Supreme Court Sets Aside Injunction in Land Sale Dispute: Ambalal Sarabhai Enterprise Ltd. vs. KS Infraspace LLP (2020)

Date of the Judgment: January 6, 2020

Citation: 2020 INSC 13

Judges: Ashok Bhushan, J., Navin Sinha, J.

Can a party obtain a temporary injunction in a suit for specific performance of a contract, especially when there’s a significant delay in filing the suit and third-party rights have been established? The Supreme Court of India recently addressed this question in a case involving a land sale dispute. The Court ultimately set aside the injunction, emphasizing the importance of timely action and the need to consider the conduct of the party seeking equitable relief. The judgment was delivered by a two-judge bench comprising Justices Ashok Bhushan and Navin Sinha, with Justice Navin Sinha authoring the opinion.

Case Background

The case revolves around a dispute over the sale of land in Vadodara, Gujarat. K.S. Infraspace LLP Ltd. (the plaintiff) filed two suits against Ambalal Sarabhai Enterprise Limited and Haryana Containers Limited (the defendant sister concerns), seeking declaration and specific performance of a contract for the sale of land. Neptune Infraspace Private Ltd. was also impleaded as a defendant in one of the suits. The plaintiff claimed that a concluded contract existed for the sale of land, based on a draft Memorandum of Understanding (MoU) and subsequent communications. The defendants, however, contended that negotiations had not reached finality and that they had entered into a sale agreement with defendant no. 2 due to financial constraints.

The plaintiff contended that after negotiations, a final draft of the MoU was agreed upon on March 30, 2018, and they had communicated their acceptance. An advance of Rs. 2.16 crores was also paid. The defendants, however, entered into a registered agreement for sale with defendant no. 2 on March 31, 2018. The plaintiff then filed suits seeking specific performance and an injunction to prevent further sale of the land. The Principal Civil Judge granted an injunction, which was affirmed by the High Court.

Timeline

Course of Proceedings

The Principal Civil Judge, Vadodara, held that the terms of sale were finalized by emails dated March 29 and 30, 2018. The court noted that a token amount had been paid, and the plaintiff was ready with the balance. The court reasoned that creating third-party rights would lead to further litigation. Therefore, the defendants were restrained from executing further documents or creating any charge on the suit lands.

The High Court affirmed the order of injunction, holding that the communication of acceptance to the draft MoU, coupled with WhatsApp correspondences, amounted to a concluded contract.

Legal Framework

The Supreme Court considered the following legal framework:

• Section 36 of the Specific Relief Act, 1963: This section provides for the grant of preventive relief.
• Section 37 of the Specific Relief Act, 1963: This section states that temporary injunctions in a suit shall be regulated by the Code of Civil Procedure.

The Court noted that the grant of relief in a suit for specific performance is a discretionary remedy. A plaintiff seeking a temporary injunction must establish a strong prima facie case based on undisputed facts. The conduct of the plaintiff is also a relevant consideration.

Arguments

Arguments on behalf of the Defendants (Appellants):

• The defendants decided to sell the land due to financial difficulties, including attachment of properties by the Income Tax Department.
• Negotiations with the plaintiff did not reach finality and remained at the discussion stage.
• The plaintiff’s wavering conduct regarding the payment of income tax liability led the defendants to negotiate with defendant no. 2.
• The alternative claim of an oral contract in the suit shows that the execution of the agreement was not a mere formality.
• The plaintiff’s acceptance of the draft MoU was belated. The defendants were negotiating with others, and the plaintiff knew the deal was not going through.
• The deal with defendant no. 2 was finalized after defendant no. 2 cleared the Income Tax dues, enabling the lifting of attachment orders.
• The plaintiff’s email of acceptance was received after the defendant had already entered into an agreement with defendant no. 2.
• The plaintiff delayed the filing of the suit despite being aware of the sale to defendant no. 2.
• The grant of the injunction was contrary to the principles governing injunctions, especially in a suit for specific performance.
• Defendant no. 2 was a bona fide purchaser for value, having made substantial payments.

Arguments on behalf of the Plaintiff (Respondent):

• The plaintiff never declined to meet the Income Tax liabilities of the defendants.
• Negotiations were widespread, including WhatsApp messages and emails, which collectively show a prima facie case.
• The terms and conditions of payment were finalized, reflecting a concluded contract.
• The reference to a ‘draft’ MoU in the email was not decisive and should be understood cumulatively.
• The plaintiff communicated its acceptance without delay and protested the refund of the advance.
• The defendants finalized the deal with defendant no. 2 in a hurried manner to harm the plaintiff.
• Defendant no. 2 was aware of the negotiations between the plaintiff and the defendants.
• The concurrent findings of the lower courts should not be interfered with.
• The delay in filing the suit did not induce the defendant to do anything further to their prejudice.
• The plaintiff is ready to pay the amount of the Income Tax dues to defendant no. 2 and proceed with the contract with the defendant sister concerns.

[TABLE] of Submissions

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section but addressed the following key questions:

1. Whether the communications between the parties constituted a concluded contract for the sale of land.
2. Whether the plaintiff was entitled to a temporary injunction in light of the delay in filing the suit and the creation of third-party rights.
3. Whether the High Court and the Principal Civil Judge were correct in granting the temporary injunction.

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 relied on K.S. Vidyanadam & ors. vs. Vairavan [1997 (3) SCC 1]* to highlight the importance of timely action in commercial dealings.
• The Court used Mandali Ranganna and ors. vs. T. Ramachandra and ors. [2008 (11) SCC 1]* to support the argument that the grant of injunction was contrary to the basic principles, particularly in light of the plaintiff’s conduct.
• The Court distinguished the facts of Mademsetty Satyanarayana vs. G. Yelloji Rao and ors. [1965 (2) SCR 221]* and held that the delay did induce the defendants to change their position.
• The Court cited Agriculture Produce Market Committee, Gondal and ors. vs. Girdharbhai Ramjibhai Chhaniyara and ors. [(1997) 5 SCC 468]* to state that the negotiations were at an ’embryo stage’ and there was no mutuality between the parties.
• The Court referred to M.P. Mathur vs. DTC [(2006) 13 SCC 706]* to emphasize the importance of considering the conduct of the parties while exercising discretion in a suit for specific performance.
• The Court cited Gujarat Bottling Co. Ltd. vs. Coca Cola Co. [(1995) 5 SCC 545]* to state that the conduct of the party invoking the jurisdiction of the court has to be looked into.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by several factors, primarily focusing on the conduct of the plaintiff and the circumstances surrounding the case. The Court emphasized the delay in filing the suit, the plaintiff’s awareness of ongoing negotiations with defendant no. 2, and the creation of third-party rights. These factors weighed against the plaintiff’s claim for a temporary injunction. The Court also highlighted the lack of mutuality between the parties and the fact that the negotiations were still at an ’embryo stage’.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio Analysis:

The Court’s reasoning was more heavily influenced by the factual aspects of the case, particularly the conduct of the plaintiff and the timeline of events, than by purely legal considerations.

Logical Reasoning Flowchart:

The Court reasoned that even if there was a contract, the plaintiff’s conduct and the delay in filing the suit would not entitle them to equitable relief.

The Court considered the arguments of both sides, but ultimately found that the plaintiff’s conduct and the delay in filing the suit weighed heavily against the grant of an injunction. The Court emphasized that the plaintiff was aware of the ongoing negotiations with defendant no. 2 and did not take timely action to protect its interests. The Court also noted that the defendants had materially altered their position by making substantial payments and utilizing the funds for other liabilities. The Court stated that the High Court had failed to address the issue of delay in the institution of the suit.

The Court quoted Dalpat Kumar vs. Prahlad Singh [(1992) 1 SCC 719]* to highlight the cardinal principles for grant of temporary injunction:

“5…Satisfaction that there is a prima facie case by itself is not sufficient to grant injunction. The Court further has to satisfy that non­interference by the Court would result in “irreparable injury” to the party seeking relief and that there is no other remedy available to the party except one to grant injunction and he needs protection from the consequences of apprehended injury or dispossession. Irreparable injury, however, does not mean that there must be no physical possibility of repairing the injury, but means only that the injury must be a material one, namely one that cannot be adequately compensated by way of damages. The third condition also is that “the balance of convenience” must be in favour of granting injunction. The Court while granting or refusing to grant injunction should exercise sound judicial discretion to find the amount of substantial mischief or injury which is likely to be caused to the parties, if the injunction is refused and compare it with that which is likely to be caused to the other side if the injunction is granted. If on weighing competing possibilities or probabilities of likelihood of injury and if the Court considers that pending the suit, the subject matter should be maintained in status quo, an injunction would be issued. Thus the Court has to exercise its sound judicial discretion in granting or refusing the relief of ad interim injunction pending the suit.”

The Court also quoted Motilal Jain vs. Ramdasi Devi (Smt.) and ors. [(2000) 6 SCC 420]* to emphasize the relevance of delay in a suit for specific performance:

“6. The first ground which the High Court took note of is the delay in filing the suit. It may be apt to bear in mind the following aspects of delay which are relevant in a case of specific performance of contract for sale of immovable property:
(i) delay running beyond the period prescribed under the Limitation Act;
(ii) delay in cases where though the suit is within the period of limitation, yet:
(a) due to delay the third parties have acquired rights in the subject­matter of the suit;
(b) in the facts and circumstances of the case, delay may give rise to plea of waiver or otherwise it will be inequitable to grant a discretionary relief.”

The Court also quoted Madamsetty Satyanarayana vs. G. Yelloji Rao and ors. [1965 (2) SCR 221]* to explain when a court can exercise its discretion against the plaintiff:

“12…..It is not possible or desirable to lay down the circumstances under which a court can exercise its discretion against the plaintiff. But they must be such that the representation by conduct or neglect of the plaintiff is directly responsible in inducing the defendant to change his position to his prejudice or such as to bring about a situation when it would be inequitable to give him such a relief.”

The Court observed that the plaintiff had failed to establish mutuality between the parties and that the draft MoU contemplated payment of Income Tax dues as part of the consideration, which was not paid by the plaintiff. The Court also found that the balance of convenience was in favor of the defendants due to the intervening developments and the plaintiff’s delay in instituting the suit.

Key Takeaways

• Timely Action: Parties seeking specific performance must act promptly and not delay filing suits. Delay can be a significant factor in denying equitable relief, such as injunctions.
• Conduct of Parties: The conduct of the party seeking an injunction is crucial. Courts will consider whether the party’s actions were fair and equitable.
• Third-Party Rights: The creation of third-party rights during a delay can weigh heavily against the grant of an injunction.
• Mutuality in Contracts: For a contract to be specifically enforced, there must be clear evidence of mutuality and agreement between the parties.
• Prima Facie Case: A strong prima facie case based on undisputed facts is necessary to obtain a temporary injunction in a suit for specific performance.

Directions

The Supreme Court reiterated the High Court’s directions to expedite the hearing of the suit.

Specific Amendments Analysis

(Not applicable, as no specific amendments were discussed in the judgment)

Development of Law

The ratio decidendi of the case is that in a suit for specific performance, a temporary injunction should not be granted if there is a significant delay in filing the suit, the plaintiff’s conduct is not equitable, and third-party rights have been created. This case reinforces the importance of timely action and equitable conduct in seeking equitable relief. The case also clarifies that mere negotiations, even if they reach an advanced stage, do not automatically constitute a concluded contract. The Court’s emphasis on the conduct of the plaintiff and the delay in filing the suit reflects a continued trend of the Indian judiciary to deny relief to parties who are not diligent in protecting their rights.

Conclusion

The Supreme Court’s judgment in Ambalal Sarabhai Enterprise Ltd. vs. KS Infraspace LLP (2020) provides a significant clarification on the principles governing the grant of temporary injunctions in suits for specific performance. The Court emphasized that a party seeking equitable relief must act with due diligence and fairness. The delay in filing the suit, the conduct of the plaintiff, and the creation of third-party rights were all critical factors in the Court’s decision to set aside the injunction. This case serves as a reminder that equitable remedies are not granted as a matter of course, and the conduct of the party seeking relief is a crucial consideration. The judgment highlights the importance of timely action in commercial dealings and underscores the need for parties to be aware of their rights and to take prompt action to protect them. The decision also reiterates that negotiations alone do not constitute a contract and that a clear agreement between the parties is essential for a claim of specific performance.