Supreme Court Upholds Specific Performance of Agreement: Nadiminti Suryanarayan Murthy vs. Kothurthi Krishna Bhaskara Rao (2017)

Case Background

The case revolves around a property in Amalapuram, Andhra Pradesh. The original owner, Surya Narayana, passed away in 1980, leaving his wife and daughters with a life interest in the property. In 1981, these family members rented the house to Nadiminti Suryanarayan Murthy (defendant No. 6) for Rs. 150 per month.

On January 18, 1983, the family (defendants 1 to 5) agreed to sell the house to Kothurthi Krishna Bhaskara Rao (plaintiff) for Rs. 46,000, with Rs. 1,000 paid as advance. The sale deed was to be executed within six months. However, on February 9, 1983, the family sold the same house to the tenant, Nadiminti Suryanarayan Murthy (defendant No. 6), for Rs. 45,000.

Aggrieved, the plaintiff filed a suit on July 14, 1983, seeking specific performance of the agreement dated January 18, 1983, or alternatively, a refund of the advance and damages.

Timeline

Course of Proceedings

The Trial Court ruled in favor of the plaintiff, finding the agreement with defendant No. 6 to be not genuine. The court held that the sale deed to defendant No. 6 was invalid and that the plaintiff was ready to fulfill his part of the agreement.

Defendant No. 6 appealed to the High Court. A single judge of the High Court reversed the Trial Court’s decision and dismissed the plaintiff’s suit.

The plaintiff then filed a letters patent appeal before a Division Bench of the High Court. The Division Bench overturned the single judge’s decision, restoring the Trial Court’s decree in favor of the plaintiff.

Defendant No. 6 then appealed to the Supreme Court of India.

Legal Framework

The Supreme Court considered Section 16(c) of the Specific Relief Act, which requires a plaintiff seeking specific performance to prove they were ready and willing to perform their part of the contract.

The Court also referenced Section 65 of the Contract Act, which deals with the obligation of a person who has received an advantage under a void agreement or contract.

The Court also considered Section 52 of the Transfer of Property Act, which deals with the principle of lis pendens, stating that any transfer of property during a pending lawsuit does not affect the rights of the parties to the suit.

Arguments

The plaintiff argued that he had entered into a genuine agreement with defendants 1 to 5 on January 18, 1983, and had paid an advance of Rs. 1,000. He stated that he was ready and willing to pay the balance amount, but the defendants breached the agreement by selling the property to defendant No. 6.

Defendants 1 to 5 contended that they had initially agreed to sell the property to defendant No. 6 on January 4, 1983, but later entered into an agreement with the plaintiff. They claimed the plaintiff had assured them he would persuade defendant No. 6 to withdraw from the deal. They also stated that they had to sell the property to repay a loan taken by the original owner.

Defendant No. 6 argued that his agreement was prior in time and that the sale in his favor was valid.

Issues Framed by the Supreme Court

1. Which agreement is bona fide and genuine: the one dated 04.01.1983 between defendant Nos. 1 to 5 and defendant No. 6, or the one dated 18.01.1983 between defendant Nos. 1 to 5 and the plaintiff?
2. Whether the plaintiff was ready and willing to perform his part of the agreement dated 18.01.1983?
3. Whether the plaintiff was able to prove the breach committed by defendant Nos. 1 to 5 in not performing their part of the agreement?

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the case of Durga Prasad & Anr. vs. Deep Chand & Ors., AIR 1954 SC 75, to determine the proper form of decree in cases of specific performance where the property has been sold to a third party.

Judgment

The Supreme Court upheld the decisions of the Trial Court and the Division Bench of the High Court. The Court found that the agreement dated January 18, 1983, was genuine, while the agreement dated January 4, 1983, was a bogus attempt to avoid the plaintiff’s claim.

The Court directed the defendants to execute the sale deed in favor of the plaintiff. It also directed defendants 1 to 5 to refund the sale consideration of Rs. 45,000 to defendant No. 6.

How each authority was viewed by the Court?

The Court used the case of Durga Prasad & Anr. vs. Deep Chand & Ors., AIR 1954 SC 75 to determine that in cases of specific performance, where the property has been sold to a third party, the subsequent purchaser should join in the conveyance to pass on the title to the prior transferee.

The Court used Section 16(c) of the Specific Relief Act to determine that the plaintiff had proved his readiness and willingness to perform his part of the contract.

The Court used Section 65 of the Contract Act to determine that defendants 1 to 5 were obligated to refund the sale consideration to defendant No. 6, as the sale was void.

The Court used Section 52 of the Transfer of Property Act to determine that any transactions during the pendency of the suit would not affect the rights of the parties to the suit.

What weighed in the mind of the Court?

The Supreme Court was primarily influenced by the fact that defendants 1 to 5 admitted to entering into an agreement with the plaintiff and accepting an advance. The court found the defendants’ story about the prior agreement with defendant No. 6 to be unrealistic and fabricated to avoid executing the agreement with the plaintiff. The court also noted that the plaintiff had always been ready and willing to perform his part of the agreement.

Logical Reasoning

Key Takeaways

• A prior agreement to sell property can be enforced if it is genuine and the plaintiff is ready and willing to perform their part of the contract.
• A subsequent sale to a third party does not nullify the rights of the prior agreement holder.
• Sellers cannot retain the sale consideration if the sale deed becomes invalid.
• The principle of lis pendens applies to transactions during the pendency of a suit.

Directions

The Supreme Court directed that:

• Defendants 1 to 5 must execute the sale deed in favor of the plaintiff.
• Defendants 1 to 5 must refund Rs. 45,000 to defendant No. 6.
• If there is any dispute regarding the amount paid by defendant No. 6 to defendants 1 to 5, the executing court will hold an inquiry.

Development of Law

The ratio decidendi of the case is that a prior agreement to sell property can be enforced if it is genuine and the plaintiff is ready and willing to perform their part of the contract, even if a subsequent sale deed has been executed. This reaffirms the principle that a valid prior agreement takes precedence over subsequent transactions.

Conclusion

The Supreme Court’s decision in Nadiminti Suryanarayan Murthy vs. Kothurthi Krishna Bhaskara Rao upholds the importance of honoring contractual obligations and the principle of specific performance. The Court emphasized the need for genuine intent and timely performance in contract law. The judgment also clarifies the obligations of parties in cases where property has been sold to multiple individuals.