Supreme Court settles the enforceability of an Agreement to Sell when buyer accepts refund of earnest money: Sangita Sinha vs. Bhawana Bhardwaj (2025) INSC 450 (04 April 2025)

Introduction

Date of the Judgment: 04 April 2025

Citation: 2025 INSC 450

Judges: Dipankar Datta, J, Manmohan, J

Can a buyer still demand the execution of a sale deed if they’ve already taken back a large part of the initial payment? The Supreme Court of India recently addressed this critical question in a case concerning the specific performance of an Agreement to Sell. This judgment clarifies the circumstances under which such agreements can be enforced, especially when the buyer has accepted a refund of a significant portion of the earnest money. The bench comprised Justice Dipankar Datta and Justice Manmohan.

Case Background

The case revolves around a property originally allotted to Late Kushum Kumari by the People’s Cooperative House Construction Society Limited on April 2, 1968.

On January 25, 2008, Kushum Kumari (the seller) and Bhawana Bhardwaj (Respondent No. 1-buyer) entered into an unregistered Agreement to Sell the property for a total consideration of Rs. 25,00,000/-. At the time of the agreement, the buyer paid Rs. 2,51,000/- in cash and issued three post-dated cheques worth Rs. 7,50,000/-.

The buyer claimed that on February 11, 2008, when she visited the property, tenants of the seller caused a disturbance, preventing her from taking possession. Subsequently, the buyer issued legal notices on February 23, 2008, and April 23, 2008, expressing her readiness to pay the remaining amount and register the property.

As the seller failed to execute the sale deed, the buyer filed a suit in the Trial Court, Sub Judge-IV, Patna, seeking specific performance of the Agreement to Sell dated January 25, 2008. This suit was registered as Title Suit No. TS/176/2008.

The seller contested the suit, claiming she discovered the Agreement to Sell on February 5, 2008, and filed a police complaint on February 6, 2008, alleging fraudulent signatures on the agreement. She further claimed to have sent a letter dated February 7, 2008, canceling the agreement and refunding Rs. 2,11,000/- through five demand drafts and returning two of the three post-dated cheques.

Following the seller’s death, Respondent No. 3 (step-grandson) was substituted as defendant no. 1, and the appellant, Sangita Sinha, was impleaded as defendant no. 3, as the property was bequeathed to her through a Will dated September 23, 2002.

The Trial Court framed additional issues on January 21, 2013, and again on April 27, 2018, before passing a judgment in favor of the buyer on the same day.

The appellant challenged the judgment and decree in First Appeal No. 83 of 2018, which was dismissed by the Patna High Court on May 9, 2024.

The Supreme Court, upon the filing of the Special Leave Petition, ordered a status quo regarding the possession of the property on August 20, 2024.

Timeline:

Arguments

Submissions on Behalf of the Appellant

Shri S.B. Upadhyay, the learned senior counsel for the appellant, argued that the seller’s signatures on the Agreement to Sell dated January 25, 2008, were fraudulently obtained by Respondent No. 3. The seller believed she was signing blank papers related to her Will executed in favor of the appellant on September 23, 2002.

Upon discovering the Agreement to Sell on February 5, 2008, the seller filed a criminal complaint on February 6, 2008, alleging fraud.

On February 7, 2008, the seller sent a letter to the Respondent No. 1-buyer canceling the Agreement to Sell, enclosing five demand drafts totaling Rs. 2,11,000/- and returning two of the three post-dated cheques.

The appellant emphasized that the Respondent No. 1-buyer and her husband admitted to receiving the demand drafts and cheques in March 2008. The buyer encashed the demand drafts in July 2008, after filing the suit on May 5, 2008. This encashment, according to the appellant, amounted to a revocation of the Agreement to Sell.

The appellant contended that the suit was filed based on a canceled agreement, making it non-maintainable. A valid agreement is essential for specific performance. The appellant cited the case of R. Kandasamy (Since Dead) & Ors. vs. T.R.K. Sarawathy & Anr., where a similar judgment was set aside because a non-existent Agreement to Sell cannot be enforced.

Even otherwise, the Respondent No. 1-buyer was not ready and willing to perform the agreement. Readiness and willingness must be inferred from the overall circumstances, including the buyer’s conduct before and after filing the suit.

The buyer admitted in her cross-examination that she was unaware of her bank balance at the time of the agreement and that there was insufficient balance when the post-dated cheques were issued. The appellant argued that the buyer’s conduct in encashing the demand drafts demonstrated a lack of readiness or willingness to perform the contract, relying on the judgments in Mehboob -Ur-Rehman (Dead) through Legal Representatives vs. Ahsanul Ghani and C.S. Venkatesh vs. A.S.C. Murthy (Dead) by Legal Representatives and Ors.

Submissions on Behalf of Respondent No. 1

Mr. Mungeshwar Sahoo, the learned senior counsel for the Respondent No. 1-buyer, argued that the Trial Court rightly decreed the suit in favor of the buyer after appreciating the evidence. A sale deed was subsequently executed in favor of the buyer upon depositing Rs. 24,61,000/- before the Trial Court. The High Court correctly upheld this judgment and decree.

The entire earnest money/advance consideration had not been refunded. The buyer paid Rs. 2,51,000/- in cash, against which the seller refunded Rs. 2,11,000/- through demand drafts. Therefore, Rs. 40,000/- remained with the seller. As the balance was paid subsequently, the cancellation of the agreement was invalid.

A bilateral agreement cannot be unilaterally canceled by returning the earnest money. Cancellation requires a court order or a subsequent agreement. Allowing unilateral cancellation would leave the purchaser remediless, as third parties could intervene by offering higher earnest money.

The seller passed away before proving her defense. Neither the appellant nor Respondent No. 3 deposed in support of the seller’s written statement, which therefore remains unproven. The appellant lacks the locus to file the appeal, as she has no right, title, or interest in the property, and the findings of the Trial Court or the High Court do not affect her.

Submissions Table

Issues Framed by the Supreme Court

1. Whether a suit for specific performance of an Agreement to Sell is liable to be decreed if the buyer has accepted the refund of the majority of the earnest money deposit/advance consideration, during the pendency of the civil suit?

Treatment of the Issue by the Court: “The following table demonstrates as to how the Court decided the issues”

Authorities

The court considered the following authorities:

• Readiness and Willingness:
  • Gomathinayagam Pillai and Ors. vs. Palaniswami Nadar, (1967) 1 SCR 227 – Held that the plaintiff must prove continuous readiness and willingness to perform the contract.
  • Vijay Kumar and Others vs. Om Parkash, 2018 SCC OnLine SC 1913 – Reiterated that readiness and willingness must be shown throughout the contract period.
  • J.P.Builders and Another vs. A. Ramadas Rao and Another, (2011) 1 SCC 429 – Emphasized that readiness to perform must be established throughout the relevant times.
  • Umabai and Another vs. Nilkanth Dhondiba Chavan (Dead) By LRs. and Another, (2005) 6 SCC 243 – Stated that the conduct of the parties must be considered to determine readiness and willingness.
  • Mehboob -Ur-Rehman (Dead) through Legal Representatives v. Ahsanul Ghani, (2019) 19 SCC 415 – Mere want of objection by the defendant does not absolve the plaintiff of proving readiness and willingness.
  • C.S. Venkatesh v. A.S.C. Murthy (Dead) by Legal Representatives & Ors., (2020) 3 SCC 280 – Continuous readiness and willingness is a condition precedent to grant the relief of performance.
• Specific Performance:
  • Kamal Kumar vs. Premlata Joshi and Ors., (2019) 3 SCC 704 – Outlined material questions to consider before granting specific performance.
  • P. Daivasigamani vs. S. Sambandan, (2022) 14 SCC 793 – Followed Kamal Kumar in emphasizing the considerations for specific performance.
• Maintainability of Suit:
  • I.S. Sikandar (Dead) By LRs. v. K. Subramani and Others, (2013) 15 SCC 27 – Held that a suit for specific performance is not maintainable without a prayer for declaratory relief against the termination of the agreement.
  • A. Kanthamani Vs. Nasreen Ahmed, (2017) 4 SCC 654 – Held that the declaration of law in I.S. Sikander is confined to the facts of the said case.
  • R. Kandasamy (Since Dead) & Ors. v. T.R.K. Sarawathy & Anr. – Clarified the conflict between I.S. Sikander and A. Kanthamani, stating that the appellate court can examine the jurisdictional fact for granting specific performance.
• Suppression of Material Facts:
  • Citadel Fine Pharmaceuticals v. Ramaniyam Real Estates Private Limited and Another, (2011) 9 SCC 147 – Held that suppression of material facts disentitles the buyer from the discretionary relief of specific performance.

Authority Treatment Table

Judgment

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

How each authority was viewed by the Court?

• Gomathinayagam Pillai and Ors. vs. Palaniswami Nadar, (1967) 1 SCR 227: The Court cited this authority to emphasize the requirement for the plaintiff to establish continuous readiness and willingness to perform their part of the contract.
• Vijay Kumar and Others vs. Om Parkash, 2018 SCC OnLine SC 1913: The Court relied on this case to reiterate that readiness and willingness must be demonstrated throughout the contract period.
• J.P.Builders and Another vs. A. Ramadas Rao and Another, (2011) 1 SCC 429: This authority was used to highlight that readiness to perform must be established at all relevant times.
• Umabai and Another vs. Nilkanth Dhondiba Chavan (Dead) By LRs. and Another, (2005) 6 SCC 243: The Court referred to this case to support the view that the conduct of the parties must be considered to determine readiness and willingness.
• Mehboob -Ur-Rehman (Dead) through Legal Representatives v. Ahsanul Ghani, (2019) 19 SCC 415: The Court cited this authority to emphasize that the plaintiff must independently prove readiness and willingness, regardless of the defendant’s objections.
• C.S. Venkatesh v. A.S.C. Murthy (Dead) by Legal Representatives & Ors., (2020) 3 SCC 280: This case was used to reinforce that continuous readiness and willingness is a prerequisite for granting specific performance.
• Kamal Kumar vs. Premlata Joshi and Ors., (2019) 3 SCC 704: The Court cited this authority to outline the material questions that must be considered before granting specific performance.
• P. Daivasigamani vs. S. Sambandan, (2022) 14 SCC 793: This case was cited as following Kamal Kumar in emphasizing the considerations for specific performance.
• I.S. Sikandar (Dead) By LRs. v. K. Subramani and Others, (2013) 15 SCC 27: The Court discussed this authority, which held that a suit for specific performance is not maintainable without a prayer for declaratory relief against the termination of the agreement.
• A. Kanthamani Vs. Nasreen Ahmed, (2017) 4 SCC 654: The Court discussed this case, which held that the declaration of law in I.S. Sikandar is confined to the facts of the said case.
• R. Kandasamy (Since Dead) & Ors. v. T.R.K. Sarawathy & Anr.: The Court relied upon this case to clarify the conflict between I.S. Sikandar and A. Kanthamani, stating that the appellate court can examine the jurisdictional fact for granting specific performance.
• Citadel Fine Pharmaceuticals v. Ramaniyam Real Estates Private Limited and Another, (2011) 9 SCC 147: The Court cited this authority to emphasize that suppression of material facts disentitles the buyer from the discretionary relief of specific performance.

What weighed in the mind of the Court?

The Supreme Court’s decision in Sangita Sinha vs. Bhawana Bhardwaj was primarily influenced by the buyer’s conduct of encashing the demand drafts, which the Court interpreted as a clear indication of the buyer’s unwillingness to proceed with the Agreement to Sell. Additionally, the Court emphasized the buyer’s failure to seek a declaratory relief against the cancellation of the agreement and the suppression of material facts in the plaint.

Final Order

In view of the aforesaid, the appeal is allowed. The judgment and order of the High Court of Judicature at Patna dated May 9, 2024, and that of the Trial Court dated April 27, 2018, are set aside. As a consequence, Title Suit No. TS/176/2008 stands dismissed. There shall, however, be no order as to costs.

Pending application(s), if any, shall stand disposed of.

Conclusion

The Supreme Court’s judgment in Sangita Sinha vs. Bhawana Bhardwaj underscores the importance of demonstrating continuous readiness and willingness to perform a contract for specific performance. The Court’s emphasis on the buyer’s conduct, particularly the encashment of demand drafts, serves as a crucial reminder that actions speak louder than words. Moreover, the judgment clarifies that accepting a refund of a significant portion of the earnest money, coupled with a failure to challenge the cancellation of the agreement, can be detrimental to a buyer’s case for specific performance.

This case provides valuable guidance on the enforceability of Agreements to Sell, especially in situations where the buyer has accepted a refund of the earnest money. It highlights the need for buyers to act diligently and seek appropriate legal remedies to protect their rights and interests.