Supreme Court sets aside specific performance decree due to Limitation Act: A. Valliammai vs. K.P. Murali (2023)

Date of the Judgment: September 12, 2023

Citation: 2023 INSC 823

Judges: Sanjiv Khanna, J., Bela M. Trivedi, J.

Can a suit for specific performance of a contract be dismissed if it’s filed after the limitation period, even if the parties were in ongoing communication? The Supreme Court of India recently addressed this crucial question in a case concerning a land sale agreement. The core issue revolved around whether the suit for specific performance was barred by limitation under Article 54 of the Limitation Act, 1963. The Supreme Court, in a judgment authored by Justice Sanjiv Khanna, with Justice Bela M. Trivedi concurring, held that the suit was indeed barred by limitation, setting aside the decree for specific performance.

Case Background

A. Valliammai, the appellant, owned 11 acres of land in Agaram village, Trichi district. On May 26, 1988, she entered into an agreement to sell this land to K. Sriram for Rs. 2,95,000 per acre, receiving an advance of Rs. 1,00,000. The balance was to be paid within one year, i.e., by May 26, 1989. This deadline was extended by six months to November 26, 1989. However, disputes arose, and the sale did not materialize.

K. Sriram issued a legal notice on July 11, 1991, demanding the execution of the sale deed. Valliammai responded on August 9, 1991, denying the demand and alleging Sriram’s failure to adhere to the agreement. Sriram then sent a rejoinder on August 31, 1991, asserting his readiness to perform the contract. Valliammai replied on September 16, 1991, stating the sale deed could not be enforced.

Subsequently, on July 15, 1991, Sriram filed a suit for permanent injunction to prevent Valliammai from selling the property to others. This suit was later dismissed on December 23, 1992. On the same day, Sriram assigned his rights under the agreement to K.P. Murali and S.P. Duraisamy. Murali and Duraisamy then filed a suit for specific performance on September 27, 1995, which is the subject of this appeal.

The case reached the Supreme Court after the High Court upheld the trial court’s decision of specific performance in favour of K.P. Murali and S.P. Duraisamy.

Timeline:

Legal Framework

The core legal provision at play is Article 54 of the Limitation Act, 1963, which states:

“For specific performance of a contract: Three years. The date fixed for the performance, or, if no such date is fixed, when the plaintiff has notice that performance is refused.”

Section 9 of the Limitation Act, 1963, also plays a crucial role, stipulating that once the limitation period has commenced, it continues to run, irrespective of any subsequent disability or inability to institute a suit or make an application.

The Supreme Court had to determine when the limitation period began, based on whether a specific date for performance was fixed and, if not, when the plaintiff had notice of refusal.

Arguments

Appellant (A. Valliammai):

• Argued that the suit for specific performance was barred by limitation.
• Contended that the time was of the essence of the contract and that K. Sriram had not paid the balance sale consideration within the extended time.
• Stated that K. Sriram had notice of her refusal to perform the contract as early as July 1991.
• Claimed that the suit for specific performance should have been filed within three years from the date of refusal.

Respondents (K.P. Murali and S.P. Duraisamy):

• Argued that the time was not of the essence of the contract.
• Contended that the limitation period should be calculated from the date they had notice of refusal.
• Claimed that they were waiting for the disposal of the partition suit before filing the suit for specific performance.
• Argued that A. Valliammai had not served any notice on K. Sriram to pay the balance sale consideration.
• Relied on Section 63 of the Indian Contract Act, 1872, to argue that the time for performance could be extended.

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

1. Whether the suit for specific performance was barred by limitation under Article 54 of the Limitation Act, 1963.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

• Article 54 of the Limitation Act, 1963: This provision sets the limitation period for filing a suit for specific performance of a contract at three years.
• Section 9 of the Limitation Act, 1963: This section stipulates that once the limitation period has commenced, it continues to run.
• Section 63 of the Indian Contract Act, 1872: This provision allows for the extension of time for performance of a contract.
• Pachanan Dhara and Others v. Monmatha Nath Maity [(2006) 5 SCC 340]: This case clarified the interpretation of Article 54, distinguishing between cases where a specific date for performance is fixed and where no such date is fixed.
• S. Brahmanand and Ors. v. K.R. Mutugopal [(2005) 12 SCC 764]: This case held that the extension of time need not be in writing and can be proved by oral evidence.

Judgment

How each authority was viewed by the Court?

• Article 54 of the Limitation Act, 1963: The Court applied this provision to determine that the suit was barred by limitation because it was filed more than three years after the plaintiff had notice of the refusal.
• Section 9 of the Limitation Act, 1963: The Court used this provision to emphasize that once the limitation period started, it continued to run, and no subsequent event could stop it.
• Section 63 of the Indian Contract Act, 1872: The Court rejected the argument that this provision could be used to extend the time for performance in this case, as there was a clear refusal, not a forbearance.
• Pachanan Dhara and Others v. Monmatha Nath Maity [(2006) 5 SCC 340]: The Court followed this precedent to interpret Article 54 and determine that the second part of the article applied in this case, as no specific date for performance was fixed.
• S. Brahmanand and Ors. v. K.R. Mutugopal [(2005) 12 SCC 764]: The Court distinguished this precedent, stating that while extension of time can be oral, it cannot be used to argue against a clear refusal.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that K. Sriram had clear notice of A. Valliammai’s refusal to perform the contract as early as July 1991. This was evident from the legal notices exchanged between the parties and the suit for permanent injunction filed by K. Sriram. The Court emphasized that once a party has notice of refusal, the limitation period begins to run, and subsequent actions or communications do not stop it. The Court also noted that the disposal of the partition suit was not a condition precedent for the execution of the sale deed. The Court’s reasoning was based on a strict interpretation of Article 54 of the Limitation Act, 1963.

Logical Reasoning:

The Court considered the argument that the time for performance could be extended but rejected it, stating that the clear refusal by A. Valliammai triggered the limitation period. The Court also considered whether the pendency of the partition suit affected the limitation period but concluded that it did not, as the agreement did not state that the sale was contingent on the disposal of that suit.

The Court’s decision was based on a straightforward application of the law to the facts of the case. The Court found that the plaintiffs had notice of the refusal more than three years before filing the suit, and therefore, the suit was barred by limitation.

“It is an accepted position that Rs. 1,00,000/ – was paid at the time of execution of the agreement to sell (Exhibit A -1), and the balance consideration of Rs. 31,45,000 was required to be paid by 26.05.1989.”

“In our opinion, K. Sriram, in the notice dated 11.07.1991 (Exhibit A -6) and rejoinder notice dated 31.08.1991 (Exhibit S -13), had acknowledged having notice that A. Valliammai had refused to perform her part of the contract.”

“For the aforesaid reasons, the 3 -year limitation period to file a suit for specific performance commenced as early as when the K. Sriram had filed suit for injunction on 15.07.1991.”

Key Takeaways

• Suits for specific performance of a contract must be filed within three years from the date the plaintiff has notice that the performance has been refused.
• Once the limitation period begins, it continues to run, irrespective of any subsequent events.
• The disposal of a related suit will not extend the limitation period for a suit for specific performance unless the agreement specifically states that the performance is contingent on the disposal of that suit.
• Clear and unambiguous communication of refusal to perform a contract triggers the limitation period.

Directions

The Supreme Court directed A. Valliammai to pay Rs. 50,00,000 to K.P. Murali and S.P. Duraisamy within six months from the date of the judgment. If the payment is not made within six months, A. Valliammai will be liable to pay interest at 8% per annum on Rs. 50,00,000 from the date of the judgment until the date of actual payment. The Court also allowed K.P. Murali and S.P. Duraisamy to withdraw the amounts previously deposited by them, along with the interest accrued.

Development of Law

The ratio decidendi of this case is that the limitation period for a suit for specific performance begins when the plaintiff has notice of the defendant’s refusal to perform the contract. This judgment reinforces the strict application of Article 54 of the Limitation Act, 1963, and clarifies that the limitation period is not extended by ongoing communications or the pendency of related suits unless the agreement specifically states that the performance is contingent on the disposal of that suit. This case does not change the previous position of law but reinforces the existing legal principles.

Conclusion

The Supreme Court allowed the appeals, setting aside the decree for specific performance granted by the lower courts. The Court held that the suit was barred by limitation under Article 54 of the Limitation Act, 1963. The Court, however, directed A. Valliammai to pay Rs. 50,00,000 to K.P. Murali and S.P. Duraisamy, considering the advance paid and expenses incurred. This judgment underscores the importance of adhering to the limitation period for filing suits for specific performance and provides clarity on the interpretation of Article 54 of the Limitation Act, 1963.