2018 (2) TMI 1295 - SC - Income Tax

Specific performance of contracts - Non performing part of busniss - High Court took the view that rather than Rakesh Kumar, it was the defendants who were not willing to execute the sale deed as the requirement in terms of the agreement to sell that the defendants were obliged to obtain a no objection certificate for executing the sale deed but they had not taken any steps in that regard - Held that - As gone through the agreement to sell dated 29th May, 1986 and the relevant clause of the contract is remarkably vague and reads as follows That the vendors will obtain the no objection certificate from the authorities concerned and will inform the vendee by registered post after getting the income tax clearance certificate. There is nothing to indicate the nature of the no objection certificate that the vendors were required to obtain and who were the authorities from whom the no objection certificate was required, nor is there any indication of the purpose for which the no objection certificate was required. Similarly, there is no indication about the nature of the income tax clearance certificate required and for what purpose. This clause appears to have been inserted in the agreement to sell without any application of mind and it is quite possible, as alleged by the vendors that the agreement to sell was ante-dated after the introduction of Section 269-UC in the Income Tax Act, 1961. However, we need not go into this possibility in view of the vague nature of the clause. High Court was in error in setting aside the judgment and decree of the Trial Judge. Accordingly, the appeal is allowed and the judgment and decree passed by the High Court is set aside.

Summary

Issues Involved:
1. Readiness and willingness of the plaintiff to perform the contract.
2. Obligation of the defendants to obtain a "no objection certificate."
3. Financial capacity of the plaintiff to pay the balance consideration.
4. Validity of the agreement to sell and its enforcement.

Issue-wise Detailed Analysis:

1. Readiness and Willingness of the Plaintiff to Perform the Contract:
The primary issue was whether the plaintiff was always ready and willing to perform his part of the agreement to sell. The Trial Judge found that the plaintiff was not ready and willing, citing his failure to deposit the balance sale consideration as required for an interim injunction. The High Court, however, reversed this finding, concluding that the defendants were unwilling to execute the sale deed. The Supreme Court reinstated the Trial Judge's view, emphasizing that the plaintiff's financial incapacity indicated his lack of readiness and willingness.

2. Obligation of the Defendants to Obtain a "No Objection Certificate":
The plaintiff argued that the defendants failed to obtain the necessary "no objection certificate" for the sale. The High Court supported this view, noting the defendants' inaction. However, the Supreme Court highlighted the vagueness of the clause in the agreement regarding the "no objection certificate," noting the lack of clarity about the nature, purpose, and authorities involved. This vagueness weakened the plaintiff's argument.

3. Financial Capacity of the Plaintiff to Pay the Balance Consideration:
The Trial Judge noted the plaintiff's insufficient financial resources, including his low income and bank balance, and his failure to arrange funds for the balance consideration. The High Court's contrary view was rejected by the Supreme Court, which agreed with the Trial Judge that the plaintiff lacked the financial capacity to perform his part of the contract. The Court referenced past judgments emphasizing the need for plaintiffs to demonstrate financial readiness and willingness throughout the contract period.

4. Validity of the Agreement to Sell and Its Enforcement:
The agreement to sell dated 29th May 1986 was scrutinized for its enforceability. The Trial Judge dismissed the suit, finding the plaintiff's financial incapacity and lack of readiness and willingness. The High Court reversed this decision, granting specific performance and possession of the land to the plaintiff. The Supreme Court, however, found the High Court's reasoning flawed, particularly due to the plaintiff's financial incapacity and the vague clause regarding the "no objection certificate." Consequently, the Supreme Court set aside the High Court's judgment and reinstated the Trial Judge's decision, dismissing the suit for specific performance.

Conclusion:
The Supreme Court's judgment emphasized the necessity for plaintiffs in specific performance suits to demonstrate continuous readiness and willingness, supported by financial capacity. The vague contractual obligations regarding the "no objection certificate" further undermined the plaintiff's case. The appeal was allowed, and the High Court's judgment was set aside, reinstating the Trial Judge's dismissal of the suit.