Supreme Court Denies Specific Performance in Property Sale Dispute: Shenbagam & Ors. vs. KK Rathinavel (20 January 2022)

Introduction

Date of the Judgment: 20 January 2022

Citation: Civil Appeal No 150 of 2022

Judges: Dr Dhananjaya Y Chandrachud, J and AS Bopanna, J

When a contract for the sale of property is made, what happens when one party doesn’t fulfill their obligations? The Supreme Court of India recently examined a case where a buyer sought specific performance of a sale agreement, but the Court ultimately denied the request. This case highlights the importance of a party’s continuous readiness and willingness to honor their contractual obligations. The judgment was delivered by a two-judge bench comprising of Dr Dhananjaya Y Chandrachud, J and AS Bopanna, J.

Case Background

The case involves a property sale agreement made on 7 February 1990, between Shenbagam and others (the appellants) and KK Rathinavel (the respondent). The appellants agreed to sell their 12.60-acre property in Coimbatore to the respondent for Rs. 1,25,000. The respondent paid an initial advance of Rs. 25,000 and agreed to pay the remaining amount within six months. The agreement also stated that the appellants would execute the sale deed free of any encumbrances upon receiving the balance amount. The property was under a mortgage of Rs. 6,000 to one Janaki Amma. The respondent claimed that the advance was to discharge the mortgage, while the appellants claimed the respondent was to pay the mortgage from the sale consideration. On 8 March 1990, the appellants received an additional Rs. 10,000 as advance.

On 19 December 1990, the appellants sent a legal notice to the respondent, stating that he was not ready and willing to perform his obligations and rescinding the contract. The respondent replied on 26 December 1990, asking the appellants to execute the sale deed free of encumbrances. In 1991, the respondent filed a suit for a permanent injunction to prevent the appellants from selling the property. The appellants discharged the mortgage in 1992. The respondent then filed a suit for specific performance on 17 June 1993, seeking the sale of the property or, alternatively, a refund of the advance with interest.

Timeline:

Course of Proceedings

The trial court decreed the suit in favor of the respondent, directing him to deposit the balance amount and the appellants to execute the sale deed. The trial court held that the suit was filed within the limitation period, calculated from the date of the discharge of the mortgage. The first appellate court dismissed the appeal filed by the appellants. The High Court dismissed the second appeal, upholding the decisions of the lower courts. The High Court held that the discharge of the mortgage was a condition precedent for the sale, that time was not of the essence, and that the respondent had sufficient resources to purchase the property. The High Court also noted that the withdrawal of the balance consideration by the respondent did not affect his right to relief, as it was done under the court’s order.

Legal Framework

The Supreme Court referred to Section 16 of the Specific Relief Act, 1963, which outlines the bars to specific performance. Specifically, Section 16(c) states that a person cannot obtain specific performance if they fail to prove that they have performed or have always been ready and willing to perform the essential terms of the contract. The Court emphasized that this “readiness and willingness” is a condition precedent for obtaining specific performance.

Section 16 of the Specific Relief Act, 1963 states:

“16. Personal bars to relief. – Specific performance of a contract cannot be enforced in favour of a person —
[(a) who has obtained substituted performance of contract under section 20; or]
(b) who has become incapable of performing, or violates any essential term of, the contract that on his part
remains to be performed, or acts in fraud of the contract, or wilfully acts at variance with, or in subversion of, the
relation intended to be established by the contract; or
(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 of the performance of which has been
prevented or waived by the defendant.
Explanation. —For the purposes of clause ( c),—
(i) where a contract involves the payment of money, it is not essential for the plaintiff to actually tender to the
defendant or to deposit in court any money except when so directed by the court;
(ii) the plaintiff [must prove] performance of, or readiness and willingness to perform, the contract according to its
true construction. ”

Arguments

Appellants’ Submissions:

• The trial court did not frame an issue on the respondent’s readiness and willingness to perform the contract.
• The trial court did not properly assess the evidence of the respondent’s readiness to perform.
• The respondent’s initial suit for a permanent injunction indicates a lack of readiness to perform the contract.
• The respondent’s bank passbooks were opened after the contract period, not during the contract period.
• Paying income tax does not prove the respondent’s willingness to perform the contract.
• The respondent’s deposit of the balance amount in 1996 and its withdrawal in 2001 shows a lack of continuous readiness to perform.
• The respondent did not communicate with the appellants to seek performance until the appellants rescinded the contract.
• The court’s discretion under Section 20 of the Specific Relief Act should not be exercised in this case, as the appellants would be dispossessed for a small sum agreed upon 30 years ago.
• Clearing the mortgage was not a condition precedent to the agreement.
• Time was of the essence of the agreement, as the balance consideration was to be paid within six months.
• The respondent’s suit is barred by Order II Rule 2 of the Code of Civil Procedure, 1908 (CPC) due to the earlier suit for a permanent injunction.

Respondent’s Submissions:

• The respondent’s reply dated 26 December 1990 stated his readiness and willingness to pay the balance, provided the mortgage was discharged.
• Time was not of the essence of the contract.
• The appellants were obligated to discharge the mortgage before the respondent paid the balance.
• The respondent deposited the balance consideration, which was later withdrawn under a High Court order.
• The respondent had sufficient means and was ready and willing to perform his part of the contract.

Summary of Submissions:

Innovativeness of the argument: The appellants innovatively argued that the respondent’s conduct, particularly the filing of a suit for a permanent injunction instead of specific performance, indicated a lack of genuine readiness to complete the sale. They also highlighted the respondent’s withdrawal of the deposited amount as evidence of a lack of continuous willingness.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

• Whether the respondent-plaintiff has demonstrated continuous “readiness and willingness” to perform his obligations under the contract, as required under Section 16(c) of the Specific Relief Act, 1963.

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:

On the requirement of “readiness and willingness”:

• JP Builders v. A Ramadas Rao (2011) 1 SCC 42, Supreme Court of India: The Court held that Section 16(c) of the Specific Relief Act mandates “readiness and willingness” on the part of the plaintiff as a condition precedent for obtaining relief of grant of specific performance. The Court also observed that readiness to perform must be established throughout the relevant points of time.
• His Holiness Acharya Swami Ganesh Dassji v. Sita Ram Thapar (1996) 4 SCC 526, Supreme Court of India: The Court observed that readiness means the capacity of the plaintiff to perform the contract which includes the financial position to pay the purchase price. To ascertain willingness, the conduct of the plaintiff has to be properly scrutinized.
• Atma Ram v. Charanjit Singh (2020) 3 SCC 311, Supreme Court of India: The Court held that the conduct of a plaintiff is very crucial in a suit for specific performance. The delay in filing a suit and the nature of the suit filed (mandatory injunction instead of specific performance) indicated a lack of willingness.
• P Meenakshisundaram v. P Vijayakumar (2018) 15 SCC 80, Supreme Court of India: The Court held that the plaintiff must plead and prove his readiness and willingness to perform his part of the contract all through i.e. right from the date of the contract till the date of hearing of the suit.

On the discretionary nature of specific performance:

• Zarina Siddiqui v. A. Ramalingam (2015) 1 SCC 705, Supreme Court of India: The Court held that the remedy for specific performance is an equitable remedy, and the Court has discretion under Section 20 of the Specific Relief Act to grant or deny the relief.
• Satya Jain v. Anis Ahmed Rushdie (2013) 8 SCC 131, Supreme Court of India: The Court held that the discretion to direct specific performance has to be exercised on sound, reasonable, rational and acceptable principles. However, efflux of time and escalation of price of property, by itself, cannot be a valid ground to deny the relief of specific performance.
• Nirmala Anand v. Advent Corporation (P.) Ltd. and Others (2002) 8 SCC 146, Supreme Court of India: The Court held that the court in its discretion can impose any reasonable condition including payment of an additional amount by one party to the other while granting or refusing decree of specific performance.
• KS Vidyanadam and others v. Vairavan (1997) 3 SCC 1, Supreme Court of India: The Court held that in the case of agreement of sale relating to immovable property, time is not of the essence of the contract unless specifically provided to that effect. However, delay coupled with a substantial rise in prices can make it inequitable to grant specific performance.

Authorities Considered by the Court:

Judgment

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

How each authority was viewed by the Court?

The Court relied on the authorities to establish the principles governing specific performance, particularly the requirement of “readiness and willingness” and the discretionary nature of the relief. The Court used JP Builders v. A Ramadas Rao [CITATION] to emphasize the mandatory nature of “readiness and willingness” under Section 16(c) of the Specific Relief Act. His Holiness Acharya Swami Ganesh Dassji v. Sita Ram Thapar [CITATION] was used to distinguish between the financial capacity (“readiness”) and the conduct (“willingness”) of the plaintiff. The Court cited Atma Ram v. Charanjit Singh [CITATION] to highlight the importance of consistent conduct and the impact of delay in filing a suit. Similarly, P Meenakshisundaram v. P Vijayakumar [CITATION] was used to emphasize the need for the plaintiff to prove continuous readiness and willingness from the date of the contract. The Court also used Zarina Siddiqui v. A. Ramalingam [CITATION] to reiterate that specific performance is an equitable remedy and the court has discretion. Satya Jain v. Anis Ahmed Rushdie [CITATION] was used to state that the discretion to direct specific performance must be exercised on sound principles, and efflux of time alone is not a bar. Nirmala Anand v. Advent Corporation (P.) Ltd. and Others [CITATION] was used to state that the court can impose reasonable conditions while granting or refusing specific performance, especially in cases of price escalation. Finally, KS Vidyanadam and others v. Vairavan [CITATION] was used to state that delay coupled with a substantial rise in prices can make it inequitable to grant specific performance.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the respondent’s failure to demonstrate continuous “readiness and willingness” to perform his obligations under the contract. The Court emphasized that the respondent’s conduct was inconsistent, marked by a lack of communication with the appellants, a delay in filing the suit for specific performance, and the withdrawal of the deposited balance consideration. The Court also noted that the respondent failed to prove his financial readiness during the contract period. The Court highlighted that the respondent’s actions did not align with the requirements of Section 16(c) of the Specific Relief Act, 1963, which mandates that the plaintiff must prove continuous readiness and willingness to perform the contract.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning:

The Court considered the alternative interpretation that the respondent was waiting for the appellants to clear the encumbrance before paying the balance. However, the Court rejected this interpretation, highlighting that the respondent was required to pay the remaining consideration (or indicate his willingness to pay) before seeking specific performance. The Court also noted that the agreement did not specify when the appellants had to discharge the mortgage, but only that the sale deed should be free from encumbrances upon receipt of the balance consideration. The Court also considered the fact that the respondent withdrew the deposited balance amount in 2001, which was viewed as inconsistent behavior.

Ultimately, the Court decided that the respondent had not demonstrated the continuous readiness and willingness required under Section 16(c) of the Specific Relief Act, 1963. The Court also considered the long passage of time and the escalation of property prices, which made it inequitable to grant specific performance. The Court ordered the refund of the advance amount with interest, instead of specific performance.

The Court’s reasoning was based on several factors: the lack of communication from the respondent, the delay in filing the suit for specific performance, the withdrawal of the deposited balance, and the failure to prove financial readiness during the relevant period. The Court also emphasized that the respondent’s conduct was inconsistent and did not align with the requirements of Section 16(c) of the Specific Relief Act. The Court also took note of the fact that the trial court did not frame an issue on the readiness and willingness of the respondent.

The majority opinion was delivered by Dr Dhananjaya Y Chandrachud, J, with AS Bopanna, J concurring. There were no dissenting opinions.

The Court quoted the following from the judgment:

“It is settled law that even in the absence of specific plea by the opposite party, it is the mandate of the statute that the plaintiff has to comply with Section 16( c) of the Specific Relief Act and when there is non-compliance, the court is not bound to grant the relief of specific performance.”

“The plaintiff is required to prove his readiness and willingness throughout the period of the contract. The conduct of the plaintiff is very crucial in a suit for specific performance.”

“The evidence on record indicates that the respondent was not ready and willing to perform his part of the contract. The respondent has not established that he had sufficient funds to pay the balance consideration. The respondent did not communicate with the appellants to seek performance. The respondent filed a suit for permanent injunction, instead of specific performance. The respondent also withdrew the balance amount deposited in court. All these factors indicate that the respondent did not demonstrate continuous readiness and willingness to perform his obligations under the contract.”

Outcome

The Supreme Court allowed the appeal and set aside the judgment of the High Court. The Court held that the respondent had failed to demonstrate continuous “readiness and willingness” to perform his obligations under the contract, as required by Section 16(c) of the Specific Relief Act, 1963. The Court ordered the appellants to refund the advance amount of Rs. 35,000 to the respondent, along with interest at 12% per annum from the date of the agreement (7 February 1990) until the date of payment. The Court also held that the respondent was not entitled to specific performance of the contract.

Implications

This judgment reinforces the importance of demonstrating continuous “readiness and willingness” in suits for specific performance. It highlights that mere financial capacity is not enough; the conduct of the plaintiff is equally crucial. The judgment also emphasizes that a plaintiff cannot seek specific performance if their actions or inactions indicate a lack of commitment to fulfill their contractual obligations. The Supreme Court’s decision serves as a reminder that specific performance is an equitable remedy, and the court has the discretion to deny the relief if the plaintiff’s conduct is inconsistent with the principles of equity.

Key takeaways from the judgment:

• Continuous Readiness and Willingness: Plaintiffs seeking specific performance must demonstrate continuous readiness and willingness to perform their obligations throughout the duration of the contract, not just at the time of filing the suit.
• Conduct Matters: The conduct of the plaintiff is as important as their financial capacity. Inconsistent behavior, such as filing a suit for a permanent injunction instead of specific performance or withdrawing deposited funds, can be detrimental to their case.
• Communication is Key: Plaintiffs should actively communicate with the defendants to seek performance of the contract. Lack of communication can be interpreted as a lack of willingness.
• Financial Readiness: Plaintiffs must prove that they had sufficient financial resources to fulfill their contractual obligations during the relevant period. Opening bank accounts after the contract period is not sufficient proof.
• Discretion of the Court: Specific performance is an equitable remedy, and the court has the discretion to deny the relief if the plaintiff’s conduct is inconsistent with the principles of equity.