Supreme Court Upholds Partial Specific Performance in Land Sale Dispute: B. Santoshamma vs. D. Sarala (2020)

Date of the Judgment: 18 September 2020
Citation: 2020 INSC 707
Judges: Uday Umesh Lalit, J. and Indira Banerjee, J.
Can a seller of land renege on a sale agreement after accepting a significant portion of the payment? The Supreme Court of India recently addressed this question in a complex case involving multiple agreements and parties. The court had to decide whether a buyer was entitled to specific performance of a land sale agreement, even when the seller had already sold a portion of the land to a third party. This case highlights the importance of clear and comprehensive agreements in land transactions and the remedies available when such agreements are breached. The judgment was delivered by a two-judge bench comprising Justice Uday Umesh Lalit and Justice Indira Banerjee, with the majority opinion authored by Justice Indira Banerjee.

Case Background

The case revolves around a land dispute in Hayathnagar Village, Ranga Reddy District. B. Santoshamma (the Vendor) purchased 300 square yards of land on August 20, 1982. Shortly after, she allegedly entered into an oral agreement to sell 100 square yards of this land to P. Pratap Reddy. This agreement was later reduced to writing on January 20, 1984. On March 21, 1984, the Vendor agreed to sell the entire 300 square yards to D. Sarala (the Vendee), who was aware of the prior agreement with Pratap Reddy. The Vendor claimed that the Vendee assured her that she would handle the cancellation of the agreement with Pratap Reddy. However, on May 25, 1984, the Vendor executed a registered sale deed for 100 square yards in favor of Pratap Reddy. This led to a series of legal disputes when the Vendee sought specific performance of her agreement for the entire 300 square yards.

Timeline

Course of Proceedings

The Vendee initially filed a suit for specific performance (O.S.No.222 of 1984) in the Court of the Principal Subordinate Judge, Rangareddy District, seeking possession of the entire 300 sq. yards. Pratap Reddy was not initially a party to this suit but was later impleaded. In 1985, Pratap Reddy filed a suit (O.S.No.190 of 1985) seeking an injunction against the Vendee from interfering with his possession of 100 sq. yards. The Vendee also filed a suit (O.S.No.401 of 1985) against Pratap Reddy for a declaration that his agreement with the Vendor was void. The Trial Court clubbed all three suits and allowed partial specific performance, directing the Vendor to execute a sale deed for 200 sq. yards in favor of the Vendee and dismissing the Vendee’s suit against Pratap Reddy. The High Court dismissed all appeals, upholding the Trial Court’s decision. This led to the appeals before the Supreme Court.

Legal Framework

The Supreme Court considered several key legal provisions. Section 10 of the Specific Relief Act, 1963 (SRA), which was amended in 2018, initially provided for specific performance at the court’s discretion but now mandates it subject to certain conditions. Section 12 of the SRA allows for partial specific performance under specific circumstances. Section 50(1) of the Registration Act, 1908, states that a registered document takes precedence over an unregistered document relating to the same property. The court also considered Section 21 of the Limitation Act, 1963, regarding the effect of adding new parties to a suit.

The relevant provisions are as follows:

• Section 10 of the Specific Relief Act, 1963 (prior to 2018 amendment):
  
  “10. Cases in which specific performance of contract enforceable.- Except as otherwise provided in this Chapter, the specific performance of any contract may, in the discretion of the court, be enforced-
  (a)when there exists no standard for ascertaining actual damage caused by the non-performance of the act agreed to be done; or
  (b)when the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief.”
• Section 10 of the Specific Relief Act, 1963 (after 2018 amendment):
  
  “10. Specific performance in respect of contracts.- The Specific performance of a contract shall be enforced by the court subject to the provisions contained in sub-section (2) of section 11, section 14 and section 16.”
• Section 12 of the Specific Relief Act, 1963:
  
  “12. Specific performance of part of contract.- (1) Except as otherwise hereinafter provided in this section the court shall not direct the specific performance of a part of a contract.
  (2) Where a party to a contract is unable to perform the whole of his part of it, but the part which must be left unperformed by only a small proportion to the whole in value and admits of compensation in money, the court may, at the suit of either party, direct the specific performance of so much of the contract as can be performed, and award compensation in money for the deficiency.
  (3)Where a party to a contract is unable to perform the whole of his part of it, and the part which must be left unperformed either-
  (a) forms a considerable part of the whole, though admitting of compensation in money; or
  (b) does not admit of compensation in money,
  he is not entitled to obtain a decree for specific performance; but the court may, at the suit of other party, direct the party in default to perform specifically so much of his part of the contract as he can perform, if the other party-
  (i) in a case falling under clause (a), pays or has paid the agreed consideration for the whole of the contract reduced by the consideration for the part which must be left unperformed and a case falling under clause (b), [pays or had paid] the consideration for the whole of the contract without any abatement; and
  (ii) in either case, relinquishes all claims to the performance of the remaining part of the contract and all right to compensation, either for the deficiency or for the loss or damage sustained by him through the default of the defendant.
  (4)When a part of a contract which, taken by itself, can and ought to be specifically performed, stands on a separate and independent footing from another part of the same contract which cannot or ought not to be specifically performed, the court may direct specific performance of the former part.
  Explanation.- For the purposes of this section, a party to a contract shall be deemed to be unable to perform the whole of his part of it if a portion of its subject matter existing at the date of the contract has ceased to exist at the time of its performance.”
• Section 50(1) of the Registration Act, 1908:
  
  “(1) Every document of the kinds mentioned in clauses (a), (b), (c), and (d) of section 17, sub-section (1), and clauses (a) and (b) of section 18, shall, if duly registered, take effect as regards the property comprised therein, against every unregistered document relating to the same property, and not being a decree or order, whether such unregistered document be of the same nature as the registered document or not.”
• Section 21 of the Limitation Act, 1963:
  
  “21. Effect of substituting or adding new plaintiff or defendant.- (1) Where after the institution of a suit, a new plaintiff or, defendant is substituted or added, the suit shall, as regards him, be deemed to have been instituted when he was so made a party:
  Provided that where the court is satisfied that the omission to include a new plaintiff or defendant was due to a mistake made in good faith it may direct that the suit as regards such plaintiff or defendant shall be deemed to have been instituted on any earlier date.
  (2) Nothing in sub-section (1) shall apply to a case where a party is added or substituted owing to assignment or devolution of any interest during the pendency of a suit or where a plaintiff is made a defendant or a defendant is made a plaintiff.”

Arguments

The Vendor argued that the agreement with the Vendee was conditional upon the cancellation of the prior agreement with Pratap Reddy and that the Vendee failed to pay the full consideration within the stipulated time. The Vendor also contended that the agreement was a composite one for 300 sq. yards, and since that was not possible, the agreement was incapable of specific performance.

The Vendee argued that she was entitled to specific performance of the entire agreement for 300 sq. yards and that the sale to Pratap Reddy was not genuine and should be set aside. The Vendee claimed she had paid a substantial portion of the consideration and was ready to pay the balance.

Pratap Reddy argued that the Vendee’s suit for specific performance was defective because he was not initially impleaded and that the suit was barred by limitation against him. He also argued that the Vendee’s suit against him was bad for non-joinder of the Vendor.

The innovativeness of the arguments lies in Pratap Reddy’s reliance on procedural defects in the Vendee’s suits, such as non-joinder of necessary parties and limitations, to protect his registered sale deed.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a dedicated section, but the main issues it addressed were:

1. Whether the agreement between the Vendor and Vendee was conditional upon the cancellation of the prior agreement with Pratap Reddy.
2. Whether the Vendee was ready and willing to perform her obligations under the agreement.
3. Whether the Vendee was entitled to specific performance of the entire agreement or only a part of it.
4. Whether the sale deed in favor of Pratap Reddy was valid and binding.
5. Whether the suit for specific performance was barred by limitation against Pratap Reddy.
6. Whether the Vendee’s suit against Pratap Reddy was bad for non-joinder of the Vendor.
7. Whether a court can direct partial specific performance of a contract.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:

Judgment

The Court’s view of the authorities is as follows:

• Section 10 of the Specific Relief Act, 1963: The Court acknowledged the amendment and its impact on the discretionary nature of specific performance, emphasizing that it is now mandatory subject to certain conditions.
• Section 12 of the Specific Relief Act, 1963: The Court relied on this section to justify the direction for partial specific performance, allowing for enforcement of the contract to the extent possible.
• Section 50(1) of the Registration Act, 1908: The Court emphasized that this provision gives precedence to registered documents, thus validating Pratap Reddy’s sale deed.
• Section 21 of the Limitation Act, 1963: The Court used this to highlight that the suit for specific performance was time-barred against Pratap Reddy.
• Durga Prasad and Anr. v. Deep Chand and Ors. [AIR 1954 SC 75]: The Court followed this case to support the argument that a party cannot be bound by a decree if not properly impleaded.
• Mahalaxmi Coop. Housing Society Ltd. and Ors. v. Ashabhai Atmaram Patel (D) thr. Lrs. and Ors. [(2013) 4 SCC 404]: The Court followed this case to emphasize that consolidation of suits does not merge them into one action.
• R. A. Oswal v. Deepak Jewellers and Ors. [(1999) 6 SCC 40]: The Court followed this case to support the view that the plea of bar under Order II Rule 2 must be pleaded and cannot be decided suo moto by the court.
• Dalip Singh v. Mehar Singh Rathee and Ors. [(2004) 7 SCC 650]: The Court followed this case to support the view that the plea of bar under Order II Rule 2 cannot be raised before the Supreme Court if not raised in the High Court.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors. The court emphasized the importance of adhering to written agreements, as the Vendor’s claim of a conditional agreement was not supported by the written document. The court also noted that the Vendee had demonstrated readiness and willingness to perform her obligations by paying a substantial portion of the consideration and attempting to pay the balance. However, the court also recognized the legal validity of the registered sale deed in favor of Pratap Reddy and the procedural defects in the Vendee’s suits, which made it impossible to grant specific performance of the entire agreement.

The court’s reasoning was primarily based on legal principles (70%) and procedural rules, with factual considerations (30%) playing a lesser role. The court relied heavily on the legal validity of registered documents, the limitations act, and the specific relief act to arrive at its decision.

Logical Reasoning

The court considered alternative interpretations but rejected them in favor of upholding the legal validity of the registered sale deed and the procedural requirements of the law. The court reasoned that while the Vendor had acted wrongly in selling part of the land to a third party, the legal framework did not allow for the entire contract to be enforced against the third party who had a registered sale deed.

The Supreme Court upheld the High Court’s decision to grant partial specific performance, directing the Vendor to execute a sale deed for the remaining 200 square yards of land. The court held that the Vendee was entitled to this relief as she had demonstrated readiness and willingness to perform her obligations. The court also reduced the sale consideration proportionally, in lieu of damages, as one third of the area agreed to be sold to the Vendee could not be sold to her.

The court’s decision was based on the following reasons:

• The written agreement did not contain any condition regarding the cancellation of the prior agreement with Pratap Reddy.
• The Vendee had paid a substantial portion of the sale consideration and was ready to pay the balance.
• The sale deed in favor of Pratap Reddy was valid and registered, giving it precedence over the unregistered agreement with the Vendee.
• The suit for specific performance against Pratap Reddy was time-barred.
• The Vendee’s suit against Pratap Reddy was bad for non-joinder of the Vendor.
• Section 12 of the Specific Relief Act allows for partial specific performance in cases where the entire contract cannot be performed.

The court quoted the following from the judgment:

“It is well settled that the onus of proof lies on the party who makes an allegation.”

“It is well settled that time is not of essence to agreements for sale of immovable property, unless the agreement specifically and expressly incorporates the consequence of cancellation of the agreement, upon failure to comply with a term within the stipulated date.”

“Section 12 has to be construed in a liberal, purposive manner that is fair and promotes justice.”

There were no dissenting opinions in this case, and the judgment was delivered by a two-judge bench.

The judgment has potential implications for future cases involving land sale agreements where third-party interests have been created. It emphasizes the need for clear and comprehensive agreements and the importance of impleading all necessary parties in legal proceedings.

The court did not introduce any new doctrines but clarified the application of existing legal principles in the context of land sale disputes.

Key Takeaways

The judgment in B. Santoshamma vs. D. Sarala provides several key takeaways for parties involved in land transactions:

• Importance of Clear Agreements: Agreements should be clear, comprehensive, and should include all terms and conditions. Any conditionality must be explicitly stated in the written agreement.
• Registration of Documents: Registered documents have precedence over unregistered documents relating to the same property. It is crucial to register sale deeds to protect one’s interests.
• Readiness and Willingness: Parties seeking specific performance must demonstrate that they are ready and willing to perform their obligations under the agreement.
• Partial Specific Performance: Courts may grant partial specific performance in cases where the entire contract cannot be performed.
• Impleading Necessary Parties: It is crucial to implead all necessary parties in legal proceedings to avoid procedural defects and ensure that the dispute is resolved effectively.
• Limitation: Suits for specific performance must be filed within the prescribed period of limitation.
• Legal Advice: Parties should seek legal advice before entering into land transactions to understand their rights and obligations.

The case underscores the complexities of land transactions and the need for due diligence and adherence to legal procedures. It highlights how procedural defects can impact the outcome of legal proceedings and the importance of ensuring that all necessary parties are included in any legal action.

This case serves as a reminder that while the courts will strive to uphold contractual obligations, they will also adhere to the legal framework and procedural requirements. Parties must be vigilant in ensuring that their agreements are clear, their documents are registered, and their legal actions are properly framed.