2022 (12) TMI 1556 - SC - Indian Laws

Dismissal of second appeal - time was the essence of the contract in the Sale Agreements between the parties - wilful avoidance performance of their contractual obligations - recovery of earnest money following the breach of contract - defence set up by the Appellants was that it was the Respondent who was at fault for not executing the sale deed within the agreed time period and that the suit must be dismissed for his willful non-performance. Whether Time was the Essence of the Contract? - HELD THAT - The decision of this Court in Citadel Fine Pharmaceuticals v. Ramaniyam Real Estates Private Ltd. 2011 (8) TMI 1390 - SUPREME COURT and Saradamani Kandappan v. S. Rajalakshmi Saradamani Kandappan v. S. Rajalakshmi 2011 (7) TMI 1293 - SUPREME COURT wherein it was held that defense Under Section 55 of Contract Act is valid against anyone who is seeking the relief of specific performance. Hence on the dual factual premise that it was the clear intention of the parties to treat time as the essence of the contract and that there was an undue delay on behalf of the Respondent to institute the suit the relief of specific performance cannot be granted. It is clarified that this finding also holds true for the land subsequently released in favor of the Appellants. Whether it was Proved that Appellants were Willfully Avoiding Performance of Their Contractual Obligations? - HELD THAT - The courts below have harped on the inability of the Appellants to procure the necessary NOC Under Section 7A of HUDA Act to hold that they were non-cooperative and willfully avoiding the performance of their contractual obligation. However as the learned Counsel for Appellants rightfully pointed out the evidence on record clearly indicates that they gave duly signed blank proformas and relevant documents to the Respondent in order to obtain any necessary sanction or NOCs. The Respondent had fulfilled his contractual obligation under Under Clause 8 of the Sale Agreements by taking all necessary steps necessary to obtain NOC Under Section 7A of HUDA Act there are merit in the Appellants contention that no such NOC was required in the first place as the Concerned Property was agricultural land on the Date of Execution. In this respect learned Counsel for the Appellants correctly pointed out that the Concerned Property was brought under the Municipal Corporation of Gurugram vide notification dated 02.06.2008 only. The High Court therefore ought not to have made any fact based observations especially when the records of the courts below were not requisitioned to reach an independent conclusion to hold that the said finding of fact by the two courts was contrary to the record. The re-appreciation of evidence is ordinarily impermissible and beyond the scope of a second appeal. Even otherwise the presence of Appellants before the Sub-Registrar on the Date of Execution is not disputed. In this backdrop where time was the essence of the contract we conclude that the Respondent has failed to prove that the Appellants were willfully avoiding the performance of their contractual obligations. Whether Respondent was Entitled to recovery of earnest money? - HELD THAT - The Respondent has neither prayed for the relief of refund of earnest money in the original plaint nor he sought any amendment at a subsequent stage. In the absence of such a prayer it is difficult to accept that the courts would suo-moto grant the refund of earnest money irrespective of the fact as to whether Section 22(2) of SRA Act is to be construed directory or mandatory in nature. Section 74 of Contract Act primarily pertains to the grant of compensation or damages when a contract has been broken and the amount of such compensation or damages payable in the event of breach of contract is stipulated in the contract itself - in a scenario where the contractual terms clearly provide the factum of the pre estimate amount being in the nature of earnest money the onus to prove that the same was penal in nature squarely lies on the party seeking refund of the same. Failure to discharge such burden would treat any pre-estimated amount stipulated in the contract as a genuine pre-estimate of loss . The Respondent in the instant case has neither pleaded for refund of the earnest money nor has he claimed any damages or penalty from the Appellants. From the perusal of the records it is conspicuous that Respondent never raised any concern that the pre estimated amount was penal in nature and instead his sole objective was to gain titular rights over the Concerned Property on the strength of Sale Agreements. Conclusion - i) The Respondent s delay in seeking specific performance invalidated his claim. ii) The forfeiture of earnest money was deemed justified as it was not contested as penal by the Respondent and no specific claim for its refund was made. The decree granted by the courts below was hinged on a logical fallacy wherein the Appellants were held to be unjustly enriched on the premise that the contract was rendered impossible to perform due to acquisition proceedings - Suit dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

(a) Whether time was the essence of the contract in the Sale Agreements between the parties.

(b) Whether the Appellants were willfully avoiding performance of their contractual obligations, particularly regarding the procurement of necessary NOCs under the Haryana Development and Regulation of Urban Areas Act, 1975.

(c) Whether the Respondent was entitled to the recovery of earnest money following the breach of contract.

2. ISSUE-WISE DETAILED ANALYSIS

C.1 Whether Time was the Essence of the Contract?

The Court examined whether time was intended to be the essence of the contract under Section 55 of the Indian Contract Act, 1872. The Sale Agreements explicitly stated that if the sale deed was not executed by the specified date, the agreements would be deemed canceled, and the earnest money would be forfeited. The Appellants consistently maintained that time was of the essence, as reiterated in their legal notices. The Court referenced precedents such as Citadel Fine Pharmaceuticals v. Ramaniyam Real Estates Private Ltd. and Saradamani Kandappan v. S. Rajalakshmi, emphasizing that time stipulations in contracts should not be ignored, especially in light of market volatility. The Court concluded that time was indeed the essence of the contract, and the Respondent's delay in filing the suit for specific performance was unjustified.

C.2 Whether it was Proved that Appellants were Willfully Avoiding Performance of Their Contractual Obligations?

The Court analyzed the responsibility for obtaining the necessary NOC under the Sale Agreements. Clause 8 of the agreements placed the onus on the Respondent to secure the NOC. The Appellants provided necessary documents to the Respondent to facilitate this process. The Court found no evidence that the Respondent took steps to obtain the NOC and noted that the Concerned Property was agricultural land at the time, negating the need for an NOC under the HUDA Act. The Court rejected the High Court's doubts about the Appellants' presence before the Sub-Registrar, emphasizing that the lower courts had found their presence duly proved. The Court concluded that the Respondent failed to demonstrate that the Appellants were non-cooperative or avoiding their obligations.

C.3 Whether Respondent was Entitled to Recovery of Earnest Money?

The Court considered whether the Respondent was entitled to recover the earnest money. Under Section 22 of the Specific Relief Act, 1963, a party seeking specific performance may claim a refund of earnest money if specifically pleaded. The Respondent did not make such a claim in the original or amended plaint. The Court also examined Section 74 of the Contract Act regarding the forfeiture of earnest money. The Court noted that the earnest money was a genuine pre-estimate of loss agreed upon by the parties, and the Respondent did not contest its nature as 'penal'. The Court found the forfeiture justified and within the bounds of reasonable compensation.

3. SIGNIFICANT HOLDINGS

The Court held that time was the essence of the contract, and the Respondent's delay in seeking specific performance invalidated his claim. The Court found no evidence of willful avoidance of contractual obligations by the Appellants. The forfeiture of earnest money was deemed justified as it was not contested as 'penal' by the Respondent, and no specific claim for its refund was made. The Court set aside the judgments of the lower courts and dismissed the suit, concluding that the Appellants were not unjustly enriched and the contract was terminated per its terms.