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Specific performance of an agreement to sell of an immovable property

The law with respect to specific performance of a contract is well established in India. The grant of relief of specific performance is a discretionary and equitable relief. The courts are therefore not bound to always grant the relief of specific performance merely because it is lawful to do so, but are required to apply their discretion in a sound and reasonable manner to meet the ends of justice.

The fundamental basis for exercise of the power by the courts requires reasonable care based on the facts and circumstances of the case. Thus, while assessing the cases of specific performance of a contract the court in its discretion can impose any reasonable condition including payment of an additional amount by one party to the other while granting or refusing a decree of specific performance in the interest of justice and equity.

One of the situations that arise for the courts to consider in the cases of specific performance of an agreement to sell of an immovable property is increase in the price of the property during the pendency of the litigation. However, the courts have observed that the relief of specific performance shall not be denied only on account of the phenomenal increase of price during the pendency of litigation. The principle of balancing equities is again to be applied by the courts in such cases and before granting or refusing the relief of specific performance the court is required to assess the other crucial aspects as well such as who is the defaulting party, whether one party is trying to take undue advantage over the other, the hardship that may be caused to the seller by directing specific performance, the unfair advantage that the purchaser may get over the seller if relief of specific performance is granted and so on.

Based upon the above fundamental principle of law with respect to granting relief of specific performance of a contract, the Supreme Court of India recently in a judgment of Jayakantham and Others versus Abaykumar, set aside the decree of specific performance of an agreement to sell an immovable property and granted monetary compensation to the purchaser (Respondent) in lieu of the relief of specific performance.

In the present case of Jayakantham and Others versus Abaykumar, the trial court granted the decree of specific performance in favour of the Respondent purchaser, which was upheld by the Principal District Judge in appeal and the High Court of Madras in second appeal. However, the Supreme Court took a contrary view and reversed the decree of specific performance.

While noting the facts of the case, the Supreme Court observed that an agreement to sell was entered into between the Appellants and the father of the Respondent on June 2, 1999. The agreed consideration between the parties was Rupees One Lakh and Sixty Thousand, out of which an amount of Rupees Sixty Thousand was paid at the time of execution of the agreement to sell. The sale transaction was to be completed within three years against the payment of the balance of Rupees One Lakh. A legal notice seeking performance of the agreement to sell was issued on May 7, 2002 by the Respondent. In response to the legal notice, the defence set up by the Appellants was, inter alia, that the agreement to sell was executed only as a security for a loan transaction as the father of the Appellants was a money lender (which was an admitted fact). The Supreme Court observed that there was no error in finding of the facts by all the three courts and hence on merits the judgment cannot be reversed. However, the Appellants drew the attention of the Supreme Court to an alternative submission that the suit property is the only property held by the Appellants and has an extremely high value. The Appellants further stated that they are ready to pay a sum of Rupees Ten Lakhs or even more to retain the suit property. The Supreme Court considered this limited question/alternative argument in its judgment.

The Supreme Court observed that during the course of evidence before the trial court, the Appellants produced material indicating that the value of the property was Rupees Six Lakhs and Thirty Thousand on November 20, 2006. The Appellants also placed on record document indicating the value of the property as on April 1, 1999. The Supreme Court observed that the above aspects were though noted by the trial court and the first appellate court but were not borne in mind while granting the relief of specific performance in favour of the Respondent. The Supreme Court noted that the terms of the contract, the conduct of parties at the time of entering into the agreement and circumstances under which the contract was entered into gave the Respondent an unfair advantage over the Appellants thereby making it inequitable to enforce the relief of specific performance. Since the Appellants offered to pay an amount of Rupees Ten Lakhs as compensation in lieu of specific performance, the Supreme Court held that payment of compensation of Rupees Fifteen Lakhs to the Respondent would meet the ends of justice.

The above judgement of the Supreme Court reinforced the settled law that it is not always necessary to grant relief of specific performance simply because the law provides for such a relief but the order has to be based on the facts and circumstances of the case, after assessing the equitable interest of both the parties.