Frustration of agreement to sell after acquisition notifications makes earnest money refund clause enforceable.

Where an agreement to sell provides for return of earnest money if the land is acquired, publication of acquisition notifications under Section 4(1) followed by declaration under Section 6 can make the contemplated sale incapable of performance. In that situation the contract is treated as frustrated and the owner can no longer deal with the property as a free agent. The purchaser's readiness and willingness then loses relevance, and the refund clause becomes enforceable under Section 33 of the Indian Contract Act, 1872. The purchaser was therefore entitled to refund of the earnest money, and the contrary findings below were set aside.

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Issues: Whether the purchaser was entitled to refund of earnest money when the agreement to sell became impossible of performance after publication of acquisition notifications.

Analysis: The agreement specifically provided for return of earnest money if the land was acquired. Once notification under Section 4(1) of the Land Acquisition Act, 1894 had been published and declaration under Section 6 followed, the owner could no longer deal with the property as a free agent and any subsequent sale transaction would not bind the State. The contemplated sale therefore became incapable of performance and stood frustrated. In that situation, the question of readiness and willingness lost relevance. The contract was treated as contingent on an uncertain future event, and upon the event becoming impossible by acquisition, Section 33 of the Indian Contract Act, 1872 entitled the purchaser to enforce the refund clause.

Conclusion: The purchaser was entitled to refund of the earnest money, and the contrary findings of the appellate court and the High Court were set aside.

Ratio Decidendi: Where an agreement to sell contains a stipulation for return of earnest money upon acquisition of the property, publication of acquisition proceedings that render performance impossible frustrates the contract and the refund clause becomes enforceable.

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