Are Legal Heirs Of A Deceased Sole Proprietor Liable To Discharge Personal Obligations Of The Deceased Under A Contract?

INTRODUCTION

The Hon’ble Supreme Court in the case of Vinayak Purushottam Dube (deceased) through LRs. v/s Jayashree Padamkar Bhatt & Ors.[1] has held that the legal representatives of a deceased are not liable to discharge contractual obligations that were to be performed by the deceased in his personal capacity basis his skills and expertise. However, the legal representatives shall be liable in respect of a decree for payment of money to the extent of the estate of the deceased which has come to the hands of the legal representatives.

FACTS

The disputes between one Vinayak Purushottam Dube (“original opposite party”) and the Respondents arose in respect of a Development Agreement dated 30 July 1996, under the terms whereof, the original opposite party was to construct a residential building on a plot of land owned by the Respondents and provide 8 flats along with certain payment as consideration to the Respondents. The original opposite party failed to fulfil payment obligations and the Respondents also alleged breaches of the Development Agreement.

The Respondents filed a consumer complaint before the District Consumer Forum, Kolhapur (“District Forum”) demanding payment of outstanding dues along with interest, rectification of construction defects, completion of pending works etc. By order dated 16 October 2006[2], the District Forum found the original opposite party liable to pay the outstanding dues along with interest but refused to consider Respondents’ claim for defects in construction and other claims due to lack of evidence.

Both parties challenged the order before the State Consumer Dispute Redressal Commission, Maharashtra (“State Commission”). By a common judgement[3] dated 8 April 2008, the State Commission partly modified the order of the District Forum by setting aside directions to pay certain amounts on account of the same being time barred while upholding directions to make some payments. It also held that the original opposite party was liable to complete the construction of compound wall, obtain and handover Completion Certificate, execute a Conveyance Deed, give electricity connections etc. (“non-monetary obligations”) in favour of the Respondents as per the Development Agreement.

Both parties filed Revision Petitions before the National Consumer Dispute Redressal Commission (“NCDRC”). During the pendency of the petitions, the original opposite party died, and his legal representatives viz. the Appellants were brought on record. By order dated 31 May 2016[1], the NCDRC directed the legal representatives to pay the monetary claims and comply with the non-monetary obligations under the Development Agreement.

The legal representatives viz. the Appellants preferred a Special Leave Petition before the Hon’ble Supreme Court, challenging the order passed by the NCDRC. By order dated 3 January 2017[1], the Hon’ble Supreme Court refused to interfere with the said order and granted liberty to the Appellants to file for review before the NCDRC.

Both parties filed Review Petitions before the NCDRC. The Appellants contended that after the death of the original opposite party, they being the legal representatives were not accountable for the liabilities of the original opposite party under the Development Agreement. By order dated 2 May 2018[2], the NCDRC held that the death of the original opposite party had no effect upon his obligations under the Development Agreement and the same had to be executed by his legal representatives.

Aggrieved, the Appellants filed an Appeal before the Hon’ble Supreme Court. The Appellants submitted that it was not permissible for the legal representatives to comply with the non-monetary obligations in as much as the same were personally against the original opposite party who is since deceased. It was contended that the original opposite party was having the proprietorship concern and therefore his estate would be liable upto the extent of compensatory payments but not for complying the non-monetary obligations which depended upon his skills and expertise. It was also submitted that on the demise of the original opposite party, his legal representatives cannot be compelled to carry out those directions as they neither possess the skills and expertise nor were they continuing the proprietorship concern of the original opposite party which had been wound up on his demise.

The question before the Hon’ble Supreme Court was what would happen to the obligations imposed personally on the original opposite party on his demise and can the legal representatives be held liable to comply with those obligations under the Development Agreement?

The Hon’ble Supreme Court relied upon the ruling in Raghu Lakshminarayanan v/s Fine Tubes[3], Custodian of Branches of Banco National Ultramarino v/s Nalini Bai Naique[4] and Ajmera Housing Corporation v/s Amrit M. Patel (dead) through LRs[5]. Considering these judgments, the Hon’ble Supreme Court, summarised the principles therein by observing that (i) if a proprietor had to carry on certain obligations personally under a contract, the same cannot be fastened on his legal representatives; and (ii) when a decree or order is not against the estate of a deceased proprietor but based on his skills and expertise, the obligations which had to be performed by him would come to an end on his demise and cannot be imposed on his legal heirs or representatives; however, the estate of the deceased would become liable to satisfy a decree or an order in monetary terms on his demise.

COURT’S RULING

Basis the aforesaid, the Hon’ble Supreme Court concluded that if the estate of the deceased has become liable then the legal representatives must discharge their liability to a decree holder/ person who has been granted an order to recover from the estate of the deceased which they represent and not beyond it. But in case of a personal obligations imposed on a person under the contract and the demise of such person, his estate does not become liable and therefore, the legal representatives who represent the estate would not be liable and cannot be directed to discharge the contractual obligations of the deceased.

The Hon’ble Supreme Court hence held that the legal representatives of the deceased original opposite party were not liable to discharge the non-monetary obligations which had to be discharged by the deceased in his personal capacity and hence that portion of the NCDRC order dated 2 May 2018 was set aside. The legal representatives of the original opposite party were liable for the payment from the estate of the deceased.

CONCLUSION

This judgment amply clarifies the liability of the legal representatives of a deceased sole proprietor. It highlights the risk of entering into contracts that depend entirely upon the skill, expertise and qualification of an individual. In the event of death of such individual, the party seeking performance of such obligations, will be unable to get any reliefs. It is hence advisable that contacts of such nature are executed with companies/ firms/ LLP where the performance of obligations is not restricted on the skill of one individual.

|DISCLAIMER|

All intellectual property rights in this publication rest with The Fort Circle.

The information shared in this article is purely for information and is not intended to be a substitute for professional legal advice.

|CONNECT|

connect@thefortcircle.com


[1] Vinayak Purushottam Dube (Deceased) through LRs. v/s Jayashree Padamkar Bhatt & Ors. through Civil Appeal No 7768-7769 of 2023
[2] Order passed by the District Consumer Forum, Kolhapur in Complaint No 184 of 2005
[3] Judgment passed by the State Commission in First Appeal Nos 2570 of 2006 and 1115 of 2007
[4] Order passed by NCDRC in Revision Petition No 3283 of 2008 and Review Petition No 2794 of 2008
[5] Order passed in Special Leave Petition (Civil) CC Nos 24515 – 24516 of 2016
[6] Order passed by NCDRC in Review Application No 26 of 2017 in and Review Application No 27 of 2017
[7] 2007 5 SCC 103
[8] 1989 Supp 2 SCC 275
[9] (1998) 6 SCC 500

Share

Insolvency

We advise a broad spectrum of constituents of the insolvency and restructuring market.

Intellectual Property

It all starts with an idea. Guided by this principle, we collaborate…

Related Articles