TMI Blog2011 (7) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire sale consideration was paid nor possession delivered, the plaintiff remained merely a caretaker and on cancellation of the agreement of sale by the respondents, the plaintiff became liable to leave the suit schedule properties as the possession continued to be with the defendants. We have held that the cancellation of agreement was justified and upheld the rejection of the suit for specific performance. In the circumstances, the dismissal of the suit for injunction by the learned Single Judge, affirmed by the Division Bench, is also not open to challenge. Dismissal of the suit for recovery - HELD THAT:- 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 cancellation of the agreement. Having regard to the facts and circumstances, we are of the view that the rate of interest shall be increased to 12% per annum instead of 9% per annum. that In the High Court the learned counsel for the appellant during arguments clearly stated that the appellant was not pressing for any decree against the fourth respondent in view of the finding that the amount paid wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JUDGMENT R. V. Raveendran J., These appeals by special leave (CA Nos.7254 to 7256 of 2002) are directed against the common judgment and decree dated 19.6.2002 passed by the Madras High Court in O.S.A. Nos.12 of 1992, 32 of 1995 and 148 of 1999 filed by the appellant herein against the common judgment dated 29.11.1991 passed by a learned Single Judge of that court in Civil Suit Nos. 95/1984, 302/1989 and 170/1984 and filed by the respondents herein. The appellants and respondents herein who were the plaintiffs and defendants respectively in the three suits, will be referred, for the purpose of convenience, by their ranks in the suit also. 2. Respondent Nos.2, 3 and 4 are respectively the son, daughter and husband of first respondent. The first respondent is the owner of Survey Nos. 13, 14 and 15, the 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 referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the sale amount i.e. after the entire sale amount is paid. (emphasis supplied) 3. On the same day (17.1.1981) the fourth respondent, in a letter addressed to the appellant, acknowledged the receipt of ₹ 1,25,000 paid on various dates as commission for the said transaction relating to sale of the said 24.95 acres of land. By the said letter, he agreed that in case the transaction of sale remained unconcluded or got cancelled because of the default on the part of the sellers or buyers under the agreement dated 17.1.1981 or because of defective title, the entire amount of ₹ 1,25,000 received by him as commission would be refunded within three months thereof. 4. In pursuance of the said agreement the appellant paid further advances of ₹ 1,00,000 on 28.2.1981 and of ₹ 25,000 on 2.4.1981. The balance of 75,000 in regard to the instalment payable on 6.4.1981 and the last instalment of ₹ 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 bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he balance only thereafter, and that sale should be completed within a reasonable time of handing over the documents; and that as a token of such understanding, a further advance of ₹ 25,000 was received on 2.4.1981. The appellant also denied the claim of the respondents that the appellant had got examined the documents of title and satisfied herself about that title at the time of entering into the agreement of sale. The appellant asserted that there was no default on her part and contended as follows :- The allegation that your client was always ready and willing to conclude the sale and expected my client to pay the balance of the sale consideration of ₹ 2.75 lakhs in accordance with clause 4 of the said agreement etc. is not correct. The very attitude your client is not giving the documents of title for scrutiny from January 1981 for the past 6 months will prove the hollowness of the claim. The further allegation that my client has committed default in payment etc. is also not true, because my client has already paid ₹ 2,25,000/- and on 2.4.1981 when the sum of ₹ 25,000/- was paid it was specifically understood that the balance of money will be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nally agreed to pay the entire consideration on the due dates mentioned in clause (4) of the agreement. It was further pointed out that as appellant was already in possession of xerox copies of the documents of title, if she wanted inspection of the originals, she could have addressed a letter seeking inspection. 8. This brought forth a second reply dated 4.9.1981 from the appellant, reiterating the averments in the reply notice dated 7.8.1981. Thereafter the appellant got a public notice published in the newspaper Hindu dated 11.11.1981 through her counsel, informing the public that she had purchased the schedule properties (as also Sy. Nos.20/1, 21 and 24) from respondents 1 to 3 through the fourth respondent and that she was in possession thereof and was cultivating them. The notice further stated that pending completion of documentation, she had learnt that respondents were trying to resell the 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 statin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with State Bank of Mysore and Gulecha and that the release of the documents could be obtained only on payment of amounts due and that could have been done only if the appellant had paid the instalments in terms of the agreement. 11. The four respondents contested the third suit (C.S. No.170 of 1984) filed against him by denying that he had received a commission of ₹ 1.25 lakhs and contending that it was received as security for due performance of the contract in terms of the agreement dated 17.1.1981. 12. The following issues were framed in the injunction suit : (i) Whether the plaintiff is entitled to the permanent injunction as prayed for against the defendants? (ii) To what reliefs, the plaintiff is entitled to? The following issues were framed in the specific performance suit : (1) Whether the plaintiff has committed breach of the contract by way of default in payment and thus was lacking in readiness 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional evidence, a judgment rendered by this Court in suo moto contempt proceedings, as also a letter from the appellant s counsel to the Bank of India, Mylapore Branch and a reply thereto. 15. The learned Single Judge and the Division Bench, after exhaustive consideration of the evidence, have recorded the following findings of fact : (a) Respondents 1 to 3 entered into an agreement dated 17.1.1981 agreeing to sell 24 acres 95 cents of land to the plaintiff for a consideration of ₹ 3,75,000/- and received in all, ₹ 2,25,000 as advance. (b) Plaintiff had paid an additional consideration of ₹ 1,25,000 for the movables and taken a letter from the fourth respondent describing it as commission , by way of security, with the understanding that if the sale did not take place, the amount should be refunded. (c) The time for payment of the balance sale price stipulated in Clause (4) of the agreement of sale was the essence of the contract. (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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance consideration was the essence of contract and whether the defendants were justified in cancelling the agreement, when the time schedule stipulated for such payment was not adhered to? (ii) Whether the parties had agreed upon sequence of performance, which required payment of balance consideration by appellant, as stipulated in clause (4) of the agreement, only after the respondents satisfied the appellant regarding their title to the lands? (iii) Whether the respondents had failed to disclose the encumbrances over the properties and thereby committed fraud, entitling the appellant for extension of time stipulated for payment corresponding to the delay caused by the fraud and consequently the cancellation of the agreement by notice dated 2.8.1981 is illegal and invalid? (iv) Whether an adverse inference ought to be drawn on account of the non-examination of defendants 1 to 3 who were the vendors under the agreement of sale? Re: Question (i) 17. The appellant contends that time is 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 pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to execution of the sale deed. Normally in regard to contracts relating to sale of immovable properties, time is not considered to be the essence of the contract unless such an intention can be gathered either from the express terms of the contract or impliedly from the intention of the parties as expressed by the terms of the contract. 18. Relying upon the observation of this court in N.Srinivasa v. Kuttukaran Machine Tools Ltd. [2009 (5) SCC 182] that in the contract relating to immovable property, time cannot be the essence of the contract , the appellant put forth the contention that in all contracts relating to sale of immovable property, time stipulated for performance, even if expressed to be the essence, has to be read as not being the essence of the contract and consequently the contract does not become voidable by the failure to perform before the specified time. A careful reading of the said decision would show that the sentence relied on (occurring in para 31) apparently was 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 positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strong to displace the normal presumption that time is not the essence in contract for sale of land. In Chand Rani, clause (1) of the agreement of sale required the balance consideration to be paid as under: Rs.98,000/- will be paid by the second party to the first party within a period of ten days only and the balance ₹ 50,000 at the time of registration of the sale deed . . This court held that time regarding payment of ₹ 98,000 was the essence, on the following reasoning: The analysis of evidence would also point out that the plaintiff was not willing to pay this amount unless vacant delivery of possession of one room on the ground floor was given. In cross-examination it was deposed that since income-tax clearance certificate had not been obtained the sum of ₹ 98,000 was not paid. Unless the property was redeemed the payment would not be made. If this was the attitude it is clear that the plaintiff was insisting upon delivery of possession as a condition precedent for making this 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 up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is clear from the following : (a) clause 4 requires the balance consideration to be paid in three instalments that is ₹ 1,00,000 on or before 28.2.1981; ₹ 1,00,000 on or before 6.4.1981; and ₹ 75,000 on or before 30.5.1981; (b) Clause 5 makes it clear that if any of the abovementioned dates of payment is subsequently declared as a holiday, then the next immediate working day shall be the date of payment. This shows a clear intention that payment should be made on the stipulated dates and even a day s delay was not acceptable unless the due date was declared to be a holiday; (c) Clause 6 specifically stipulates that the payments on due dates is the essence of the contract and in case of failure on the part of the purchaser the vendors shall cancel the agreement. 21. On the other hand, if we look at the terms relating to performance of sale, there is a clear indication that time was not intended to be the essence, for completion of the sale. Clause 3 provides that the execution of sale deed shall depend upon the second party (purchaser) getting satisfied regarding the title to the lands, so also the nil encumbrance. It is significant that the said clause does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement. Her evidence also shows that she apparently did not have the funds to pay the balance of ₹ 75,000 due on 6.4.1981 and ₹ 75000/- due on 30.5.1981 as was evident from the Bank pass book. It was therefore possible that being not ready to perform the contract in terms of the agreement, the appellant had invented a modification in the terms of the agreement. The learned Single Judge and the Division Bench have recorded a concurrent finding that the time was the essence of the contract and that no change was agreed in respect of the agreement terms as alleged by the appellant. The appellant is unable to place any material which calls for reversal of the said findings. Therefore it has to be held that time regarding payment stipulated in clauses (4), (5) and (6) of the agreement of sale was the essence of the contract and failure of the appellant to adhere to it, justified cancellation of the agreement by the respondents. An aside regarding the principle time is not of the essence for future consideration 23. It is of some interest to note that the distinction between contracts relating to immovable properties and other contracts was not drawn by section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o exaggeration to say that properties in cities, worth a lakh or so in or about 1975 to 1980, may cost a crore or more now. 25. The reality arising from this economic change cannot continue to be ignored in deciding cases relating to specific performance. The steep increase in prices is a circumstance which makes it inequitable to grant the relief of specific performance where the purchaser does not take steps to complete the sale within the agreed period, and the vendor has not been responsible for any delay or non-performance. A purchaser can no longer take shelter under the principle that time is not of essence in performance of contracts relating to immovable property, to cover his delays, laches, breaches and non-readiness . The precedents from an era, when high inflation was unknown, holding that time is not of the essence of the contract in regard to immovable properties, may no longer apply, not because the principle laid down therein is unsound or erroneous, but the circumstances that existed when the said principle was evolved, no longer exist. In these days of galloping increases in prices of immovable properties, to hold that a vendor who took an earnest money of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the date of first letting, under sections 5(10)(B), 7, 9(2)(b) and 12(3) of the Bombay Rents, Hotel and Lodging House Rates Control Ac, 1947. This court held that the said process of determination under the Act, which was reasonable when the law was made, became arbitrary and unreasonable in view of constant escalation of prices due to inflation and corresponding rise in money value with the passage of time. This Court held: In so far as social legislation, like the Rent Control Act is concerned, the law must strike a balance between rival interests and it should try to be just to all. The law ought not to be unjust to one and give a disproportionate benefit or protection to another section of the society. When there is shortage of accommodation it is desirable, nay, necessary that some protection should be given to the tenants in order to ensure that they are not exploited. At the same time such a law to be revised periodically so as to ensure that a disproportionately larger benefit than the one which was intended is not given to the tenants Taking all the facts and circumstances into consideration, we have no doubt that the existing provisions of the Bombay Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while exercising discretion in suits for specific performance, should bear in mind that when the parties prescribe a time/period, for taking certain steps or for completion of the transaction, that must have some significance and therefore time/period prescribed cannot be ignored. (ii) Courts will apply greater scrutiny and strictness when considering whether the purchaser was ready and willing to perform his part of the contract. (iii) Every suit for specific performance need not be decreed merely because it is filed within the period of limitation by ignoring the time-limits stipulated in the agreement. Courts will also frown upon suits which are not filed immediately after the breach/refusal. The fact that limitation is three years does not mean a purchaser can wait for 1 or 2 years to file a suit and obtain specific performance. The three year period is intended to assist purchasers in special cases, as for example, where the major part of the consideration has been paid to the vendor and possession has been delivered in part performance, where equity shifts in favour of the purchaser. Re: Question (ii) 29. Before the learned Single Judge, the appellant had co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s again a significant shift in the stand of the appellant. Faced with the finding that time for payment was the essence and that there was no change in the terms relating to payment, the emphasis is on a different contention based on section 52 of the Contract Act. The appellant contended that the agreement of sale laid down the order in which the reciprocal promises were to be performed; that it first required respondents 1 to 3 as vendors, to furnish the original title deeds and a nil encumbrance certificate to satisfy the appellant about their title; that the appellant had to pay the balance of the sale price only after the vendors discharged their said obligation; that the appellant was entitled to withhold the balance sale price till the vendors discharged their liabilities, secured the original title deed and delivered them to her and satisfied her about their title; and that without performing their obligation by producing the original title deeds, the vendors cannot expect performance by the purchaser, to pay the balance price. The appellant contended that courts below failed to appreciate the scope of section 51 to 54 of Contract Act. To appreciate the said contention it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich he may sustain in consequence of the nonperformance of the contract. Let us take by way of illustration an agreement which provides that out of the sale price ₹ 10,00,000, ₹ 1,00,000 was paid as advance, ₹ 4,00,000 was to be paid within one month to enable the vendor to purchase an alternative property and shift his residence from the property agreed to be sold, and the sale deed has to be executed within three months from the date of agreement of sale and vacant possession of the premises should be given, against payment of balance price. If the purchaser failed to pay ₹ 4,00,000 within one month and thereby prevented the vendor from purchasing another property and shifting to such premises, the vendor will not be able to perform his obligation to deliver vacant possession. Thus the contract becomes voidable at the option of the vendor. 34. Section 54 of Contract Act provides that when a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation by the vendors. It is significant that clause (4) of the agreement did not say that the balance of the sale price shall be paid only after the vendors satisfied the purchaser in regard to title or that the purchaser shall pay the balance of sale price only after she satisfies herself regarding title of the vendors to the lands. Nor does clause (3) contain a provision, after stating that execution of the sale deed shall depend upon the purchaser getting satisfied regarding title to the land as also the nil encumbrance, that the payment of sale consideration will also depend upon such satisfaction regarding title and nil encumbrance. As noticed above there is an unconditional promise to pay the balance consideration in three instalments and the said promise by the purchaser is not dependent upon performance of any obligation by vendors. The contract specifically states that having paid the balance price, if the purchaser is not satisfied about the title and on being intimated about the same if the vendors fail to satisfy the purchaser about their title, all amounts paid towards the price should be refunded to purchaser. This clearly demonstrates that the payment of balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted a fraud which made the purchaser to enter into an agreement of sale and part with a potion of the sale consideration in advance; that when the purchaser got doubts and insisted on production of the original title deeds, the fourth respondent took time to get the original title deeds and agreed that the balance of sale price due may be paid after production of sale deeds. It was submitted that having regard to section 55 of the TP Act, failure to disclose the encumbrances amounted to fraud; and in view of such fraud by the respondents, the appellant was prevented from performing her part of the contract by paying the balance price before the agreed dates and therefore the appellant was entitled to extension of further time for performing her promise to pay the balance price, corresponding to the delay caused by such fraud, having regard to the provisions of section 34 of the TP Act. 39. Section 55 of TP Act lists the rights and liabilities of the buyer and the seller in the absence of a contract to the contrary. The relevant portion of section 55 reads thus: 55. Rights and liabilities of buyer and seller -- In the absence of a contract to the contrary, the buyer and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vendors. The manner in which the agreement was drafted by the purchaser shows that the purchaser and/or her husband were made aware of the encumbrances. Firstly there is no provision in the agreement that the lands were not subject to any encumbrances. Secondly, the provision for payment of sale price within a specified time does not link the payment to execution of a sale deed. Thirdly the contract provided that on execution of the agreement the purchaser will take possession as care taker of the suit schedule properties and that on complete payment of the sale price on 30.5.1981, she will be entitled to possession in part performance and that the execution of the sale deed will be whenever required by the purchaser, totally disconnected with either payment of price or delivery of possession. All these provisions demonstrate that the vendors were in urgent need of money, that the purchaser was made aware of the encumbrances, that on the purchaser paying the sale price, the vendors had to clear the encumbrances and thereafter convey the property, free from encumbrances. The contention that the vendors deliberately or intentionally suppressed any information regarding the pendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage of execution of sale deed had not arrived as the appellants did not paid the amount due in terms of the contract. 42. The appellant contended that the debt due to the Bank of India had been fraudulently suppressed by the vendors. There is no reference to such a mortgage either in the plaint or the evidence of the plaintiff. No one has been examined from the bank nor any document produced to prove the existence of such mortgage. Appellant attempted to produce some documents relating to the said mortgage with an application under Order 41 Rule 27 CPC which was rejected by the High Court. Before us, the appellants relied upon the decision in Bank of India v. Vijay Transport [2000 (8) SCC 512] which related to the bank s suit against Vijay Transport of which the first respondent was stated to be a partner. The said decision of this court discloses that proceedings were commenced in the year 1975 against the firm in which the first respondent was a partner, for recovery of ₹ 18,14,817.91 in the Court of Sub-Judge, Eluru; that the partnership firm raised a counter claim of ₹ 34,48,799 against the Bank; and that on 6.7.1976 the Bank s suit was decreed only for ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ismissal of the suit for injunction by the learned Single Judge, affirmed by the Division Bench, is also not open to challenge. 45. We also find no reason to interfere with the dismissal of the suit for recovery of ₹ 1,25,000 from the fourth respondent. The trial court held that the said amount was not paid as commission but was paid as consideration for the movables. The said suit was dismissed by the trial court. In the High Court the learned counsel for the appellant during arguments clearly stated that the appellant was not pressing for any decree against the fourth respondent in view of the finding that the amount paid was part of the consideration for movables. Therefore the dismissal of suit for ₹ 1,25,000 is also upheld. 46. The division bench to do broad justice and work out the equities, took note of the offer of the defendants in their written statement to refund the amount paid as advance and directed the defendants to refund the sum of ₹ 2,25,000 paid to defendants 1 to 3 under the agreement and ₹ 1,25,000 paid to the fourth respondent, in all, ₹ 3,50,000 with interest at 9% per annum for the period when the appellant was not acting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts has given evidence, it is not necessary for the other defendants to be examined as witnesses to duplicate the evidence. The legal position as to who should give evidence in regard to the matters involving personal knowledge have been laid down by this court in Man Kaur (dead) by LRS. v. Hartar Singh Sangha (2010) 10 SCC 512. This court has held that where the entire transaction has been conducted through a particular agent or representative, the principal has to examine that agent to prove the transaction; and that where the principal at no point of time had personally handled or dealt with or participated in the transaction and has no personal knowledge of the transaction, and where the entire transaction has been handled by the agent, necessarily the agent alone can give evidence in regard to the transaction. This court further observed: Where all the affairs of a party are completely managed, transacted and looked after by an attorney (who may happen to be a close family member), it may be possible to accept the evidence of such attorney even with reference to bona fides or 'readiness and willingness'. Examples of such attorney holders are a husband/wife exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an encumbrance. It is not necessary for us to examine the question whether the MOUs were anti-dated as the said question is not relevant as will presently be seen, apart from the fact that no material has been produced by the appellant to establish the said allegation. 50. An encumbrance is a charge or burden created by transfer of any interest in a property. It is a liability attached to the property that runs with the land. [See National Textile Corporation vs. State of Maharashtra - AIR 1977 SC 1566 and State of H.P. vs. Tarsem Singh - 2001 (8) SCC 104]. Mere execution of an MOU, agreeing to enter into an agreement to sell the property, does not amount to encumbering a property. Receiving advances or amounts in pursuance of an MOU would not also amount to creating an encumbrance. The MOUs said to have been executed by respondents 1 to 3 provide that agreements of sale with mutually agreed terms and conditions will be entered between the parties after clearance of all pending or future litigations. Therefore the MOUs are not even agreements of sale. In these circumstances, it is not possible to hold that the respondents have created any encumbrances or violated the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of the High Court found fit to award the said amount, after affirming the decision rejecting the prayer for specific performance, in view of the offer made by defendants 1 to 3 in their written statement to repay the amounts received towards the sale consideration. We have held that the time stipulated for payment of the balance price by the plaintiff was the essence of the contract and when the same was not paid, defendants 1 to 3 were justified in cancelling the sale agreement. But, we also found that there was no provision in the agreement for forfeiture of the amounts already paid, even in the event of breach by the purchaser. On the other hand it provides that if the vendors did not satisfy the purchaser in regard to their title, the amounts received would be refunded. The consistent case of the plaintiff was that the defendants 1 to 3 failed to satisfy her about their title. 54. Further, defendants 1 to 3 in their written statement filed in the specific performance suit had agreed to refund all amounts received by them from the plaintiff. It is true that the offer was conditional upon the plaintiff not creating any hindrance in the way of the defendants by filing fals ..... X X X X Extracts X X X X X X X X Extracts X X X X
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