Courts must be cognizant of conduct of parties, escalation of price of suit property, and whether one party will unfairly benefit from decree, while granting remedy of specific performance in suits relating to sale of immovable property: SC

Read Judgment: Shenbagam & Ors. V. Kk Rathinavel

Pankaj Bajpai

New Delhi, January 21, 2022: Opining that time is not of the essence in an agreement for the sale of immoveable Property, the Supreme Court has held that in deciding whether to grant the remedy of specific performance, specifically in suits relating to sale of immovable property, the courts must be cognizant of the conduct of the parties, the escalation of the price of the suit property, and whether one party will unfairly benefit from the decree. 

A Division Bench of Justice Dr. D.Y Chandrachud and Justice A.S Bopanna observed that in evaluating whether Kk Rathinavel (Respondent) was ready and willing to perform his obligations under the contract, it is not only necessary to view whether he had the financial capacity to pay the balance consideration, but also assess his conduct throughout the transaction.

The observation came pursuant to an appeal challenging the judgment, whereby the Madras High Court confirmed the decree for specific performance. 

The background of the case was that, Shenbagam & Ors (Appellants) and her spouse entered into an agreement in the year 1990 with Respondent by which they agreed to sell the suit property for a consideration of Rs. 1,25,000/-. The respondent paid a sum of Rs. 25,000 as an advance and agreed to pay the balance within six months, with the stamp duty. In the event the respondent was ready and willing to complete the sale but the appellants delayed or refused, the respondent could proceed before the court to get the sale completed and seek possession of the suit property under the Specific Relief Act 1963. 

The suit property was also subject to a mortgage of Rs.6,000 in favour of one Janaki Amma. The respondent alleged that the appellants had received the advance sum to discharge the mortgage over the suit property. On the contrary, the appellants alleged that the respondent was aware of the mortgage over the suit property and had agreed to discharge the mortgage from the sale consideration. The appellants sent a legal notice to the respondent calling upon him to pay the balance consideration and rescinded the contract on the ground that the respondent was not willing to perform his obligations. In response, the respondent sent a reply calling upon the appellants to execute the sale free from encumbrance.

In 1991, the respondent instituted a suit before the Principal District Munsif, Coimbatore seeking a permanent injunction restraining the appellants from alienating or creating any encumbrance on the suit property, however was obtained an ad interim injunction. In the meantime, the appellants discharged the mortgage debt. Later, in 1993, the respondent instituted a suit for specific performance or in the alternative, a refund of the advance of Rs. 35,000 with interest at 24% per annum from the date of the suit till realization.

Later, the trial court decreed the suit in favour of the respondent and directed the respondent to deposit the balance consideration of Rs. 90,000 within a month. The appellants on the other hand were directed to execute the sale deed in favour of the respondent. When the appeal was pending before High Court, the respondent moved an application to withdraw the balance consideration of Rs. 90,000 which was deposited before the trial court, which was allowed. Later, the Single Judge of the High Court upheld the judgment of the trial court. 

After considering the submissions, the Apex Court noted that Section 16 of the Specific Relief Act provides certain bars to the relief of specific performance, which include, inter alia, a person who fails to aver and prove that he has performed or has always been ‘ready and willing’ to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented and waived by the defendant. 

All the three courts grossly erred in the manner in which they have adjudicated upon this dispute in a suit for specific performance, as in the first instance, the trial court failed to frame an issue on whether the respondent-plaintiff was ready and willing to perform his obligations under the contract and instead assessed whether he is entitled to the relief of specific performance, added the Court. 

Speaking for the Bench, Justice Chandrachud noted that Respondent was required to pay the remaining consideration (or indicate his willingness to pay) and only then could have sought specific performance of the contract, and therefore merely averring that he was waiting with the balance consideration and believed that the appellants would clear the encumbrance is insufficient to prove that the respondent-plaintiff was willing to perform his obligations under the contract.

However, noticing that three decades have passed since the agreement to sell was entered into between the parties, Justice Chandrachud directed appellants to refund the advance amount of Rs. 35,000/- received from the respondent with interest at the rate of 6% per annum from the date of the filing of the suit for specific performance by the respondent, till the payment of the refund.