Specific Performance of Sale Agreement: Supreme Court Reverses High Court Decision in R. Kandasamy vs. T.R.K. Sarawathy (21 November 2024)

Introduction

Date of the Judgment: 21 November 2024

Citation: 2024 INSC 884

Judges: Dipankar Datta, J., Sanjay Karol, J.

Can a buyer claim specific performance of a sale agreement if they fail to demonstrate readiness and willingness to fulfill their obligations? The Supreme Court of India recently addressed this critical question in a case involving a dispute over a property sale. The Court examined the conduct of the buyer and the sellers to determine if the buyer was entitled to the equitable relief of specific performance. This case highlights the importance of demonstrating both readiness and willingness in specific performance suits.

Case Background

The case revolves around an agreement for sale of a property entered into on 20th January 2005, between the sellers (R. Kandasamy and others) and the buyer (T.R.K. Sarawathy). The agreement stipulated a sale price of Rs. 2.3 crore, with an advance payment of Rs. 10 lakh. The buyer was required to pay the balance within four months, i.e., by 19th May 2005. The property was occupied by tenants, and the sellers were responsible for vacating them before the sale.

The buyer made several payments totaling Rs. 19 lakh before the deadline and an additional Rs. 6 lakh after. However, the sellers canceled the agreement on 23rd February 2006, citing the buyer’s failure to complete the transaction within the stipulated four months. The buyer refuted this, stating that the four-month period should be counted from the date the tenants vacated the property. The last tenant vacated on 2nd February 2006.

Despite the cancellation, the sellers expressed interest in selling the property via a telegram on 11th March 2006, giving the buyer until 24th March 2006, to complete the sale. The buyer requested original documents and an encumbrance certificate, which the sellers refused, leading to further disputes and the eventual cancellation of the agreement by the sellers on 26th April 2006. The buyer then filed a suit for specific performance.

Timeline

Course of Proceedings

The Trial Court dismissed the buyer’s suit for specific performance, holding that the buyer was not ready and willing to pay the balance sale consideration. The High Court of Judicature at Madras, however, reversed this decision, decreeing the suit for specific performance. The High Court observed that time was not of the essence and that the buyer was ready and willing to perform her part of the contract. The sellers then appealed to the Supreme Court.

Legal Framework

The case primarily involves the interpretation of the Specific Relief Act, 1963, specifically concerning the conditions for granting specific performance of a contract. The relevant provisions include:

• Section 10, Specific Relief Act, 1963: This section deals with cases in which specific performance of contract is enforceable.
• Section 16, Specific Relief Act, 1963: This section specifies the conditions under which specific performance cannot be enforced.
• Section 20, Specific Relief Act, 1963: This section (unamended) pertains to the discretion of the court in granting specific performance.

These provisions outline the requirements for a plaintiff to demonstrate their readiness and willingness to perform their contractual obligations to be eligible for specific performance. The court’s interpretation of these sections in the context of the facts of the case is central to the judgment.

Arguments

The sellers, represented by Mr. Dwivedi, argued that the buyer was not ready and willing to perform her part of the contract. The key arguments were:

• The agreement specified a four-month period for payment, which the buyer failed to meet. Time was of the essence.
• The sellers canceled the agreement on 23rd February 2006, and the buyer’s claim that the four-month period should start from the date of vacation by the tenants was an afterthought.
• The buyer’s conduct, including falsely stating she was out of town, did not inspire confidence.
• The buyer did not demonstrate readiness and willingness by failing to take steps to complete the sale despite multiple opportunities.
• The buyer never pleaded that she had purchased the stamp papers for execution of the sale deed.
• The buyer took prevaricating stands regarding the date of vacation of the property by the tenants.
• The agreement having been cancelled, the buyer should have sought a declaration that the cancellation was bad in law.
• The buyer did not have the financial capacity to complete the transaction.
• The property was sold to a third party after the High Court refused a stay.

The buyer, represented by Mr. Guru Krishna Kumar, contended that the High Court’s decision was correct. The key arguments were:

• Both the Trial Court and the High Court found that time was not of the essence of the contract.
• The sellers’ conduct, including accepting payments after the deadline and giving extensions, showed that time was not of the essence.
• The sellers had blemishes in their conduct, including the cancellation and subsequent offer to sell.
• The buyer was always ready and willing to perform her part of the bargain, but the sellers did not fulfill their obligation to provide vacant possession and original title deeds.

Submissions Table

Issues Framed by the Supreme Court

The sole issue framed by the Supreme Court was:

1. Whether the impugned judgment of the High Court warrants any interdiction in exercise of our appellate jurisdiction.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:

On Whether Time is the Essence of the Contract:

• Chand Rani v. Kamal Rani, (1993) 1 SCC 519, Supreme Court of India: This case established that in the sale of immovable property, time is not presumed to be of the essence, but can be inferred from the express terms, nature of the property, or surrounding circumstances.
• Saradamani Kandappan v. S. Rajalakshmi, (2011) 12 SCC 18, Supreme Court of India: This case discussed the changing economic landscape and its impact on the principle of time not being of the essence in property transactions.

Considerations in Grant or Refusal of Specific Performance:

• Prakash Chandra v. Angadlal, (1979) 4 SCC 393, Supreme Court of India: This case held that specific performance should be granted unless equitable considerations point to its refusal.
• N.P. Thirugnanam v. R. Jagan Mohan Rao (Dr), (1995) 5 SCC 115, Supreme Court of India: This case reiterated that specific performance is an equitable remedy and the plaintiff must prove readiness and willingness.
• Nirmala Anand v. Advent Corpn. (P) Ltd., (2002) 8 SCC 146, Supreme Court of India: This case discussed the factors to consider while granting or refusing specific performance, including the conduct of parties.
• Kamal Kumar v. Premlata Joshi, (2019) 3 SCC 793, Supreme Court of India: This case outlined the material questions to be addressed for granting specific performance.
• P. Daivasigamani v. S. Sambandan, (2022) 14 SCC 793, Supreme Court of India: This case followed Kamal Kumar (supra).

Who Can Be Said To Be ‘Ready and Willing’?

• C.S. Venkatesh vs. A.S.C. Murthy, (2020) 3 SCC 280, Supreme Court of India: This case defined the implications of the words “ready and willing” and the need for continuous readiness.
• U.N. Krishnamurthy v. A.M. Krishnamurthy, (2023) 11 SCC 775, Supreme Court of India: This case clarified the necessity to show the availability of funds to perform a contract involving payment of money.

Absent a Prayer for Declaratory Relief That Termination of the Agreement is Bad in Law, Whether a Suit for Specific Performance is Maintainable?

• I.S. Sikandar v. K. Subramani, (2013) 15 SCC 27, Supreme Court of India: This case held that a suit for specific performance is not maintainable without a prayer for declaring the termination of the agreement as bad in law.
• Mohinder Kaur v. Sant Paul Singh, (2019) 9 SCC 358, Supreme Court of India: This case followed I.S. Sikandar (supra).
• A. Kanthamani v. Nasreen Ahmed, (2017) 4 SCC 654, Supreme Court of India: This case distinguished I.S. Sikandar (supra) and held that the plea regarding maintainability must be raised in the written statement.

On Inconsistent Clauses in an Agreement

• Forbes v. Git, [1922] 1 A.C. 256: This case laid down the principle that if a later clause destroys an earlier clause, the later clause is to be rejected.
• Radha Sundar Dutta v. Mohd. Jahadur Rahim, AIR 1959 SC 24, Supreme Court of India: This case approved the principle in Forbes v. Git, stating that the earlier clause prevails over the later if they are inconsistent.
• Bharat Sher Singh Kalsia v. State of Bihar, (2024) 4 SCC 318, Supreme Court of India: This case reiterated the principle that earlier clauses prevail over later clauses if they cannot be reconciled.

On Jurisdictional Fact

• Shrisht Dhawan (Smt) v. Shaw Bros., (1992) 1 SCC 534, Supreme Court of India: This case discussed the concept of jurisdictional fact and its importance in the assumption of jurisdiction by a court.

Authorities Table

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court relied on Chand Rani v. Kamal Rani, (1993) 1 SCC 519* and Saradamani Kandappan v. S. Rajalakshmi, (2011) 12 SCC 18* to conclude that time was not of the essence in this contract. The Court followed Prakash Chandra v. Angadlal, (1979) 4 SCC 393*, N.P. Thirugnanam v. R. Jagan Mohan Rao (Dr), (1995) 5 SCC 115*, Nirmala Anand v. Advent Corpn. (P) Ltd., (2002) 8 SCC 146*, Kamal Kumar v. Premlata Joshi, (2019) 3 SCC 793* and P. Daivasigamani v. S. Sambandan, (2022) 14 SCC 793* to reiterate the principle that specific performance is an equitable remedy and the plaintiff must prove readiness and willingness. The Court also relied on C.S. Venkatesh vs. A.S.C. Murthy, (2020) 3 SCC 280* and U.N. Krishnamurthy v. A.M. Krishnamurthy, (2023) 11 SCC 775* to emphasize the need to show the availability of funds. The Court discussed I.S. Sikandar v. K. Subramani, (2013) 15 SCC 27* and A. Kanthamani v. Nasreen Ahmed, (2017) 4 SCC 654* regarding the necessity of a declaratory relief, but did not dismiss the suit on this ground. The Court approved the principles laid down in Forbes v. Git, [1922] 1 A.C. 256*, Radha Sundar Dutta v. Mohd. Jahadur Rahim, AIR 1959 SC 24* and Bharat Sher Singh Kalsia v. State of Bihar, (2024) 4 SCC 318* regarding the interpretation of inconsistent clauses in an agreement. The Court followed Shrisht Dhawan (Smt) v. Shaw Bros., (1992) 1 SCC 534* regarding the concept of jurisdictional fact.

The Supreme Court reversed the High Court’s decision and restored the Trial Court’s judgment, dismissing the buyer’s suit for specific performance. The Court held that the buyer failed to demonstrate readiness and willingness to perform her part of the contract.

The Court observed, “Scanning of the evidence on record unmistakably points to the conclusion that the buyer was not ready and willing to have the terms agreed by and between the parties to be performed.”

The Court further noted, “From the documents on record, it is clear that there was no readiness and willingness on the buyer’s part to pay the balance sale consideration and get the sale deed executed.”

The Court also stated, “Such conduct of the buyer, seen cumulatively, does not inspire confidence in granting her the discretionary relief of specific performance.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the buyer’s failure to demonstrate readiness and willingness to perform her part of the contract. The Court noted several factors that weighed against the buyer:

• The buyer’s conduct, including raising the issue of the encumbrance certificate, despite it not being part of the agreement.
• The buyer’s failure to take steps to complete the sale despite multiple opportunities given by the sellers.
• The buyer’s admission of not having sufficient funds in her bank accounts to pay the balance sale price.
• The buyer’s delay in returning the demand draft, which was returned on the last day of its validity.

The Court also considered that the sellers had returned the advance amount and had not acted dishonestly.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

The sentiment analysis shows that the Court was heavily influenced by the factual aspects of the case, particularly the buyer’s conduct and financial incapacity. The legal considerations, while important, played a secondary role in the Court’s decision.

Logical Reasoning

Key Takeaways

The Supreme Court’s decision in R. Kandasamy vs. T.R.K. Sarawathy underscores the importance of demonstrating readiness and willingness in a suit for specific performance. Key takeaways from this judgment include:

• Readiness and Willingness: A plaintiff seeking specific performance must prove not only their readiness but also their willingness to perform their part of the contract. This includes having the financial capacity and taking necessary steps to complete the transaction.
• Conduct of Parties: The conduct of the parties is crucial in determining whether specific performance should be granted. The court will assess if the plaintiff acted in good faith and took reasonable steps to fulfill their obligations.
• Time is Not Always of the Essence: While contracts may specify timelines, time is not always of the essence, especially in cases involving the sale of immovable property. However, parties must still demonstrate their intention to perform the contract within a reasonable time.
• Discretionary Relief: Specific performance is an equitable remedy, and courts have the discretion to grant or refuse it based on the facts and circumstances of each case.
• Financial Capacity: The plaintiff must demonstrate that they had the financial capacity to complete the transaction. This may include having sufficient funds or a clear plan for obtaining the necessary funds.
• Importance of Pleading: The plaintiff must make specific pleadings with respect to their readiness and willingness, including having purchased the stamp papers for execution of the sale deed.

This judgment reinforces the principle that specific performance is not automatic and that the plaintiff must actively demonstrate their commitment to fulfilling the contract. It serves as a reminder to buyers to act promptly and transparently when seeking specific performance of a sale agreement.