Supreme Court: Non-Compliance of Specific Performance of Terms Disentitles Parties to Claim Time is of Essence in Contract

Supreme Court: Non-Compliance of Specific Performance of Terms Disentitles Parties to Claim Time is of Essence in Contract

The Supreme Court while adjudicating an appeal filed in the matter of Gaddipati Divija and another vs. Pathuri Samrajyam and Others., observed that when specific performance of the terms of the contract has not been done, the question of time being the essence of contract does not arise.

In the present case, Appellants (represented by their maternal grandmother) were the minor children of one G. Venugopala Rao, (Mr. Rao) who died on 13 May, 2003, leaving behind his wife and the Appellants.

On 14th August, 2002, Mr. Rao had executed an agreement of sale with Ms. Pathuri Samrajyam (“Respondent No. 1”) in respect of his immovable property (“Property”). The Respondent No. 1 paid partial advance consideration amount to Mr. Rao. The Agreement stipulated that Mr. Rao would execute sale deed in favor of Respondent No. 1 within three months, after demarcating the Property and receiving the balance sale consideration.

Later the Respondent no. 1 got to know that the Property was attached by the Civil Court in a recovery proceeding against Mr. Rao. Accordingly, the Respondent No. 1 asked Mr. Rao to get the Property measured and its attachment removed; ensuing which the Respondent No. 1 would pay the balance sale consideration and get the property registered in her name. In the meanwhile, Mr. Rao died in 2003 and was survived by two minor child a wife (“Appellants”).

The Respondent No. 1 on 29 March, 2004 sent a legal notice to the legal heirs of the Mr. Rao and expressed her willingness to perform part of the contract by paying the balance sale consideration. The legal heirs of the deceased were called upon to clear the attachment over the schedule property by discharging the debt due, receive the balance sale consideration, and execute the sale deed in favor of Respondent No. 1 herein; failing which the latter shall file a suit for specific performance.

Subsequently, Respondent No. 1 filed a suit before the Civil Court seeking specific performance of the Agreement of Sale dated 14 August, 2002, by directing the Legal Heirs to execute a sale deed in favor of Respondent No. 1.

The Civil Court held that the Respondent No. 1 failed to prove that she is entitled for specific performance of the contract and directed refund of advance consideration amount to her.

Aggrieved by the judgment and decree of the Civil Court, the Respondent No. 1 filed appeal before the High Court of Andhra Pradesh. The High Court directed the Appellants to discharge the debt of Mr. Rao, relive the Property from attachment and thereafter execute a sale deed in favor of Respondent No. 1.

Thereafter, the Appellants approached the Apex Court.

The issue that came for consideration before the Apex Court division judges bench comprising of Justices Krishna Murari and Sanjay Karol was whether the High Court was justified in allowing Respondent No. 1’s appeal and decreeing the suit for specific performance, by holding that the deceased G. Venugopala Rao and his legal heirs (including the Appellants herein) failed to perform their obligation with regard to getting the property measured and demarcated, while Respondent No. 1 herein was always ready and willing to perform her part of contract by paying the balance sale consideration?

At the outset, the bench mentioned that Section 16(c) of the Specific Relief Act, 1963 (along with its explanation) was the relevant provision of law which was attracted in the present case. The 2018 Amendment to the Specific Relief Act made certain amendments to Section 16 as well.

In this regard, the Court placed reliance in the case of Katta Sujatha Reddy vs. Siddamsetty Infra Projects (P) Ltd. & Ors., wherein it was held that the 2018 Amendment was not a mere procedural enactment, but it had substantive principles built into its working, and, as such, the Amendment is prospective in nature and cannot apply to those transactions that took place prior to its enforcement.

Therefore, in the present case, Section 16, as it stood prior to the 2018 Amendment, would be applicable, since the matter dates back to 2002, opined the bench.

The bench remarked that, “prior to the 2018 Amendment, clause (c) of Section 16 laid down that the plaintiff is entitled for a specific performance of contract if he avers and proves that he has performed or has always been ready and willing to perform his obligation under the contract. The explanation attached to clause (c) further clarified that in a contract involving the payment of money, the plaintiff need not actually deposit the money to the defendant, and that he must aver that he has performed, or is ready and willing to perform the contract according to its true construction.”

The bench further noted that in the present case, the High Court while discussing Section 16 (c) of the Specific Relief Act, 1963 (hereinafter referred to as ‘Act’), observed that it was necessary for the Plaintiff to perform his part of the contract from the date of contract till the date of hearing. The High Court also stated that it is well settled that mere stipulation of time would not make time the essence of the contract and in case of sale of immovable property normally the time may not be essence of the contract.

It was also stated that the explanation to Section 16 (c) of the Act provides that there must be pleading by the Plaintiff that he was always ready and willing to perform his part of contract. The High Court then noted that a specific plea was taken by the Plaintiff in her plaint that she was ready and willing to perform her part of the contract.

The Apex Court was of the view that the High Court had rightly held that the deceased G. Venugopala Rao or his legal heirs (Defendants in the suit, including the Appellants herein) had failed to perform their obligation with regard to the demarcation of the property, while the Plaintiff had established that she was always ready and willing to perform her part of contract by paying the balance sale consideration which is the primary requirement as per Section 16 (c) of the Act.

Averting to the facts, the Court discerned, “the Plaintiff (Respondent No. 1 herein) from the outset, has been clear and blemish less in his conduct. She had paid the advance sale consideration of Rs. 4,00,000. When the deceased G. Venugopala Rao failed to measure and demarcate the land, the question of the Plaintiff (Respondent No. 1 herein) paying the balance sale consideration does not arise. However, even then the averments of the Plaintiff, her conduct and the testimony of her husband show that the Plaintiff, since the signing of the sale agreement, was ever ready and willing to pay the balance consideration.”

Further, the Court clarified the aspect, of whether time is of the essence in the sale agreement in the present case or not.

The Court noted in the present case, the sale agreement dated 14 August, 2002 stipulated that the vendor (deceased G. Venugopala Rao) was required to get the land measured and demarcated within three months, following which, the purchaser (Respondent No. 1 herein /Plaintiff) was required to pay the balance sale consideration.

Therefore, it was deduced that unless the vendor got the subject land measured and demarcated within three months, it would be impossible for the purchaser (Respondent No. 1 herein/Plaintiff) to get a sale deed executed, and as such, the question of paying the balance sale consideration does not arise.

The Court deemed it was clear that the vendor (deceased G. Venugopala Rao) failed to perform his part of the obligations by getting the subject land measured and demarcated, while the purchaser (Respondent No. 1 herein/Plaintiff) was ever ready and willing to pay the balance consideration.

Hence, when specific performance of the terms of the contract had not been done, the question of time being the essence does not arise, opined the bench.

Therefore, the Court concluded that the High Court was justified in allowing the appeal and decreeing the suit for specific performance filed by Respondent No. 1. The findings of the High Court were upheld.