Doctrine of Bona Fide Purchaser

One such doctrine is the ‘Doctrine of Bona Fide Purchaser’ which prescribes protection to those purchasers who acquire the property with a bona fide belief and good faith, totally unaware of any defects or adverse claims therein.

This article intends to highlight the purpose of ‘Doctrine of Bona Fide Purchaser’, its effects, and underlying jurisprudence about the same.

Introduction

Consider a situation wherein ‘Person A’ enters into an agreement with ‘Person B’ for the sale of a specific immovable property and subsequently ‘Person A’ also enters into an agreement with ‘Person C’ for the sale of the same property, wherein ‘Person C’ had no actual, constructive, or imputed knowledge of the previous sale and existing status of the title. In such cases, the following points require special consideration:

a) What are the rights/remedies of ‘Person C’ being a bona fide purchaser?

b) Who shall be entitled to the said property? ‘Person B’ or ‘Person C’?

c) Whether ‘Doctrine of Bona Fide Purchaser’ is applicable in the present case?

Doctrine of Bona Fide Purchaser

The ‘Doctrine of Bona Fide Purchaser’ is a doctrine prevalent during the old property law regime, which prescribed extinguishing the title rights of the property to the bona fide purchasers to favour such bona fide purchasers who had no prior knowledge of existing prior claims or equitable interests of such property.

To invoke the said doctrine, it is pertinent that the case must conform to the following parameters:

Bona fide: The subsequent purchase should be in good faith, without ill/deceptive intention.

Purchaser: There must be a subsequent purchase of the property, and the party should not be a beneficiary of a gift

For Value: There must be a value i.e., price paid in full, or a fair amount must be paid which reflects the property's value.

Without Notice: The purchaser should have no actual, constructive, or imputed knowledge of existing titles to the property.

Legislative Background

The ‘Doctrine of Bona Fide Purchaser’ derives its vital foundation from the Specific Relief Act, 1963 and Section 19(b) of the Specific Relief Act, 1963 prescribes specific protection to the bona fide purchasers under:

Relief against parties and persons claiming under them by subsequent title-

Except as otherwise provided by this Chapter, specific performance of a contract may be enforced against—

(a) either party thereto;

(b) any other person claiming under him by a title arising subsequently to the contract, except a transferee for value who has paid his money in good faith and without notice of the original contract;

(c) any person claiming under a title which, though prior to the contract and known to the plaintiff, might have been displaced by the defendant;

(d) when a company has entered into a contract and subsequently becomes amalgamated with another company, the new company which arises out of the amalgamation;

(e) when the promoters of a company have, before its incorporation, entered into a contract for the purpose of the company and such contract is warranted by the terms of the incorporation, the company:

Provided that the company has accepted the contract and communicated such acceptance to the other party to the contract.”

Since the provision above specifically provides that the specific performance of a contract can be enforced against either party to the contract, as well as any other person claiming under them by a title arising subsequently to the contract, except a transferee for value who has paid his money in good faith and without notice of the original contract, the same is squarely applicable in the instant case.

Precedents in Indian Case Laws

Indian Courts have time and again interpreted the ‘Doctrine of Bona Fide Purchaser’, and have provided/denied relief to the subsequent purchasers based on the factual matrix of the case:

In the case of Padmakumari and Others v. Dasayyan and Others, (2015) 8 SCC 695, the Hon'ble Supreme Court has dealt with a case of a bona fide purchaser for value without notice of prior agreement and ultimately held that he is entitled to get protection as per Section 19(b) of the Specific Relief Act, 1963.

In the case of P. Retnaswamy v. A.Raja and another, 2008(3) CTC 1, the Division Bench of Madras High Court has held that the subsequent purchaser has to prove that he is a bona fide purchaser for value in good faith without notice of the prior agreement.

In the case of Bharatbhai Parshotambhai Gohel v. Niravkumar Jitendrabhai Jethva, AIRONLINE 2018 GUJ 146, the Hon’ble Gujrat High Court held that when the appellant failed to prove that he is a bona fide purchaser in good faith of the suit property for value without notice, the decision of lower court concerning grant of specific performance cannot be set aside, and directed the appellant to initiate appropriate legal proceedings for recovery of the sale consideration paid by him.

In the case of R.K. Mohammed Ubaidullah and Others v. Hajee C. Abdul Wahab, (2000) 6 SCC 402, the Hon'ble Supreme Court has dealt with Section 19 of the Specific Relief Act, 1963 and ultimately held that specific performance of a contract can be enforced against a party thereto and any other person claiming under him by a title arising subsequent to the contract except transferee for value, who has paid his money in good faith without notice of original contract.

Contrary to the aforesaid judgements, the Hon’ble Supreme Court in the case of Ram Niwas (dead) Through Lrs. v. Bano (Smt) and Others, 2000(6) SCC 685, held that under Section 19(b) of the Specific Relief Act, 1963, the relief of specific performance cannot be enforced against the subsequent purchaser for value without notice.

Impact of Sale Deed Execution and Legal Remedies of Sale Deed Execution and Legal Remedies for 'Person B'

While the doctrine is squarely applicable in the instant case, ‘Person C’ will only succeed in getting the sale deed executed in its favour, however, the onus of proving that the purchase was bona fide and he had no prior knowledge of claims or equitable interests of such property, will remain with the ‘Person C’.

It is most likely that ‘Person B’ will contest the claims of ‘Person C’ with the contentions that the sale deed between ‘Person A’ and ‘Person B’ is legally valid, and ‘Person C’ may initiate separate legal proceedings against ‘Person A’ for recovery of the sale consideration paid by him.

However, in the most recent of Ghanshyam v. Yogendra Rathi, (Civil Appeal Nos.7527-7528 of 2012), the Hon’ble Supreme Court held that even if any instrument namely the ‘Agreement to Sell’, does not specifically transfer the proprietary rights in any immovable property. If any prospective purchaser duly performs his part of the contract and receives possession of the property, then such purchaser is deemed to have acquired possessory title and the same is liable to be protected under Section 53A of the Transfer of Property Act, 1882.

In aforesaid facts and circumstances, ‘Person B’ will be left with no other option other than contesting against such transfer or seeking refund of the amount already paid to ‘Person A’ along with interest to avoid protracted litigation.

Conclusion

While the ‘Doctrine of Bona Fide Purchaser’ has gained significant popularity throughout the world since its introduction, it has not only been recognized in India, but the Indian Court has interpreted it holistically to protect the rights of those individuals who acquire the property with a bona fide belief and good faith, totally being unaware of any defects or adverse claims therein.

References

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