Thiriveedhi Channaiah Vs. Gudipudi Venkata Subba Rao (D) By Lrs. & Ors 
Insc 179 (20 February 2007)
S.B. Sinha & Markndey Katju
(Arising out of SLP (C) No. 24297 of 2005) S.B. SINHA, J.
This appeal is directed against the judgment and order dated 22.07.2005
passed by a learned Single Judge of the High Court of Judicature at Andhra
Pradesh in First Appeal No. 2692 of 1988 whereby and whereunder the appeal
preferred by the respondents herein from a judgment and decree dated 28.11.1998
passed by the Additional Subordinate Judge, Guntur in O.S. No. 258 of 1984
decreeing the suit for specific performance of an agreement of sale dated
19.07.1981 was allowed.
The basic fact of the matter is not in dispute. An Agreement of Sale was
entered into by and between the parties on 19.07.1981, in terms whereof the
respondent offered to sell the suit property admeasuring 2.96 cents out of
11.82 cents for Rs.44,000/- per acre in D. No. 140 situate at Agatavareppadu Village
in the District of Guntur. Appellant advanced a sum of Rs. 50,000/- towards
part payment of the said consideration. The balance amount of consideration was
to be paid on or before 25.02.1982 whereupon a regular sale deed was to be
executed. On the said date, however, another agreement was entered into by the
parties in terms whereof it was agreed that on default of the appellant to pay
the balance of sale consideration on or before 25.02.1982, the said amount of advnace
shall be forfeited.
However, before the Deed of Sale could be executed, a notification under
Section 4 (1) of the Land Acquisition Act, 1894 (for short, 'the Act') was
issued. Legality of the said notification was questioned by the respondent by
filing a Writ Petition before the High Court of Andhra Pradesh which was marked
as Writ Petition No. 434/1982. A suit was also filed by him for a decree for
permanent injunction restraining the State of Andhra Pradesh from interfering
with his possession.
In view of the aforementioned developments, the appellant herein by a notice
requested the respondent to refund the said sum of Rs. 50,000/- with interest
at the rate of 18 per cent per annum as he was not informed about the said land
acquisition proceeding. However, in reply thereto, the respondent contended
that as he has failed and/or neglected to pay the balance amount, the money
stand forfeited in terms of the said agreement dated 19.07.1981. The suit filed
by the appellant herein, was allowed by a judgment and order dated 28.11.1998, holding
"In the result, the suit is decreed with costs for specific performance
of contract of sale dated 19.07.1981 directing the defendant to execute the
registered sale deed in favour of the plaintiff in respect of the plaint
schedule property after receiving the balance of sale consideration. It was
also directed that the balance of sale consideration shall be deposited on or
before 31.1.1989 and that the defendant shall execute the sale deed on or
before 28.2.1989. Failure to execute the sale deed by the defendant on or
before 28.2.1989 the plaintiff is at liberty to obtain the sale deed from the
The said decree was passed having regard to the fact that in the meanwhile,
the High Court had quashed the aforementioned notification issued by the State
under Section 4(1) of the Act by a judgment and order dated 18.02.1986. By
reason of the said judgment the contention of the respondent herein that in
view of the issuance of the said notification, the contract between the parties
stood frustrated, was rejected.
The High Court, however, reversed the said judgment and decree passed by
reason of the impugned judgment opining :
The appellant was not ready and
willing to perform his part of contract;
He was aware of the proceedings under
Issuance of mere notification would
not lead to the conclusion that the contract had become frustrated; and iv) In
the aforementioned situation, forfeiture of the advance money was justified.
This Court issued a limited notice to the respondent as to why the amount of
earnest money/advance should not be directed to be refunded to the appellant.
Execution of the Agreement of Sale on 19.7.1981 is not in dispute.
However, the same did not contain any stipulation in regard to the right of
the respondent to forfeit the amount of advance. Such stipulation was made in a
separate document which reads as under:- "You executed an agreement of
sale on 19.7.1981 in my favour to sell land admeasuring 2.9 acres for a
consideration of Rs. 44,000/- per acre and today I paid Rs. 50,000/- as
advance. If I failed to pay the balance of consideration before 25.02.1982
there is no need to refund my advance amount. Before the above said date, if I
pay the balance of consideration, I will get the sale deed on my own expenses.
On my consent if I sold partly, I would get the registration accordingly."
Notification under Section 4(1) of the Act was issued on 02.01.1982.
Appellant evidently was of the view that the respondent was aware of the
intention of the State to acquire the said property, but despite his knowledge,
he executed the said Agreement for Sale.
The notice dated 4.3.1983 was issued on behalf of the appellant on the said
premise that the respondent did not have any transferable title. It was on that
basis refund of Rs. 50,000/-, which was paid by way of advance, was sought for
from the respondent. It is only at that stage, the respondent invoked the
The only question which arises for our consideration is as to whether in a
situation of this nature, the respondent could exercise his right of forfeiture
of the entire amount. It is not his case that he had suffered any damage. He
did not deny or dispute that after the Agreement of Sale was executed, a
notification under Section 4(1) of the Act had been issued. He himself raised a
contention that the Agreement stood frustrated. It may be true that he not only
questioned the validity of the said notification, but had also filed a suit,
but indisputably the parties were aware that unless and until, the notification
was set aside, the Agreement for Sale, in the aforementioned situation, cannot
be enforced by either of them.
In the aforementioned facts and circumstances of this case, we are of the
opinion that the respondent could not have forfeited the amount of advance. The
High Court, in our opinion, committed a manifest error in that behalf in
arriving at the finding that the respondent was justified in forfeiting the
said amount. We, however, agree with the High Court that enforcement of
agreement for sale would be inequitable.
We, therefore, direct that respondents to refund the amount of advance paid
by the appellant to him. Such payment should be made within a period of 4 weeks
from date; failing which the same would carry interest at the rate of 12 per
cent per annum from the said date till the date of actual payment.
The appeal is allowed to the aforementioned extent. However, in the facts
and circumstances of this case, there shall be no order as to costs.