M/S Citadel Fine Pharmaceuticals vs M/S Ramaniyam Real Estates P.Ltd.& Anr

judgment and final order dated 2nd

September, 2008 passed in O.S.A.

No.332/2007 and C.M.P. No.1/2007 by the

Division Bench of the Madras High Court.

3. The controversy arose out of a suit of

specific performance. M/s. Citadel Fine

Pharmaceuticals (defendant No.1), a

partnership firm, owned 66 cents of

agricultural land (hereinafter `the suit

property'), forming a part of total of

2.87 acres of agricultural land in survey

nos. 363, 364, 366/1 of Velachery village,

Mamblam, Guindy Taluk, Registration

District of Madras, and entered into an

agreement for sale of the suit property

(hereinafter `the agreement') for a

consideration of Rs.1,00,00,000/- with

2

M/s. Ramaniyam Real Estates Private

Limited (plaintiff), which was a company

incorporated under the Companies Act, 1956

and engaged in the business of

constructing buildings.

4. The agreement dated 7th July, 1995 was the

subject matter of suit between the above

parties. As per the agreement,

Rs.10,00,000/- of the sale consideration

was to be paid upfront as earnest money,

and the remainder of Rs.90,00,000/- was to

be paid at the time of the registration of

the sale deed. At the time of agreement,

the suit property was encumbered by way of

security with M/s. State Bank of India,

Guindy Branch (defendant No.2) and

therefore one of the conditions of the

agreement was that defendant No. 1 would

get the suit property released from such

encumbrance before the final payment of

3

Rs.90,00,000/- was to be made. Apart from

this encumbrance, it was stated in the

agreement, the suit property was to be

without any other encumbrance; vide

clauses 2 and 6 of the agreement.

5. Of the said 66 cents, however, 19 cents

were considered excess urban vacant land

under the Tamil Nadu Urban Land (Ceiling

and Regulations) Act (24 of 1978),

(hereinafter `the Tamil Nadu Act'). As per

clause 7 of the agreement, it was for the

plaintiff to have the land cleared for

sale from the urban land ceiling

authorities. Under clauses 8, 10 and 11 of

the agreement, the sale was made time

bound. Clause 10 stated that time was the

essence of this contract. Clause 8

mandated that under all circumstances, the

sale had to materialize within a year from

the date of the agreement. In terms of

4

clause 9, if the sale failed on account of

lapses on plaintiff's part, the sale was

to stand completely cancelled, and the

earnest money of Rs.10,00,000/- was to be

returned. As per clause 11, however, if

the sale failed because of defendant No.

1, the plaintiff was at liberty to sue for

specific performance of the contract.

6. In pursuance to the agreement, the earnest

money was paid by the plaintiff and

received by defendant No. 1. The plaintiff

then preferred an application in Form 37-I

prescribed under Rule 48-L of the Income

Tax Rules, 1962, before the Appropriate

Authority for the clearance of the suit

property for sale vide section 269UC in

Chapter XX of the Income Tax Act, 1961.

7. However, the Income Tax Authority refused

such clearance on the ground that as per

5

section 6 of the Tamil Nadu Act, agreement

to sell a piece of urban land declared

excess vacant land, or a piece of land,

part of which had been declared excess

vacant urban land, was deemed as null and

void.

8. From the Statement and Objects and Reasons

of the Tamil Nadu Act it appears that it

was enacted to impose a ceiling on the

quantum of land that could be held or

owned within an urban agglomeration. The

object of the Act was to prevent

concentration of ownership of urban land

in the hands of a few, and to regulate the

construction of buildings on such lands,

speculative trading of urban land and

illegal profiteering. Under the Act, the

ceiling limit had been fixed by Section 5.

Section 6 of the Act prevented transfer of

6

such excess vacant urban land by its owner

to any other person. Section 6 is set out:

6. Transfer of vacant land. - No person holding

in excess of the ceiling limit immediately

before the commencement of this Act, vacant

land, shall transfer any such land or part

thereof by way of sale, mortgage, gift, lease or

otherwise until he has furnished a statement

under section 7 and a notification regarding the

excess vacant land held by him has been

published under sub section (1) of section 11;

and any such transfer made in contravention of

this provision shall be deemed to be null and

void.

9. The section thus enjoined that landowners

holding excess vacant land are to furnish

a statement under Section 7. In this case,

19 cents were considered excess urban

vacant land vide case no. R.C.6160/86 and

defendant No. 1 filed its statement under

Section 7.

10. Section 9 provided for preparation of a

draft statement as regards the excess

vacant land. Under clause (5) of Section

7 9, the Competent Authority, so designated

under the Tamil Nadu Act, was to consider

objections preferred by a land owner, and

then pass orders with respect to the

question of excess land. Defendant no. 1

preferred its objections before the

Competent Authority. The objections

however were dismissed. The defendant no.

1 then preferred an appeal before the

Special Commissioner (Land Reforms),

Madras and the appeal was kept pending.

11. In accordance with Section 11 (1), a

notification regarding the 19 cents being

excess vacant land was published and any

transfer made in contravention of this

provision was deemed to be null and void.

Section 11 provided for acquisition of

such vacant urban land by the State

Government.

8 12. Defendant no. 1 also preferred an

application for exemption of that 19 cents

of land under the provisions of Section

21. Section 21 empowered the State

Government to exempt a piece of vacant

excess land from acquisition mentioned

above.

13. That application was also dismissed.

Defendant no. 1 then preferred Writ

Petition No. 13906/2008 before the High

Court challenging the declaration in R. C.

6160/86. In the writ petition, defendant

no. 1 prayed for a stay of the proceedings

and which was allowed. However, during the

pendency of this writ petition the Tamil

Nadu Act was repealed on 16th June, 1999 by

the Tamil Nadu Urban Land (Ceiling and

Regulation) Repeal Act, 1999 (20 of 1999)

(hereinafter `the Repealing Act'). Under

Section 4 of the repealing Act, all

9

proceedings relating to any order made or

purported to be made under the Principal

Act, that is the Tamil Nadu Act, shall

abate. Section 4 of the Repealing Act is

as follows:-

"4. Abatement of legal proceedings. - All

proceedings relating to any order made or

purported to be made under the Principal Act

pending immediately before the commencement of

this Act before any court, tribunal or any

authority shall abate.

Provided that this section shall not apply to

the proceedings relating to Sections 12, 13, 14,

l5, 15-B and 16 of the Principal Act in so far

as such proceedings are relatable to the land,

possession of which has been taken over by the

State Government of any person duly authorised

by the State Government in this behalf or by the

competent authority."

14. Admittedly, possession of 19 cents of

land, in respect of which proceeding was

pending, was not taken over by the

Government. So the pending proceeding in

respect of that land under the Principal

Act, that is the Tamil Nadu Act, shall

10

abate in view of Section 4 of the

Repealing Act.

15. However, Income Tax authorities, as noted

above, had refused to process Form 37-I in

view of the proceedings initiated under

the Tamil Nadu Act. Having referred to

section 6 of the Act, the appropriate

authority, while rejecting form 37-I

stated:

"...In column 8, it has been mentioned that an

extent of 19 cents has been declared as excess

vacant land under section 9 (5) of Tamil Nadu

Urban Land (Ceiling and Regulations) Act, 1978

that an appeal is pending before the Special

Commissioner (Land Reforms), Madras and that the

transferor has also applied to the State

Government for exemption under Section 21 of the

said Act but the same has been rejected and the

matter is pending in W. P. No. 13906/1988,

before the High Court, Madras.

2. It transpires, therefore, that the

transferor intends to transfer the entire extent

of 66 cents, inclusive of the 19 cents of land

which is declared as excess vacant land by the

Competent Authority under the Urban Land Ceiling

Act, which is prohibited by section 6 of the

Tamil Nadu Urban Land (Ceiling and Regulations)

Act, 1978. ....

In view of the prohibition contained in

section 6, quoted above, the agreement entered

into between the parties on 7.7.95 to transfer

11

the entire land, including the excess vacant

land of 19 cents, shall be deemed to be null and

void. In view of this legal prohibition, we are

unable to process the 37-I statement filed by

you and therefore, the same is lodged in this

office. If you are so advised, you may file a

fresh 37-I statement for transfer of the balance

land only."

16. As per clause (7) of the agreement, it was

the plaintiff's responsibility to have the

suit property cleared for sale by the

urban land ceiling authorities. Since Form

37-I was not cleared, the plaintiff sent

two letters dated 10th June, 1996 and 3rd

July, 1996 to the defendant requesting

that the sale be split up and two separate

agreements be entered into. The first for

the unencumbered 47 cents and the second

for 19 cents termed as the excess land by

the urban land ceiling authority. This

proposal was rejected by the defendant no.

1 on the grounds that the agreement is not

divisible. According to defendant No.1,

12

the splitting up of the agreement into two

in effect meant the writing of an entirely

new contract. The bar under section 6 of

the Tamil Nadu Act, as pointed out by the

Appropriate Authority was applicable not

only in respect of the 19 cents of land

termed as excess, but in fact the entire

66 cents for the reason that the said 19

cents could not be severed from the 66

cents. The defendant No.1 urged that the

contract was hit by illegality and was

thus frustrated.

17. The plaintiff, the proposed purchaser,

under these circumstances instituted on 9th

September, 1998 the suit for specific

performance of the contract, viz. C. S.

589/1996 for the entire 66 cents of land.

18. The plaint case is that at the time the

agreement for sale was entered into, it

13

was known to both the parties that 19

cents of the suit property had been

declared excess land under the Tamil Nadu

Act, and that an appeal to the Special

Commissioner (Land Reforms), Madras was

pending. It also submitted that the

parties knew that a writ petition

challenging the State Government's refusal

to exempt the property under section 21 of

the Tamil Nadu Act was also pending. With

knowledge the parties entered into the

agreement to sell. The plaintiff submitted

that this meeting of minds was reflected

in clause 7 of the agreement. There was

thus no new and unforeseen development

leading to the frustration of contract as

such the relief for specific performance

of the contract was prayed or in the

alternative, it was prayed the plaintiff

be allowed a refund of the earnest money

with an interest of 25% per annum and

14

liquidated damages to the tune of

Rs.75,00,000/- along with costs.

19. The defendant, the proposed vendor,

resisted the suit by submitting that the

agreement to sell was with respect to the

entire suit property, i.e. 66 cents, and

thus could not have been split into

separate agreements to sell for 47 cents

and 19 cents. It submitted that in view of

the bar placed because of section 6 of the

Tamil Nadu Act and the consequential

refusal by the appropriate authority under

the income tax department to allow the

execution of the sale, the contract itself

had become frustrated and thus

unenforceable in law.

20. It was further urged that time was the

essence of the contract and it was for the

plaintiff purchaser to seek exemption for

15

the said 19 cents land from the urban land

ceiling department, which however it

failed to do. As a result of this failure,

the sale could not be affected within a

year's time. This clearly rendered the

contract void in terms of clauses 8 and 10

insofar as the contract was not performed

within a year's time. Hence, clause 9 was

attracted and the contract stood cancelled

for default of the plaintiff. It submitted

that in terms of clause 9, the proposed

vendor (defendant no.1) refunded the

earnest money to the plaintiff-purchaser.

However the cheque sent under registered

post came back to the defendant no. 1

`refused'. It appears that the same

refused by the plaintiff-purchaser either

by 6th or 7th September, 1996.

21. As such the defendant no. 1 prayed for

dismissal of the suit in view of

16

impossibility of performance of the

contract and non-performance by the

plaintiff of its obligation under the

contract within the stipulated time.

22. However, the learned Single Judge held

that the suit property was in respect of

agricultural land and not about an urban

land as contemplated under the Tamil Nadu

Act. It was further noted by the learned

Judge that as the Tamil Nadu Act had been

repealed in 1999, its application itself

would be limited to only those instances

where possession of the excess vacant land

had been taken over by the State

Government.

23. The learned Judge noted that the suit

property in the instant case did not

attract any of the provisions mentioned in

Section 3 of the Repealing Act. According

17

to the learned Judge, there were two

reasons for which the provisions of Tamil

Nadu Act would not apply to the instant

agreement: firstly, the suit property was

agricultural in nature and thus the same

was outside the purview of the Act.

Secondly, after the repeal of the Tamil

Nadu Act in 1999, none of its provisions

affected the agreement. The Judge held

that clause (7) in itself, however, was

not a condition precedent to the contract.

It merely stated that clearance of the

said 19 cents from the urban land ceiling

authorities was upon the plaintiff, and

that in the event the plaintiff was unable

to have it cleared, the defendant no. 1

shall not be provided with any alternative

piece of land or any compensation. Thus,

the learned Judge held that the plaintiff

was entitled to specific performance of

the contract and decreed the suit.

18 24. Aggrieved, the defendant no. 1 preferred

an appeal. The learned Division Bench

partly allowed it holding that the

respondents could be given the relief of

specific performance only to the extent of

47 cents of the lands that were not part

of the proceedings under the Tamil Nadu

Act.

25. Apart from upholding the judgment of the

learned Judge with respect to the

agricultural nature of the suit property,

the Division Bench noted that in none of

the letters exchanged between the parties

it had come on record that the agreement

had become illegal in view of the

provisions of Section 6 of the Tamil Nadu

Act. On the contrary, in all these

communications, the only position that the

defendant no. 1 had insisted upon was the

19

satisfaction of the conditions mentioned

in clause (7) of the agreement, viz.,

permission for the sale of 19 cents by the

urban land ceiling authorities. The

learned Division Bench noted that if this

was the stance of the defendant no. 1, it

could not be allowed to resist the suit on

the grounds of illegality of contract.

26. However, it disagreed with the decision of

the learned Judge to the extent the repeal

of the Tamil Nadu Act did not in itself

released 19 cents of the excess vacant

land from the proceedings initiated under

that Act. It held that Section 3 of the

Repeal Act provided that repealing of the

Tamil Nadu Act would not affect the

vesting of any vacant land under sub

section (3) of Section 11 of the Tamil

Nadu Act in cases where the possession of

such vacant land had been taken over by

20

the State Government. Relying upon and

following decision of a Full Bench of the

High Court in P. Gopirathnam and 4 Others

v. Ferrodous Estate (Private) Limited,

represented by its Power of Attorney

Holder Sri G. John Arthur, 1999 (2)

Current Tamil Nadu Cases 181, the learned

Bench held that the proceedings with

respect to the said 19 cents had been

initiated and that the same were pending.

The Division Bench held that decree for

specific performance as given by the

learned Judge had to be modified to the

extent that the same was possible only to

the extent of the unencumbered portion of

the land.

27. One of the main questions which arise for

consideration in the facts of this Court

is whether in the said agreement time is

of the essence of the contract. In order

21

to appreciate this question, the Court has

to consider several clauses in the said

agreement. The relevant clauses are

clauses 7, 8, 9 & 10, which are set out

below:

"7. The vendor states that an extent of 770

sq.mts. in S.No.363/1B & 363/1C forming part of

the property described below and agreed to be

sold has been declared as excess vacant land

under Sec 9(5) of the Tamil Nadu Urban Land

Ceiling (C&R) Act, 1978. An appeal is pending

before the Special Commissioner (Land Reforms),

Madras. The Vendor also applied to the State

Government for exemption under Sec 21 of the Act

but the same has been rejected and the matter is

pending in W.P.13906/1988 before the High Court,

Madras. It shall be the sole responsibility of

the Purchaser to get clearance from the Urban

Land Ceiling Authorities by negotiation or

getting exemption under the Act or permission to

sell, at his own cost and the Vendor shall not

be responsible for the same. But, the Vendor

shall sign all applications or petitions

necessary for this purpose. While, getting

permission to sell or exemption under the Act in

respect of the property agreed to be sold, the

Purchaser shall ensure that no compensatory

claim or alternate land is claimed by the Urban

Land Ceiling authorities in the rest of the land

to be retained by the Vendor.

8. The time for completion of the purchase

shall be one year from the date of this

agreement.

22

9. If the purchaser fails to complete the

transaction within the time stipulated, this

agreement shall stand cancelled and a sum of

Rs.10,00,000/- (Rupees Ten Lakhs only) paid as

earnest money will be returned without interest

to the Purchaser and the Vendor shall be at

liberty to sell the property to whomsoever he

likes.

10. Time shall be the essence of the contract."

28. Admittedly, the agreement was entered into

on 7th July, 1995 and the period of one

year expired by 6th July, 1996. Within that

period the plaintiff-purchaser could not

get clearance from the Urban Land Ceiling

Authorities nor could they obtain the

exemption under the Act for permission to

sell a part of the property in respect of

which the suit for specific performance

was filed.

29. It is not the case of the plaintiff-

purchaser that the vendor in any way

delayed the signing of application or

petition necessary for getting such

23

permission for clearance. From some

correspondence exchanged between the

parties it is clear that purchaser took a

few steps but could not get the clearance

within the time agreed by it. The Vendor,

however, by a letter dated 4th September,

1996 cancelled the agreement in terms of

clause 9 of the agreement and returned the

advance money of Rs.10,00,000/- vide a

cheque in terms of clause 9. The said

letter written by the vendor is set out

below:-

"CITADEL FINE PHARMACEUTICALS

Ref: 3852/96

4th September 1996

M/s. Ramaniyam Real Estates Pvt. Ltd.,

Rep. by Mr. V. Jagannathan,

Managing Director,

`Sruthi'. No.11, 2nd Main Raod,

Gandhi Nagar,

Madras 600 020.

Dear Sir,

Re: 1. Our letter dated 11.7.96

2. Your letter dated 19.7.96.

24

As would be appreciated by you, at the meeting

had with you, by ourself through our Mr. Rajiv

and further by telephone on 30.8.1996 as you

have expressed your reluctance in accepting our

terms put to you on the sale of the property, we

are returning the advance money of

Rs.10,00,000/- vide SBI, Guindy, Cheque

No.904014 dt.4.9.1996 in terms of Clause 9 of

the Agreement dated 7th July, 1995.

Kindly acknowledge the receipt of this.

Thanking you,

Yours faithfully,

For CITADEL FINE PHARMACEUTICALS

Sd/-

Partner

Encl: as above"

30. Under these circumstances, the question is

whether from the facts of this case vendor

can raise a defence to the suit for

specific performance of the contract that

time being of the essence of this

contract, the Court cannot order its

specific performance when plaintiff failed

to discharge its part of the contract

within time and when after expiry of time,

25

the contract was cancelled by the vendor

in terms of clause 9 of the Contract.

31. The settled law seems to be that in a case

for specific performance of contract

relating to immovable property time is not

normally of the essence. However, this is

not an absolute proposition and it has

several exceptions.

32. Reference in this connection may be made

to the decision of Privy Council in

Jamshed Khodaram Irani v. Burjorji

Dhunjibhai reported in (1915-16) 43 I.A.

26. Viscount Haldane delivering the

judgment for the Judicial Committee of the

Privy Council held that the law applicable

to this question is contained in Section

55 of the Indian Contract Act and the

learned Law Lord was of the opinion that

Section 55 of the Indian Contract Act does

26

not lay down any principle which is

different from those which obtain under

the law of England with regard to

contracts for sale of land. It was further

held that in cases relating to specific

performance, equity, which governs the

rights of the parties, does not look

always at the express term of the

agreement but at the substance of it in

order to ascertain whether the parties

named a specific time within which

completion was to take place and whether

the parties in substance intended that the

completion should take place within a

reasonable time. The legal position was

as follows:-

"...A Court of Equity will indeed relieve

against and enforce specific performance,

notwithstanding a failure to keep the dates

assigned by the contract; either for completion

or for the steps towards completion, if it can

do justice between the parties, and if (as Lord

Justice Turner said in Roberts v. Berry [3 D.M.&

G. 284 at 289] there is nothing in the `express

stipulation between the parties, the nature of

27

the property, or the surrounding circumstances',

which would make it inequitable to interfere

with and modify the legal right...." (page 32 of

the report)

33. The learned Law Lord made it clear that

equity can operate in the construction of

a contract "unless excluded by any clearly

expressed stipulation". However, it was

made clear that equity will not assist

where there has been undue delay on the

part of one party to the contract and one

party has given notice to the other party

that the defaulting party must complete

the contract within a definite time. A

further caution was added by saying that

equity will not assist when other

circumstances will result in injustice on

application of equitable principle. In the

words of Lord Haldane the principles have

been formulated as follows:-

"...Nor will it (equity) exercise its jurisdiction

when the character of the property or other

28

circumstances would render such exercise likely

to result in injustice. In such cases the

circumstances themselves, apart from any

question of expressed intention, exclude the

jurisdiction. Equity will further infer an

intention that time should be of the essence

from what has passed between the parties prior

to the signing of the contract...." (Page 33 of

the report)

34. In this case, prior to the signing of the

agreement, the terms were discussed

between the parties and the plaintiff

purchaser willingly took upon itself the

burden of obtaining the clearance within

the time stipulated in the agreement.

35. The aforesaid principles in Jamshed

Khodaram (supra) were accepted by a three-

Judge Bench of this Court in the case of

Gomathinayagam Pillai and others v.

Palaniswami Nadar reported in AIR 1967 SC

868.

29

36. From the terms of agreement in this case

which have been set out in the earlier

part of the judgment it is clear that the

time is of the essence and this is clearly

stipulated and understood by the parties

having regard to the previous

correspondence and also having regard to

the laid down terms of the contract and

especially when the consequence of non-

completion of the terms by purchaser

within the stipulated time was spelt out

in clause 9.

37. In a case where time is of the essence of

the contract, the consequence of non-

performance of such term has been very

succinctly explained by Chitty on

Contracts, (Volume 1, Thirteenth Edition,

Sweet & Maxwell in paragraph 21-015) and

the same is set out:

30 "Consequences of time being "of the

essence". In determining the consequences of a

stipulation that time is to be "of the essence"

of an obligation, it is vital to distinguish

between the case where both parties agree that

time is to be of the essence of the obligation

and the case where, following a breach of a non-

essential term of the contract, the innocent

party serves a notice on the other stating that

time is to be of the essence. In the former case

the effect of declaring time to be of the

essence is to elevate the term to the status of

a "condition" with the consequences that a

failure to perform by the stipulated time will

entitle the innocent party to: (a) terminate

performance of the contract and thereby put an

end to all the primary obligations of both

parties remaining unperformed; and (b) claim

damages from the contract-breaker on the basis

that he has committed a fundamental breach of

the contract ("a breach going to the root of the

contract") depriving the innocent party of the

benefit of the contract ("damages for loss of

the whole transaction". (page 1410)

38. Fry in his Treaties on the Specific

Performance of Contracts (Sixth Edition)

has dealt with this aspect in paragraph

1075:-

"Time is originally of the essence of the

contract, in the view of a Court of Equity,

whenever it appears to have been part of the

real intention of the parties that it should be

so, and not to have been inserted as a merely

31

formal part of the contract. As this intention

may either be separately expressed, or may be

implied from the nature or structure of the

contract, it follows that time may be originally

of the essence of a contract, as to any one or

more of its terms, either by virtue of an

express condition in the contract itself making

it so, or by reason of its being implied....

" (page 502)

39. In paragraph 1079, the learned author has

explained the position further by saying

the time may be implied as essential in a

contract from the nature of the subject

matter with which the parties are dealing.

The learned author explained this by

saying:-

"1079. Time may be implied as essential in a

contract, from the nature of the subject-matter

with which the parties are dealing. "If,

therefore," said Alderson B., "the thing sold be

of greater or less value according to the

effluxion of time, it is manifest that time is

of the essence of the contract: and a

stipulation as to time must then be literally

complied with in Equity as well as in Law...."

(page 504)

32

40. At paragraph 1081 page 505, the learned

author made it very clear that in a

contract relating to commercial enterprise

the Court is strongly inclined to hold

time to be essential, whether the contract

is for the purchase of land or for such

purposes or more `directly for the

prosecution of trade'. The elaboration of

this point by the learned author is as

follows:-

"1081. And so, again, where the object of the

contract is a commercial enterprise, the Court

is strongly inclined to hold time to be

essential, whether the contract be for the

purchaser of land for such purposes, or more

directly for the prosecution of trade. This

principle has been acted on in the matter of a

contract respecting land which had been

purchased for the erection of mills, also in

relation to a sale of pasture lands, required by

the purchaser, as the vendor new, for stocking,

and in several cases of contracts for the sale

of public-houses as going concerns...." (page 505)

41. The aforesaid principles squarely apply to

the facts of the present case. Here the

33

purchaser is admittedly in the business of

building construction and is entering with

agreement for purchasing the plot on

commercial basis.

42. Gareth Jones and William Goodhart in their

Treaties on Specific Performance (Second

Edition, Butterworths) expressed similar

views by saying:

"If the parties have expressly agreed that

time is to be of the essence, the courts will

generally if not always give effect to that

stipulation. An intention that a stipulation as

to time should be of the essence may be implied

from the circumstances. In the absence of

agreement to the contrary, time will generally

be considered of the essence in mercantile

contracts and in contracts for the sale of a

business or of property which has a fluctuating

or speculative value...." (page 74)

43. The instant case obviously relates to a

contract in commercial transaction and the

Court can take judicial notice of the fact

that in the city of Chennai the price of

34

real estate is constantly escalating and

the clear intention of the parties, as it

appears from the stipulations of the

agreement, was to treat time as the

essence of the contract.

44. Having regard to the aforesaid principles

the court cannot attribute a different

intention to the parties and cannot

specifically enforce the contract at the

instance of the plaintiff-purchaser who

has failed to perform his part of the

obligation within the time stipulated.

45. In K.S. Vidyanadam and others v. Vairavan

reported in (1997) 3 SCC 1 this Court

explained how discretion is to be

exercised by the Court before granting

specific performance. This Court held

that in cases of urban properties in India

it is well known that prices are going up

35

sharply over the last few decades

particularly after 1973. In Vidyanadam

(supra) the court was dealing with a

property in Madurai in the State of Tamil

Nadu and it was argued before this Court

by referring to the Madras High Court

judgment in S.V. Sankaralinga Nadar v.

P.T.S. Ratnaswami Nadar (AIR 1952 Mad 389)

that mere rise in price is no ground for

denying the specific performance. This

Court did not agree with the decision of

the Madras High Court and held that the

Court cannot be oblivious of the reality

of constant and continuous rise in the

value of urban properties. In that

context the time limit set in the contract

has to be strictly construed. In the case

of Vidyanadam (supra) there is no such

strict stipulation as time being of the

essence of the contract as is in the

instant case even then the Court refused

36

to grant the relief of specific

performance.

46. In Vidyanadam (supra) reference was made

to a Constitution Bench judgment of this

Court in Chand Rani (Smt.) (Dead) by LRs.

v. Kamal Rani (Smt.) (Dead) by LRs.

reported in (1993) 1 SCC 519. The same

question, whether time was of essence of

the contract was discussed in Chand Rani

(supra). The Constitution Bench of this

Court while dealing with this question

referred to another decision of this Court

in the case of M/s. Hind Construction

Contractors by its sole proprietor

Bhikamchand Mulchand Jain (Dead) by LRs.

v. State of Maharashtra reported in (1979)

2 SCC 70. By referring to various

judgments, the Constitution Bench in Chand

Rani (supra) formulated the proposition

that even where parties have expressly

37

provided time to be of the essence of the

contract, such a stipulation will have to

be read along with other terms of the

contract. Such other terms, on a proper

construction, may exclude the inference

that the completion of work by a

particular date was meant to be

fundamental. The learned Judges indicated

the following circumstances which may

indicate a contrary inference; (a) if a

contract includes clauses providing for

extension of time in certain

contingencies, or (b) if there are clauses

for payment of fine or penalty for every

day or week the work undertaken remains

unfinished after the expiry of time. The

Constitution Bench held that such clauses

would be construed as rendering

ineffective the express provision relating

to time being of the essence of contract

(see para 22 at page 528 of the report).

38 47. In the instant case, in the said agreement

no such clause, as aforesaid, exists.

Rather the stipulation as time being of

the essence of the contract was

specifically mentioned in clause 10 and

the consequences of non-completion are

mentioned in clause 9. So from the

express terms of the contract and the

commercial nature of the transaction and

the surrounding circumstances make it

clear that the parties intended time in

this case was intended to be of the

essence of the contract.

48. Keeping the above principle if we look at

the portion of Law in India, it is clear

that under Section 9 of the Specific

Relief Act, 1963 it is provided as

follows:-

39 "9. Defences respecting suits for relief based

on contract.- Except as otherwise provided

herein, where any relief is claimed under this

Chapter in respect of a contract, the person

against whom the relief is claimed may plead by

way of defence any ground which is available to

him under any law relating to contracts."

49. It is clear from Section 9 of the Specific

Relief Act, 1963 that Section 55 of The

Indian Contract Act, 1872 enables a

defendant against whom suit for the

specific performance has been filed to

raise the defence under Section 55 of the

Indian Contract Act.

50. Section 55 of the Indian Contract Act

which deals with a contract, in which time

is of essence is as follows:-

"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

specified times, and fails to do any such thing

at or before the specified time, the contract,

or so much of it as has not been performed,

40

becomes voidable at the option of the promisee,

if the intention of the parties was that time

should be of the essence of the contract."

51. On a combined reading of Section 9 of the

Specific Relief Act and Section 55 of The

Indian Contracts Act it is clear that in

this case the vendor as a promisee, was

within its right to terminate the contract

by sending the letter dated 4th September,

1996 in terms of Clause 9 of the Contract

while returning the advance money of

Rs.10,00,000/-. It is clear that the

plaintiff has not discharged its burden

within the time specified and is not

entitled to a specific performance of the

contract.

52. Therefore, the approach of the High Court

both by the Single Judge and the Appellate

Bench cannot be sustained.

41 53. There is another aspect of the matter

also. In the instant case by asking for

specific performance of the contract, the

plaintiff-purchaser is praying for a

discretionary remedy. It is axiomatic

that when discretionary remedy is prayed

for by a party, such party must come to

court on proper disclosure of facts. The

plaint which it filed before the Court in

such cases must state all facts with

sufficient candour and clarity. In the

instant case the plaintiff-purchaser made

an averment in the plaint that the

defendant-vendor be directed to return the

advance amount of Rs.10,00,000/- at the

rate of 24% interest from the date of

payment of the said amount till the

realization and an alternative prayer to

that effect was also made in the prayer

clause (c).

42 54. However, the fact remains that prior to

the filing of the suit the defendant-

vendor returned the said amount of

Rs.10,00,000/- by its letter dated 4th

September, 1996 by an account payee cheque

in favour of the plaintiff and the same

was sent to the plaintiff under registered

post which was refused by the plaintiff on

6.9.1996. The plaintiff suppressed this

fact in the plaint and filed the suit on

9.9.1996 with a totally contrary

representation before the court as if the

amount has not been returned to it by the

vendor. This is suppression of a material

fact, and disentitles the plaintiff-

purchaser from getting any discretionary

relief of specific performance by Court.

55. In this connection we may refer to the

Principle of Equitable Remedies by I.C.F.

SPRY, Fourth Edition (Sweet & Maxwell,

43

1990). Dealing with the question of `Clean

Hands' the learned author opined that

where the plaintiff is shown to have

materially misled the court or to have

abused its process, or to have attempted

to do so, the discretionary relief of

specific performance can be denied to him.

In laying down this principle, the learned

author relied on a decision of the English

Court in the case of Armstrong v. Sheppard

& Short Ltd. (1959) 2 Q.B. 384 at page

397. (See SPRY Equitable Remedies page

243).

56. This Court has also taken the same view in

the case of Arunima Baruah v. Union of

India and others reported in (2007) 6 SCC

120. At paragraph 12, page 125 of the

report, this Court held that it is trite

law that to enable the court to refuse to

exercise its discretionary jurisdiction

44

suppression must be of a material fact.

This Court, of course, held what is a

material fact, suppression whereof would

disentitle the suitor to obtain a

discretionary relief, would depend upon

the facts and circumstances of each case.

However, by way of guidance this Court

held that material fact would mean that

fact which is material for the purpose of

determination of the lis.

57. Following the aforesaid tests, this Court

is of the opinion that the suppression of

the fact that the plaintiff refused to

accept the cheque of Rs.10 lac sent to it

by the defendant under registered post

with A.D. in terms of Clause 9 of the

Contract is a material fact. So on that

ground the plaintiff-purchaser is not

entitled to any relief in its suit of

specific performance.

45 58. For the reasons aforesaid, this Court

allows the appeal filed by M/s. Citadel

Fine Pharmaceuticals [SLP(C)

No.28251/2008] and dismisses the appeal

filed by the M/s Ramaniyam Real Estates P.

Ltd., [SLP(C) No.31269/2008].

59. The Court directs M/s. Citadel Fine

Pharmaceuticals to return the amount of

Rs.10,00,000/- by an account payee cheque

to M/s. Ramaniyam Real Estates P. Ltd., if

not already returned, within 4 weeks from

date. In default M/s. Citadel Fine

Pharmaceuticals will have to pay interest

at the rate of 12% per annum on the same

from the expiry of the period of 4 weeks

from date till actual payment.

46 60. Having regard to the facts and

circumstances of this case there will be

no order as to costs.

.......................J.

(G.S. SINGHVI)

.......................J.

New Delhi (ASOK KUMAR GANGULY)

August 08, 2011

47