The Gauhati High Court has clarified that a party cannot invoke judicial relief to enforce an illegal contract while simultaneously claiming damages for fraud arising from the same contract. In a significant ruling, the Court denied compensation for mental agony and lost income where the plaintiff sought specific performance of an agreement to convert parking space into a clinic - contrary to GMDA bye-laws. The judgment reinforces that equity will not aid a party who seeks to benefit from an unlawful arrangement.
Background & Facts
The Dispute
The plaintiff, Dr. Kishore Kumar Das, a medical professional, sought to establish a doctor’s chamber cum clinic in Guwahati. He was introduced to Anup Saikia, Managing Director of Meghmallar Estates and Services Pvt. Ltd., who verbally assured him that a 1,000 sq. ft. ground floor space with 400 sq. ft. frontage in the under-construction Meghmallar Hill View project would be allotted for this purpose. The plaintiff was told that permission from the Guwahati Metropolitan Development Authority (GMDA) was pending but had a 99% chance of approval. He was also assured that if the ground floor permission was denied, he would be offered a contiguous two-bedroom apartment on the first floor.
Key Facts
- The total agreed consideration for the ground floor space (1,000 sq. ft.), frontage (400 sq. ft.), and first-floor flat (1,375 sq. ft.) was Rs. 33,00,000/-
- On 22.06.2007, two allotment letters were issued: Flat No. 01/Gr. (1,000 sq. ft.) and Flat No. 101/Al (1,350 sq. ft.) for Rs. 9,30,000/- and Rs. 13,50,000/- respectively
- The remaining Rs. 10,20,000/- was allegedly charged for registration and frontage
- Registered deeds of agreement (Exhibits 8705/07 and 8706/07) were executed on 06.07.2007 for the two flats
- The plaintiff paid Rs. 12,00,000/-; his wife paid Rs. 18,00,000/- between 23.06.2006 and 05.09.2008
- On 23.06.2008, the defendants informed the plaintiff that frontage could not be provided
- On 03.10.2008, a revised plan offered 1,010 sq. ft. ground floor space with 463 sq. ft. frontage for an additional Rs. 6,29,000/-; plaintiff agreed to pay Rs. 5,50,000/-
- On 26.11.2008, the defendants informed the plaintiff that GMDA permission for ground floor conversion was impossible
- On 08.01.2009, plaintiff requested alternative flat; defendant refused
- On 19.02.2009, plaintiff offered Rs. 41,96,475/- for three-bedroom flat, two-bedroom flat, parking, and registration
- On 17.03.2009, defendants cited GMDA bye-laws prohibiting use of parking space for clinics
- RTI response revealed no application for NOC for ground floor conversion was ever made
- Defendants never executed conveyance deeds for the ground floor space
Procedural History
- 06.07.2007: Execution of registered agreements for flats
- 23.06.2008: First notice of impossibility of frontage
- 08.01.2009: Plaintiff’s formal request for alternative flat
- 19.02.2009: Plaintiff’s offer of Rs. 41,96,475/-
- 17.03.2009: Defendants’ refusal citing GMDA bye-laws
- 04.03.2009: Defendants cancelled final call letters
- 10.04.2006: Plaintiff resigned from Biborwa Cancer Institute
- 10.07.2006: Resignation accepted
- 25.02.2009: Defendant No. 3 (Utpal Das) resigned as director
- 2010: Title Suit No. 86/2010 filed by plaintiff in Civil Judge’s Court, Kamrup (M)
- 17.07.2017: Trial Court decreed refund of Rs. 12,00,000/- with 12% interest from date of suit and 6% from date of decree; denied specific performance and damages
- 26.03.2026: Judgment reserved
- 30.04.2026: Judgment pronounced by Gauhati High Court
The Parties' Positions
Plaintiff (Respondent): Claimed fraud and breach of contract. Argued that defendants knowingly induced him to pay Rs. 30,00,000/- by falsely promising illegal use of parking space. Sought specific performance, refund, damages for lost income (Rs. 6,50,000/-), mental agony (Rs. 10,00,000/-), and price differential (Rs. 9,20,000/-).
Defendants (Appellants): Denied any assurance of illegal construction. Claimed no NOC was ever sought because GMDA bye-laws prohibited it. Argued that plaintiff knew the risk and was attempting to exploit the situation. Contended only Rs. 7,00,000/- was paid by plaintiff (not Rs. 12,00,000/-) and that wife was a necessary party.
Relief Sought
The plaintiff sought:
- Specific performance of the agreement for ground floor space
- Permanent injunction against third-party claims
- Refund of Rs. 30,00,000/- with interest
- Damages of Rs. 25,70,000/- under three heads
The defendants sought dismissal of the suit, reduction of refund to Rs. 7,00,000/-, and rejection of damages.
The Legal Issue
The central questions were: (1) Whether the suit was maintainable without joinder of the plaintiff’s wife; (2) Whether the plaintiff was entitled to a refund of Rs. 12,00,000/- or only Rs. 7,00,000/-; (3) Whether interest should accrue from date of payment or date of suit; and (4) Whether the plaintiff was entitled to damages for fraud or breach of contract where the agreement sought to be enforced was illegal.
Arguments Presented
For the Appellant/Petitioner
The appellants argued that the plaintiff’s wife was a necessary party since joint payments were made and both were parties to the transaction. They contended that only Rs. 7,00,000/- was paid by the plaintiff, as per company records, and that the Rs. 12,00,000/- figure included his wife’s payments. They further argued that the agreement to convert parking space into a clinic was illegal under GMDA bye-laws, and thus unenforceable. They relied on Section 56 of the Indian Contract Act to assert that the contract could not be performed lawfully and that the plaintiff’s claim for damages was barred by his own conduct.
For the Respondent/State
The respondent argued that the suit was maintainable as the agreement was solely between him and the company, and his wife’s payments were separate. He relied on Exhibits 2, 4, 13, 15, 17, 19, and 21 to prove payment of Rs. 12,00,000/-. He contended that the defendants knowingly induced him to pay by falsely promising NOC approval, constituting fraud. He cited Section 56(3) of the Indian Contract Act to argue that the defendants, as builders with industry knowledge, were liable for damages for inducing him to enter an illegal agreement.
The Court's Analysis
The Court first addressed joinder. It held that the suit was based on a registered agreement executed solely between the plaintiff and the company. The wife’s payments were documented separately, and the plaintiff’s claims were grounded in his own agreement. The Court relied on Kasturi v. Illiam Perumal to affirm that only parties to the contract are necessary, and the wife’s absence did not render the suit non-maintainable.
On the quantum of refund, the Court examined the receipts (Exhibits 2, 4, 13, 15, 17, 19, 21) which were unchallenged during cross-examination. These documents, duly proved, established that the plaintiff alone paid Rs. 12,00,000/-. The defendants failed to rebut this with documentary evidence, despite claiming the plaintiff spent Rs. 14,00,000/- on internal construction - a claim unsupported by records.
Regarding interest, the Court noted Clause 4 of the agreement provided for 10% simple interest if the property could not be allotted. The defendants conceded this rate. The Court rejected the Trial Court’s award of interest from the date of suit, holding that interest must accrue from the date of each payment, as the plaintiff’s money was held by the defendants without any corresponding benefit to him. The Court cited Vidya v. Parsvnath Developers Ltd. to affirm that interest should run from the date of deposit to prevent unjust enrichment.
The critical issue was damages. The plaintiff claimed fraud and sought compensation for lost income, mental agony, and price appreciation. However, the Court observed a fundamental contradiction: the plaintiff sought specific performance of an agreement to convert parking space into a clinic - a use explicitly prohibited by GMDA bye-laws. The Court held:
"By instituting the suit for specific performance with the aforesaid prayers, the plaintiff-respondent has negated the plea of fraud on the part of the appellant company. In other words, by his own action, he has rendered his claim for damages legally untenable."
The Court further noted that Section 56(3) of the Indian Contract Act, which imposes liability on a promisor who knows an act is unlawful, cannot be invoked when the promisee himself seeks judicial enforcement of the same unlawful act. Equity does not assist a party who seeks to benefit from illegality. The plaintiff’s resignation from his job in 2006, a year before the agreement, and his continued employment elsewhere undermined his claim of lost income.
The Verdict
The appeal was partly allowed. The Gauhati High Court set aside the Trial Court’s award of interest from the date of suit and held that interest at 10% per annum must be paid from the date of each payment made by the plaintiff, as evidenced by Exhibits 2, 4, 13, 15, 17, 19, and 21, until the date of decree. Thereafter, interest at 6% per annum under Section 34 CPC shall apply until realization. The refund of Rs. 12,00,000/- was upheld. The claim for damages under all heads - lost income, mental agony, and price differential - was dismissed. The cross-objection was dismissed. The decree was modified accordingly.
What This Means For Similar Cases
Fraud Claims Cannot Coexist with Enforcement of Illegal Contracts
- Practitioners must advise clients that seeking specific performance of an illegal agreement (e.g., unauthorized construction) bars subsequent claims for fraud or damages arising from the same illegality
- Courts will not entertain claims for compensation where the plaintiff’s own conduct seeks to validate an unlawful transaction
Interest Must Accrue from Date of Payment in Real Estate Disputes
- Where contracts specify interest on refund, courts will now routinely award it from the date of actual payment, not from the date of filing
- This aligns with the Supreme Court’s trend in Vidya v. Parsvnath and prevents unjust enrichment by developers
Documentary Evidence Trumps Oral Assertions in Payment Disputes
- Unchallenged receipts and bank records are decisive in establishing payment amounts
- Defendants must produce contemporaneous accounting records to rebut plaintiff’s evidence; mere oral denials or internal ledgers are insufficient
Builder Knowledge Does Not Override Plaintiff’s Complicity
- Even if builders are presumed to know building regulations, a buyer who knowingly proceeds with an illegal arrangement cannot claim victimhood
- Courts will apply the doctrine of clean hands strictly in real estate fraud cases
