Supreme Court: “Buyers Must Demonstrate Readiness, Willingness, and Financial Capability to Claim Specific Performance” – Relief Denied in ₹2.3 Crore Property Deal as Buyer Had Insufficient Funds Despite Seller Vacating Tenants

Court’s Decision

The Supreme Court overturned the High Court’s decree granting specific performance of the sale agreement and restored the Trial Court’s dismissal of the buyer’s suit. The Court found the buyer’s conduct lacking in consistent readiness and willingness to perform her part of the contract. Consequently, the buyer was denied the equitable relief of specific performance. However, the buyer was entitled to the return of ₹25 lakh advanced under the agreement.

Facts

1. The Agreement: The buyer and sellers entered into an agreement on January 20, 2005, for the sale of property for ₹2.3 crore. The buyer paid ₹10 lakh as an advance, agreeing to pay the balance within four months. The sellers were required to evict tenants and deliver vacant possession at the time of the sale.
2. Payments: The buyer made additional payments amounting to ₹19 lakh before May 19, 2005, the agreed deadline, and ₹6 lakh thereafter.
3. Cancellation: On February 23, 2006, the sellers canceled the agreement, citing non-payment of the balance within the stipulated time and refunded ₹25 lakh, which the buyer declined.
4. Tenant Eviction: The last tenant vacated on February 2, 2006, and the sellers contended that the buyer did not act promptly despite knowing this.
5. Litigation: The buyer filed a suit seeking specific performance, arguing that time was not of the essence and claiming readiness and willingness to complete the transaction.

Issues

1. Was the buyer ready and willing to perform her part of the contract?
2. Was the agreement enforceable?
3. Should specific performance or alternate relief be granted?

Petitioner’s Arguments (Sellers)

1. Time was of the Essence: The sellers argued that the agreement specified a four-month timeline for payment, making time the essence of the contract. The buyer failed to pay within this timeframe.
2. Buyer’s Conduct: The buyer delayed taking necessary actions, such as preparing the sale deed, even after tenants vacated the property.
3. Financial Incapacity: The buyer’s bank records indicated insufficient funds to pay the balance amount.
4. Equity: Specific performance, being a discretionary remedy, was not warranted given the buyer’s inconsistent and dilatory behavior.

Respondent’s Arguments (Buyer)

1. Time Not of the Essence: The sellers accepted payments after the four-month period, showing that time was not of the essence.
2. Sellers’ Obligation: The sellers failed to fulfill their obligation to deliver vacant possession of the property, delaying the execution of the sale deed.
3. Readiness and Willingness: The buyer argued that she was ready and willing to perform her part and had acted in good faith throughout the transaction.

Analysis of the Law

1. Readiness and Willingness: Under Section 16(c) of the Specific Relief Act, a plaintiff seeking specific performance must demonstrate consistent readiness and willingness to fulfill their contractual obligations. The court evaluates conduct both before and after filing the suit.
2. Time as the Essence: While time is generally not presumed to be of the essence in property transactions, the presence of time stipulations requires stricter scrutiny of the buyer’s compliance.
3. Discretionary Relief: Specific performance is an equitable remedy, and courts consider the overall conduct of the parties and balance of equities before granting such relief.

Precedent Analysis

1. Chand Rani v. Kamal Rani: Affirmed that time is generally not the essence of immovable property contracts but emphasized reasonable adherence to timelines.
2. Saradamani Kandappan v. S. Rajalakshmi: Highlighted the need to revisit principles of time and equity in light of changing economic realities, including steep property price inflation.
3. C.S. Venkatesh vs. A.S.C. Murthy: Established that readiness and willingness must be proven with reference to the plaintiff’s conduct and financial capacity.

Court’s Reasoning

1. No Financial Readiness: The buyer’s cross-examination revealed insufficient funds in her bank account to pay the balance sale consideration, undermining her claim of financial readiness.
2. Delay and Inconsistency: The buyer delayed action even after tenants vacated the property. Her demand for an encumbrance certificate, not stipulated in the agreement, was deemed an afterthought to delay the transaction.
3. Equity and Conduct: The buyer’s retention of the sellers’ refund demand draft until its last day of validity cast doubt on her genuine interest in completing the sale.
4. Discretionary Relief Denied: The Court held that the buyer’s inconsistent and non-diligent conduct made her undeserving of the discretionary relief of specific performance.

Conclusion

The Supreme Court allowed the appeals and dismissed the buyer’s suit for specific performance. The High Court’s judgment was reversed, and the Trial Court’s judgment was restored. However, the buyer was entitled to a refund of ₹25 lakh advanced under the agreement, with the sellers directed to return the amount within one month if not already refunded.

Implications

1. Reinforcing Buyer’s Obligations: The judgment underscores that buyers in property transactions must demonstrate consistent readiness and willingness, supported by financial capability, to seek specific performance.
2. Time and Equity: Courts will apply greater scrutiny to claims in property sale disputes, balancing economic realities and equitable considerations.
3. Contractual Clarity: Parties should draft clear agreements outlining their obligations to avoid ambiguities that could lead to protracted litigation.

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