Summary
Owners of agricultural land in Gurgaon agreed in 2004 to sell it for Rs 79 lakh an acre. The buyer paid Rs 22.9 lakh as earnest money. The agreements fixed 16 August 2004 for execution and made the buyer responsible for obtaining all NOCs. He did not appear at the registry and sued for specific performance only in 2006. When the land was acquired, all three courts below decreed refund of the earnest money on the ground of unjust enrichment. The Supreme Court allowed the sellers' appeal and dismissed the suit. Time was of the essence and the buyer delayed. No NOC was required for agricultural land. Under Section 22(2) of the Specific Relief Act, refund could not be granted because it was never prayed for. The buyer never pleaded that the forfeiture was penal, so it was reasonable under Section 74 of the Contract Act.
Issues
- Whether time was of the essence of the agreements to sell, disentitling the buyer to specific performance, and whether the sellers were shown to have wilfully avoided performance.
- Whether the courts could decree refund of earnest money that was not claimed in the plaint, and whether its forfeiture was penal under Section 74 of the Contract Act.
Provisions considered
- Sections 55 and 74, Indian Contract Act, 1872The agreements and legal notices made time-bound performance essential, so the contract became voidable on the buyer's default; and where a contract describes a sum as earnest money, the party seeking its refund must prove that it is penal, failing which it is treated as a genuine pre-estimate of loss. (¶¶ 21, 22, 35, 38)
- Section 22, Specific Relief Act, 1963Refund of earnest money is an alternative relief that can be granted only if specifically claimed in the plaint or by amendment; the buyer never sought it, and courts cannot grant it suo motu. (¶ 31)
- Sections 2(o) and 7A, Haryana Development and Regulation of Urban Areas Act, 1975No NOC under Section 7A was needed because the land was agricultural on the date fixed for execution and was brought within the Gurugram municipal limits only on 02.06.2008; the 'urban area' plea was raised for the first time and unproved. (¶¶ 27, 28)
Held
- The agreements provided for cancellation and forfeiture if the sale deed was not executed on 16.08.2004, and the sellers' notices reiterated that time was of the essence; following Saradamani Kandappan, the courts frown on suits not filed promptly after breach, and with the buyer suing only in 2006 specific performance was refused, including for the small area later released from acquisition. (¶¶ 20, 22, 23, 24)
- Clause 8 plainly made the buyer liable to secure all NOCs and he led no evidence of taking any steps, so non-cooperation by the sellers was not shown; the High Court, in second appeal, wrongly re-appreciated the concurrent finding that the sellers' affidavits of attendance before the Sub-Registrar were proved. (¶¶ 25, 26, 27, 29)
- The decree rested on the fallacy that the contract became impossible on acquisition and the sellers were unjustly enriched; the agreements stood terminated by their own terms, refund was never prayed for, the penal nature of the forfeiture was never pleaded, and following Satish Batra and ONGC v. Saw Pipes the forfeiture was justified as reasonable compensation under Section 74. (¶¶ 31, 34, 35, 36, 37, 38)
Result
Civil Appeal No. 921 of 2022 allowed without costs; the Punjab and Haryana High Court judgment dated 15.05.2019 in RSA No. 1847 of 2017 and the decrees of the courts below set aside, and the buyer's suit dismissed.