CR 

IN THE HIGH COURT OF KERALA AT ERNAKULAM 

PRESENT: THE HONOURABLE MR.JUSTICE V.RAMKUMAR & THE HONOURABLE MR.JUSTICE K.HARILAL 

TUESDAY, THE 31ST DAY OF JANUARY 2012/11TH MAGHA 1933 

AS.No. 481 of 1996 (B) 

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OS.139/1993 of SUB COURT, KASARAGOD 

APPELLANT(S): 

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Susheela 1. (Died), (daughter of Nambi Master,residing at Guthu House, Adkathbail Village, Post Kasaragod (LRs impleaded) 

2. Shankara , (S/o. Nambi Master residing -do-) Addl. 3 to 8 impleaded as LRs.as per order dated 7-7- 2008 in I.A. No. 2313 of 2008. Addl. 

A3: Padmavathi, D/o. of deceased Susheela -do- Addl. 

A4: Chandu, S/o. deceased Susheela -do- Addl. 

A5 : Savithri, D/o. deceased Susheela -do- Addl. 

A6: Nambi, S/o. deceased Susheela -do- Addl. 

A7: Rajeevi, S/o. deceased Susheela -do- Addl. 

A8: Suresh.A., , S/o. deceased Susheela -do- 

BY ADVS.M/s. M.C.SEN,PARVATHI A.MENON M.P.SREEKRISHNAN, SHAHNA KARTHIKEYAN & S.PRAKASH  

RESPONDENT(S): 

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T.M. Muhammedkunhi, S/o. Moidin Kunhi, residing at T.M. House, Guthur Road, Adakthbail Village, Kasaragod 

BY ADV. SRI.S.V.BALAKRISHNA IYER 

THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 31-01- 2012, THE COURT ON 31-01-2012 DELIVERED THE FOLLOWING: 

C.M.P. NOS. 3766/1997, 3063 of 1996, 1325 of 1997 3064 of 1996 in A.S. No. 481 of 1886 Closed Sd/- V.Ramkumar, Judge. Sd/- K. Harilal, Judge CR 

V. RAMKUMAR & K. HARILAL, JJ. 

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A.S. NO. 481 OF 1996 

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Head Note:-

Specific Relief Act, 1963 - Section 16 (c) - In a case where the plaintiff has already performed his part of the contract, there is no necessity to plead and prove readiness or willingness since nothing else remains to be done by the plaintiff. In such a case, the plaintiff need only plead and prove that he has performed his part of the contract.  

Specific Relief Act, 1963 - Section 16 (c) - Distinction between readiness to perform the contract and willingness to perform the contract - Readiness means the capacity of the plaintiff to perform the contract and it includes his financial ability to raise the money to pay the purchase price. Even if the plaintiff has the financial capacity to pay the purchase price and he thereby shows readiness to perform the contract, that need not necessarily mean that he is willing to perform his part of the contract. Unless he is also willing to perform his part of the contract, mere readiness to do so cannot be of no avail to him. He may, nevertheless be disqualified from seeking specific performance of the contract if he is really unwilling to buy the property although he may be ready to do so. 

Specific Relief Act, 1963 - Section16(c) is not an empty formality and readiness and willingness are to be proved right from the date of the contract till the date of the decree. In other words, the strict requirement of law is the continuous readiness and willingness. In the absence of a plea in the plaint regarding readiness and willingness no decree for specific performance can be granted to the plaintiff.  

Indian Contract Act, 1872 - Section 74 - Transfer of Property Act, 1882 - Section 55 - Earnest money paid by the vendee (purchaser, buyer) is part of the purchase price and is adjusted as such when the transaction goes forward; it is forfeited when the transaction falls through by reason of the fault or failure of the vendee. Earnest money is thus money paid in advance to bind a bargain and it represents a guarantee for the due performance of the contract. But an amount deposited by the vendor (seller) claiming as security for guaranteeing due performance of the contract and which is to stand forfeited in case the vendor neglects to perform his part of the contract cannot be regarded as earnest money. Forfeiture of a reasonable amount paid as earnest money under a contract does not amount to imposing a penalty so as to attract S.74 of the Indian Contract Act. But, if forfeiture is in the nature of penalty, then S.74 applies. Where under the terms of the contract the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he has already paid to the party complaining of a breach of contract, such undertaking is in the nature of a penalty. Earnest money is thus a token or nominal payment made before hand by the buyer as a sign of good faith specifically as part of the purchase price to bind the seller.

Dated: 31st January, 2012 

J U D G M E N T 

Ramkumar,J. 

The two defendants in O.S. No. 139 of 1993 on the file of the Subordinate Judge's Court, Kasaragod, are the appellants in this first appeal. Pending the appeal the first appellant died and her legal representatives were impleaded as additional appellants 3 to 8. The aforesaid suit was one for specific performance of Ext.A1 agreement for sale dated 19-1-1993 of two items of immovable properties each admeasuring 12 cents belonging to the first and second defendants respectively. 

The plaintiff's case 

2. The case of the plaintiff can be summarised as follows:- The plaint schedule items 1 and 2 belong to defendants 1 and 2 respectively. As per Ext.A1 agreement for sale dated 19-1- 1993 the plaintiff agreed to purchase and the defendants agreed to sell the plaint schedule properties to the plaintiff for a total consideration of Rs. 1,45,000/-. The plaintiff paid Rs. 55,000/- on the date of the agreement itself and the defendants have acknowledged the same in Ext.A1 agreement. The defendants agreed to execute the sale deed by 21-4-1993. The balance consideration of Rs. 90,000/- was payable at the time of registration of the sale deed. Eventhough the date for executing the sale deed was fixed, time was not the essence of the contract. The plaintiff is ready and willing to perform his part of the contract. The plaintiff had made several requests through his son to handover the title deeds for getting the draft of the sale deed prepared . But the defendants did not come forward to execute the document. The plaintiff caused Ext.A2 registered notice dated 11-6-1993 to be sent to the defendants demanding execution of the sale deed. However, the defendants have in their reply dated 21-6-1993 raised false and frivolous contentions. The plaintiff is doing business in Calcutta and his son approached the defendants for obtaining the sale deed. The second defendant requested for a portion of the consideration amount. He was informed that the entire amount would be paid and the sale deed could be registered earlier. But the defendants were postponing the execution of the sale deed under some pretext or the other. The defendants sent Ext.A3 reply stating that Ext.A1 agreement was rescinded and that the defendants have entered into another agreement for purchase of property and they have suffered loss on account of the non-performance of the contract by the plaintiff. The defendants are liable to perform the contract and the plaintiff is entitled to get the sale deed executed and registered through Court. Hence, the suit. 

The defence 

3. The suit was resisted by the defendants who filed a joint written statement contending inter alia as follows:- The plaint has not been properly presented for want of a valid power of attorney. It is true that Ext.A1 agreement was entered into for sale of the plaint schedule property. But as per the agreement time was the essence of the contract and the plaintiff was liable to pay the balance amount of Rs. 90,000/- on or before 21-4-1993 at the time of registration. The plaintiff was never ready and willing to perform his part of the contract on or before the said date. Plaintiff never got the sale deed written up. He never offered to pay the balance amount as agreed. The sum of Rs. 55,000/- paid under Ext.A1 was in the form of earnest money which is not liable to be returned. There was no failure on the part of these defendants to execute and register the sale deed. Some photostat copies and some originals of the documents relating to the title of these defendants to the suit properties were handed over to the plaintiff even at the time of Ext.A1 agreement. Hence, the plaintiff's contention that he could not prepare the draft sale deed is not correct. Believing in good faith that the plaintiff would honour the terms of Ext.A1 agreement, the second defendant had entered into Ext.B1 agreement dated 14-02-1993 with one Thimmappu for purchase of an item of property and paid an earnest money of Rs. 20,000/- to the said Thimmappu. The undertaking was that the second defendant would pay the balance amount of Rs. 40,000/- to Thimmappu on or before 14-5-1993 in the hope that the plaintiff would comply with the terms of Ext.A1 agreement. Since the plaintiff failed to pay the balance amount as promised the second defendant could not comply with the terms of Ext.B1 agreement and suffered a loss of Rs. 20,000/-. The whereabouts of the plaintiff were not known after Ext.A1 agreement and, therefore, these defendants approached the son of the plaintiff, but in vain. Finally these defendants repudiated the contract by issuing Ext.B2 registered notice dated 29-05- 1993. The notice sent on behalf of the plaintiff was not as per the directions of the plaintiff. These defendants were ready and willing to perform their part of the contract on or before 21-4-1993 as per the terms of the agreement. Since the plaintiff did not come forward, these defendants were constrained to repudiate the contract. The plaintiff who was not ready and willing to perform his part of the contract is not entitled to seek specific performance. He is also not entitled to get back Rs. 55,000/- paid as earnest money. The suit is, therefore, to be dismissed. 

The trial 

4. The court below framed six issues for trial. On the side of the plaintiff he examined himself as P.W.1 and got marked four documents as Exts.A1 to A4. On the side of the defendants the second defendant was examined as D.W.1 and Exts. B1 to B4 were marked. 

The trial Court's decree 

5. The learned Subordinate Judge, after trial, as per judgment and decree dated 24-6-1996 held that time was not the essence of the contract under Ext.A1, that the original title deeds were not handed over by the defendants to the plaintiff so as to enable him to prepare the draft sale deed, that the second defendant did not send any notice calling upon the plaintiff to execute the sale deed and pay the balance consideration, that the evidence of the plaintiff examined as P.W. 1 shows that he was always ready and willing to perform his part of the contract although he had no sufficient cash with him, that there was no provocation from the side of the plaintiff for the defendants to rescind the contract and that the defendants have not proved that they have sustained any loss under Ext.B1 agreement. The suit was accordingly, decreed directing the defendants to execute and register the sale deed in favour of the plaintiff within two months and put the plaintiff in possession of the plaint schedule properties upon the plaintiff depositing the balance consideration of Rs. 90,000/- in Court within one month and in the event of failure by the defendants to do so the plaintiff could obtain the sale deed executed through court. It is the said decree which is assailed in this appeal by the defendants. 

THIS APPEAL 

6. We heard Advocate Smt. Shahana Karthikeyan, the learned counsel who argued the case on behalf of the appellants and Senior Advocate Sri. Balakrishna Iyer, the learned counsel appearing for the respondent/plaintiff. 

THE ARGUMENT OF THE PLAINTIFF/RESPONDENT 

7. Senior Advocate Sri. Balakrishna Iyer appearing for the respondent/plaintiff made the following submissions before us opposing the appeal:- This is a case in which the defendants did not make available to the plaintiff the original title deeds so as to enable the plaintiff to prepare the draft sale deed. Eventhough a date was fixed under Ext.A1 for executing the sale deed, from that alone it cannot be concluded that time was the essence of the contract. The plaintiff had paid Rs. 55,000/- on the date of Ext.A1. The balance amount of Rs. 90,000/- was payable at the time of registration. In the case of contract for sale of immovable property the ordinary presumption is that time is not the essence of contract. (See Gomathinayagam Pillai and Others v. Palaniswami Nadar - AIR 1967 SC 868). In paragraph 6 of the plaint the plaintiff has averred that he is ready and willing to perform his part of the contract. There is no ground taken in the memorandum of appeal to the effect that there is no averment in the plaint in terms of Sec. 16 (c ) of the Specific Relief Act, 1963. The second defendant examined as D.W.1 has deposed that he discussed several times with the plaintiff's son who offered the balance amount. The requirement of law under Sec. 16 ( c) of the Specific Relief Act should not be stretched to illogical levels. The necessary averment in the plaint cannot be subjected to such meticulous scrutiny as to find out whether the exact words used in Section 16 (c ) have been literally and faithfully incorporated. It is enough if the "pith and substance" of the words used by the legislature have been pleaded (Vide Motilal Jain v. Ramdasi Devi and Others - AIR 2000 SC 2408 and paragraph 9 of Sayed Dastagir v. Gopalakrishna Setty - AIR 1999 SC 3029). In paragraph 9 of Ouseph Varghese v. Joseph Aley and Others - (1969) 2 SCC 539 ; in paragraph 5 of Prem Raj v. D.L.F. Housing and Construction (Private) Ltd. - AIR 1968 SC 1355 and in Pandurang Ganpat Tanawade v. Ganapat Bhairu Kadam and Others - AIR 1997 SC 463 the suits for specific performance were decreed in cases where the averment was that the plaintiff is ready and willing to perform his part of the contract. Ext. A1 agreement is dated 19-1-1993. The suit notice was issued on 11-6-1993. The suit itself was filed on 28-07-1993 without waiting for the last day of limitation. In such a case the readiness and willingness of the plaintiff can be inferred. Ext.B2 repudiation notice dated 29-5-1993, although issued prior to Ext.A2 notice sent by the plaintiff, was delivered on the plaintiff at Calcutta only on 14-6- 1993. Hence, the defendants cannot blame the plaintiff for any non-performance. The trial Court has decreed the suit for specific performance after a careful evaluation of all the facts and circumstances of the case and the judgment and decree of the court below do not warrant any interference. 

JUDICIAL EVALUATION 

8. We are afraid that we find ourselves unable to agree with the above submissions made on behalf of the plaintiff- respondent. 

THE PROVED FACTS 

9. Before discussing the legal principles which should govern cases of this nature we propose to delve into the factual matrix of this case in the chronological order:- 

19-01-1993 - Defendants 1 and 2 who are the appellants herein are sister and a brother. They are the owners of plaint schedule item Nos. 1 and 2 altogether admeasuring 24 cents of garden land lying contiguously and comprised in Re-survey 49/1A of Adukkathbail village in Kasaragod Taluk. There is also a residential house therein. The appellants agreed to sell the said properties including the residential house to the plaintiff as per Ext.A1 agreement. The total sale consideration fixed was Rs. 1,45,000/-. Rs. 55,000/- was paid by the plaintiff as earnest money. The sale deed was to be executed on or before 21-4-1993 on which day the balance amount of Rs. 90,000/- was to be paid by the plaintiff to the defendants who would thereupon execute the sale deed in favour of the plaintiff. 

14-02-1993 - The second defendant entered into Ext.B1 agreement with one Thimmappu for purchase of an item of immovable property for a total consideration of Rs. 60,000/-. A sum of Rs. 20,000/- was paid as earnest money to the said Thimmappu. The balance amount of Rs. 40,000/- was to be paid by the second defendant to the said Thimmappu on or before 14-5-1993 on which day the said Thimmappu would execute the sale deed in favour of the 2nd defendant. 

28-03-1993 - The plaintiff (who was examined in the case as P.W.1) went back to Calcutta in connection with his business. 

21-04-1993 - Pursuant to Ext.A1 agreement the balance amount of Rs. 90,000/- was to be paid on 21-4-1993 by the plaintiff to the defendants who would thereupon execute the sale deed in favour of the plaintiff. 

14-05-1993 - Was the last date for the second defendant to pay the balance amount to Thimmappu under Ext.B1 agreement. This was entered into by D2 in the legitimate expectation that the plaintiff herein would by them make available the balance amount of Rs. 90,000/- under Ext.A1 agreement. 

29-05-1993 - The defendants sent Ext. B2 lawyer notice to the plaintiff repudiating Ext.A1 agreement alleging that the plaintiff did not pay or make available the balance sale consideration as agreed (Ext. B2 notice sent to the plaintiff in his Kasaragod address was re-directed to his Calcutta address and received by the plaintiff on 14-6-1993). 

11/06/1993 - The plaintiff sent Ext.A2 lawyer notice to the defendants demanding specific performance of Ext.A1 agreement. 

14-07-1993 - The plaintiff executed Ext.A4 power-of-attorney from Calcutta authorising his son to institute the present suit. 

28-07-1993 - The present suit was filed. 

There is no dispute that until 29-05-1993 when the defendants sent Ext. B2 repudiation notice, the plaintiff did not send any notice to the defendants accusing them of any default. The plaintiff examined as P.W. 1 has admitted that both before and after Ext. A1 agreement, he was in Calcutta in connection with his business and it was his son Subair who was looking after his affairs in Kasaragod. In Ext.A2 lawyer notice the plaintiff has no allegation that the failure on his part to pay the balance consideration and prepare the sale deed was on account of the failure on the part of the defendants to hand over the prior title deeds. The defendants have specifically averred in paragraph 6 of the written statement that some of the original documents of title and photocopies of some of the documents were given to the plaintiff at the time of Ext.A1 agreement itself. That is presumably the reason why Ext.A1 does not contain any clause obliging the defendants to handover the prior title deeds to the plaintiff before executing the original deed of conveyance. Under Section 55 (1) (b) of the Transfer of Property Act, 1882 the obligation of the seller to produce the documents of title for the examination of the buyer, is only on the request of the buyer. The plaintiff has no case that he had made any request in that behalf. Eventhough P.W.1 during his cross-examination denied having received the prior title deeds at the time of Ext.A1, the fact remains that he had never sent any notice to the defendants accusing them of not furnishing the prior title deeds . Even in Ext.A2 lawyer notice there is no such allegation that the defendants committed default in making available the prior title deeds. The plaintiff examined as P.W.1 confessed that it was after coming to know of Ext.B2 repudiation notice sent by the defendants that he caused Ext.A2 lawyer notice to be sent to the defendants. It is pertinent to note that Ext.A1 property contains a residential house. The second defendant examined as DW1 has credibly deposed before Court it was for constructing a house that he entered into Ext.B1 agreement with one Thimaappu expecting that the plaintiff would by then pay the balance consideration as agreed. DW1 has further stated that he had asked the plaintiff before the latter went to Calcutta and thereafter approached the plaintiff's son to pay the balance sale consideration and take the sale deed but there was no favourable response. According to DW1 he lost Rs. 20,000/- paid as advance under Ext.B1 agreement with Thimmappu since he was unable to pay the balance sale consideration to Thimmappu within time as agreed. We have no reason to assume that Ext.B1 agreement for sale with Thimmappu was a "make believe". The trial Judge who held that there is nothing to show that the defendants suffered any loss on account of the failure on the part of the plaintiff to pay the balance sale consideration within the stipulated time, was really glossing over the evidence on record. The cat was out of the bag when P.W.1 made a clean breast from the witness box that in March 1993 he had only Rs. 40,000/- in cash being the total collection from his business and he had no other cash amount in his old bank account . Thus, at a time when he had the obligation to pay Rs. 90,000/- to the defendants as on 21-4- 1993, P.W.1 had only Rs. 40,000/- in cash with him and he had no other cash amount with him then. It is such a person who claims that his readiness and willingness to perform his part of the contract should be inferred and that time was not the essence of contract under Ext.A1 agreement. 

Whether time is the essence of contract ? The old conservative view when prices were stable and inflation was unknown 

10. The law relating to the question as to whether a specified time fixed by the parties for the performance of the obligations under a contract is the essence of such contract and the consequence of not adhering to such specified time, is to be found in Sec. 55 of the Indian Contract Act, 1872. The said Section reads as follows:- 

"55. Effect of failure to perform at a fixed time, in contract in which time is essential:- When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before a specified time, and fails to do such thing at or before a specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of essence of the contract. 

Effect of such failure when time is not essential:- If it was not the intention of the parties that time should be of the essence of contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure. 

Effect of acceptance of performance at time other than agreed upon:- If, in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of acceptance, he gives notice to the promisor of his intention to do so". 

The above provision does not explicitly say that in the case of sale of immovable property, time should never be regarded as the essence of contract or that there is a presumption against time being the essence of the contract . However, the Privy Council as well as the Courts in India have forged a principle on the same lines as were prevalent in England pursuant to Roberts v. Berry (1853) 3 DeG.M & G - 284; Tilley v. Thomas (1867) 3 Ch A 61 etc. (See Jamshed Kodaram Irani v. Burjorji Dhunjibhai - AIR 1915 P.C. 83). Following the above principles obtained under the law of England, the Supreme Court in Gomathinayagam Pillai v. Palaniswami Nadar - AIR 1967 SC 868 observed as follows:- 

"It is not merely because of specification of time at or before which the thing to be done under the contract is promised to be done and default in compliance therewith, that the other party may avoid the contract. Such an option arises only if it is intended by the parties that time is of the essence of the contract. Intention to make time of the essence, if expressed in writing, must be in language which is unmistakable; it may also be inferred from the nature of the property agreed to be sold, conduct of the parties and the surrounding circumstances at or before the contract. Specific performance of a contract will ordinarily be granted, notwithstanding default in carrying out the contract within the specified period, if having regard to the express stipulations of the parties, nature of the property and the surrounding circumstances, it is not inequitable to grant the relief. If the contract relates to sale of immovable property, it would normally be presumed that time was not of the essence of the contract. Mere incorporation in the written agreement of a clause imposing penalty in case of default does not by itself evidence an intention to make time of the essence". In Jamshed Kodaram Irani v. Burjorji Dhunjibhai, ILR 40 Bom. 289; (AIR 1915 PC 83) the Judicial Committee of the Privy Council observed that the principle underlying S. 55 of the Contract Act did not differ from those which obtained under the law of England as regards contracts for sale of land". 

Applying the principles to the facts before it the Apex Court stated thus:- 

"Fixation of the period within which the contract is to be performed does not make the stipulation as to time of the essence of the contract. It is true that appellants 1 and 2 were badly in need of money, but they had secured Rs. 3006 from the respondent and had presumably tide over their difficulties at least temporarily There is no evidence that when the respondent did not advance the full consideration they made other arrangements for securing funds for their immediate needs. Intention to make time of the essence of the contract may be evidenced by either express stipulations or by circumstances which are sufficiently strong to displace the ordinary presumption that in a contract of sale of land stipulations as to time are not of the essence. In the present case there is no express stipulation, and the circumstances are not such as to indicate that it was the intention of the parties that time was intended to be of the essence of the contract. It is true that even if time was not originally of the essence, the appellants could by notice served upon the respondent call upon him to take the conveyance within the time fixed and intimate that in default of compliance with the requisition the contract will be treated as cancelled. As observed in Stickney v. Keeble, 1915 AC 386 where in a contract for the sale of land the time fixed for completion is not made of the essence of the contract, but the vendor has been guilty of unnecessary delay, the purchaser may serve upon the vendor a notice limiting a time at the expiration of which he will treat the contract as at an end". 

In Govind Prasad Chaturvedi v. Hari Dutt Shastri - AIR 1977 SC 1005 a three Judges' Bench of the Supreme Court observed as follows:- 

"It is settled law that the fixation of the period within which the contract has to be performed does not make the stipulation as to time the essence of the contract. When a contract relates to sale of immovable property it will normally be presumed that the time is not the essence of the contract. (Vide Gomathinayagam Pillai v. Palaniswami Nadar, 1967 - 1 SCR 227 at page 233 = AIR 1967 SC 868 at p. 871. It may also be mentioned that the language used in the agreement is not such as to indicate in unmistakable terms that the time is of the essence of the contract. The intention to treat time as the essence of the contract may be evidenced by circumstances which are sufficiently strong to displace the normal presumption that in a contract of sale of land stipulation as to time is not the essence of the contract". 

Again in Smt. Indira Kaur v. Shri. Sheo Lal Kapur - AIR 1988 SC 1074 it was held thus:- 

" The law is well-settled that in transactions of sale of immovable properties, time is not the essence of the Contract". 

The position was re-examined by a Constitution Bench of the Supreme Court in Chand Rani v. Kamal Rani - AIR 1993 SC 1743 = (1993) 1 SCC 519 where it was observed as follows:- 

"It is well-accepted principle that in the case of sale of immovable property, time is never regarded as the essence of the contract. In fact, there is a presumption against time being the essence of the contract. This principle is not in any way different from that obtainable in England. Under the law of equity which governs the rights of the parties in the case of specific performance of contract to sell real estate, law looks not at the letter but at the substance of the agreement. It has to be ascertained whether under the terms of the contract the parties named a specific time within which completion was to take place, really and in substance it was intended that it should be completed within a reasonable time. An intention to make time the essence of the contract must be expressed in unequivocal language. The Constitution Bench then concluded as follows:-  

"25. From an analysis of the above case-law it is clear that in the case of sale of immovable property there is no presumption as to time being the essence of the contract. Even if it is not of the essence of the contract the Court may infer that it is to be performed in a reasonable time if the conditions are:-  

1. From the express terms of the contract;  

2. from the nature of the property; and  

3. from the surrounding circumstances, for example; the object of making the contract" 

Time for a re-thinking of the above principle 

11. In all cases where parties stipulated a particular period or date within which the contract was to be performed, courts were punctiliously applying the above principle to hold that time was not the essence of the contract regardless of the soaring prices of land. The above principle could hold good during times when the land prices were steady and there was no inflation. But situations have changed with the escalation of land prices and consequently it is high time that we applied revised standards. The steep rise in the price of oil following the 1973 Arab - Israeli war had set in inflationary trends all over the world. Those trends were visible in countries like India which meet bulk of their requirement of oil by importing the same from the Gulf countries. This led to the gradual re-visiting of the above principle. In K.S. Vidyanadam v. Vairavan - AIR 1997 SC 1751; Jeevan Reddi - J., who was a member of the Constitution Bench in Chand Rani's Case (supra), speaking for the Bench observed as follows:- 

"10. It has been consistently held by the Courts in India, following certain early English decisions, that in the case of agreement of sale relating to immovable property, time is not of the essence of the contract unless specifically provided to that effect. The period of limitation prescribed by the Limitation Act for filing a suit is three years. From these two circumstances, it does not follow that any and every suit for specific performance of the agreement (which does not provide specifically that time is of the essence of the contract) should be decreed provided it is filed within the period of limitation notwithstanding the time limits stipulated in the agreement for doing one or the other thing by one or the other party. That would amount to saying that the time-limits prescribed by the parties in the agreement have no significance or value and that they mean nothing. Would it be reasonable to say that because time is not made the essence of the contract, the time-limit(s) specified in the agreement have no relevance and can be ignored with impunity ? It would also mean denying the discretion vested in the Court by both Sections 10 and 20.  As held by a Constitution Bench of this Court in Chand Rani v. Kamal Rani (1993) 1 SCC 519; (1993 AIR SCW 1371), " it is clear that in the case of sale of immovable property there is no presumption as to time being the essence of the contract. Even if it is not of the essence of the contract. Even if it is not of the essence of the contract, the Court may infer that it is to be performed in a reasonable time of the conditions are (evident ?) (10 from the express terms of the contract ; (2) from the nature of the property and (3) from the surrounding circumstances, for example, the object of making the contract". In other words, the Court should look at all the relevant circumstances including the time limits(s) specified in he agreement and determine whether its discretion to grant specific performance should be exercised. Now in the case of urban properties in India, it is well-known that their prices have been going up sharply over the last few decades - particularly after 1973". 

Dealing with the argument that mere rise in prices of land was no ground for denying specific performance the learned Judge observed as follows:- 

"11. Sri. Sivasubrahmanium cited the decision of the Madras High Court in S.V. Sankaraninga Nadar v. P.T.S. Ratnaswamy Nadar, AIR 1952 Mad. 389 holding that mere rise in prices is no ground for denying the specific performance. With great respect, we are unable to agree if the said decision is understood as saying that the said factor is not at all to be taken into account while exercising the discretion vested in the court by law. We cannot be oblivious to the reality - and the reality is constant and continuous rise in the values of urban properties - fuelled by larger-scale migration of people from rural areas to urban centres and by inflation". 

Taking note of the instability in the prices of land and inflationary trends, the Bench concluded as follows:- 

"we are inclined to think that the rigor of the rule evolved by Courts that time is not of the essence of the contract in the case of immovable properties - evolved in times when prices and values were stable and inflation was unknown - requires to be relaxed, if not modified, particularly in the case of urban immovable properties. It is high time, we do so". 

Finally, the Bench in K.S. Vidyanadam evolved the following guidelines:- 

i) Courts, while exercising discretion in suits for specific performance, should bear in mind that when the parties prescribe a time/period, for taking certain steps or for completion of the transaction, that must have some significance and, therefore, time/period prescribed cannot be ignored. 

ii) Courts will apply greater scrutiny and strictness when considering whether the purchaser was "ready and willing" to perform his part of the contract. 

iii) Every suit for specific performance need not be decreed merely because it is filed within the period of limitation by ignoring the time-limits stipulated in the agreement. Courts will also 'frown' upon suits which are not filed immediately after the breach/refusal. The fact that limitation is three years does not mean a purchaser can wait for 1 or 2 years to file a suit and obtain specific performance. The three year period is intended to assist purchasers in special cases, as for example, where the major part of the consideration has been paid to the vendor and possession has been delivered in part performance,w here equity shifts in favour of the purchaser". 

The need for a re-look of the old principle has again been stressed in a recent decision of the Supreme Court in Saradamani Kandappan v. S. Rajalekshmi - AIR 2011 SC 3234:- 

24. The principle that time is not of the essence of contracts relating to immovable properties took shape in an era when market value of immovable properties were stable and did not undergo any marked change even over a few years (followed mechanically, even when value ceased to be stable). As a consequence, time for performance, stipulated in the agreement was assumed to be not material, or at all events considered as merely indicating the reasonable period within which contract should be performed. the assumption was that grant of specific performance would not prejudice the vendor- defendant financially as there would not be much difference in the market value of the property even if the contract was performed after a few months. This principle made sense during the first half of the twentieth century, when there was comparatively very little inflation, in India. The third quarter of the twentieth century aw a very slow but steady increase in prices. But a drastic change occurred from the beginning of the last quarter of the twentieth century. There has been a galloping inflation and prices of immovable properties have increased steeply, by leaps and bounds. Market values of properties are no longer stable or steady. We can take judicial notice of the comparative purchase power of a rupee in the year 1975 and now, as also the steep increase in the value of the immovable properties between then and now. It is no exaggeration to say that properties in cities, worth a lakh or so in or about 1975 to 1980, may cost a crore or more now.  

25 . The reality arising from this economic change cannot continue to be ignored in deciding cases relating to specific performance. The steep increase in prices is a circumstance which makes it inequitable to grant the relief of specific performance where the purchaser does not take steps to complete the sale within the agreed period, and the vendor has not been responsible for any delay or non-performance. A purchaser can no longer take shelter under the principle that time is not of essence in performance of contracts relating to immovable property, to cover his delays, laches, breaches and 'non- readiness'. The precedents from an era when high inflation was unknown, holding that time is not of the essence of the contract in regard to immovable properties, may no longer apply, not because the principle laid down therein is unsound or erroneous, but the circumstances that existed when the said principle was evolved, no longer exist. In these days of galloping increases in prices of immovable properties, to hold that a vendor who took an earnest money of say about 10% of the sale price and agreed for three months or four months as the period for performance, did not intend that time should be the essence, will be a cruel joke on him, and will result in injustice. Adding to the misery is the delay in disposal of cases relating to specific performance, as suits and appeals therefrom routinely take two to three decades to attain finality. As a result, an owner agreeing to sell a property for Rs. one lakh and received Rs. ten thousand as advance may be required to execute a sale deed a quarter century later by receiving the remaining Rs. Ninety Thousand, when the property value has risen to a crore of rupees". 

12. Eventhough as per Article 54 of the Limitation Act, 1963 the period of limitation for instituting a suit for specific performance is three years, when the parties to the contract have consciously fixed a lesser period for performance of the contract, there is no reason why the said period is not honoured by the parties. That was precisely what K.S. Vidhyanadam (supra) emphasised and approvingly followed in Saradamani Kandappan (supra). We cannot also ignore the offer of Rs. 9,60,000/- (Rupees nine lakhs sixty thousand only) made on behalf of the plaintiff to the appellants during the settlement talks pending this appeal and the disinclination of the appellants to accept the same . This tells upon the galloping of the land prices during this long 19 years. It will thus be grossly inequitable to hold that now after 19 years of the agreement the appellants/defendants should be compelled to perform their obligations under Ext.A1 on the ground that time was not the essence of the contract. 

DOES ABSENCE OF READINESS AND WILLINGNESS OPERATE AS A PERSONAL BAR TO RELIEF? 

13. Section 16 of the Specific Relief Act, 1963 enumerates three situations which operate as personal bars to the relief of specific performance of a contract . Section 16 reads as follows:- 

"16. Personal bars to relief:- Specific performance of a contract cannot be enforced in favour of a person - 

(a) who would not be entitled to recover compensation for its breach; or 

(b) who has become incapable of performing, or violates any essential term of the contract that on his part remains to be performed, or acts in fraud of the contract, or willfully acts at variance with, or in subversion of, th relation intended to be established by the contract, or 

(c) who fails to aver and prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented or waived by the defendant. 

Explanation - For the purposes of C1 (c )- 

(i) where a contract involves the payment of money, it is not essential for the plaintiff to actually tender to the defendant or to deposit in Court any money except when so directed by the Court; 

(ii) the plaintiff must aver performance of, or readiness and willingness to perform, the contract according to its true construction". 

We are in this case concerned only with clause (c ) of Section 16 of the specific Relief Act. In the written statement the appellants had specifically contended that the plaintiff was not ready and willing to perform his part of the contract. The argument on behalf of the respondent that no specific ground is taken in the memorandum of appeal regarding non-compliance of Sec. 16 ( c) of the Specific Relief Act, is not fully correct. Ground No. 11 of the Memorandum of Appeal says that the lower court ought to have dismissed the suit in the absence of an offer in the plaint to pay the balance consideration and in the absence of pleading showing readiness and willingness to perform the contract. Even otherwise, non-compliance of Sec. 16 (c ) of the Act is a pure question of law operating as a statutory interdict against the Court granting a decree for specific performance of a contract. It is well settled that a pure question of law can be raised for the first time even in a Court of last resort. (See Yeswant Deo Rao Deshmukh v. Wallchand Ramchand Kothari - AIR 1951 SC 16; Babri Prasad & Others v. Nagarmal and Others - AIR 1959 SC 599; Tharinikamal v. Perfulla Kumar - AIR 1979 SC 1165; The State of U.P. v. Shri Anand Swarup - AIR 1974 SC 125 and T.G. Appanda Mudliyar v. State of Madras - AIR 1976 SC 2450). 

14. Clause (c ) of Sec. 16 lays down a condition precedent to the enforcement of specific performance of a contract failing which it operates as a bar to the relief of specific performance to the plaintiff. The said condition is that the plaintiff must aver and prove that --- i) he has performed , or ii) he has always been ready and willing to perform, the essential terms of the contract which are to be performed by him. In a case where the plaintiff has already performed his part of the contract, there is no necessity to plead and prove readiness or willingness since nothing else remains to be done by the plaintiff . In such a case, the plaintiff need only plead and prove that he has performed his part of the contract . But in a case, as the present one, where the plaintiff has not performed either wholly or in part, his part of the contract, then the above provision obliges him to plead and prove that he has always been ready and willing to perform his part of the contract. Any omission either to plead or to prove the above aspect will be fatal to the plaintiff who stands the sure chance of being non-suited with regard to his claim for specific performance of the contract. 

Distinction between readiness and willingness 

15. A distinction may be drawn between readiness to perform the contract and willingness to perform the contract. Readiness means the capacity of the plaintiff to perform the contract and it includes his financial ability to raise the money to pay the purchase price . Even if the plaintiff has the financial capacity to pay the purchase price and he thereby shows readiness to perform the contract, that need not necessarily mean that he is willing to perform his part of the contract. Unless he is also willing to perform his part of the contract, mere readiness to do so cannot be of no avail to him. He may, nevertheless be disqualified from seeking specific performance of the contract if he is really unwilling to buy the property although he may be ready to do so. (See Raj Rani Bhasin (Smt. ) v. S. Kartar Singh Mehta - AIR 1975 Delhi 137). 

Consequence of failure to plead or prove readiness or willingness 

16. Courts have been very strict regarding this requirement of Sec. 16 (c ) of the Specific Relief Act which provision has been couched in negative terms. Section 16 (c ) is not an empty formality and readiness and willingness are to be proved right from the date of the contract till the date of the decree. In other words, the strict requirement of law is the continuous readiness and willingness. (See Ardeshir H Mama v. Flora Sassoon - AIR 1928 P.C. 208 ; Jugraj Singh and Another v. Labh Singh and Others - AIR 1995 SC 945; Kochappu v. Somasundaram Chettiar -1991 (1) KLJ 525; P.G. Sinha v. K.C. Chattterjee - AIR 1991 Calcutta 327). In the absence of a plea in the plaint regarding readiness and willingness no decree for specific performance can be granted to the plaintiff. (Prabhakaran v. Bhavani and Others - 1974 KLT 115 = AIR 1974 Kerala 153). In a suit for specific performance of a contract it is necessary for the purchaser to show that he was ready and willing to fulfill the terms of the agreement, that he had not abandoned the contract and that he had kept the contract subsisting . This burden is upon the purchaser. (Swarnam Ramachandran v. Aravacode Chakungal Jayapala -(2004) 8 SCC 689). A plea in the plaint by itself is not sufficient. There should also be proof of readiness and willingness. (Pushparani S. Sundaram and Others v. Pauline Manomani James - (2002) 9 SCC 582). 

In the present case the only averment in this connection made in paragraph 6 of the plaint is as follows:-

"The plaintiff is ready and willing to perform his part of the contract". 

The above averment at best would only indicate that the plaintiff was ready and willing to perform his part of the contract on 28-7-1993 when he instituted the suit. It does not show that he has been ready and willing to perform his part of the contract during the currency of the contract namely for the period from 19-01-1993 to 21-04-1993. There is thus, total lack of pleading to the effect that the plaintiff has been ready and willing to perform his part of the contract from 19- 01-1993 till at least the date of filing the suit. It has already been seen that the plaintiff, as a matter of fact, was not ready and willing to perform his part of the contract and the cash amount in his possession in March 1993 was only Rs. 40,000/- (Rupees forty lakhs only) as against the required amount of Rs. 90,000/- (Rupees ninety thousand only). Even the trial court, on evidence, held that the plaintiff was not having sufficient cash with him but came to the strange conclusion that the plaintiff was ready and willing to perform his part of the contract. The said conclusion was one which no court well instructed in law could reach. At no point of time during the subsistence of Ext. A1 contract had the plaintiff called upon the defendants by a notice to receive the balance sale consideration and to execute the sale deed. The plaintiff has thus failed to discharge the statutory obligation on him to prove that he was ready and willing to perform his part of the contract. Hence, this is a case where the plaintiff was not only not ready and willing to perform his part of the contract but has also failed to plead the same in the plaint as enjoined by law. For that reason also the suit is liable to be dismissed. 

"MEANING OF 'EARNEST MONEY" 

17. Earnest money paid by the vendee (purchaser, buyer) is part of the purchase price and is adjusted as such when the transaction goes forward; it is forfeited when the transaction falls through by reason of the fault or failure of the vendee. Earnest money is thus money paid in advance to bind a bargain and it represents a guarantee for the due performance of the contract. But an amount deposited by the vendor (seller) claiming as security for guaranteeing due performance of the contract and which is to stand forfeited in case the vendor neglects to perform his part of the contract cannot be regarded as earnest money. Forfeiture of a reasonable amount paid as earnest money under a contract does not amount to imposing a penalty so as to attract section 74 of the Indian Contract Act. (Vide Chiranjit Singh v. har Swarup - AIR 1926 PC 1; Maula Bux v. Union of India - AIR 1970 S.C. 1955 (3 Judges); Delhi Development Authority v. Grihasthapana Co-operative Group Housing Society Ltd.- AIR 1995 SC 1176, 1312; In the matter of HUDA v/s. Kewal Kishan Geol - AIR 1996 SC 1981). But, if forfeiture is in the nature of penalty, then Sec. 74 applies. Where under the terms of the contract the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he has already paid to the party complaining of a breach of contract, such undertaking is in the nature of a penalty. (See Maula Bux (supra). Earnest money is thus a token or nominal payment made before hand by the buyer as a sign of good faith specifically as part of the purchase price to bind the seller. 

18. The question, therefore, is whether the sum of Rs. 55,000/- paid by the plaintiff to the defendants under Ext.A1 agreement for sale and described therein as "earnest money" is liable to be forfeited if the plaintiff is found guilty of breach of Ext.A1 contract. A reading of Ext.A1 shows that eventhough the said amount of Rs. 55,000/- is described as "earnest money" it is only paid by way of part payment, the total consideration being Rs. 1,45,000/- and Ext.A1 further recites that the balance amount payable by the plaintiff on or before the date fixed for executing the sale deed is Rs. 90,000/-. There is no provision in Ext.A1 enabling the defendants to forfeit the earnest money in the event of any breach committed by the plaintiff. On the contrary, Ext.A1 recites that if the plaintiff does not pay the balance sale consideration to the defendants before the date stipulated in the agreement and thereby fails to get the sale deed executed by the defendants, the plaintiff shall be liable for all the losses and expenses incurred by the defendants. If so, the sum of Rs. 55,000/- paid under Ext.A1 was only advance amount liable to be returned to the plaintiff in case the agreement fell through but of course, after deducting the loss sustained by the defendants. 

OUR CONCLUSION 

19. The result of the following discussion is that the findings recorded by the court below that time was not the essence of the contract and that the plaintiff has succeeded in pleading and proving that he was ready and willing to perform his part of the contract, are unsustainable and are, accordingly, dislodged. The relief of specific performance of Ext.A1 agreement will stand disallowed and the suit will stand dismissed. But the defendants who had admittedly received Rs. 55,000/- by way of earnest money are bound to return the same after deducting the loss sustained by them. We see no reason to disbelieve DW1 who has given evidence in support of the averment in the written statement that due to the failure on the side of the plaintiff to fulfill his part of the contract the defendants sustained a loss of Rs. 20,000/- paid as advance under Ext.B1 agreement. The defendants/appellants shall therefore return the balance amount of Rs. 35,000/- (Rupees thirty five thousand only) with interest due thereon at the rate of 6% per annum from 19-01-1993 till realisation. The appellants shall deposit the said amount of Rs. 35,000/- (Rupees thirty five thousand only) and the interest thereon before the trial Court within two months from today failing which the plaintiff will be entitled to recover the same from the appellants by executing this decree. 

In the result, this appeal is allowed in part as above refusing the relief of specific performance to the plaintiff but directing the appellants to return to the plaintiff Rs. 35,000/- (Rupees thirty five thousand only) with 6% interest thereon as above. Having regard to the facts and circumstances of the case parties shall bear their respective costs in this appeal. 

Dated this the 31st day of January, 2012. 

Sd/- V. RAMKUMAR, JUDGE. Sd/-K.HARILAL, JUDGE 

/true copy/ P.S. to Judge ani/