Delhi High Court: “It is the consideration which puts enforceability in the agreements to make promises legally binding”, Asha Menon, J., stated that the importance of ‘consideration’ cannot be belittled.
Background
Instant suit was filed to seek specific performance of a Collaboration Agreement for granting of a permanent and mandatory injunction against the defendant. Damages to the tune of Rs 2,10,00,000 were claimed against the defendant for attempting to cancel the said Collaboration Agreement.
Defendant was stated to be having 75% share in the said property and in actual, physical possession of his share, while his brother had 25% share in the said property, which the wife of the plaintiff claimed to have purchased through an Agreement to Sell from him for a sum of Rs 3,23,00,000, Rs 30,00,000 having been paid towards earnest money.
Contentions
Kishore M. Gajaria, Plaintiff’s counsel submitted that a Collaboration Agreement was entered into between the plaintiff and the defendant for re-development of the property and the same had been duly signed by the defendant. However, subsequently, a notice was issued to the plaintiff stating that the said agreement was an invalid document as it lacked in ‘consideration’ and had been forced upon the defendant, taking advantage of his age.
There were WhatsApp communications and talks on the phone between the parties, but the defendant claimed he was being prevented from acting on the Collaboration Agreement by his son and daughter-in-law.
Due to the defendant’s conduct, plaintiff suffered a loss as he had raised huge loans from the market and had purchased building materials worth Rs 10,00,000 too.
Further, the counsel submitted that the Collaboration Agreement contained reciprocal promises, plaintiff had undertaken to construct the property and the defendant did not have to spend any money, in return the defendant had to transfer two floors and 25% of the stilt parking to the plaintiff.
Hence consideration was the amount to be spent on construction and each party’s promise was the consideration for the reciprocal promise. Since the said promise of constructing two floors and handing over the same to the defendant was “valuable”, it satisfied the definition of ‘consideration’ under Section 2(d) of the Indian Contract Act, 1872.
Further, the counsel relied on the Supreme Court decisions in Union of India v. Chaman Lal Loona, 1957 SCR 1039 and Chidambara Iyer v. P.S. Renga Iyer, (1966) 1 SCR 168, and urged that what was “valuable” was determinable also by the Court and therefore, this Court may accept that consideration had passed, even if not in money.
Analysis, Law and Decision
High Court expressed that the reliance on Chidambara Iyer v. P.S. Renga Iyer, (1966) 1 SCR 168 was misplaced.
Question:
Whether the Collaboration Agreement contains promises that are valid and are binding?
Bench noted that there was no reference in the Collaboration Agreement to the consideration being paid for the transfer of the property by the defendant to the plaintiff, there was also no undertaking mentioned in the agreement as to the liability of the plaintiff to meet the construction cost and finally, not even an estimate of the construction cost was mentioned, though there was some reference to the quality of construction being ‘good’.
What all reciprocal promises made, and constituted consideration were not revealed or explained.
Bench also expressed that another significant fact was that the reply to the Legal Notice recorded that the conversion from leasehold to freehold did not take place. In fact, the said reply also revealed that the Agreement to Sell with the brother of the defendant was also dependent on the said conversion and as per the WhatsApp communication placed on record, the plaintiff’s wife seemed to have called off that deal too.
Court stated that in any event, payment of Rs 30,00,000 to the brother of the defendant can, by no means, be read as ‘consideration’ being paid to the defendant.
Elaborating further, WhatsApp communication addressed to the brother of the defendant which was sent by the plaintiff and his wife affirmed the position and because of the inability to convert the property, had requested that the Agreement to Sell between them be treated as cancelled. Hence, the refund of entire amount paid to him was also called for.
“Importance of ‘consideration’ cannot be belittled.”
“Even where the ‘promisor’ intends to bind himself by the promise, ‘consideration’ is essential to make the promise binding and enforceable.”
Bench held that the agreement was completely silent on the value of the property, now belonging to the defendant, and the estimated cost of construction.
The Court opined that the ‘Agreement’ seemed to be more in the nature of a note of assurances and not a ‘concluded’ contract.
Further, the averments in the plaint and the documents filed by the plaintiff did not disclose any cause of action. Supreme Court in T. Arivandandam v. T.V. Satyapal, (1977) 4 SCC 467 has held that
while considering an application under Order VII Rule 11 CPC, what is required to be decided is whether the plaint discloses a “real cause of action” or something “purely illusory”. If, on a meaningful and not a mere formal reading of the plaint, it appears to be manifestly vexatious and meritless and fails to disclose a clear right to sue, but through clever drafting creates an illusion of a cause of action, the court being guided by the mandatory provisions of Order VII Rule 11 CPC should not hesitate to exercise powers vested in it to “nip it in the bud”.
In view of the above discussion, the plaint was rejected under Order VII Rule 11 (a) CPC. [Sameer Madan v. Ashok Kumar Kapoor, 2021 SCC OnLine Del 5290, decided on 15-12-2021]
Advocates before the Court:
For the plaintiff: Kishore M. Gajaria and Aayush Paranjpe, Advocates