Bombay High Court, in Shree Construction Company v. Bagwe Housing Pvt. Ltd. & Ors., delivered a significant judgment clarifying the limits of contractual privity under Indian law. The Court emphatically ruled that mere awareness of a contract or receipt of incidental benefits cannot create enforceable rights or obligations in law. In doing so, it reaffirmed foundational principles of contract law and cautioned against attempts to extend contractual privity beyond its legitimate boundaries.
The case arose from a complex web of development agreements, powers of attorney, and conveyances related to a real estate project in Andheri, Mumbai. The Plaintiff, Shree Construction Company, sought to invalidate certain deeds executed between other parties on the ground that its interests under prior contracts were adversely affected. However, the Court rejected this contention, holding that the Plaintiff lacked any direct contractual relationship—or privity of contract—with the parties it sought relief against.
Brief Facts of the Case
The dispute revolved around property bearing old CTS Nos. 182 and 182/1 to 5, admeasuring about 4972 square meters (now renumbered as CTS Nos. 182/A to 182/E) situated at Village Mogra, Andheri (East), Mumbai.
Initial Agreement (1994): Defendant Nos. 2 to 8, owners of the property, entered into a development agreement dated 15 July 1994 with Bagwe Housing Pvt. Ltd. (Defendant No. 1), conferring development rights over the property.
Power of Attorney: To implement the project, Defendant Nos. 2 to 8 executed Powers of Attorney in favour of Defendant No. 1 in 1994 and 2002, enabling it to act concerning the property.
Engagement of Plaintiff: Subsequently, Defendant No. 1 engaged Shree Construction Company (the Plaintiff) through two contracts:
Construction Agreement (13 January 1999): for construction of buildings on Segment I (CTS No. 182/A) and Segment III (CTS Nos. 182/C–E).
Sole Selling Agency Agreement (26 February 1999): appointing the Plaintiff as the exclusive selling agent for flats constructed on these segments.
Disputes arose when Defendant No. 1 executed two Deeds of Surrender dated 13 February 2006 with the property owners (Defendant Nos. 2 to 8), relinquishing its development rights and revoking the Powers of Attorney. Subsequently, a Deed of Conveyance dated 26 December 2006 transferred CTS Nos. 182/C–E to Amey Realty & Construction LLP (Defendant No. 9).
Feeling aggrieved, the Plaintiff filed a suit in 2016—ten years later—seeking to nullify these deeds, alleging that its contractual and proprietary rights had been violated.
Plaintiff’s Contentions
Represented by Mr. Shanay Shah, the Plaintiff advanced several arguments to assert its standing:
Derivative Rights: The Plaintiff claimed that it had undertaken substantial work under the contract between Defendant Nos. 2 to 8 and Defendant No. 1, including demolition and construction on Segment I, where the building “Gajalakshmi” was completed.
- This performance, it argued, benefited the property owners and thus gave rise to implied recognition of their rights.
Invalidity of Deeds of Surrender: The Plaintiff contended that the Deeds of Surrender dated 13 February 2006 were invalid because they revoked the Powers of Attorney without the Plaintiff’s consent, despite the Plaintiff being a stakeholder in the project.
Continuing Contractual Relationship: It relied on subsequent transactions (including ownership agreements of 2006 and 2008) that, according to the Plaintiff, reflected continuing acknowledgement of the 1994 development agreement and Defendant No. 1’s authority to develop.
Awareness Equals Consent: The Plaintiff emphasised that Defendant Nos. 2 to 8 were aware of their rights and activities under the 1999 agreements, suggesting that such awareness created an enforceable relationship akin to privity.
Section 19, Specific Relief Act: It invoked Section 19, which allows specific performance to be enforced not only against contracting parties but also against those claiming under them, asserting that Defendant Nos. 2 to 9 fell within this category.
Limitation Argument: The Plaintiff also argued that the limitation had not begun since Defendant No. 1 never obtained a Commencement Certificate as required by the 1999 construction agreement, meaning the time for performance was yet to be fixed.
Defendants’ Contentions
Defendant No. 9 (Amey Realty & Construction LLP), represented by Senior Advocate Mr. Sharan Jagtiani, sought rejection of the plaint under Order VII Rule 11(d) CPC, asserting that:
- The suit was barred by limitation, as the Plaintiff admittedly became aware of the Deeds of Surrender by 21 December 2009 (based on its own advocate’s letter), but filed the suit only in August 2016—almost seven years later.
- There was no privity of contract between the Plaintiff and Defendant Nos. 2 to 9.
- The Plaintiff’s claim was vexatious, intended merely to obstruct development and extract a settlement.
- Even on the Plaintiff’s own pleadings, the cause of action, if any, existed only against Defendant No. 1, with whom it had executed the contracts.
- The suit disclosed no cause of action against the remaining defendants, warranting summary dismissal.
Issues Before the Court
Justice Kamal Khata identified two primary legal issues:
- Whether mere awareness or receipt of incidental benefits can establish privity of contract between the Plaintiff and Defendants 2–9.
- Whether the Plaintiff’s claim was barred by limitation under Article 58 of the Limitation Act, 1963.
Court’s Observations
1. Privity of Contract: Awareness Is Not Enough
The Court emphatically held that privity of contract cannot be established merely by awareness of or incidental benefits from a contract. It noted that the Plaintiff’s agreements were solely with Defendant No. 1 and that no contractual nexus existed with the property owners (Defendants 2–8) or the subsequent purchaser (Defendant 9).
Justice Kamal Khata observed:
“Mere ‘awareness’ cannot create privity. Since no agreement recognised in law exists between the Plaintiff and Defendant Nos. 2 to 8, much less Defendant No. 9, no enforceable right arises against them.”
The Court relied on the Supreme Court’s decision in KPM Builders Pvt. Ltd. v. NHAI [(2015) 15 SCC 394], reiterating that a party not privy to a contract cannot claim rights or relief under it. The principle of privity serves as a boundary ensuring that contractual obligations bind only those who have agreed to them.
2. Contractual Rights Flow Only One Way
Rejecting the Plaintiff’s argument that Defendants 2 to 9 “claimed under” Defendant No. 1, the Court held that the flow of rights in this case was the reverse—from the owners (Defendants 2–8) to the developer (Defendant No. 1). Hence, Section 19 of the Specific Relief Act was inapplicable.
3. Power of Attorney Does Not Create Privity
The Court clarified that the Power of Attorney granted to the Plaintiff by Defendant No. 1 did not create any independent right to sue the property owners or subsequent transferees. A Power of Attorney is an instrument of agency, not ownership or contractual entitlement.
4. Limitation Bar: Awareness Starts the Clock
Justice Khata further held that the Plaintiff’s admitted awareness of the Deeds of Surrender by 21 December 2009 started the limitation clock under Article 58 of the Limitation Act (which provides a three-year limitation period for declaratory suits). Therefore, the Plaintiff was required to file its suit by 21 December 2012. Filing in August 2016 rendered it ex facie time-barred.
Citing Dahiben v. Arvindbhai Kalyanji Bhanusali [(2020) 7 SCC 366], the Court reiterated that if a suit is barred by limitation on the face of the pleadings, the plaint must be rejected at the threshold under Order VII Rule 11 CPC.
Precedents Relied Upon
The Court drew from several landmark judgments to underscore its reasoning:
- KPM Builders Pvt. Ltd. v. NHAI (2015) 15 SCC 394: Awareness or incidental advantage does not constitute contractual privity.
- Dahiben v. Arvindbhai Kalyanji Bhanusali (2020) 7 SCC 366: Order VII Rule 11 allows rejection of suits that are time-barred or disclose no cause of action.
- ITC Ltd. v. Debts Recovery Appellate Tribunal (1998) 2 SCC 70: Clever drafting creating an illusion of cause of action should not be permitted.
- Madanuri Shri Rama Chandra Murthy v. Syed Jalal (2017 SCC OnLine SC 459): Courts must be vigilant against frivolous litigation and nip bogus suits in the bud.
- Khatri Hotels (P) Ltd. v. Union of India (2011 SCC OnLine SC 1236): Successive or continuing violations do not generate fresh causes of action; limitation begins from the first accrual of the right to sue.
- Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. (2022) 10 SCC 1: Courts can, suo motu, reject a plaint when it satisfies the grounds under Order VII Rule 11.
Court’s Decision
After reviewing the pleadings and documents, the Court concluded that:
- The Plaintiff had no cause of action against Defendants 2 to 9.
- No privity of contract existed between the Plaintiff and these Defendants.
- The suit was barred by limitation, having been filed nearly seven years after the Plaintiff became aware of the impugned deeds.
Accordingly, the Court dismissed the suit against Defendants 2 to 9. The connected Miscellaneous Civil Application seeking transfer of another related suit was also dismissed as infructuous.
The Court further declined to grant a stay on the operation of its order, emphasising that the Plaintiff’s case lacked merit both on facts and law.
Key Takeaways and Legal Principles
1. Privity of Contract Remains Fundamental
The judgment reaffirms the classical doctrine that a contract cannot confer rights or impose obligations on anyone except the parties to it. Third parties, even if aware of or benefiting from a contract, cannot sue to enforce it.
2. Mere Awareness Does Not Create Legal Rights
Knowledge of a transaction—whether through communication, participation in related dealings, or incidental benefits—does not create privity. The Court made clear that awareness may start the limitation clock, but it does not confer contractual standing.
3. Limitation Runs from the Date of Knowledge
Article 58 of the Limitation Act emphasises that the right to sue accrues when the plaintiff first becomes aware of the act or instrument sought to be challenged. Here, the Plaintiff’s own letter acknowledging awareness in 2009 proved fatal to its case.
4. No Right of Action Without Contractual Nexus
The Court clarified that an agency relationship, such as through a Power of Attorney, does not automatically create a right to sue third parties in one’s own name unless explicitly authorised by law or contract.
5. Clever Drafting Cannot Mask Defects
Litigants cannot manufacture jurisdiction or cause of action through creative pleadings. Courts are empowered—and indeed obliged—to dismiss suits that attempt to do so at the preliminary stage.
6. Judicial Efficiency and Abuse of Process
The decision underscores the judiciary’s intolerance for vexatious litigation aimed at stalling development projects or pressuring settlements. The Court cited multiple Supreme Court precedents urging lower courts to nip sham suits in the bud.
Conclusion
Bombay High Court’s decision in Shree Construction Company v. Bagwe Housing Pvt. Ltd. & Ors. delivers a powerful message: Mere awareness or incidental benefits cannot substitute for privity of contract. Only those directly bound by a contract can enforce or be bound by its terms.
Equally, the judgment underscores that the law of limitation is not a mere technicality but a substantive safeguard ensuring finality in disputes. Once a party becomes aware of an act affecting its rights, inaction cannot later be excused.
By rejecting the plaint at the threshold, Justice Kamal Khata reaffirmed the courts’ duty to prevent misuse of judicial process and protect the integrity of commercial relationships. The ruling will undoubtedly guide future cases involving layered development agreements and reinforce that contractual obligations arise from consent—not coincidence.
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