Use Abuse of Indemnities, 3rd Party Rights, Offence and RERA.
1. For context it is necessary to quote few sections of Indian Contract Act as under-
124. A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity".
125. Rights of indemnity-holder when sued.- The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor- - The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor- "
(1) all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies;
(2) all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit;
(3) all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit.
10. What agreements are contracts.- All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. - All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void." Nothing herein contained shall affect any law in force in 1[India], and not hereby expressly repealed, by which any contract is required to be made in writing 2or in the presence of witnesses, or any law relating to the registration of documents
23. What considerations and objects are lawful and what not.- The consideration or object of an agreement is lawful, unless- -it is forbidden by law; or -is of such nature that, if permitted, it would defeat the provisions of any law; or -is fraudulent; or -involves or implies injury to the person or property of another or; -the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.
24. Agreements void, if considerations and objects unlawful in part.- If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void. - If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void."
- So all contracts have to fall within the 4 corners of Section 10, and should not be void for any of the reasons mentioned in section 11 to 24.
- Coming to Indemnities the act of the grantee of the Indemnity is required to be prudent enough to enter into the contract of indemnity, and should have used his prudence notwithstanding the indemnity.
- This clearly levies a 'Caveat Emptor' on the grantee not to go by mere value of the indemnity, but also apply his own constructive faculty and professional expertise/advise/opinion, without taking any Indemnity into consideration.
- There is a public policy involved with the Caveat. It is that, the grantee should not in the grab of indemnity deprive right of a 3rd party and be privy with the grantor. So if the grantor himself cannot deprive a right of 3rd party, the grantee doing any reckless act would be complicit with the grantor.
- With such clandestine use of indemnity, by the GRANTEE - there is [a] either an overt act to deprive a 3rd party rights, with knowledge - alongwith indemnity; or [b] there is a subtle act to defeat the 3rd party right by refusing to record/acknowledge 3rd party right - yet take indemnity.
- In any event in both the above case, the grantee is co-conspirator to fraud on 3rd party, which falls in Criminal Jurisdiction. It needs no mention that the Civil and Criminal Jurisdiction lie distinct, and a grantee and all co-conspirators would be bound to give evidence, under section 103 r/w 106 of Indian Evidence Act 1872. The 3rd party would easily cross "beyond reasonable doubt" test & burden by merely showing his right, & any act on the part of the grantor of indemnity, and grantee of indemnity which would affect the 3rd parties rights.
- In his context if one refers to section 7 & 8 of Transfer of Property Act 1882, it's clear that a transferor can transfer only so much of right that he has.
- Now suppose a person has life interest, can he transfer absolute property and the transferee take it with indemnity of transferor?
- Suppose a transferor has Leasehold can he can he transfer absolute property and the transferee take it with indemnity of transferor?
- Next, suppose a transferor is in possession of Leasehold after determination of the lease, and without renewal [either as tenant at sufferance or holding over], can he transfer absolute or any property and the transferee take it with indemnity of transferor?
- Next, suppose a transferor is in possession of Leasehold and the Lessor has terminated the lease and a suit is filed and pending for eviction by the Lessor, can the Lessee transfer absolute or any property and the transferee take it with indemnity of transferor?
- Next, suppose a transferor is in possession of property on which there is charge of the undercharged Creditor/mortgagee, can he transfer absolute or any property and the transferee take it with indemnity of transferor? Wouldn’t it be fraud on creditors even without the mortgage?
- Would in these cases the indemnity be even enforceable in court of law?
- There is always a very high possibility that when using such indemnity the Transferee becomes Co-conspirator.
- So then what is the sphere of indemnity?
- From the content of s/124 "conduct of any other person" clearly implies an act of a person who has no right to interfere with due right of the grantee. The purest and direct example would be that of accident issuance, where a third PERSON [not act of God] collides with grantee car and damages it. The Insurance Company compensates it. Suppressions by grantee, and grantees voluntary act of damaging property under insurance, to get insurance money, are not recognized in Insurance act. Act of God is different aspect and is governed by separate set of rules.
- So therefore the sphere of indemnity is limited to the legitimate rights of the grantor and the grantee.
- In section 125(2)/(3) the grantee has to also abide by the orders/directions of the Grantor. Therefore the indemnity creates a Employer Employee Or Principal Agent relationship.
- So the grantee should be [a] subservient to order/direction of the grantor, & [b] also be prudent.
- Next the grantee has to be acting within his right. Right is either in contract or in law. Unless Law gives right (or till it gives right), the grantee cannot commit fraud on 3rd persons right. This types of indemnities are covered not under Contract Act but under Section 120A and 120B or 34 r/w with 302, 420 of IPC or whatever offence is committed.
- Suppose 'A' a grantor gives indemnity to 'B', to go upon some persons property and commit dacoit. Can B rely upon indemnity?
- Such Indemnities which defeat right of 3rd parties also fall into category of cases of Abetment under Chapter V of IPC.
- Now coming to issues of compensation under Section 18(2) of RERA. Under the provisions of section 4(2)(1) of RERA r/w MahaRERA Registration Rules 2017 Rule 3(2)(e) mandates that the Promoter should disclose the sub-judice proceedings. Thus given the effect of Notice under section 3 & 52, of Transfer of Property Act 1882, if the Promoter has disclosed litigation, can the Allottee claim Compensation u/s 18(2) of RERA? Can there be a claim by the Allottee be based under section 19(b) of Specific Relief Act 1963, as Good faith purchaser for Value, without Notice? Answered next.
- So thanks to abetment by RERA, there is now non legislative/judicial bye-pass and dilution of Section 52 of Transfer of Property Act 1882 and allows Transfer Pendente Lite to the detriment of the Allottees, and RERA has no regard or care to protect the interest of the Allottees, as now, the Allottees are bound by the provisions of 52 and they will lose the Apartment and will never get compensation under RERA or any law, if adverse order in passed by Jurisdictional Courts. One fails to understand, if there is disclosure of Litigation, how RERA can allow such projects to be registered without Bank Guarantees of full amount with interest. Thus RERA is itself fomenting litigation and abetting transfers pendente lite, & now it is only RERA that is bound to compensate the Allottees under the Public Trust Doctrine. The Allottee having relied upon and confided, that RERA would perform its obligation so as protect and not act to deprive the allottees of their lifelong earnings and savings, and the dominion would be used not to defeat law or put the allottees in position of deprivation. Though I had written this objection to MahaRERA when rules were framed, no cognizance was taken. Nevertheless the Public Trust doctrine will make good any losses of the Allottee, each person then in authority being personally liable alongwith State.
- So in effect let there be advised and informed INDEMNITY and stay away from abettors.