Tripura High Court Upholds Decree of ₹41.15 Lakhs for Earnest Money in Land Sale Agreement: Procedural Errors Do Not Invalidate Substantive Justice, Criticizes Seller for Suppressing Mortgage Facts

Court’s Decision:

The Tripura High Court dismissed the appeal filed by the appellant, affirming the judgment of the trial court. The court upheld the decree that directed the appellant to repay Rs. 41.15 lakhs to the respondent, along with interest at 8% per annum from the date of the agreement. The appellant’s claim of forfeiture of the amount already paid by the respondent was rejected, with the court strongly criticizing the appellant for suppressing the material fact that the property in question was mortgaged.

Facts:

1. An unregistered sale agreement was executed on June 3, 2016, between the appellant and the respondent for the sale of 1.62 acres of land for Rs. 90 lakhs.
2. The respondent paid Rs. 40 lakhs in earnest money in installments:
   • Rs. 30 lakhs at the time of the agreement.
   • Rs. 4 lakhs in cash later.
3. A sale deed was prepared, and June 1, 2017, was fixed for its registration. On that day:
   • The respondent issued two cheques for Rs. 16 lakhs and Rs. 7 lakhs, totaling Rs. 23 lakhs.
   • The remaining amount was to be paid in cash.
   • The appellant left the Sub-Registrar’s office without signing the sale deed, promising to return in half an hour, but never returned.
4. Later, the appellant revealed that the property had been mortgaged with the State Bank of India and could not be registered.
5. The respondent filed a suit to recover Rs. 41.15 lakhs (inclusive of interest).

Issues:

1. Was the respondent entitled to recover the earnest money with interest?
2. Did the appellant have the right to forfeit the earnest money based on the agreement?
3. How did the appellant’s failure to disclose the mortgage impact the legal proceedings?

Petitioner’s Arguments (Respondent in Appeal):

• The appellant’s non-disclosure of the property’s mortgage constituted suppression of facts.
• The respondent had made full efforts to honor the agreement, including issuing cheques for Rs. 23 lakhs.
• The forfeiture claim was invalid since the appellant was at fault for not completing the transaction.

Respondent’s Arguments (Appellant in Appeal):

• The appellant argued that the forfeiture clause in the agreement allowed him to retain the earnest money since the full payment was not made within the stipulated period.
• The respondent failed to demonstrate readiness and willingness to pay the balance amount of Rs. 90 lakhs.
• The appellant invoked provisions of the Specific Relief Act, claiming his contractual rights supported forfeiture.

Analysis of the Law:

1. Specific Relief Act, 1963:
   • Section 16(c): A party seeking specific performance must demonstrate readiness and willingness to perform their obligations.
   • The appellant’s argument hinged on this provision, but the court found it irrelevant as the appellant himself caused the breach by failing to disclose the mortgage.
2. Forfeiture Clause:
   • The agreement allowed forfeiture if the respondent failed to pay the remaining amount. However, the court noted that this clause could not be enforced when the appellant was responsible for the impediment.
3. Equity and Fair Play:
   • The court stressed that contracts governed by equitable principles require both parties to act transparently and in good faith. The appellant failed in this regard by suppressing the mortgage details.

Precedent Analysis:

1. Mehboob-Ur-Rehman v. Ahsanul Ghani (AIR 2019 SC 1178):
   • Specific performance is an equitable remedy, not an automatic right. A party must act fairly and disclose material facts. The appellant failed this standard.
2. State of Karnataka v. Muniyalla (AIR 1985 SC 470):
   • Errors in legal citations do not invalidate a correct order. The court held that the trial court’s ruling was valid despite potential procedural or citation errors.

Court’s Reasoning:

1. Non-Disclosure of Mortgage:
   • The appellant’s suppression of the fact that the property was mortgaged violated the fundamental principle of transparency in contracts.
   • This concealment was critical, as it rendered the agreement unenforceable.
2. Forfeiture Invalidity:
   • While the agreement allowed forfeiture, enforcing it would have been inequitable given the appellant’s conduct.
   • The court held that the appellant could not take advantage of his own wrong.
3. Conduct of Parties:
   • The respondent demonstrated readiness by paying Rs. 40 lakhs and issuing further cheques on the date of registration.
   • The appellant, by leaving the registration office and subsequently admitting the mortgage, failed to meet his obligations.

Conclusion:

• The court dismissed the appeal, affirming the trial court’s decree that the appellant repay Rs. 41.15 lakhs with interest.
• The appellant’s forfeiture claim was denied as it was deemed inequitable.
• All pending applications were dismissed, and any existing stay was vacated.

Implications:

1. Emphasis on Fair Play:
   • The judgment reinforces that contracts governed by equity require parties to act with integrity and fairness.
   • Non-disclosure of material facts like mortgages can lead to adverse consequences.
2. Specific Relief Act:
   • While the Act provides remedies for contract breaches, it does not permit parties to exploit their own wrongdoing.
3. Protection for Buyers:
   • The judgment protects purchasers from unscrupulous sellers who conceal critical details, ensuring transparency in property transactions.

This ruling serves as a precedent to disallow forfeiture claims when the seller’s conduct obstructs contract performance, strengthening equitable principles in real estate disputes.

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