Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2022 Supreme(SC) 1244

SUPREME COURT OF INDIA
Surya Kant, Bela M. Trivedi, JJ.
Desh Raj & Ors. - Appellants
Versus
Rohtash Singh - Respondent
Civil Appeal No. 9217 of 2022 [Arising out of Special Leave Petition (C) No. 22191 of 2019]
Decided On : 14-12-2022

Advocates appeared:
For the Petitioner(s): Mr. Siddharth Mittal, AOR Mr. Prabhat Kumar, Adv. Mr. Kshitiz Chauhan, Adv. Mr. Sahil Amarnath, Adv. Ms. Shilpa G.Mittal, Adv.
For the Respondent(s): Ms. Sonali Joon, Adv. Mr. Gaurav Bhatt, Adv. Mr. Karunakar Mahalik, AOR

IMPORTANT POINTS
(1) Agreement to Sell – Unless plaintiff specifically seeks refund of earnest money at the time of filing of suit or by way of amendment, no such relief can be granted to him – Prayer clause is a sine qua non for grant of decree of refund of earnest money.
(2) Relief of specific performance cannot be granted when there is undue delay in institution of suit.

Headnote:
(A) Contract Act, 1872 – Section 55 – Haryana Development and Regulation of Urban Areas Act of 1975 – Section 7A – Agreement to Sell – Suit for Specific Performance – Breach of contractual terms – Recovery of earnest money – Sale Agreements clearly indicate intention of parties to treat time-bound performance as an essential condition – They stipulate that in case sale deed was not executed on Date of Execution, Sale Agreements were liable to be treated as cancelled and earnest money was to be forfeited – Defence under Section 55 of Contract Act is valid against anyone who is seeking relief of specific performance – As there was undue delay on behalf of Respondent to institute suit, relief of specific performance cannot be granted – Since Respondent has led no evidence to indicate that he took any proactive steps to obtain purported NOC necessary to execute sale deed, plea of non-cooperation against Appellants in respect of obtaining NOC are not made out by Respondent – Respondent has failed to prove that Appellants were willfully avoiding performance of their contractual obligation. (Paras 22, 23, 24, 26 and 29)
(B) Specific Relief Act, 1963 – Section 22 – Contract Act, 1872 – Sections 55 and 74 – Agreement to Sell – Suit for Specific Performance – Breach of contractual terms – Recovery of earnest money – Unless plaintiff specifically seeks refund of earnest money at the time of filing of suit or by way of amendment, no such relief can be granted to him – Prayer clause is a sine qua non for grant of decree of refund of earnest money – Respondent has neither pleaded for refund of earnest money nor has he claimed any damages or penalty from Appellants – Respondent never raised any concern that pre-estimated amount was ‘penal’ in nature and instead his sole objective was to gain titular rights over Concerned Property on strength of Sale Agreements – Decree granted by courts below was hinged on a logical fallacy wherein Appellants were held to be unjustly enriched on premise that contract was rendered impossible to perform due to acquisition proceedings – On the contrary, contract automatically stood terminated as per stipulated contractual terms – Sale Agreements should have been rightly held to be terminated instead of being declared impossible to perform – Forfeiture was justified and within confines of reasonable compensation as per Section 74 of Contract Act – Judgments rendered by Courts below deserve to be set aside and suit is liable to be dismissed. (Paras 31, 36, 37 and 38)
Facts of the case:
Present appeal is directed against the judgment dated 15.05.2019 passed by High Court of Punjab and Haryana whereby a second appeal preferred by the Appellants was dismissed and judgment and decree of the Trial Court as well as the First Appellate Court were affirmed. The decree entitled the Respondent for recovery of earnest money, which constituted of partly paid sale consideration in lieu of the concerned agreements to sale along with requisite interest.
Findings of Court:
In a scenario where the contractual terms clearly provide factum of the pre estimate amount being in the nature of ‘earnest money’, onus to prove that the same was ‘penal’ in nature squarely lies on the party seeking refund of the same. Failure to discharge such burden would treat any pre-estimated amount stipulated in the contract as a ‘genuine pre-estimate of loss’.
Result : Appeal allowed.

JUDGMENT :

Surya Kant, J.

1. Leave Granted.

2. The present appeal is directed against the judgment dated 15.05.2019 passed by the High Court of Punjab and Haryana whereby a second appeal preferred by the Appellants was dismissed and judgment and decree of the Trial Court as well as the First Appellate Court were affirmed. The decree entitled the Respondent for the recovery of earnest money, which constituted of partly paid sale consideration in lieu of the concerned agreements to sale along with requisite interest. The factual matrix is succinctly discussed before delving into the issue of law regarding breach of contractual terms which requires adjudication before us.

A. FACTS

3. The subject matter of the original suit was a property measuring 23 Kanals 4 Marlas bearing Khewat No. 226, Khatoni No. 225, Rect. No. 27, Kila No 3 min (29), 4 min (415), 7(80), 14(40) situated in the revenue estate of Village Tigra, Tehsil and District Gurgaon (hereinafter, ‘Concerned Property’) which the Appellants jointly owned to the extent of their respective shares.

4. Two separate agreements to sell were entered between the present parties for the Concerned Property on 17.02.2004 (hereinafter, ‘Sale Agreements’). In the first agreement, Appellant Nos. 1 to 4 agreed to sell their share to the extent of 4/5th of the Concerned Property while in the second agreement, Appellant No. 5 agreed to sell the remaining 1/5th share to the Respondent which accrued to her and her minor son. It must be noted that the material terms of both agreements are identical except that in the second agreement, Appellant No. 5 was contractually bound to secure the permission under The Hindu Minority and Guardianship Act, 1956 to sell the share of the minor.

5. Under the Sale Agreements, the sale consideration was set at the rate of Rs 79,00,000/- per acre. Accordingly, the Respondent is stated to have paid Rs 22,90,000/- in total as part payment of the sale consideration which was in the nature of earnest money. As per Clause 4 of Sale Agreements, the earnest money could be confiscated by the Appellants if the sale deed was not executed on prescribed date, i.e. 16.08.2004 (hereinafter, ‘Date of Execution’). Furthermore, as per Clause 8 of the Sale Agreements, the Respondent was also liable to secure all the necessary No Objection Certificates (hereinafter, ‘NOC’). Additionally, he had to also intimate the Appellants regarding the grant of NOCs well before the Date of Execution, failing which the agreement was deemed to be cancelled.

6. The Appellants state that as per the Sale Agreements, requisite permission under The Hindu Minority and Guardianship Act, 1956 was obtained by them before the Date of Execution. The same was communicated to the Respondent via notice dated 10.07.2004. Their case is that in furtherance of the agreements, Appellants appeared before the Sub-Registrar, Gurgaon on the Date of Execution but the Respondent failed to appear before the Sub-Registrar for the purpose of executing the sale deed and payment of balance sale consideration.

7. The Appellants served legal notices dated 18.08.2004 on the Respondent giving an additional opportunity to him to appear before the Sub-Registrar on 01.09.2004 to execute the sale deed as per the terms of the Sale Agreements. It is pertinent to note that in the legal notices, it was explicitly mentioned that time was the essence of the contract. It was also clearly stated that as per the agreements, the Appellants were bound to forfeit the earnest money and treat the agreements as cancelled. Still, they were extending last opportunity to the Respondent to perform his contractual obligations.

8. It appears that 01.09.2004 was declared a holiday, hence the Appellants appeared before the Sub-Registrar on 31.08.2004 as well as on 02.09.2004. The Respondent, however, failed to appear for execution and registration of the sale deed, because of which the Appellants forfeited the earnest money and treated the Sale Agreements as canc