Court’s Decision
The Karnataka High Court, per Justice H.P. Sandesh, dismissed a Regular Second Appeal filed under Section 100 of the Code of Civil Procedure, challenging the concurrent findings of the Trial Court and the First Appellate Court, both of which had refused specific performance of a sale agreement but directed refund of the earnest money of ₹7,00,000 with interest.
The Court modified the rate of interest from 10% to 18% per annum, holding that the defendant had herself admitted to having borrowed money at 1.5% per month, which equates to 18% yearly interest.
Justice Sandesh observed:
“When the defendant herself pleaded that she had borrowed the amount at 1.5% per month, the Trial Court erred in awarding only 10% interest. The same is modified to 18% per annum.”
The Court concluded that there was no substantial question of law warranting interference, affirming the concurrent findings that the agreement was executed under financial distress, and therefore, the relief of specific performance could not be granted.
Facts
The appellant (plaintiff before the Trial Court) filed a suit for specific performance of a sale agreement dated 16 July 2015, alleging that the defendant agreed to sell a parcel of land for ₹7,50,000, of which ₹7,00,000 had been paid as earnest money. The plaintiff claimed to be ready and willing to perform her part of the contract, while the defendant later refused to execute the sale deed.
The defendant admitted receipt of ₹7,00,000 but asserted that the transaction was not a sale agreement but a loan arrangement. She contended that she had borrowed the amount to meet medical expenses for her husband and sons and had executed the agreement only as security.
The Trial Court, while acknowledging that the agreement and payment were proved, held that the transaction was essentially a loan executed under dire financial pressure. Consequently, it declined specific performance but ordered the defendant to refund ₹7,00,000 with 10% annual interest compounded half-yearly.
The First Appellate Court (R.A. No. 5071/2018) upheld the decree, prompting the appellant to file a Regular Second Appeal before the High Court.
Issues
- Whether the courts below erred in refusing to grant specific performance despite the admitted execution of the agreement and payment of consideration.
- Whether the Trial Court erred in limiting the rate of interest to 10% per annum contrary to the defendant’s own admission.
- Whether any substantial question of law arose for consideration under Section 100 CPC.
Petitioner’s Arguments
The appellant’s counsel argued that both courts had misappreciated the evidence, particularly that of D.W.3, and had ignored the statutory mandate under Sections 91 and 92 of the Indian Evidence Act, which restrict oral evidence contradicting written documents.
It was submitted that the defendant had admitted execution of the sale agreement (Ex.P3) and receipt of the entire consideration except ₹50,000. Therefore, once the agreement was proved, specific performance was the natural consequence.
Relying on Beemaneni Maha Lakshmi v. Gangumalla Appa Rao (2019), the appellant argued that financial hardship was never pleaded as a defence in the written statement, and hence the courts erred in introducing the element of hardship at a later stage.
The counsel further cited Lalithamma v. A.D. Govindaiah (2024), where the Court had decreed specific performance upon payment of 95% of the sale consideration, and Vishnu v. Abdulgani (2012), emphasizing that a defendant who admits the transaction but later denies its nature cannot seek equitable relief.
The appellant also contended that the First Appellate Court wrongly rejected the application under Order XLI Rule 27 CPC, which sought to produce additional evidence clarifying the nature of the transaction.
Respondent’s Arguments
The respondent’s counsel defended the concurrent findings, submitting that the agreement was executed under extreme financial distress. The defendant’s husband and son had died within days of each other (on 6 December 2013 and 20 December 2013, respectively), and she had earlier entered into an agreement with one K. Chandru on 30 October 2014, receiving ₹3,50,000.
Unable to repay the earlier debt, she was compelled to enter into another transaction in 2015, using her property as collateral for the borrowed amount. The respondent emphasized that this was not a genuine sale, but a loan transaction disguised as a sale agreement.
The counsel pointed out that the defendant had specifically pleaded these circumstances in her written statement, unlike in Beemaneni Maha Lakshmi, where hardship was raised belatedly. He relied upon Ranganayakamma v. N. Govindarajan (1982 (1) KLJ 385), where the Karnataka High Court had held that equitable relief of specific performance cannot be granted when an agreement is born out of financial compulsion or distress.
The respondent therefore submitted that the concurrent findings of fact were sound and no substantial question of law arose for interference by the High Court.
Analysis of the Law
The High Court analyzed Section 20 of the Specific Relief Act, 1963 (pre-amendment), which grants courts discretionary power to deny specific performance even when a contract is valid and proved. The Court reiterated that specific performance is not a right, but an equitable remedy dependent upon the conduct of the parties and surrounding circumstances.
Justice Sandesh emphasized that when an agreement is executed under financial duress, compelling the sale of a property at undervalue, the court must refuse enforcement to prevent inequity.
He noted that both courts below had thoroughly examined the plaintiff’s readiness and willingness, the defendant’s financial distress, and her admissions. Once the factual findings were concurrently recorded, the scope for interference under Section 100 CPC was minimal.
On the issue of interest, however, the High Court observed that the Trial Court erred in awarding only 10%, ignoring the defendant’s own admission that she had borrowed the sum at 1.5% per month (18% annually). Thus, modification was warranted only to that extent.
Precedent Analysis
- Beemaneni Maha Lakshmi v. Gangumalla Appa Rao, (2019) — Held that hardship cannot be raised for the first time in appeal; distinguished in this case since hardship was pleaded from the outset.
- Lalithamma v. A.D. Govindaiah, (2024) — Decreed specific performance where 95% consideration was paid; distinguished since the present case involved coercion and financial duress.
- Vishnu v. Abdulgani, (2012) — Denying signatures or transaction disentitles a defendant to equity; inapplicable here since the defendant admitted the transaction but proved it was a loan.
- Ranganayakamma v. N. Govindarajan, (1982 (1) KLJ 385) — Reaffirmed that courts must consider hardship and fairness before granting specific performance; applied directly to justify refusal here.
Court’s Reasoning
Justice Sandesh observed that the Trial Court had properly considered the admissions of the parties, the timeline of events, and the circumstances of financial distress. The defendant’s earlier transaction with K. Chandru, her bereavements, and her clear testimony established that she had never intended to sell the property but only sought a loan.
The Court held that equity cannot compel a sale arising out of misery or necessity, even if the technical requirements of contract formation are satisfied. The Trial Court’s finding that the plaintiff had proved readiness and willingness was not sufficient to override the equitable considerations.
The High Court also held that no substantial question of law arose for determination, as both lower courts had rendered concurrent factual findings consistent with settled principles of equity.
However, to align with the defendant’s own admission, the Court modified the interest rate to 18% per annum on the refundable ₹7,00,000 from the date of order till realization.
Conclusion
The High Court dismissed the second appeal, affirming the concurrent findings that specific performance could not be granted due to the defendant’s financial duress, but modified the interest to 18% per annum.
Justice Sandesh’s judgment underscores that specific performance is a discretionary equitable remedy, not an automatic entitlement. Courts must consider hardship, fairness, and intention before compelling performance of a sale agreement, especially where it emerges from financial distress.
“The courts below have rightly declined specific performance, taking note of the defendant’s circumstances. This Court only corrects the rate of interest to reflect her own admission.”
Implications
This judgment strengthens judicial discretion in specific performance suits, reaffirming that:
- Courts must assess equity, fairness, and hardship before granting relief.
- Agreements entered under financial distress cannot be enforced merely because they are written and signed.
- Admissions regarding interest rates or borrowings can influence monetary relief.
- Under Section 100 CPC, concurrent findings on fact and equity rarely warrant interference.
The ruling balances contractual rights with human circumstances, ensuring that equity prevails over technicality.
Judgments Referred
- Ranganayakamma v. N. Govindarajan, 1982 (1) KLJ 385 — Specific performance denied when the contract arises from financial hardship.
- Beemaneni Maha Lakshmi v. Gangumalla Appa Rao, (2019) — Hardship must be pleaded at the outset; distinguished.
- Lalithamma v. A.D. Govindaiah, (2024) — Payment of 95% consideration can justify specific performance; not applicable here.
- Vishnu v. Abdulgani, (2012) — Conduct of the parties is crucial; denial of transaction disentitles defendant to equity.
FAQs
Q1. Can specific performance be denied even if the agreement is proved?
Yes. Under Section 20 of the Specific Relief Act, courts can deny specific performance if enforcing the contract would cause undue hardship or inequity.
Q2. Is financial distress a valid ground to refuse specific performance?
Yes. When an agreement is entered under financial compulsion, courts treat it as inequitable to enforce, especially if the consideration is inadequate.Q3. Can the High Court alter interest without admitting a second appeal?
Yes. When the error is apparent from the record and based on party admissions, the High Court may modify interest even without admitting the appeal.