CASE TITLE:
Desh Raj Singh & Ors. V. Rohtash Singh
DATE OF ORDER:
9 November 2017
JUDGE(S):
Justice Surya Kant
SUBJECT
The Apex Court, in the present case, held that in a suit for specific performance unless the plaintiff specifically incorporates an alternative relief of refund of earnest money in his plaint, the court can not suo-moto grant such relief. The Court observed- “The litmus test appears to be that unless a plaintiff specifically seeks the refund of the earnest money at the time of filing of the suit or by way of amendment, no such relief can be granted to him. The prayer clause is a sina quo non for grant of decree of refund of earnest money.”
IMPORTANT LEGAL PROVISIONS
THE SPECIFIC RELIEF ACT
- Section 22-permits a plaintiff to seek both specific performance of the contract as well as alternative relief including the fund of money provided that such a relief has been specifically incorporated in the plaint.
BRIEF FACTS OF THE CASE
- The property which is the subject matter of the present suit was agreed to be sold by the appellants to the respondent.. Two separate agreements to sell were entered between them.
- Clause 8 of the Sale Agreements provided imposed a liability upon the respondent to secure all the necessary No Objection Certificates and intimate the same to the appellants.
- Since, one of the appellants was a minor. The requisite permission under The Hindu Minority and Guardianship Act was obtained by them before the specified date of execution.
- However, it was contended by the appellants that the respondent did not appear before the registrar on the date fixed for execution of the sale deed.
- A clause of the said agreement also provided that in case of the failure on the part of respondent to execute the sale deed, any amount advanced by them shall be forfeited by the appellants.
- The appellants thus forfeited the amount advanced.
- A couple of years later, the respondents (original plaintiff) filed a suit seeking specific performance of the contract and other consequential remedy. Consequently the said land was acquired by the State.
- The respondent, whilearguing the appellants were in fact responsible for the non execution of sale deed claimed the possession of the land on a money decree of Rs. 2,29,10,000 in the alternative.
- Both the Trial Court and the High Court were of the view that the alternate relief of earnest money to the respondent should be granted.
ARGUMENTS RAISED BY THE APPELLANT
- The learned counsel appearing for the appellant contended that time was of the essence of the contract.
- That until the date of the execution, there was no need for procuring NOCs as the land was an agricultural land on the date of execution of agreement. It was only after a notifications passed years later that it was included within the limits of Municipal Corporation.
- That as per clause 8 of the agreement, the respondent were required to secure the NOCs.
ARGUMENTS RAISED BY THE RESPONDENT
- The counsel for the respondent contended that clause 8 should be interpreted in a way to mean that only such NOCs that the respondent could not obtain unilaterally, were his contractual obligation.
- That the sale became an impossibility owing to the acquisition of land by state as such the amount forfeited ought to be returned. It was further contended that the amount forfeited was penal in nature and much be reduced to a reasonable extent, if at all allowed.
LEGAL ISSUE
- Whether time was of essence of the contract?
- Whether it was proved that appellants were willfully avoiding performance of their contractual obligations?
- Whether respondent was entitled to recovery of earnest money?
ANALYSIS BY THE COURT
- The Court observed that it can entertain no doubt about the intention of the parties to treat time to be of the essence of the said contract. As such, owing to the undue delay by the respondent in instituting the suit, the relief of specific performance ought to be refused.
- On the issue of whether the appellants willfully avoided the performance of the contract, the Court observed that the respondent has failed to support this argument by means of sufficient evidence.
- The final aspect of the dispute was regarding the relief of earnest money granted by the lower courts to the respondent. While adjudicating upon the same, the Apex Court observed that section 22 of the Specific Relief Act permits a plaintiff to seek both specific performance of the contract as well as alternative relief including the fund of money provided that such a relief has been specifically incorporated in the plaint.
- The Court observed that in the present case, the respondent neither prayed for the relief of refund of earnest money nor made an attempt to amend the plaint to include the said claim. In light of such circumstances and section 22(2) of the act,, the Court can not suo-moto grant the refund of earnest money.
- As far as the argument of the respondent that the amount forfeited was penal in nature and beyond the confines of reasonable compensation as provided by section 74 of the Contract Act, the Court observed that in cases where the contractual terms clearly provide the factum of the pre estimate amount being in nature of ‘earnest money’, the onus to prove that the same was penal lies upon the party seeking refund of the same. In the present case, the respondent neither pleaded for refund of the earnest money nor has he claimed any penalty from the appellants.
CONCLUSION
In view of the above observations, the learned Court concluded that the contract stood terminated as per the stipulation in the terms of the contract and not due to the acquisition proceeding. The Court further held that the forfeiture of the earnest money was justified and reasonable. As a reunion, it directed that the judgements of the courts below should be set aside and the appeal should be allowed.
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