Supreme Court Clarifies Specific Performance in Property Reconveyance: C.S. Venkatesh vs. A.S.C. Murthy (2020)

Date of the Judgment: February 7, 2020

Citation: 2020 INSC 120

Judges: S. Abdul Nazeer, J. and Deepak Gupta, J.

Can a sale deed be considered as a security for a loan, and what are the requirements for proving readiness and willingness to perform a contract for the reconveyance of property? The Supreme Court of India addressed these questions in a case involving a dispute over a property sale and a subsequent agreement for reconveyance. The Court examined whether the sale deed was a genuine sale or merely a security for a loan, and whether the plaintiff had demonstrated the necessary readiness and willingness to fulfill their part of the contract. The bench was composed of Justice S. Abdul Nazeer and Justice Deepak Gupta, with the judgment authored by Justice S. Abdul Nazeer.

Case Background

The case revolves around a property dispute in Bangalore. A.S.C. Murthy (the original plaintiff, now deceased and represented by his legal heirs) had obtained a site from the City Improvement Trust Board (CITB) and started construction. Lacking funds, he approached C.S. Venkatesh (the appellant/defendant No. 2) and C. Sethurama Rao (defendant No. 1, now deceased and represented by his legal heirs) for financial help.

Initially, the defendants provided a loan of Rs. 2,000, followed by an additional Rs. 10,000 at an 18% interest rate. When Murthy failed to pay the interest, he mortgaged the property to the defendants on October 11, 1973. The defendants eventually advanced a total of Rs. 29,000. Unable to keep up with interest payments, Murthy allegedly executed a sale deed on April 23, 1975, in favor of the defendants for Rs. 35,000, with the understanding that it was a security for the loan. Simultaneously, an agreement for reconveyance was executed, with the understanding that the defendants would not pay rent and Murthy would not pay interest. After five years, Murthy asked for reconveyance, which the defendants refused.

Timeline

Course of Proceedings

The trial court initially dismissed the suit, concluding that while the agreement for reconveyance was proven, the plaintiff failed to demonstrate readiness and willingness to perform their part of the contract. The trial court also held that the sale deed was not a nominal one. The High Court of Karnataka reversed this decision, holding that the sale deed was merely security for a loan and directed the defendants to execute the reconveyance. The High Court did not agree with the trial court’s finding that the plaintiff was not ready and willing to perform his part of the contract.

Legal Framework

The Supreme Court considered the following legal provisions:

✓ Section 58(c) of the Transfer of Property Act, 1882: This section defines a mortgage by conditional sale. The court noted that since two documents (sale deed and reconveyance agreement) were executed on the same day, the transaction could not be considered a mortgage by conditional sale.

✓ Section 16(c) of the Specific Relief Act, 1963: This section requires the plaintiff in a specific performance suit to prove their readiness and willingness to perform their part of the contract. The court emphasized that this is a condition precedent for granting specific performance. The section states:
“16. Personal bars to relief.—Specific performance of a contract cannot be enforced in favour of a person—
(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 the performance of which has been prevented or waived by the defendant.”

Arguments

Appellant’s (Defendant’s) Arguments:

• The sale deed was an outright sale, not a nominal one for security.
• The plaintiff failed to prove readiness and willingness to pay the consideration amount for reconveyance.
• The plaintiff lacked the financial capacity to pay the amount, as evidenced by his inability to repay a previous bank loan, which the defendants had to settle to save the property from auction.
• The reconveyance agreement was not meant to be acted upon.

Respondent’s (Plaintiff’s) Arguments:

• The sale deed was executed as security for the loan, not as an outright sale.
• The agreement for reconveyance was a valid agreement.
• The plaintiff was ready and willing to perform his part of the contract by paying the consideration amount.

Innovativeness of the argument: The defendant’s argument that the plaintiff’s failure to repay a previous bank loan, which the defendants had to settle, demonstrated a lack of financial capacity and thus a lack of readiness and willingness, was particularly innovative.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the sale deed dated 23.04.1975 executed by the plaintiff in favor of the defendants is a nominal sale deed obtained as security for the loan advanced by the defendants.
2. Whether the plaintiff complied with Section 16(c) of the Specific Relief Act, 1963, by proving readiness and willingness to perform his part of the contract.

Treatment of the Issue by the Court

Authorities

The Court considered the following authorities:

On the requirement of readiness and willingness:

• N.P. Thirugnanam (Dead) by LRs. v. Dr. R. Jagan Mohan Rao and Others [1995 (5) SCC 115] – Supreme Court of India: This case emphasized that continuous readiness and willingness is a condition precedent for specific performance.
• Pushparani S. Sundaram and Others v. Pauline Manomani James (deceased) and Others [2002 (9) SCC 582] – Supreme Court of India: This case held that a mere plea of readiness and willingness is not sufficient; it must be proven.
• Manjunath Anandappa URF Shivappa Hanasi v. Tammanasa and Others [2003 (10) SCC 390] – Supreme Court of India: This case reiterated the need for the plaintiff to prove readiness and willingness.
• Pukhraj D. Jain and Others v. G. Gopalakrishna [2004 (7) SCC 251] – Supreme Court of India: This case also emphasized the requirement of proving readiness and willingness.
• Umabai and Anr. v. Nilkanth Dhondiba Chavan (Dead) by LRs. and Anr. [(2005) 6 SCC 243] – Supreme Court of India: This case held that a conditional readiness is not sufficient and the conduct of the plaintiff must be considered.

On the nature of the sale deed:

• Section 58(c) of the Transfer of Property Act, 1882: The court used this provision to explain why the transaction could not be considered a mortgage by conditional sale.

Judgment

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

How each authority was viewed by the Court?

✓ N.P. Thirugnanam (Dead) by LRs. v. Dr. R. Jagan Mohan Rao and Others [1995 (5) SCC 115]*: Followed. The court relied on this case to emphasize that continuous readiness and willingness is a condition precedent for specific performance.

✓ Pushparani S. Sundaram and Others v. Pauline Manomani James (deceased) and Others [2002 (9) SCC 582]*: Followed. The court used this case to highlight that a mere plea of readiness and willingness is not sufficient; it must be proven.

✓ Manjunath Anandappa URF Shivappa Hanasi v. Tammanasa and Others [2003 (10) SCC 390]*: Followed. The court cited this case to reiterate the need for the plaintiff to prove readiness and willingness.

✓ Pukhraj D. Jain and Others v. G. Gopalakrishna [2004 (7) SCC 251]*: Followed. The court relied on this case to emphasize the requirement of proving readiness and willingness.

✓ Umabai and Anr. v. Nilkanth Dhondiba Chavan (Dead) by LRs. and Anr. [(2005) 6 SCC 243]*: Followed. The court used this case to highlight that a conditional readiness is not sufficient and the conduct of the plaintiff must be considered.

What weighed in the mind of the Court?

The Court’s decision was heavily influenced by the lack of evidence of the plaintiff’s readiness and willingness to perform his part of the contract. The Court emphasized that the plaintiff’s conduct and financial situation did not support his claim of being ready to pay the consideration amount. The Court also noted that the sale deed was clear and unambiguous, indicating an outright sale, not a security for a loan. The fact that the plaintiff had sought debt relief under the Karnataka Debt Relief Act was also considered as an indication of his unwillingness to pay.

Fact:Law Ratio

The Court’s reasoning was primarily based on the factual aspects of the case, particularly the plaintiff’s financial condition and conduct, which accounted for 60% of the decision. The legal considerations, including the interpretation of Section 16(c) of the Specific Relief Act and the nature of the sale deed, made up 40% of the reasoning.

Logical Reasoning:

The Court’s reasoning was based on the principle that the plaintiff must prove their readiness and willingness to perform their part of the contract. The court rejected the plaintiff’s claim that the sale deed was merely a security for a loan, finding that the language of the deed indicated an outright sale. The court also found that the plaintiff had not demonstrated the financial capacity or willingness to pay the consideration amount, as required by Section 16(c) of the Specific Relief Act.

The court considered alternative interpretations but rejected them because they were not supported by the evidence and the conduct of the plaintiff. The court emphasized that the plaintiff’s actions and financial situation did not align with the claim of being ready and willing to perform the contract.

The decision was clear: the plaintiff failed to prove the essential elements for specific performance. The court’s reasoning was based on the facts, the conduct of the plaintiff, and the legal requirements for specific performance. The court also considered the surrounding circumstances, which further supported its conclusion.

The court stated, “The words ‘ready and willing’ imply that the plaintiff was prepared to carry out those parts of the contract to their logical end so far as they depend upon his performance.” The court also noted, “The continuous readiness and willingness on the part of the plaintiff is a condition precedent to grant the relief of performance. If the plaintiff fails to either aver or prove the same, he must fail.” The court further stated, “To adjudge whether the plaintiff is ready and willing to perform his part of contract, the court must take into consideration the conduct of the plaintiff prior, and subsequent to the filing of the suit along with other attending circumstances.”

Key Takeaways

• In cases of specific performance, the plaintiff must not only plead but also prove their readiness and willingness to perform their part of the contract.
• A mere plea of readiness and willingness is insufficient; the plaintiff must demonstrate the financial capacity and intent to fulfill their obligations.
• The language and surrounding circumstances of a sale deed are crucial in determining whether it is an outright sale or merely security for a loan.
• The conduct of the plaintiff, both before and after filing the suit, is a significant factor in determining their readiness and willingness.
• If two documents (sale deed and reconveyance agreement) are executed on the same day, the transaction cannot be considered a mortgage by conditional sale under Section 58(c) of the Transfer of Property Act, 1882.

This judgment underscores the importance of demonstrating genuine readiness and willingness in specific performance suits. It clarifies that a plaintiff cannot simply claim readiness; they must prove it through their conduct, financial capacity, and other relevant circumstances. This has implications for future cases involving property disputes and specific performance claims.

Directions

The Supreme Court set aside the judgment of the High Court and restored the judgment of the trial court, dismissing the suit for specific performance.

Specific Amendments Analysis

There were no specific amendments discussed in the judgment.

Development of Law

The ratio decidendi of this case is that in a suit for specific performance of a contract for reconveyance of property, the plaintiff must prove their readiness and willingness to perform their part of the contract as required by Section 16(c) of the Specific Relief Act, 1963. This includes demonstrating the financial capacity to pay the consideration amount and a genuine intention to fulfill the obligations under the agreement. The court clarified that the conduct of the plaintiff is crucial in determining their readiness and willingness. This decision reinforces the established legal position on the requirements for specific performance and does not introduce any new legal principles or change the previous positions of law.

Conclusion

The Supreme Court allowed the appeal, setting aside the High Court’s judgment and restoring the trial court’s decision. The Court held that the sale deed was an outright sale, not a security for a loan, and that the plaintiff failed to prove his readiness and willingness to perform his part of the contract. This judgment emphasizes the importance of demonstrating genuine readiness and willingness in specific performance suits, and it reinforces the legal principle that a plaintiff cannot simply claim readiness without providing sufficient proof.