2018 (10) TMI 1822 - SC - Indian Laws

Suit for specific performance of a development agreement - Appellant alleged that upon the execution of the agreement, he found that the premises were encumbered and that there were arrears of municipal tax and electricity dues, besides which there were labour and industrial disputes and 'factory closure problems' - whether Section 14(3)(c) of the Act is a bar to a suit by a developer for specific performance of a development agreement between himself and the owner of the property? HELD THAT - Section 14(1) provides categories of contracts which are not specifically enforceable. Sub-section (3) of Section 14 is an exception to Clauses (a), (c) and (d) of Subsection (1). Though the species of contract stipulated in Clauses (a), (c) and (d) of Sub-section (1) cannot be specifically enforced, a suit for specific performance of contracts of that description will be maintainable if the conditions set out in Subclauses (i), (ii) and (iii) of Clause (c) of Section 14(3) are satisfied - The consistent position of the common law is that courts do not normally order specific performance of a contract to build or repair. But this Rule is subject to important exceptions, and a decree for specific performance of a contract to build will be made only upon meeting the requisite requirements under law. In a construction contract, the contractor has no interest in either the land or the construction carried out on the land. But, in other species of development agreements, the developer may have acquired a valuable right either in the property or the constructed area. There are various incidents of ownership of in respect of an immovable property. Primarily, ownership imports the right of exclusive possession and the enjoyment of the thing owned. The owner in possession of the thing has the right to exclude all others from its possession and enjoyment. The right to ownership of a property carries with it the right to its enjoyment, right to its access and to other beneficial enjoyments incidental to it. The condition Under Section 14(3)(c)(iii) is that the Defendant has, by virtue of the agreement, obtained possession of the whole or any part of the land on which the building is to be constructed or other work is to be executed. If the Rule of literal interpretation is adopted to interpret Section 14(3)(c) (iii), it would lead to a situation where a suit for specific performance can only be instituted at the behest of the owner against a developer, denying the benefit of the provision to the developer despite an interest in the property having been created. This anomaly is created by the use of the words the Defendant has, by virtue of the agreement, obtained possession of the whole or any part of the land in Section 14(3)(c)(iii) - By giving a purposive interpretation to Section 14(3)(c)(iii), the anomaly and absurdity created by the third condition will have no applicability in a situation where the developer who has an interest in the property, brings a suit for specific performance against the owner. The developer will have to satisfy the two conditions laid out in sub Clause (i) and (ii) of Section 14(3)(c), for the suit for specific performance to be maintainable against the owner. From the facts of the case, it is clear that the case of the developer is that he incurred an expenditure of ₹ 18,41,000/- towards clearing outstanding dues, security deposit and development, incidental and miscellaneous expenses. The alleged losses/damages incurred by the Plaintiff can be quantified. The Plaintiff can be provided recompense for the losses allegedly incurred by payment of adequate compensation in the form of money. The developer has failed to satisfy the conditions Under Sub-clause (i) and (ii) of Section 14(3)(c) of the Act. In such a case, specific performance cannot be granted. There are no merits in the appeal - appeal dismissed.

Summary

Issues Involved:
1. Whether Section 14(3)(c) of the Specific Relief Act, 1963 bars a suit by a developer for specific performance of a development agreement.
2. Whether the agreement between the Appellant and the Respondent is capable of specific performance.

Issue-wise Detailed Analysis:

1. Bar under Section 14(3)(c) of the Specific Relief Act, 1963:
The primary issue before the Supreme Court was whether Section 14(3)(c) of the Specific Relief Act, 1963, bars a suit by a developer for specific performance of a development agreement. The Court examined the literal interpretation of Section 14(3)(c)(iii) which requires that the Defendant should have obtained possession of the land by virtue of the agreement. The Court noted that a literal interpretation would lead to an anomalous situation where only the owner could file a suit for specific performance, not the developer, even if the developer had an interest in the property. To avoid this anomaly, the Court adopted a purposive interpretation, allowing developers to file suits for specific performance if they satisfy the conditions laid out in sub-clauses (i) and (ii) of Section 14(3)(c).

2. Capability of the Agreement for Specific Performance:
The Court then examined whether the agreement between the Appellant (developer) and the Respondent (owner) was capable of specific performance. The conditions under Section 14(3)(c) were scrutinized:

- Condition under Section 14(3)(c)(i): The building or work must be sufficiently precise. The Court found that the agreement was vague, using terms like "first class materials" and "residential apartments of various sizes and denomination", which did not clearly define the exact nature of the building or work. Therefore, this condition was not fulfilled.

- Condition under Section 14(3)(c)(ii): The Plaintiff must have a substantial interest in the performance of the contract that cannot be adequately compensated by money. The Court noted that the Appellant's alleged losses could be quantified and compensated in monetary terms. Hence, this condition was also not satisfied.

Given that the Appellant failed to meet the conditions under Section 14(3)(c)(i) and (ii), the agreement was deemed incapable of specific performance.

Conclusion:
The Supreme Court held that Section 14(3)(c) of the Specific Relief Act, 1963, does not bar a suit by a developer for specific performance if the developer satisfies the conditions under sub-clauses (i) and (ii). However, in this case, the agreement between the Appellant and the Respondent was not capable of specific performance due to its vagueness and the adequacy of monetary compensation for the Appellant's losses. Consequently, the appeal was dismissed with no order as to costs.