Supreme Court’s New Principle on Termination and Refund in Specific Performance Suits

1. Introduction

The Supreme Court of India’s decision in Sangita Sinha v. Bhawana Bhardwaj (2025 INSC 450) revolves around the critical question of whether a suit seeking specific performance of a contract can survive when the buyer has accepted, at least partly, a refund of the earnest money during the pendency of the suit. This case stems from an Agreement to Sell dated January 25, 2008, concerning a property that was originally allotted to late Kushum Kumari.

The dispute centers on the buyer claiming the right to specific performance, while the seller (and subsequently her successors/beneficiaries) argued that the Agreement had been canceled and refunded/returned earnest money, in part or in substantial measure, which the buyer encashed, thereby indicating acquiescence in the cancellation.

The case features several parties:

Appellant (Defendant No. 3): Ms. Sangita Sinha, who received the property by way of a Will dated September 23, 2002, from the original seller.
Respondent No. 1 (Buyer/Plaintiff): Ms. Bhawana Bhardwaj, who initiated the suit for specific performance.
Respondent No. 3 (Step-Grandson of Original Seller): Joined as a substituted defendant upon the demise of the original seller.

Following orders of the Trial Court and High Court, the Supreme Court granted leave to appeal and ultimately dealt with the pivotal question of whether continuous readiness and willingness remained intact, and whether the Agreement to Sell could still be enforced if partial refunds had been accepted.

2. Summary of the Judgment

The Supreme Court allowed the appeal filed by the Appellant, overturning the judgments and decrees of the Trial Court and the High Court. The Court declared that the suit for specific performance was not maintainable for several reasons:

The buyer’s acceptance and encashment of demand drafts representing most of the earnest money amounted to acceptance of the seller’s unilateral cancellation, demonstrating that the buyer was not continuously ready and willing to perform the contract.
The buyer suppressed material facts regarding the letter of cancellation and failed to seek a declaratory relief invalidating that cancellation before moving directly to specific performance.
The principle of readiness and willingness, as required under the Specific Relief Act, 1963, was not satisfied. The Court emphasized that a party must remain consistently ready and willing to perform obligations throughout the proceedings.
The Court further underscored that the equitable remedy of specific performance requires a plaintiff to come with clean hands, something the buyer did not do by omitting key facts in the plaint.

Consequently, the Supreme Court set aside the sale deed that had been executed in favor of Respondent No. 1 and directed the Appellant to refund the purchase money deposited in pursuance of the impugned judgments.

3. Analysis

3.1 Precedents Cited

The Court relied on several precedents to reach its conclusion:

R. Kandasamy (Since Dead) & Ors. v. T.R.K. Sarawathy & Anr. (2024) – Emphasized that a court cannot ignore the question of whether an agreement stands canceled or terminated if there was a unilateral letter of cancellation. In most instances, a plaintiff must seek a declaratory relief invalidating such termination before demanding specific performance.
Mehboob-Ur-Rehman v. Ahsanul Ghani – Held that a party’s readiness and willingness must be evident throughout the entirety of the suit; merely pleading readiness in the plaint is insufficient.
C.S. Venkatesh v. A.S.C. Murthy (Dead) by LRs and Ors. – Clarified that the buyer’s conduct before and after the filing of the suit is crucial in determining continuous readiness and willingness.
Umabai v. Nilkanth Dhondiba Chavan – Reinforced that a plaintiff faces dismissal if they fail to show consistent readiness and willingness from the date of contract execution through final judgment.
Kamal Kumar v. Premlata Joshi – Enumerated the questions a court must ask when deciding whether to grant specific performance, including whether a valid contract exists and if the plaintiff genuinely remains ready and willing to perform.
Citadel Fine Pharmaceuticals v. Ramaniyam Real Estates Private Limited – Affirmed that a party seeking an equitable remedy must disclose material facts honestly. Withholding essential facts disqualifies a party from such equitable relief.

3.2 Legal Reasoning

The Court’s reasoning rests on fundamental principles of the Specific Relief Act, 1963, which historically granted specific performance as a discretionary and equitable remedy (prior to the 2018 legislative amendments). The following strands of reasoning are noteworthy:

Continuous Readiness and Willingness: The Court painstakingly evaluated whether the buyer remained continuously ready and willing to perform her part of the contract. By encashing the seller’s demand drafts (refunding the earnest sum in large part), the buyer effectively acquiesced in the cancellation, thus negating her position that she remained eager to complete the sale.
Effect of Cancellation Letter: The letter dated February 7, 2008, which canceled the Agreement, was not challenged in court by way of a declaratory suit or any suitable prayer. According to the Supreme Court, the presence of a valid agreement between the parties is a sine qua non for a decree of specific performance. Absent a challenge to the cancellation, no valid agreement existed to be enforced.
Material Suppression of Facts: The buyer did not disclose in her plaint that she had received and encashed demand drafts from the seller. This omission amounted to suppression of material fact, prompting the Court to emphasize that equitable remedies require complete transparency from the plaintiff.
Factual and Jurisdictional Considerations: The Court explained that even when an issue is not framed explicitly on the cancellation aspect, the very existence of a valid agreement is a “jurisdictional fact.” A court of law cannot grant specific performance if no valid agreement remains in force.

3.3 Impact

This decision crystallizes essential legal principles for suits involving specific performance:

Ensuring Rectitude in Pleadings: Parties must fully and candidly disclose any and all actions taken regarding the contract—especially partial or full refunds and formal cancellations—when petitioning for specific performance.
Mandatory Challenge to Contract Cancellation: If one party has unilaterally canceled the agreement, the other party must challenge that cancellation through a declaratory claim if the party still wishes to enforce the original contract. Failure to do so likely dooms the specific performance suit.
Clear Standard for “Willingness”: The Court reiterates that the plaintiff must show a continuous, unbroken chain of readiness and willingness, extending not merely to the filing date of the suit but persisting until the date of final adjudication.
Stricter Approach to Equity and Good Faith: Any suppression of material facts disqualifies a party from this equitable remedy. Courts place heightened scrutiny on the plaintiff’s conduct before granting specific performance.

4. Complex Concepts Simplified

Ready and Willing: A twin requirement under the Specific Relief Act that compels a buyer to prove financial ability (readiness) and genuine intent (willingness) to honor the contract terms from start to finish, without any break in the chain of consistent performance.
Jurisdictional Fact: A fact that must exist or be valid for a court to even have the authority to proceed. In this case, the existence of a still-valid Agreement to Sell is the key jurisdictional fact—if the agreement is canceled or otherwise no longer valid, the court cannot grant specific performance.
Equitable Remedy: A court-issued remedy (rather than a direct statutory right) granted at the court’s discretion, guided by fairness, good conscience, and the conduct of the parties. Specific performance is a classic example and is not awarded automatically, even if a contract is proven.
Suppression of Material Fact: When a party conceals or omits crucial information that can affect the outcome of the dispute. Such non-disclosure severely undermines a party’s case, especially when the requested remedy is discretionary.

5. Conclusion

In Sangita Sinha v. Bhawana Bhardwaj, the Supreme Court of India underscores the importance of “clean hands” in suits for specific performance. The Court made it unequivocally clear that:

A buyer who invokes the Court’s jurisdiction for an equitable remedy cannot remain silent about critical events such as partial refunds or letters of cancellation, especially when these events directly undercut the validity of the contract.
The Act of receiving and encashing refund amounts generally signifies acceptance of cancellation, thereby removing any basis to insist on completing the sale.
When an agreement has been canceled before suit, the plaintiff must expressly seek a declaration that such cancellation is invalid. Without this, there is technically no existing contract to be enforced.
Courts closely scrutinize a buyer’s conduct both before and after filing the suit to ensure that the readiness and willingness requirement remains continuous and uninterrupted.

This judgment serves as a decisive precedent on how unilateral cancellations and partial refunds can radically reshape the availability of the equitable remedy of specific performance. Going forward, litigants must meet a high threshold of candor and diligence, ensuring no essential fact is suppressed and that any cancellation is directly challenged, if they wish to successfully obtain a decree for specific performance.