Unilateral Termination of Non‑Determinable Agreements to Sell: No Declaratory Relief Needed; Constructive Notice Defeats the Bona Fide Purchaser Defence

Introduction

In K. S. Manjunath v. Moorasavirappa @ Muttanna Chennappa Batil (since deceased) by his LRs & Ors., 2025 INSC 1298 (10 November 2025), the Supreme Court of India has delivered a significant ruling in the law of specific performance. The Court clarifies two recurrent and practically crucial questions:

• When a seller unilaterally “terminates” an agreement to sell (ATS), is a vendee’s suit for specific performance maintainable without first seeking a declaration that such termination is invalid?
• What diligence must a subsequent purchaser exercise to qualify as a “bona fide purchaser for value without notice” under Section 19(b) of the Specific Relief Act, 1963?

The case arises from an unregistered ATS (28 April 2000) for 354 acres of agricultural land in Haveri, Karnataka, followed by a purported unilateral “termination” by the original vendors (10 March 2003), and subsequent sale deeds (February–March 2007) in favour of the appellants (subsequent purchasers). The original vendees sued for specific performance in 2007. The trial court declined specific performance but ordered refund; the High Court reversed, decreeing specific performance. The Supreme Court now affirms the High Court’s decree of specific performance while crafting an equitable financial adjustment given the passage of 18 years since the subsequent sale.

Summary of the Judgment

The Supreme Court dismissed the appeals by the subsequent purchasers and held:

• A suit for specific performance was maintainable without an independent declaratory prayer to set aside the unilateral “termination” of the ATS because the ATS was not determinable in nature and the purported termination was not bona fide.
• The ATS contained no termination clause; its performance depended on vendor-led contingencies (conversion of tenure, subdivision, boundary fixation, and shifting tenants). Unilateral termination on grounds of pendency of a separate suit and death of a co-vendor was invalid.
• The subsequent purchasers were not bona fide purchasers for value without notice. Having been shown the 2003 termination notice (which recited the earlier ATS and parties) and not making prudent inquiries, they were affixed with constructive notice.
• The original vendees had been continuously ready and willing to perform their obligations; the trial court’s factual findings on this were affirmed.
• Limitation was not re-opened as the appellants never challenged the trial court’s finding in appeal.

Relief:

• The appellants (subsequent purchasers) must execute sale deeds and deliver vacant possession to the original vendees within six months, but only after receipt of:
  • Balance sale consideration of Rs. 18,83,001 with 16% p.a. interest from the date of the ATS; and
  • An additional lump sum of Rs. 5,00,00,000 (Rs. 5 crore) to do substantial justice given an 18-year interregnum.
• Either side may approach the Court in case of difficulty or default.

Factual Background in Brief

• ATS dated 28.04.2000 for 354 acres (Survey No. 12/2 part 12/2A, Basavanakoppa, Shiggaon, Haveri): consideration Rs. 26,95,501; Rs. 2,00,000 paid as earnest; further payments took total to Rs. 8,12,500 (trial court finding).
• Conditions: conversion from new tenure to old tenure; survey, subdivision, boundary fixation; shifting tenants; vendors to intimate completion and execute sale deed within one month thereafter.
• Parallel litigation: A third-party partition suit (OS 30/2001) led to a status quo order; original vendees unsuccessfully sought impleadment (till 2005). Suit was withdrawn on 14.02.2007, lifting the impediment.
• Termination notice (10.03.2003): vendors cited pendency of OS 30/2001/status quo and death of a co-vendor; offered that vendees “take back” earnest money within one month, failing which the ATS would be “deemed” cancelled.
• Vendees’ reply (21.03.2003): denied validity; asserted readiness, performance of vendor-side steps (survey, boundaries, conversion), and that status quo only suspended performance; refusal to accept refund.
• Subsequent sales: vendors executed sale deeds in favour of appellants on 20.02.2007 and 02.03.2007.
• Suit (OS 36/2007): vendees sought specific performance; the trial court denied it but ordered refund; the High Court decreed specific performance; the subsequent purchasers appealed to the Supreme Court.

Key Issues

1. Maintainability: Is a suit for specific performance maintainable without seeking a declaration that a prior termination notice is invalid?
2. Determinability: Was the ATS “in its nature determinable” so as to bar specific performance?
3. Bona fide purchaser defence: Did the appellants qualify as transferees in good faith and without notice under Section 19(b) of the Specific Relief Act?
4. Readiness and willingness: Did the vendees meet Section 16(c) requirements?
5. Limitation: Whether the suit was time-barred under Article 54 (raised before the Supreme Court though not challenged in appeal).

Analysis

Precedents Cited and Their Influence

• I.S. Sikandar v. K. Subramani (2013) 15 SCC 27: Held that where an agreement was validly terminated after the buyer’s repeated defaults despite reminders and extensions, a suit for specific performance without praying to set aside termination was not maintainable. The Supreme Court distinguished Sikandar on facts: in the present case, there was no buyer default, no termination clause, and the purported termination was unilateral and convenience-based.
• R. Kandasamy v. T.R.K. Sarawathy, 2024 SCC OnLine SC 3377: Clarified that appellate courts can examine “jurisdictional facts” (such as maintainability) even if the trial court did not frame a specific issue. Applied to consider maintainability but to hold that, on these facts, no declaratory relief was required.
• Sangita Sinha v. Bhawana Bhardwaj, 2025 SCC OnLine SC 723: Reaffirmed that when the buyer accepts repudiation (e.g., encashes refund drafts) and the seller cancels prior to suit, a declaratory challenge to cancellation is a jurisdictional prerequisite. Distinguished here as the vendees repudiated the termination, refused refund, and the contract had no termination right.
• Annamalai v. Vasanthi, 2025 SCC OnLine SC 2300: Synthesized the doctrine:
  • If a contract confers a unilateral termination right and it is exercised, a declaration to invalidate termination is essential before seeking specific performance.
  • If no contractual termination right exists (or is waived), a unilateral “termination” is a repudiatory breach; the non-terminating party may directly sue for specific performance without declaratory relief.
  The Court’s reasoning here follows Annamalai.
• High Court line of authority (affirmed by the Supreme Court in special leave refusals): Brahm Dutt v. Sarabjit Singh (P&H), Balwinder Sarpal v. Ram Kumar Bansal (P&H), S.K. Ravichandran v. M. Thanapathy (Madras), and Delhi High Court decisions in Rajesh Sethi and Kavi Ghei, holding unilateral cancellation of a non-determinable ATS impermissible and unnecessary to be separately challenged.
• Determinability jurisprudence:
  • Indian Oil Corp. v. Amritsar Gas Service (1991) 1 SCC 533: Contract determinable where termination at will was contractually permitted.
  • A. Murugan v. Rainbow Foundation (Madras HC, 2019): Classification of determinable contracts; only inherently revocable and “without-cause” terminable contracts fall within the bar; contracts terminable for cause or with cure mechanisms are not “determinable in nature”.
  • DLF Home v. Shipra Estate (Delhi HC, 2021), Affordable Infrastructure (Delhi HC, 2022), and Narendra Hirawat (Bombay HC, 2020): A contract is not “determinable in nature” merely because it can be terminated for breach; if it cannot be terminated so long as the other party is ready and willing, it is specifically enforceable.
• Section 19(b) – bona fide purchasers: Ram Niwas v. Bano (2000) 6 SCC 685 (three-fold test; notice includes constructive/imputed); Durg Singh v. Mahesh Singh (MP HC, 2004) (two key axes: plaintiff’s readiness and purchaser’s knowledge).
• Constructive notice and “wilful abstention”: Jones v. Smith (1841) 1 Hare 43 (equity treats as notice what a party would have learned but for wilful abstention from inquiry).
• “Good faith”: General Clauses Act, 1897 s.3(22) (honesty), Bhartiya Nyaya Sanhita, 2023 s.2(11) (due care and attention); MANJIT SINGH v. DARSHANA DEVI, 2024 SCC OnLine 3431 (good faith requires both honesty and due care; one complements the other); Jammula Rama Rao (AP HC, 2002) (if aware of a prior ATS, the subsequent purchaser must inquire with the prior vendee; failure negates good faith).
• Readiness and willingness: JP Builders v. A. Ramadas Rao (2011) 1 SCC 429; N.P. Thirugnanam (1995) 5 SCC 115; Satya Jain (2013) 8 SCC 131.

Legal Reasoning

The Court’s reasoning proceeds in three linked steps.

1. Maintainability without declaratory relief: Anchoring on Kandasamy and Annamalai, the Court examined the “jurisdictional fact” – whether a declaratory challenge to termination was a prerequisite. It held no declaration was required because:
   • The ATS contained no termination clause; vendors enjoyed no unilateral right to cancel.
   • The “termination” was unilateral and convenience-based (status quo in another suit; death of a co-vendor) – both extraneous to vendee breach.
   • Vendees immediately repudiated termination, refused refund, and insisted on performance.
   Hence, the unilateral “termination” constituted repudiatory breach; specific performance was maintainable without declaratory relief.
2. ATS not determinable in nature: On the ATS’s terms (especially clauses linking execution to vendor-led acts), the contract could not be terminated at will, and certainly not while the vendees were ready and willing. Applying Murugan and DLF Home, the contract fell outside the determinability bar.
3. Subsequent purchasers lacked bona fides: The purchasers had been shown the 2003 termination notice that:
   • Identified the ATS, parties, consideration and payments; and
   • Stated “deemed cancellation” if earnest was taken back within a month – putting them on inquiry whether any refund was effected and whether the vendees contested termination.
   The purchasers made no inquiry of the vendees (whose names/addresses were on the notice), and ignored that the vendees were litigating impleadment until 2005. This was classic “wilful abstention.” They thus had constructive notice and, lacking due care, could not claim “good faith.”

Was the ATS “determinable”?

No. The Court emphasized:

• No clause permitting termination for convenience or otherwise.
• Performance tied to vendor obligations (conversion, survey, subdivision, boundary fixation; vendor’s duty to intimate completion), not a fixed date.
• Only a buyer breach of a condition (not shown) could conceivably justify cancellation. Hence, the ATS falls within Murugan’s category (v) – not determinable in nature.

Bona Fides of the Subsequent Purchasers under Section 19(b)

The Court reaffirmed the three-part test from Ram Niwas:

• Purchase for value.
• Payment in good faith (honesty plus due care and attention).
• Absence of notice (actual, constructive or imputed) of the prior ATS.

On these facts:

• They had actual knowledge of the termination notice referencing the ATS and parties.
• They failed to verify refund (none was made) or the vendees’ reply contesting termination.
• They ignored the contemporaneous impleadment litigation by vendees.

This amounted to both constructive notice and lack of due care; the “good faith” limb failed. The protection of Section 19(b) was unavailable.

Readiness and Willingness

The trial court found – and the Supreme Court affirmed – that the vendees:

• Paid Rs. 8,12,500 in part consideration (disbelieving an inflated figure but affirming substantial payment).
• Undertook acts vendor-side (survey, boundary fixation, conversion of tenure; shifting tenants), consistent with performance.
• Consistently pleaded and demonstrated readiness to pay the balance and conclude the sale upon vendor intimation of completion of preconditions.

Per JP Builders, “readiness” (financial capacity) and “willingness” (conduct) were both satisfied.

Limitation

The trial court held the suit within time; appellants never challenged this finding before the High Court. The Supreme Court declined to re-open the issue at this stage, treating the point as concluded.

Equitable Calibration of Relief

While affirming specific performance, the Court invoked equitable considerations to address the 18-year interval since the subsequent sale deeds. It required the vendees to:

• Pay the balance sale price (Rs. 18,83,001) with high contractual-equitable interest (16% p.a. from the ATS date); and
• Pay an additional Rs. 5,00,00,000 to the subsequent purchasers “to do substantial justice.”

Only upon such payment must the appellants execute sale deeds and deliver vacant possession within six months. The relief underscores the Court’s twin commitment to enforcing contractual rights while mitigating hardship caused by long passage of time during litigation.

Impact and Significance

• Pleading strategy in specific performance suits:
  • If the contract contains no unilateral termination right and the seller’s “termination” is unilateral, the buyer need not seek a separate declaratory prayer to invalidate termination. A well-pleaded assertion of repudiatory breach suffices.
  • If the contract confers and the seller invokes a termination right, a declaratory challenge becomes a jurisdictional prerequisite.
  • Prudent practice: plead in the alternative – assert invalidity of termination and, if needed, seek declaratory relief contingently.
• Determinability: The Court consolidates the post–Indian Oil approach: only inherently revocable or “without cause” terminable contracts are barred from specific performance as “determinable in nature.” Contracts terminable for breach are not so barred.
• Due diligence by purchasers:
  • “Good faith” under Section 19(b) demands both honesty and due care. Seeing a termination notice that recites a prior ATS triggers a duty to inquire with the prior vendees and verify refunds/acceptance.
  • Reliance on a vendor’s say-so, without contacting identifiable prior vendees, is “wilful abstention”; it results in constructive notice and loss of Section 19(b) protection.
• Equitable tailoring of decrees: The award of a substantial additional amount (Rs. 5 crore) to subsequent purchasers evidences a willingness to calibrate specific performance with robust restitutionary components, especially where third-party transferees have held for long periods.
• Time-not-the-essence in land contracts: The Court reiterates that where performance is pegged to vendor-side contingencies and no fixed date is stipulated, time is generally not the essence.
• Continuity with recent Supreme Court jurisprudence: The decision harmonizes the seeming divergence between I.S. Sikandar and A. Kanthamani through Kandasamy, Sangita Sinha, and Annamalai, providing a clear, fact-sensitive rule for declaratory relief in termination cases.

Complex Concepts Simplified

• Determinable contract: A contract is “in its nature determinable” if one party can end it at will or without cause. Contracts that can be terminated only on breach by the other party are not “determinable in nature.”
• Unilateral termination: Where no termination right exists, a seller’s unilateral “termination” is a repudiatory breach. The buyer may ignore it and sue directly for specific performance unless the contract itself grants a termination right.
• Jurisdictional fact: A foundational fact (e.g., whether declaratory relief is necessary) that conditions the court’s power to grant relief. Appellate courts may examine it even if trial courts did not frame a specific issue.
• Constructive notice: Equity treats a party as having notice of a fact that they would have discovered had they not wilfully abstained from inquiry. It is enough to deprive a purchaser of the “without notice” shield.
• Good faith: Requires both honesty and due care/attention. Careless or selective inattention to red flags (e.g., a prior ATS referenced in a termination notice) negates good faith.
• Readiness and willingness (Section 16(c)): “Readiness” denotes financial capacity; “willingness” is evidenced by conduct. The buyer must consistently demonstrate both from contract to decree.

Conclusion

This decision sets out a clear and practical framework for courts and practitioners:

• Unilateral termination of a non-determinable agreement to sell does not force a buyer to first sue for a declaration setting it aside; specific performance remains directly maintainable.
• Determinability is a narrow exception—limited to inherently revocable or “without cause” terminable contracts—not a catch-all for every contract terminable for breach.
• Purchasers who are put on inquiry by documents referencing a prior ATS must diligently verify facts with earlier vendees; failure invites constructive notice and loss of Section 19(b) protection.
• Courts may mould decrees to do substantial justice, balancing the equities with monetary adjustments when long periods have elapsed.

The ruling not only resolves the present dispute but consolidates a principled approach at the intersection of maintainability, determinability, bona fide purchase, and equitable relief—a set of touchstones that will guide future specific performance litigation.

Key Takeaways

• A buyer need not seek a declaration against a unilateral termination where the ATS is non-determinable and the buyer repudiates the termination; specific performance is maintainable.
• Contracts are “determinable in nature” only where they are inherently revocable or terminable without cause; termination for breach does not invoke the bar.
• Section 19(b) protection fails if the subsequent purchaser ignores red flags and omits reasonable inquiries—the standard is honesty plus due care.
• Readiness and willingness are proven by sustained conduct and capacity; vendor-led contingencies negate “time is of the essence.”
• Equitable specific performance can be coupled with substantial monetary directions to offset long-standing possession and delay.