LEGAL ISSUE: Whether compensation can be awarded in lieu of specific performance of a contract when the subject matter of the contract is acquired by the government.
CASE TYPE: Civil
Case Name: Urmila Devi and Others vs. The Deity, Mandir Shree Chamunda Devi, Through Temple Commissioner and Others
[Judgment Date]: 10 January 2018
Date of the Judgment: 10 January 2018
Citation: (2018) INSC 12
Judges: A.K. Sikri, J., Ashok Bhushan, J.
Can a court order compensation instead of specific performance of a contract when the land in question has been acquired by the government? The Supreme Court of India addressed this question in a case where a land sale agreement could not be fulfilled due to government acquisition. The Court had to decide whether the plaintiff was entitled to the compensation amount received by the defendant due to the acquisition of land or only the refund of the original sale amount. The judgment was delivered by a bench of Justices A.K. Sikri and Ashok Bhushan, with the majority opinion authored by Justice Ashok Bhushan.
Case Background
On 19 April 1989, Respondent Nos. 2 to 6 agreed to sell their 5/16th share of land (Khasra Nos. 430 and 431, measuring 0-22-57 hectares) to Krishan Lal, the predecessor of the Appellants, for Rs. 90,000. The full amount was paid, and possession of the land was given to Krishan Lal, who then constructed three shops on it. However, on 8 July 1991, instead of executing the sale deed, Respondent Nos. 2 to 6 gifted the land to Respondent No. 1. Consequently, Krishan Lal filed Civil Suit No. 148 of 1991 for specific performance of the contract.
Timeline
| Date | Event |
|---|---|
| 19 April 1989 | Agreement to sell executed between Respondent Nos. 2 to 6 and Krishan Lal for Rs. 90,000. Possession of the land was given to Krishan Lal. |
| 8 July 1991 | Respondent Nos. 2 to 6 executed a gift deed in favor of Respondent No. 1 for the suit land. |
| 1991 | Civil Suit No. 148 of 1991 filed by Krishan Lal for specific performance. |
| 31 March 1999 | Trial court decreed the suit, declaring the gift deed void and granting specific performance to the plaintiff. |
| 17 December 2001 | First Appellate Court dismissed the appeal by Defendant No. 6, upholding the trial court’s decision. |
| 2002 | Regular Second Appeal No. 117 of 2002 filed by Defendant No. 6 in the High Court. |
| 22 December 2005 | Notification under Section 4 of the Land Acquisition Act issued for acquisition of the suit land. |
| 10 June 2008 | Award given for the acquired land and the three shops constructed by the plaintiff. |
| 2 November 2012 | High Court modified the decree, ordering a refund of Rs. 90,000 with interest instead of specific performance. |
Course of Proceedings
The trial court ruled in favor of Krishan Lal, declaring the gift deed void and granting specific performance against Respondent Nos. 2 to 5. The First Appellate Court upheld this decision. However, during the second appeal in the High Court, the suit land was acquired by the government under the Land Acquisition Act. The High Court modified the decree, stating that specific performance was no longer possible, and instead ordered Respondent Nos. 2 to 6 to refund the original sale amount of Rs. 90,000 with interest to the plaintiff.
Legal Framework
The Supreme Court considered Section 21 of the Specific Relief Act, 1963, which deals with the power of the court to award compensation in certain cases. The provision states:
“21. Power to award compensation in certain cases.—
(1) In a suit for specific performance of a contract, the plaintiff may also claim compensation for its breach, either in addition to, or in substitution of, such performance.
(2) If, in any such suit, the court decides that specific performance ought not to be granted, but that there is a contract between the parties which has been broken by the defendant, and that the plaintiff is entitled to compensation for that breach, it shall award him such compensation accordingly.
(3) If, in any such suit, the court decides that specific performance ought to be granted, but that it is not sufficient to satisfy the justice of the case, and that some compensation for breach of the contract should also be made to the plaintiff, it shall award him such compensation accordingly.
(4) In determining the amount of any compensation awarded under this section, the court shall be guided by the principles specified in section 73 of the Indian Contract Act, 1872 (9 of 1872).
(5) No compensation shall be awarded under this section unless the plaintiff has claimed such compensation in his plaint:
Provided that where the plaintiff has not claimed any such compensation in the plaint, the court shall, at any stage of the proceeding, allow him to amend the plaint on such terms as may be just, for including a claim for such compensation.
Explanation.—The circumstances that the contract has become incapable of specific performance does not preclude the court from exercising the jurisdiction conferred by this section.”
Arguments
The Appellants argued that the High Court erred by ordering a refund of Rs. 90,000. They contended that they were entitled to the compensation amount received by Defendant No. 6 due to the land acquisition. They emphasized that since the gift deed was declared void, Defendant No. 6 had no right over the land, and therefore, the compensation should go to the Appellants.
Respondent Nos. 2 to 6 supported the High Court’s judgment but did not dispute that the gift deed was void and that Defendant No. 6 had no right to the suit land. They suggested that the compensation should be divided equally between the plaintiff and Defendant Nos. 1 to 5.
Defendant No. 6 (Respondent No. 1) did not appear before the Supreme Court.
| Main Submission | Sub-Submissions |
|---|---|
| Appellants’ Submission |
|
| Respondent Nos. 2 to 6’s Submission |
|
| Respondent No. 1’s Submission |
|
Issues Framed by the Supreme Court
The Supreme Court framed the following issue:
- What relief the (plaintiff) appellants were entitled to, in the event the decree of specific performance was required to be modified by an alternate decree?
Treatment of the Issue by the Court
| Issue | Court’s Decision |
|---|---|
| What relief the (plaintiff) appellants were entitled to, in the event the decree of specific performance was required to be modified by an alternate decree? | The court held that the appellants were entitled to compensation equivalent to the land acquisition compensation. The court awarded Rs. 10 lakh to the appellants and directed the remaining amount to be paid to the land owners i.e. defendant Nos. 1 to 5. |
Authorities
The Supreme Court relied on the following authorities:
| Authority | Court | How the authority was used |
|---|---|---|
| Jagdish Singh vs. Nathu Singh, 1992 (1) SCC 647 | Supreme Court of India | The court followed the precedent set in this case, where compensation was awarded in lieu of specific performance due to land acquisition. |
| Kanshi Ram vs. Om Prakash Jawal and others, 1996 (4) SCC 593 | Supreme Court of India | The court reiterated that specific performance is a discretionary remedy and should be exercised based on principles of justice, equity, and good conscience. |
| Section 21 of the Specific Relief Act, 1963 | Statute | The court interpreted this provision to allow compensation in lieu of specific performance when the contract becomes impossible to perform due to no fault of the plaintiff. |
Judgment
| Submission | Court’s Treatment |
|---|---|
| Appellants’ claim for compensation equivalent to land acquisition amount. | The Court upheld this submission and awarded Rs. 10 lakh to the appellants. |
| Respondent Nos. 2 to 6’s suggestion for equal division of compensation. | The Court rejected the suggestion and ordered the remaining compensation to be paid to the land owners i.e. defendant Nos. 1 to 5. |
The Court considered Jagdish Singh vs. Nathu Singh [1992 (1) SCC 647], where a similar situation arose due to land acquisition. The Supreme Court in that case had held that when a contract becomes impossible to perform due to no fault of the plaintiff, Section 21 of the Specific Relief Act, 1963 enables the court to award compensation in lieu of specific performance.
The Court also reiterated the principle laid down in Kanshi Ram vs. Om Prakash Jawal and others [1996 (4) SCC 593], that the grant of specific performance is a discretionary remedy based on principles of justice, equity, and good conscience.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the principle of equity and justice. The Court recognized that the plaintiff had fulfilled their part of the contract by paying the full sale consideration and taking possession of the land. The subsequent gift deed was declared void, and the land acquisition made specific performance impossible. Therefore, the Court held that it would be unjust to limit the plaintiff’s relief to a mere refund of the original sale amount. The Court emphasized that the plaintiff should be compensated for the loss of the land due to acquisition, which was not their fault. The court also took into account that the compensation amount was ascertainable with reference to the land acquisition proceedings and that the plaintiff had constructed three shops on the land.
| Sentiment | Percentage |
|---|---|
| Equity and Justice | 40% |
| Plaintiff’s Fulfilment of Contract | 30% |
| Impossibility of Specific Performance | 20% |
| Compensation ascertainable | 10% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Agreement to sell executed, full payment made, possession given
Gift deed executed to defeat plaintiff’s rights
Gift deed declared void, decree for specific performance granted
Land acquired by government, making specific performance impossible
Compensation awarded in lieu of specific performance
The Supreme Court observed that the High Court was correct in holding that the decree for specific performance could not be maintained due to the acquisition of the suit land. However, it disagreed with the High Court’s decision to only refund the original sale amount. The Supreme Court relied on Section 21 of the Specific Relief Act, 1963, and the precedent in Jagdish Singh vs. Nathu Singh [1992 (1) SCC 647], to hold that the plaintiff was entitled to compensation in lieu of specific performance. The court noted that:
“When the contract has become impossible with no fault of the plaintiff, Section 21 enables the Court to award compensation in lieu of the specific performance.”
The Court noted that the compensation amount was ascertainable with reference to the determination of the market value in the land acquisition proceedings. The Court stated:
“The compensation awarded may safely be taken to be the measure of damages…”
The Court also noted that the defendant No.6 had no right in the suit land because of the gift deed being declared void. The Court stated:
“In view of the judgment and decree of courts below whereby the gift deed dated 08.07.1991 has been declared void, defendant No.6 is left with no right in the suit land and is clearly not entitled to receive any amount consequent to the acquisition of the suit land.”
The Court, taking into consideration the overall facts of the case, awarded a compensation of Rs. 10 lakh to the plaintiff-appellants from the compensation received due to the land acquisition. The Court directed that the remaining compensation amount, if any, for the land and shops should go to the original land owners (Respondent Nos. 2 to 6).
The court modified the High Court’s judgment and decreed that:
- If the compensation had not yet been disbursed, it should be paid to the appellants (legal heirs of the plaintiff) and Respondent Nos. 2 to 6 in the manner directed.
- If the compensation had been received by Defendant No. 6, then Defendant No. 6 should return Rs. 10 lakh to the appellants and the rest to Defendant Nos. 1 to 5.
Key Takeaways
- When specific performance of a contract becomes impossible due to circumstances beyond the plaintiff’s control (such as government acquisition), the court can award compensation in lieu of specific performance.
- The compensation awarded should be equivalent to the loss suffered by the plaintiff due to the breach of contract and the impossibility of specific performance.
- The compensation amount can be determined based on the market value of the property as determined in land acquisition proceedings.
- A party who has no right in the land, due to the gift deed being declared void, is not entitled to receive any amount consequent to the acquisition of the suit land.
Directions
The Supreme Court directed that:
- If compensation has not yet been disbursed, it should be disbursed to the appellants (legal heirs of the plaintiff) and Respondent Nos. 2 to 6 as per the judgment.
- If compensation has been received by Defendant No. 6, Defendant No. 6 should return Rs. 10 lakh to the appellants and the rest to Defendant Nos. 1 to 5.
Development of Law
The ratio decidendi of this case is that when specific performance of a contract becomes impossible due to land acquisition, the plaintiff is entitled to receive compensation equivalent to the land acquisition compensation amount, and not just the refund of the original sale amount. This is a reiteration of the principle laid down in Jagdish Singh vs. Nathu Singh [1992 (1) SCC 647].
Conclusion
The Supreme Court modified the High Court’s decision, holding that the plaintiff was entitled to compensation of Rs. 10 lakh from the land acquisition compensation, rather than just a refund of the original sale amount. The court emphasized that when specific performance is impossible due to no fault of the plaintiff, compensation should be awarded to ensure justice and equity.