Summary
The Supreme Court upheld a decree for specific performance of a 2000 agreement to sell agricultural land in favour of the original vendees against subsequent purchasers. Because the agreement was not determinable in nature, the vendors' unilateral termination on grounds unrelated to any default by the vendees (a pending third-party suit with a status quo order and a vendor's death), without refunding the money, was invalid, and the vendees needed no declaration against it. The subsequent purchasers, who admittedly saw the termination notice yet made no inquiry, were not bona fide purchasers without notice under Section 19(b); the Court, however, required the vendees to pay the balance with 16% interest and an additional Rs. 5 crore.
Issues
- Whether a suit for specific performance is maintainable without a prayer for declaration that the vendors' termination of the agreement to sell was invalid.
- When unilateral termination of an agreement to sell is permissible, and whether the agreement in this case was in its nature determinable.
- Whether the subsequent purchasers were transferees for value in good faith without notice of the prior agreement under Section 19(b) of the Specific Relief Act, 1963.
- Whether the original vendees proved continuous readiness and willingness under Section 16(c).
- Whether the subsequent purchasers could reopen limitation, and whether the agreement was unenforceable because one joint vendee did not join in seeking specific performance.
Provisions considered
- Section 14 (contracts in their nature determinable), Specific Relief Act, 1963The Court held that unilateral termination of an agreement to sell is impermissible unless the agreement is determinable in nature, meaning terminable at will or without cause even when the other party is ready and willing. An agreement with no termination clause, terminable only for breach of a condition, is not determinable; the agreement here fell in that category. (¶¶ 43, 44, 45, 46, 47, 48, 49, 62, 63, 64, 65, 66)
- Sections 27 and 31, Specific Relief Act, 1963A party claiming valid reasons to rescind a non-determinable agreement should ideally itself approach the court for a declaration; but since these sections say 'may sue', they give an option and do not compel the terminating party to sue, nor cast the burden on the non-terminating party. (¶¶ 34, 43, 56)
- Section 19(b), Specific Relief Act, 1963Specific performance may be enforced against a subsequent transferee unless he is a transferee for value who paid in good faith without notice of the original contract. The subsequent purchasers, having admittedly received the termination notice disclosing the agreement and the vendees' particulars, failed to make inquiry and could not claim this protection. (¶¶ 68, 75, 76, 77, 78, 79, 80, 81)
- Section 3 (definition of 'a person is said to have notice'), Transfer of Property Act, 1882Notice includes knowledge a person would have had but for wilful abstention from inquiry or gross negligence; read with Ram Niwas v. Bano, notice may be actual, constructive or imputed, and the purchasers' deliberate abstention from inquiry fixed them with notice. (¶¶ 68, 70, 79, 80)
- Section 3(22), General Clauses Act, 1897Read with the definition of 'good faith' in Section 2(11) of the Bharatiya Nyaya Sanhita, 2023 (which requires due care and attention), the Court held that good faith under Section 19(b) requires both honesty and due care, each complementing the other. (¶¶ 71, 72, 73, 74)
- Section 16(c), Specific Relief Act, 1963The plaintiff must plead and prove continuous readiness (financial capacity) and willingness (conduct). The vendees' part-payments, assistance in tenure conversion and relocation of tenants, prompt rebuttal of the termination and pursuit of remedies established readiness and willingness, and the trial court's finding was not perverse. (¶¶ 82, 83, 84, 85, 86)
Held
- An appellate court is not precluded from examining whether the jurisdictional fact for specific performance exists, including whether a declaration against termination was required, even though no issue on maintainability was framed at trial, provided no new facts or evidence are needed. (¶ 30)
- Unilateral termination of an agreement to sell is impermissible except where the agreement is determinable under Section 14; permitting it as a defence would let defendants frustrate every suit for specific performance. Where a non-determinable agreement is terminated unilaterally and not for bona fide reasons, the termination is a repudiatory breach, the agreement remains subsisting and executable, and the plaintiff may sue for specific performance without seeking a declaration. Where the contract itself confers a right to terminate and that right is exercised, a declaration may be needed. (¶¶ 42, 43, 61)
- A contract is determinable in nature only if a party may end it at will or without cause even while the other party is ready and willing to perform; a contract terminable for breach, or one without a termination clause that can end only on breach of a condition, is not determinable. The agreement here, whose performance was tied to the vendors' own acts of tenure conversion and intimation of sub-division, contained no termination or forfeiture clause and was not determinable. (¶¶ 48, 49, 52, 63, 64, 65, 66)
- Pendency of a third-party suit with a status quo order could at most suspend performance, and the death of one vendor did not discharge the others, whose heirs could perform; these grounds were extraneous pretexts of convenience. Calling on the vendees to 'take back' the earnest money without actually tendering it showed the termination was not genuine, since a valid termination requires restitution of benefits received. (¶¶ 54, 55, 56, 61)
- I.S. Sikandar and Sangita Sinha were distinguished: in the former the purchaser defaulted despite repeated opportunities, and in the latter the buyer accepted the repudiation by encashing the refund; here there was no prior call to perform, no default by the vendees and no refund. (¶¶ 57, 58, 59)
- To claim protection under Section 19(b), a subsequent purchaser must show purchase for value, payment in good faith and absence of actual, constructive or imputed notice; good faith requires both honesty and due care and attention. (¶¶ 68, 73, 80)
- A purchaser who is shown a termination notice disclosing the prior agreement, its material terms and the vendees' names and addresses, and which on its face shows a conditional 'deemed' cancellation grounded in the vendors' own inconvenience, must inquire whether the money was refunded or the termination contested; relying solely on the vendors' word amounts to designed abstention from inquiry and defeats the claim to be a bona fide purchaser. (¶¶ 75, 76, 77, 78, 79, 81)
- Continuous readiness and willingness under Section 16(c) is judged by the plaintiff's overall conduct before and after the suit, viewed with the defendant's conduct; the vendees satisfied this test and the concurrent finding was upheld. (¶¶ 82, 83, 85, 86)
- The subsequent purchasers, having not challenged before the High Court the trial court's finding that the suit was within limitation, could not reopen it in the Supreme Court. (¶ 87)
- The objection that the agreement was indivisible and unenforceable without all vendees failed, because the non-participating vendee had released and relinquished his rights in favour of the remaining vendees, in whom the right to enforce vested. (¶ 88)
Result
Appeals dismissed. The subsequent purchasers are to execute the sale deed and deliver vacant possession to the original vendees within six months, but only after the vendees pay the balance consideration of Rs. 18,83,001 with interest at 16% per annum from the date of the agreement and an additional Rs. 5,00,00,000 within six months; parties at liberty to approach the Court on default or difficulty.