Supreme Court

Desh Raj and Ors. Vs. Rohtash Singh

MANU/SC/1615/2022

14.12.2022

Contract

Prayer Clause is a sine qua non for granting decree of refund of earnest money

The present appeal is directed against the judgment passed by the High Court whereby a second appeal preferred by the Appellants was dismissed and judgment and decree of the Trial Court as well as the First Appellate Court were affirmed. The decree entitled the Respondent for the recovery of earnest money, which constituted of partly paid sale consideration in lieu of the concerned agreements to sale along with requisite interest.

The Sale Agreements in the present case clearly indicate the intention of the parties to treat time-bound performance as an essential condition. They stipulate that in case the sale deed was not executed on the Date of Execution, the Sale Agreements were liable to be treated as cancelled, and the earnest money was to be forfeited. Even in the legal notices dated 18.08.2004, through which last opportunity was extended to Respondent to execute the sale deed, the factum of time being an essential condition for performance was reiterated. On the other hand, no evidence or communication has been brought on record by the Respondent to contradict the defense of time-bound performance taken by the Appellants.

It was the clear intention of the parties to treat time as the essence of the contract and that there was an undue delay on behalf of the Respondent to institute the suit, the relief of specific performance cannot be granted. The evidence on record clearly indicates that they gave duly signed blank proformas and relevant documents to the Respondent in order to obtain any necessary sanction or NOCs. This was done in order to fulfil the obligation Under Clause 8 of the Sale Agreements. Since Respondent has led no evidence to indicate that he took any proactive steps to obtain the purported NOC necessary to execute the sale deed, the plea of non-cooperation against the Appellants in respect of obtaining the NOC are not made out by the Respondent.

Unless a Plaintiff specifically seeks the refund of the earnest money at the time of filing of the suit or by way of amendment, no such relief can be granted to him. The prayer Clause is a sine qua non for grant of decree of refund of earnest money. The Respondent has neither prayed for the relief of refund of earnest money in the original plaint nor he sought any amendment at a subsequent stage. In the absence of such a prayer, it is difficult to accept that the courts would suo-moto grant the refund of earnest money irrespective of the fact as to whether Section 22(2) of Specific Relief Act, 1963 is to be construed directory or mandatory in nature.

The decree granted by the courts below was hinged on a logical fallacy wherein the Appellants were held to be unjustly enriched on the premise that, the contract was rendered impossible to perform due to acquisition proceedings. On the contrary, the contract automatically stood terminated as per the stipulated contractual terms. The Sale Agreements should have been rightly held to be terminated instead of being declared impossible to perform.

The forfeiture was justified and within the confines of reasonable compensation as per Section 74 of Contract Act, 1872 in light of the fact that during the entirety of proceedings - firstly the nature of forfeiture was never contested by the Respondent and secondly the Respondent never prayed for the refund of earnest money. Consequently, the judgments rendered by the Courts below deserve to be set aside and the suit is liable to be dismissed. Appeal allowed.

Tags : Sale Agreements Termination Specific performance

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