Source: Supreme Court 

Why in News? 

A bench of Justice JB Pardiwala and Justice R Mahadevan held that if a person fails to conduct proper inquiries about the title, they cannot be deemed to be bona fide purchaser under Section 19 (b) of Specific Relief Act, 1963.      

• The Supreme Court held this in the case of Manjit Singh & Anr v. Darshana Devi & Ors. 

What was the Background of Manjit Singh & Anr v. Darshana Devi & Ors. Case?  

• An unregistered sale deed was entered into between the Respondent No. 1 (Plaintiff) and the original Defendant no 1 (owner of suit property). 
• After this agreement was entered, the Defendant no 1 transferred the suit property in favor of Defendants 2 and 3. 
• The Respondent no 1 filed a suit and prayed for specific performance. 
• The Trial Court allowed the suit in favour of the plaintiff. 
• Consequently, the subsequent purchasers (Defendant 2 and 3) preferred first appeal before the District Court where the decree passed by the Trial Court was quashed and set aside. 
• Further, the plaintiff filed second appeal under Section 100 of Civil Procedure Code, 1908 (CPC) before the High Court. 
• The High Court held that the subsequent purchasers in this case cannot be categorized as  boa fide purchasers under Section 19 (b) of the Specific Relief Act, 1963 (SRA). 
• Thus, the matter was before the Supreme Court. 

What were the Court’s Observations?  

• Section 19 (b) of SRA is the one on which strong reliance is placed by the parties in this case. 
• The Court cited the case (RK Mohammed Ubaidullah v. Hajee C. Abdul Wahab (2000)) where this provision was interpreted, and it was held that Section 19 (b) is an exception from the general rule and the onus is on the subsequent purchaser to prove that they are bona fide purchasers for value.  
• The Court further observed that if an act has been done in good faith it must have been done with due care and caution and there should not be any dishonesty or negligence. 
• The Court subsequently held that in the present case it cannot be said that the subsequent purchasers are bona fide purchasers. 
• It was observed that if a subsequent purchaser fails to conduct proper inquiries about interest or title it cannot be said that he is a ‘bona fide purchaser’. 
• Hence, the Court held that no error was committed by the High Court in passing the above order. 
• Consequently, the appeal in this case failed and was dismissed. 

What is Section 19 (b) of SRA?

• Section 19 of SRA lays down persons against whom relief of specific performance can be enforced. 
• As per the provisions following are the persons against whom relief of specific performance can be enforced.

• Section 19 (b) of SRA refers to a person claiming under someone else by a title. 
  • The title arises after the original contract is made. 
  • It Excludes transferees who:  
    • Have paid value (money). 
    • Acted in good faith. 
    • Had no notice of the original contract. 
• In the case of Maharaj Singh & Ors v. Karan Singh (2024) the Court held that where the defendants who are subsequent purchasers fail to prove that they entered into the sale deed in good faith and without notice of the suit agreement, in view of Section 19(b), a decree for specific performance can be passed against such defendants.

What are the Landmark Judgments on Bona fide Subsequent Purchaser?

• Daniels v. Davison (1809): 
  • If a tenant is in possession under a lease or agreement, a purchaser of the property must inquire about the terms of possession. 
  • A tenant in possession, holding both a lease and an agreement to purchase, has an equitable interest in the property. 
  • This equity protects the tenant's rights against a subsequent purchaser who fails to inquire about the tenant's possession. 
  • The subsequent purchaser's claim is repelled due to their lack of inquiry into the nature of possession.
• Bhiwandi and Nizampur v. Kailash Sizing Works (1974): 
  • The Court in this case observed that there is a distinction between honest blundering or carelessness and dishonest actions. 
  • An authority is not honest if they suspect wrongdoing but fail to investigate further. 
  • The Court held that Recklessness and mala fides (bad faith) are treated equally under the law, as both focus on the actor's actual state of mind. 
  • Though law equates recklessness and bad faith, their moral blameworthiness may differ.
• Kailash Etc Works v. Munlity B & N (1968): 
  • A person cannot be considered honest if they act without fairness or uprightness. 
  • Acting with knowledge or awareness that harm is likely to result, or with wanton or willful negligence, is inconsistent with honesty. 
  • Whether a person acted honestly depends on the specific facts of each case. 
  • The Court held that the essence of good faith is that: 
    • It Requires an honest determination based on facts. 
    • Precludes: 
      • Pretence or deceit. 
      • Unfairness or lack of uprightness. 
      • Wanton or willful negligence.