R.K. Mohammed Ubaidullah v. Hajee C. Abdul Wahab

The Supreme Court delivered an authoritative judgment on the doctrine of bona fide purchaser for value without notice under Section 19(b) of the Specific Relief Act, 1963 and Section 3 of the Transfer of Property Act, 1882. The Court held that the burden of proving that a subsequent purchase was made in good faith, for valuable consideration, and without notice of an earlier agreement to sell lies squarely on the subsequent purchaser. The Court established that where a tenant is in actual physical possession of the property, a prospective purchaser has constructive notice of any agreement to sell existing between the landlord and tenant; failure to make reasonable inquiry defeats the plea of bona fides.

• Burden of Proof on Subsequent Purchaser: Under Section 19(b) SRA, the subsequent purchaser must positively prove: (1) payment of value, (2) good faith, and (3) absence of notice.
• Tenant's Possession as Constructive Notice: Explanation II to Section 3 TPA mandates that actual possession by any person constitutes constructive notice of their title and agreements.
• Duty of Due Diligence: A purchaser who willfully abstains from inquiring from the person in possession cannot claim to be an innocent bona fide purchaser.
• Specific Performance Enforceable Against Subsequent Transferee: Prior agreement holder in possession is entitled to enforce specific performance directly against subsequent buyer.
• Form of Decree in SRA Suits: Subsequent purchaser directed to join the vendor in executing the registered conveyance in favor of the prior agreement holder.

The plaintiff was a tenant in continuous occupation of commercial shop premises in Tiruchirappalli. On 10 June 1984, the landlord entered into a registered agreement of sale with the plaintiff to sell the premises for Rs. 40,000/-, receiving Rs. 15,000/- as advance.

While the plaintiff was in physical possession, the landlord executed a registered sale deed on 30 October 1985 in favor of the defendants (subsequent purchasers) for Rs. 50,000/-.

The plaintiff filed a suit for specific performance of the prior agreement of sale against the landlord and the subsequent purchasers.

The subsequent purchasers claimed protection under Section 19(b) of the Specific Relief Act, asserting they were bona fide purchasers for value who had no notice of the plaintiff's uncompleted agreement.

The trial court and the Madras High Court decreed the plaintiff's suit. The subsequent purchasers appealed to the Supreme Court.

Section 19(b) of the Specific Relief Act, 1963 provides that specific performance of a contract may be enforced against any person claiming under a party to the contract by a title arising subsequently, 'except a transferee for value who has paid his money in good faith and without notice of the original contract'. The burden of proving that the subsequent purchaser is a transferee for value who has paid his money in good faith and without notice of the prior contract lies upon the subsequent purchaser. In order to succeed, the subsequent purchaser must establish three essential requirements: (i) that he is a transferee for value; (ii) that he has paid the purchase money; and (iii) that he acted in good faith and without notice of the prior agreement. Under Section 3 of the Transfer of Property Act, 1882, a person is said to have notice of a fact when he actually knows that fact, or when, but for willful abstention from an inquiry or search which he ought to have made, or gross negligence, he would have known it. Explanation II to Section 3 expressly enacts that any person acquiring any immovable property shall be deemed to have notice of the title, if any, of any person who is for the time being in actual possession thereof. When the plaintiff was in actual physical possession of the suit property as a tenant, it was the bounden duty of the subsequent purchasers to make inquiries from the plaintiff as to the nature and character of his possession. Having willfully abstained from making such inquiry, the subsequent purchasers are deemed to have constructive notice of the plaintiff's prior agreement to sell. They cannot claim to be bona fide purchasers without notice.

• Veerayee Ammal v. Seeni Ammal (2002) 1 SCC 134: Reaffirmed the strict burden of proof on subsequent purchasers.
• Ramesh Chand Ardawatiya v. Anil Panjwani (2003) 7 SCC 350: Applied constructive notice principles to contested property possession.
• Ferro Alloys Corpn. Ltd. v. O.P. Singhania (2021) 18 SCC 235: Cited on due diligence requirements in commercial property conveyancing.