Supreme Court Denies Specific Performance for Lack of Proven Financial Readiness: Ritu Saxena vs. J.S. Grover (2019)

Introduction

Date of the Judgment: September 17, 2019

Citation: 2019 INSC 850

Judges: L. Nageswara Rao, J. and Hemant Gupta, J.

Can a party claim specific performance of a property sale agreement without definitively proving their financial capacity to complete the purchase? The Supreme Court of India, in Ritu Saxena vs. J.S. Grover & Anr., addressed this critical question. This case revolves around a dispute over an agreement to sell a flat, where the plaintiff, Ritu Saxena, sought specific performance, but failed to demonstrate her readiness and willingness to pay the balance sale consideration. The bench consisted of Justice L. Nageswara Rao and Justice Hemant Gupta, with the judgment authored by Justice Hemant Gupta.

Case Background

The appellant, Ritu Saxena, was the wife of an employee of M/s. GE Capital Services India Ltd., who occupied a residential property owned by the respondents, J.S. Grover and his wife, on a monthly rent of Rs. 13,000. The lease agreement was extended for 11 months from September 1, 2004. Prior to the expiry of the lease, Ritu Saxena claimed to have entered into an agreement to purchase the property for Rs. 50 lakhs, with an initial payment of Rs. 1 lakh by cheque.

The agreement, dated July 18, 2004, stated that J.S. Grover agreed to sell his property, a freehold joint property in his and his wife’s name, for Rs. 50 lakhs. The agreement acknowledged the receipt of Rs. 1 lakh as advance money and stated that further relevant documents such as the Agreement to Sell, Sale Deed, Will, Possession Certificate, and No Objection Certificates would be furnished for the transfer of the property to Ritu Saxena.

Ritu Saxena relied on a communication dated July 30, 2004, indicating that a loan of Rs. 50 lakhs had been approved by ICICI Home Finance Company Limited, subject to the receipt of all income tax and property documents. She also claimed to have sent letters to the defendants on September 14, 2004, and December 21, 2004, to complete the pending documentation. A legal notice was served on April 19, 2005, to which the respondents replied on April 27, 2005, stating that a formal Agreement to Sell was to be executed on or before July 21, 2004, and the appellant was to pay 25% of the total consideration, which she failed to do. Subsequently, a suit for specific performance was filed on May 25, 2005.

Timeline

Course of Proceedings

The Trial Court dismissed the suit on February 28, 2018, holding that although an agreement to sell was executed, the appellant failed to prove her readiness and willingness to perform her part of the contract. The Trial Court, however, ordered the refund of the initial payment of Rs. 1 lakh with interest. The first appeal was dismissed by the High Court on July 17, 2018, affirming the findings of the Trial Court.

Legal Framework

The case primarily revolves around the legal principle of ‘readiness and willingness’ in the context of specific performance of contracts. To obtain a decree for specific performance, the plaintiff must demonstrate not only that they are ready to perform their obligations under the contract but also that they are willing to do so. This includes showing the financial capacity to pay the balance sale consideration.

Arguments

Appellant’s Arguments:

• The appellant argued that she had the financial capacity to purchase the property. She had previously availed a loan of Rs. 13 lakhs for a flat in Ghaziabad, and ICICI had assessed her capacity to avail a loan of Rs. 90 lakhs at that time.
• The appellant contended that ICICI had approved a loan of Rs. 50 lakhs for the property in question, but the loan was not disbursed because the respondents did not execute an agreement on a stamp paper of Rs. 50.
• The appellant submitted that she and her husband had a combined annual income of Rs. 80 lakhs and could easily avail a loan of up to Rs. 1 crore.
• The appellant relied on the judgment of the Supreme Court in A. Kanthamani v. Nasreen Ahmed to argue that “readiness and willingness” does not mean carrying hard cash, but rather having the financial capacity to pay.

Respondents’ Arguments:

• The respondents argued that the appellant was seeking a reappreciation of evidence, which is not permissible under Article 136 of the Constitution of India.
• They contended that the relief of specific performance is discretionary, and both lower courts had declined to grant it.
• The respondents submitted that the appellant had failed to prove her financial capacity to pay the balance sale consideration of Rs. 49 lakhs.
• They argued that the appellant’s self-serving statements about her income were not supported by any documentary evidence.

Sub-Submissions Categorized by Main Submissions:

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the appellant had proved her readiness and willingness to perform her part of the contract, particularly regarding her financial capacity to pay the balance sale consideration.

Treatment of the Issue by the Court

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

Authorities

The following authorities were considered by the Court:

On the point of readiness and willingness:

• A. Kanthamani v. Nasreen Ahmed, (2017) 4 SCC 654, Supreme Court of India – The Court discussed this case, which held that readiness and willingness does not mean having ready cash but having the financial capacity to pay. However, the court distinguished this case on facts.
• Sukhbir Singh v. Brij Pal Singh, (1997) 2 SCC 200, Supreme Court of India – This case was cited in A. Kanthamani v. Nasreen Ahmed, and it stated that it is sufficient for the respondents to establish that they had the capacity to pay the sale consideration.

Authorities Considered by the Court and How:

Judgment

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

How each authority was viewed by the Court?

• The Court discussed A. Kanthamani v. Nasreen Ahmed [CITATION] and distinguished it on facts. The Court clarified that the cited case was an appeal by the defendant against a decree of specific performance, while the present case was an appeal by the plaintiff against the denial of specific performance.
• The Court referred to Sukhbir Singh v. Brij Pal Singh [CITATION] as cited in A. Kanthamani v. Nasreen Ahmed [CITATION], which stated that it is sufficient for the respondents to establish that they had the capacity to pay the sale consideration.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the lack of concrete evidence supporting the appellant’s claim of financial readiness. The Court emphasized the importance of documentary proof over mere assertions of financial capacity. The Court also considered the discretionary nature of specific performance and the concurrent findings of the lower courts.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

The Court’s reasoning was based on the following points:

• The appellant’s claim of financial capacity was not supported by any documentary evidence such as bank statements, income tax returns, or property documents.
• The loan approval from ICICI was conditional and the conditions were not fulfilled by the appellant.
• The Court found that the appellant was seeking a reappreciation of evidence, which is not permissible under Article 136 of the Constitution.
• The Court also noted that the relief of specific performance is discretionary, and both lower courts had declined to grant it.
• The Court distinguished the case of A. Kanthamani v. Nasreen Ahmed on facts.

The Court’s reasoning is further explained in the following flowchart:

The Court considered alternative interpretations of “readiness and willingness” but rejected them, stating that mere assertions without documentary proof are not sufficient. The Court emphasized that the plaintiff must demonstrate a genuine ability to perform their part of the contract.

The decision was unanimous, with both judges agreeing that the appellant had failed to prove her readiness and willingness to perform the contract.

The Court quoted the following from the judgment:

“Such statement will be in the nature of ipsi dixit of the appellant and/or her husband and is without any corroborating evidence.”

“Such self-serving statements without any proof of financial resources cannot be relied upon to return a finding that the appellant was ready and willing to perform her part of the contract.”

“Therefore, mere fact that the bank has assessed the financial capacity of the appellant while granting loan earlier in respect of another property is not sufficient to discharge of proof of financial capacity in the facts of the present case to hold that the appellant was ready and willing to perform her part of the contract.”

Key Takeaways

• A party seeking specific performance of a contract must provide concrete evidence of their financial capacity to fulfill their obligations. Mere assertions without documentary proof are insufficient.
• Loan approvals that are conditional and not fulfilled do not demonstrate financial readiness.
• Courts will not interfere with concurrent findings of fact by lower courts unless there is a substantial question of law.
• The relief of specific performance is discretionary and will not be granted if the plaintiff fails to prove their readiness and willingness.

This judgment emphasizes the importance of due diligence and providing substantial proof of financial capacity when seeking specific performance of a contract. It reinforces the principle that mere assertions are not sufficient and that documentary evidence is crucial.

Directions

The Supreme Court directed that the amount of Rs. 3.5 crores deposited by the appellant, along with the interest accrued thereon, be returned to her as per rules.

Specific Amendments Analysis

There were no specific amendments discussed in this judgment.

Development of Law

The ratio decidendi of this case is that a plaintiff seeking specific performance of a contract must provide concrete evidence of their financial capacity to fulfill their obligations. Mere assertions, conditional loan approvals, and past financial assessments are not sufficient to prove readiness and willingness. This case reinforces the importance of documentary evidence in demonstrating the ability to perform a contract. There is no change in the previous position of law, but the court has emphasized the need for concrete evidence.

Conclusion

In Ritu Saxena vs. J.S. Grover & Anr., the Supreme Court dismissed the appeals, affirming the lower courts’ decisions to deny specific performance of a property sale agreement. The Court held that the appellant failed to provide sufficient documentary evidence to prove her financial capacity to pay the balance sale consideration. The judgment underscores the importance of concrete proof of readiness and willingness when seeking specific performance of a contract.