Supreme Court clarifies execution of decree in specific performance case: Sanwarlal Agrawal vs. Ashok Kumar Kothari (2023)

Introduction

Date of the Judgment: 21 February 2023
Citation: (2023) INSC 134
Judges: Krishna Murari, J., S. Ravindra Bhat, J. (authored the judgment)
Can an executing court modify a decree by interpreting it based on pleadings and other documents, especially when the decree itself is silent on certain aspects? The Supreme Court of India recently addressed this critical question in a case concerning a specific performance decree. The core issue revolved around whether a decree for the sale of shares also included the repayment of outstanding loans, even though the decree itself did not explicitly mention it. This judgment clarifies the extent to which an executing court can interpret a decree and reinforces that the court cannot go beyond the explicit terms of the decree.

Case Background

In 2017, the Agrawals and Kotharis entered into a joint venture to operate a hospital in Mumbai, each contributing ₹10 crores as interest-free loans. On March 27, 2019, the Kotharis agreed to purchase the Agrawals’ 50% shareholding for ₹36.75 crores. This agreement was confirmed via email on March 28, 2019. The email specified the consideration, token payment, and further payment schedule. However, on March 29, 2019, the Kotharis sent another email stating that the ₹36.75 crores included not only the share value but also the repayment of the Agrawals’ loan of ₹10,29,55,000. The Agrawals rejected this interpretation in subsequent emails. On April 30, 2019, the Kotharis filed a suit seeking a declaration that the agreement was binding and for specific performance. The court decreed the suit on August 5, 2019, based on the submissions of the Agrawals’ counsel, without any written statement or reply from the Agrawals. Subsequently, both parties filed execution proceedings.

Timeline

Course of Proceedings

The Kotharis filed a commercial suit seeking a declaration that the agreement dated March 28, 2019, was binding and for specific performance. The single judge of the High Court of Judicature at Bombay decreed the suit on August 5, 2019, based on the submissions of the Agrawals’ counsel. Subsequently, both parties filed execution proceedings. The single judge, by a common order dated January 4, 2021, held that the decree was ambiguous and, by looking into the pleadings, concluded that the price payable included the loan amount. The Division Bench of the High Court affirmed this decision, emphasizing the email exchange between the parties, particularly the email dated March 29, 2019, which outlined the break-up of the amount. The High Court held that the total consideration of ₹36.75 crores was inclusive of the loan amount.

Legal Framework

The case primarily involves the interpretation of a decree for specific performance. The relevant legal framework includes:

• Order XII Rule 6 of the Code of Civil Procedure, 1908 (CPC): This provision allows a court to pass a decree on admission, which was the basis of the initial decree in this case.
• The concept of specific performance, which is a remedy for breach of contract where the court orders the party in breach to perform their contractual obligations.
• The principle that an executing court cannot go behind the decree, meaning it must enforce the decree as it stands and cannot modify or add to its terms.

Arguments

Appellants’ (Agrawals’) Arguments:

• The Executing Court went beyond the scope of the decree by analyzing the pleadings, which it was not empowered to do. The decree was based on the email dated March 28, 2019, which did not mention any loan adjustment.
• The High Court erred by selectively considering emails and not the entire exchange, including emails where the Agrawals rejected the inclusion of the loan amount.
• The agreement was facilitated by mediators, and there was no discussion on adjusting any loan during the agreement.
• The Agrawals relied on the judgment in Meenakshi Saxena v. ECGC Ltd. [(2018) 7 SCC 479], which states that an executing court cannot go beyond the decree.

Respondents’ (Kotharis’) Arguments:

• The decree for specific performance was passed on admission by the Agrawals in terms of the agreement reflected in the email dated March 28, 2019.
• The expressions used in the email, such as ‘consolidated price,’ ‘full control,’ ‘stake,’ and ‘smooth transition,’ indicated a complete separation of the groups, implying that the amount of ₹36.75 crores was a composite one to discharge all claims.
• The Agrawals did not file a written statement or reply to the Notice of Motion, indicating their acceptance of the suit averments.
• The Kotharis relied on the judgments in Rajinder Kumar v. Kuldeep Singh [(2014) 15 SCC 529], S. Satnam Singh & Ors. v. Surender Kaur & Anr. [(2009) 2 SCC 562] and Bhavan Vaja and Ors. v. Solanki Hanuji Khodaji Mansang [(1973) 2 SCC 40] to reinforce their submissions.

Submissions Table:

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

1. Whether the sum of ₹36.75 crores stipulated in the agreement by email dated March 28, 2019, was inclusive of the loan amount of ₹10,29,55,000 or not.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

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

How each authority was viewed by the Court?

• The Court followed Topanmal Chhotamal v. Kundomal Gangaram [AIR 1960 SC 388]*, reiterating that an executing court cannot go behind the decree.
• The Court followed Meenakshi Saxena v. ECGC Ltd. [(2018) 7 SCC 479]*, reiterating that an executing court cannot go beyond the decree.
• The Court distinguished S. Satnam Singh & Ors. v. Surender Kaur & Anr. [(2009) 2 SCC 562]*, stating it does not support the respondents’ submissions.
• The Court interpreted Rajinder Kumar v. Kuldeep Singh [(2014) 15 SCC 529]* to mean that an executing court can construe an ambiguous decree but cannot add terms not agreed upon.
• The Court distinguished Bhavan Vaja and Ors. v. Solanki Hanuji Khodaji Mansang [(1973) 2 SCC 40]*, stating it does not support the respondents’ submissions.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that an executing court cannot go beyond the decree. The Court emphasized that the decree was based on the email of March 28, 2019, which did not mention the loan amount. The Court also noted that the joint venture agreement contemplated a separate mechanism for loan repayment. The Court found that the High Court erred in selectively considering emails and interpreting the decree to include the loan amount. The Court emphasized that the absence of a written statement from the Agrawals could not be interpreted as an acceptance of the inclusion of the loan amount in the decree.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning:

The Court’s reasoning was based on a strict interpretation of the decree and the principle that an executing court cannot go beyond the decree. The Court rejected the argument that the term ‘consolidated price’ in the email of March 28, 2019, implied the inclusion of the loan amount. The Court also rejected the argument that the Agrawals’ silence (not filing a written statement) implied acceptance of the inclusion of the loan amount. The Court relied on the precedent set in Topanmal Chhotamal v. Kundomal Gangaram [AIR 1960 SC 388] and Meenakshi Saxena v. ECGC Ltd. [(2018) 7 SCC 479] which states that an executing court cannot go beyond the decree. The Court held that the High Court erred in selectively considering the emails and altering the terms of the decree to include the loan amount. The court stated, “It is a well-settled principle that a Court executing a decree cannot go behind the decree: it must take the decree as it stands, for the decree is binding and conclusive between the parties to the suit”. The Court also stated, “The whole purpose of execution proceedings is to enforce the verdict of the court. Executing court while executing the decree is only concerned with the execution part of it but nothing else. The court has to take the judgment in its face value. It is settled law that executing court cannot go beyond the decree.” The Court further stated, “As is commonly known, the stream cannot rise above its source. Both Courts have, by selectively perusing the emails, altered the terms of the decree to include the loan amount into the agreement consideration.”

Key Takeaways

• Executing courts must strictly adhere to the terms of the decree and cannot expand its scope based on pleadings or other documents.
• The absence of a written statement or reply does not automatically imply acceptance of the other party’s claims, especially in the context of decree interpretation.
• The principle that an executing court cannot go behind the decree is a fundamental principle of civil procedure.
• Parties must ensure that all terms of an agreement are explicitly stated in the decree to avoid future disputes.

Directions

The Supreme Court set aside the impugned judgment of the High Court and allowed the appeals. There was no order as to costs.

Specific Amendments Analysis

Not Applicable

Development of Law

The ratio decidendi of this case is that an executing court cannot go behind the decree and expand its scope based on pleadings or other documents. This judgment reinforces the principle that an executing court must strictly adhere to the terms of the decree and cannot modify or add to its terms. This clarifies the powers of the executing court and ensures that the decree is enforced as it stands.

Conclusion

The Supreme Court’s judgment in Sanwarlal Agrawal vs. Ashok Kumar Kothari clarifies the powers of an executing court when dealing with a decree for specific performance. The Court held that the executing court cannot go beyond the decree and include aspects not explicitly mentioned in the decree based on pleadings and other documents. The Court emphasized that the decree was based on the email of March 28, 2019, which did not include the loan amount. This decision reinforces the principle that an executing court must strictly adhere to the terms of the decree and cannot modify or add to its terms. This judgment has significant implications for future cases involving decree execution and highlights the importance of ensuring that all terms of an agreement are explicitly stated in the decree.