Specific Performance Denied: Supreme Court Orders Refund in Property Sale Case: Shenbagam vs. Rathinavel (20 January 2022)

Introduction

Date of the Judgment: 20 January 2022

Citation: Civil Appeal No 150 of 2022

Judges: Dr Dhananjaya Y Chandrachud, J and AS Bopanna, J

Can a party seek specific performance of a property sale agreement if they have not demonstrated continuous readiness and willingness to fulfill their obligations? The Supreme Court of India addressed this question in a recent case concerning a long-standing property dispute. The Court examined whether the plaintiff had consistently shown the intent and capacity to complete the purchase, a key requirement for obtaining a decree of specific performance. The bench, comprising Justices Dr. Dhananjaya Y Chandrachud and AS Bopanna, delivered the judgment. The majority opinion was authored by Justice Dr. Dhananjaya Y Chandrachud.

Case Background

The case revolves around a property sale agreement made on 7 February 1990, between the appellants (sellers) and the respondent (buyer). The appellants agreed to sell their 12.60-acre property in Coimbatore for ₹1,25,000. The respondent paid ₹25,000 as an advance and was to pay the balance within six months. The agreement also stipulated that the appellants would execute the sale deed free of encumbrances upon receiving the full payment. The property was under a mortgage of ₹6,000 to one Janaki Amma, which the respondent claimed was to be cleared by the appellants using the advance amount. The appellants, however, contended that the respondent was to clear the mortgage from the sale consideration. On 8 March 1990, the respondent paid an additional ₹10,000 as advance.

On 19 December 1990, the appellants sent a legal notice to the respondent, claiming he was not ready to fulfill his obligations and rescinding the contract. The respondent replied on 26 December 1990, stating his readiness to complete the sale if the property was free of encumbrances. In 1991, the respondent filed a suit for a permanent injunction against the appellants to prevent them from alienating the property. The appellants discharged the mortgage in 1992. Subsequently, on 17 June 1993, the respondent filed a suit for specific performance of the sale agreement, or alternatively, a refund of the advance with interest.

Timeline

Course of Proceedings

The trial court decreed the suit in favor of the respondent on 11 October 1996, directing the respondent to deposit the balance amount of ₹90,000 within a month. The court held that the suit was filed within three years of the mortgage discharge and was not barred by limitation. The first appellate court dismissed the appellant’s appeal on 24 February 1998. Subsequently, the appellants filed a second appeal before the High Court of Judicature at Madras. While the appeal was pending, the respondent withdrew the deposited ₹90,000 with the permission of the High Court. The High Court dismissed the second appeal on 7 January 2019, upholding the trial court and first appellate court’s decisions. The High Court held that the discharge of the mortgage was a condition precedent for the completion of the sale and that time was not of the essence of the contract. The High Court also noted that the respondent had sufficient resources to purchase the property and that the suit was not barred by Order II Rule 2 of the Code of Civil Procedure, 1908.

Legal Framework

The core legal provision in this case is Section 16 of the Specific Relief Act, 1963, which outlines the conditions for granting specific performance of a contract. Specifically, Section 16(c) states that specific performance cannot be enforced in favor of a person who fails to prove that they have performed or have always been ready and willing to perform the essential terms of the contract. The section reads as follows:

“16. Personal bars to relief. – Specific performance of a contract cannot be enforced in favour of a person —
[(a) who has obtained substituted performance of contract under section 20; or]
(b) who has become incapable of performing, or violates any essential term of, the contract that on his part remains to be performed, or acts in fraud of the contract, or wilfully acts at variance with, or in subversion of, the relation intended to be established by the contract; or
(c) [who fails to prove] that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms of the performance of which has been prevented or waived by the defendant.
Explanation. —For the purposes of clause ( c),—
(i) where a contract involves the payment of money, it is not essential for the plaintiff to actually tender to the defendant or to deposit in court any money except when so directed by the court;
(ii) the plaintiff [must prove] performance of, or readiness and willingness to perform, the contract according to its true construction.”

This provision mandates that the plaintiff must demonstrate both “readiness” (financial capacity) and “willingness” (conduct showing intent) to fulfill their contractual obligations. The burden of proof lies on the plaintiff to establish this throughout the relevant period of the contract.

Arguments

Appellants’ Submissions:

• The trial court failed to frame an issue on the respondent’s readiness and willingness to perform the contract.
• The trial court did not properly assess the respondent’s readiness to perform, merely noting his financial capacity.
• The respondent’s initial suit for a permanent injunction, not specific performance, indicated a lack of readiness.
• The respondent’s bank passbooks were not contemporary to the contract period, thus not proving readiness.
• Paying income tax does not prove the respondent’s willingness to perform the contract.
• The respondent’s delay in depositing the balance and his subsequent withdrawal of the amount showed a lack of willingness.
• The respondent did not communicate with the appellants to seek performance before the appellants’ notice of rescission.
• The court’s discretion under Section 20 of the Specific Relief Act should not be exercised due to the long delay and the low sale price.
• Clearing the mortgage was not a condition precedent; the sale deed was to be executed free of encumbrances upon receiving the balance payment.
• Time was of the essence in the agreement, as the balance was to be paid within six months.
• The suit was barred by Order II Rule 2 of the Code of Civil Procedure, 1908, due to the earlier suit for a permanent injunction.

Respondent’s Submissions:

• The respondent stated his readiness to pay the balance and execute the sale deed in his reply dated 26 December 1990, provided the mortgage was discharged.
• Time was not of the essence in the contract.
• The appellants were obligated to discharge the mortgage, after which the respondent was to pay the balance.
• The respondent deposited the balance consideration, which was later withdrawn under the High Court’s order.
• The respondent had sufficient means and was ready and willing to perform the contract.

The innovativeness of the argument lies in the appellants’ contention that the respondent’s initial filing of a suit for a permanent injunction, rather than specific performance, indicated a lack of readiness and willingness to perform the contract. This argument challenges the conventional view that a party can simply wait for the other party to fulfill their obligations before seeking specific performance.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the Court addressed was:

1. Whether the respondent-plaintiff has performed or has always been ‘ready and willing’ to perform his obligations under the contract, as mandated by Section 16(c) of the Specific Relief Act, 1963.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on several precedents and legal provisions to arrive at its decision. These are categorized below:

On the interpretation of Section 16(c) of the Specific Relief Act, 1963:

• JP Builders v. A Ramadas Rao, (2011) 1 SCC 42 – Supreme Court of India

  The Court held that Section 16(c) mandates “readiness and willingness” as a condition precedent for specific performance and that the plaintiff must prove continuous readiness and willingness from the date of the contract.

• His Holiness Acharya Swami Ganesh Dassji v. Sita Ram Thapar, (1996) 4 SCC 526 – Supreme Court of India

  The Court distinguished between “readiness” (financial capacity) and “willingness” (conduct) and emphasized that the conduct of the plaintiff must be scrutinized.

• Atma Ram v. Charanjit Singh, (2020) 3 SCC 311 – Supreme Court of India

  The Court observed that the delay in filing a suit for specific performance and the initial filing of a suit for mandatory injunction indicated inconsistent behavior of the plaintiff.

• P Meenakshisundaram v. P Vijayakumar, (2018) 15 SCC 80 – Supreme Court of India

  The Court noted that the plaintiff’s lack of communication with the defendant till the date of completion of the transaction showed a lack of willingness to perform the contract.

On the discretionary nature of specific performance under Section 20 of the Specific Relief Act, 1963:

• Zarina Siddiqui v. A. Ramalingam, (2015) 1 SCC 705 – Supreme Court of India

  The Court emphasized that the remedy for specific performance is equitable and the court has discretion under Section 20 of the Specific Relief Act, 1963.

• Satya Jain v. Anis Ahmed Rushdie, (2013) 8 SCC 131 – Supreme Court of India

  The Court held that the discretion to direct specific performance must be exercised on sound, reasonable, and rational principles, balancing the efflux of time and the escalation of prices with the plaintiff’s conduct.

• Nirmala Anand v. Advent Corporation (P.) Ltd. and Others, (2002) 8 SCC 146 – Supreme Court of India

  The Court observed that the court can impose reasonable conditions, such as additional payment by the purchaser, considering the phenomenal increase in the price of the land.

• KS Vidyanadam and others v. Vairavan, (1997) 3 SCC 1 – Supreme Court of India

  The Court held that the delay coupled with a substantial rise in prices could make it inequitable to grant specific performance.

Legal Provisions:

• Section 16 of the Specific Relief Act, 1963

  This section outlines the bars to specific performance, including the requirement of the plaintiff to prove readiness and willingness.

• Section 20 of the Specific Relief Act, 1963

  This section grants the court discretion in granting specific performance.

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the respondent’s failure to demonstrate consistent “readiness and willingness” to perform his obligations under the contract. The Court emphasized that the plaintiff must not only have the financial capacity but also show through their conduct a continuous intention to fulfill their contractual obligations. The Court also considered the long delay, the change in property values, and the need to ensure fairness and equity.

The key points that weighed in the mind of the Court were:

• The respondent’s failure to communicate with the appellants regarding the mortgage or the balance payment within the stipulated time.
• The respondent’s filing of a suit for a permanent injunction instead of specific performance initially.
• The respondent’s delay of about three years in filing the suit for specific performance.
• The respondent’s withdrawal of the balance consideration deposited in court.
• The trial court’s failure to frame an issue on the respondent’s readiness and willingness.
• The lack of evidence to show that the respondent had the financial capacity to pay the balance consideration in 1990.
• The significant increase in the property value over three decades.

The Court’s reasoning was a mix of factual analysis and legal interpretation. The Court heavily relied on the facts of the case, particularly the respondent’s conduct, to determine his lack of willingness. The legal aspects, mainly the interpretation of Section 16(c) of the Specific Relief Act, 1963, provided the framework for the Court’s decision.

Final Order

The Supreme Court allowed the appeal and set aside the judgments of the High Court and the lower courts. The Court held that the respondent had failed to prove that he was ready and willing to perform his part of the contract. Consequently, the Court denied the decree of specific performance. However, in the interest of equity, the Court ordered the appellants to refund the advance amount of ₹35,000 to the respondent, along with interest at 6% per annum from the date of the suit (17 June 1993) until the date of payment.

Implications

This judgment reinforces the principle that in suits for specific performance, the plaintiff must demonstrate continuous readiness and willingness to perform their obligations. The Court’s emphasis on both financial capacity and conduct is significant. The judgment serves as a reminder that a party cannot merely wait for the other party to fulfill their obligations and then seek specific performance. The plaintiff must actively demonstrate their intention and ability to complete the contract. The Supreme Court’s decision also underscores the equitable nature of specific performance, highlighting the Court’s discretion to deny such relief when it would be unfair or inequitable, particularly in cases of long delays and significant changes in property values. This case is a significant precedent for future cases involving specific performance of contracts, particularly in property disputes.