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Upma Khanna & Anr. v. Tarun Sawhney & Ors. S
Factual and Procedural Background
Respondent No. 1, Tarun Sawhney, sought specific performance of two agreements to sell dated September 16, 2009, having paid Rs. 90,00,000/- to defendants No. 1 to 5 and an additional Rs. 10,00,000/- to defendant No. 5. The agreements concerned property No. BP-32, Nizamuddin East, New Delhi. The ownership history reveals that late Ms. Usha Bhagat had executed an agreement in 1969 in favor of defendant No. 5 for one-half undivided share in the property. After a family dispute and litigation, defendant No. 5 obtained half ownership via decree execution. Upon Usha Bhagat's death in 2006, her legal heirs (defendants No. 1 to 5) agreed to equally inherit her half share, with the other half belonging to defendant No. 5. The two agreements to sell corresponded to these shares.
Both agreements required the sellers to obtain conversion of the leasehold tenure to freehold tenure from the L&DO before balance payment and execution of the sale deed. The plaintiff undertook steps to secure mutation of the property in the defendants' names and to obtain the conveyance deed from the L&DO. Difficulties arose due to defective applications by defendants and a dispute over payment of a composition fee, which was necessary to clear outstanding charges and enable conversion to freehold tenure.
Clause 17 in one agreement and Clause 20 in the other contained identical provisions stating that if the agreement was not implemented within twelve calendar months, it would stand terminated automatically without further act, restoring parties to their original positions. The appellants challenged the suit's maintainability under Section 14(1)(c) of the Specific Relief Act, 1963, which was decided against them by the learned Single Judge.
Legal Issues Presented
- Whether the agreements to sell, containing clauses for automatic termination if not implemented within twelve months, are specifically enforceable under Section 14(1)(c) of the Specific Relief Act, 1963, which excludes contracts that are "in their nature determinable" from specific performance.
- Whether the clause providing for automatic termination operates as a determinable contract at the option of the parties or is triggered by default, affecting the applicability of Section 14(1)(c).
- The applicability of the principle of mutuality and the statutory provision under Sub-Section 4 of Section 20 of the Specific Relief Act regarding enforceability of contracts not enforceable at the instance of a party.
Arguments of the Parties
Appellants' Arguments
- Relying on Clause 17/20, the appellants contended that the agreements stood terminated automatically if not implemented within twelve months, making the contracts determinable in nature.
- Invoked Section 14(1)(c) of the Specific Relief Act, 1963, arguing that contracts which are determinable cannot be specifically enforced.
- Asserted that the suit was not maintainable on this basis.
Plaintiff's Arguments
- Contended that the termination clause applies only where the contract is determinable at the option of either party, not where the delay is due to the seller's default in obtaining necessary permissions.
- Distinguished between contracts determinable by mutual option and those determinable due to default, arguing the clause did not preclude specific performance.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Nirmala Anand v. Advent Corporation P Limited, AIR 2002 SC 2290 | Interpretation of Sub-Section 4 of Section 20 of the Specific Relief Act, which prevents refusal of specific performance merely because a contract is not enforceable at the instance of a party. | The court relied on this precedent to reject common law principles of mutuality and uphold the enforceability of the agreements despite the termination clause. |
Court's Reasoning and Analysis
The court analyzed the nature of the termination clause under Clause 17/20 and its interaction with Section 14(1)(c) of the Specific Relief Act, 1963. The court noted that the expression "a contract which is in its nature determinable" requires careful interpretation, distinguishing between contracts determinable by mutual option and those terminated due to default or fault.
It was observed that allowing a party to benefit from its own default (fault liability) by claiming automatic termination would be inequitable and unacceptable in equity. The court emphasized that the clause did not contemplate a no-fault determinable contract but one contingent on performance and fault.
The court rejected reliance on common law principles of mutuality, citing Sub-Section 4 of Section 20 of the Specific Relief Act, which Indian law consciously departs from, as confirmed by the Law Commission's rejection of a proposal to delete this provision.
Having considered the learned Single Judge's reasoning and the ratio of cited decisions, the court concurred with the view that the agreements were specifically enforceable notwithstanding the termination clause.
Holding and Implications
The appeal was dismissed with no order as to costs. The court held that the agreements to sell were specifically enforceable despite the termination clause under Section 14(1)(c) of the Specific Relief Act, 1963, as the termination was not a no-fault determinable condition but contingent on default.
The decision directly affects the parties by upholding the plaintiff's suit for specific performance. No broader precedent was established beyond affirming the interpretation of determinable contracts and the effect of termination clauses in specific performance suits under Indian law.
PRADEEP NANDRAJOG, J.
1. Respondent No. 1, Tarun Sawhney, sought specific performance of two agreements to sell both dated September 16, 2009, whereunder he paid Rs. 90,00,000/- to defendants No. 1 to 5 and additionally Rs. 10,00,000/- to defendant No. 5. It be noted that appellant No. 1 is defendant No. 3 and appellant No. 2 is defendant No. 5. The agreements pertain to property No. BP-32, Nizamuddin East, New Delhi.
2. Late Ms. Usha Bhagat had executed an agreement to sell on August 14, 1969 in favour of defendant No. 5 agreeing to sell to him one-half undivided share in the property. Ms. Usha Bhagat was the sister of defendant No. 5. The brother and sister fell apart. Defendant No. 5 had to litigate with his sister and pursuant to a decree, in execution, got half ownership right in the property No. BP-32, Nizamuddin East, New Delhi.
3. Usha Bhagat died on March 01, 2006. She remained unmarried. Defendants No. 1 to 5 are her legal heirs. They litigated with respect to a will dated April 10, 2003, but agreed that Usha Bhagat's remaining half share would be equally inherited by her two brothers and three sisters i.e the defendants; and the other half share would be that of defendant No. 5. It was in this backdrop of the ownership that two agreements to sell were executed. The first pertained to defendants No. 1 to 5 agreeing to sell their half undivided share in the property and second pertained to defendant No. 5 undivided half share being agreed to be sold.
4. The interest in the land being a lease-hold tenure under L&DO, in both the agreements, it was recorded that the sellers shall obtain conversion of the lease-hold tenure to freehold tenure and upon said information being conveyed to the buyer, within 30 days, balance sale price would be paid and sale deed would be executed.
5. The plaintiff took upon himself to pursue, firstly, the property being mutated in the record of L&DO in the name of the five defendants and thereafter to have the conveyance deed executed by L&DO to convert the lease-hold tenure to freehold tenure and needless to state that mutation was the first step.
6. It is the case of the plaintiff that the defendants submitted defective and incomplete applications seeking mutation and that inspite of best efforts he could obtain mutation in the name of the defendants only on July 27, 2010. Grievance in the suit is that conversion could not take place due to a dispute regarding payment of composition fee by the defendants and for which house tax record for the year 1959-1960 was needed.
7. A word needs to be spoken here on the issue of composition fee. It is the charges payable to the lessor for not completion construction of a building within the time granted under the lease. Apparently, in the record of L&DO a demand was outstanding on said account, and unless cleared, L&DO would not have executed the conveyance deed conveying freehold title. The defendants were asserting that no composition fee was payable. Since house tax on a building is levied when construction is complete, the house tax record would evidence the year in which the construction was completed.
8. The two agreements had identically verdicted clauses in Clause No. 17 in one and Clause No. 20 in the other. They read as under:-
“If this agreement is not implemented within the twelve calendar months from the date hereof this agreement shall stand terminated and extinguished automatically without any further act of parties and vendors shall be at liberty to sell the said property to any other person after refund of earnest money, as also other lawful charges hereinafter mentioned if paid by the vendee on behalf of the vendor; the intention of the parties is that they all be resorted to the same position as at the date hereof and as if this agreement had not been executed.”
9. The appellants predicated a stand before the learned Single Judge and sought a declaration that the suit was not maintainable in view of Section 14(1)(c) of the Specific Relief Act. The said issue has been decided by the learned Single Judge vide impugned order dated July 12, 2011.
10. Section 14(1)(c) of the Specific Relief Act, 1963 reads as under:-
“14. Contracts not specifically enforceable:- (1)
The following contracts cannot be specifically enforced, namely:-
(a) …..
(b) …..
(c) a contract which is in its nature determinable.”
11. And needless to state the case of the appellants was that as per Clause 17 in one agreement and 20 in the other, both of which were identical in language, if the agreement was not implemented within 12 calendar months from the date of the agreement, it shall stand terminated; and thus as per Section 14(1)(c) of the Specific Relief Act, 1963 the agreement could not be specifically enforced. Per contra, the plaintiff pleaded that said clause would apply when the contract in question envisaged it being determinable at the option of both or either party and not where time was fixed for performance of a contract requiring in the interregnum the seller to take steps and obtain permissions so as to be in a position to execute the sale deed and the seller being in default.
12. To put it in plain language, the plaintiff drew a distinction between agreements being determinable at the option of the parties and not agreements being determinable by way of default.
13. The learned Single Judge has held in favour of the plaintiff.
14. Lack of mutuality is recognized in the common law; resulting in agreements to sell lacking mutuality not being capable of being specifically enforced. But, the law in India has made a conscious departure if we look at Sub-Section 4 of Section 20 of the Specific Relief Act which categorically states that the Court shall not refuse specific performance of a contract merely on the ground that the contract is not enforceable at the instance of a party (See AIR 2002 SC 2290, Nirmala Anand v. Advent Corporation P Limited). The 147th report submitted by the Law Commission of India would reveal that it had received a proposal to delete Sub-Section 4 of Section 20 from the statute book so that law in India could conform to the common law, but the proposal was rejected.
15. Thus, we cannot take any guidance on the subject from common law principles.
16. What is the meaning of the expression: a contract which is in its nature determinable.
17. The New Shorter Oxford English Dictionary defines ‘determinable’ to mean, if used as an adjective, fixed, definite. As a general meaning, to mean: ‘liable to come to an end’. The dictionary by Jowitt's, Second Edition explains determinable: ‘an interest is said to determine when it comes to an end, whether by limitation, efflux of time, merger, surrender or otherwise’. Thus, it is possible to argue that for whatever reasons it may be the cause for, if an interest comes to an end by efflux of time, a contract would be determinable in nature. This would be an argument in support of the appellants, and as urged.
18. But, the argument overlooks the concept of a fault liability and a fault effect and a no fault liability and a no fault effect. It overlooks the point that one should not rush to conclusions. Clause (c) uses the expression ‘in its nature determinable’ and does not throw any light whether the determination contemplated embraces a fault effect determination.
19. If a defence by a contracting party that the sufferance of the default and hence the determination of the contract is to be accepted, it would amount to allowing the party committing the wrong to take advance of its own neglect and this would ex-facie not be acceptable to a court of equity.
20. We need not deal with the two decisions cited at the bar before us, which have been considered by the learned Single Judge, and the ratio extracted. We concur with the same. We concur with the view taken by the learned Single Judge.
21. We do not find any merit in the appeal, which is dismissed.
22. No order as to costs.
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