MOU Between Private Parties Cannot Be Specifically Enforced; Party Not Entitled To Interim Relief Under Section 9 Of A&C Act: Delhi High Court

The Single Bench of Justice Mini Pushkarna held that since the MOU was not capable of specific performance due to the statutory bar contained in Section 14 (d) of the Specific Relief Act, 1963, the party was not entitled to any interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act).

The respondents are joint owners of the property who entered into a MOU with petitioner/ developer- Royal Orchids, in terms of which the petitioner undertook to develop the said property. After the respondents terminated the MOU, the petitioner invoked the arbitration clause. The petitioner filed an application for interim measures under Section 9 of the A&C Act before the Delhi High Court and sought an injunction restraining the respondents from selling, alienating, or creating any third-party interest in the said land.

The petitioner Royal Orchids submitted before the Delhi High Court that it was entitled to an award directing specific performance of the said MOU and an award directing the respondents to ensure full compliance of their obligations under the MOU. The petitioner added that it was the intent of the parties to create proprietary rights over the said immovable property in favour of the petitioner and that, in the absence of any stipulation that permitted the respondents to terminate it, the contract was not terminable at the option of the respondents.

The respondent Kulbir Singh Kohli averred that the petitioner was required to deposit certain amounts as per the timeline specified under the MOU, in order to enable the respondents to clear their loan. The respondent contended that the petitioner had committed a material breach of the conditions of the MOU by failing to make the payments as per the MOU. Thus, he submitted that since time was of the essence and the petitioner had to failed to perform its obligations in accordance with the timelines contained in the MOU, the respondents were entitled to terminate the agreement.

The respondent further argued that the MOU was in the nature of a private commercial transaction, pertaining to a construction and re-development contract between two private parties and hence, the MOU could be terminated without assigning any reason, even in the absence of a specific clause authorising either party to terminate it.

Thus, disputing the maintainability of the petition under Section 9 of the A&C Act, the respondent submitted that the MOU executed between the parties was in its nature determinable and hence, the MOU cannot be specifically enforced in view of Section 14(d) of the Specific Relief Act, 1963.

Section 14(d) of the Specific Relief Act provides that a contract which is in its nature determinable cannot be specifically enforced.

The High Court, perusing the clauses of the MOU, observed that the entire rights in the property, including the possession and the right to sell, remained with the respondents and that the possession of the petitioner was only constructive for the purposes of construction of the said property. Noting that the said MOU was purely a construction agreement, under which no ownership rights were to be acquired by the petitioner, the Court observed that the Supreme Court in Sushil Kumar Agarwal versus Meenakshi Sadhu and Ors. (2018) had held that the Courts do not normally order specific performance of a contract to build or repair.

Holding that the petitioner was guilty of non-payment of the requisite amounts within the time specified in the MOU, the Court ruled that since time was of the essence in the agreement between the parties, the petitioner was obligated to make the payment within the stipulated time.

The Bench added that in view of Section 16(c) of the Specific Relief Act, specific performance of a contract cannot be enforced in favour of a person who fails to prove that he has performed or that he has always been ready and willing to perform the essential terms of the contract, which were required to be performed by him.

Rejecting the contention of the petitioner that the MOU was not a determinable contract, the Court ruled that the MOU executed between the two private parties was a construction and re-development agreement, which was in the nature of a private commercial transaction, and hence, the MOU was by its very nature determinable, even if there was no termination clause contained in it.

Ruling that the MOU was not capable of specific performance due to the statutory bar contained in Section 14(d) of the Specific Relief Act, the Court held that since the petitioner was statutorily barred from seeking specific performance of the MOU, the petitioner was not entitled to any interim relief under Section 9 of the A&C Act.

"The MOU being determinable in nature in view of the aforesaid discussion, the same is not capable of specific performance due to the statutory bar contained in Section 14(d) of the Specific Relief Act. Thus, in terms of Section 41(e) of the Specific Relief Act, no injunction can be granted to prevent breach of a contract, the performance of which cannot be enforced. As noted above, the respondents had already terminated the MOU vide their notice dated 29.05.2022, hence, the remedy available with the petitioner is to seek damages, if any. Thus, when the petitioner is statutorily barred from seeking specific performance of the MOU, the petitioner cannot be held entitled to any interim relief under Section 9 of the Act."

The Court thus dismissed the petition.

Case Title: Royal Orchids versus Kulbir Singh Kohli & Anr.

Citation: 2022 LiveLaw (Del) 819

Dated: 23.08.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. Mandeep Singh Vinaik with Ms. Anjali Sharma, Mr. Deepak and Mr. S.K. Sagar

Counsel for the Respondent: Mr. Kunal Tandon with Mr. Jaspreet Singh and Mr. Manu Bhardwaj

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