Supreme Court Upholds Plaintiffs in Redemption and Adverse Possession Dispute Over Mortgaged Shops. Subsequent Sale with Notice of Prior Agreement Held Voidable, Not Void, and Mortgagee in Possession's Fiduciary Capacity Prevents Adverse Possession Under Section 91 of Indian Trusts Act, 1882 and Section 40 Paragraph 2 of Transfer of Property Act, 1882.

Civil suit for redemption and possession of mortgaged properties, with connected dispute over specific performance of a prior agreement to sell and claim of adverse possession by mortgagee in possession.

Respondents 1 and 2 (plaintiffs) sought a decree for specific performance of an agreement to sell dated August 25, 1930, and later a decree for redemption and possession of two shops in Jamnagar from Kanji and Lalji, the mortgagees' sons.

Despite an earlier agreement to sell the mortgaged properties to the plaintiffs, the mortgagors executed a sale deed in favor of the mortgagee's sons; the plaintiffs alleged collusion and sought enforcement of their prior contract and redemption.

Trial Court in earlier specific performance suit awarded damages, but Joint Civil Judge granted specific performance; in later redemption suit, Trial Court dismissed against Lalji due to adverse possession, District Court allowed plaintiffs' appeal, Single Judge of Saurashtra High Court allowed Lalji's second appeal and dismissed suit, Division Bench of Bombay High Court allowed plaintiffs' Letters Patent Appeal and restored District Court decree.

Whether the sale deed dated September 10, 1930 in favour of Kanji and Lalji despite the prior agreement of sale dated August 25, 1930 was void or voidable at the instance of the plaintiffs. Whether possession of Kanji and Lalji after the sale deed became adverse to the plaintiffs so as to bar the redemption suit by limitation. Whether the decree for specific performance in the earlier suit was binding on Lalji, who was not a party, given that Kanji was only an attesting witness to the court-executed sale deed.

Appellants contended that the sale deed of September 10, 1930 made Kanji and Lalji absolute owners, extinguishing the right of redemption, and that their possession was adverse to the plaintiffs' knowledge, barring the suit by limitation. Appellants further contended that the decree for specific performance was not binding on Lalji because he was not a party and Kanji, though a party, was only an attesting witness and not a conveying party. Respondents argued that the subsequent sale was subject to their prior agreement and therefore voidable, not void, and that Kanji and Lalji held the properties in a fiduciary capacity as mortgagees, so their possession could not be adverse.

A subsequent sale of property with notice of a prior contract of sale is not void but voidable at the instance of the prior contract holder; under Section 91 of the Indian Trusts Act, 1882 and Section 40 paragraph 2 of the Transfer of Property Act, 1882, the subsequent transferee holds the property subject to that prior obligation. A mortgagee in possession who asserts ownership under a voidable sale from the mortgagor does not thereby convert his possession into adverse possession, because he stands in a fiduciary position towards the person having the prior right; therefore, the statutory period of limitation does not run against the true owner.

In spite of the existence of a previous contract of sale, a sale to a subsequent purchaser even with notice is not void, but voidable at the instance of the party agreeing to purchase under a previous contract and except for the obligation arising from s. 91 of the Trust Act and paragraph 2 of s. 40 of the Transfer of Property Act, the title to the property would pass from the vendor to the subsequent transferee. The sale in favour of K and L was not void but voidable at the instance of respondents 1 and 2 by reason of their earlier contract and though as between the mortgagors and K and L the sale was valid and binding, it was subject to the right of specific performance which respondents 1 and 2 had acquired and K and L being in a fiduciary position, their possession was not adverse as against respondents 1 and 2. Therefore the suit for redemption was not barred even though the statutory period had expired. Further, being an attesting witness, K, both for himself and on behalf of L, was made fully aware that the sale deed conveying the title of the property was being passed in favour of respondents 1 and 2 and that the only right in them was to receive the mortgage amount and no more.

One Soni Virji Sundarji, karta of a Hindu joint family, executed a mortgage with possession dated December 11, 1907 in respect of two shops in Jamnagar in favour of Jetha Roopchand. After Virji's death, the coparceners agreed to sell the properties to respondents 1 and 2 on August 25, 1930, but instead executed a registered sale deed dated September 10, 1930 in favour of Lalji Jetha and Kanji Jetha (sons of mortgagee). Respondents 1 and 2 filed Suit No. 263 of 1931 for specific performance; Trial Court awarded damages, but Joint Civil Judge on August 16, 1943 granted specific performance and directed Kanji to hand over possession on payment. On April 29, 1947, a deed of conveyance was executed through court pursuant to the decree, signed by Kanji as attesting witness. Respondents 1 and 2 filed Suit No. 283 of 1949 for redemption and possession against Kanji and Lalji. Trial Court dismissed the suit against Lalji on ground of adverse possession; District Court allowed plaintiffs' appeal on November 18, 1952, holding the sale deed conferred no rights against plaintiffs and no adverse possession. Lalji's second appeal was allowed by Single Judge of Saurashtra High Court on September 3, 1955, dismissing the suit; but Division Bench of Bombay High Court on December 9, 1957 allowed the Letters Patent Appeal, restored District Court decree, and held no adverse possession. The heirs of Lalji obtained special leave to appeal to Supreme Court, which heard the matter and delivered judgment on October 14, 1966.

• Indian Trusts Act, 1882: Section 91
• Transfer of Property Act, 1882: Section 40, paragraph 2