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Petitioner: AMERICAN LIFE INSURANCE COMPANY VS Respondent: D. B. AVARI
P L D 1975 Karachi 900
P L D 1975 Karachi 900
Before Fakhruddin G. Ebrahim, J
MESSRS AMERICAN LIFE INSURANCE COMPANY, KARACHI‑Plaintiff
versus
D. B. AVARI AND 4 OTHERS‑Defendants
Suit No. 156 of 1967, decided on 21st May 1975.
(a) Contract Act (IX of 1872)‑----
S. 73‑Breach of contract‑Evacuee hotel alongwith appurtenant land sold off by public auction to defendants subject to only condition of running and maintaining it as a first class hotel‑Except for condition .of maintaining hotel as a first class hotel, defendants, held, transferred all proprietary rights free from encumbrances ‑ Defendants, in .circumstances, could not be said to have no right to sell any portion .or whole of property but for condition of running it as a first class hotel and binding their successors‑in‑interest as well‑Subsequent sale of portion of land by defendants in plaintiff's favour known to Government and department concerned, transfer not considered by Government as violative of condition of sale and no action taken against sellers and purchasers, defendants, held, had every right to sell out land.
(b) Interpretation of documents‑
Condition of sale binding purchaser to maintain and run property sold as a first class hotel‑Condition cannot be interpreted as having prevented defendants purchasers from making unrestricted use of surplus land (not occupied by hotel)‑Condition putting restriction on use of purchased land‑To be construed strictly and not to permit inroads into proprietary rights of purchasers.
(c) Contract Act (IX of 1872)‑
S. 73‑Transfer of Property Act (IV of 1882), S. 55‑Breach of contract ‑ Purchaser taking conveyance of property. on basis of warranties ‑ Breach of warranty discovered after conveyance ‑Purchaser cannot lose his right to compensation merely because of seller being innocent.
(d) Transfer of Property Act (IV of 1882)‑
‑‑ S. 55‑Contract Act (IX of 1871), S. 73‑Breach of contract -Covenant for title and quiet enjoyment involving right to undisturbed possession‑Becomes enforceable only on obstruction or disposses sion‑Defendants sellers of property, not even attempting to disturb plaintiff purchasers' possession but plaintiffs losing possession due to a supervening event (acquisition by Improvement Trust)‑‑Defendants, held, committed no breach of any covenant or warranty contained in sale deed.
Noor Mohammad v. Lilaram Hukumatrai A I R 1928 Sind 61; Udo Das and others v. Mehr Bakhsh and others A I R 1933 Lah. 262; Meerkannal Rowther v. Periyakaruppan A I R 1934 Mad. 687; Allahdino Bacha v. Odhoo mal Amardinomal A I R 1942 Sind 81 and Kirpuniah Pillai v. Ponnuchami Pillal A I R 1933 Mad. 768 distinguished.
Eastern Mortgage & .Agency Co. Ltd. v. Mohammed Fazlul Karim A I R ‑x1926 Cal. 3855 Cann v. Cann (1830) 3 Sim (N); Ben v. Helsham (1886) 2 Esc. 72 (1) and Gulabchand Daulatram v. Suryajirao Ganpatrao A I R 1950 Bom. 401 ref.
(e) Displaced Persons (Compensation and Rehabilitation) Act (XXVIII of 1958)‑
‑‑ Ss. 3, 16 & Sched., para. 5 read with Rehabilitation and Settlement Scheme No. III, paras. 10, 11, 20 & 26‑Settlement authorities, powers of‑Do not extend to imposition of any condition in nature of an encumbrance except forbidding disposal of property till full price of property sold paid up‑Condition of sale requiring running of hotel in a certain way, held, not warranted either by Act XXVIII of 1958, or Schedule thereunder, or Scheme No. III, and therefore, invalid.
A plain reading of the Act XXVIII of 1958, the Schedule and the Scheme No. III make it quite clear that there is no power in the Settlement Authorities to impose any condition in the nature of encumbrance except that the transferee shall not dispose of the property until he had paid the full price. It will, follow, therefore, that the condition imposed in the present case of running and maintaining a hotel was not warranted by the Act or the Schedule or the Scheme and has, therefore, no validity.
Mahmooda Tehsin v. S. Ijaz Hussain Shah and others P L D 1965 S C 618 ref.
S. A. Nusrat for Plaintiff.
Sayeed A. Shaikh for Defendants.
Dates of hearing: 13th, 29th, 30th November 1974; 8th and 22nd April 1975.
JUDGMENT
This is a suit by the plaintiffs‑purchasers against the defendants‑vendors for the refund of the entire amount of sale consideration together with interest thereon at 7J % per annum amounting to Rs. 18,97,022 on the ground that the defendants had failed to convey the suit property to the plaintiff making out a clear and marketable title free from all encumbrances and disputes.
2. The facts relevant to the controversy are not in dispute. The property known as "Nedos Hotel, Lahore", bearing No. S.C. 19, R 87, was put to public auction by the Settlement Department on 21st August 1961,, One of the conditions of the auction was that the purchaser shall have to run it as a first class hotel and shall have to maintain it as such. The defendants' highest bid was accepted and they also agreed to this condition. Ultimately on 6‑10‑1964, a Permanent Transfer Certificate was issued in favour of the defendants which stated amongst other things that as provided under para graph 11 of the Scheme, the proprietary rights in the above‑mentioned property, as described on the opposite page stand transferred to the auction‑purchaser free from all encumbrances. The total area of the property transferred was 96 kanals 1 marls and 12 sq. ft. and on the next page was reproduced the operative part of the order stating that the confirmation of the auction in favour of the defendants was subject to the condition that the purchasers shall have to run it as a first class hotel and shall have to maintain it as such. On 21‑4‑1964 the defendants agreed to sell to the plaintiffs a portion of the aforesaid laud measuring 5 kanals 5 marlas and 175 sq. ft. i.e. 2644.44 sq. yds. for a consideration of Rs. 15,20,533. This was followed by a registered sale deed dated 12‑11‑1964, Exh. 19/1. But prior thereto there were three letters exchanged between the parties and I may only refer to two of them which are relevant. The Plaintiffs fn their letter dated 13th October 1964, Exh. 18/3, referred to the condition in the Permanent Transfer Certificate that the transferees shall have to run the property as a first class hotel and shall have to maintain it as such, being clause one of the terms and conditions of the auction, which had already been agreed to by the defendants, and enquired as to the consequences that would follow if the defendants or their successors decided not to maintain the property as a first class hotel and requested the defendants to furnish them with a copy of the agreement referred to in the Permanent Transfer Certificate and also a letter from the Chief Settlement Commissioner to the effect that the said condition does not debar the vendors, the defendants from selling the land in question which is not being used as a part of the hotel business. In their reply dated 20th October 1964, Exh. 18/1 the defendants stated that the restriction to run the property as a first class hotel did not prohibit the defendants from transferring the surplus land and if the plaintiffs so desire the defendants were willing to give an undertaking that the existing hotel will be run as a first class hotel. This undertaking by the defendants was expressly incorporated in the sale deed whereby the vendors covenanted that they shall keep and maintain the main hotel property as a first class hotel in accordance with clause 1 of the terms and conditions of the auction agreed to by the vendors on 21‑8‑1961 at the time of auction as mentioned in the Certificate of Permanent Transfer. Among the other relevant terms in the sale deed are the normal and usual covenants of title that the property sold was free from all claims, liens, burdens, disputes ani encumbrances whatsoever and that the defendants were exclusive owners and in absolute possession of the property; that they had good right, full power and lawful authority to sell the property and that the vendees shall be rightful owners of the property and shall peacefully and quietly have and hold and possess the same and enjoy the profits and benefits thereof without any let, claim, demand, denial, hindrance and interruption by the vendors or their predecessors‑in‑title, and that the vendees will be secured, harmless and indemnified against all losses and detriments occasioned to or suffered by them owing to any claim or demand preferred by any person claiming through or under the vendors. The only other communication from the plaintiffs to the defendants before the filing of the present suit is dated 24‑1‑1967, Exh. 5/4. In this letter the plaintiffs stated that "it has now develop ed" that under the terms and conditions of the auction and condition attach ed to the Permanent Transfer Deed issued in favour of the defendants by the Settlement Authorities, the property was transferred to the defendants along. with a transfer deed restriction that the premises shall have to be maintained as a first class hotel; that it has been contended by the competent Governmen tal authority that under the terms of the transfer the defendants had no right to sell any portion of the property; that the defendants did not obtain any prior sanction or permission from the Settlement Authorities before conveying the plot to the plaintiffs and "it is now learnt" that the Government treats the defendants' said action as an infringement of the terms and conditions of auction and the Permanent Transfer Deed and that the interpretation put by the defendants that under the said condition they were required to maintain the main property as a first class hotel did not seem to find favour with the authorities. The letter further complained that the said restrictions would limit the development of the plot of land by the plaintiffs for it had to be used as a first class hotel and for no other use and that the defendants have thus committed breach of warranty of freedom from encumbrance, The letter concluded by a demand for refund of the whole of the consideration paid by the plaintiffs with interest thereon at 7 % per annum.
3. The defendants have relied on three documents in support of their assertion that the authorities concerned had construed the restriction of main taining first class hotel as understood by them. The first letter is dated 18‑6‑1965, Exh. 7/5, which ..is a communication from the Secretary, Ministry of Agriculture & Works to his Joint Secretary. In this letter the Secretary mentioned that Mr. D. B. Avari, one of the defendants, had seen him regarding some notice which bad been issued to him by the Settlement Authorities alleging that he had violated the terms of the transfer order and in the view of this officer, who had gone through the transfer order, the defendants had not committed any breach by reason of the fact that he had provided certain facilities around the hotel and the provision for banks, petrol pump, shopping centre were necessary requirements‑ of a modern hotel. The officer felt that the party was being harassed unnecessarily and the Joint Secretary was asked to look into the matter and advise the Settlement Department. The next letter is dated 25‑6‑1965 which is a letter from the Deputy Secretary, Ministry of Works to the Settlement Commissioner for warding Exb. 7/5 and requesting for a report which may also indicate whether the transferees had leased out a part of Nedoo's Hotel estate for petrol pump, banks, shopping centre, etc. etc., and if so on what terms. The endorsement of the Chief Settlement Commissioner on this letter shows that the show‑cause notice had been sent to the transferees under direction from the Ministry and that at that time the Chief Settlement Commissioner had suggested that the explanation given by the transferees be forwarded to the Law Ministry and consulted. The third and the last letter is dated 2nd July 1965 Exh. 7/6 which is from Settlement Sir Rehabilitation Commissioner to the Deputy Secretary, Government of Pakistan and is reply to Exh. 7/3. In this the Settlement Commissioner states that the defendants could not be contacted and that the formal enquiries made revealed that a piece of 5 kanals of land had been sold to the plaintiffs for Rs. 2,'75,000 and further sale or leasing out of portions of the Hotel has been stopped in view of an announcement made by the Lahore Improvement Trust that the Trust was preparing certain Scheme for the area and that no property in the area should be alienated. The letter concluded by saying that there was no information about the terms 6n which the defendants bad leased out the land for a bank, petrol pump, shopping centre, etc., and if the Deputy Secretary deemed it proper defendants may be addressed a letter and asked to supply the required information
4. The present suit was filed on 19‑5‑1967 but prior thereto, on 2‑6‑1965 appeared a Public Notice by the Lahore Improvement Trust proposing to acquire certain lands for a Development Scheme including the suit land and inviting objections from the owners. On 14‑7‑1965 the plaintiffs filed their objections. In these objections the plaintiffs described themselves as the owners of the plot and referred to their ambitious Scheme to put up a multi storeyed building on the plot and concluded with a request to exclude the suit land from the Development Scheme of the Lahore Improvement Trust. On 15‑3‑1967, another application was made by the plaintiffs to the Lahore Improvement Trust for exclusion of the plot which was rejected by the Lahore Improvement Trust by its letter dated 10th October 1967 on the ground that the area was not meant for commercial type of buildings and as such it cannot be allowed to be sub‑divided to accommodate various commer cial concerns. The letter also stated that the plaintiffs had not consulted the Lahore Improvement Trust while purchasing the plot. During the pendency of the suit, on 11‑5‑1971, plaintiffs were served with a notice under section 9 of the Land Acquisition Act and in their reply Exh. 17/1, dated 24‑5‑1971 the plaintiffs as the sole owners of the land claimed compensation amounting to Rs. 29,08,884. This letter claiming compensation was forwarded with another letter in which the plaintiffs again expressed the desire that they were interested in retaining the suit land. The plaintiffs did not hear further in the matter until 17‑8‑1971 when notice was received from the Land Acquisi tion Officer directing them to deliver possession of the suit land on the date mentioned therein, in which letter it was also mentioned the compensation payable to the plaintiffs has been deposited in Court. The award of the Land Acquisition Officer is dated 23‑6‑1971 but the plaintiff's case is that they had no notice of the said award. On 2‑7‑1971 the plaintiffs filed a reference under section 18 of the Land Acquisition Act which reference has been kept pending by reason of a statement made on behalf of the plaintiffs that further proceed ings be held in abeyance until this suit is decided. To complete the narra tion I may now finally refer to proceedings before the Land Acquisition Officer which would show that on 1‑4‑1971 and 8‑4‑1971 one Col. Hassan Kadir Khan of Avari Hotel Ltd., appeared before the Land Acquisition Officer where he made a statement that the owners of the Avari Hotel Ltd., and the owners of the suit land were in fact the same persons and as far as he was aware the sale deed in favour of the plaintiffs had been cancelled but he will enquire from the Karachi Office. At the next hearing he made a state ment that he had been informed by the Karachi Head Office that the sale deed has been cancelled.
5. The suit land together with certain other adjoining lands which are described as Plots Nos. 1 and 2 reserved for a first class hotel in the Lahore Improvement Trust Development Scheme were transferred in favour of Avari Hotel Ltd., under a registered sale deed dated 11‑3‑1972, Exh. 1.6/1. It would appear from this sale deed that the Avari Hotel Ltd., had to pay, for 2/3rd of this land at Rs. 3,500 per kanal on the basis of their entitlement to benefit of exemption from acquisition and for the remaining 1/3rd at Rs. 1,75,000 per kanal. Prior to the transfer of these plots in favour of Avari Hotel Ltd., the defendant No. 1 as Managing Director of Beach Luxury Hotel Ltd.. addressed a letter dated 27‑3‑1968 Exh. 11/1 to the Chairman, Lahore Improvement Trust. In this letter a mention is made of sanction by the Governor of West Pakistan dated November, 1967 approving the release of land measuring 69 kanals 1 marls and 195 sq. ft. which the writer says had been accepted by him as fully meeting with his requirement for building an ultra‑modern hotel on the said land and that steps be taken to release this area in favour of Beach Luxury Hotel Ltd, Karachi, who were the owners of the plot and buildings called Park Luxury Hotel, The Mall, Lahore. The letter also mentioned that the plaintiffs had filed the present suit for recovery of the sale price with interest on the ground of the plaintiffs' inability to build on the plot sold to them and that it was proposed to pay the plaintiffs off because even after the release of the area it is not possible for them, accord ing to the policy of the Government and of the Lahore Improvement Trust, to put up any building as no commercial building was allowed to put up on the Mall, in this area.
6. Consent issues in this case read as follows:‑
(1) Did the defendants have unrestricted right to sell and absolutely transfer the suit property without any restriction on the use thereof making out a marketable title to the plaintiffs?
(2) Are there any restrictions attached to the suit property sold by the defendants to the plaintiffs and if so its effect?
(3) Is there any breach of any of the covenants and warranties contained in the sale deed dated 12‑11‑1,964 on the part of the defendants and ii so its effect?
(4) Whether the plaintiffs are barred from challenging the title of the defendants to sell the property in suit to them on the ground specified in para. 15 of the written statement?
(5) Whether the condition inserted in the permanent transfer certificate that the defendants shall have to run the property as a first class hotel and shall have to maintain it as such is valid in law and binding or the defendants?
(6) Whether the condition inserted in the permanent transfer certificate that the defendants shall have to run the property as a first class hotel and shall have to maintain as such amounts to an absolute bar to transfer of any portion of the property by the defendants?
(7) Whether the sale of surplus land without affecting the maintenance o a first class hotel and facilities and amenities attached amounts to breach of the condition inserted in the permanent transfer certificate?
(8) Whether the plaint discloses any cause of action?
(9) Whether the plaintiffs are entitled to refund of the amount of sale consideration?
(10) Whether the plaintiffs are entitled to get expenses incurred by way of payment of stamp duty and registration fee?
(11) Whether the plaintiffs are entitled to any interest? If so from what date?
(12) To what relief, if any, the plaintiffs are entitled?
7. Issues Nos. 1, 2, 6 and 7.‑These issues may conveniently be deal with together. There is no dispute that the defendants were the permanent transferees of the property bearing No. SE 19‑R‑87 known as Nedos Hotel Estate near Park Luxury Hotel, The Mall, Lahore measuring 96 kanals 1 marla and 12 sq. feet, equivalent of 48,000 sq. yds. It is also an admitted position that the existing Nedos Hotel on the plot occupied but a very small portion that the entire plot. It was a term of the auction, which was accepted by the defendants, that they will run it as a first class hotel and shall have to maintain it as such and except for this condition the defendants bad bee transferred all the proprietary rights in the property free from all encumbrances. It cannot, therefore, be said that the defendants had no right to sell any portion of the suit property or for that matter the whole of the proper but that the condition that the auction‑purchaser shall run a first class hotel and maintain it as such would continue to bind, not only the defendants, but their successors‑in‑interest. That even the plaintiffs understood it to be so is clear not only from the fact that they appeared to be satisfied with t insertion of a clause in the sale deed that the defendants shall keep and maintain the main hotel property as a first class hotel in accordance with the terms and conditions of the auction agreed to by the defendants on 21‑8‑1961 at the time of the auction, as mentioned in the Certificate of Permanent Transfer but that even their plaint proceeds on the same basis for their complaint para. 11 of the plaint is against restricted use of the property. As aforesaid the defendants were the transferees of as many as 48,000 sq. yds. of land and it does not stand to reason on that by the conditions referred to above it was intended that the defendants were prevented from making unrestricted use of the surplus land, that is land other than on which the existing hotel stood on what was reasonably required for a first class hotel. Such a condition, G assuming its validity, must be construed strictly and not permitted to make inroads into the proprietary right of the defendants in the land transferred to them free from all encumbrances. What is, however, more important is that not only the parties so understood the condition but that the defendants transferors, the Settlement Authorities, notwithstanding the knowledge of the transfer of the suit land to the plaintiffs, neither avoided the transfer in favour of the defendants nor disturbed the plaintiffs' possession of the suit land or even addressed to them any letter. The plaintiffs at the best could only rely on certain inter se communications between the Secretary and the Joint Secretary, Ministry of Agriculture and Works and the Settlement Commis sioner, Exhs. 7/3, 7/5 and 7/6. These letters in fact show that though a show cause notice had been issued to the defendants (as to what its actual contents were, we have no knowledge) the Government or the Department did not con sider the transfer of the suit land to the plaintiffs as violation of the condition laid down in the Permanent Transfer Certificate and in fact no communication was addressed to the defendants and no action taken against them or the plaintiffs. I may add here that even the plaintiffs have only very vaguely asserted in the plaint that "it has now transpired" that the Settlement Depart ment considered that the defendants had no right to sell any portion of the property in view of the above condition. The plaintiffs have failed to dis charge this burden. My conclusions on these issues, therefore, are that the defendants had the right to sell the suit land without any restriction on its use and that the condition that the defendants will run and maintain a first class hotel on the land transferred to them was not a bar and that sale of surplus E land without affecting the maintenance of a first class hotel did not amount to breach of the condition in the Certificate of Permanent Transfer.
18. Issues Nos. 3 and 4.‑In view of my finding on the aforesaid issues Nos. 1, 2, 6 and 7, it would follow that the defendants have not committed any breach of the covenants and warranties contained in the sale deed. Mr. Saeed A Shaikh, the learned counsel for the defendants, however, con tended that even if it was assumed otherwise, the plaintiffs have no cause for complaint. The covenant, the breach of which is alleged is one relating to the peaceful and quiet enjoyment of the suit property without any let, hindrance or interruption by the vendors or persons claiming through or under them and is, said to arise on account of the condition mentioned in the auction notice and the Permanent Transfer Certit:cate and accepted by the defendants that they will run and maintain a first class hotel. Mr. Sayeed A. Shaikh gave three reasons in respect of his contention. Firstly, that in law the rights of the purchaser under a contract of sale are materially different from those of a purchaser under a deed of conveyance and once the matter passes beyond the stage of the contract and the transaction has resulted in conveyance it is well established that the purchaser has no longer the right to rescind the transfer on the ground that a representation made was erroneous, or claim compen sation for the same in the absence of fraud on the part of the vendor. Secondly, the plaintiffs had accepted the conveyance in full knowledge of the aforesaid condition in the defendants' Certificate of Permanent Transfer and they were, therefore, estopped from challenging the transfer in…
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