- 1 - RFA NO.100254 of 2018 IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH DATED THIS THE 8TH DAY OF APRIL, 2025 PRESENT THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM AND THE HON'BLE MR. JUSTICE G BASAVARAJA REGULAR FIRST APPEAL NO.100254 OF 2018 BETWEEN: K. YERRISWAMY S/O. K.KULIYYAPPA, AGED ABOUT 43 YEARS, R/O: DOOR NO.18, “SRIHARI NILAYA”, BEHIND PRABHAKAR COMPLEX, DAM ROAD, HOSAPETE-583203, BALLARI DISTRICT. …APPELLANT (BY SRI. S.A.SONDUR, ADVOCATE FOR SRI. K.L.PATIL, ADVOCATE) AND: P. VIRUPAKSHAPPA SHETTY AND SONS, A PARTNERSHIP FIRM, BY ITS PARTNERS, 1. P. BADRINARAYANA SETTY S/O. P.KRISHNAMURTHY SETTY, AGED 58 YEARS, R/O. WARD NO.31, A.C.OFFICE ROAD, HOSAPETE-583203, BALLARI DISTRICT. 2. P. RAMANATHA SETTY S/O. LATE P.VIRUPAKSHA SETTY, AGED 73 YEARS, R/O. 29TH WARD, M.J.NAGAR, Digitally signed by ASHPAK KASHIMSA MALAGALADINNI Location: HIGH COURT OF KARNATAKA DHARWAD BENCH Date: 2025.04.09 11:27:27 +0530 - 2 - RFA NO.100254 of 2018 HOSAPETE-583203, BALLARI DISTRICT. 3. M. NAGARAJA GOWDA S/O. M.RUDRA GOWDA, AGED 35 YEARS, R/O. MOKA-GONAL VILLAGE, TALUK AND DIST. BALLARI. 4. P. VIRUPAKSHAPPA SHETTY AND SONS A REGISTERED PARTNERSHIP FIRM, BY ITS PARTNER P.RAMANATHA SHETTY. …RESPONDENTS (BY SRI. VEERESH R.BUDIHAL AND SRI. G.I.GACHCHINAMATH, ADVOCATE FOR C/R3; NOTICE TO R1 AND R2 ARE SERVED; VIDE ORDER DATED 24.02.2025 NOTICE TO R2 IS HELD SUFFICIENT) THIS REGULAR FIRST APPEAL IS FILED UNDER SEC.96 OF CPC., PRAYING TO SET ASIDE THE JUDGMENT DATED 03.04.2018 AND DECREE DATED 03.04.2018 IN O.S.NO.56/2011 ON THE FILE OF PRL. SENIOR CIVIL JUDGE AND JMFC, HOSAPETE AND DECREE THE SUIT DIRECTING THE (DEFENDANTS) TO EXECUTE REGISTERED SALE DEED IN THE NAME OF THE PLAINTIFF IN RESPECT OF THE SUIT SCHEDULE PROPERTY BY RECEIVING BALANCE SALE CONSIDERATION AMOUNT, BY ALLOWING THE APPEAL. THIS APPEAL HAVING BEEN HEARD AND RESERVED ON 17.03.2025, COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM AND THE HON'BLE MR. JUSTICE G BASAVARAJA - 3 - RFA NO.100254 of 2018 CAV JUDGMENT (PER: THE HON'BLE MR.JUSTICE SACHIN SHANKAR MAGADUM) The captioned appeal is by the plaintiff assailing the judgment and decree rendered by the trial Court in O.S.No.56/2011 wherein plaintiff's suit seeking relief of specific performance of contract based on an agreement of sale dated 10.06.2010 is partly allowed by the trial Court and suit is decreed ordering for refund of earnest money of Rs.80,00,000/- with interest at the rate of 10% per annum from the date of suit till realization. Plaintiff is therefore in an appeal. 2. For the sake of brevity, the parties are referred to as per their rank before the trial Court. 3. The facts leading to the case are as under: Plaintiff has filed the present suit alleging that defendant Nos.1 and 2 being partners of defendant No.4/partnership firm offered to sell the suit schedule property in their favour for a sale consideration of Rs.1,16,00,000/- and accordingly, executed an agreement of sale on 10.06.2010 by receiving advance earnest - 4 - RFA NO.100254 of 2018 money of Rs.80,00,000/-. Plaintiff further alleged that defendant Nos.1 and 2 agreed that they would complete the transaction within two years by receiving balance sale consideration of Rs.36,00,000/-. The plaintiff further contended that defendant Nos.1 and 2 had agreed that they will not alienate the suit schedule property and further undertook to discharge the encumbrance over the suit schedule property. The present suit is filed alleging that contrary to agreement of sale, defendant Nos.1 and 2 have sold the suit schedule property in favour of defendant No.3 under registered sale deed dated 09.09.2011 for a sale consideration of Rs.1,16,00,000/- in collusion with defendants only to defeat the plaintiff's right. 4. On receipt of summons, defendant Nos.1 and 2 and defendant No.4/firm engaged a counsel and filed a joint written statement. The said written statement is adopted by defendant No.4/firm by filing a memo on 17.10.2016. Defendant Nos.1 and 2 supported the plaintiff's case. Defendant Nos.1 and 2 who have sold the property to defendant No.3, however, alleged that they - 5 - RFA NO.100254 of 2018 were coerced and threatened and the sale deed was obtained by defendant No.3 by threatening defendants 1 and 2 and hence, supported the plaintiff. 5. Defendant No.3, however, stoutly denied the entire averments made in the plaint and disputed the alleged agreement set up by the plaintiff and defendant Nos.1 and 2, Defendant No.3, on the contrary, claimed that defendant No.4/firm incurred heavy loans and this compelled defendant No.4/firm to sell the suit schedule property and therefore, defendant No.3 claimed that he is a bona fide purchaser for a valuable sale consideration without notice and hence, sought for dismissal of the suit. 6. Plaintiff and defendants to substantiate their respective claim have let in oral and documentary evidence. 7. Trial Court though answered issue No.1 in the affirmative and held that plaintiff has succeeded in proving the suit agreement and the payment of earnest money of Rs.80,00,000/-, however, answered issue No.4 in the affirmative and held that defendant No.3 has succeeded in - 6 - RFA NO.100254 of 2018 proving that he is the bonafide purchaser of suit schedule property. Therefore, trial Court declined to grant larger relief of specific performance of contract and accordingly, ordered for refund of earnest money of Rs.80,00,000/- payable by defendant Nos.1 and 2. 8. Learned counsel appearing for the plaintiff reiterating the grounds has vehemently argued and contended that substantial sale consideration is paid by the plaintiff and this fact is acknowledged by defendant Nos.1 and 2 and therefore, he would contend that the transaction being within the stipulated period incorporated in the suit agreement, defendant No.3 cannot assert and claim to be the bonafide purchaser and therefore, he would contend that the finding of the trial Court on issue No.4 is perverse. 9. Referring to the records, he would point out that defendant Nos.1 and 2 have categorically acknowledged and admitted the execution of agreement of sale and also admitted the advancement of earnest money - 7 - RFA NO.100254 of 2018 in their favour and this is supported by PWs.2 and 3 who are the attesting witness to the agreement of sale and therefore, he would point out that trial Court has misread the evidence on record and therefore, the decree granting only refund has led to miscarriage of justice. 10. Regarding the bonafides of defendant No.3, he would point out that defendant Nos.1 and 2 have taken a consistent stand that the partner of plaintiff by name Manjunath who introduced defendant No.3 induced them to execute the sale in his favour and therefore, he would point out that there is sufficient material which demonstrate that defendant No.3 is an influential person and therefore, sale deed obtained by defendant No.3 is tainted on account of having secured through coercion, threat and influence. He would refer to the cross- examination of defendants that defendant Nos.3's brother is a member of Zilla Panchayat and is an influential person and a politician. Therefore, he would contend that plaintiff's agreement being admitted by defendant Nos.1 and 2 and the fact that defendant No.3 has used threat - 8 - RFA NO.100254 of 2018 and influence, the finding on issue No.4 warrants reversal at the hands of this Court. 11. Learned counsel has also brought to the notice of this Court that defendant No.3 has secured the sale deed for the same sale consideration which is admittedly during the subsistence of agreement of sale in favour of plaintiff and therefore, he contends that the learned Judge has not examined the equities while declining to grant larger relief of specific performance of contract. 12. Per contra, learned counsel appearing for defendant No.3 has cited voluminous citations while justifying the reasons recorded by the trial Court on issue No.4. He would contend that the alleged payment of Rs.80,00,000/- is clearly doubtful. He would point out from the records that plaintiff has not produced any documents to substantiate that Rs.80,00,000/- amount was paid by plaintiff to defendant Nos.1 and 2. No documents are produced to substantiate the said claim and therefore, he would contend that admission by defendant Nos.1 and 2 in regard to payment of - 9 - RFA NO.100254 of 2018 Rs.80,00,000/- as an earnest money is of no consequence. He would further point out that alleged payment of Rs.80,00,000/- at the most will only lead to an inference that it is a loan transaction between plaintiff and defendant Nos.1 and 2 in their individual capacity. 13. While countering the alleged threat and coercion, learned counsel appearing for defendant No.3 would point out that if defendant Nos.1 and 2 were induced by threat and coercion, then there is no plausable explanation forthcoming from them for having deposited the sale consideration paid by defendant No.3 which is by way of demand draft. If they are seriously disputing the transaction, they ought not to have deposited the amount paid by defendant No.3. A huge amount of Rs.1,16,00,000/- is paid by way of demand draft and this amount is admittedly credited to the firm to which defendant Nos.1 and 2 are the partners. He would further point out that plaintiff and defendant Nos.1 and 2 have failed to give any plausible explanation as to how the original documents including the mother deeds were - 10 - RFA NO.100254 of 2018 handed over to defendant No.3 at the time of executing sale deed in favour of defendant No.3. 14. Heard learned counsel appearing for the plaintiff, learned counsel appearing for defendant No.3 and learned counsel appearing for defendant Nos.1 and 2. We have given our anxious consideration to the pleadings and oral and documentary evidence let in by both the parties. 15. Following point would arise for consideration Whether trial court was justified in declining larger relief of specific performance of contract and Whether trial court while declining the larger relief has exercised judicial discretion by examining the equities of the parties involved? 16. On closer examination of the pleadings in the plaint, we have noticed that plaintiff has entered into an agreement with defendant Nos.1 and 2 in their individual capacity and not with defendant No.4/firm. It is also quite crucial to note that alleged payment of Rs.80,00,000/- by the plaintiff is made in cash and this amount is paid to - 11 - RFA NO.100254 of 2018 defendant Nos.1 and 2. The plaintiff admit in unequivocal terms that this amount was never credited to firms account. It is also not in dispute that suit schedule property is owned by a partnership firm/defendant No.4. These significant details can be gathered from para 4 of the plaint wherein plaintiff admit that advance sale consideration was not credited to the firm owned by defendant Nos.1 and 2. The same is extracted which reads as under: “IV. The Plaintiff submits that, Defendants 1 and 2 being the Partners of the firm, sold the plaint schedule mentioned property in favour of the Plaintiff for Rs.1,16,00,000/- (Rupees one Crore Sixteen Lakhs only) by executing an Agreement of Sale on 10.6.2010 and on the date of Agreement of Sale. Defendants 1 and 2 received a sum of Rs.80,00,000/- (Rupees Eighty Lakhs only) in cash and further Defendants 1 and 2 agreed to receiving the balance sale consideration amount of Rs.36,00,000/- (Rupees Thirty Six Lakhs only) will be received from the Plaintiff within 2 years from the date of Agreement of Sale dt: 10.6.2010. Plaintiff and Defendant 1 and 2 also agreed plalintiff has to get the Register Sale Deed at is cost and further agreed defendants 1 and 2 is to hand over the possession of the schedule mentioned property at the time of Registration of regular - 12 - RFA NO.100254 of 2018 Registered Sale Deed, and further agreed the Defendants 1 and 2 will not alienate the plaint schedule property and further agreed they will discharge any encumbrance on the plaint schedule mentioned property.” 17. Now we also deem it fit to take cognizance of the pleadings in the written statement filed by defendant Nos.1 and 2. Para 14 and 15 would be relevant. The same is extracted as under: “14. These defendants further submit that, on 09/09/2011 Sri K. Manjunath, Partner, of the plaintiff along with 3rd defendant and about 10 to 12 of this supporters barged in to the defendants house and started negotiating for sale of the suit property in the name of the 3rd defendant. These defendants who are highly respected business people of Hospet and surrounding area refused to agree the demands of the 3rd defendant, his supporters and Sri k. Manjunath. Lot of commotion and exchange of harsh words and threatening words took place between the parties. These defendants appraised the 3rd defendant and his supporters that they had already entered into an agreement dt. 10/06/2010 with the plaintiff for sale of the suit schedule property in his favour for a valid consideration of Rs. 1,16,00,000/- (Rs. one crore and sixteen lakhs) and had infact received an advance of Rs.80,00,000/- and therefore, as very respectful, honorable and law abiding citizens they were not interested in any illegal transaction with the 3rd defendant at the instance of Sri K. Manjunath. Infact Sri K. Manjunath also informed the 3rd defendant that, these defendants had entered into the agreement dt. 10/06/2010 with his partner Sri Yerriswamy. The 3rd defendant and his supporters abused these defendants and the said Sri K. Manjuanth with vulgar language and threatened the defendants of serious - 13 - RFA NO.100254 of 2018 consequences, if they refused to sell the plaint schedule property in his favour for the same consideration of Rs. 1,16,00,000/- immediately on the same day. 15. The commotion was witnessed by many neighbors and went on for more than 2 to 3 hours in the house of these defendants.. Even the family of these defendants were threatened of serious consequences by the 3rd defendant and his supporters. These defendants sensing serious threat to their lives and limbs were forced and coerced to accompany the 3rd defendant and his supports along with Sri K. Manjunath, to the office of the register and forcibly made to execute alleged sale deed dt. 09/09/2011 in favour of the 3rd defendant against the will and conscious of these defendants. These defendants therefore, respectfully submit that, the alleged registered sale deed dt. 09/09/2011 has no legal force and has not conveyed the legal title in favour of 3rd defendant. These defendants respectfully further submit that, even today the defendants are facing threats to their lives and limbs from the 3rd defendant and from his supporters who have lot of political clout, however as already submitted, these defendants have no intention of duping the plaintiff, who is a "prior" agreement holder in respect of suit schedule property. These defendants even today are ready and calling to execute a valid legal registered sale deed in respect of the plaint schedule property in favour of plaintiff after receiving the balance consideration of Rs. 36,00,000/- as shown in the agreement dt. 10/06/2010. In these circumstances these defendants pray that, the Hon'ble Court be pleased to pass an appropriate order, in the interest of justice and equity.” 18. Upon careful examination of the pleadings and evidence presented, two critical aspects emerge that hold significant bearing on the case. Firstly, it is an undisputed - 14 - RFA NO.100254 of 2018 fact that the plaintiff has not directly engaged in any sale transaction with defendant No.4, which is the partnership firm that legally owns the suit schedule property. Given this ownership structure, defendant Nos.1 and 2, acting in their individual capacity, lacked the authority to unilaterally execute an agreement to sell the said property. Despite this legal constraint, they proceeded with such an agreement, which fundamentally undermines the enforceability of the plaintiff’s claim for specific performance. Furthermore, an alarming development arises from the conduct of defendant Nos.1 and 2, who, after executing a registered sale deed in favor of defendant No.3 on 09.09.2011, have subsequently aligned themselves with the plaintiff in an attempt to discredit their own sale transaction. Their claim that the sale deed was procured through threat and coercion by defendant No.3 is not only contradictory but also unsubstantiated by any legal action, such as a counterclaim or an independent suit seeking cancellation of the sale deed. This conduct - 15 - RFA NO.100254 of 2018 casts serious doubts on the credibility of their assertions and the bona fides of their support to the plaintiff’s case. 19. The records further establish that defendant No.3 lawfully acquired the suit schedule property through a valid sale transaction with defendant No.4, the partnership firm. A critical examination of the rebuttal evidence substantiates that the entire sale consideration amounting to Rs.1,16,00,000/- was paid by defendant No.3 through a demand draft drawn in the name of the partnership firm. This method of payment not only ensures financial transparency but also reaffirms the legitimacy of the transaction. In stark contrast, the plaintiff’s claim hinges on an alleged payment of Rs.80,00,000/- in cash to defendant Nos.1 and 2 in their personal capacities. Such a transaction, even if assumed to be true, does not create any binding obligation on the partnership firm, which remains a distinct legal entity. The absence of any documented acknowledgment by the firm further weakens the plaintiff’s position and undermines his claim for specific performance against defendant No.4. - 16 - RFA NO.100254 of 2018 20. Taking these significant aspects into account, this Court finds that the peculiar circumstances of the case warrant a closer scrutiny of the plaintiff’s claims and the conduct of all parties involved. In evaluating the rights of defendant No.3, it becomes evident that his bona fides need not be subjected to further scrutiny, given that his purchase from the partnership firm is a legally sound and fully documented transaction. Since defendant No.3’s acquisition of the suit schedule property from defendant No.4 is an admitted fact, the provisions of Section 19-b do not come into play in the present dispute. The plaintiff, having entered into an agreement with individual partners rather than the firm itself, cannot seek to enforce a contract that does not legally bind the firm. Consequently, even if the alleged impropriety of defendant No.3’s transaction were to be disregarded, the plaintiff’s claim remains untenable as a matter of law. The contractual obligations, if any, rest solely between the plaintiff and defendant Nos.1 and 2 in their personal capacities, which precludes the firm from being held accountable. - 17 - RFA NO.100254 of 2018 21. A meticulous review of the records further discloses that the recitals in the registered sale deed executed by defendant Nos.1 and 2 categorically bind both the individual partners and the partnership firm. The purported defense raised by defendant Nos.1 and 2, alleging coercion and duress at the hands of defendant No.3, remains uncorroborated by any substantive evidence. The complete absence of a police complaint, legal notice, or any counter-litigation by defendant Nos.1 and 2 further diminishes the credibility of their allegations. Additionally, the plaintiff’s decision to institute the suit without issuing any prior notice to defendant Nos.1 and 2 raises serious concerns regarding the bona fides of his claim. The subsequent support extended by defendant Nos.1 and 2 to the plaintiff’s case, despite having executed a legally binding sale deed in favor of defendant No.3 and having received the entire sale consideration, points towards a collusive arrangement between the plaintiff and defendant Nos.1 and 2. Such collusion appears to be strategically designed to undermine the legitimate rights - 18 - RFA NO.100254 of 2018 of defendant No.3, who stands as a bonafide purchaser for value. 22. Given the fact that defendant Nos.1 and 2 have acknowledged receiving Rs.80,00,000/- from the plaintiff, the plaintiff’s remedy is limited to seeking a refund of this amount from these defendants. However, the plaintiff’s attempt to secure the much broader relief of specific performance is legally unsustainable. Since the agreement in question was not executed by the firm and lacks any legal standing against defendant No.4, the relief sought by the plaintiff is fundamentally flawed. The law governing specific performance necessitates that the agreement must be enforceable against the true owner of the property. Here, the firm’s non-involvement in the transaction negates any enforceable obligation upon it, thereby rendering the plaintiff’s claim meritless. 23. The Trial Court has judiciously analyzed the rebuttal evidence presented by defendant No.3 and has arrived at a well-reasoned conclusion. Its decision to decline the plaintiff’s request for specific performance is - 19 - RFA NO.100254 of 2018 based on a sound appreciation of oral and documentary evidence. The discretionary nature of specific performance as an equitable relief mandates that courts exercise caution before granting such relief. The Trial Court has correctly exercised this discretion by refusing to compel the enforcement of an agreement that lacks legal validity and is tainted by collusion. The findings of the Trial Court, rooted in a meticulous evaluation of evidence, do not warrant interference. 24. Upon an independent reassessment of the entire oral and documentary evidence, this Court concurs with the findings of the Trial Court. The principle of equity strongly favors defendant No.3, who has legitimately purchased the suit schedule property by making a full payment through demand draft to the rightful owner, i.e., the partnership firm. In contrast, the plaintiff, having engaged in a transaction with individual partners and not with the firm itself, lacks the necessary legal foundation to claim specific performance. Given these circumstances, the plaintiff’s claim is bound to fail, and the relief sought - 20 - RFA NO.100254 of 2018 cannot be granted. Accordingly, the suit is devoid of merit and stands rightly dismissed. For the reasons stated supra the point is answered in the affirmative 20. Appeal is devoid of merits and accordingly stands dismissed. Sd/- (SACHIN SHANKAR MAGADUM) JUDGE Sd/- (G BASAVARAJA) JUDGE CA Ct:vh