Karnataka High Court: Under Specific Relief Act, Adequate Bank Balance Not Criterion To Prove Readiness For Contractual Obligations

Karnataka High Court: Under Specific Relief Act, Adequate Bank Balance Not Criterion To Prove Readiness For Contractual Obligations

Explains that a ‘sufficient’ amount must not be read in isolation but within the context of a specific performance landscape

The Karnataka High Court has held that though it is relevant to consider the bank balance of a party while considering the issue of its readiness and willingness to execute a sale agreement, it is not a pre-requisite to establish the same.

A single-judge bench of Justice Sachin Shankar Magadum stated, "The plaintiff's financial constraints, per se, should not be wielded as a prohibitor factor if its actions and expressions manifest a true desire to meet the contractual obligations. Therefore, it is not solely contingent on financial largesse but encompasses a broader spectrum of commitment and integrity.”

The court thus dismissed an appeal filed by an individual Anjinamma and others, challenging the appellate court order, which directed them to execute a sale agreement with the plaintiff Mohammed Sajjad Sait and another.

Sait had instituted a suit for specific performance based on a 15 January 2006 agreement to sell executed by defendants Nos.1 and 2 related to two acres of land, owned equally by them.

The defendants offered to sell the suit land for Rs.2.50 lakh and executed an agreement to sell on 15 January 2006 by receiving Rs.50,000 as earnest money.

The plaintiff contended that he was ready and willing to perform his part of the contract. The suit was filed alleging that the defendants had already sold part of the land (one acre) to defendant No.7 under a registered 29 September 2006 sale deed, which lead to a breach of contract between the plaintiffs and defendant Nos.1 and 2.

Meanwhile, the defendants admitted that the suit agreement was executed in favor of the plaintiff. However, they submitted that the plaintiff was not ready to perform his part of the obligation and had not shown his willingness to pay the balance sale consideration and get the property registered in his name.

The defendants added that if relief of specific performance was granted in favor of the plaintiff, it would cause hardship to them and prayed for dismissal of the suit.

The trial court held that the plaintiff had failed to prove his readiness and willingness to perform his part of the contract and directed the defendants to refund the earnest money of Rs.50,000, along with interest to the plaintiff.

The bench held that defendant No.7 (subsequent purchaser of the land) had failed to prove that he was a bona fide purchaser. Thus, it directed the defendants to pay a compensation of Rs.1.50 lakh to the plaintiff.

Justice Magadum noted that the trial court (while answering the issue of the readiness and willingness of the plaintiff to pay the remaining amount), took note of the plaintiff's bank statement and concluded that he did not have sufficient money to complete the transaction.

He observed that the plaintiff mobilized funds after the expiry of the stipulated three months and the trial court held that he did not have sufficient funds till the suit was filed.

The bench stated that it was trite law that to demonstrate his financial capacity, the plaintiff did not necessarily need sufficient bank balance or cash at the relevant time to conclude that he was ready to perform his part of the contract.

The court held that Section 16(c) of the Specific Relief Act contained the requirement for the plaintiff to exhibit a continuous state of readiness and willingness throughout the litigation process. However, an analysis revealed that the adequacy of the plaintiff's bank balance, while relevant, was not an absolute pre-requisite to establish his readiness and willingness.

It explained that the phrase ‘sufficient bank balance’ must not be read in isolation but within the context of a specific performance landscape.

The bench added, "The courts are bound to scrutinize the totality of the circumstances, evaluating not only the plaintiff's conduct communication, and overall engagement with the contractual process, but equally the conduct of the defendants who are guilty of laying several obstacles and creating an environment which momentarily compels the plaintiff to take one step backward. This normal reaction of the plaintiff cannot mean that the plaintiff is not ready and willing to perform his part of the contract.”

There were significant details regarding inconsistencies in the registration process undertaken by the defendant, which needed to be investigated. The defendants had no locus standi to question the plaintiff, the judge said.

The court observed that the defendants were required to update the records to complete the sale transaction. But instead of performing their part of the contract by securing updated revenue records, they chose to take a false defense that the plaintiff had no financial capacity to fulfill the contract.

Thus, while rejecting the contention of the defendants of facing hardships if the suit was allowed, the court dismissed the appeals.