Author: Hansie Singh Nagpal, 4th year student at VIPS affiliated to Indraprastha University, Delhi.
Citation: R/SECOND APPEAL NO. 116 of 2020
Date of Decision: 31st March, 2021
Bench: Justice Vaibhavi D. Nanavati
Issue in question:
- Whether there was a concluded contract between the plaintiffs and the defendants?
- Whether the plaintiffs/appellants are entitled to specific performance of the contract or in the alternative to get damages and if entitled to damages, then to what extent?
Background of the case:
- The plaintiff- appellant signed a contract for purchase of a flat which was to be constructed by the defendants-respondents.
- The defendant-respondents were the owner of the land and had decided to construct apartments over the area.
- The plaintiff- appellant had given an advance payment of ₹11, 000. The land was acquired by the Income tax department. Later, the acquisition was dropped and the same was communicated to the defendant-respondents.
- The plaintiff- appellant had assured of bearing the reasonable costs to complete the construction but did not agree to revocation of contract.
- When no response came from the defendant-respondents, the plaintiff- appellant filed three suits of specific performance. They appealed both the order of the trial court and the order of the Court of first appeal under section 100 of CPC.
Judgment of the Court:
- Section 14 of the Specific performance Act, 1963 lays down the kind of contracts, which are not specifically enforceable. In this particular case, the contract was one which required continuous supervision.
- The minute details and terms of mode of execution of contract were not in writing.
- The plan of construction of flats was not sanctioned by the state municipal corporation.
- The plaintiff did not pay a considerable amount; only 5-10% of the total was paid in advance. This means that the plaintiff had enough cushion to reinvest the money earmarked for the construction of flats into some other venture in the vicinity to reap better returns. This again, implies that the plaintiff was not entirely committed to discharge his obligations under the contract.
- The court held that under the Indian law of specific performance, there is no mandate on the court to execute a specific performance even if it is legal to do so.
- Where specific performance cannot be granted, the court can grant compensation according to section 21 of the Act. Under section 21, compensation can only be granted when a plea for the same is made by the aggrieved party. Compensation so granted shall be made in accordance with principles laid down in sec 17 of the Contract Act.
- Court observed that Section 100 of CPC should be used sparingly and should only be used by the High Court to interfere with the findings of the first appellate court, which is the final court of facts only when the same is found to be perverse. The appellate court found the contract to be devoid of any material promise and rather found the obligations not to be mutually agreed upon.
- The court finally upheld the view held by the appellate court. As for the compensation, the court upheld the alternative prayer for the determination of the same; amount to be paid i.e., the prevailing market value of the flat with 12% pa of interest.
- Under the new 2018 amendment to the specific relief act, the aggrieved party cannot claim specific compensation if the performance of the contract warrants continuous duty which the courts cannot keep a supervision on. Earlier, the courts were given wide discretion to grant specific performance in favour of the aggrieved party. Now, the amendments in pursuit of the ‘Ease of doing business’ initiative were made to formalize the conditions under which such orders can be made.
Section 14 lays down the conditions under which specific performance shall not be granted:-
- A contract where a party has obtained substituted performance of the contract in accordance with the provisions of Section 20 of the Act;
- A contract, the performance of which involves the performance of a continuous duty which the court cannot supervise;
- A contract which is so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms; and
- A contract, which, by its nature, is determinable.
- Sometimes it is not favorable to grant specific performance in infrastructure projects as it leads to prolonged impediments. It is therefore important to invoke substitution enforcement clauses to continue the work by appointing an agent or a third party in case of breach of contract. Recent amendments of 2018 have added and expanded the interpretation of such commercial contractual clauses.