Amit Bajaj and Other vs Harish Khurana

V.K. Jain, J.

(ORAL) IA No. 4756/2012 (under Section 148 of CPC)

This is an application for condonation of delay in filing the written statement. For the reasons stated in the application, the delay in filing the written statement is condoned, subject to payment of Rs. 5000/- as costs.

IA No. 20166/2011 (O. 39 R. 1&2 CPC)

This is an application for restraining the defendants from creating any third party interest in the suit property during pendency of the suit. The case set out on the plaint is that vide agreement to sell dated 09.05.2011, the defendant agreed to sell property No. B-324, Sudershan Park, New Delhi to the plaintiffs for a total sale consideration of Rs 72,00,000/- and received a part payment of Rs 10,00,000/-. Another part payment of Rs 20,00,000/- was to be made on 11.06.2011 and the balance amount of Rs 42,00,000/- was to be paid on or before 08.08.2011. The case of the plaintiff is that the defendant has committed breach of the agreement by not accepting the balance sale consideration from them and not executing the sale deed in their favour. Vide notice dated 22.06.2011, sent to the defendant at the address of the suit property and also at the address of D-6, Harbhajan Enclave, Pusa Enclave, New Delhi, the plaintiffs wrote to the defendant that they had approached him on 11.06.2011 with the amount of Rs 20,00,000/-, but he had avoided to accept the same. Vide that notice, the defendant was asked to acknowledge further payment of Rs 20,00,000/- and execute the sale deed in favour the plaintiffs. The notice was sent by registered post. The case of the plaintiffs is that no reply to this notice was sent by the defendant. This notice was followed by a notice dated 02.08.2011 which also contains reference to the notice dated 22.06.2011 sent through Shri O.P. Bhatia, Advocate. It appears that this notice was not served upon the defendant either at the address of the suit property or at the address of D-6, Harbhajan Enclave, Pusa Campus, New Delhi and the envelopes were returned with the report that the addressee was not available at the given address. A fresh notice dated 29.08.2011 is alleged to have been sent by the plaintiffs to the defendant at the same addresses by registered post as well as through courier.

The case of the plaintiffs is that they have always been ready and willing to perform their part of the contract. The plaintiffs have placed on record a copy of the statement of account with Union Bank of India from 01.07.2011 to 08.08.2011 which shows that on 01.07.2011, they had only Rs 6441.4 in their account and a sum of Rs 65,00,000/- was deposited in that account on 08.08.2011.

The case of the defendant, however, is that the plaintiffs failed to make balance payment to him within time stipulated in the agreement. This is also the case of the defendant that he had sent an SMS to the plaintiff on 08.08.2011, asking them to make payment of the balance sale consideration.

The allegation of the plaintiffs is that, in fact, the defendant was not in Delhi and the SMS on 08.08.2011 was sent from Mumbai. Averment to this effect is contained in the notice dated 29.08.2011, which the plaintiffs sent to the defendant through counsel. That apart, the two SMSs sent by the defendant to the plaintiffs on 08.08.2012 are somewhat contradictory. In the first SMS, sent at about 2.00 PM, the defendant stated that the deal had been cancelled by him, whereas in the SMS sent at about 5.00 PM, he asked the plaintiffs to fix a date for execution of the documents. The learned counsel for the plaintiffs states that, in fact, the plaintiffs all along had the capacity to raise the funds and also had the actual funds available with them to make payment to the defendant in time. It would be pertinent to note here that there is not a single notice sent by the defendant to the plaintiffs, asking them to make payment of the balance sale consideration. If there was default on the part of the plaintiffs in making payment of Rs 20,00,000/- by 11.06.2011, the defendant, in ordinary course of events, would have at least sent a notice to the plaintiffs, informing them that since they had not paid the amount of Rs 20,00,000/- by 11.06.2011, he was terminating the agreement and forfeiting the earnest money. This becomes more important considering the fact that the plaintiffs had already sent a legal notice to the defendants on 22.06.2011.

Clause 1 of the agreement to sell reads as under:

That on or before 08.08.2011, the Second party will pay the balance consideration amount, and in lieu of the same, the first party will execute the regular documents of the same in favour of the Second Party, and if the first party will not fulfill his part of the contract, than the Second Party shall remain free either to accept the double of earnest money/Bayana from the first Party, or entitled to complete this bargain through court of law under SPECIFIC PERFORMANCE ACT on the cost and risk of first party, and if Second party fails to make the balance payment, within stipulated period, then his/their earnest Money shall be forfeited by the first party/seller.

Relying on the above referred clause, the learned counsel for the defendant submits that the plaintiff in the event of breach on the part of the defendant, is entitled only to double the earnest money and the suit for specific performance of the agreement is not maintainable. I, therefore, find no merit in the contention. The above referred clause clearly shows that in the event of breach on the part of the defendant, the option was with the plaintiff either to accept the double of the earnest money/bayana from the defendant or to seek enforcement of the agreement through the process of the Court. This clause does not mean that it was the defendant who had an option either to execute the sale deed or to refund the double of the earnest money to the plaintiffs. In any case, there is absolutely no material on record to show that the defendant had, at any point of time, offered to refund the double of the earnest money to the plaintiff.

Even in a case where the agreement gives an option to the seller to refund the advance money, without giving a specific right to the purchaser to seek enforcement of the agreement through process of the Court, that, by itself, would not disentitle the purchaser from seeking specific performance of the agreement, when there is no express covenant in the agreement that the vendee shall not be entitled to seek specific performance of the agreement through intervention of the Court. If one party to the agreement fails to perform his part of the contract without any legal justification, the other party to the agreement has a legal right to seek enforcement of the agreement through process of the Court, provided that the agreement is otherwise enforceable in law. The parties need not expressly refer to such legal right in the agreement which they execute for evidencing the transaction entered into between them. To seek enforcement of an otherwise valid agreement, being a legal right, and performance of the agreement, being a contractual obligation, omission to specifically contain such a stipulation in the agreement would be of no consequence. However, in the case before this Court, even the clause relief upon by the learned counsel for defendant expressly gives an option to the plaintiff to seek enforcement through the process of the Court. In P. D''Souza Vs. Shondrilo Naidu, the relevant clause in the agreement of sale read as under:

That if the vendor fails to discharge the mortgage and also commits any breach of the terms in this agreement and fails to sell the property, then in that event he shall return the advance of Rs. 10,000/- paid as aforesaid and shall also be liable to pay a further sum of Rs. 2,000/- as liquidated damages for the breach of the agreement.

It was held by Supreme Court that it was for the plaintiff to file a suit for specific performance of a contract, despite having an option to invoke the option provision and it would not be correct to contend that only because such a clause exists a suit for specific performance of a contract would not be maintainable.

In Man Kaur (dead) by LRS. v. Hartar Singh Sangha 2010 (9) UJ 4569 (SC), one of the terms of the agreement for sale of immovable property provided that if the vendor committed a default, he was to pay the double of the earnest money to the purchaser and if the purchaser committed any default, the sum of Rs 10 lacs paid as earnest money would be forfeited. The contention of the appellant before the Supreme Court was that since the agreement of sale only provided for damages in the event of breach by either party and did not provide for specific performance in the event of breach of by the vendor, their intention was that in the event of breach by the vendor, the purchaser will be entitled to double the earnest money and nothing more and, therefore, the vendee was not entitled to specific performance of the contract. Repelling the contention, the Supreme Court held that for a plaintiff to seek specific performance of a contract of sale relating to immovable property and for a Court to grant such specific performance, it is not necessary that the contract should contain a specific provision that in the event of breach, the aggrieved party will be entitled to specific performance. It was further held that if the legal requirements for seeking specific performance of a contract are made out, it could be enforced even in the absence of a specific term for specific performance in the contract. Legal position was clarified by the Supreme Court giving the following illustrations (not exhaustive):

(A). The agreement of sale provides that in the event of breach by the vendor, the purchaser shall be entitled to an amount equivalent to the earnest money as damages. The agreement is silent as to specific performance. In such a case, the agreement indicates that the sum was named only for the purpose of securing performance of the contract. Even if there is no provision in the contract for specific performance, the court can direct specific performance by the vendor, if breach is established. But the court has the option, as per Section 21 of the Act, to award damages, if it comes to the conclusion that it is not a fit case for granting specific performance.

(B). The agreement provides that in the event of the vendor failing to execute a sale deed, the purchaser will not be entitled for specific performance but will only be entitled for return of the earnest money and/or payment of a sum named as liquidated damages. As the intention of the parties to bar specific performance of the contract and provide only for damages in the event of breach, is clearly expressed, the court may not grant specific performance, but can award liquidated damages and refund of earnest money.

(C). The agreement of sale provides that in the event of breach by either party the purchaser will be entitled to specific performance, but the party in breach will have the option, instead of performing the contract, to pay a named amount as liquidated damages to the aggrieved party and on such payment, the aggrieved party shall not be entitled to specific performance. In such a case, the purchaser will not be entitled to specific performance, as the terms of the contract give the party in default an option of paying money in lieu of specific performance.

Noticing that in the case before it, the agreement did not specifically provide for specific performance nor did it bar specific performance and it provided for payment of damages in the event of breach by other party, Supreme Court was of the view that the provision for damages in the agreement was not intended to provide the vendor an option of paying money in lieu of specific performance and, therefore, the plaintiff was entitled to seek specific performance even in the absence of a specific provision therefore, subject to his proving breach by the defendant and that he was ready and willing to perform his obligation on the contract in terms of the contract.

In Manzoor Ahmed Margray v. Gulam Hassan Aram & Ors. 1997 (7) SCC 703, the default clause provided for payment of Rs 10,000/- as penalty in case of violation of the terms and conditions of the agreement by either party. It was held that this was a penalty clause for securing performance of the contract and would not mean that the contract is not to be performed.

In M.L. Devender Singh and Ors. v. Syed Khaja (1973 ) 2 SCC 515, the terms of the contract between the parties provided that in case of failure to comply with the terms of the agreement, the vendor shall be liable not only for the refund of the advance received by him, but also to pay a similar amount as damages to the vendee. There was no mention anywhere in the contract that a party to it will have the option either to fulfil the contract or pay the liquidated damages stipulated for a breach, as an alternative to the performance of the contract. The Supreme Court divided the contracts into the following three classes:

(i) Where the sum mentioned is strictly a penalty-a sum named by way of securing the performance of the contract, as the penalty is a bond :

(ii) Where the sum named is to be paid as liquidated damages for a breach of the contract :

(iii) Where the sum named is an amount the payment of which may be substituted for the performance of the act at the election of the person by whom the money is to be paid or the act done.

It was held that where the stipulated payment comes under either of the two first-mention heads, the Court enforce the contract, but where it comes under the third head, the Court is satisfied by payment of money and there is no ground to compel the specific performance of the other alternative of the contract.

In the case before this Court, the contract between the parties would fall either under category (i) or category (ii) and, therefore, the Court is required to enforce the contract if the plaintiff is otherwise entitled to such a relief in law.

In Jai Narain Parasrampuria (Dead) and Others Vs. Pushpa Devi Saraf and Others, Supreme Court was of the view that a stipulation in regard to payment of damages by one party of the contract to the other does not establish that the same was not an agreement for the sale.

Since execution of the agreement to sell as well as receipt of part payment of Rs 10,00,000/- has been admitted by the defendant and there has been no delay on the part of the plaintiff in coming to the Court for specific performance of the agreement to sell dated 09.05.2011, I am of the view that a prima facie case has been made out by the plaintiffs.

In N. Srinivasa Vs. Kuttukaran Machine Tools Ltd., noticing that the only ground taken by the respondent was that since time was the essence of the contract and the appellant had failed to perform his part of the contract within the time specified in the agreement and, therefore, the question of grant of injunction against transfer or alienation of the suit property did not arise at all, the Supreme Court observed that it must be kept in mind that it would be open to the respondent to transfer, alienate or create any third party interest in respect of property in dispute before passing the award in which one of the main issues would be whether time was essence of the contract or not. The Court was of the view that if at the stage when application of the appellant u/s 9 of the Arbitration and Conciliation Act was pending, if the respondent is permitted to transfer, alienate or create any third party interest in respect of the property in dispute then the award, if any, which may be passed in his favour would get nugatory and it would be difficult for him to ask the respondent to execute a sale deed when a third party interest has already been created by sale of property in dispute and delivering the possession to the third party.

If an interim protection is not granted to the plaintiff, the defendants may dispose of the suit property or may create third party interest therein, thereby defeating the very object behind filing of the suit. On the other hand, the defendants are not likely to suffer any irreparable loss in case they are restrained from selling, assigning or transferring the suit property and from creating any third party interest therein during pendency of the suit. They will continue to enjoy the suit property as they are doing at present. The balance of convenience thus lies in favour of maintaining status quo during pendency of the suit. However, in view of the decision of a Division Bench of this Court in Mohan Overseas P. Ltd vs. Goyal Tin & General Industries 169 (2010) DLT 487 (DB), it would be appropriate if the plaintiff is directed to deposit the balance sale consideration in this Court by way of an FDR in the name of Registrar General of this Court initially for a period of one year. Such a condition will also ensure that having obtained an interim order, the plaintiff does not protract the trial of the case and the final decision can be rendered at an early date.

It is, therefore, directed that subject to the plaintiffs depositing an FDR of Rs. 62,00,000/- in the name of Registrar General of this Court within three weeks towards the payment of the balance sale consideration, as undertaken by their counsel, the parties shall maintain status quo with respect to title and possession of the suit property, during pendency of the suit. If the plaintiffs, so desire, they may deposit the balance amount of Rs 62,00,000/- by way of a pay order/demand draft in the name of Registrar General of this Court. If such a course of action is adopted by the plaintiffs, the Registry will keep that amount in FDR initially for a period of one year. The Registry will keep the FDR alive by getting it renewed from time to time.

The observations made in this order being prima facie and tentative, made only with a view to decide this application, will not affect the decision of the suit on merits.

The applications stands disposed of.

CS (OS) 3149/2011

List before Joint Registrar for admission/denial of documents on 31.08.2012 and before Court, for framing of issues, on 19.11.2012.