In O.M.P.(I) (COMM.)192/2022-DEL HC-MoU, being determinable in nature, is not capable of specific performance due to statutory bar contained in Sec.14(d) of Specific Relief Act: Delhi HC
Justice Mini Pushkarna [23-08-2022]

Read Order: ROYAL ORCHIDS v. KULBIR SINGH KOHLI & ANR 

Manismran Kaur

New Delhi, August 24, 2022: The Delhi High Court has recently observed that in terms of Section 41(e) of the Specific Relief Act, no injunction can be granted to prevent breach of a contract, the performance of which cannot be enforced.

By referring to Section 16 (c), which indicates that specific performance of a contract cannot be enforced in favour of a person who fails to prove that he has performed or is willing to perform the essential terms of the contract, the Bench of Justice Mini Pushkarna dismissed the instant petition preferred by the petitioner under Section 9 of the Arbitration and Conciliation Act, 1996, against the respondents seeking urgent interim orders for protection to preserve the subject matter of Arbitration i.e. property situated at New Delhi. 

The Single Judge bench was of the view that the petitioner failed to prove that it was ready and willing to perform its obligations under the MOU at the relevant time and there was nothing on record to demonstrate that the petitioner had the relevant balance in its account at the relevant time to make payment to the respondents, the bench noted. 

It was the case of the petitioner that the parties entered into a MOU in terms of the property situated at New Delhi. The Court noted from the record available that the two respondents were spouses and co-owners of the plot of the land and in possession of the freehold property in question.  The petitioner further stated that being interested in engaging the services of a reputable builder, the respondents reached out to the petitioner and expressed a desire to collaborate in the construction of the project, which was the subject matter of the present proceedings. 

 It was the understanding in the MOU that an initial amount of Rs 1 crore would be paid by the petitioner to the respondents. The respondents had taken a loan against the security of the subject property from Yes Bank and the balance payable was a sum of Rs 40, 291, 247.61. It was the understanding that the sum payable to Yes Bank would be paid by the petitioner and adjusted in the amounts payable as initial amounts to the respondents.

Thus, the petitioner contended that he paid a sum of Rs. 1 crore as per understanding of the respondents and the same was encashed by the respondents. It was thus, the case of the petitioner that the respondents avoided their obligations under false pretext.  Meanwhile, the partners of the petitioner firm got information that the respondents were re-negotiating other deals with other builders. Being faced with breach of contract on the part of the respondents, the petitioner had invoked arbitration and has issued a notice to the respondents seeking appointment of an arbitrator.

Referring to the relevant clauses of the MOU, the Court noted that there was no portion of the property, which accrued in favour of the petitioner. The entire rights in the property, including possession and right to sell, remained with the respondents. The possession of the petitioner was only constructive for the purposes of construction. The Power of Attorney was also given for limited purposes of achieving construction. It was also clear from the MOU that all taxes including Capital Gain Tax  were borne by the respondents, the Court further noted. 

It was also noted that through  the  MOU between the parties, it was  clear that the said MOU was  nothing but a pure construction agreement. No ownership rights were to be acquired by the petitioner under the MOU. In addition to the same, the Court also noted that time was the essence of the agreement between the parties. Thus, the petitioner was obligated to make the payment within the stipulated time, the Court noted. At this stage reliance was placed on the case of P.R. Deb and Associates Vs Sunanda Roy.

Thus, this Court prima facie was of the view that the petitioner failed  to prove that it was ready and willing to perform its obligations under the MOU at the relevant time. There was nothing on record to demonstrate that the petitioner had the relevant balance in its account at the relevant time to make payment to the respondents.

With respect to the contention of the petitioner that the MoU is not a detrimental contract, the Court noted that the said contention cannot be accepted in view of the fact that the MOU being a private commercial transaction, from the very nature of the agreement, could be terminated. The MOU executed between the parties was a construction and redevelopment agreement. It was a commercial transaction between two private parties and hence the same was by its very nature determinable, even if there was no termination clause in the MOU.

In view of the same, the Court further noted, “the MOU being determinable in nature in view of the aforesaid discussion, the same is not capable of specific performance due to the statutory bar contained in Section 14(d) of the Specific Relief Act.”Thus, in terms of Section 41(e) of the Specific Relief Act, no injunction can be granted to prevent breach of a contract, the performance of which cannot be enforced. 

As the respondents had already terminated the MOU by their notice hence, the remedy available with the petitioner is to seek damages, if any. Thus, when the petitioner is statutorily barred from seeking specific performance of the MOU, the petitioner cannot be held entitled to any interim relief under Section 9 of the Act, the Bench held.Thus, observing that the petitioner was not entitled to the reliefs sought for, the Bench dismissed the petition.