TaxTMI 
TaxTMI 
2011 (7) TMI 1293
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.... 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 referred to as the 'schedule properties'. Respondents 1 to 4 entered into agreement of sale dated 17.1.1981 with the appellant herein for sale of the schedule properties, at a price of Rs. 15,000 per acre (in all Rs. 3,74,250 rounded off to Rs. 3,75,000). On the date of the agreement, Rs. 1,00,000 was paid as advance to respondents, which was duly acknowledged in the agreement. Clauses 3, 4, 5, 6, 7, 12 and 15 of the agreement which are relevant for our purposes are extracted below :- "3. The execution of the sale deeds shall depend upon the party of the second part getting satisfied regarding the title to the land, so also the nil encumbrance. 4. The mode of payment of the balance of Rs. 2,75,000/- (Rupees Two lakhs and seventy five thousand only) shall be as unde....
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....ces of Rs. 1,00,000 on 28.2.1981 and of Rs. 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 Rs. 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 balance of the sale consideration, in exercise of their right to cancel the agreement on such default, under clause 6 of the agreement. The relevant portion of the cancellation notice is extracted below: "My clients state that even at the time of entering into the said agreement of sale, you looked into the documents of title and satisfied yourself about the title of my clients to the said property. My clients were always ready and wiling to conclude the sale and expected you to pay the balance of sale consideration of Rs. 2,75,000/- in accordance with clause 4 of the said agreement. Now that you have committed defaults in the payment of the balance of consideration. Not withstanding the fact that you have not even sent any communication whatsoever to my ....
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....ry 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 Rs. 2,25,000/- and on 2.4.1981 when the sum of Rs. 25,000/- was paid it was specifically understood that the balance of money will be paid and the sale will be completed within a reasonable time as soon as the documents of title were handed over to her. Therefore, the question of default in payment of the instalment does not arise. Moreover, it is very unreasonable on the part of your client to allege that default has been committed when the truth is otherwise. My client is ready and willing to pay the balance of sale consideration and have the sale completed provided the documents are handed over to her immediately for scrutiny and approval. Once again in the circumstances set out above, there is no default on the part of my client and she is always ready and willing to perform her part of the agreement provided your client hands over the documents for scrutiny and the title is found good to th....
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.... 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 stating that the documents relating to Sy. Nos. 16 and 18 were deposited with him by the second respondent as security for a loan taken from him and that if appellant purchased the said lands, she will be doing so at her risk. The second was a notice dated 14.11.1981 from respondent Nos. 1 to 3 through their counsel stating that the claim of the appellant that she had purchased the lands bearing Nos.8, 10, 12, 13, 14, 15, 16, 17, 18, 19, 20, 20/1, 21 and 24 and was in possession thereof was false; the survey numbers mentioned were erroneous; that after the agreement dated 17.1.1981 was cancelled, they had entered into an agreement with a third party which fell through because of the public notice, causing loss to them; that the appellant had been....
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....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 relief is the parties entitled? Addl. Issue (1) : Whether the fourth defendant is a necessary and proper party to the suit? Addl. Issue (2) : Whether by reason of filing of C.S. No. 170 of 1984, is the plaintiff entitled to specific performance? In the suit for refund of Rs. 1,25,000/-, the following issues were framed: (1) Whether the payment of Rs. 1,25,000/- made by the plaintiff to the defendant on 17.1.1981 was towards the commission charges as per the letter given by the defendant or towards part of consideration for the sale in question? (2) Whether the plaintiff is entitled to return of the said amount of Rs. 1,25,000/-. (3) To what other relief, if any,....
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....ing 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 the defendants satisfied the plaintiff about their title to the property agreed to be sold, was not established by plaintiff. The terms of the agreement remained unaltered. (e) Plaintiff committed breach by failing to pay the sum of Rs. 1,00,000 due on 6.4.1981 (except Rs. 25,000 paid on 2.4.1981) and the sum of Rs. 75,000 due on 30.5.1981 and the defendants were therefore justified in cancelling the agreement on 2.8.1981. (f) The defendants did not deliver possession of the properties agreed to be sold, to the plaintiff in part performance of the agreement of sale dated 17.1.1981. The defendants delivered the property to the plaintiff in trust to hold the same as caretaker, until the vendors re....
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....e 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 purchaser is ready and willing to perform the contract, the termination of the agreement of sale by the vendors is illegal and amounts to breach of contract. They submit that High Court had failed to apply section 55 of the Contract Act, 1872. Section 55 of Contract Act deals with the effect of failure to perform at a fixed time, in contract in which time is essential. Said Section is extracted below : "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 a specified time, and fails to do such thing at or before a ....
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....erformance, 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 position is differently stated in para 27 of the said decision, thus: "27. In a contract for sale of immoveable property, normally it is presumed that time is not the essence of the contract. Even if there is an express stipulation to that effect, the said presumption can be rebutted. It is well settled that to find out whether time was the essence of the contract. It is better to refer to the terms and conditions of the contract itself." 19. The legal position is clear from the decision of a Constitution Bench of this court in Chand Rani v. Kamal Rani [1993 (1) SCC 519], wherein this court outlined the principle thus: "It is a well-accepted principle that....
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....round floor was given. In cross-examination it was deposed that since income-tax clearance certificate had not been obtained the sum of Rs. 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 upon for payment of Rs. 98,000. Therefore, we conclude that though as a general proposition of law time is not the essence of the contract in the case of a sale of immovable property yet the parties intended to make time as the essence under Clause (1) of the suit agreement." The intention to make time stipulated for payment of balance consideration will be considered to be essence of the contract where such intention is evident from the express terms or the circumstances necessitating the sale, set out in the agreement. If for example, the vendor discloses in the agreement of sale, the reason for the sale and the reason for stipulating that time prescribe....
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....ce 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 not say that payment of balance consideration shall depend upon the purchaser getting satisfied regarding title or nil encumbrances. Clause 7 provides that the sale deed shall be executed at the convenience of the purchaser, as and when she wants them to be executed either in her name or in the name of her nominee or nominees. Clause 12 provides that if the second party (purchaser) finds the title of the properties to be unsatisfactory or unacceptable, the vendors shall be put on notice about her intention not to conclude the sale and in such an event, if the vendors fail to satisfy the purchaser regarding their title, the vendors shall pay to the purchaser within three mon....
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....ore 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 55 of Contract Act (or any other provisions of Contract Act or Specific Relief Act, 1963). Courts in India made the said distinction, by following the English law evolved during the nineteenth century. This Court held that time is not of the essence of the contracts relating to immovable properties; and that notwithstanding default in carrying out the contract within the specified period, specific performance will ordinarily be granted, if having regard to the express stipulation of the parties, nature of the property and surrounding circumstances, it is not inequitable to grant such relief. [vide Gomathinayagam Pillai (supra), Govind Prasad Chaturvedi (supra) and Indira Kaur v. Sheo Lal Kapoor....
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....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 say about 10% of the sale price and agreed for three months or four months as the period for performance, did not intend that time should be the essence, will be a cruel joke on him, and will result in injustice. Adding to the misery is the delay in disposal of cases relating to specific performance, as suits and appeals therefrom routinely take two to three decades to attain finality. As a result, an owner agreeing to sell a property for Rs.One lakh and received Rs.Ten Thousand as advance may be required to execute a sale deed a quarter century later by receiving the remaining Rs.Ninety Thousand, when the property value has risen to a crore of rupees. 26. It is now well settled tha....
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....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 Rent Act relating to the determination and fixation of the standard rent can no longer be considered to be reasonable......" The principle underlying the said decisions with reference to statutes, would on the same logic, apply to decisions of courts also. 27. A correct perspective relating to the question whether time is not of the essence of the contract in contracts relating to immovable property, is given by this court in K.S. Vidyanadam and Others vs. Vairavan - (1997) 3 SCC 1 (by Jeevan Reddy J. who incidentally was a member of the Constitution Bench in Chand Rani). This Court observed: "It has been consistently held by the courts in India, follow....
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....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 concentrated on the contention that time for payment was not the essence of the contract and therefore the failure to pay the second instalment on or before 6.4.1981 and the final instalment on or before 30.5.1981 did not entitle the vendors to cancel/terminate the agreement. As that contention was rightly rejected by the learned Single Judge, the emphasis before the Division Bench was on the contention that the term regarding payment was altered by an oral understanding. It was contended that though time was the essence of the contract in regard to payments, it was equally necessary for the defendants to produce original ti....
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....id 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 is necessary to refer to sections 51 to 53 of the Contract Act. 31. Section 51 provides that when a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise, unless the promisee is ready and willing to perform his reciprocal promise. For example, if the contract provides that the balance of sale consideration shall be paid by the purchaser to the vendor against execution of sale deed within a period of three months, the purchaser need not pay the balance sale consideration if the vendor was not willing to execute the sale deed. Similarly the vendor need not execute the sale deed unless the purchaser ....
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....om 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 performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract. The agreement in this case provides a good illustration for this section. The purchaser cannot claim that the vendors should produce the original title deeds and satisfy her regarding their title, or claim execution of the sale deed, unless and until she paid the entire consideration within the time stipulated in clause (4) of the agreement, which would enable the vendors to repay the loans and obtain release of the original title deeds. 35. The appellant contends that clause (....
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....e 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 of sale price in terms of the contract was not postponed nor made conditional upon the purchaser being satisfied about the title, but that payment of the balance price should be made to the vendors as agreed unconditionally. In fact if the intention of the parties was that only after the vendors satisfying the purchaser about their title, balance consideration had to be paid, clause (12) would be redundant as the situation contemplated therein would not arise. Further, if that was the intention, the purchaser would not have paid Rs. 1,00,000 as further advance on 28.1.1981 and Rs. 25,000 on 2.4.1981. It is therefore clear that the contract does not expressly (or ....
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....re 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 the seller of immovable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following or such of them as are applicable to the property sold: (1) The seller is bound- (a) to disclose to the buyer any material defect in the property or in the seller's title thereto of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover; (b) to produce to the buyer on his request for examination all documents of title relating to the property which are in the seller's possession or power; (c) to answer to the best of his information....
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....t 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 pending encumbrances or the fact that the original documents were not available and thereby committed fraud is neither pleaded nor proved. 41. The appellant did not allege in the plaint, any fraud on the part of vendors, in regard to suppression of encumbrances over the property. The entire plaint tried to justify that the plaintiff did not commit breach of contract by not paying the balance instalments on 6.4.1981 and 30.5.1981, except for a stray sentence that the plaintiff will be entitled to proceed against the third defendants 1 to 3 for damages, for not performing their part of the contract and not disclosing several prior ....
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....he 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 Rs. 18,14,817.91 in the Court of Sub-Judge, Eluru; that the partnership firm raised a counter claim of Rs. 34,48,799 against the Bank; and that on 6.7.1976 the Bank's suit was decreed only for Rs. 1,00,418/55 whereas the counter claim of the first respondent was decreed for Rs. 34,48,799 with costs. The bank filed an appeal before the High Court which was allowed on 20.9.1983 and the Bank's suit was decreed for Rs. 18,49,209.70 with interest and the firm's counter claim was dismissed. But what is significant and relevant is the fact that as on the date of the agreement of sale (17.1.1981) the first defendant was not a debtor of Bank of India but on the other hand the bank itself was a debtor to the extent of more than Rs. 33,00,000 with interest. Therefore the contention of the appellant that an encumbrance in favour of Bank of India was....
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....on for movables. Therefore the dismissal of suit for Rs. 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 Rs. 2,25,000 paid to defendants 1 to 3 under the agreement and Rs. 1,25,000 paid to the fourth respondent, in all, Rs. 3,50,000 with interest at 9% per annum for the period when the appellant was not acting as a care taker till date of payment. We find no reason to interfere with the direction to refund Rs. 3,50,000 with interest. We however propose to make a modification in regard to the rate of interest and the period for which interest is payable. The High Court has awarded interest on the sum of Rs. 3,50,000 at 9% per annum for the period in which the appellant had not acted as caretaker till the date of payment. As noticed above, the agreement of sale does not provide for forfeiture of the amounts paid as advance under any circumstances and on the other hand, specifically provides that if the plaintiff was not satisfied with the title of the defendants, the amounts received....
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....n, 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 exclusively managing the affairs of his/her spouse, a son/daughter exclusively managing the affairs of an old and infirm parent, a father/mother exclusively managing the affairs of a son/daughter living abroad." Therefore the evidence of the fourth defendant (examined as DW2) was sufficient to put forth the case of the defendants and there was no need to examine the other three defendants who did not have full or complete knowledge of the transactions. In the circumstances we find no merit in the contention that the suits ought to have been decreed, as defendants 1,2 and 3 did not step into the witness box. Re : Contempt Petition (C) Nos.28-29/2009 : 48. The appellant ....
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....operty. 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 dated 11.11.2002. Hence, these contempt petitions are liable to be rejected. 51. We make it clear that nothing stated in this order on the contempt petitions will be construed as an expression of any opinion on the merits of the dispute between Jeevanandam and respondents 1 to 3, and necessarily any pending litigation between them will have to be decided on the merits of the respective cases. CIVIL APPEAL NOS. 7254-7256 OF 2002 52. These appeals are filed by the vendors - defendants 1 to 3 (who are respondents 1 to 3 in C.A. Nos.7254-7256/2002). They are aggrieved by the judgment and decree of the Division Bench in O.S.A. No.12/1992 (arising from the specific performa....
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....chaser 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 false, frivolous and mischievous suits. Though we have affirmed the decision of the learned Single Judge and the Division Bench that the plaintiff is not entitled to the relief of specific performance, it cannot be said that the plaintiff had filed false, frivolous and mischievous suits. In view of the above, in terms of the agreement and in terms of its offer, the plaintiff was entitled to recover the amounts paid by her. A sum of Rs. 2,25,000 was paid under the agreement of sale to defendants 1 to 3. The finding of the learned Single Judge that the sum of Rs. 1,25,000 paid by the plaintiff to the fourth defendant was also the consideration for the movables in addition to the consideration of Rs. 3,75,000 under....