N. L. Devender Singh & Ors Vs.
Syed Khaja [1973] INSC 130 (3 August 1973)
BEG, M. HAMEEDULLAH BEG, M. HAMEEDULLAH
MATHEW, KUTTYIL KURIEN
CITATION: 1973 AIR 2457 1974 SCR (1) 312 1973
SCC (2) 515
ACT:
Specific Relief Act 1877, s. 12-Presumption
under-When rebutted-Bar in S. 21-When operates.
HEADNOTE:
The plaintiff (respondent herein) executed an
agreement on 9-10-1962 with defendant no. 1 whereby the latter agreed to sell
to the former his house in Hyderabad for a sum of Rs.
60,000. The plaintiff paid a sum of Rs. 2,000
as earnest money. However, dependent no. 1 sold the property in question on 19-10-1962 to defendants 2 to 7 for a sum of Rs.
70 , 000. The plaintiff consequently filed a suit
for specific performance of the agreement. The suit was resisted by defendant
no. 1 on the ground that the plaintiff had obtained the agreement dated 9-10-1962 as a result of misrepresentation and fraud. The trial court held that
misrepresentation and fraud had not been proved but the plaintiff had obtained
an "unfair advantage'. On this view the trial Court dismissed the suit for
specific performance.
It ordered the repayment to the plaintiff of
the earnest money paid by him. Inter alia the trial court also ordered the
payment of Rs. 20,000 to the plaintiff as liquidated damages or penalty as
stipulated in the agreement of 9-101962. In appeal the High Court decreed the
plaintiff's suit disagreeing with the view of the trial Court that the
plaintiff had obtained an unfair advantage. The High Court granted the
defendants a certificate of fitness to appeal to this Court. It was contended
on behalf of the defendantsappellants that the parties themselves having
stipulated for Rs. 20,000 as liquidated damages in the event of a breach by the
first defendant, the presumption contained in the explanation to a. 12 of the Specific
Relief Act 1877 stood rebutted. It was also contended that once the aforesaid
presumption was rebutted the bar contained in section 21 of the Act would ipso
facto become operative.
Dismissing the appeal,
HELD : (1) A reference to s. 22 of the Act of
1877 (corresponding to a. 20 of the Specific Relief Act 1965) would show that
the jurisdiction of the Court to decree specific relief is discretionary and
must be exercised on sound and reasonable grounds "guided by judicial
principles and capable of correction by the Court of appeal". This
jurisdiction cannot be curtailed or taken away by merely fixing a sum even as
liquidated damages. This is made perfectly clear by the provisions of s. 20 of
the old Act (corresponding to a. 23 of the Act of 1963) so that the Court has
to determine, on the facts and circumstances of each case before it, whether
specific performance of a contract to convey a property ought to be granted.
[319G-H] The fact that the parties themselves specified a sum of money to be
paid in the event of its breach is, no doubt, a piece of evidence to be considered
in deciding whether the presumption has been repelled or not. But, it is
nothing more than a Piece of evidence. It is not conclusive or decisive.
[32OA-B] (ii) The contention that once the presumption contained in explanation
to s. 12 of the old Act is removed, the bar contained S. 21 of the old Act
against the specific enforcement of a contract for which compensation in money
is an adequate relief, automatically operates, overlooks that the condition for
the imposition of the bar is actual proof that compensation in money is
adequate on the facts and circumstances of a particular case before the Court.
The effect of the presumption is that the party coming to the court for the
specific performance of a contract for sale ofimmovable property need not prove
anything until the other side has removed the presumption. After the evidence
is led to remove the presumption, the plaintiff may still be in a position to
prove, by other evidence in the case, that payment of money does not compensate
him adequately. [320GE] In the present case, although, evidence was led by
parties, yet there was no evidence to show the extent of loss of prospective
gains to the plaintiff-respondent or to the appellants. [320E-F] 313 (iii)
Since the presumption under s. 12 of the old Act had not been rebutted the High
Court rightly decreed the suit for specific performance of the contract. It
could not be said that the High Court had lightly interfered with the exercise
of its discretion by the trial court to grant or not to grant specific
performance on the facts and circumstances of the case. [321C-D]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 2517 of 1969.
From the Judgment and Order dated 31st March,
1969 of the Andhra Pradesh High Court at Hyderabad, in City Civil Court Appeal
No. 71 of 1964.
P. Keshva Pillai, for appeallants Nos. 1
& 3.
M. C. Chagla, Aziz Ahmad and P. C. Bharatri,
for appellants Nos. 2, 4-7.
C. K. Daphtary, Y. S. Sahni, S. M. Aqil and
U. P. Singh, for the respondent.
The Judgment of the Court was delivered by
BEG, J. This appeal has come before us on a Certificate of fitness granted by
the High Court of Andhra Pradesh under Articles 132 and 133 of the Constitution
of India.
The Plaintiff-Respondent had sued
Defendant-Appellant Devender Singh (hereinafter referred to as the "First
Defendant") for specific performance of a contract to sell a house facing
the Secunderabad Junction Railway Station in Hyderabad for a sum of Rs. 60,000/concluded
on 9-10-1962 at New Delhi where the first Defendant resides. It appears that
there was a previous agreement on 27-9-1962 (hereinafter referred to as the
" first agreement) between the Plaintiff, who resides at Hyderabad, and
the first Defendant, through an agent, Laxmanaswamy, D.W. 2, with the help of
Sambamurthy, D.W. 3, a nephew of Laxmanaswamy and an Income-tax 'practitioner
residing at Secunderabad, for the sale of this very property for Rs. 55,0001the
terms of which were embodied in a document Ex. B. 15. The First Defendant
denies the binding character of the first agreement of 27-9-1962 under which a
cheque for Rs. 10,000/was drawn up by the Plaintiff in favour of the first
Defendant and handed over to his agent by the Plaintiff. The exact reason for a
cancellation of this cheque for Rs. 10,000/in favour of the 1st Defendant is
not clear, but, according to Sambamurthy, D.W. 3, the reason was that,
actually, Rs. 20,000/was being demanded on behalf of the first Defendant as
earnest money to which the plaintiff had consented so that a new cheque was,
for some unknown reas on, to be issued and not another cheque for Rs. 10,000/.
The evidence of Sainbamurthy also show that
the Plaintiff had become aware of want of written authority on the part of
either Laxmanaswamy or Sambamurthy to conclude the contract on behalf of the
1st Defendant so that be must have felt uncertain about the effect of the first
agreement.
Evidently, attempts to show the Plaintiff
that his position was shaky under the first agreement and higgling were going
on despite the agreement of 27-9-1962 Evidence in the case and findings
recorded thereon by the Trial Court as well as the High Court show that,
although the first Dedendant, who was keen to dis314 post of his property at
Secunderabad, may have had other offers, yet, upto 27-9-1962, when the first
agreement was concluded, he had no better offer than the plaintiff's.
Evidence is conflicting on the question
whether the first Defendant had autborised Sambaniurthy by telephone to
conclude the contract on his behalf for the sale of property of Rs. 55,000/-,
but this was unimportant in view of the subsequent agreement of 9-10-1962. The
Plaintiff, who was evidently very anxious to obtain the property, had flown to
Delhi with his lawyer and had managed, by offering Rs. 60,000,/as the price of
the property, out of which Rs.
20,000/was paid is earnest money (Rs.
10,000,/in cash and Rs. 10,0100/by a cheque dated 9-10-1962) and the balance at
the time of registration, to induce the first Defendant himself to conclude and
execute the fresh agreement of 9-10-1962.
The deed of agreement of 9-10-1962 Ex. Al was
not executed in a hurry by the first Defendant. He had ample time to consider
any other offers the-re, might be till then for' sale of his property and to
take legal advice, if he had wanted to have it, before executing the deed of
9-10-1962.
The Trial Court as well as the High Court had
found that the first Defendant was fully aware of all the facts and had entered
into the agreement of 9th October, 1962, with open eyes because it was the most
advantageous transaction open to the first Defendant at that time and not as a
result of any pressure or misrepresentation or fraud practised upon the first
Defendant, a middle aged hard headed and astute businessman who deposed that he
was a Director of Blackwood Hodge (Pvt.) Ltd., and was connected with a number
of other business concerns. He had himself stated in his evidence in Court that
he entered into the agreement of 9-10-1962 because he considered that "a
bird in hand was worth two in the bush" and had thus given out the real
reason for the agreement of 9-10-1962.
The first Defendant bad, however, ignoring
the contract of 9-10-1962, actually sold the property under a deed dated 1910-1962
Ex. B. 22 for a sum of Rs. 70,000-/received from Gulam Hussain Jowkar (2nd
Defendant), Rajab (3rd Defendant), Safar Jowkar (4th Defendant), Hussain
Jowkar' (5th Defendant), Wali Husstin Nasab (6th Defendant), all partners in
the firm carrying on the business of running Alpha Hotel (7th Defendant),
situated in front of the Railway Station at Secunderabad Apparently, the offer
of Rs. 70,000/had come too late and proved too tempting for the first Defendant
to resist it.
The first Defendant had, in answer to the
suit of the Plaintiff Responsent, pleased that the' contract of 9-101.962 was
the result of mis-representation and fraud. All he could urge in support of
such a plea was that the first Defendant had been so completely overawed by the
Plaintiff and his lawyer mis-representing to him that the first agreement was
still binding and that the Plaintiff could sue upon it. that he executed the
agreement of 9-10-1962. Both the Trial Court and the High Court had found the
plea of fraud and mis-representation taken by the first Defendant to be
baseless. Nevertheless, the 315 Trial Court had relied upon the facts leading
up to the agreement of 9-10-1962 and the allegation that the first Defendant
was overawed as sufficient to justify the finding that the plaintiff had
obtained an " unfair advantage" over the 1st Defendant while
concluding the agreement of 9-101962. Therefore, the Trial Court thought that
the plaintiff was not entitled to specific performance of the agreement of
9-10-1962, but awarded a decree for the return of Rs.
20,000/to the plaintiff, which he had paid to
the first Defendant as earliest money, and for damages of Rs. 20,000/, which
had been stipulated for by way of liquidated damages or penalty in the
agreement of 9-10-1962 and for additional damages to the extent of Rs. 2,300/.
Interest at 6% per annum and the costs of the suit were also. awarded to the
Plaintiff by the Trial Court.
The High Court had rightly found, after a
thorough reexamination of. evidence in the case, that it was impossible to hold
that the plaintiff had obtained any unfair advantage over the first Defendant
in concluding the agreement of 9-10-1962. It found the stand of the 1st
Defendant to be disingenuous and his plea as to why or how he found himself
compelled to execute the agreement of 9-10-1962 to be utterly incredible. The
High Court had rightly held that the first Defendant concluded the agreement of
9-10-1962 because he obtained not only an enhancement of Rs. 5,000/in the sale
consideration but Rs. 20,000/immediately as earnest money and a stipulation of
a further sum of Rs. 20,000 /as liquidated damages or as penalty in the event
of the plaintiff resiling from the contract.' Actually, the first
Defendant-Appellant was, owing to the fact that be could put forward want of
the alleged agent's authority to sell, for whatever such an excuse may be
worth, and the fact that he had still to execute a sale deed and give
possession of the property, placed in a more favorable and advantageous
bargaining position. And, bargaining had evidently not stopped despite the
first agreement.
The only point which could be and which was
seriously urged before us by Mr. Chagla, appearing for the Defendants-Appellants,
was that, the parties themselves having stipulated for Rs. 20,000/as liquidated
damages in the event of a breach by first Defendant, the presumption contained
in the Explanation to Section 12 of the Specific Relief Act 1877 (hereinafter
called 'the old Act") was rebutted. Here, Section 12 of the old Act may be
reproduced in to :" 12. Except as otherwise. provide in this Chapter, the
specific performance of any contract of any contract may in the discretion of
the Court be enforced(a) when the act agreed to be done is in the performance,
wholly or partly, of a trust;
(b) when there exists no standard for
ascertaining the actual damage caused by the non-performance of the act agreed
to be done;
(c) when the act agreed to be done is such
that pecuniary compensation for its nonperformance would not afford adequate
relief;
or 316 (d) when it is probable that pecuniary
compensation cannot be got for the nonperformance of the act agreed to be done.
Explanation.-Unless and until the contrary is
proved, the Court shall presume that the breach of a contract to transfer
immovable property cannot be adequately relieved by compensation in money, and
that the breach of a contract to transfer movable property can be thus
relieved".
The principles embodied in Section 12 of the
old Act have been incorporated in Section 10 of the Specific Relief Act of 1963
(hereinafter referred to as the Act of 1963") which runs as follows :
"10. Except as otherwise provided in
this Chapter, the specific performance of any contract may, in the discretion
of the court, be enforced(a) when there exists no standard for ascertaining the
actual damage caused by the non-performance of the act agreed to be done;
or (b) when the act agreed to be done is such
that compensation in money for its nonperformance would not afford adequate relief.
Explanation.-Unless and until the contrary is
proved, the court shall presume(i) that the breach of a contract to transfer
immovable property cannot be adequately relieved by compensation in money;
and (ii) that the breach of a contract to
transfer movable property can be so relieved except in the following cases :(a)
Where the Property is not an ordinary article of commerce, or is of special
value or interest to the plaintiff, or consists of goods which are not easily
obtainable in the market;
(b) where the property is held by the
defendant as the agent or trustee of the plaintiff".
The term of the contract of 9-10-62 which,
according to Mr.Chagla, attracts the explanation of Section 12 of the old Act
reads as follows :
"It is agreed that should I fail to
comply with the terms of this agreement, I shall be liable not only for the
refund of the advance, of Rs. 20,O00/(Rupees twenty thousand only) received by
me but I shall also be liable to pay a similar amount of Rs. 20,000/(Rupees
twenty thousand only) as damages to the said Syed Khaja".
There is no mention anywhere in the contract
that a party to it will have the option to either fulfil the contract to buy or
sell or 317 to pay the liquidated damages or penalty of Rs. 20,000/stipulated
for a breach, as an alternative to the performance of the contract to buy or to
sell.
Section 21 of the old Act, to which Section
14 of the Act of 1963 corresponds, enacts, inter alia, that "a contract
for the non performance of which a compensation of money is adequate relief'
cannot be specifically enforced. Hence, it is contended that, once the
presumption contained in Explanation to Section 12 is rebutted, by proof that
the, parties themselves contemplated a certain amount as liquidated damages for
a breach of contract, the bar under Section 21 of the old Act must be, given
effect to because it must be deemed to be proved that the non-performance
complained of can be adequately compensated by money.
The assumptions underlying the superficially
attractive arguments an behalf of the Defendants-appellants are two:
firstly, that the mere existence of a clause
in a contract providing for liquidated damages or a penalty for a breach is
sufficient to rebut the presumption raised by the explanation to Section 12; and,
secondly, that, if the presumption is rebutted, the bar contained in Section 21
of the old-Act will ipso facto become operative. We now proceed to deal with
each of the two assumptions mentioned above.
The answer to the 1st assumption is provided
by Section 20 of the old Act. It reads :
"20. A contract, otherwise proper to be
specifically forced, may be thus enforced, though a sum be named in it as the
amount to be paid, in case of its breach, and the party in default is willing
to pay the same".
If the Legislative intent was that the mere
proof that a sum is specified as liquidated damages or penalty for a breach
should be enough to prove that a contract for the transfer of immovable
property could be adequately compensated by the specified damages or penalty
Section 20 of the old Act will certainly become meaningless. It is true that
Section 20 of the old Act does not mention the case of an express contract
giving an option to a promiser to either carry out the contract to convey, or,
in the alternative, to pay the sum specified, in which case the enforcement of
the undertaking far g to make the payment would. be an enforcement of the
contract itself and no occasion for rebutting the presumption in the
explanation to Section 21 would arise.
In such cases the contract itself is
specifically enforced when payment is directed in lieu of the conveyance to be
made.
It may be mentioned here that the Principles
contained in Section 20 of the old Act are reenacted in Section 23 of the Act
of 1963 in language which makes it dear that a case where an option is given by
a contract to a party either to pay or to carry out the other terms of the
contract falls outside the purview of Section 20 of the old Act, but, mere
specification of a sum of money to be paid for a breach in order to compel the
318 performance of the contract to transfer property will not do.
Section 23 of the Act of 1963 may be
advantageously cited here. It runs as follows :
"23(1) A contract, otherwise, proper to
be specifically enforced, may be so_ enforced, though a sum be named in it as
the amount to be paid in case of its breach and the party in default is willing
to pay the same, if-the court, having regard to the terms of the contract and
other attending circumstances, is satisfied that the sum was named only for,
the purpose of securing performance of the contract and not for the purpose of
giving to the party in default adoption of paying money in lieu of specific
performance.
(2) When enforcing specific performance under
this section, the court shall not also decree payment of the sum so named in
the, contract".
We think that Section 23 of the Act of 1963
contains a comprehensive statement of the principles on which, even before the
Act of 1963, the presence of a term in a contract specifying a sum of money to
be paid for a breach of the, contract has to be construed Where payment is an
alternative to carrying out the other terms of the contract, it would exclude,
by the terms of the contract itself, specific performance of the contract to
convey a property.
The position stated above is in conformity
with the principles found stated in Sir Edward Fry's "Treatise on the
Specific Performance of Contracts" (Sixth Edn. at p. 65).
It was said there:
"The question always is : What is the
contract ? Is it that one certain act shall be done, with a, sum annexed,
whether by way of penalty or damages, to secure the performance of this very
act ? Or, is it that one of the two things shall be done at the election of the
party who has to perform the contract, namely, the performance of the act or
the payment of the sum of money? If the former, the fact of the penal or other
like sum being annexed will not prevent the court's enforcing performance of
the very act, and thus carrying into execution the intention of the parties :
if the latter, the contract is satisfied by the payment of a sum of money, and
there is no ground for proceeding against the party having the election to
compel the performance of the other alternative.
From what has been said it will be gathered
that contracts of the kind now under discussion are divisible into three
classes :(i) Where the sum mentioned is strictly a penalty-a sum named by way
of securing the performance of the contract, as the penalty is a bond :
(ii) Where the sum named is to be paid as
liquidated damages for a breach of the contract 319 (iii) Where the sum named
is an amount the payment of which may be substituted for the performance of the
act at the election of the person by whom the money is to be paid or the act
done.
Where the stipulated payment comes under
either of the two first-mentioned heads, the Court will enforce the contract,
if in other respects it can and ought to be enforced, just in the same way as a
contract not to do a particular act, with a penalty added to secure its
performance or a sum named as liquidated damages, may be specifically enforced
by means of an injunction against breaking it. On the other hand, where the
contract comes under the third head, it is satisfied by the payment of the
money, and there is no ground for the Court to compel the specific performance
of the other alternative of the contract".
Sir Edward Fry pointed out that the
distinction between a strict penalty and liquidated damages for a breach of
contract was important in common law where liquidated damages were considered
sufficient compensation for, breach of contract, but, sums stipulated by way of
penalty stood on a different footing. He then said "But as regards the
equitable remedy the distinction is unimportant : for the fact that the sum
named is the amount agreed to be paid as liquidated damages is, equally with a
penalty strictly so called, ineffectual to prevent the Court from enforcing the
contract in specie".
The equitable principles which regulated the
grant of specific performance by the separate Court of Equity which existed in
England at one time have been given statutory form in India. It is, therefore,
immaterial that the stipulated payment under the, terms of the contract under
consideration before us could be viewed as one for payment of liquidated
damages. The question would still remain whether the Courts are relieved by the
agreement between the parties of the duty to determine, on the facts of a
particular else, whether damages, specified or left unspecified, would really
afford adequate compensation to the party which wants a conveyance of immovable
property as agreed upon.
A reference to Section 22 of the _old Act,
(the corresponding provision is Section 20 of the Act of (1963), would show
that the jurisdiction of the Court to decree specific relief is discretionary
and must be exercised on sound and reasonable grounds "guided by judicial
principles and capable of correction by a Court of appeal". This
jurisdiction cannot be curtailed or taken away by merely fixing a sum even as
liquidated damages. We think that this is made perfectly clear by the
provisions of Section 20 of the old Act (corresponding to Section 23 of the Act
of (1963) so that the Court has to determine, on the facts, and circumstances
of each case before it, whether specific performance of a contract to convey a
property ought to be granted.
320 The fact that the parties themselves have
provided a sum to be paid by the party breaking the contract does not, by
itself, remove the strong presumption contemplated by the use of the words
"unless and until the contrary is proved".
The sufficiency or insufficiency of any
evidence to remove such a presumption is a matter of evidence. The fact that
the parties themselves specified a sum of money to be paid in the event of its
breach is, no doubt, a piece of evidence to be considered in deciding whether
the presumption has been repelled or not. But, in our opinion, it is nothing
more than a piece of evidence. It is not conclusive or decisive.
The second assumption underlying the
contentions on behalf of the Defendants-appellants is that, once the
presumption, contained in explanation to Section 12 of the old Act, is removed,
the, bar contained in Section 21 of the old Act, against the specific
enforcement of a contract for which compensation in money is an adequate
relief, automatically operates, over-looks that the condition for the
imposition of the bar is actual proof that compensation in money is adequate on
the facts and circumstances of a particular case before the Court. The effect
of the presumption is that the party coming to Court for the specific
performance of a contract for sale of unmovable property need not prove
anything until the other side has removed the presumption.
After evidence is led to remove the
presumption, the plaintiff may still be in a position to prove, by other
evidence in the case, that payment of money does not compensate him adequately.
In the instant case, both sides have led
evidence. But, there is no evidence as to the extent of loss of prospective
gains to the plaintiff-Respondent, who carries on a Bakery business, from the
depreciation of a site so valuable as one in front of the Secundrabad Junction
Railway Station. In fact, there is no standard for judging the loss from such a
depreciation either to the Plaintiff-Respondent or to the partners of the Alpha
Hotel who are the real contending parties. No attempt was even made to gauge
the value of future prospects of such a site to businessmen in the position of
Plaintiff Respondent and those Defendants Appellants who are partners of the
Alpha Hotel. It is clear that the property has got no such value for the first
Defendant. who is a businessman fully occupied with a number of businesses at
Delhi where he had been residing for 19 years in 1963. it is evident that he
could not conveniently look after the property situated in Secunderabad.
The Defendants-Appellants had miserably
failed to prove their cases. The attempt to prove either fraud or
misrepresentation or " an unfair advantage" over the first Defendant,
so as to bring his case within Section 22(1) of the old Act, was totally
unsuccessful. The courts commented adversely on incorrect assertions made by
the first Defendant who could not show anything beyond the penalty or damages
clause in the contract for sale dated 9-10-1962. It is strange that the first
Defendant, while willing to pay Rs. 20,000/ as damages to the
Plaintiff-Respondent, will only get Rs. 10,000/more in price over Rs. 60,000/if
his contract of sale to the partners 321 of the Alpha Hotel were to stand. It
is, therefore, clear that the first Defendant must have some ulterior motive in
being prepared to suffer an ostensible loss of Rs. 10,000/even if his sale of
16-10-1962 for Rs. 70,000/to the partners of the Alpha Hotel could be upheld.
The plaintiff himself had stated that financial considerations do not really
determine his stand. We are unable to accept this profession of unconcern for
financial gain on the part of an astute businessman like the first Defendant.
It is more likely that there, is some undisclosed understanding between him and
the partners of Alpha Hotel who are also co appellants with him before us.
The result in that we think that the
presumption contained in the explanation to Section 12 of the old Act was not
rebutted here. In such cases Equity helps honest plaintiffs against defendants
who break solemnly given undertakings.
The High Court had rightly decreed the suit
for specific performance of the contract.
Lastly it was urged before us that the High
Court should not have lightly interfered with the exercise of its discretion by
the Trial Court to grant or not to grant specific performance on the facts and
circumstance of this case. It is clear that the discretion, as laid down in
Section 22 of the old Act (corresponding to Section 20 of the Act of 1963), is
not to be exercised arbitrarily but on sound and reasonable grounds
"guided by judicial principles so that it is capable of correction by a
court of appeal".
It appeared, quite rightly, to the High Court
That the Trial Court had gone completely astray in the exercise of its
discretion on the footing that the Plaintiff Respondent enjoyed an "unfair
advantage" over the first Defendants, whereas, on the facts and circumstances
of the case, it was the first Defendant who was placed in a position to exploit
the need of the plaintiff and the plaintiffs allegedly insecure position under
the first agreement. It is clear that the Plaintiff-Respondent had dealt very
fairly and squarely with the first Defendant-Appellant. The Trial Court's error
in the exercise of its discretion on an utterly untenable, fanciful and unsound
ground was rightly corrected by the High Court.
We, therefore, dismiss this appeal with
costs.
K.B.M. Appeal dismissed.
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