Date of the Judgment: 28 April 2023
Citation: 2023 INSC 462
Judges: M.R. Shah, J. and C.T. Ravikumar, J.
Can a buyer demand specific performance of a sale agreement if the agreement itself stipulates a remedy for non-performance? The Supreme Court of India recently addressed this question in a case where the sale agreement provided for a refund of double the advance amount in case of the seller’s failure to execute the sale deed. This judgment clarifies the circumstances under which a court may refuse to grant specific performance of a contract, even when the buyer is ready and willing to fulfill their obligations. The bench comprised Justices M.R. Shah and C.T. Ravikumar, with the judgment authored by Justice M.R. Shah.
Case Background
The case revolves around a sale agreement between T.D. Vivek Kumar and another (original defendants, now appellants) and Ranbir Chaudhary (original plaintiff, now respondent). The agreement was for the sale of a plot of land for ₹17,61,700, with a tentative date of 18.09.2004 for the execution and registration of the sale deed. The plaintiff paid ₹2 lakh as earnest money. When the defendants failed to execute the sale deed, the plaintiff filed a suit seeking specific performance of the sale agreement and an injunction.
Timeline
| Date | Event |
|---|---|
| 18.09.2004 (Tentative) | Date for execution and registration of sale deed as per the agreement. |
| N/A | Plaintiff paid ₹2 lakh as earnest money. |
| N/A | Plaintiff filed a civil suit seeking specific performance of the sale agreement. |
| 16.01.2010 | Trial Court refused specific performance but ordered recovery of ₹4 lakhs (double the earnest money). |
| N/A | First Appellate Court dismissed the appeal, upholding the Trial Court’s decision. |
| 27.07.2016 | High Court allowed the second appeal, granting specific performance of the sale agreement and dismissing the cross-objection. |
| N/A | Appellants filed Special Leave Petition before the Supreme Court, which directed them to file a review petition before the High Court. |
| N/A | Appellants filed a review application before the High Court. |
| N/A | High Court dismissed the review application. |
| 28.04.2023 | Supreme Court allowed the appeal, setting aside the High Court’s decision and restoring the Trial Court’s order. |
Course of Proceedings
The Trial Court refused to grant specific performance of the sale agreement but ordered the defendants to pay ₹4 lakhs to the plaintiff, which was double the earnest money, as per the terms of the agreement. The First Appellate Court upheld this decision. However, the High Court, in a second appeal, overturned the concurrent judgments and granted specific performance, finding that the plaintiff was ready and willing to perform their part of the contract. The High Court also dismissed the cross-objection filed by the defendants. The appellants then approached the Supreme Court, which initially directed them to file a review petition before the High Court. The High Court dismissed the review application, leading to the present appeals before the Supreme Court.
Legal Framework
The judgment primarily revolves around the interpretation of clause 2 of the sale agreement, which states:
“That if the 2nd party fails to pay the balance amount within stipulated time, the advance will be forfeited and if the first party fail or refuse to execute the sale deed and other necessary document in favour of the purchaser or in the name of his nominees within the stipulated time, the seller will be responsible to pay the double of the amount given as advance.”
The Supreme Court also considered the implications of Section 100 of the Code of Civil Procedure (CPC), which requires the High Court to frame a substantial question of law while hearing a second appeal.
Arguments
Arguments by the Appellants (Original Defendants):
- The High Court erred in dismissing the review application as it did not consider relevant clauses of the sale agreement.
- The High Court failed to frame a substantial question of law as required under Section 100 of the CPC.
- Clause 2 of the sale agreement clearly stipulates that if the seller fails to execute the sale deed, they are liable to pay double the advance amount, which is a remedy agreed upon by both parties.
- The Trial Court and the First Appellate Court rightly refused specific performance, and the High Court erred in overturning their decisions.
Arguments by the Respondent (Original Plaintiff):
- All the courts have recorded concurrent findings of fact that the plaintiff was ready and willing to perform their part of the contract.
- The High Court was correct in granting specific performance as the defendants failed to execute the sale deed despite the plaintiff’s readiness to pay the sale amount.
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| High Court erred in dismissing the review application |
|
Appellants |
| High Court failed to frame a substantial question of law |
|
Appellants |
| Specific performance should not be granted |
|
Appellants |
| Plaintiff was ready and willing to perform |
|
Respondent |
| High Court was correct in granting specific performance |
|
Respondent |
Issues Framed by the Supreme Court
The Supreme Court considered the following issues:
- Whether the High Court was justified in overturning the judgments of the Trial Court and the First Appellate Court, which had refused to grant specific performance of the sale agreement.
- Whether the High Court erred in not framing a substantial question of law as required under Section 100 of the CPC.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the High Court was justified in overturning the judgments of the Trial Court and the First Appellate Court, which had refused to grant specific performance of the sale agreement. | No | The High Court failed to consider that clause 2 of the sale agreement provided a specific remedy (double the advance amount) for the seller’s failure to execute the sale deed. The Trial Court and the First Appellate Court had correctly interpreted this clause. |
| Whether the High Court erred in not framing a substantial question of law as required under Section 100 of the CPC. | Yes | The High Court did not frame a substantial question of law, which is a mandatory requirement under Section 100 of the CPC when hearing a second appeal. |
Authorities
Cases Relied Upon by the Court:
| Case Name | Court | How it was used | Ratio |
|---|---|---|---|
| P. D’Souza Vs. Shondrilo Naidu (2004) 6 SCC 649 | Supreme Court of India | The Court referred to paragraph 31 of this judgment, which discusses that when a contract stipulates a specific sum as a remedy for non-performance, the court may refuse specific performance. | Where the sum named is an amount the payment of which may be substituted for the performance of the act at the election of the person by whom the money is to be paid or the act done, the Court may refuse to pass the decree for specific performance. |
| M.L. Devender Singh Vs. Syed Khaja (1973) 2 SCC 515 | Supreme Court of India | This case was referred to in P. D’Souza (supra) and was considered by the Court to understand the principle of specific performance when a contract provides for a specific remedy. | A court may refuse specific performance when the contract provides for a specific remedy for non-performance. |
Legal Provisions Considered by the Court:
- Section 100 of the Code of Civil Procedure (CPC): This section mandates that a High Court must frame a substantial question of law while hearing a second appeal.
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| High Court erred in dismissing the review application | Accepted. The Supreme Court agreed that the High Court did not consider relevant clauses of the sale agreement. |
| High Court failed to frame a substantial question of law | Accepted. The Supreme Court noted the High Court’s failure to comply with Section 100 of the CPC. |
| Specific performance should not be granted | Accepted. The Supreme Court agreed that the sale agreement provided a specific remedy, and thus, specific performance should not be granted. |
| Plaintiff was ready and willing to perform | Acknowledged, but the Court held that readiness and willingness alone does not entitle the plaintiff to specific performance when the contract itself provides an alternative remedy. |
| High Court was correct in granting specific performance | Rejected. The Supreme Court held that the High Court erred in granting specific performance, given the specific clause in the sale agreement. |
How each authority was viewed by the Court?
The Supreme Court relied on P. D’Souza Vs. Shondrilo Naidu (2004) 6 SCC 649* to support its decision that when a contract specifies a sum to be paid in case of non-performance, the court may refuse specific performance. The Court also considered the earlier decision in M.L. Devender Singh Vs. Syed Khaja (1973) 2 SCC 515* which was referred to in P. D’Souza (supra) to understand the principle of specific performance when a contract provides for a specific remedy.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the specific clause in the sale agreement that stipulated a remedy for non-performance. The Court emphasized that the parties had agreed to this remedy, and therefore, the plaintiff was bound by it. The court also noted that the High Court had failed to frame a substantial question of law as required under Section 100 of the CPC, which was a procedural lapse. The Court’s reasoning focused on upholding the sanctity of contracts and ensuring that the parties are bound by the terms they have agreed upon.
| Sentiment | Percentage |
|---|---|
| Contractual Obligations | 40% |
| Procedural Compliance | 30% |
| Specific Remedy in Contract | 30% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning
Sale agreement with a clause for double refund on seller’s failure.
Seller fails to execute sale deed.
Buyer seeks specific performance.
Trial Court refuses specific performance, orders double refund.
High Court grants specific performance.
Supreme Court overturns High Court, upholds Trial Court’s decision.
The Supreme Court considered the alternative interpretation that the plaintiff was ready and willing to perform their part of the contract, but rejected it because the contract itself provided a specific remedy for the seller’s breach. The Court reasoned that allowing specific performance in this case would be against the agreed terms of the contract.
The Supreme Court held that the High Court had erred in setting aside the concurrent judgments of the Trial Court and the First Appellate Court. The Court emphasized that the sale agreement clearly stipulated that in case of failure on the part of the seller to execute the sale deed, the buyer would be entitled to double the amount of the advance paid. The Court found that the High Court had not properly considered this aspect of the agreement and had also failed to frame a substantial question of law as required under Section 100 of the CPC.
The Court stated: “Therefore, on true interpretation of clause 2 of the sale agreement, the learned Trial Court as well as the First Appellate Court as such rightly refused to pass the decree for specific performance of the sale agreement and rightly passed the decree for recovery of Rs. 4 lakhs being double the amount given as an advance which as such was in consonance with the clause 2 of the sale agreement.”
The Court further clarified: “In the present case, the condition specifically stipulates that in case of failure on the part of the seller to execute the sale deed within the stipulated time the buyer shall be entitled to double the amount given as an advance.”
The Court also observed: “Even otherwise on merits also looking to the terms and conditions stipulated in the sale agreement the High Court has erred in passing the decree for specific performance which was refused by the learned Trial Court as well as the First Appellate Court.”
There were no dissenting opinions in this case. The bench was comprised of two judges, and the judgment was authored by Justice M.R. Shah.
Key Takeaways
- When a sale agreement provides a specific remedy for non-performance, such as a refund of double the advance amount, courts may refuse to grant specific performance.
- Parties are bound by the terms of the contract they have entered into, and courts will generally uphold these terms.
- High Courts must frame a substantial question of law when hearing a second appeal under Section 100 of the CPC.
Directions
The Supreme Court allowed the appeals, quashed the High Court’s judgment, and restored the Trial Court’s order, which had directed the seller to pay double the advance amount to the buyer. The appeal arising out of the dismissal of the cross objection also stands disposed of.
Development of Law
The ratio decidendi of this case is that when a contract, specifically a sale agreement, includes a clause that provides a remedy for non-performance (such as the payment of a specific sum), the court may refuse to grant specific performance and uphold the specific remedy mentioned in the contract. This judgment reinforces the principle that parties are bound by the terms they have agreed upon in a contract. This is not a departure from previous positions of law but a reinforcement of existing principles.
Conclusion
The Supreme Court’s judgment in T.D. Vivek Kumar vs. Ranbir Chaudhary clarifies that when a sale agreement includes a specific remedy for non-performance, such as the payment of a specific sum, the court may refuse to grant specific performance. This decision underscores the importance of adhering to the terms of a contract and highlights the limitations on seeking specific performance when alternative remedies are already provided for in the agreement.
Category
- Contract Law
- Specific Performance
- Breach of Contract
- Remedies for Breach
- Civil Procedure Code, 1908
- Section 100, Civil Procedure Code, 1908
- Sale Agreement
- Terms of Sale Agreement
FAQ
Q: What is specific performance in a contract?
A: Specific performance is a legal remedy where a court orders a party to fulfill their obligations under a contract, rather than paying damages.
Q: When can a court refuse specific performance of a contract?
A: A court may refuse specific performance if the contract itself provides an alternative remedy for non-performance, such as a payment of a specific sum.
Q: What is the significance of Section 100 of the CPC?
A: Section 100 of the Code of Civil Procedure mandates that a High Court must frame a substantial question of law while hearing a second appeal.
Q: What was the main issue in the T.D. Vivek Kumar vs. Ranbir Chaudhary case?
A: The main issue was whether the High Court was correct in granting specific performance of a sale agreement when the agreement itself provided a remedy for non-performance (double the advance amount).
Q: What did the Supreme Court decide in this case?
A: The Supreme Court held that the High Court erred in granting specific performance and restored the Trial Court’s order, which directed the seller to pay double the advance amount to the buyer, as per the terms of the agreement.