⚖️ SUPREME COURT ON SPECIFIC PERFORMANCE OF AGREEMENT TO SELL

Delhi Law Academy Jaipur presents below for aspirants of Rajasthan Judicial Service (RJS), DJS, PCS (J) and other Judicial Services throughout India a very important judgment of the Supreme Court of India in Shenbagam v. K k Rathinavel [2022] on specific performance of agreement to sell.

Presented below: Summarized version [by Delhi Law Academy Jaipur] of the Supreme Court Judgment in the case of Shenbagam v. K k Rathinavel.
[Original language of the judgment has been maintained; it has not been disturbed or replaced]

📜 SHENBAGAM V. K K RATHINAVEL [2022 SC]

🧾 J U D G M E N T

📖 Factual Background

On 17 June 1993, the respondent instituted a suit for specific performance seeking in the alternative, a refund of the advance of Rs. 35,000 with interest at 24% per annum from the date of the suit till realization.

The trial court decreed the suit in favour of the respondent and directed the respondent to deposit the balance consideration of Rs. 90,000 within a month. The High Court confirmed the decree for specific performance.

The present appeal involves a suit for specific performance of an agreement to sell the suit property between the appellants and respondent. The core of the dispute arising from the suit seeking the relief of specific performance is whether the respondent-plaintiff has performed or has always been “ready and willing‟ to perform his obligations under the contract.

Section 16 of the Specific Relief Act provides certain bars to the relief of specific performance. These include, inter alia, a person who fails to aver and prove that he has performed or has always been “ready and willing‟ to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented and waived by the defendant.

In the present case, the respondent and the appellants entered into an agreement to sell the suit property on 7 February 1990. The terms of the agreement indicate that the suit property was to be sold for a total consideration of Rs. 1,25,000, out of which the appellants had received Rs. 25,000 as advance. On 8 March 1990, a further sum of Rs. 10,000 was given as advance to the appellants “for [their] urgent family expenses”. The agreement stipulated that the respondent shall pay the balance consideration within a period of six months, that is, by 7 August 1990. On receipt of the balance sale consideration, the appellants were required to execute the sale deed free from all encumbrances.

By 19 December 1990, the respondent did not pay the balance consideration to the appellant and thus, the appellant rescinded the contract and forfeited the advance money. The respondent sent a reply dated 26 December 1990 demanding that the appellants execute the sale deed free from encumbrances.

In evaluating whether the respondent was ready and willing to perform his obligations under the contract, it is not only necessary to view whether he had the financial capacity to pay the balance consideration, but also assess his conduct throughout the transaction.

The respondent has alleged that he did not pay the balance consideration as the appellants failed to remove the encumbrance on the suit property.

The terms of the agreement stipulated that the respondent was to pay the balance consideration within a period of six months and “on receipt of the balance consideration”, the appellants were to execute the sale deed “pertaining to the property free from all encumbrances”. It is evident from the agreement that the liability to deliver the property free from any encumbrance was on the appellants. However, this obligation is prefaced by the condition that the appellants would be required to execute the sale deed free from encumbrance on the receipt of the balance consideration. Thus, the agreement did not specify when the appellants should discharge their mortgage- before the expiry of six months, after receipt of the advance amount, or after receipt of the balance consideration. It only obligated them to ensure that after the balance consideration is received, the sale deed executed should be free from encumbrances.

Based on a plain reading of the agreement, we are unable to accept the respondent’s plea that he was willing to perform his obligations under the contract. It is evident that he was required to pay the remaining consideration (or indicate his willingness to pay) and only then could have sought specific performance of the contract. The agreement clearly provided that the balance consideration would be paid and then the sale deed would be executed. How the appellants chose to discharge the mortgage was for them to decide. The respondent had to prove his readiness and willingness to perform the contract.

We shall now advert to the respondent’s conduct throughout the sale transaction. The respondent has failed to provide any documents or communication which would indicate that he called upon the appellants to perform their obligations or discharge the mortgage within the time period stipulated in the contract. Even after the expiry of the six months, the respondent did not reach out to the appellants. It is only in response to the appellants’ legal notice that the respondent demanded performance of their obligations. Merely averring that he was waiting with the balance consideration and believed that the appellants would clear the encumbrance is insufficient to prove that the respondent-plaintiff was willing to perform his obligations under the contract.

Further, in 1991 the respondent instituted a suit for mandatory injunction for restraining the appellants from alienating the suit property. He did not however, institute a suit for specific performance of the contract until 17 June 1993. The respondent has taken the plea that he was waiting for the appellants to discharge the mortgage to file a suit for specific performance. We are unable to accept this submission. By extending the respondent’s argument, if the appellants had failed to discharge the mortgage, the respondent would not have filed a suit for specific performance of the contract at all. We also note that the respondent has withdrawn the balance consideration deposited by him before the trial court in 2001.

The inconsistency in the respondent’s conduct, the lack of communication with the appellants urging them to discharge the mortgage and showing his willingness to pay the balance consideration, and the delay of about three years from the date fixed for performance of the contract in filing a suit, are all indicative of the respondent’s lack of will to perform the contract.

The “readiness‟ of the respondent to perform his obligations refers to whether he was financially capable of paying the balance consideration. Both the trial court and the first appellate court have observed that the respondent was ready to pay the balance consideration as (i) he was paying income tax since 1988 and (ii) his bank passbooks indicate that he had sufficient funds. The payment of income tax by itself does not show that the respondent had sufficient resources to pay for the suit property. Moreover, the bank passbooks submitted in evidence by the respondent were for accounts opened on 11 March 1992 and 22 July 1994, that is, after the expiry of the period written in the contract.

The respondent however did not lead any evidence to indicate that in the year 1990 he had the money to pay the balance consideration. It is an established principle of law that the plaintiff must prove that he is ready and willing to perform the contract. The burden lies on the plaintiff. The respondent has not led any evidence that he was ready or willing to perform his obligations under the agreement.

Even assuming that the respondent was willing to perform his obligations under the contract, we must decide whether it would be appropriate to direct the specific performance of the contract in this case.

⚖️ Decisions of this Court in the context of discretion under Section 20:

whether it is appropriate to direct specific performance of a contract relating to transfer of immovable property, especially given the efflux of time and escalation of prices of property:

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