In RSA-410-2022 (O&M) -PUNJ HC- Defendants cannot resile from contract on ground that amount was not legal tender when they already received such amount in pursuance of agreement to sell, rules P&H HC in case where parties entered into contract during demonetization Justice Anil Kshetarpal [02-05-2022]

Read Order: Roop Ram v. Onkar Dutt and Another

Monika Rahar

Chandigarh, May 13, 2022: While rejecting the plea of the appellant-defendant dishonouring an agreement to sell where the plaintiff paid a certain sum of money at the time of execution, on the ground that some currency notes which were used were declared illegal by the Government during demonetization, the Punjab and Haryana High Court has held that the defendants who already received the amount cannot be permitted to resile from the contract on the ground that the amount so paid was not a legal tender.

Essentially, in this case before the bench of Justice Anil Kshetarpal, a suit was filed by the plaintiff (now respondent) claiming that the defendant entered into an agreement to sell in  2016 for sale of 12 kanals 16 marlas of land for a total sale consideration of Rs .22,00,000. 

At the time of execution of the agreement, the plaintiff claimed to have paid a sum of Rs.19,31,000/-. The defendant did not honour the agreement whereas the plaintiff was always ready and willing to perform his part of the contract and that he visited the office of the Sub-Registrar on the agreed date i.e February 15, 2017.

The defendant contested the suit while asserting that there was no agreement to sell. It was also asserted that the property was mortgaged. The trial court as well as the First Appellate Court recorded a concurrent finding of fact that the plaintiff on payment of Rs.19,31,000/- to the defendant entered into an agreement to sell and he was always ready and willing to perform his part of the contract. 

Hence, while assailing the findings of fact arrived at by the First Appellate Court, the defendant filed this Regular Second Appeal. The appellant filed an application under Order 41 Rule 27 CPC for permission to lead additional evidence in order to produce notification no. 2652 dated November 08, 2016 (i.e. the ‘demonetization notification’ stating that ₹ 500 and ₹ 1000 denominations of Bank Notes of the existing series issued by Reserve Bank of India shall cease to be legal tender with effect from November 09, 2016). 

This application was accompanied by another application seeking permission to lead additional evidence in order to produce notification dated November 08, 2016, the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 and the Specified Bank Notes (Cessation Of Liabilities) Act, 2017.

The counsel representing the appellant (defendant) contended that in view of the Specified Bank (Cessation of Liability) Act, 2017, the tender of the amount of Rs.19,31,000/- in the currency notes of denomination of 500 and 1000 was illegal. He submitted that demonetization was announced by the Government of India on November 08, 2016 whereas the amount was paid on November 09, 2016. 

He contended that the agreement to sell, being a contract was without consideration, therefore, the decree of specific performance of the agreement to sell could not be granted

The Court, after considering the submission and examining the provisions of the Act as well as the scheme notified, observed that demonetization was announced in order to control the circulation of fake currency notes in the market, which was being used for financing subversive activities such as drug trafficking, terrorism which caused damage to the economy of the country. 

The Court further noted that it was permissible for the holders of those currency notes to tender the same in the Bank and that it was also permissible for the persons to get the amount exchanged by tendering those notes in the Bank or at fuel stations etc. 

Hence, the Court concluded that the tender of the notes with denomination of 500 and 1000 did not absolutely become illegal, rather limited use was permitted till December 30, 2016 after which only, the possession or usage of the notes was absolutely prohibited. 

In the present case, the Court observed that the contract was entered into in a remote area of State of Punjab and the amount was duly paid to the defendant who never raised any grievance that about the amount being paid in currency was no longer in use. He never offered to return the currency notes which were received by him from the plaintiff.

In such circumstances, the Court opined that the defendants who already received the amount cannot be permitted to resile from the contract on the ground that the amount so paid was not a legal tender. Also, the Court asserted that the provisions of the Act are required to be interpreted in a manner which advances the cause of justice and in no circumstances, such a contract can be said to be without consideration. Hence, finding no ground of interference, the petition was dismissed.