Kamal Kant Jain vs Surinder Singh (D)

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 17321 OF 2017 (Arising out of SLP(C) No. 25493 of 2008)

KAMAL KANT JAIN ... Appellant(s)

Versus

SURINDER SINGH (D) THR. LRS. ... Respondent(s)

J U D G M E N T

R.F.NARIMAN,J.

Leave granted.

The facts of the present case show that there was

an authorisation letter dated 08.03.1978 of the

respondent to a certain power of attorney holder namely,

Harnam Singh, to sell the property in question.

Paragraph 6 of this authorisation letter reads as

follows:

“Purchaser should be warned that his earnest money will stand as forfeited in my favour if he does not come forth to pay the balance amount to have the sale deed registered, inspite of my part being Signature Not Verified complete. Of course if I do not come forth Digitally signed by SHASHI SAREEN Date: 2017.11.03 before (sub) registrar to have balance 17:29:08 IST Reason:

amount and to have sale deed registered, the purchaser will have the right to have his earnest money back with equal amount as damages or to have sale deed registered 2

under specific performance and relief act in his own, or his nominee's name.”

On 05.06.1978, in pursuance of this authorisation

letter, an agreement to sell the said property was

arrived at in a sum of Rs. 3,25,000/- out of which

earnest money of Rs. 32,500/- was deposited along with

the agreement. The agreement to sell also contained

para 6, in which it was stated as under:

“ Should the bargain fail to materialize action will be taken in accordance with 6 or the seller's sale order dated 08.03.1978, i.e. :-

(a) should the purchaser fail to come forth for payment of balance amount and registration of the sale deed, inspite of the seller's part being complete, the earnest money will stand as forfeited in favour of the seller who would be at liberty to retain the house or to sell it to any body else he likes;

(b) should the seller back out from the deal, he will have to refund the earnest money with an equal amount as penalty for non fulfilment of the contract in accordance with para 6 of the sale order.”

Some correspondence ensued between the parties,

after which it was clear to the appellant that the

respondent was going to resile from the agreement.

Therefore, by a notice dated 11.01.1979, the appellant

called upon the respondent to specifically perform the

aforesaid agreement to sell. In February 1979, the

respondent refused to do so, as a result of which the 3

appellant filed a suit for specific performance dated

13.06.1979. The Trial Court framed three issues and

found that the agreement to sell stood proved and that

the appellant was ready and willing to perform his part

of the agreement. However, on a construction of Section

23 of Specific Relief Act, 1963 in the facts of the case

namely, that since paragraph 6 of the authorisation

letter specifically contained the words “or to have sale

deed registered under specific performance” and the said

words being absent in paragraph 6 of the agreement to

sell dated 05.06.1978, it would be clear that this

omission would indicate that specific performance could

not, therefore, be granted. The First Appellate Court

arrived at the same result on all counts and, therefore,

dismissed the appeal. The High Court in second appeal

also arrived at the same conclusion, and relied upon a

judgment in Dadarao and Anr. Vs. Ramrao & Ors. 1999 (8)

SCC 416; and following the aforesaid judgment,

therefore, held that Section 23 of Specific Relief Act

would bar specific performance in the facts of the

present case.

The appellant has argued before us that Dadarao's

case (supra) is itself not to be considered as a

precedent in the light of subsequent judgments of this

Court. He further went on to state that except for 4

misconstruing Section 23 of the Specific relief Act, all

findings were otherwise in his favour, namely that the

agreement had been proved and that he was ready and

willing to perform his part of the agreement. He,

therefore, asked us to apply the later judgments of this

Court, which on a proper construction of Section 23

state that if there is any omission to mention that

specific performance of contract can be obtained, such

omission would not be taken to mean that a suit for

specific performance cannot be filed, provided a sum was

not named in the contract as damages in lieu of specific

performance. He, therefore, asked us to reverse the

findings of the courts below inasmuch as all findings of

fact which are in his favour ought to be affirmed and

the finding of law reversed.

Mr. Sunil Fernandese, learned counsel appearing for

the respondent, on the other hand, stated that the

concurrent findings in this case ought not to be

disturbed at this length of time. He also stated that

only 10% of the sum had been paid and, therefore, on

balance, specific performance should not be decreed in

favour of the appellant. According to him, the justice

of the case demands that, at this point of time, we

should not exercise our jurisdiction under Article 136

of the Constitution of India in favour of the appellant. 5

He has referred in detail to the reasoning of the Trial

Court and the first Appellate Court and asked us to

adopt the same.

Having heard learned counsel for the parties, we

are of the view that there has been a travesty of

justice in the facts of this case as has been pointed

out by learned senior counsel appearing for the

appellant. All factual findings are in favour of the

appellant. We might only add that this being the case,

it is clear that the respondent in refusing to perform

his part of the contract did so wrongfully.

We may now examine whether the courts below were correct

in their reading of paragaph 6 of the agreement to sell

and Section 23 of the Specific Relief Act, which reads

as under:

“23. Liquidation of damages not a bar to specific performance.-

(1) A contract, otherwise proper to be specifically enforced, may be so enforced, though a sum be named in it as the amount to be paid in case of its breach and the party in default is willing to pay the same, if the court, having regard to the terms of the contract and other attending circumstances, is satisfied that the sum was named only for purpose of securing performance of the contract and not for the purpose of giving to the party in default an option of paying money in lieu of specific performance.

(2) When enforcing specific performance under this section, the court shall not also decree payment of the sum so named in the contract”.

6 This section was the subject matter of some debate, as

Section 20 of the earlier Specific Relief Act, 1877 was

in somewhat different terms, and read as follows:

“20. A contract, otherwise proper to be specifically enforced, may be thus enforced, though a sum be named in it as the amount to be paid in case of its breach, and the party in default is willing to pay the same.”

The legislature, in the new Section 23, explicitly

provided that the mere naming of a certain amount which

may sound in damages is not good enough by itself to

non-suit a person seeking specific performance unless it

is clear on the facts that the said sum was named in

lieu of specific performance. This is normally

explicitly spelled out in the agreement itself.

In M.L.Devender Singh and Others Vs. Syed Khaja 1973

(2) SCC 515, this Court, after referring to Section 20

of the old Act and 23 of the present Act, stated the

genesis (in English law) of this branch of law as

follows:

16. The position stated above is in conformity with the principles found stated in Sir Edward Fry's “Treatise on the Specific Performance of Contracts” (Sixth Edn. At p.65) It was said there:

“The question always is: What is the contract? Is it that one certain act shall be done, with a sum annexed, whether by way of penalty or damages, to secure the performance of this very act? Or, is it one of the two things shall be done at the election of the party who has to perform the 7

contract, namely, the performance of the act or the payment of the sum of money? If the former, the fact of the penal or other like sum being annexed will not prevent the court's enforcing performance of the very act, and thus carrying into execution the intention of the parties: if the latter, the contract is satisfied by the payment of a sum of money, and there is no ground for proceedings against the party having the election to compel the performance of the other alternative.

From what has been said it will be gathered that contracts of the kind now under discussion are divisible into three classes--

(i) where the sum mentioned is strictly a penalty –a sum named by way of securing the performance of the contract, as the penalty is a bond;

(ii) where the sum named is to be paid as liquidated damages for a breach of the contract;

(iii) where the sum named is an amount the payment of which may be substituted for the performance of the act at the election of the person by whom the money is to be paid or the act done.

Where the stipulated payment comes under either of the two first-mentioned heads, the court will enforce the contract, if in other respects it can and ought to be enforced, just in the same way as a contract not to do a particular act, with a penalty added to secure its performance or a sum named as liquidated damages, may be specifically enforced by means of an injunction against breaking it. On the other hand, where the contract comes under the third head, it is satisfied by the payment of the money, and there is no ground for the court to compel the specific performance of the other alternative of the contract.”

17. Sir Edward Fry pointed out that the distinction between a strict penalty and liquidated damages for a breach of contract was important in common law where liquidated damages were considered sufficient compensation for breach of contract, but, 8

sums stipulated by way of penalty stood on a different footing. He then said:

“But as regards the equitable remedy the distinction is unimportant; for the fact that the sum named is the amount agreed to be paid as liquidated damages is, equally with a penalty strictly so called, ineffectual to prevent the court from enforcing the contract in specie”

Having thus stated this genesis, the court found:

“20. The fact that the parties themselves have provided a sum to be paid by the party breaking the contract does not, by itself, remove the strong presumption contemplated by the use of the words ”unless and until the contrary is proved”. The sufficiency or insufficiency of any evidence to remove such a presumption is a matter of evidence. The fact that the parties themselves specified a sum of money to be paid in the event of its breach is, no doubt, a piece of evidence to be considered in deciding whether the presumption has been repelled or not. But, in our opinion, it is nothing more than a piece of evidence. It is not conclusive or decisive.”

Next in chronological sequence comes the judgment

in Dadarao's case (supra), in para 6 of which it was

stated as follows:

“6.The relationship between the parties has to be regulated by the terms of the agreement between them. Whereas the defendants in the suit had taken up the stand that the agreement dated 24th April, 1969 was really in the nature of a loan transaction, it is the plaintiff who contended that it was an agreement to sell. As we read the agreement, it contemplates that on or before 15th April, 1972 the sale deed would be executed. But what is important is that the agreement itself provides as to what is to happen if either the seller refuses to sell or the purchaser 9

refuses to buy. In that event the agreement provides that in addition to the earnest money of Rs. 1,000 a sum of Rs. 500 was to be given back to Tukaram Devsarkar and that "no sale deed will be executed". The agreement is very categorical in envisaging that a sale deed is to be executed only if both the parties agree to do so and in the event of any one of them resiling from the same there was to be no question of the other party being compelled to go ahead with the execution of the sale deed. In the event of the sale deed not being executed, Rs. 500, in addition to the return of Rs. 1,000, was the only sum payable. This sum of Rs. 500 perhaps represented the amount of quantified damages or, as the defendants would have it, interest payable on Rs.

1,000/-.”

However, in two subsequent judgments namely

P.D'Souza Vs. Shondrilo Naidu 2004 (6) SCC 649 and

P.S.Ranakrishna Reddy Vs. M.K.Bhagyalakshmi and Anr.

2007 (10) SCC 231, this Court specifically adverted to

two earlier judgments and distinguished Dadarao's case

by referring to the specific clause stating that “no

sale deed will be executed.” The Court went on to hold

in P.D'Souza (supra) in para 34, as follows:

“34: In Dadarao-whereupon Mr. Bhat placed strong reliance, the binding decision of M.L.Devender Singh was not noticed. This Court furthermore failed to notice and consider the provisions of Section 23 of the Specific Relief Act, 1963. The said decision, thus, was rendered per incuriam.”

This Court then went on to add, in paragraph 36,

that Dadarao's case (supra) does not constitute a 10

binding precedent, having not noticed the relevant

statutory provisions and at least one earlier binding

precedent.

This was reiterated in P.S.Ranakrishna Reddy

(supra) in paragraph 15:

“15. The decision of this Court in Dadarao whereupon reliance has been placed by Mr. Chandrashekhar is wholly misplaced. The term of the agreement therein was absolutely different. We need not dilate on the said decision in view of the fact that in a subsequent decision of this Court in P. D'Souza v. Shondrilo Naidu it has been held to have been rendered per incuriam, stating: (SCC pp. 657-58, paras 34-36) "34. In Dadarao whereupon Mr. Bhat placed strong reliance, the binding decision of M.L. Devender Singh was not noticed. This Court furthermore failed to notice and consider the provisions of Section 23 of the Specific Relief Act, 1963. The said decision, thus, was rendered per incuriam.

35. Furthermore, the relevant term stipulated in Dadarao was as under: (SCC p. 417, para 2) '2. … “Tukaram Devsarkar, aged about 65, agriculturist, r/o Devsar, purchaser (GHENAR) -

Balwantrao Ganpatrao Pande, aged 76 years, r/o Dijadi, Post Devsar, vendor (DENAR), who hereby give in writing that a paddy field situated at Dighadi Mouja, Survey No. 7/2 admeasuring 3 acres belonging to me hereby agree to sell to you for Rs. 2000 and agree to receive Rs. 1000 from you in presence of V.D.N. Sane. A sale deed shall be made by me at my cost by 15-4-1972. In case the sale deed is not made to you or if you refuse to accept, in addition of earnest money an amount of Rs. 500 shall be given or taken and no sale deed will be executed. The possession of the property has been agreed to be delivered at the time of purchase. This agreement is binding on the legal heirs and successors and assigns. “'

Interpreting the said term, it was held: (SCC p. 418, paras 6-7) '6. The relationship between the parties has to 11

be regulated by the terms of the agreement between them. Whereas the defendants in the suit had taken up the stand that the agreement dated 24-4-1969 was really in the nature of a loan transaction, it is the plaintiff who contended that it was an agreement to sell. As we read the agreement, it contemplates that on or before 15-4-1972 the sale deed would be executed. But what is important is that the agreement itself provides as to what is to happen if either the seller refuses to sell or the purchaser refuses to buy. In that event the agreement provides that in addition to the earnest money of Rs. 1000 a sum of Rs. 500 was to be given back to Tukaram Devsarkar and that “no sale deed will be executed”. The agreement is very categorical in envisaging that a sale deed is to be executed only if both the parties agree to do so and in the event of any one of them resiling from the same there was to be no question of the other party being compelled to go ahead with the execution of the sale deed. In the event of the sale deed not being executed, Rs. 500 in addition to the return of Rs. 1000, was the only sum payable. This sum of Rs. 500 perhaps represented the amount of quantified damages or, as the defendants would have it, interest payable on Rs. 1000.

7. If the agreement had not stipulated as to what is to happen in the event of the sale not going through, then perhaps the plaintiff could have asked the Court for a decree of specific performance but here the parties to the agreement had agreed that even if the seller did not want to execute the sale deed he would only be required to refund the amount of Rs. 1000 plus pay Rs. 500 in addition thereto. There was thus no obligation on Balwantrao to complete the sale transaction. '

36. Apart from the fact that the agreement of sale did not contain a similar clause, Dadarao does not create a binding precedent having not noticed the statutory provisions as also an earlier binding precedent." (emphasis in original)”

In a fairly recent judgment, in Man Kaur (Dead) by

Lrs. Vs. Hartar Singh Sangha, 2010 (10) SCC 512, after 12

referring to some of the earlier precedents , the law is

stated thus:

“28. It is thus clear that for a plaintiff to seek specific performance of a contract of sale relating to immovable property, and for a court to grant such specific performance, it is not necessary that the contract should contain a specific provision that in the event of breach, the aggrieved party will be entitled to specific performance. The Act makes it clear that if the legal requirements for seeking specific enforcement of a contract are made out, specific performance could be enforced as provided in the Act even in the absence of a specific term for specific performance in the contract. It is evident from section 23 of the Act that even where the agreement of sale contains only a provision for payment of damages or liquidated damages in case of breach and does not contain any provision for specific performance, the party in breach cannot contend that in view of specific provision for payment of damages, and in the absence of a provision for specific performance, the court cannot grant specific performance. But where the provision naming an amount to be paid in case of breach is intended to give to the party in default an option to pay money in lieu of specific performance, then specific performance may not be permissible.

29. We may attempt to clarify the position by

the following illustrations (not exhaustive):

(A). The agreement of sale provides that in the event of breach by the vendor, the purchaser shall be entitled to an amount equivalent to the earnest money as damages. The agreement is silent as to specific performance. In such a case, the agreement indicates that the sum was named only for the purpose of securing performance of the contract. Even if there is no provision in the contract for specific performance, the court can direct specific performance by the vendor, if breach is established. But the court has the option, as per Section 21 of the Act, to award damages, if it comes to the conclusion that it is not a fit case for granting specific performance.

13 (B). The agreement provides that in the event of the vendor failing to execute a sale deed, the purchaser will not be entitled for specific performance but will only be entitled for return of the earnest money and/or payment of a sum named as liquidated damages. As the intention of the parties to bar specific performance of the contract and provide only for damages in the event of breach, is clearly expressed, the court may not grant specific performance, but can award liquidated damages and refund of earnest money.

(C). The agreement of sale provides that in the event of breach by either party the purchaser will be entitled to specific performance, but the party in breach will have the option, instead of performing the contract, to pay a named amount as liquidated damages to the aggrieved party and on such payment, the aggrieved party shall not be entitled to specific performance. In such a case, the purchaser will not be entitled to specific performance, as the terms of the contract give the party in default an option of paying money in lieu of specific performance.

30. In this case, Clauses 11 and 12 of the agreement deal with consequences of breach. They are extracted below :

"11. That in case the seller fails to perform his part of contract of sale according to the terms and conditions agreed upon in this agreement to sell in matter of execution of the sale deed and its registration, on the receipt of the balance sale price, he shall be liable to pay double the amount of the earnest money received by her from the purchaser.

12. That in case the purchaser fails to get the transaction of the sale completed by means of execution and registration of sale deed according to the terms of this agreement for sale, he shall forfeit his earnest money of Rs.10,000/- advanced by the purchaser to the said seller."

31. The agreement does not specifically provide for specific performance. Nor does it bar specific performance. It provides for payment of damages in the event of breach by either party. The provision for damages in the agreement is not intended to provide the vendor an option of 14

paying money in lieu of specific performance. Therefore, we are of the view that plaintiff will be entitled to seek specific performance (even in the absence of a specific provision therefor) subject to his proving breach by the defendant and that he was ready and willing to perform his obligation under the contract, in terms of the contract.”

At this stage, it is necessary to point out that

the impugned judgment referred to and followed only

Dadarao's case (supra), which we have seen was stated to

be per incuriam atleast in two other judgments of this

Court, apart from being distinguishable on facts in that

the relevant clause of the agreement in Dadarao's case

(supra) contained a specific clause to the effect that

in the event of breach, only damages would be paid and

no specific performance of the contract could be

claimed. This is, therefore, the basic infirmity in the

impugned judgment under appeal. Apart from that, as is

clear from the judgment in Man Kaur's case (supra),

paragraph 6 of the agreement to sell refers to

paragraph 6 of the authorisation letter and makes it

clear that the refund of the amount of earnest money

with an equal amount as penalty is only to secure the

performance of the contract and cannot be stated to be a

sum in lieu of specific performance. The mere omission

of a statement in the said clause that specific

performance ought to be allowed would, therefore, be of 15

no consequence, as has been held in Man Kaur's case

(supra). It is clear that in both para 6 of the

authorisation letter (which explicitly referred to

specific performance) and para 6 of the agreement to

sell (which omitted reference to specific performance)

earnest money with equal amount as penalty/damages

remains the same, making it clear that there is no

change in the position that this amount is only to

secure performance of the contract, and is not in lieu

of specific performance.

We are, therefore, of the view that the impugned

judgment deserves to be set aside, as a result of which

specific performance of the agreement to sell dated

05.06.1978 is ordered. We record the extremely fair

statement made by Mr. V.K.Jhanjhi, learned senior

counsel for the appellant, that given the large passage

of time, he would be willing to pay an amount of Rupees

ten crores (Rs. 10,00,00,000/- only) to the respondent

to be deposited with the registry of this Court within a

period of nine months from today. It is made clear that

the vacant possession of the property in question must

be handed over to the appellant as soon as this amount

is paid to the respondent.

In view of the statement made by learned senior

counsel for the appellant, we are not calling upon the 16

appellant to further pay the balance amount of the sale

price amounting to Rs. 2,92,500/- (Rs. 3,25,000/- less

Rs. 32,500/-).

The appeal is allowed in the aforesaid terms.

....................J. (ROHINTON FALI NARIMAN)

.....................J. (SANJAY KISHAN KAUL)

New Delhi, Dated: 27th October, 2017.

17

ITEM NO.59 COURT NO.12 SECTION IV-B

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (C) No(s). 25493/2008

(Arising out of impugned final judgment and order dated 29-04-2008 in RSA No. 1178/1996 passed by the High Court Of Punjab & Haryana At Chandigarh)

KAMAL KANT JAIN Petitioner(s)

VERSUS

SURINDER SINGH (D) THR. LRS. Respondent(s)

Date : 27-10-2017 This petition was called on for hearing today.

CORAM :

HON'BLE MR. JUSTICE ROHINTON FALI NARIMAN HON'BLE MR. JUSTICE SANJAY KISHAN KAUL

For Petitioner(s) Mr. V.K.Jhanjhi, Sr. Adv.

Ms. Jyoti Mendiratta, AOR Mr. Aastik, Adv.

For Respondent(s) Mr. Jayant Kumar Mehta, AOR Mr. Shaurya Kuthiala, Aadv.

Mr. Sunil Fernandes, AOR Mr. Nisheeth Bhatt, Adv.

Ms. Astha Sharma, Adv.

UPON hearing the counsel the Court made the following O R D E R

The appeal is allowed in terms of the signed order.

Pending applications, if any, shall stand disposed of.

(SHASHI SAREEN) (SAROJ KUMARI GAUR) AR CUM PS BRANCH OFFICER

(Signed reportable judgment is placed on the file)