Property Prices Soaring High, Need To Relook At Principle Of Time Not Being Essence Of Contract Involving Immovable Property: Karnataka HC

The Karnataka High Court has said that the principle that time is not the essence of the contract in a suit for specific performance of immovable property, cannot be applied as if it is a statute. The said principle must be applied by considering the facts and circumstances of each case, it said.

A single judge bench of Justice Anant Ramanath Hegde while partly allowing an appeal filed by one Mohammed Farughuddin, challenging the trial court order rejecting the suit for specific performance, observed,

“In the last couple of decades, the value of the immovable properties is soaring high and that too in a short span of time. Indeed, such equitable consideration had strong justifications in good old times, where hardly there was any change in the property value for a considerable length of time. However, many things concerning real estate have changed beyond comprehension. Perhaps the general principle that the time is not an essence of the contract when it comes to immovable property, certainly calls for a relook in the present-day context.”

Court clarified it is not suggesting that the said principle is obsolete in the present-day context. "However, the kind of laxity shown earlier on the party who took his own sweet time to approach the court seeking specific performance of contract of immovable property, probably cannot be applied in the same measure. Thus, the Courts need to be a bit circumspect while applying the said principle.”

The trial court had held that the agreement for sale dated 20.07.2006 between plaintiff and respondent Ramachandra Balu Shinde, is proved. However, the decree for specific performance was declined holding that the plaintiff failed to prove his readiness and willingness to perform his part of the contract. The trial Court passed a decree for refund of the earnest amount of Rs.5,00,000 along with interest at the rate of 6% per annum as against the claim of 15% per annum. The decree for compensation is also declined.

The appellant contended that the agreement is held to be proved and the defendant did not challenge the decree for refund of the earnest money. Thus, he cannot dispute the execution of the agreement for sale. Further, he submitted time is not the essence of the contract when it comes to the sale of immovable property and this well-established principle is not considered by the trial Court in proper perspective.

The respondents opposed the appeal stating that plaintiff alone could have spoken about his readiness and willingness to perform his part of the contract and he shied away from the witness box. The alleged power of attorney holder is incompetent to speak about the intention of the plaintiff to perform his part of the contract. Moreover, it was argued the Court has granted the decree for refund of the earnest amount. Thus, the plaintiff is not an aggrieved person and has no right to challenge the decree granting refund of the earnest amount which is granted pursuant to the prayer made in the plaint itself.

Firstly the bench noted that the option to challenge the adverse finding in a judgment, being a respondent, without there being any cross objection, is available only when the respondent can support the decree and not when he attacks the decree to set aside it either partially or fully. “There is not just an adverse finding, but also an adverse decree against the respondent which is not questioned by either filing an appeal or cross objection. Thus, the respondent who has not filed cross objection cannot assail the finding on proof of agreement dated 20.07.2006 or the power of attorney.”

Considering the contention of the respondent that time was the essence of the contract, the court referred to the sale agreement wherein six months' time is fixed for payment of balance consideration amount by the purchaser. At two places in the agreement, six months' time is fixed for payment of the balance consideration amount. The right to cancel the contract was also available to the vendor in case the balance consideration amount is not paid within the time prescribed, court noted.

Taking into account that the appellant is an advocate by profession the court referring to his evidence said “His admission cannot be equated with an admission of a lay man. Probably it stands on a higher pedestal. Except executing the sale deed on receipt of the balance consideration amount, nothing else was required to be done by the defendant/respondent. Nothing is placed on record to hold that the parties agreed to relax the condition relating to the time stipulated in the agreement for sale.”

The court held that if the terms of the contract stipulate the time frame for payment of the consideration amount by the purchaser and nothing was required to be done by the vendor except executing the sale deed on receipt of the entire consideration amount and when there is an admission in the cross-examination which would point to the fact that the time was the essence of the contract, the principle that the time is not the essence of the contract cannot be applied to dilute the rigour of the agreement.

Further referring to the cancellation clause in the agreement in the event of non-payment of the balance consideration amount, itt said “An obligation is cast on the vendor to get the agreement cancelled and to pay the earnest consideration amount if the balance consideration amount is not paid within six months. In the absence of any other credible evidence either oral or documentary which evidences the cancellation of the agreement, the agreement is not cancelled as contended by the defendant. The trial Court erred in holding that the agreement was revoked.”

It added “Merely because the agreement is not cancelled by the defendant, it ipso facto does not mean that the time fixed for performance gets extended. For such extension, 20 there must be an agreement either oral or documentary. No such agreement extending the time fixed for performance is pleaded.”

In regards to the issue of whether the plaintiff has proved his readiness and willingness to perform his part of the contract. The appellant had contended that the financial capacity of the plaintiff to pay remaining Rs.6,51,000, was never doubted by the defendant as such, it is to be presumed that the plaintiff was ever ready to perform his part of the contract.

The court observed “It is the well-settled position of law that readiness and willingness are to be established from the date of the agreement till the date of the execution of the final part of the contract.”

Noticing that the plaintiff did not take any steps from 20.07.2006 (date of agreement) to 31.08.2007 (date of notice) for getting the sale deed executed. The PW-1 in his evidence has admitted that he had spent Rs.5,00,000 which was allegedly paid by the plaintiff. This is one of the factors that would demonstrate that the Pw-1 who was supposed to complete the transaction on behalf of the plaintiff was not having a requisite balance consideration amount.

The court opined “Under Section 16(c) of the Specific Relief Act, 1963 both “readiness” and “willingness” have a different connotation and flavour. Mere processing the money to meet the obligation to pay the balance consideration amount by itself does not prove willingness. At the most, the plaintiff in such a situation will be signifying his readiness. The willingness contemplated under Section 16(c) of the Specific Relief Act, 1963 requires something more than just being ready with the balance consideration amount.”

Then it held “This Court is of the view that though a passbook in the name of plaintiff's wife is produced to show that Rs.8,00,000/- was available in the account of plaintiff's 22 wife, that itself is not enough to hold that the plaintiff was ready and willing to perform his part of the contract.”

It added “Lack of credible evidence relating to any positive steps by the plaintiff, from the date of agreement till the expiry of six months contemplated in the agreement, and inaction on the part of the plaintiff close to six months after the expiry of six months contemplated in the agreement to institute the suit, or to have extension of time, would make the Court lean in favour of the finding of the trial Court which on appreciation of evidence, (and which of course had the benefit of observing the demeanour of the parties) has concluded that the plaintiff failed to prove readiness and willingness to perform his part of the contract.”

The appellant in the alternative, sought for a refund of Rs.11,51,000/- along with interest @ 15% per annum which includes Rs.5,00,000/- the advance consideration amount and Rs.6,51,000/- the balance payable. To which the court said “The relief of specific performance of contract is a larger relief and a prayer for refund of earnest amount and damages is a lesser relief. Without sticking to the technicalities of the pleading in appeal memorandum, this Court is of the view that the facts of the case, the alternative prayer in the plaint can be read in the appeal.”

Since the respondents left it to the discretion of the Court to award a reasonable compensation. The court directed 60% of the compensation amount of Rs.6,51,000 claimed i.e. Rs.3,90,600, which is rounded off to Rs.4,00,000/- is awarded with 7% interest per annum from the date of the suit till realisation of the amount.

Accordingly it partly allowed the appeal and directed that plaintiff/appellant is entitled to Rs.5,00,000/- towards refund of earnest amount and Rs.4,00,000/- towards compensation, and with 7% interest per annum on Rs.9 lakhs from the date of the suit till realisation.

Appearance: Advocate Sourabh Sundar for Advocate K L Patil for Appellant.

Senior Advocate S P Shankar a/w Advocate Mamata G Kulkarni for R1 (A, B & D).

Advocate Prashanth S Kadadevar FOR R1(C))

Citation No: 2024 LiveLaw (Kar) 125

Case Title: Mohammed Farughuddin AND Ramchandra Balu Shinde & Others

Case No: Regular First Appeal No 100196 OF 2014

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