1. MUHAMMAD YAQUB ALI, J.-This appeal by special leave of the Court arises from a suit filed by the respondent against the appellants in-the Court of Civil Judge for specific performance of the contract of lease in respect of a shop situated in the premises of Grand Hotel, Edwardes Road, Rawalpindi.
2. The suit proceeded on the basis of an, agreement arrived at by the parties in an earlier Suit No. 32 of 1962 filed by the appellants against the respondent in the Court of Administrative Civil Judge, Rawalpindi, in respect of a piece of immovable property adjoining the shop in dispute. On the 18th December 1962, the parties arrived at a compromise which was presented to the Court on the same day for the disposal of the suit in accordance with the terms thereof. The compromise at page 53 of the record evidences as follows :- "The parties to the suit have arrived at a compromise outside the Court under which the plaintiff has agreed to sell the property in dispute to the defendant and (further) the shop adjacent to the path in dispute under construction which is the property of the plaintiff has been taken on lease by the defendants for ten years. Thereby no dispute (now) exists between the parties. The file of the case is confined to the Record Room leaving the parties to bear their own costs."
3. After the shop was constructed, a dispute arose between the appellants and the respondent about the rent at which the shop was to be leased out to the respondent. The appellant demanded rent at Rs. 500 p.m., and an advance of Rs. 15,000. These terms were not accepted by the respondent who claimed that the rent had already been fixed at Rs. 200 p.m. Eventually, the appellant leased out the shop to Messrs Javed Iqbal & Company at Rs. 500 p.m. This led to the present suit filed by the respondent for specific performance of the contract of lease contained in the compromise deed dated the 18th December 1962.
4. It was alleged in the plaint that the defendant had agreed to let out the shop which was then under construction to the plaintiff for a period of ten years at a monthly rent of Rs. 200 ; that the shop had since been constructed, but the defendant, in spite of repeated requests and notices, had neither executed a lease deed nor delivered possession to the plaintiff, who is ready and willing to perform his part of contract. Besides Sh. Barkatullah appellant, Haji Hadayatullah was joined as defendant No. 2 on the averment that he claimed to be transferee of the disputed shop from defendant No. 1.
5. In the separate written statements the defendants denied the plaintiff's claim and prayed that the suit be dismissed with costs. The appellant maintained that the terms of the settlement dated the 18th December 1962, were that the plaintiff will give an advance of Rs. 15,000 and pay a rent at Rs.
6. 400 p.m., up to five years out of which Rs. 200 will be adjusted against the advance payment. After five years the rent will be increased to Rs. 200 p.m. This was in accordance with other similar agreement executed by the tenants of a number of shops situated in the same premises. The defendant No. 2 raised a preliminary objection that the suit for specific performance was not maintainable as the shop was, within the knowledge of the plaintiff, leased out to Messrs Javed Iqbal & Company before the institution of the suit, and the said lessee was in possession through Mr. Ehsan Karim. The suit could not, therefore, proceed in the absence of Messrs Javed Iqbal & Company. The defendant No. 2 further denied knowledge of the alleged agreement on the basis of which the suit for specific performance had been brought. Special costs under section 35-A of the Civil Procedure Code were claimed on the ground that the suit was false and wholly frivolous.
7. On the pleadings of the parties the trial Judge framed the following issues-
(i) that whether the defendant agreed to lease his shop to the plaintiff and on what terms?
(ii) that whether the suit is not maintainable?
(iii) that whether the suit shop has been leased to some one, if so, whether he is a necessary party and what is the effect of not impleading him as a party?
(iv) that whether the alleged contract is not binding upon defendant No. 2?
(v) that whether the plaintiff is estopped by his conduct from filing suit?
(vi) Relief.
8. The trial Judge dismissed the suit on the findings that since the lease deed was not registered a suit for specific performance could not be maintained and that Ehsan Karim, proprietor of Messrs Javed Iqbal & Company who is in physical possession of the shop and was carrying on business there was a necessary party to the suit.
9. On appeal by the respondent, the District Judge arrived at a contrary conclusion firstly, he relied on the statement of Khuda Bakhsh P. W.
1. That the rent of the shop was settled at Rs. 200 at the time when the compromise was arrived at between the parties on the 18th December 1962. The disparity in the rent of the shop in dispute -and other similar shops in the same premises was considered to be of no consequence as there was a dispute between the parties, which was settled by the compromise. Under the third issue it was held that Ehsan Karim was in possession of the shop before the suit was brought and that there was no evidence of any notice having been given by the plaintiff to him before he took the disputed shop on lease. The contra--dictory opinions are recorded by the trial Judge on the point whether Messrs Javed Iqbal & Company was a necessary party. Firstly, that the decree passed in favour of the appellant will be ineffective and futile as Ehsan Karim can flout the decree on the short ground that he was not a party to the suit. Secondly, that Ehsan Karim was not a necessary party and his non-joinder did not entail dismissal of the suit, under Order I, rule 10, Civil Procedure Code. In support of this reliance was placed on the case of Muhammad Ishaq v. Mst. Jamila Begum and others (PLD 1955 Lah. 644) wherein it was held: "It is wholly foreign to a suit for specific performance to include in it a prayer for possession against a third person."
10. The last contention raised by the appellant that the compromise deed dated the 18th December 1962, did not constitute a lease deed within section 107 of the Transfer of Property Act and in the alternative it required registration to create any right or interest in favour of the plaintiff was ruled out in view that the parties had entered into an agreement 'to lease' and that the compromise deed dated the 18th December, 1962, did not evidence a concluded 'agreement of lease' which would have required registration. The suit was accordingly held to be maintainable under subsection (2) of section 12 of the Specific Relief Act notwithstanding the provisions of section 27-A of the Act which lays down that specific performance of a contract of lease may be enforced by a lessee who has in part performance of the contract taken possession of the property, or, being already in possession, continues in possession in part possession of the contract, and has done some act in furtherance of the contract. The proviso to this section which says that nothing in that section shall affect the rights of the transferee for consideration who has no notice of the contract or of the part performance thereof was omitted from consideration though it had a natural bearing in the case as will be seen presently. The appeal was accordingly allowed and the suit brought by the respondent decreed leaving the parties to bear their own costs.
11. A second appeal preferred by the appellant was dismissed by a Division Bench in limine affirming .The view adopted by the District Judge that Ehsan Karim was not a necessary party to the suit and that the compromise deed dated the 18th December 1962, did not require registration under section 17 of the Registration Act as it was merely a memorandum of the agreement which had been orally arrived at between the parties outside the Court. The instrument, therefore, did not in the opinion of the learned Judges by itself create a demise of the shop in dispute in favour of the plaintiff for a. Period of 10 years to require registration under section 17. Similarly, the application of section 107 of the Transfer of Property Act which provides that a lease of immovable property from year to year, or for any terms exceeding one year, or reserving yearly rent, can be made only by a registered instrument was rejected on the ground that the agreement of lease was oral and the instrument of the 18th December 1962, only contained a memorandum of the terms and conditions thereof.
12. Leave to appeal was granted to consider (i) whether the instrument on which the suit rests is a.
13. Lease deed within section 107 of the Transfer of Property Act and requires registra--petition under section 17 of the Registration Act ; and (ff) whether the second lessee Messrs Javed Iqbal & Company to whom the shop was leased was a necessary party and no effective decree could be passed in the suit in their absence. The answer to the first question depends on the construction of the compromise deed dated the 18th December 1962, and the relevant provisions of law. Lease is defined in section 105 of the Transfer of Property Act as "a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, 'a share of crops, service of any other thing of value to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. A lease of an immovable property from year to year ox for any term exceeding one y ear or reserving yearly rent can be made only by a registered instrument' as laid down in section 107 of the Transfer of Property Act. While it could be held that the shop under construction is immovable property' it was necessary to fix monthly or yearly rent, or provide a mode by which rent could at a future date be ascertained. The terms of the compromise deed therefore fell short of an agreement of lease. The contract also suffers from vagueness as there was no knowing when the shop would be constructed and how much expense it would involve which were material factors, in the fixation of rent. Further the compromise talks of having taken on lease the shop under construction. This was an impossibility as the shop had till then not been constructed.
14. Next the period of lease prescribed in the compromise deed being 10 years the agreement required registration under section 17 of the Registration Act. In the absence of registration the respondent could claim specific performance only if he had entered into possession in pursuance to the agreement of lease and done some act in part performance thereof. That is the laws as laid down in section 27-A of the Specific Relief Act. In the instant case the respondent was not inducted into possessions which was a precondition for bringing a suit for specific perform--ance. To the contrary, Messrs Javed Iqbal & Company had on a later date taken the shop on lease and were in possession when the respondent instituted the suit. The suit was therefore liable to be dismissed on this short ground.
15. We are also of the opinion that Messrs Javed Iqbal & Company were a necessary party to the suit and in their absence no effective decision could be given. The proviso to section 27-A of the Specific Relief Act lays down :.- "Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof."
16. Thus if Messrs Javed Iqbal & Company were to succeed in proving that they were transferees for consideration and had no notice of the contract in favour of the respondent the suit, for specific performance would have failed. In this view this company should have been before the Court to enable it to give a decision on this vital point.
17. The learned Judges in the High Court arrived at a contrary conclusion relying on the case of Thakar Hari Ram v. Central Government (AIR 1941 Lah. 120), in which a necessary party is defined as: "A `necessary' party is one, whose presence on the record enjoined by law, or in whose absence no effective decision can at all be given. Without such party action, appeal or proceeding is not properly constituted and is liable to be dismissed on this ground alone. A `proper' party on the other hand, in one whose presence is not essential for the con--stitution of the suit, appeal or proceeding, but whom it may nevertheless be desirable, or even necessary to have before the Court in order to properly, or completely and adequately, adjudicate on the matter involved."
18. The decision in this case did not advance the case of the respondent that Messrs Javed Iqbal & Company were not a necessary party to the suit. According to the remarks reproduced above, it had to be ascertained whether an effective decision could at all be given in the suit in the sense that the plaintiff will be entitled to take possession in execution of the decree obtained against the defendants Nos. 1 and 2. This question was however left unattended. The learned Judges next found support from the decision in the case of Gul Muhammad and another v. Mir Zaman and another (PLD 1954 Lah. 604) wherein it was observed :.- "The best at which you can put the case for the defendants is that the decree is liable to be defeated at the instance of one who is not made a party. Still such a person cannot be regarded as a necessary party to the suit. The liability for a decree to be rendered ineffective at the instance of a person is not synonymous with the decree being wholly ineffective."
19. The decision in the second case is confined to its own facts. If a suit is not properly constituted in the absence of a necessary party then the eventuality envisaged by the learned Judges, that the liability for a decree to be rendered ineffective at the instance of a person is not synonymous with the decree being wholly ineffective, would not arise. The suit would be dismissed on the ground that unless it was shown that the rights of the second transferee are affected no decree for specific performance will be passed. Nor the second transferee will be liable to be dispossessed in execution of the decree as he came into possession before the suit was instituted. The question whether the second lessee in possession is a necessary party to a suit for specific performance of a contract of lease therefore went a begging in that case.
20. The learned Judges further relied on paragraph 496 of Halsbury's Laws of England, Vol. 32, Second Edition, wherein it is stated, `In proceedings to enforce specific performance of a contract, the parties to the contract are the necessary and sufficient parties to the action, for the contract constitutes the rights and limits the liabilities of parties'. In the next succeeding para--graph 497 it is stated "A stranger to the contract cannot according to the general rule either sue or be sued upon it'". This general rule is, however, subject to certain exceptions. According to the paragraph as a general rule the second lessee cannot be sued upon the contract to which he was not a party, i.e. No decree for possession can be passed against him. The suit for specific performance would therefore fail though a decree for damages may be passed against the lessor for breach of contract. However, if the second lessee is in possession and has notice of the contract on which the suit is based, he could then be sued upon and a decree for possession passed against him. This very proposition of law is affirmed in the proviso to section 27-A of the Specific Relief Act reproduced above. To say so with. Respect, the learned Judges did not comprehend fully the statement of law in para: graphs 496 and 497 in the Halsbury's Laws of England, Vol. 32, Second Edition, which militates against the conclusion reached by them that the suit was fn the absence of Messrs Javed Iqbal & Company properly constituted.
21. As a result of the above discussion we hold that the respondent's suit was liable to be dismissed on the ground that the compromise deed dated the 18th December 1962, did not constitute an agreement of lease that in the alternative it required registration and that in the absence of Messrs Javed Iqbal & Company no effective decree could be passed in the suit.
22. The appeal is accordingly allowed and the judgment and decree passed by the Civil Judge dismissing the plaintiffs' suit are restored. In the circumstances of the case, we make no order as to costs.