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TMI Blog2011 (7) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... second respondent is the owner of lands bearing Survey Nos. 16 and 18 and the third respondent is the owner of Survey Nos. 19 and 20, all situated in Chettiaragaram Village, Saidapet Taluk, Chingleput District in all measuring 24 acres 95 cents. The said lands along with the trees, wells, pump-houses, farm godowns, perimeter fence and some furniture, are together referred to as the 'schedule properties'. Respondents 1 to 4 entered into agreement of sale dated 17.1.1981 with the appellant herein for sale of the schedule properties, at a price of Rs. 15,000 per acre (in all Rs. 3,74,250 rounded off to Rs. 3,75,000). On the date of the agreement, Rs. 1,00,000 was paid as advance to respondents, which was duly acknowledged in the agreement. Clauses 3, 4, 5, 6, 7, 12 and 15 of the agreement which are relevant for our purposes are extracted below :- "3. The execution of the sale deeds shall depend upon the party of the second part getting satisfied regarding the title to the land, so also the nil encumbrance. 4. The mode of payment of the balance of Rs. 2,75,000/- (Rupees Two lakhs and seventy five thousand only) shall be as under : (a) Rs. 1,00,000/- (one lakh) on or before 28.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on 6.4.1981 and the last instalment of Rs. 75,000 payable on or before 30.5.1981 was not paid by the appellant. 5. Respondents 1 to 3 caused a notice dated 2.8.1981 to be issued through their counsel to appellant, cancelling the agreement dated 17.1.1981, on the ground of default in paying the balance of the sale consideration, in exercise of their right to cancel the agreement on such default, under clause 6 of the agreement. The relevant portion of the cancellation notice is extracted below: "My clients state that even at the time of entering into the said agreement of sale, you looked into the documents of title and satisfied yourself about the title of my clients to the said property. My clients were always ready and wiling to conclude the sale and expected you to pay the balance of sale consideration of Rs. 2,75,000/- in accordance with clause 4 of the said agreement. Now that you have committed defaults in the payment of the balance of consideration. Not withstanding the fact that you have not even sent any communication whatsoever to my clients as to whether you were ready and willing to pay the balance of consideration under the said agreement, my clients wait ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim. The further allegation that my client has committed default in payment etc. is also not true, because my client has already paid Rs. 2,25,000/- and on 2.4.1981 when the sum of Rs. 25,000/- was paid it was specifically understood that the balance of money will be paid and the sale will be completed within a reasonable time as soon as the documents of title were handed over to her. Therefore, the question of default in payment of the instalment does not arise. Moreover, it is very unreasonable on the part of your client to allege that default has been committed when the truth is otherwise. My client is ready and willing to pay the balance of sale consideration and have the sale completed provided the documents are handed over to her immediately for scrutiny and approval. Once again in the circumstances set out above, there is no default on the part of my client and she is always ready and willing to perform her part of the agreement provided your client hands over the documents for scrutiny and the title is found good to the satisfaction of my client's legal advisers. My client therefore stated that the purported cancellation of the agreement by the said notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properties and issued a warning that if any third party enters into any agreement with the owners, they will be doing so at their own risk, and the same will not bind her. This public notice brought forth two responses. The first was a notice dated 14.11.1981 from one Gulecha stating that the documents relating to Sy. Nos. 16 and 18 were deposited with him by the second respondent as security for a loan taken from him and that if appellant purchased the said lands, she will be doing so at her risk. The second was a notice dated 14.11.1981 from respondent Nos. 1 to 3 through their counsel stating that the claim of the appellant that she had purchased the lands bearing Nos.8, 10, 12, 13, 14, 15, 16, 17, 18, 19, 20, 20/1, 21 and 24 and was in possession thereof was false; the survey numbers mentioned were erroneous; that after the agreement dated 17.1.1981 was cancelled, they had entered into an agreement with a third party which fell through because of the public notice, causing loss to them; that the appellant had been appointed only as a caretaker of the lands under the agreement dated 17.1.1981 and the said appointment was cancelled and a new caretaker had been appointed. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess and willingness to perform his part of the contract? (2) Is the time essence of the contract? (3) If so, whether the termination of the contract by the defendant is valid? (4) Is not the plaintiff entitled to specific performance? (5) To what relief is the parties entitled? Addl. Issue (1) : Whether the fourth defendant is a necessary and proper party to the suit? Addl. Issue (2) : Whether by reason of filing of C.S. No. 170 of 1984, is the plaintiff entitled to specific performance? In the suit for refund of Rs. 1,25,000/-, the following issues were framed: (1) Whether the payment of Rs. 1,25,000/- made by the plaintiff to the defendant on 17.1.1981 was towards the commission charges as per the letter given by the defendant or towards part of consideration for the sale in question? (2) Whether the plaintiff is entitled to return of the said amount of Rs. 1,25,000/-. (3) To what other relief, if any, the plaintiff is entitled? 13. Common evidence was recorded in the three suits. On behalf of the plaintiff, three witnesses were examined, that is plaintiff as PW1 and one Babu as PW-2 and one Balaraman as PW-3. Ex P-1 to P-20 were marked on behalf of the plaint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) Plaintiff's claim that in March, 1981, clause (4) regarding payment schedule was modified by oral agreement under which it was agreed that the instalments due on 6.4.1981 and 30.5.1981 could be paid after the defendants satisfied the plaintiff about their title to the property agreed to be sold, was not established by plaintiff. The terms of the agreement remained unaltered. (e) Plaintiff committed breach by failing to pay the sum of Rs. 1,00,000 due on 6.4.1981 (except Rs. 25,000 paid on 2.4.1981) and the sum of Rs. 75,000 due on 30.5.1981 and the defendants were therefore justified in cancelling the agreement on 2.8.1981. (f) The defendants did not deliver possession of the properties agreed to be sold, to the plaintiff in part performance of the agreement of sale dated 17.1.1981. The defendants delivered the property to the plaintiff in trust to hold the same as caretaker, until the vendors received the entire sale price and delivered possession. Therefore when the agreement was cancelled and consequently the appointment as caretaker came to an end, the plaintiff became liable to return the suit schedule properties to the defendants. (g) The plaintiff and her husband had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not the essence of the agreement of sale dated 17.1.1981. She contends that where the vendors fail to give the documents of title to satisfy the purchaser about their title, and the purchaser is ready and willing to perform the contract, the termination of the agreement of sale by the vendors is illegal and amounts to breach of contract. They submit that High Court had failed to apply section 55 of the Contract Act, 1872. Section 55 of Contract Act deals with the effect of failure to perform at a fixed time, in contract in which time is essential. Said Section is extracted below : "Section 55. Effect of failure to perform at a fixed time, in contract in which time is essential.-- When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before a specified time, and fails to do such thing at or before a specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of essence of the contract. Effect of such failure when time is not essential: If it was not the intention of the parties that ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not the statement of legal position, but a conclusion on facts regarding the contract that was being considered by the court in that case, with reference to its terms. In fact the legal position is differently stated in para 27 of the said decision, thus: "27. In a contract for sale of immoveable property, normally it is presumed that time is not the essence of the contract. Even if there is an express stipulation to that effect, the said presumption can be rebutted. It is well settled that to find out whether time was the essence of the contract. It is better to refer to the terms and conditions of the contract itself." 19. The legal position is clear from the decision of a Constitution Bench of this court in Chand Rani v. Kamal Rani [1993 (1) SCC 519], wherein this court outlined the principle thus: "It is a well-accepted principle that in the case of sale of immovable property, time is never regarded as the essence of the contract. In fact, there is a presumption against time being the essence of the contract. This principle is not in any way different from that obtainable in England. Under the law of equity which governs the rights of the parties in the case of specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is payment. The income-tax certificate was necessary only for completion of sale. We are unable to see how these obligations on the part of the defendant could be insisted upon for payment of Rs. 98,000. Therefore, we conclude that though as a general proposition of law time is not the essence of the contract in the case of a sale of immovable property yet the parties intended to make time as the essence under Clause (1) of the suit agreement." The intention to make time stipulated for payment of balance consideration will be considered to be essence of the contract where such intention is evident from the express terms or the circumstances necessitating the sale, set out in the agreement. If for example, the vendor discloses in the agreement of sale, the reason for the sale and the reason for stipulating that time prescribed for payment to be the essence of the contract, that is, say, need to repay a particular loan before a particular date, or to meet an urgent time bound need (say medical or educational expenses of a family member) time stipulated for payment will be considered to be the essence. Even if the urgent need for the money within the specified time is not set out, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second party (purchaser) getting satisfied regarding the title to the lands, so also the nil encumbrance. It is significant that the said clause does not say that payment of balance consideration shall depend upon the purchaser getting satisfied regarding title or nil encumbrances. Clause 7 provides that the sale deed shall be executed at the convenience of the purchaser, as and when she wants them to be executed either in her name or in the name of her nominee or nominees. Clause 12 provides that if the second party (purchaser) finds the title of the properties to be unsatisfactory or unacceptable, the vendors shall be put on notice about her intention not to conclude the sale and in such an event, if the vendors fail to satisfy the purchaser regarding their title, the vendors shall pay to the purchaser within three months from that date, all monies advanced by the purchaser till then. It is thus evident from clause 12 also that the payments of balance sale price in three instalments on the specified due dates were not dependent upon the further examination of title or the satisfaction of the purchaser about the title. It is clear that the purchaser on the basis of whatever initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the distinction between contracts relating to immovable properties and other contracts was not drawn by section 55 of Contract Act (or any other provisions of Contract Act or Specific Relief Act, 1963). Courts in India made the said distinction, by following the English law evolved during the nineteenth century. This Court held that time is not of the essence of the contracts relating to immovable properties; and that notwithstanding default in carrying out the contract within the specified period, specific performance will ordinarily be granted, if having regard to the express stipulation of the parties, nature of the property and surrounding circumstances, it is not inequitable to grant such relief. [vide Gomathinayagam Pillai (supra), Govind Prasad Chaturvedi (supra) and Indira Kaur v. Sheo Lal Kapoor -1988 (2) SCC 188 and Chand Rani (supra) following the decision of Privy Council in Jamshed Khodaram Irani v. Burjorji Dhunjibhai-AIR 1915 PC 83 and other cases]. Of course, the Constitution Bench in Chand Rani made a slight departure from the said view. 24. The principle that time is not of the essence of contracts relating to immovable properties took shape in an era when market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se days of galloping increases in prices of immovable properties, to hold that a vendor who took an earnest money of say about 10% of the sale price and agreed for three months or four months as the period for performance, did not intend that time should be the essence, will be a cruel joke on him, and will result in injustice. Adding to the misery is the delay in disposal of cases relating to specific performance, as suits and appeals therefrom routinely take two to three decades to attain finality. As a result, an owner agreeing to sell a property for Rs.One lakh and received Rs.Ten Thousand as advance may be required to execute a sale deed a quarter century later by receiving the remaining Rs.Ninety Thousand, when the property value has risen to a crore of rupees. 26. It is now well settled that laws, which may be reasonable and valid when made, can, with passage of time and consequential change in circumstances, become arbitrary and unreasonable. 26.1) In Rattan Arya v. State of Tamil Nadu - (1986) 3 SC 385, this Court held: "We must also observe here that whatever justification there may have been in 1973 when Section 30(ii) was amended by imposing a ceiling of Rs. 400 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances into consideration, we have no doubt that the existing provisions of the Bombay Rent Act relating to the determination and fixation of the standard rent can no longer be considered to be reasonable......" The principle underlying the said decisions with reference to statutes, would on the same logic, apply to decisions of courts also. 27. A correct perspective relating to the question whether time is not of the essence of the contract in contracts relating to immovable property, is given by this court in K.S. Vidyanadam and Others vs. Vairavan - (1997) 3 SCC 1 (by Jeevan Reddy J. who incidentally was a member of the Constitution Bench in Chand Rani). This Court observed: "It has been consistently held by the courts in India, following certain early English decisions, that in the case of agreement of sale relating to immovable property, time is not of the essence of the contract unless specifically provided to that effect. In the case of urban properties in India, it is well-known that their prices have been going up sharply over the last few decades - particularly after 1973. .........We cannot be oblivious to the reality and the reality is constant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchaser. Re: Question (ii) 29. Before the learned Single Judge, the appellant had concentrated on the contention that time for payment was not the essence of the contract and therefore the failure to pay the second instalment on or before 6.4.1981 and the final instalment on or before 30.5.1981 did not entitle the vendors to cancel/terminate the agreement. As that contention was rightly rejected by the learned Single Judge, the emphasis before the Division Bench was on the contention that the term regarding payment was altered by an oral understanding. It was contended that though time was the essence of the contract in regard to payments, it was equally necessary for the defendants to produce original title deeds to show that there were no encumbrances over the suit properties; that after paying the first instalment of Rs. 1,00,000 on 28.2.1981, the plaintiff and her husband got doubts about the original title deeds as they learnt that the properties had been mortgaged; that therefore the plaintiff's husband along with his friends Babu (PW2) and Balaraman (PW3) went to defendants' house in March, 1981 and made inquiries and then the defendants requested for some more time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54 of Contract Act. To appreciate the said contention it is necessary to refer to sections 51 to 53 of the Contract Act. 31. Section 51 provides that when a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise, unless the promisee is ready and willing to perform his reciprocal promise. For example, if the contract provides that the balance of sale consideration shall be paid by the purchaser to the vendor against execution of sale deed within a period of three months, the purchaser need not pay the balance sale consideration if the vendor was not willing to execute the sale deed. Similarly the vendor need not execute the sale deed unless the purchaser is ready to pay the balance sale consideration. 32. Section 52 relates to the order of performance of reciprocal promises. It provides that where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that order; and where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires. Let us illustrate with reference to an agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract. The agreement in this case provides a good illustration for this section. The purchaser cannot claim that the vendors should produce the original title deeds and satisfy her regarding their title, or claim execution of the sale deed, unless and until she paid the entire consideration within the time stipulated in clause (4) of the agreement, which would enable the vendors to repay the loans and obtain release of the original title deeds. 35. The appellant contends that clause (3) of the agreement provides that execution of the sale deed shall depend upon the purchaser getting satisfied regarding (vendors') title to the lands and that the property is not subject to any encumbrance; that the said clause precedes clause (4) requiring payment of balance consideration of Rs. 2,75,000 in three instalments; and that shows that the intention of parties was that the satisfaction of the purchaser in regard to the vendors' title to the land and encumbrance, was a condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstrates that the payment of balance of sale price in terms of the contract was not postponed nor made conditional upon the purchaser being satisfied about the title, but that payment of the balance price should be made to the vendors as agreed unconditionally. In fact if the intention of the parties was that only after the vendors satisfying the purchaser about their title, balance consideration had to be paid, clause (12) would be redundant as the situation contemplated therein would not arise. Further, if that was the intention, the purchaser would not have paid Rs. 1,00,000 as further advance on 28.1.1981 and Rs. 25,000 on 2.4.1981. It is therefore clear that the contract does not expressly (or even impliedly) specify the order of performance of reciprocal promises, as alleged by the appellant. 37. The terms of the contract makes it clear that payment of sale price did not depend on execution of the sale deed. The sale deed was not required to be executed within any specific period. The purchaser had to fulfil her obligation in regard to payment of price as provided in clause 4 and thereafter vendors were required to perform their reciprocal promise of executing the sale deed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary, the buyer and the seller of immovable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following or such of them as are applicable to the property sold: (1) The seller is bound- (a) to disclose to the buyer any material defect in the property or in the seller's title thereto of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover; (b) to produce to the buyer on his request for examination all documents of title relating to the property which are in the seller's possession or power; (c) to answer to the best of his information all relevant questions put to him by the buyer in respect to the property or the title thereto; x x x x x Section 34 of the TP Act relied upon by appellant, is extracted below: "34. Transfer conditional on performance of act, time being specified Where an act is to be performed by a person either as a condition to be fulfilled before an interest created on a transfer of property is enjoyed by him, or as a condition on the non-fulfilment of which the interest is to pass from him to another person, and a time is specified for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the pending encumbrances or the fact that the original documents were not available and thereby committed fraud is neither pleaded nor proved. 41. The appellant did not allege in the plaint, any fraud on the part of vendors, in regard to suppression of encumbrances over the property. The entire plaint tried to justify that the plaintiff did not commit breach of contract by not paying the balance instalments on 6.4.1981 and 30.5.1981, except for a stray sentence that the plaintiff will be entitled to proceed against the third defendants 1 to 3 for damages, for not performing their part of the contract and not disclosing several prior encumbrances over the property. In the written statement the defendants submitted that the encumbrance certificate upto the year 1980 had been given to appellant's husband, which showed the encumbrance in favour of State Bank of Mysore, that plaintiff and her husband both knew before entering into the agreement of sale that original documents were with the said bank and that therefore the allegation that the encumbrance was not disclosed was false. It was also disclosed in the written statement, that a document was surreptitiously detained by one Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 whereas the counter claim of the first respondent was decreed for Rs. 34,48,799 with costs. The bank filed an appeal before the High Court which was allowed on 20.9.1983 and the Bank's suit was decreed for Rs. 18,49,209.70 with interest and the firm's counter claim was dismissed. But what is significant and relevant is the fact that as on the date of the agreement of sale (17.1.1981) the first defendant was not a debtor of Bank of India but on the other hand the bank itself was a debtor to the extent of more than Rs. 33,00,000 with interest. Therefore the contention of the appellant that an encumbrance in favour of Bank of India was in existence and that was not disclosed and the said liability was not disclosed, is wholly untenable. From the evidence on record as rightly held by the courts below it is not possible to make out either any fraud or any suppression or failure to disclose facts on the part of the respondents. 43. We are therefore of the view that the failure of the appellant to pay the balance of Rs. 75,000 on 6.4.1981 and failure to pay the last instalment of Rs. 75,000 on or before 30.5.1981 clearly amounted to breach and time for such payment was the essence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to interfere with the direction to refund Rs. 3,50,000 with interest. We however propose to make a modification in regard to the rate of interest and the period for which interest is payable. The High Court has awarded interest on the sum of Rs. 3,50,000 at 9% per annum for the period in which the appellant had not acted as caretaker till the date of payment. As noticed above, the agreement of sale does not provide for forfeiture of the amounts paid as advance under any circumstances and on the other hand, specifically provides that if the plaintiff was not satisfied with the title of the defendants, the amounts received as advance would be refunded. In fact, the respondents, in their written statement, offered to refund the amount. Therefore, the High Court ought to have granted interest from the date of cancellation of the agreement (2.8.1981) to date of payment. The High Court was not justified in restricting the interest to only for the period during which the appellant had not acted as caretaker. The liability to refund the advance has nothing to do with the appointment of the plaintiff as caretaker or the obligation of the plaintiff to return the property on cancellati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hter exclusively managing the affairs of an old and infirm parent, a father/mother exclusively managing the affairs of a son/daughter living abroad." Therefore the evidence of the fourth defendant (examined as DW2) was sufficient to put forth the case of the defendants and there was no need to examine the other three defendants who did not have full or complete knowledge of the transactions. In the circumstances we find no merit in the contention that the suits ought to have been decreed, as defendants 1,2 and 3 did not step into the witness box. Re : Contempt Petition (C) Nos.28-29/2009 : 48. The appellant has filed these contempt petitions praying that respondents 1 to 4 be punished for committing contempt of the order dated 11.11.2002 made in C.A. Nos.7254-7256/2002. The appellant filed the said appeals aggrieved by the common judgment dated 19.6.2002 passed by the Division Bench of the High Court, affirming the dismissal of the three suits of appellant for injunction, for specific performance and for refund of Rs. 1,25,000/-. This Court on 11.11.2002 while granting leave in the special leave petitions, made an interim order that the respondent shall not encumber the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51. We make it clear that nothing stated in this order on the contempt petitions will be construed as an expression of any opinion on the merits of the dispute between Jeevanandam and respondents 1 to 3, and necessarily any pending litigation between them will have to be decided on the merits of the respective cases. CIVIL APPEAL NOS. 7254-7256 OF 2002 52. These appeals are filed by the vendors - defendants 1 to 3 (who are respondents 1 to 3 in C.A. Nos.7254-7256/2002). They are aggrieved by the judgment and decree of the Division Bench in O.S.A. No.12/1992 (arising from the specific performance suit) and O.S.A.No. 148/1999 (arising out of the money suit) whereby the Division Bench directed defendants 1 to 3 to jointly repay Rs. 3,50,000 with interest at 9% per annum during the period the plaintiff was not acting as a caretaker till the date of payment. Defendants 1 to 3 urge the following contentions : (a) In their written statement (filed in the specific performance suit), their offer was to repay the amount advanced was a conditional offer subject to the plaintiff not obstructing the defendants from interfering with the property or filing any frivolous, mischievous or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench that the plaintiff is not entitled to the relief of specific performance, it cannot be said that the plaintiff had filed false, frivolous and mischievous suits. In view of the above, in terms of the agreement and in terms of its offer, the plaintiff was entitled to recover the amounts paid by her. A sum of Rs. 2,25,000 was paid under the agreement of sale to defendants 1 to 3. The finding of the learned Single Judge that the sum of Rs. 1,25,000 paid by the plaintiff to the fourth defendant was also the consideration for the movables in addition to the consideration of Rs. 3,75,000 under the agreement of sale, was not been challenged by the defendants. In the circumstances, the Division Bench was justified in granting a decree in favour of the plaintiff for Rs. 3,50,000 with interest. These appeals are therefore liable to be dismissed. Conclusion : 55. In view of the foregoing the appeals and contempt petitions are disposed of as follows: (i) C.A. Nos.7254-7256/2002 are allowed in part only in regard to the rate of interest and period for which interest is payable, with respect to the decretal amount of Rs. 3,50,000/-. We direct that respondents 1 to 3 shall refund t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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