Supreme Court Sets Aside Specific Performance in Property Sale Agreement: Alagammal vs. Ganesan (2024)

Date of the Judgment: 10 January 2024

Citation: 2024 INSC 28

Judges: Vikram Nath, J., Ahsanuddin Amanullah, J.

Can a buyer seek specific performance of a sale agreement when they have not paid the full amount within the agreed timeframe, and the seller has subsequently sold the property to someone else? The Supreme Court of India recently addressed this question in a case concerning a property sale agreement where the buyer failed to meet the payment deadlines, and the seller later sold the property to a third party. The court’s decision clarifies the importance of adhering to contractual timelines and the implications of subsequent property sales on specific performance claims. The judgment was delivered by a two-judge bench comprising Justices Vikram Nath and Ahsanuddin Amanullah, with the opinion authored by Justice Ahsanuddin Amanullah.

Case Background

On 22 November 1990, Alagammal (A1), Palaniammal (A2), and Mariammal (A3) entered into a registered Agreement of Sale with Ganesan (R1) and Magudeeswari (R2) to sell a property for ₹21,000. The buyers paid ₹3,000 as advance, and the agreement stipulated that the remaining amount should be paid within six months. However, the sellers, A1, A2 & A3, sold the property to Thangam (A7) on 05 November 1997 for ₹22,000. On 18 November 1997, the respondents sent a notice to the appellants calling them to execute the agreement. This led to the respondents filing a suit for specific performance, damages, and recovery of money with interest.

Timeline:

Course of Proceedings

The Principal District Munsif Judge, Dindigul, dismissed the suit filed by the respondents on 10 September 2000. The First Appellate Court allowed the appeal filed by the respondents. The High Court of Judicature at Madras upheld the First Appellate Court’s decision through the Impugned Judgment dated 28 April 2009. The appellants then appealed to the Supreme Court.

Legal Framework

The case primarily revolves around Section 16(c) of the Specific Relief Act, 1963, which requires the plaintiff to prove their readiness and willingness to perform the contract. The court also considered Section 5 and Section 54 of the Transfer of Property Act, 1882, which deal with the transfer of property and its sale. Section 55(f) of the Transfer of Property Act, 1882, which stipulates the seller’s duty to hand over possession, was also considered.

Section 16(c) of the Specific Relief Act, 1963 states:

“Specific performance of a contract cannot be enforced in favour of a person—(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 the performance of which has been prevented or waived by the defendant.”

Arguments

Submissions by the Appellants:

• The appellants argued that the balance amount of ₹18,000 was to be paid within six months, which was not done.
• They contended that the subsequent payments claimed by the respondents were not actually made, and the thumb impression on the receipts did not match the appellants’ sample.
• The appellants submitted that the claim of the respondents was based on a forged document, rendering the transaction inadmissible in law.
• They argued that the respondents did not prove their readiness and willingness to perform their obligations under the agreement, as required by Section 16(c) of the Specific Relief Act, 1963.
• The appellants contended that the suit was barred by limitation, as it was filed more than three years after the last payment made and endorsed on 17 September 1991.
• The appellants argued that the respondents should have obtained the Sale Deed and possession through court as per the Default Clause in the Agreement.
• They submitted that the property had already been sold to appellant no.7, and the suit for specific performance should have been dismissed as the sale to A7 was not challenged.
• The appellants relied on the decision of the Supreme Court in K.S. Vidyanadam v Vairavan, (1997) 3 SCC 1, stating that time is not the essence of the contract unless specifically provided, and the limitation period is three years.

Submissions on behalf of the Respondents:

• The respondents argued that the appellant no.1 filed Original Suit No.551 of 1992, which was decreed, and that after receiving an excess amount of ₹425, the appellants did not execute the sale deed.
• They submitted that the sale deed in favour of appellant no.7 was not bona fide.
• The respondents contended that the validity of the agreement was not extinguished as the appellants accepted money after the stipulated time, thereby relaxing the time for completion of the transaction.
• They argued that the intention was not only to execute the sale deed but also to hand over possession, which is an implied term of every sale of immovable property.
• The respondents submitted that the limitation period would start only when the vendor was capable of handing over possession.
• They contended that the sale of immovable property is always for the transfer of possession, as per Section 5 and Section 54 of the Transfer of Property Act, 1882, and the seller is obligated to hand over possession as per Section 55(f) of the Transfer of Property Act, 1882.
• The respondents argued that time is not of the essence when the seller is not in possession to hand over the same.
• They relied upon the decision of this Court in Godhra Electricity Company Limited v State of Gujarat, (1975) 1 SCC 199, the decision of the United Kingdom Supreme Court in The Commissioners for Her Majesty’s Revenue and Customs v Secret Hotels2 Limited (formerly Med Hotels Limited), [2014] UKSC 16 and The Interpretation of Contracts, 7th Edition by Sir Kim Lewison.

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

1. Whether the Agreement dated 22.11.1990 disclosed a fixed time-frame for making payment in full by the respondents.

Treatment of the Issue by the Court

Authorities

The Court considered the following authorities:

• K.S. Vidyanadam v Vairavan, (1997) 3 SCC 1, Supreme Court of India: This case was relied upon to emphasize that time is not the essence of a contract for the sale of immovable property unless specifically stated. The Court also noted that the limitation period prescribed by the Limitation Act for filing a suit was 3 years.
• Section 16(c) of the Specific Relief Act, 1963: This provision requires the plaintiff to prove their readiness and willingness to perform the contract.
• Section 5 and Section 54 of the Transfer of Property Act, 1882: These sections deal with the transfer of property and its sale.
• Section 55(f) of the Transfer of Property Act, 1882: This section contemplates the duty of the seller to hand over possession of the property at the time of sale.
• Godhra Electricity Company Limited v State of Gujarat, (1975) 1 SCC 199, Supreme Court of India: This case was cited by the respondents to support their argument that the conduct of the parties was relevant in determining whether time was of the essence of the contract.
• The Commissioners for Her Majesty’s Revenue and Customs v Secret Hotels2 Limited (formerly Med Hotels Limited), [2014] UKSC 16, United Kingdom Supreme Court: This case was cited by the respondents to argue that subsequent conduct of parties is also relevant for testing whether time is of the essence of the contract.
• The Interpretation of Contracts, 7th Edition by Sir Kim Lewison: This book was cited by the respondents to support their submissions.

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the respondents’ failure to adhere to the agreed timeline for payment and their lack of diligence in pursuing the sale. The Court emphasized that the respondents did not demonstrate readiness and willingness to perform their part of the contract. The fact that the respondents did not challenge the subsequent sale of the property to a third party also weighed heavily against them. The Court also found that the thumb impressions on the receipts were not matching with the appellants’ thumb impressions. The court found that the respondents did not take any steps to get the sale deed executed within the stipulated time or even after that. The Court also noted that the respondents did not seek cancellation of the sale deed in favour of the third party.

The Court’s reasoning was based on the following logical flow:

The Court considered the argument that time was not the essence of the contract, but it noted that even if time was not the essence, the respondents’ conduct showed a lack of diligence. The Court also rejected the argument that the limitation period would start only when the vendor was capable of handing over possession, stating that the primary intention was to transfer title and not necessarily possession. The Court also rejected the argument that the sale deed in favour of the third party was not bona fide, as no relief was sought to cancel the sale deed.

The Court stated:

“…the obvious import would be that the respondents had not complied with their obligation under the Agreement within the six-month period.”

“At the highest, if the appellant no.1 had accepted money from respondent no.1 after the expiry of the time-limit, which itself has not been conclusively proved during trial or even at the first or second appellate stages, the remedy available to the defendants was to seek recovery of such money(ies) paid along with damages or interest to compensate such loss but a suit for specific performance to execute the Sale Deed would not be available, in the prevalent facts and circumstances.”

“Another important aspect that the Court is expected to consider is the fact that the appellant no.7 in whose favour there was a Sale Deed with regard to the suit premises, much prior to issuance of any Legal Notice and the institution of the suit in question and that no relief had been sought for cancellation of such Sale Deed, a suit for specific performance for execution of sale deed qua the very same property could not be maintained.”

Key Takeaways

• Time is of the essence in contracts for the sale of immovable property, even if not explicitly stated.
• Buyers must demonstrate readiness and willingness to perform their obligations under the contract.
• Failure to adhere to stipulated timelines can result in the denial of specific performance.
• Subsequent sales to third parties, if not challenged, can impact the maintainability of a suit for specific performance.
• The primary intention of a sale agreement is the transfer of title, not necessarily possession.

Directions

The Supreme Court set aside the Impugned Judgment of the High Court and the judgment of the First Appellate Court. The judgment/order of the Trial Court was revived and restored.

Development of Law

The ratio decidendi of this case is that a party seeking specific performance of a contract must strictly adhere to the terms of the agreement, particularly the timelines stipulated for payment. The Supreme Court reiterated the principle that time is not the essence of a contract for the sale of immovable property unless specifically stated, but it also emphasized that long delays and a lack of diligence on the part of the buyer can result in the denial of specific performance. This decision reinforces the importance of contractual obligations and the need for parties to act diligently in pursuing their rights.

Conclusion

The Supreme Court’s judgment in Alagammal vs. Ganesan (2024) underscores the importance of adhering to contractual timelines in property sale agreements. The Court set aside the High Court’s decision, ruling that the respondents’ failure to make timely payments and their lack of diligence in pursuing the sale made their claim for specific performance untenable. This judgment serves as a reminder that parties must demonstrate readiness and willingness to perform their contractual obligations and that long delays can be detrimental to their claims.