the Supreme Court is in teeth of the aforementioned catena of decisions of Supreme Court, wherein the Supreme Court has categorically held that once the transaction has been hit with lis pendens then defenses like bonafide purchaser or lack of notice of the pending litigation or agreement cannot be taken, and Section 52 of the Transfer of Property Act, overrides Section 19(b) of Specific Relief Act & Section 41 of the Transfer of Property Act. The Supreme Court in Ramakant Ambalal (supra), has not referred to the aforementioned authoritative decisions on the issue, while giving the aforesaid observation.

Section 52 is applicable dehors Section 1 of Transfer of Property Act

Notably, Section 1 of the Transfer of Property Act extends the application of the Act to the whole of India except to the states of Bombay, Punjab and Delhi. The Supreme Court in Chander Bhan (supra) observed that even though Section 52 may not be applicable in the aforesaid states due to Section 1 of the Act, however, the principles of lis-pendens which are based on justice, equity and good conscience, would still be applicable.

Conclusion

The following principles emerge from the conspectus of above case laws-

The sale of immovable property, pending litigation, is as if “it never had any existence” – Ram Peary (supra)
Once the sale of an immovable property takes place pending litigation, Section 52 applies and such sale would be subject to the outcome of the proceedings between the parties to the suit. – Padmaja (supra)
The doctrine of Lis Pendens kicks in at the stage of “institution” of the suit or proceeding and not at the stage when notice is issued by the court- Siddamsetty (supra)
In such circumstances, the subsequent sale deed need not be cancelled. The subsequent transferee can be directed to join in the conveyance and pass on the title which resides in him to the Plaintiff. -Durga Prasad (supra)
The rights of the subsequent transferee in the immovable property are subservient to the rights of the parties to the pending litigation proceedings. -Thomson Press (supra)
The subsequent transfer of immovable property pending litigation is not void-ab-initio. However, it is subject to the outcome of pending litigation proceedings. -G.T. Girish (supra)
It is immaterial whether the subsequent transferee had notice of the pending litigation proceedings. -Ram Peary (supra), Shingara Singh vs Daljit Singh ¹⁵
The subsequent transferee who has purchased the suit property during pendency of the suit is a necessary party and can be impleaded as a party to the suit proceedings.- Thomson Press (supra)
Recently, the Supreme Court in the matter of Shingara Singh vs Daljit Singh ¹⁶reiterated that once the transaction has been hit with lis pendens then defenses like bonafide purchaser or lack of notice of the pending litigation or agreement cannot be taken.
Even though provisions of Transfer of Property Act are not applicable in some states by virtue of Section 1, however, the principle of lis pendens embodied in Section 52, which is founded on justice, equity and good conscience, would still be applicable.- Chander Bhan (supra)
Section 52 of Transfer of Property Act overrides Section 19(b) of Specific Relief Act & Section 41 of the Transfer of Property Act. -Ram Peary and Chander Bhan (supra)

That said, it is pertinent to mention that a decree of Specific Performance is discretionary and the Plaintiff cannot seek Specific Performance as a matter of right.¹⁷ The Plaintiff seeking specific performance must plead and prove that he was ready and willing to perform the contract as per Section 16(c). If the Plaintiff fails to discharge the burden of readiness and willingness, then the suit itself will fail and will have no bearing upon the subsequent transfer which took place during the pendency of litigation.

By Daksh Pandit