The Supreme Court (“SC”) has in its judgment dated September 18, 2020 in the matter of B. Santoshamma & Another v. D. Sarala & Another [Civil Appeal No. 3574 of 2009], observed that relief of specific performance of a contract/agreementis no longer discretionary pursuant to the amendment to the Specific Relief Act, 1963 (“SRA”) bought about under the Specific Relief (Amendment) Act, 2018 (“Amendment Act”).

Facts
Brief facts of the case are that one B. Santoshamma (“Appellant”) purchased 300 square yards of land in Survey No. 262, Hayathnagar Village and Taluk in Ranga Reddy District, Andhra Pradesh (“Suit Property”), from one Mr. D. Tanesha, under a registered sale deed dated August 20, 1982. After about ten days from the date thereof, the Appellant entered into an oral agreement with one Mr. Pratap Reddy, for sale of 100 square yards out of the Suit Property, for a total consideration of INR 3,000/-, out of which an amount of INR 2,500/- was received as an advance. Simultaneously, possession of the said 100 square yards of the Suit Property was delivered to the said Mr. Pratap Reddy on the date of the said oral agreement. Subsequently, on January 20, 1984, the oral agreement between the Appellant and Mr. Pratap Reddy was reduced into writing, upon payment of the balance consideration of INR 500/- (“Agreement 1”) and the Appellant allegedly agreed to execute the sale deed on an auspicious day.

On March 21, 1984, the Appellant entered into another agreement with one Smt. D. Sarala (“Respondent”), for sale of the entire Suit Property to the Respondent for a total consideration of INR 75,000/- (“Agreement 2”), out of which a sum of INR 40,000/- was paid by the Respondent to the Appellant in the first instance and a sum of INR 5,000/- was paid subsequently, as advance. The Appellant allegedly informed the Respondent about the existence of Agreement 1, receipt of the entire sale consideration thereunder, and delivery of possession of the said 100 square yards of the Suit Property to Mr. Pratap Reddy. The Appellant allegedly requested the Respondent to incorporate a clause with respect to the existence of Agreement 1 in Agreement 2. However, the Respondent assured the Appellant that she would get Agreement 1 cancelled as her husband knew Mr. Pratap Reddy well and had already spoken to him in this regard, to whom Mr. Pratap Reddy had allegedly assured that there would be no difficulty created by him.

However, upon the Respondent allegedly failing to make payment of INR 30,000/- towards the balance consideration even after expiry of 20 days from the stipulated period under Agreement 2, the Appellant executed a registered deed of conveyance dated May 25, 1984, transferring the said 100 square yards of the Suit Property in favour of Mr. Pratap Reddy (“Sale Deed”). The Appellant and her husband and Mr. Pratap Reddy have alleged that the Respondent tried to interfere with Mr. Pratap Reddy’s possession of 100 square yards of the Suit Property. On June 20, 1984, the Appellant issued a notice to the Respondent stating that, in view of the existence of Agreement 1, the validity of Agreement 2 was subject to clearance/ no-objection by Mr. Pratap Reddy of the arrangement under Agreement 2. On June 22, 1984, the Appellant’s husband, Mr. Darshan Reddy, lodged a complaint with the Station House Officer, Hayathnagar, alleging that the original sale deed, pertaining to sale of the Suit Property in favour of the Appellant, had been stolen from his residence, alongwith other documents. Thereafter, the Respondent filed a suit (O.S. No. 222 of 1984) before the Court of the Principal Subordinate Judge, Rangareddy District (“Trial Court”) seeking specific performance of Agreement 2 (“Suit for Specific Performance”) claiming delivery of possession of the entire Suit Property from the Appellant.

By and under a judgment and decree dated March 30, 1994, the Trial Court allowed the Suit for Specific Performance in part, holding that the Respondent was not entitled to seek specific performance in respect of the 100 square yards of the Suit Property covered by the Sale Deed, but entitled to relief of specific performance in respect of the remaining 200 square yards of the Suit Property. Being aggrieved by the aforesaid judgment of the Trial Court, the Appellant filed an appeal before the High Court of Andhra Pradesh (“HC”). By and under a judgment and order dated September 7, 2006, the HC, inter alia, dismissed the aforesaid appeal filed by the Appellant and confirmed the judgment passed by the Trial Court. Aggrieved by the same, the Appellant filed the present appeal before the SC.

Issue
Whether the Respondent was entitled to seek specific performance of Agreement 2.

Arguments
Contentions raised by the Appellant:

The Appellant, inter alia, contended that Agreement 2 between the Appellant and the Respondent was liable to be cancelled as the Respondent had defaulted in making payment of the balance consideration of INR 30,000/- within the period stipulated thereunder. Consequently, the Appellant executed and registered the Sale Deed in favour of Mr. Pratap Reddy. It was further argued that execution of a sale deed in favour of the Respondent was conditional upon cancellation of the Agreement 1. It was further contended that the Respondent, who knew of the pre-existing Agreement 1, had assured the Appellant that she and her husband had already spoken to Mr. Pratap Reddy to get Agreement 1 cancelled, but failed to do so. Also, Agreement 2 was a composite agreement for sale of 300 square yards of the Suit Property for a lump sum consideration of INR 75,000/-. Since it was not possible to sell 300 square yards of the Suit Property to the Respondent as per the Agreement 2, the said agreement became infructuous and incapable of specific performance and there was no scope for sale of 200 square yards of the Suit Property at a reduced consideration.

Contentions raised by the Respondent:

The Respondent on the other hand contended that she should have been granted specific performance of Agreement 2 in its entirety and the Trial Court should have set aside the purported Sale Deed and directed the Appellant to sell the entire Suit Property to the Respondent. It was further argued that the execution and registration of the Sale Deed in favour of Mr. Pratap Reddy was in any case, subsequent to Agreement 2. Refuting the contention advanced by the Appellant about the lack of readiness and willingness on the part of the Respondent to perform her obligations under Agreement 2, the Respondent argued that the fact that the Respondent had paid INR 40,000/- on the date of execution of Agreement 2 itself, and subsequently a further sum of INR 5,000/- to the Appellant, established her intention to honour the arrangement under Agreement 2. The Respondent further contended that these payments towards part consideration were duly acknowledged by the Appellant. The Respondent also contended that she had offered to pay cash to the Appellant and her husband towards the balance amount of INR 30,000/- on April 30, 1984, and requested them to register the sale deed in her favour, but the Appellant and her husband refused to receive the said amount and instead requested the Respondent to make the said payment by way of a demand draft. However, even though the Respondent got a demand draft of INR 30,000/- made in favour of the Appellant on May 4, 1984, the Appellant declined to accept the same.

Observations of the Supreme Court

The SC observed that the contention of the Appellant, that the Agreement 2 was subject to the condition that the Respondent would get Agreement 1 cancelled, could not be accepted since Agreement 2 did not contain any such condition. The SC noted that it is a well settled principle that the onus of proof lies on the party making the allegation and that the Appellant had failed to establish that Agreement 2 was subject to the pre-condition of the Respondent and/or her husband negotiating with Mr. Pratap Reddy to get Agreement 1 cancelled. The SC further observed that, the concurrent finding of the HC and the Trial Court, that the Respondent had been ready and willing to perform, and had in fact performed her obligations under the Agreement 2, was also unexceptionable since the Respondent had paid INR 40,000/- out of the total consideration of INR 75,000/- on the date of execution of the Agreement 2 itself and had arranged to pay the remaining consideration within 47 days of execution of the said agreement. The SC further noted that it was well settled that time was not of essence to agreements for sale of immovable property, unless the agreement specifically, and expressly incorporated the consequence of cancellation of the agreement, upon failure to comply with a term within the stipulated date.

With respect to specific performance, it was further observed that prior to the SRA being amended under the Amendment Act, the relief of specific performance of an agreement was at all material times, an equitable, discretionary relief, and governed by the provisions of the SRA. Even though the power of the court to direct specific performance of an agreement may have been discretionary, such power could not be arbitrary. The discretion had necessarily to be exercised in accordance with sound and reasonable judicial principles. However, pursuant to the amendment of Section 10 of the SRA on October 1, 2018, the words “specific performance of any contract may, in the discretion of the court, be enforced” have been substituted with the words “specific performance of a contract shall be enforced subject to …”. Courts are now obliged to enforce the specific performance of a contract, subject to the provisions of sub-section (2) of Section 11, Section 14 and Section 16 of the SRA. Accordingly, grant of relief of specific performance of contracts is no longer subject to the discretion of courts.

The SC observed that an agreement to sell immovable property, generally creates aright in personam and the Respondent had accordingly acquired a legitimate right to enforce specific performance of Agreement 2. The SC also noted that although courts ordinarily enforce contracts in their entirety by passing a decree for specific performance, Section 12 of the SRA carved out exceptions, where courts may direct specific performance of a contract in part. Accordingly, courts may, under Section 12 of the SRA, direct the party in default to perform specifically, so much of its part of the contract, as it can perform, provided the other party pays or has paid the consideration for the whole of the contract, reduced by the consideration for the part which must be left unperformed. In the present case, the Respondent had arranged to tender the full consideration within the time stipulated in the Agreement 2, from the date of its execution. Also, admittedly, a major portion of the full consideration, that is, INR 45,000/- had already been paid by the Respondent to the Appellant and the Respondent had been ready to and had offered to pay the entire balance consideration to the Appellant.

Decision of the Supreme Court

In dismissing the appeal, the SC noted that Section 12 of the SRA was to be construed and interpreted liberally, in a purposive and meaningful manner, to empower the court to direct specific performance by the defaulting party, of so much of the contract, as can be performed, in a case like this. To hold otherwise would permit a party to a contract for sale of land, to deliberately frustrate the entire contract by transferring a part of the suit property and creating third party interests over the same. The SC observed that a contractee who frustrates a contract deliberately by his own wrongful acts cannot be permitted to escape scot free.

The SC further noted that after having entered into Agreement 2 for the sale of 300 square yards of the Suit Property and accepting a major part of the consideration, it did not lie in the mouth of the Appellant to contend that the contract should not have specifically been enforced in part in respect of the balance 200 square yards, which the Appellant still owned. It was also patently obvious that the Appellant did not disclose the existence of any prior agreement with respect to the Suit Property to the Respondent, as Agreement 2 did not bear reference to any such prior agreement.

In passing its judgement, the SC also held that the Trial Court had fairly reduced the total consideration payable under Agreement 2 by 1/3rd of the agreed amount, in lieu of damages, as 1/3 rd of the area agreed to be sold to the Respondent could not be sold to her.

Vaish Associates Advocates View:

In view of the amended Section 10 of the SRA, the courts no longer have the discretion to grant relief of specific performance and are now obliged to enforce the specific performance of a contract, subject to the provisions of sub-section (2) of Section 11, Section 14 and Section 16 of the SRA. The SC has therefore, in the extant judgement, relied on Section 12 of the SRA, in allowing specific relief in respect of a part of a contract where parties to a contract are unable to perform their obligations under the contract in entirety.

The SC in the present judgment has clarified that courts may, in the circumstances mentioned under Section 12 of the SRA, direct the specific performance of so much of such contract, as can be performed, particularly where the value of the part of the contract left unperformed is small in proportion to the total value of the contract. The above judgment should hopefully act as a deterrent to future immovable property owners who, with malicious intent, avoid fulfilling their obligations under an agreement for sale, by creating third party interests over a portion of the land.

For more information please write to Mr. Bomi Daruwala at [email protected]

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