Section 10 Specific Relief Act | Proof of Agreement & Payment Endorsements Suffices for Specific Performance Even Against Collusive Sales: Karnataka HC

The Karnataka High Court's judgment in V. Chandrashekar v. Munithimma Reddy reaffirms the principle that specific performance of an agreement of sale can be decreed when the plaintiff proves both the agreement and payment endorsements, even in the face of subsequent collusive transactions. The Court's detailed analysis of witness testimonies and documentary evidence underscores the importance of consistent admissions in establishing legal rights, particularly when lower courts err in appreciating evidence.

Background & Facts

The Dispute

The appellant, Mr. V. Chandrashekar, entered into an agreement of sale on 11.07.1999 with defendant Nos. 1 and 2 (Munithimma Reddy and Nanjamma) for a property bearing Sy.No.75/2, Huskur Village measuring 35 guntas at a consideration of Rs.1,22,500/-. The appellant paid Rs.25,000/- as earnest money on the date of the agreement. The property lacked irrigation facilities, and the appellant permitted defendants to use water from his adjacent borewell in Sy.No.83 without charges during 1996-1997. Later, the appellant cultivated the defendants' land, leading to the agreement of sale.

Key Facts

• 11.07.1999: Agreement of sale executed (Ex.P1); Rs.25,000/- paid as earnest money.
• Subsequent Payments: Additional amounts paid and endorsed on Ex.P1, including:
  • Rs.45,000/- via cheque to Dayananda Reddy (earlier agreement holder) on 20.01.2002 (cheque belonged to plaintiff but handed over by defendant No.1).
  • Rs.2,000/- on 03.04.2002 (last endorsement on Ex.P1).
• 23.08.2004: Mutation and khatha transferred to defendant No.1 (Ex.P2 and P3).
• 05.10.2004: Defendants executed a collusive sale deed (Ex.P4) in favour of defendant No.3 for Rs.5,25,000/-, despite the earlier agreement with the plaintiff.

Procedural History

• 15.03.2006: Suit filed before Civil Judge (Sr.Dn.) and JMFC, Anekal (O.S.No.937/2006) seeking specific performance.
• 17.09.2008: Trial Court decreed the suit, holding that the agreement (Ex.P1) and payments were proven.
• 13.11.2009: Principal District Judge, Bengaluru Rural allowed appeals (R.A.Nos.188/2008 and 199/2008), setting aside the Trial Court's decree and directing defendant No.1 to refund Rs.77,500/- with 15% interest from 28.08.2000.
• 23.02.2012: Second appeals filed before the High Court of Karnataka (RSA Nos.239/2010 and 528/2010).
• 28.02.2014: High Court framed an additional substantial question of law regarding partial acceptance of endorsements on Ex.P1.
• 12.06.2026: High Court allowed the appeals, decreeing specific performance.

The Parties' Positions

Appellant (Plaintiff)

• Contended that the agreement (Ex.P1) was genuine, and all payments, including Rs.45,000/- to Dayananda Reddy, were made with defendants' consent.
• Argued that defendants colluded with defendant No.3 to execute a sham sale deed (Ex.P4) to defeat his rights.
• Relied on endorsements on Ex.P1 and admissions of DW1 during cross-examination.

Respondents (Defendants)

• Defendant Nos.1 and 2: Denied the agreement, claiming signatures were obtained on blank papers. Admitted executing the sale deed in favour of defendant No.3.
• Defendant No.3: Claimed to be a bona fide purchaser for value, unaware of the plaintiff's agreement. Argued that the plaintiff failed to prove readiness and willingness to pay the balance consideration.
• Relied on judgments to contend that specific performance cannot be granted without setting aside the subsequent sale deed (Ex.P4).

Relief Sought

The appellant sought:

1. Specific performance of the agreement dated 11.07.1999 (Ex.P1).
2. Setting aside of the collusive sale deed dated 05.10.2004 (Ex.P4).
3. Costs and other incidental reliefs.

The Legal Issue

The central questions before the Court were:

1. Whether the Lower Appellate Court erred in reversing the Trial Court's decree for specific performance, particularly in light of vacillatory statements by defendants' witnesses (DW1, DW2, DW4) regarding the genuineness of a prior agreement (Ex.D1) in favour of defendant No.3?
2. Whether the conduct of defendant No.2 (who did not subject herself to cross-examination) justified drawing an adverse inference against the defendants?
3. Whether the Courts below illegally rejected part of the endorsement on Ex.P1 (payment of Rs.45,000/-) while accepting another part (Rs.2,000/-)?

Arguments Presented

For the Appellant

• Relied on Ex.P1 and its endorsements to prove the agreement and payments.
• Contended that DW1's admissions during cross-examination established the genuineness of Ex.P1 and falsity of Ex.D1.
• Argued that the Appellate Court's finding (that there was an agreement but specific performance was not decreed) was perverse and contradictory.
• Emphasized that Section 22 of the Specific Relief Act, 1963 permits partial performance, and the plaintiff was entitled to the relief sought.

For the Respondents

• Defendant Nos.1 and 2: Contended that Ex.P1 was fabricated, and signatures were obtained on blank papers. Relied on Ex.D1 (agreement dated 03.02.1999 in favour of defendant No.3) and Ex.D2 (sale deed dated 05.10.2004).
• Defendant No.3: Argued that he was a bona fide purchaser for value, unaware of the plaintiff's agreement. Relied on judgments to contend that:
  • Readiness and willingness to pay the balance consideration was not proven (Ram Kumar Agarwal v. Thawar Das).
  • Agreement not executed by all co-sharers (Pemmada Prabhakar v. Youngmen’s Vysya Association).
  • No jurisdiction to interfere in second appeal under Section 100 CPC (R. Ramachandran Ayyar v. Ramalingam Chettiar).

The Court's Analysis

The Court undertook a re-appreciation of evidence, focusing on the substantial questions of law framed. Key observations:

1. Genuineness of Ex.P1:

   • Ex.P1 bore the signatures of defendant Nos.1 and 2 and their family members as witnesses.
   • Recitals in Ex.P1 clearly stated:
     • Sale consideration: Rs.1,22,500/-.
     • Earnest money: Rs.25,000/- paid on 11.07.1999.
     • Katha and mutation not in defendants' names as on the date of agreement.
     • Possession handed over to the plaintiff for cultivation.
   • Endorsements on Ex.P1 acknowledged subsequent payments, including Rs.45,000/- to Dayananda Reddy and Rs.2,000/- on 03.04.2002.

2. Admissions of DW1:

   • Categorically admitted signatures on Ex.P1 and its endorsements (Ex.P1(d) to (h)).
   • Denied only the last endorsement (payment of Rs.45,000/-), but did not dispute it through a handwriting expert.
   • Contradictory statements regarding Ex.D1:
     • Claimed Ex.D1 was executed in Dommasandra Village, but DW2 and DW4 (relatives) were not present.
     • Admitted that sale consideration in Ex.D1 was Rs.1,00,000/-, but later claimed it was Rs.5,25,000/- in the sale deed (Ex.D2).
   • Failed to explain why Gowramma and Yellamma (defendant No.2's daughters) signed Ex.P1 as witnesses but were not parties to Ex.D2.

3. Conduct of Defendant No.2:

   • Examined as DW2 but not subjected to cross-examination.
   • The Court drew an adverse inference against her for avoiding cross-examination.

4. Collusive Sale Deed (Ex.P4):

   • Executed immediately after mutation (Ex.P2 and P3) in August 2004.
   • Defendant No.3's claim of being a bona fide purchaser was rejected due to:
     • Knowledge of the plaintiff's agreement (Ex.P1).
     • Lack of proof for Ex.D1 (prior agreement in favour of defendant No.3).
     • Discrepancies in sale consideration (Rs.1,00,000/- in Ex.D1 vs. Rs.5,25,000/- in Ex.D2).

5. Appellate Court's Error:

   • Contradictory findings:
     • Paragraph 31: Held that Ex.P1 was proven.
     • Paragraph 41: Held that specific performance was not decreed due to failure to prove the agreement.
   • Erroneously rejected the Rs.45,000/- endorsement while accepting the Rs.2,000/- endorsement, despite both being part of the same document (Ex.P1).

6. Precedents Relied Upon:

   • M S Ananthamurthy v. Manjula (2025 INSC 273): Held that contents of a document, not its title, determine its nature. Applied to Ex.P1, where recitals proved the agreement.
   • Section 22 of the Specific Relief Act, 1963: Permits partial performance when part of the agreement is proven.

"The recitals of document of Ex.P1 and also the averments made in paragraphs 5 and 6 of the plaint are very clear with regard to the payment made through a cheque and not by way of cash to the Dayananda Reddy when the same comes to the knowledge of the plaintiff."

The Verdict

The second appeals were allowed. The Court:

1. Set aside the judgment of the First Appellate Court dated 13.11.2009 in R.A.No.199/2008.
2. Set aside the judgment and decree of the Trial Court dated 17.09.2008 on Additional Issues Nos.1 and 2.
3. Set aside the direction to refund Rs.77,500/- with 15% interest from 28.08.2000.
4. Decreed the suit for specific performance:
   • Defendant Nos.1 and 2 directed to execute the sale deed in favour of the plaintiff.
   • Liberty granted to the plaintiff to enforce the agreement if defendants fail to comply.

What This Means For Similar Cases

Courts Must Scrutinize Witness Admissions Over Technicalities

• Practitioners should emphasize the admissions of defendants' witnesses during cross-examination, particularly when they contradict their own pleadings.
• Lower courts' findings can be reversed in second appeal if based on perverse appreciation of evidence, even if no substantial question of law is framed (Section 100 CPC).
• Partial endorsements on agreements cannot be selectively accepted; courts must consider the entire document to determine its genuineness.

Collusive Transactions Will Not Defeat Specific Performance

• Subsequent purchasers cannot claim bona fide status if they had knowledge of prior agreements or colluded with defendants to defeat the plaintiff's rights.
• Sale deeds executed post-agreement to defeat specific performance will be set aside if proven collusive.
• Plaintiffs must prove:
  • Execution of the agreement (through signatures and recitals).
  • Payment of consideration (via endorsements or other evidence).
  • Readiness and willingness to perform their part of the contract.

Adverse Inference From Non-Cooperation

• Defendants avoiding cross-examination risk adverse inferences being drawn against them.
• Family members signing as witnesses cannot later claim ignorance of the agreement's contents, especially if they are co-sharers or beneficiaries of the transaction.