Supreme Court Upholds Specific Performance of Sale Agreement: R Lakshmikantham vs Devaraji (2019)

Date of the Judgment: 10 July 2019

Citation: (2019) INSC 708

Judges: Justice R.F. Nariman and Justice Surya Kant

Can a party to a sale agreement be denied specific performance because of a delay in filing the suit, even if the suit is within the limitation period? The Supreme Court of India recently addressed this question in a case concerning the specific performance of a sale agreement. The Court examined whether the High Court was correct in reversing the concurrent judgments of the lower courts, which had decreed specific performance in favor of the plaintiff. The bench consisted of Justice R.F. Nariman and Justice Surya Kant, with the judgment authored by Justice R.F. Nariman.

Case Background

On 22nd September 2002, an agreement to sell was executed between the appellant (plaintiff) and the respondent (defendant), where the defendant agreed to sell his property for Rs. 3,65,000. The plaintiff paid an advance of Rs. 5,000 in cash at the time of the agreement. The agreement stipulated that the balance amount was to be paid within three months, and the defendant was to execute the sale deed upon receiving the full payment. The plaintiff was also required to pay Rs. 60,000 to the defendant on or before 10th October. The original title documents were with a mortgagee, and the plaintiff was responsible for settling the loan and retrieving these documents.

The plaintiff sent a registered letter on 18th December 2002, reminding the defendant that Rs. 5,000 was received on the date of the agreement and Rs. 60,000 was received on 14th October 2002. The letter also stated that the plaintiff was ready with the balance money and requested the defendant to discharge the mortgage and execute the sale deed. This letter, along with another legal notice sent on 19th December 2002, was returned to the sender with a remark that the addressee did not receive it. Subsequently, on 7th July 2003, the plaintiff sent another legal notice to the defendant, which was received by the defendant, but no reply was given. The plaintiff then filed a suit for specific performance in February 2005.

Timeline

Course of Proceedings

The Trial Court ruled in favor of the plaintiff, stating that the agreement was valid and the plaintiff was ready and willing to perform his part of the contract. The Trial Court also noted that the defendant was trying to avoid his obligations. The First Appellate Court upheld the Trial Court’s decision. However, the High Court reversed these concurrent judgments, stating that time was of the essence in the agreement, the plaintiff had not proven his readiness and willingness, and the suit was filed belatedly. The High Court also stated that the value of the property was Rs.10 lakhs on the date of the sale agreement, though this was not proved by the defendant. The High Court did not consider other aspects except that the plaintiff was not ready and willing throughout to perform the sale agreement.

Legal Framework

The case primarily revolves around the concept of specific performance of contracts, particularly in the context of sale agreements. The key legal principles involved are:

• Time as the Essence of Contract: The High Court held that time was of the essence in the agreement, meaning that the contract had to be performed within the stipulated timeframe. However, the Supreme Court disagreed, stating that time was not of the essence in this case.
• Readiness and Willingness: The plaintiff must prove that he was ready and willing to perform his part of the contract. The High Court held that the plaintiff had not proven this, but the Supreme Court reversed this finding.
• Limitation Period: The suit for specific performance must be filed within the prescribed limitation period. The Supreme Court held that if a suit is filed within the limitation period, delay cannot be a ground for refusing relief.

Arguments

Appellant’s Arguments:

• The appellant argued that time was not of the essence in the agreement, as the seller had to first obtain the title documents from the mortgagee before the balance consideration could be paid.
• The appellant contended that the letters dated 18.12.2002 and 19.12.2002 were sent to the correct address and should be deemed as served on the defendant.
• The appellant stated that he was ready and willing to perform the contract, as he had the necessary funds and had sent notices to the defendant.
• The appellant relied on the judgment of Mademsetty Satyanarayana v. G. Yelloji Rao and others [AIR 1965 Supreme Court 1405], stating that if a suit is filed within the limitation period, delay cannot be a ground for refusing relief.

Respondent’s Arguments:

• The respondent argued that the plaintiff was not ready and willing to perform the contract, as there was a long time gap between the agreement and the filing of the suit.
• The respondent contended that the letters dated 18.12.2002 and 19.12.2002 were not served on the defendant.
• The respondent argued that the property value was Rs. 10 lakhs at the time of the sale agreement, and therefore, the sale price was too low.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the issues before the court were:

1. Whether the High Court was correct in holding that time was of the essence in the agreement to sell.
2. Whether the High Court was correct in holding that the letters dated 18.12.2002 and 19.12.2002 were not proved to have been served on the defendant.
3. Whether the High Court was correct in holding that the plaintiff was not ready and willing to perform his part of the contract.
4. Whether the High Court was correct in stating that the value of the property was Rs.10 lakhs at the time of sale agreement.

Treatment of the Issue by the Court

Authorities

The following authorities were considered by the Supreme Court:

Judgment

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

How each authority was viewed by the Court?

• The Supreme Court relied on Mademsetty Satyanarayana v. G. Yelloji Rao and others [AIR 1965 Supreme Court 1405]* to state that mere delay cannot be a ground for refusing relief if the suit is filed within the limitation period.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The interpretation of the agreement to sell, specifically clauses 3, 5, and 8, which indicated that time was not of the essence.
• The fact that the registered letters sent by the plaintiff were deemed to be served on the defendant.
• The plaintiff’s readiness and willingness to perform his part of the contract, evidenced by his possession of necessary funds and his communication with the defendant.
• The principle that delay cannot be a ground for refusing relief if the suit is filed within the limitation period.

Fact:Law

The court’s reasoning was based on a combination of factual analysis and legal interpretation. The court considered the specific clauses of the agreement, the evidence of service of letters, the plaintiff’s actions, and the applicable legal principles.

Logical Reasoning

Judgment

The Supreme Court allowed the appeal, set aside the judgment of the High Court, and restored the judgments of the Trial Court and the First Appellate Court. The Court held that the High Court had erred on several counts:

• The High Court was incorrect in holding that time was of the essence in the agreement. The Supreme Court stated, “Clause 3 has to be read along with clauses 5 and 8, which clearly show that in the nature of reciprocal promises, the promise made by the seller in clause 5 has to be performed first.”
• The High Court was incorrect in stating that the letters of 18.12.2002 and 19.12.2002 were not proved. The Supreme Court noted, “the moment the registered letter once sent is returned with the remarks mentioned hereinabove, it shall be deemed to have been served on the defendant on the address so stated, unless the contrary is proved.”
• The High Court was wrong in holding that the plaintiff was not ready and willing. The Court stated, “In India, it is well settled that the rule of equity that exists in England, does not apply, and so long as a Suit for specific performance is filed within the period of limitation, delay cannot be put against the plaintiff.”
• The High Court was incorrect in stating that the value of the property was Rs.10 lakhs at the time of sale agreement. The Supreme Court stated, “The value of the property on the date of the sale agreement was only Rs.6 lakhs, and it was open for the parties to negotiate the said price upwards or downwards, which was what the parties did in the facts of the present case.”

The decision was unanimous, with both Justice R.F. Nariman and Justice Surya Kant concurring. The judgment was authored by Justice R.F. Nariman.

Key Takeaways

• Time is not always of the essence in a contract for sale of property, particularly if there are reciprocal obligations that need to be fulfilled before the sale can be completed.
• Registered letters sent to the correct address are deemed to be served, unless the contrary is proven.
• If a suit for specific performance is filed within the limitation period, delay cannot be a ground for refusing relief.
• The value of the property at the time of the agreement is the relevant factor, and parties are free to negotiate the price.

Directions

The Supreme Court did not give any specific directions other than allowing the appeal and restoring the judgments of the lower courts.

Specific Amendments Analysis

There were no specific amendments discussed in the judgment.

Development of Law

The ratio decidendi of the case is that in agreements for the sale of property, time is not always of the essence, and the readiness and willingness of the plaintiff is established if the suit is filed within the limitation period. This judgment reinforces the principle that Indian law does not follow the English rule of equity, which allows for the denial of specific performance based on mere delay. The Supreme Court reaffirmed its position in Mademsetty Satyanarayana v. G. Yelloji Rao and others [AIR 1965 Supreme Court 1405], stating that if a suit is filed within the limitation period, delay cannot be a ground for refusing relief.

Conclusion

In the case of R Lakshmikantham vs Devaraji, the Supreme Court overturned the High Court’s decision and upheld the concurrent judgments of the lower courts, which had decreed specific performance in favor of the plaintiff. The Supreme Court clarified that time was not of the essence in the agreement, the letters sent by the plaintiff were deemed to be served, and the plaintiff had demonstrated readiness and willingness to perform his part of the contract. This judgment reinforces the importance of adhering to the principles of contract law and ensuring that specific performance is granted when the conditions are met.