Supreme Court Upholds Contractual Clause: Specific Performance Denied in Land Sale Dispute (28 April 2023)

Date of the Judgment: 28 April 2023

Citation: Civil Appeal Nos. 2514-2516 of 2023

Judges: M.R. Shah, J. and C.T. Ravikumar, J.

Can a court order the sale of a property when the contract itself specifies an alternative remedy for non-performance? The Supreme Court of India recently addressed this question in a case involving a land sale agreement. The core issue revolved around whether a clause stipulating payment of double the advance amount in case of failure to execute the sale deed, prevents the court from ordering specific performance of the contract. The Supreme Court bench comprising Justices M.R. Shah and C.T. Ravikumar delivered the judgment.

Case Background

The case involves a dispute over a sale agreement for a plot of land. On an unspecified date, an agreement was made between T.D. Vivek Kumar (acting as attorney for another defendant) and Ranbir Chaudhary. The agreed sale price was Rs. 17,61,700, and the tentative date for the sale deed execution was set for 18th September 2004. Ranbir Chaudhary paid Rs. 2 lakh as earnest money. When the sale did not materialize, Chaudhary filed a civil suit in the Court of Additional Civil Judge (Senior Division), Faridabad, seeking specific performance of the sale agreement and an injunction. The defendants resisted, arguing that the agreement itself stipulated that in case of their failure to execute the sale deed, the plaintiff was only entitled to double the advance amount, thus barring specific performance.

Timeline:

Course of Proceedings

The Trial Court refused to grant specific performance of the sale agreement but ordered the defendants to pay Rs. 4 lakhs to the plaintiff, which was double the earnest money, in accordance with the contract. This decision was upheld by the First Appellate Court. The plaintiff then appealed to the High Court, which overturned the lower courts’ decisions and granted specific performance, finding the plaintiff ready and willing to perform his part of the contract. The defendants filed a cross-objection, which was dismissed by the High Court. Subsequently, the defendants filed a Special Leave Petition before the Supreme Court, which directed them to file a review petition before the High Court. The High Court dismissed the review application, leading to the present appeals before the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of a specific clause in the sale agreement, which states:

“That if the 2nd party fails to pay the balance amount within stipulated time, the advance will be forfeited and if the first party fail or refuse to execute the sale deed and other necessary document in favour of the purchaser or in the name of his nominees within the stipulated time, the seller will be responsible to pay the double of the amount given as advance.”

This clause stipulates that if the seller fails to execute the sale deed, they are liable to pay double the advance amount to the buyer. The Supreme Court examined whether this clause precludes the buyer from seeking specific performance of the contract.

The Supreme Court also considered Section 100 of the Code of Civil Procedure, 1908, which requires the High Court to frame substantial questions of law while hearing a second appeal.

Arguments

Appellants’ (Original Defendants) Arguments:

• The High Court erred in dismissing the review application, which was filed following the Supreme Court’s direction.
• The High Court failed to consider the relevant clauses of the sale agreement, which were considered by the Trial Court and the First Appellate Court.
• The High Court did not frame a substantial question of law as required under Section 100 of the Code of Civil Procedure, 1908.
• As per the sale agreement, if the seller fails to execute the sale deed, the buyer is entitled only to double the advance amount, not specific performance.
• The Trial Court and the First Appellate Court rightly refused to grant specific performance based on the contractual clause.
• The appellants relied on the decision of the Supreme Court in P. D’Souza Vs. Shondrilo Naidu (2004) 6 SCC 649, particularly paragraph 31, to support their argument that specific performance should not be granted when a contract provides for an alternative remedy.

Respondent’s (Original Plaintiff) Arguments:

• All the courts below have concurrently found that the plaintiff was ready and willing to perform his part of the contract.
• The defendant failed to perform their part of the contract by not executing the sale deed.
• The High Court was correct in granting specific performance based on the plaintiff’s readiness and willingness.
• The respondent also relied on the decision of the Supreme Court in P. D’souza (supra) to argue that specific performance was rightly granted.

[TABLE] of Submissions

Issues Framed by the Supreme Court

The Supreme Court considered the following key issue:

1. Whether the High Court was justified in overturning the judgments of the Trial Court and the First Appellate Court, which had refused to grant a decree for specific performance of the sale agreement.

The Court also considered whether the High Court had framed a substantial question of law as required under Section 100 of the Code of Civil Procedure, 1908.

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:

Cases:

• M.L. Devender Singh Vs. Syed Khaja (1973) 2 SCC 515 – Supreme Court of India: This case was considered in P. D’Souza (supra).
• P. D’Souza Vs. Shondrilo Naidu (2004) 6 SCC 649 – Supreme Court of India: The Court examined this case, particularly paragraph 31, which discussed when specific performance may be refused if the contract provides for an alternative remedy.

Legal Provisions:

• Section 100 of the Code of Civil Procedure, 1908: This section requires the High Court to frame substantial questions of law while hearing a second appeal.

[TABLE] of Authorities and their Treatment

Judgment

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

How each authority was viewed by the Court?

• The Supreme Court referred to M.L. Devender Singh Vs. Syed Khaja (1973) 2 SCC 515* as a case considered in P. D’Souza (supra), which was crucial in understanding the principle that specific performance may be refused if the contract provides for an alternative remedy.
• The Supreme Court considered P. D’Souza Vs. Shondrilo Naidu (2004) 6 SCC 649* and emphasized paragraph 31, which states that where a sum is named as an amount that may be substituted for performance, the court may refuse specific performance. The Court held that this principle was applicable to the present case, as the sale agreement provided for double the advance amount as a remedy for non-performance by the seller.
• The Court noted that the High Court had failed to frame a substantial question of law as required by Section 100 of the Code of Civil Procedure, 1908.

The Supreme Court held that the High Court had erred in setting aside the concurrent judgments of the Trial Court and the First Appellate Court. The Court observed that the clause in the sale agreement clearly stipulated that in case of failure on the part of the seller to execute the sale deed, the buyer would be entitled to double the amount given as an advance. Therefore, the Trial Court and the First Appellate Court rightly refused to pass a decree for specific performance and instead rightly passed a decree for recovery of Rs. 4 lakhs, which was double the advance amount. The Supreme Court emphasized that the plaintiff, being a party to the agreement, was bound by its terms and conditions.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the specific clause in the sale agreement that provided an alternative remedy for the seller’s failure to execute the sale deed. The Court emphasized that the parties were bound by the terms of the contract, and when a contract specifies a remedy for non-performance, that remedy should be followed. The Court also took into consideration the fact that the High Court had not framed a substantial question of law as required under Section 100 of the Code of Civil Procedure, 1908.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio Table:

Logical Reasoning:

The Court emphasized the importance of adhering to the terms of the contract, stating:

“Therefore, on true interpretation of clause 2 of the sale agreement, the learned Trial Court as well as the First Appellate Court as such rightly refused to pass the decree for specific performance of the sale agreement and rightly passed the decree for recovery of Rs. 4 lakhs being double the amount given as an advance which as such was in consonance with the clause 2 of the sale agreement.”

The Court also noted that:

“It cannot be disputed that the plaintiff being a party to the agreement to sell is bound by the terms and conditions stipulated in the sale agreement.”

The Court further observed:

“In the present case, the condition specifically stipulates that in case of failure on the part of the seller to execute the sale deed within the stipulated time the buyer shall be entitled to double the amount given as an advance. Therefore, the sum is specifically named i.e., double the amount of advance paid.”

Key Takeaways

• When a contract specifies an alternative remedy for non-performance, courts may refuse to grant specific performance.
• Parties are bound by the terms and conditions of the agreements they enter into.
• High Courts must frame substantial questions of law when hearing second appeals under Section 100 of the Code of Civil Procedure, 1908.
• This judgment reinforces the principle of contractual sanctity and the importance of adhering to the agreed terms.

Directions

The Supreme Court allowed the appeals, setting aside the High Court’s order granting specific performance. The judgment and decree passed by the Trial Court, affirmed by the First Appellate Court, were restored.

Development of Law

The ratio decidendi of this case is that when a contract, specifically a sale agreement, provides for an alternative remedy for non-performance (such as payment of double the advance amount), a court may refuse to grant specific performance. This decision reinforces the principle that parties are bound by the terms of their contracts, and courts should respect the agreed-upon remedies for non-performance. It does not change the previous position of law, but it clarifies the application of the principle laid down in P. D’Souza (supra).

Conclusion

The Supreme Court’s judgment in T.D. Vivek Kumar & Anr. vs. Ranbir Chaudhary reinforces the importance of adhering to contractual terms. The Court held that when a sale agreement specifies an alternative remedy for non-performance, such as payment of double the advance amount, specific performance may not be granted. The Court set aside the High Court’s order granting specific performance and restored the Trial Court’s order, which had directed the seller to pay double the advance amount to the buyer. This case serves as a significant reminder of the binding nature of contracts and the need for courts to respect the agreed-upon remedies for non-performance.

Category

Parent Category: Contract Law

Child Categories: Specific Performance, Sale Agreement, Remedies for Breach of Contract, Section 100, Code of Civil Procedure, 1908

Parent Category: Code of Civil Procedure, 1908

Child Categories: Section 100, Code of Civil Procedure, 1908

FAQ

Q: What is specific performance in a contract?

A: Specific performance is a legal remedy where a court orders a party to fulfill their obligations under a contract, such as completing a sale of property.

Q: What does it mean when a contract has an alternative remedy?

A: An alternative remedy means that the contract provides a specific action or payment that will be taken if one party fails to fulfill their obligations. In this case, the seller was to pay double the advance amount if they failed to execute the sale deed.

Q: Why did the Supreme Court deny specific performance in this case?

A: The Supreme Court denied specific performance because the contract itself provided an alternative remedy for non-performance (double the advance amount). The Court held that the parties were bound by the terms of the contract.

Q: What is the significance of this judgment?

A: This judgment reinforces the principle that when a contract specifies an alternative remedy for non-performance, courts may not order specific performance. It emphasizes the importance of adhering to contractual terms.

Q: What is Section 100 of the Code of Civil Procedure, 1908?

A: Section 100 of the Code of Civil Procedure, 1908 requires the High Court to frame substantial questions of law while hearing a second appeal. The Supreme Court noted that the High Court failed to do so in this case.