Delhi High Court refuses decree of specific performance in view of creation of third-party interests; Directs compensation of Rs. 15 lakhs

delhi high court

Delhi High Court: A civil suit was filed by Sanghi Brothers, a company registered under the Companies Act, 1956 seeking a decree for specific performance against the defendant and in favour of the plaintiffs and to direct the defendant to transfer/ assign / sell to the plaintiffs the property including land admeasuring about 1200 square yards at Vasant Vihar, New Delhi along with a decree for payment of money in favour of the plaintiffs and against the defendants in the sum of Rs 20,79,049 and interest @ 18% p.a. from the date of the suit and till the date of actual realization of the same. Chandra Dhari Singh, J., held that the plaintiffs are not entitled for grant of decree for specific performance and in lieu of the claim of specific performance, the plaintiffs are held to be entitled to the compensation wherein the defendant is directed to pay a sum of Rs. 15,00,000/- to the plaintiff 1.

Late Shri Maharaja Surendra Sinh ji, the deceased older brother of the defendant, executed his last will and testament dated 05-11-1984 wherein the entire Suit Property was bequeathed in its entirety to the defendant, i.e., the younger brother of the plaintiff. The said will was under challenge before the Madhya Pradesh High Court in a probate case which was further adjudicated in the favour of the defendant vide judgment dated 07-05-2010. In the interregnum of the said probate case, the plaintiffs and the defendant entered an MOU, where the plaintiffs agreed to pay the expenses for protecting, preserving and maintaining the suit property. Pursuant to this, the defendant was unable to repay the expenses incurred by the plaintiffs towards protecting, preserving and maintaining the said Property, and it was agreed that the defendant shall assign and/or sell and/or dispose of all his interest in the suit property to which the defendant is entitled as the major beneficiary as per the Will of 1984, in favour of the plaintiff 1 and thus, a General Power of Attorney was executed in favour of the plaintiff which was-, neither registered nor stamped.

The said Powers of Attorney and MOU were terminated in May 2003, and the same was informed by the defendant to the Madhya Pradesh High Court in the probate case. The cause of action for the present suit arose only when the revocation of the MOU came to the knowledge of the plaintiffs, the present suit was filed. Further, the defendant executed a deed of revocation of MOU and the Powers of Attorney on 28-06-2004, and the said revocation does not stand challenged before the Court.

On the aspect of whether the plaintiff is entitled to specific performance of documents executed in his favour in respect of suit property and whether the plaintiff is ready and willing to perform his part of the agreement, the Court noted that the plaintiffs are seeking specific performance by pleading that they had performed and have also been ready, and willing to perform the essential terms of the MOU which are to be performed by them continuously from the duration of the date of the MOU till the date of institution of the present Suit. The Court further noted that According to Section 16(c), “readiness and willingness” on the part of the plaintiff is a condition precedent for obtaining relief of grant of specific performance. It also provides that a court may not grant the relief of specific performance to a plaintiff who has failed to aver and prove that he has performed or has always been ready and willing to perform his part of the agreement.

The Court observed that the MOU in the instant Suit was executed in the year 1998. Since then, almost 25 years have elapsed. The performance of the contract would involve considerable hardship on the parties. The same is being said considering that a third-party interest has been created to such an extent that the revocation of that contract would lead to an increase in hardships warranting unjustified litigations. Even otherwise, according to the provisions of Section 12 of the Act, the general rule is that the Court should not direct the specific performance of a part of the contract when the contract becomes either “wholly or partly incapable of performance”. The specific performance of the part of a contract can be directed only where the part that is left unperformed bears a small portion of the whole in value. In the present case, the part that is to be left unperformed bears a substantial part of the whole house, therefore, under the circumstances of the instant case, this Court does not consider it appropriate to pass the decree as prayed, thereby, directing the performance of the MOU.

Thus, a third-party interest has been created in the property against which the plaintiff is seeking specific performance. Such a circumstance makes it inequitable to grant and enforce the specific performance decree. The said observation is made to balance the interests of justice and equity for the parties involved. Hence, the decree for specific performance is not to be granted. The plaintiff may have been entitled to relief as claimed for specific performance in the year 2004. However, presently, the plaintiff cannot be granted the relief of specific performance by this Court due to the defendant’s conduct of not adhering to the terms of the MOU entered between him and the plaintiffs, the creation of third-party interests, and the other factors involved. Therefore, the plaintiffs are not entitled for the decree of specific performance of a contract.

On another aspect of whether the Plaintiff is entitled for a money decree for recovery of Rs. 20,79,049 or interest, the Court stated that under Section 21(3) of the Act, it is stated that in the event, where the Court adjudicates that specific relief cannot be granted to the party claiming such relief, due to a breach of the contract by the other party, the Court may grant a compensation as it deems fit. As per Section 21 (5) of the Act, in a suit for specific performance, the plaintiff cannot be awarded compensation unless the plaintiff claims the same. The plaintiff can claim such compensation at any stage of the proceedings and the Court shall then allow such compensation to him. As the Court has not granted relief of specific performance to the plaintiffs, therefore, it is held that in terms of Sections 20 and 21 of the Act and the precedents, the plaintiffs are entitled to the grant of compensation.

On the aspect of quantum of compensation, the Court opined that it is a well-settled principle in terms of Section 73 of the Indian Contract Act, 1872 that the Court shall award only such damages which have been suffered by the party. The burden of proof in regard to the same shall lie with the party which is claiming such damages. The principle governing the evidences in civil cases is that there should be preponderance of the events which should be proved unlike in criminal matters, where the evidences have to be proved beyond a reasonable doubt. Moreover, the burden of proof is on the party which will suffer if such evidence is not proved. Applying the said legal position regarding the burden of proof in civil suits to the facts of the instant Suit, the burden of proof lies on the plaintiffs since it is the plaintiffs who will fail in seeking the relief, if the evidences are not proved in their favour.

Taking into account all the documents for deciding the quantum of compensation, it is indicated that a third-party interest has been created in the suit property against which the specific performance has been sought. Such a circumstance makes it inequitable to enforce the decree of specific performance and for the above reasons a decree for the payment of compensation in lieu of the specific performance would meet the ends of justice. Thus, in terms of the MOU and interest of justice, a sum of Rs. 15,00,000/- is granted as lump-sum compensation in lieu of the claim sought for specific performance.

[Sanghi Brothers v Kamlendra Singh, 2023 SCC OnLine Del 5528, decided on 06-09-2023]

Advocates who appeared in this case :

Mr. Arvind Varma, Sr. Advocate with Mr. A. S. Mathur, Mr. Prabal Mehrotra, Mr. Shubhankar, Mr. Umang Kataria, Ms. Mahima Singh and Ms. Smridhi Sharma, Advocates with and Mr. H. Joshi, AR for plaintiff no. 1 and 2 (i)-(iii) Mr. Sankalp Goswami, Advocate for plaintiff no. 2(iv)

Mr. Jayant Mehta, Sr. Advocate with Mr. Vijay K. Singh and Ms. Ashita Chhibber, Advocates Mr. Akhil Sibal, Sr. Advocate with Ms. Fareha Ahmad Khan, Advocate for non-applicant in I.A 8319/2012

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