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Thiriveedhi Channaiah v. Gudipudi Venkata Subba Rao (Dead) By Lrs. And Others
Factual and Procedural Background
An agreement for sale dated 19-7-1981 was executed between the appellant (purchaser) and the respondent (vendor) for 2.96 cents out of 11.82 cents of land in Survey No. 140, Agatavareppadu Village, Guntur District, at a price of Rs 44,000 per acre. The appellant paid Rs 50,000 as advance, with the balance consideration payable on or before 25-2-1982, when a registered sale deed was to be executed.
On the same date, the parties executed a separate document providing that if the appellant failed to pay the balance by 25-2-1982, the advance would stand forfeited.
Before completion, a notification under Section 4(1) of the Land Acquisition Act, 1894, was issued on 2-1-1982. The respondent challenged the notification via Writ Petition No. 434 of 1982 and also sought an injunction against the State.
Claiming he had not been informed of the acquisition proceedings and believing the respondent lacked clear title, the appellant issued a notice dated 4-3-1983 seeking refund of the Rs 50,000 with 18% interest. The respondent refused, invoking the forfeiture clause.
The appellant filed OS No. 258 of 1984 for specific performance. On 28-11-1988 the Additional Subordinate Judge, Guntur, decreed the suit, ordering execution of a sale deed upon payment of the balance consideration, noting that the High Court had quashed the acquisition notification on 18-2-1986.
In First Appeal No. 2692 of 1988, a learned Single Judge of the Andhra Pradesh High Court reversed the decree on 22-7-2005, holding that the appellant was not ready and willing, was aware of the acquisition, and that forfeiture was justified.
The Supreme Court granted leave and issued a limited notice on whether the earnest money should be refunded. The present judgment resolves that question.
Legal Issues Presented
- Whether, in the circumstances, the respondent was entitled to forfeit the entire advance of Rs 50,000 paid by the appellant under the agreement of sale.
- Whether enforcement of the agreement for specific performance would be inequitable after the events that transpired.
Arguments of the Parties
Appellant's Arguments
- The respondent knew of the impending land acquisition yet entered into the agreement; therefore, the respondent lacked a transferable title at the relevant time.
- The issuance of the acquisition notification frustrated the contract, entitling the appellant to a refund of the advance with interest.
Respondent's Arguments
- The appellant failed to pay the balance consideration by 25-2-1982, triggering the forfeiture clause.
- The appellant was aware of the acquisition proceedings and nonetheless defaulted; thus, forfeiture of the earnest money was justified.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Supreme Court confined itself to the propriety of forfeiting the advance. It noted:
- The respondent did not allege or prove any actual damage arising from the appellant’s default.
- Both parties acknowledged that, once the Section 4(1) notification was issued, the agreement could not practically be enforced unless the notification was quashed.
- The respondent himself had contended that the contract was frustrated, which was inconsistent with retaining the advance.
- In these circumstances, retaining the entire sum would be inequitable and amounted to unjust enrichment.
- However, insisting on specific performance after such events would also be inequitable; the High Court’s refusal of specific performance was therefore upheld.
Holding and Implications
Holding: The appeal is allowed to the extent that the respondent must refund the advance of Rs 50,000 to the appellant within four weeks; failing that, the amount shall carry interest at 12% per annum until payment. No order as to costs.
Implications: The decision grants monetary relief to the appellant but leaves the agreement unenforced. It does not establish a new precedent; its effect is confined to resolving the dispute between the parties regarding forfeiture of earnest money.
S.B Sinha, J.— Leave granted.
2. This appeal is directed against the judgment and order dated 22-7-2005 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 OS No. 258 of 1984 decreeing the suit for specific performance of an agreement of sale dated 19-7-1981 was allowed.
3. The basic fact of the matter is not in dispute. An agreement of sale was entered into by and between the parties on 19-7-1981, 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. The 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 25-2-1982 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 25-2-1982, the said amount of advance shall be forfeited.
4. 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 of 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.
5. 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 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 stands forfeited in terms of the said agreement dated 19-7-1981. 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 19-7-1981 directing the defendant to execute the registered sale deed in favour of the plaintiff in respect of the plaint scheduled 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. On 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 court.”
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 18-2-1986. 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.
6. The High Court, however, reversed the said judgment and decree passed by reason of the impugned judgment opining:
(i) The appellant was not ready and willing to perform his part of contract;
(ii) He was aware of the proceedings under the Act;
(iii) 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.
7. 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.
8. 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 fail to pay the balance of consideration before 25-02-1982 there is no need to refund my advance amount. Before the abovesaid 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.”
9. Notification under Section 4(1) of the Act was issued on 2-1-1982. The 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.
10. 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 forfeiture clause.
11. 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.
12. 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.
13. We, therefore, direct the respondent 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 annum from the said date till the date of actual payment.
14. 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.
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