The Supreme holds that the delay in payment does not effectively rescind contract in specific performance suits – in the case of Ram Lal v Jarnail Singh (Now Deceased)

Case title:
Ram Lal v Jarnail Singh (Now Deceased)

Date of Order:
25 February, 2025

Bench:
Justice J.B Pardiwala
Justice R. Mahadevan

Parties:
Appellant - Ram Lal 
Respondent - Jarnail Singh

SUBJECT

The appeal originated from the Punjab and Haryana High Court's decision dated August 30, 2022, which approved the defendants' Civil Revision Application and overturned the Executing Court's verdict. The Executing Court ordered the defendants to complete the sale document in favor of the plaintiff and deposit the remaining ₹5,00,000 within 15 days.

The Supreme Court ruled that failure to pay the balance sale consideration within the court-fixed timeline in a specific performance suit does not amount to abandonment or rescission of the contract. Overturning the High Court’s decision, it emphasized that every specific performance decree must specify a payment timeline. Referring to Section 28(1) of the Specific Relief Act, the Court clarified that such a decree enforces rather than extinguishes the contract, and the court retains jurisdiction until the sale deed is executed, rather than becoming functus officio after granting the decree.

IMPORTANT PROVISIONS

Section 28 of the Specific Relief Act, 1963 states:
(1) If a decree for specific performance of a contract for the sale or lease of immovable property is not executed within the time specified (or extended by the court), the vendor or lessor may apply to the court for rescission of the contract.
(2) Upon such application, the court may rescind the contract either wholly or partially, as justice may require.
(3) If the purchaser or lessee has paid the required sum within the time fixed, they may apply for relief such as execution of conveyance, possession, or partition.
(4) All applications under this section must be made in the original suit where the decree was passed.
(5) The court may decide who bears the costs of proceedings under this section.

Order XX Rule 12 A of the Civil Procedure Code, 1908 (CPC)
Rule 12A makes it obligatory for the court to specify in the decree for specific performance of contract for sale or lease of immovable property the date by which purchase money or another sum should be paid by the vendee or lessee.

OVERVIEW

1. The appeal is based on the High Court of Punjab and Haryana's judgment in Civil Revision Application No.3723/2019, which allowed the original defendants' Revision Application and set aside the order directing them to execute the sale deed in favor of the original plaintiffs, who had to deposit Rs.5,00,000/- within 15 days.
2. The appellant is the original plaintiff. He filed a lawsuit for particular performance of a contract with the original defendants/judgment debtors. The appellant - plaintiff won the matter in a judgment and order dated January 20, 2012. 
3. The respondents (original defendants) filed a First Appeal in the District Court due to their dissatisfaction with the decree of particular performance. The appeal was denied in a judgment and order issued April 21, 2015. The defendants declined to submit a second appeal. Thus, the decree reached finality with the dismissal of the First Appeal. 
4. In January 2017, the plaintiff filed an execution petition to execute the decree of particular performance. The plaintiff sought authorization from the executing court to deposit the remainder sale consideration. The execution petition was dismissed by the executing court in a ruling dated June 5, 2019. 
5. Dissatisfied with the executing court's order, the defendants filed a civil revision application before the High Court. The High Court ruled that it was too late for the appellant (original plaintiff/decree holder) to deposit the balance sale consideration, as over three years had passed since the judgment debtors' first appeal was dismissed. 
6. According to the High Court, the appellant-herein, as decree holder, should have acted quickly to demonstrate his bona fide. 

ISSUES RAISED

• Whether the High Court committed any error in passing the impugned order? 

ARGUMENTS ADVANCED BY THE APPELLANT

1. The counsel for the appellant-herein argued that the High Court made a significant error in passing the order, stating that a delay of three years in filing the execution petition and obtaining permission to deposit the balance sale consideration would not render the decree of specific performance inexecutable, and that a decree can be executed within 12 years under Article 136 of the Limitation Act. 
2. The attorney argued that the respondents/judgment debtors did not file an application for contract rescission under Section 28 of the Specific Relief Act. The appellant deposited the remainder sale amount of Rs. 4,87,000/- on May 20, 2019, following the executing court's direction. 
3. The attorney requested that her appeal be permitted and the High Court's order be set aside, citing the aforementioned reasons.  

ARGUMENTS ADVANCED BY THE RESPONDENT

1. The counsel for the respondents argued that the High Court did not commit any errors in passing the order, and that there was a two-year delay in obtaining permission to deposit the balance sale consideration. 
2. They argued that the trial court had directed deposit within two months of the judgment and decree, and that the plaintiff should have deposited the consideration within two months after the appellate court dismissed their appeal. 
3. The learned counsel contended that the respondents' failure to seek rescission of the contract under Section 28 of the Specific Relief Act does not justify condoning the four-year delay in depositing the balance sale consideration. He argued that merely because the judgment debtors did not apply for rescission, it does not automatically result in an extension of time for compliance. 
4. In support of his argument, he relied on Prem Jeevan v. K.S. Venkata Raman & Another, (2017) 11 SCC 57, and V.S. Palanichamy Chettiar Firm v. C. Alagappan, (1999) 4 SCC 702. Based on these precedents, he urged that the appeal lacked merit and should be dismissed. 

JUDGEMENT ANALYSIS

1. The Court noted that Order XX Rule 12 A of the Civil Procedure Code, 1908 (CPC), which provides for a decree for specific performance of the contract for the sale or lease of immovable property, is the pertinent provision in this case.  
2. According to Rule 12A of Order XX, the Court must state in the decree for particular performance of the contract for the sale or lease of immovable property the deadline for the vendee or lessee to pay the purchase money or any other amount. 
3. In this instance, the Court applied the doctrine of merger , which is predicated on the idea that there can never be more than one active decree at a given time. 
4. Therefore, if a Trial Court decision is challenged in the Appellate Court, the Trial Court's decision becomes part of the Appellate Court's decision regardless of whether the appeal is granted or denied. 
5. The Trial Court ruled that a decree of specific performance is a preliminary decree with reciprocal rights and obligations. Section 28 (1) of the Specific Relief Act, 1963 (SRA) clarifies that the Court retains jurisdiction until the sale deed is executed. 
6. Non-payment of balance sale consideration within the trial court's time frame does not constitute abandonment of the contract, but rather a positive refusal to complete the plaintiff's part. 
7. The court ruled that a plaintiff must demonstrate willful negligence before a court can invoke Section 28 of SRA and rescind a contract. The appellate court must specify the time to deposit the balance sale consideration, as the decree passed by the court is executable. If the decree holder fails to deposit during the specified time, the trial court can grant further time or decline the deposit. 
8. Furthermore, there must be an element of willful negligence on the part of the plaintiff before a Court proceeds to invoke Section 28 of the Act and rescind the contract noting what was held in Krishnamoorthy v. Shanmugasundaram & Anr., 2022 (SCC OnLine Mad 963)
9. This discretion must be exercised judiciously, taking into account various factors such as the decree holder's bona fide, the reason for failure to deposit the balance sale consideration on time, the length of delay, and any equities that may have been created during the interregnum period in favour of the judgment debtor.  
10. Finally, the Court decided that if the appellate Court fails to designate a deadline, the decree holder is required to deposit the sum within a reasonable time, and so the appeal was successful under the facts of this instance. 

CONCLUSION

The Supreme Court ruled that despite a delay in filing the execution petition and depositing the balance sale consideration, the decree holder does not have unlimited discretion in making the payment. The court concluded that the decree holder must act within a reasonable timeframe if the appellate court does not specify one.

The Court hence ordered the defendants to receive the balance sale consideration of ₹4,87,000 deposited by the appellant on 20-05-2019, along with accumulated interest, within four weeks. The court ruled that judgment debtors are entitled to 9% simple interest per annum from the date of the appellate court's judgment until the deposit date. The executing court was also asked to calculate this interest and ensure the appellant deposits it within two weeks. 

FAQs

1. Does a delay in payment automatically rescind a specific performance contract?
   No, the Supreme Court ruled that failure to pay within the court-fixed timeline does not amount to abandonment or rescission of the contract. The court retains jurisdiction until the sale deed is executed.
2. What is the key takeaway from the Supreme Court’s decision?
   The Court emphasized that a decree for specific performance enforces rather than extinguishes a contract. If the appellate court does not specify a payment deadline, the decree holder must act within a reasonable timeframe.
3. What role does Section 28 of the Specific Relief Act play in this case?
   Section 28 allows the court to rescind a contract if the decree is not executed within the specified time. However, the Supreme Court held that non-payment alone does not automatically warrant rescission unless there is willful negligence by the decree holder.
4. What relief was granted to the appellant?
   The Court ordered the respondents to accept the balance ₹4,87,000 plus 9% simple interest per annum from the appellate court’s judgment date. The executing court was directed to oversee compliance.