Explained| Party willing to pay but has no funds: Will it amount to readiness and willingness for specific performance of a contract?

   

Supreme Court: In a suit for specific performance the Division Bench of Indira Banerjee* and Hrishikesh Roy, JJ., explained the terms willingness and readiness to pay. Reversing the concurrent orders of the Courts below, the Court held that the Respondent Plaintiff may have been willing to perform his part of the contract, it however appears that he was not ready with funds and was possibly trying to buy time to discharge his part of the contract. The Court noted,

“Making a subsequent deposit of balance consideration after lapse of seven years would not establish the Respondent Plaintiff's readiness to discharge his part of the contract.”

Background

The Respondent Plaintiff alleged that there was an agreement between him and the appellant to sell the disputed property for a consideration of Rs.15,10,000 out of which he had paid a sum of Rs.10,001 in advance. It was further agreed between the parties, that the Respondent Plaintiff would get the sale deed registered on or before 15-03-2003 upon payment of the full sale consideration.

The genesis of the case was that though the Respondent Plaintiff had approached the appellant with the balance consideration several times and requested to execute the sale deed in his favour, the appellant kept postponing the execution of the sale deed on one pretext or the other. On the contrary, the appellant contended that the Respondent Plaintiff was never ready or willing to perform his part of the contract.

Impugned Decision

The Trial Court found that the Respondent Plaintiff was ready and willing to perform his part of the contract, and thus entitled to the relief of specific performance. Therefore, the Trial Court decreed the suit and directed the appellant to receive the balance sale consideration of Rs.15 lakhs and execute the sale deed in favour of the Respondent Plaintiff. The Trial Court's decision was affirmed by the Madras High Court in appeal.

Willingness and Readiness to Pay

Section 16 (c) of the Specific Relief Act, 1963 (prior to amendment w.e.f. 01-10-2018) bars the relief of specific performance of a contract in favour of a person, who fails to aver and prove his readiness and willingness to perform his part of the contract.

The Court noted that to aver and prove readiness and willingness to perform an obligation to pay money, in terms of a contract, the plaintiff would have to make specific statements in the plaint and adduce evidence to show availability of funds to make payment in terms of the contract in time. In other words, the plaintiff would have to plead that he has sufficient funds or is in a position to raise funds in time to discharge his obligation under the contract.

Relying on Acharya Swami Ganesh Dassji v. Sita Ram Thapar, (1996) 4 SCC 526, the Court opined that there is a distinction between readiness and willingness to perform the contract and both ingredients are necessary for the relief of Specific Performance. While readiness means the capacity of the Plaintiff to perform the contract which would include his financial position, willingness relates to the conduct of the Plaintiff.

Considering that no evidence was adduced on behalf of the Respondent Plaintiff as to how he was in a position to pay or make arrangements for payment of the balance sale consideration within time; as his balance sheet dated 31-03-2003 revealed that he did not have sufficient funds to discharge his part of the contract, the Court held that the Courts below have erred in not adjudicating upon this vital issue except to make a sweeping observation that, given that the Respondent Plaintiff was a businessman he had sources to arrange the balance funds.

Limitation Period

Following the findings in Saradamani Kandappan v. S. Rajalakshmi, (2011) 12 SCC 18, the Court opined that while exercising discretion in suits for Specific Performance, the Courts should bear in mind that when the parties prescribed a time for taking certain steps or for completion of the transaction, that must have some significance and therefore time/period prescribed cannot be ignored. Similarly, every suit for Specific Performance need not be decreed merely because it is filed within the period of limitation, by ignoring time limits stipulated in the agreement.

Hence, the Court opined that the fact that the limitation is three years does not mean that a purchaser can wait for one or two years to file a suit and obtain Specific Performance. The Court observed that the three-year period is intended to assist the purchaser in special cases, i.e., where the major part of the consideration has been paid and possession has been delivered in part performance, where equity shifts in favour of the purchaser.

“The courts will also frown upon suits which are not filed immediately after the breach/refusal.”

Accordingly, the Court held that the fact that the suit had been filed after three years, just before expiry of the period of limitation, was also a ground to decline the Respondent Plaintiff the equitable relief of Specific Performance for purchase of the immovable property.

Additionally, the Court noted that the Court could not overlook the fact that the suit property is located in the industrial town of Hosur located about 30/40 kms. from Bengaluru and there is a phenomenal rise in the price of real estate in Hosur.

Conclusion

In view of the foregoing, the Court held that the Respondent Plaintiff was not entitled to the relief of specific performance. The appeal was allowed and the impugned judgment of the High Court, as well as the judgment and decree of the Trial Court, were set aside.

The appellant was directed to return the earnest money to the Respondent Plaintiff, within 4 weeks with interest at the rate of 7% per annum from the date of deposit of the same, till the date of refund.

[U.N. Krishnamurthy v. A.M. Krishnamurthy, 2022 SCC OnLine SC 840, decided on 12-07-2022]

*Judgment by: Justice Indira Banerjee


Advocates who appeared in this case :

Senior Advocate Krishnan Venugopal with AOR Mahesh Thakur, Advocates, for the Appellants;

N.D.B Raju with AOR M.A. Chinnasamy, Advocates, for the Respondent.


*Kamini Sharma, Editorial Assistant has put this report together.

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