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In the matter of Ferrodous Estates Private Limited v. P. Gopirathnam (Dead) and Others [Civil appeal no. 13516 of 2015], the Supreme Court of India (“SC”) vide its judgement dated October 12, 2020 held that a suit for specific performance filed within limitation could not be dismissed on the sole ground of delay or laches. The appeal had been filed against the judgement of the division bench of the Madras High Court (“MHC”). The MHC had decided against specific performance of a sale agreement entered into between the appellant and the respondents herein.

Facts
An agreement to sell dated June 12, 1980 (“Sale Agreement”) had been entered into between the appellant (“Appellant Company”) and the respondents (“Respondents”) in respect of certain property (“Suit Property”). In order to complete the sale transaction, the Respondents were to secure, inter alia, permissions from the competent authority under the Tamil Nadu Urban Land (Ceiling and Regulation) Act, 1978 (“ULCA”). The Appellant Company was to complete the transaction within six months from the date of the Sale Agreement subject to the Respondents obtaining clearance certificate from the appropriate authorities and giving vacant possession of the Suit Property. However, necessary permissions were not obtained by the Respondents, especially from the competent authority under ULCA. The Appellant Company thereafter, filed a suit for specific performance on February 24, 1981. The Appellant Company pleaded that it had been always ready and willing to perform its obligations. It was contended that the Respondents had not arranged to get, inter alia, permissions from the competent authorities in order to achieve completion of the sale. The Appellant Company believed that the Respondents were attempting to take advantage of the rise in price of landed properties and were trying to alienate the Suit Property to third parties. In the written statement filed by the Respondents, no defence was taken on any plea that ULCA would be infracted if the suit for specific performance would be decreed. The defence relating to the same was later made only in an additional written statement. The decisions taken by the courts at various stages are briefly detailed below.

Issue
Among other issues which were framed in the suit, the primary issue was: Whether the Appellant Company was not entitled to purchase more than 500 square meters under ULCA and whether the Sale Agreement was void on that account.

Decision of Madras High Court (Single Judge)
By judgement dated March 15, 1991, the MHC held that since the Respondents had not sought permissions under ULCA, they had breached the Sale Agreement. The Appellant Company was, therefore, entitled to get a decree of specific performance. It was noted that there was no term in the Sale Agreement that provided that it was subject to the grant of permissions under ULCA and that in the event of refusal of the same, the Sale Agreement would fail. Even if the said permissions had not been obtained, the Respondents could not refuse sale on such grounds. It was open to the Appellant Company to get a sale of the Suit Property with the risk. The Sale Agreement was true, valid and enforceable and it did not suffer from material alteration. Thereafter, the Respondents were directed to execute the sale deed within a two month period.

Decision of Madras High Court (Full Bench)
First appeal was made to the division bench in respect of the above judgement. The division bench then referred the matter to a full bench in respect of various questions. By judgement dated March 3, 1999, the MHC held that even if a contract by itself may not be illegal, if its enforcement violated any law, the agreement could not be enforced. The ULCA had been enacted to prevent concentration of urban land in the hands of few persons. The prohibition under Section 6 (transfer of vacant land) of the ULCA was for transferring of land by a person holding land in excess of the ceiling limits and any such transfer was deemed to be null and void. It was held that the provision contemplated both proposed transfer and completed transfer. Consequently, an agreement of sale was also affected by Section 6 of the ULCA. As far as exemption under ULCA was concerned, such exemption could be applied for only by the vendor. Further, while considering a suit for specific performance, the MHC was concerned with whether the purchaser had come to the court for enforcing the agreement in terms thereof. Asking a vendor to get exemption and then execute the agreement would amount to deviating from the terms of contract and the court could not enforce such a contract. This would mean that the purchaser was not willing to purchase the land as per the agreement, but only with a deviation, that is, vendor would have to get an exemption and then execute the sale deed. When a transaction could be completed only after obtaining exemption or permission from another authority over which the court had no control, the relief of specific performance was usually not granted.

Decision of Madras High Court (Single Judge)
The matter was referred to the division bench. The division bench then directed the single judge to record a finding on the question as to whether the Suit Property was held by the Respondents in excess of the ceiling limit applicable to them, and as to whether it could have been sold if at all, only with the permission of the authorities under the ULCA. By judgement dated September 30, 2003, the single judge recorded two aspects: (a) Material questions such as whether the Appellant Company was entitled to claim relief of specific performance or not, inter alia, could only be decided by the division bench;(b) The Suit Property factually stands as excess lands within the meaning of the ULCA before it came to be repealed by the Tamil Nadu Urban Land (Ceiling & Regulation) Repeal Act, 1999 (“Repeal Act”).

Decision of Madras High Court (Division Bench)
By judgement dated January 29, 2007, the division bench reversed the judgment of the single judge. The MHC held that the land transferred would have exceeded the ceiling limit in respect of the Appellant Company. Section 5(3) (ceiling limit) of ULCA enabled the person holding land in excess to continue to hold such land because the sanctioned layout was available. However, as far as the proviso to the above section was concerned, it was clear that the person intending to purchase such property should not, in the process, acquire land in excess of his own ceiling limit. In respect of the argument regarding the repeal of the ULCA by the Repeal Act, the division bench held that, it would mean that during the duration of ULCA, the Sale Agreement was not enforceable and could be specifically performed after the repeal. The court would be called upon to enforce the Sale Agreement on the basis of a consideration which was also fixed almost two decades back. Even if it was considered that there were many instances where such cases were pending before courts for a long period, and the court passed a decree for enforcement of contract, such position could not be compared to the present case. As per the decision of the full bench itself, the agreement was held to be contrary to the public policy under Section 23 (Lawful/unlawful considerations and objects) of the Indian Contract Act, 1872 and was not enforceable, if not void. To enforce such an agreement after long lapse of time because of the subsequent event, that is, repeal of the ULCA, would not be equitable. The court also considered the submissions, namely, the Appellant Company was prepared to submit INR 1.25 crores towards completing the sale and whereas the Respondent Company submitted that instead of the court enforcing the Sale Agreement, it was prepared to pay the Appellant Company INR 2 crores as damages, since the Sale Agreement itself contemplated damages in case of breach. The court held that in the interest of justice, instead of a decree for specific performance of the Sale Agreement, the Respondents were to pay a sum of INR 2 crores, in discharge of their entire liability. Thereafter, it did not consider the question if the Appellant Company was ready and willing to perform its obligations under the Sale Agreement.

An appeal was then preferred against the judgement before the SC.

Contentions of the Appellant Company before the SC

On an incorrect application of the judgement of the full bench of the MHC, it would follow that the Sale Agreement was void ab initio. This was incorrect, because it was a fact that the Respondents were the ones required to obtain permission under the ULCA, which could have been obtained. Given the fact that a first appeal was in the nature of a rehearing of a suit, on the date that the division bench passed its decree, the ULCA stood repealed, as a result of which none of its provisions could be used in order to hit the Sale Agreement. Further, the division bench’s interpretation of Section 5(3) of the ULCA and proviso would only render the main part of the said section redundant. Moreover, the Appellant Company had always been ready and willing to perform its obligations whereas the Respondents were actually in breach. It was open to the four Respondents to have applied for exemption of the Suit Property out of the larger property owned by them, and if that had been done, the Suit Property would have been within the original ceiling limit of the four Respondents, therefore, the suit for specific performance was correctly decreed in the Appellant Company’s favour. The fact that the Appellant Company could only purchase within the ceiling limit would not render the Sale Agreement null and void ab initio, it would have been instead the risk of the Appellant Company. In any case, the ULCA having been repealed by way of the Repeal Act, by the time the division bench passed its judgment, there was no impediment in decreeing specific performance.

Contentions of the Respondent Company before the SC

The full bench judgment being res judicata between the parties, it was not now possible to reopen what was held therein. Further, the division bench was correct in its conclusion that the Sale Agreement being void ab initio could not be resuscitated at any point in the future, given the repeal of the ULCA. A suit must be decided on the date the plaint was filed and not on the date of the state of the law when the appellate decree was passed. The SC should not interfere under Article 136 (special leave to apply by the Supreme Court) of the Indian Constitution, as the judgment passed by the division bench was equitable – the Appellant Company had been awarded INR 2 crores with interest, which would come to a sum of over INR 3 crores in the present day, despite the fact that specific performance could not be granted of a void agreement.

Observations of the SC

As far as the Sale Agreement was concerned, it was clearly provided therein that the Respondents had to obtain permissions under the ULCA. The full bench judgement itself had recognized that there could be agreements with such clauses, in which case it would become the court’s duty to enforce clauses. Therefore, the Sale Agreement could not be said to be hit by the full bench judgement. The single judge had in fact correctly held that it was for the Respondents to apply for exemption under the ULCA, which they had failed to do. Therefore, they had breached the Sale Agreement. The Sale Agreement, therefore, could not be void ab initio. The argument of the Respondents in respect of the proposition that the repeal of a statute, which made an agreement void, could not revive such void agreement, therefore, had no application. Further, it is settled in many judgements of the SC including in Chandnee WidyaVati Madden v. Dr. C.L.Katial [AIR 1964 SC 978], that if after the grant of the decree of specific performance of the contract, the land and development officer refused to grant permission for sale, the decreeholder may not be in a position to enforce the decree but it could not be held that such a permission is a condition precedent for passing a decree for specific performance of the contract. Furthermore, it is settled law that an appeal is a continuation of a suit, as a result of which a change in law will become applicable on the date of the appellate decree, provided that no vested right is taken away thereby. Further, the respondent’s reliance on Keshava Madhava Menon v. State of Bombay [1951 SCR 228] to buttress the argument that a repealing act could not be retrospectively applied so as to destroy a fundamental right, would not be applicable herein. The judgement in context was distinguishable given the fact that there was no fundamental right involved and that no vested right of the Respondents was affected by the Repeal Act.

Decision of the SC

On the date when the appellate decree was passed, the ULCA having been repealed, would not hinder passing of a decree for specific performance. There was no vested right under the ULCA in respect of the Respondents. Rights, if any, existed in favour of the state government, which has washed its hands off this matter by way of submission of a report to the SC on August 17, 2015. The division bench judgment was also incorrect in stating that: (a) it had taken 27 (twenty seven) years for the court process to decide the specific performance suit; and (b) specific performance being a discretionary relief ought not to be granted. Section 20 of the Specific Relief Act, 1963, (“SRA”) prior to its substitution by the Specific Relief (Amendment) Act, 2018 provided that while jurisdiction to decree specific performance was discretionary, it was not arbitrary. Section 20(2) of the SRA listed cases in which the court may properly exercise discretion not to decree specific performance. Significantly, Section 20(2) of the SRA provided for aspects to be adjudged at the time of entering into contract. No pleas relating to such Section 20(2) of the SRA had in fact been made by the Respondents. It was highlighted that in Saradamani Kandappan v. S. Rajalakshmi [(2011) 12 SCC 18] it was held that given the steep rise in urban land prices it may be incorrect to say that time was not the essence in the performance of contract of sale of immoveable property. There was an urgent need to revisit this position. As far as facts of the present case were concerned, time was definitely the essence of contract. Therefore, a suit for specific performance filed within limitation could not be dismissed on the sole ground of delay or laches (this was however subject to certain exceptions such as default on part of the plaintiff). It had also been previously held by courts that mere escalation of land prices after the date of filing of suit could not be a ground to deny specific performance. Once a suit for specific performance had been filed, any delay as a result of the court process could not be put against a plaintiff in decreeing specific performance. However, it is within the discretion of the court, regard being had to the facts of each case, as to whether some additional amount ought or ought not to be paid by the plaintiff once a decree of specific performance is passed in its favour, even at the appellate stage. The appeal of the Respondents that discretionary jurisdiction under Article 136 of the Indian Constitution should not be exercised given the fact that INR 2 crores plus interest was to be paid almost by way of solatium to the Appellant Company, was also rejected. The Respondents had taken up dishonest pleas and were also held to have been in breach of the Sale Agreement in which they were to obtain permissions under ULCA, which, if not obtained, under the Sale Agreement itself, would not stand in the way of the specific performance of the Sale Agreement. Given the conduct of the Respondents in this case, as contrasted with the conduct of the Appellant Company, which was ready and willing throughout to perform its part of the bargain, the judgement passed by division bench was set aside and the decree passed by the single judge was restored. Further, since the Appellant Company itself had offered to pay a sum of INR 1.25 crores to Respondents, it was directed that such amount be paid within a period of eight weeks from the date of the judgment.

Vaish Associates Advocates View:

It was noted that delay in court process, (in this instance the delay prolonged for a period of 27 years) could not be pitted against a plaintiff. This is equitable in the sense, as the SC rightfully pointed out that there were many instances where such cases were pending before courts.

Furthermore, while the MHC expressed its hesitation in enforcing specific performance of an agreement for which consideration was fixed almost two decades ago, the SC pointed out that mere escalation of land prices after the date of filing of the suit, could not be the sole ground for denial of specific performance. This may be read with an important observation of the SC that there was an urgent necessity to revisit the principle that time is not of the essence in case of contracts involving immoveable property. Such reconsideration by the SC is a shift from the normal principle that time is not considered to be an essence of the contract unless an intention can be gathered otherwise by the terms of the contract.

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

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