REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6437 OF 2011
(Arising out of Special Leave Petition (C)
No.28251/2008)
M/s Citadel Fine Pharmaceuticals ...
Appellant(s)
- Versus -
M/s Ramaniyam Real Estates P. Ltd. & Anr.
...Respondent(s)
WITH
CIVIL APPEAL NO. 6438 OF 2011
(Arising out of Special Leave Petition (C)
No.31269/2008)
M/s Ramaniyam Real Estates P. Ltd. ...
Appellant(s)
- Versus -
M/s Citadel Fine Pharmaceuticals & Anr.
...Respondent(s)
J U D G M E N T
GANGULY, J.
1
1. Leave is granted in both the special leave
petitions.
2. These appeals have been preferred from the
judgment and final order dated 2nd
September, 2008 passed in O.S.A.
No.332/2007 and C.M.P. No.1/2007 by the
Division Bench of the Madras High Court.
3. The controversy arose out of a suit of
specific performance. M/s. Citadel Fine
Pharmaceuticals (defendant No.1), a
partnership firm, owned 66 cents of
agricultural land (hereinafter `the suit
property'), forming a part of total of
2.87 acres of agricultural land in survey
nos. 363, 364, 366/1 of Velachery village,
Mamblam, Guindy Taluk, Registration
District of Madras, and entered into an
agreement for sale of the suit property
(hereinafter `the agreement') for a
consideration of Rs.1,00,00,000/- with
2
M/s. Ramaniyam Real Estates Private
Limited (plaintiff), which was a company
incorporated under the Companies Act, 1956
and engaged in the business of
constructing buildings.
4. The agreement dated 7th July, 1995 was the
subject matter of suit between the above
parties. As per the agreement,
Rs.10,00,000/- of the sale consideration
was to be paid upfront as earnest money,
and the remainder of Rs.90,00,000/- was to
be paid at the time of the registration of
the sale deed. At the time of agreement,
the suit property was encumbered by way of
security with M/s. State Bank of India,
Guindy Branch (defendant No.2) and
therefore one of the conditions of the
agreement was that defendant No. 1 would
get the suit property released from such
encumbrance before the final payment of
3
Rs.90,00,000/- was to be made. Apart from
this encumbrance, it was stated in the
agreement, the suit property was to be
without any other encumbrance; vide
clauses 2 and 6 of the agreement.
5. Of the said 66 cents, however, 19 cents
were considered excess urban vacant land
under the Tamil Nadu Urban Land (Ceiling
and Regulations) Act (24 of 1978),
(hereinafter `the Tamil Nadu Act'). As per
clause 7 of the agreement, it was for the
plaintiff to have the land cleared for
sale from the urban land ceiling
authorities. Under clauses 8, 10 and 11 of
the agreement, the sale was made time
bound. Clause 10 stated that time was the
essence of this contract. Clause 8
mandated that under all circumstances, the
sale had to materialize within a year from
the date of the agreement. In terms of
4
clause 9, if the sale failed on account of
lapses on plaintiff's part, the sale was
to stand completely cancelled, and the
earnest money of Rs.10,00,000/- was to be
returned. As per clause 11, however, if
the sale failed because of defendant No.
1, the plaintiff was at liberty to sue for
specific performance of the contract.
6. In pursuance to the agreement, the earnest
money was paid by the plaintiff and
received by defendant No. 1. The plaintiff
then preferred an application in Form 37-I
prescribed under Rule 48-L of the Income
Tax Rules, 1962, before the Appropriate
Authority for the clearance of the suit
property for sale vide section 269UC in
Chapter XX of the Income Tax Act, 1961.
7. However, the Income Tax Authority refused
such clearance on the ground that as per
5
section 6 of the Tamil Nadu Act, agreement
to sell a piece of urban land declared
excess vacant land, or a piece of land,
part of which had been declared excess
vacant urban land, was deemed as null and
void.
8. From the Statement and Objects and Reasons
of the Tamil Nadu Act it appears that it
was enacted to impose a ceiling on the
quantum of land that could be held or
owned within an urban agglomeration. The
object of the Act was to prevent
concentration of ownership of urban land
in the hands of a few, and to regulate the
construction of buildings on such lands,
speculative trading of urban land and
illegal profiteering. Under the Act, the
ceiling limit had been fixed by Section 5.
Section 6 of the Act prevented transfer of
6
such excess vacant urban land by its owner
to any other person. Section 6 is set out:
6. Transfer of vacant land. - No person holding
in excess of the ceiling limit immediately
before the commencement of this Act, vacant
land, shall transfer any such land or part
thereof by way of sale, mortgage, gift, lease or
otherwise until he has furnished a statement
under section 7 and a notification regarding the
excess vacant land held by him has been
published under sub section (1) of section 11;
and any such transfer made in contravention of
this provision shall be deemed to be null and
void.
9. The section thus enjoined that landowners
holding excess vacant land are to furnish
a statement under Section 7. In this case,
19 cents were considered excess urban
vacant land vide case no. R.C.6160/86 and
defendant No. 1 filed its statement under
Section 7.
10. Section 9 provided for preparation of a
draft statement as regards the excess
vacant land. Under clause (5) of Section
7
9, the Competent Authority, so designated
under the Tamil Nadu Act, was to consider
objections preferred by a land owner, and
then pass orders with respect to the
question of excess land. Defendant no. 1
preferred its objections before the
Competent Authority. The objections
however were dismissed. The defendant no.
1 then preferred an appeal before the
Special Commissioner (Land Reforms),
Madras and the appeal was kept pending.
11. In accordance with Section 11 (1), a
notification regarding the 19 cents being
excess vacant land was published and any
transfer made in contravention of this
provision was deemed to be null and void.
Section 11 provided for acquisition of
such vacant urban land by the State
Government.
8
12. Defendant no. 1 also preferred an
application for exemption of that 19 cents
of land under the provisions of Section
21. Section 21 empowered the State
Government to exempt a piece of vacant
excess land from acquisition mentioned
above.
13. That application was also dismissed.
Defendant no. 1 then preferred Writ
Petition No. 13906/2008 before the High
Court challenging the declaration in R. C.
6160/86. In the writ petition, defendant
no. 1 prayed for a stay of the proceedings
and which was allowed. However, during the
pendency of this writ petition the Tamil
Nadu Act was repealed on 16th June, 1999 by
the Tamil Nadu Urban Land (Ceiling and
Regulation) Repeal Act, 1999 (20 of 1999)
(hereinafter `the Repealing Act'). Under
Section 4 of the repealing Act, all
9
proceedings relating to any order made or
purported to be made under the Principal
Act, that is the Tamil Nadu Act, shall
abate. Section 4 of the Repealing Act is
as follows:-
"4. Abatement of legal proceedings. - All
proceedings relating to any order made or
purported to be made under the Principal Act
pending immediately before the commencement of
this Act before any court, tribunal or any
authority shall abate.
Provided that this section shall not apply to
the proceedings relating to Sections 12, 13, 14,
l5, 15-B and 16 of the Principal Act in so far
as such proceedings are relatable to the land,
possession of which has been taken over by the
State Government of any person duly authorised
by the State Government in this behalf or by the
competent authority."
14. Admittedly, possession of 19 cents of
land, in respect of which proceeding was
pending, was not taken over by the
Government. So the pending proceeding in
respect of that land under the Principal
Act, that is the Tamil Nadu Act, shall
10
abate in view of Section 4 of the
Repealing Act.
15. However, Income Tax authorities, as noted
above, had refused to process Form 37-I in
view of the proceedings initiated under
the Tamil Nadu Act. Having referred to
section 6 of the Act, the appropriate
authority, while rejecting form 37-I
stated:
"...In column 8, it has been mentioned that an
extent of 19 cents has been declared as excess
vacant land under section 9 (5) of Tamil Nadu
Urban Land (Ceiling and Regulations) Act, 1978
that an appeal is pending before the Special
Commissioner (Land Reforms), Madras and that the
transferor has also applied to the State
Government for exemption under Section 21 of the
said Act but the same has been rejected and the
matter is pending in W. P. No. 13906/1988,
before the High Court, Madras.
2. It transpires, therefore, that the
transferor intends to transfer the entire extent
of 66 cents, inclusive of the 19 cents of land
which is declared as excess vacant land by the
Competent Authority under the Urban Land Ceiling
Act, which is prohibited by section 6 of the
Tamil Nadu Urban Land (Ceiling and Regulations)
Act, 1978. ....
In view of the prohibition contained in
section 6, quoted above, the agreement entered
into between the parties on 7.7.95 to transfer
11
the entire land, including the excess vacant
land of 19 cents, shall be deemed to be null and
void. In view of this legal prohibition, we are
unable to process the 37-I statement filed by
you and therefore, the same is lodged in this
office. If you are so advised, you may file a
fresh 37-I statement for transfer of the balance
land only."
16. As per clause (7) of the agreement, it was
the plaintiff's responsibility to have the
suit property cleared for sale by the
urban land ceiling authorities. Since Form
37-I was not cleared, the plaintiff sent
two letters dated 10th June, 1996 and 3rd
July, 1996 to the defendant requesting
that the sale be split up and two separate
agreements be entered into. The first for
the unencumbered 47 cents and the second
for 19 cents termed as the excess land by
the urban land ceiling authority. This
proposal was rejected by the defendant no.
1 on the grounds that the agreement is not
divisible. According to defendant No.1,
12
the splitting up of the agreement into two
in effect meant the writing of an entirely
new contract. The bar under section 6 of
the Tamil Nadu Act, as pointed out by the
Appropriate Authority was applicable not
only in respect of the 19 cents of land
termed as excess, but in fact the entire
66 cents for the reason that the said 19
cents could not be severed from the 66
cents. The defendant No.1 urged that the
contract was hit by illegality and was
thus frustrated.
17. The plaintiff, the proposed purchaser,
under these circumstances instituted on 9th
September, 1998 the suit for specific
performance of the contract, viz. C. S.
589/1996 for the entire 66 cents of land.
18. The plaint case is that at the time the
agreement for sale was entered into, it
13
was known to both the parties that 19
cents of the suit property had been
declared excess land under the Tamil Nadu
Act, and that an appeal to the Special
Commissioner (Land Reforms), Madras was
pending. It also submitted that the
parties knew that a writ petition
challenging the State Government's refusal
to exempt the property under section 21 of
the Tamil Nadu Act was also pending. With
knowledge the parties entered into the
agreement to sell. The plaintiff submitted
that this meeting of minds was reflected
in clause 7 of the agreement. There was
thus no new and unforeseen development
leading to the frustration of contract as
such the relief for specific performance
of the contract was prayed or in the
alternative, it was prayed the plaintiff
be allowed a refund of the earnest money
with an interest of 25% per annum and
14
liquidated damages to the tune of
Rs.75,00,000/- along with costs.
19. The defendant, the proposed vendor,
resisted the suit by submitting that the
agreement to sell was with respect to the
entire suit property, i.e. 66 cents, and
thus could not have been split into
separate agreements to sell for 47 cents
and 19 cents. It submitted that in view of
the bar placed because of section 6 of the
Tamil Nadu Act and the consequential
refusal by the appropriate authority under
the income tax department to allow the
execution of the sale, the contract itself
had become frustrated and thus
unenforceable in law.
20. It was further urged that time was the
essence of the contract and it was for the
plaintiff purchaser to seek exemption for
15
the said 19 cents land from the urban land
ceiling department, which however it
failed to do. As a result of this failure,
the sale could not be affected within a
year's time. This clearly rendered the
contract void in terms of clauses 8 and 10
insofar as the contract was not performed
within a year's time. Hence, clause 9 was
attracted and the contract stood cancelled
for default of the plaintiff. It submitted
that in terms of clause 9, the proposed
vendor (defendant no.1) refunded the
earnest money to the plaintiff-purchaser.
However the cheque sent under registered
post came back to the defendant no. 1
`refused'. It appears that the same
refused by the plaintiff-purchaser either
by 6th or 7th September, 1996.
21. As such the defendant no. 1 prayed for
dismissal of the suit in view of
16
impossibility of performance of the
contract and non-performance by the
plaintiff of its obligation under the
contract within the stipulated time.
22. However, the learned Single Judge held
that the suit property was in respect of
agricultural land and not about an urban
land as contemplated under the Tamil Nadu
Act. It was further noted by the learned
Judge that as the Tamil Nadu Act had been
repealed in 1999, its application itself
would be limited to only those instances
where possession of the excess vacant land
had been taken over by the State
Government.
23. The learned Judge noted that the suit
property in the instant case did not
attract any of the provisions mentioned in
Section 3 of the Repealing Act. According
17
to the learned Judge, there were two
reasons for which the provisions of Tamil
Nadu Act would not apply to the instant
agreement: firstly, the suit property was
agricultural in nature and thus the same
was outside the purview of the Act.
Secondly, after the repeal of the Tamil
Nadu Act in 1999, none of its provisions
affected the agreement. The Judge held
that clause (7) in itself, however, was
not a condition precedent to the contract.
It merely stated that clearance of the
said 19 cents from the urban land ceiling
authorities was upon the plaintiff, and
that in the event the plaintiff was unable
to have it cleared, the defendant no. 1
shall not be provided with any alternative
piece of land or any compensation. Thus,
the learned Judge held that the plaintiff
was entitled to specific performance of
the contract and decreed the suit.
18
24. Aggrieved, the defendant no. 1 preferred
an appeal. The learned Division Bench
partly allowed it holding that the
respondents could be given the relief of
specific performance only to the extent of
47 cents of the lands that were not part
of the proceedings under the Tamil Nadu
Act.
25. Apart from upholding the judgment of the
learned Judge with respect to the
agricultural nature of the suit property,
the Division Bench noted that in none of
the letters exchanged between the parties
it had come on record that the agreement
had become illegal in view of the
provisions of Section 6 of the Tamil Nadu
Act. On the contrary, in all these
communications, the only position that the
defendant no. 1 had insisted upon was the
19
satisfaction of the conditions mentioned
in clause (7) of the agreement, viz.,
permission for the sale of 19 cents by the
urban land ceiling authorities. The
learned Division Bench noted that if this
was the stance of the defendant no. 1, it
could not be allowed to resist the suit on
the grounds of illegality of contract.
26. However, it disagreed with the decision of
the learned Judge to the extent the repeal
of the Tamil Nadu Act did not in itself
released 19 cents of the excess vacant
land from the proceedings initiated under
that Act. It held that Section 3 of the
Repeal Act provided that repealing of the
Tamil Nadu Act would not affect the
vesting of any vacant land under sub
section (3) of Section 11 of the Tamil
Nadu Act in cases where the possession of
such vacant land had been taken over by
20
the State Government. Relying upon and
following decision of a Full Bench of the
High Court in P. Gopirathnam and 4 Others
v. Ferrodous Estate (Private) Limited,
represented by its Power of Attorney
Holder Sri G. John Arthur, 1999 (2)
Current Tamil Nadu Cases 181, the learned
Bench held that the proceedings with
respect to the said 19 cents had been
initiated and that the same were pending.
The Division Bench held that decree for
specific performance as given by the
learned Judge had to be modified to the
extent that the same was possible only to
the extent of the unencumbered portion of
the land.
27. One of the main questions which arise for
consideration in the facts of this Court
is whether in the said agreement time is
of the essence of the contract. In order
21
to appreciate this question, the Court has
to consider several clauses in the said
agreement. The relevant clauses are
clauses 7, 8, 9 & 10, which are set out
below:
"7. The vendor states that an extent of 770
sq.mts. in S.No.363/1B & 363/1C forming part of
the property described below and agreed to be
sold has been declared as excess vacant land
under Sec 9(5) of the Tamil Nadu Urban Land
Ceiling (C&R) Act, 1978. An appeal is pending
before the Special Commissioner (Land Reforms),
Madras. The Vendor also applied to the State
Government for exemption under Sec 21 of the Act
but the same has been rejected and the matter is
pending in W.P.13906/1988 before the High Court,
Madras. It shall be the sole responsibility of
the Purchaser to get clearance from the Urban
Land Ceiling Authorities by negotiation or
getting exemption under the Act or permission to
sell, at his own cost and the Vendor shall not
be responsible for the same. But, the Vendor
shall sign all applications or petitions
necessary for this purpose. While, getting
permission to sell or exemption under the Act in
respect of the property agreed to be sold, the
Purchaser shall ensure that no compensatory
claim or alternate land is claimed by the Urban
Land Ceiling authorities in the rest of the land
to be retained by the Vendor.
8. The time for completion of the purchase
shall be one year from the date of this
agreement.
22
9. If the purchaser fails to complete the
transaction within the time stipulated, this
agreement shall stand cancelled and a sum of
Rs.10,00,000/- (Rupees Ten Lakhs only) paid as
earnest money will be returned without interest
to the Purchaser and the Vendor shall be at
liberty to sell the property to whomsoever he
likes.
10. Time shall be the essence of the contract."
28. Admittedly, the agreement was entered into
on 7th July, 1995 and the period of one
year expired by 6th July, 1996. Within that
period the plaintiff-purchaser could not
get clearance from the Urban Land Ceiling
Authorities nor could they obtain the
exemption under the Act for permission to
sell a part of the property in respect of
which the suit for specific performance
was filed.
29. It is not the case of the plaintiff-
purchaser that the vendor in any way
delayed the signing of application or
petition necessary for getting such
23
permission for clearance. From some
correspondence exchanged between the
parties it is clear that purchaser took a
few steps but could not get the clearance
within the time agreed by it. The Vendor,
however, by a letter dated 4th September,
1996 cancelled the agreement in terms of
clause 9 of the agreement and returned the
advance money of Rs.10,00,000/- vide a
cheque in terms of clause 9. The said
letter written by the vendor is set out
below:-
"CITADEL FINE PHARMACEUTICALS
Ref: 3852/96
4th September 1996
M/s. Ramaniyam Real Estates Pvt. Ltd.,
Rep. by Mr. V. Jagannathan,
Managing Director,
`Sruthi'. No.11, 2nd Main Raod,
Gandhi Nagar,
Madras 600 020.
Dear Sir,
Re: 1. Our letter dated 11.7.96
2. Your letter dated 19.7.96.
24
As would be appreciated by you, at the meeting
had with you, by ourself through our Mr. Rajiv
and further by telephone on 30.8.1996 as you
have expressed your reluctance in accepting our
terms put to you on the sale of the property, we
are returning the advance money of
Rs.10,00,000/- vide SBI, Guindy, Cheque
No.904014 dt.4.9.1996 in terms of Clause 9 of
the Agreement dated 7th July, 1995.
Kindly acknowledge the receipt of this.
Thanking you,
Yours faithfully,
For CITADEL FINE PHARMACEUTICALS
Sd/-
Partner
Encl: as above"
30. Under these circumstances, the question is
whether from the facts of this case vendor
can raise a defence to the suit for
specific performance of the contract that
time being of the essence of this
contract, the Court cannot order its
specific performance when plaintiff failed
to discharge its part of the contract
within time and when after expiry of time,
25
the contract was cancelled by the vendor
in terms of clause 9 of the Contract.
31. The settled law seems to be that in a case
for specific performance of contract
relating to immovable property time is not
normally of the essence. However, this is
not an absolute proposition and it has
several exceptions.
32. Reference in this connection may be made
to the decision of Privy Council in
Jamshed Khodaram Irani v. Burjorji
Dhunjibhai reported in (1915-16) 43 I.A.
26. Viscount Haldane delivering the
judgment for the Judicial Committee of the
Privy Council held that the law applicable
to this question is contained in Section
55 of the Indian Contract Act and the
learned Law Lord was of the opinion that
Section 55 of the Indian Contract Act does
26
not lay down any principle which is
different from those which obtain under
the law of England with regard to
contracts for sale of land. It was further
held that in cases relating to specific
performance, equity, which governs the
rights of the parties, does not look
always at the express term of the
agreement but at the substance of it in
order to ascertain whether the parties
named a specific time within which
completion was to take place and whether
the parties in substance intended that the
completion should take place within a
reasonable time. The legal position was
as follows:-
"...A Court of Equity will indeed relieve
against and enforce specific performance,
notwithstanding a failure to keep the dates
assigned by the contract; either for completion
or for the steps towards completion, if it can
do justice between the parties, and if (as Lord
Justice Turner said in Roberts v. Berry [3 D.M.&
G. 284 at 289] there is nothing in the `express
stipulation between the parties, the nature of
27
the property, or the surrounding circumstances',
which would make it inequitable to interfere
with and modify the legal right...." (page 32 of
the report)
33. The learned Law Lord made it clear that
equity can operate in the construction of
a contract "unless excluded by any clearly
expressed stipulation". However, it was
made clear that equity will not assist
where there has been undue delay on the
part of one party to the contract and one
party has given notice to the other party
that the defaulting party must complete
the contract within a definite time. A
further caution was added by saying that
equity will not assist when other
circumstances will result in injustice on
application of equitable principle. In the
words of Lord Haldane the principles have
been formulated as follows:-
"...Nor will it (equity) exercise its jurisdiction
when the character of the property or other
28
circumstances would render such exercise likely
to result in injustice. In such cases the
circumstances themselves, apart from any
question of expressed intention, exclude the
jurisdiction. Equity will further infer an
intention that time should be of the essence
from what has passed between the parties prior
to the signing of the contract...." (Page 33 of
the report)
34. In this case, prior to the signing of the
agreement, the terms were discussed
between the parties and the plaintiff
purchaser willingly took upon itself the
burden of obtaining the clearance within
the time stipulated in the agreement.
35. The aforesaid principles in Jamshed
Khodaram (supra) were accepted by a three-
Judge Bench of this Court in the case of
Gomathinayagam Pillai and others v.
Palaniswami Nadar reported in AIR 1967 SC
868.
29
36. From the terms of agreement in this case
which have been set out in the earlier
part of the judgment it is clear that the
time is of the essence and this is clearly
stipulated and understood by the parties
having regard to the previous
correspondence and also having regard to
the laid down terms of the contract and
especially when the consequence of non-
completion of the terms by purchaser
within the stipulated time was spelt out
in clause 9.
37. In a case where time is of the essence of
the contract, the consequence of non-
performance of such term has been very
succinctly explained by Chitty on
Contracts, (Volume 1, Thirteenth Edition,
Sweet & Maxwell in paragraph 21-015) and
the same is set out:
30
"Consequences of time being "of the
essence". In determining the consequences of a
stipulation that time is to be "of the essence"
of an obligation, it is vital to distinguish
between the case where both parties agree that
time is to be of the essence of the obligation
and the case where, following a breach of a non-
essential term of the contract, the innocent
party serves a notice on the other stating that
time is to be of the essence. In the former case
the effect of declaring time to be of the
essence is to elevate the term to the status of
a "condition" with the consequences that a
failure to perform by the stipulated time will
entitle the innocent party to: (a) terminate
performance of the contract and thereby put an
end to all the primary obligations of both
parties remaining unperformed; and (b) claim
damages from the contract-breaker on the basis
that he has committed a fundamental breach of
the contract ("a breach going to the root of the
contract") depriving the innocent party of the
benefit of the contract ("damages for loss of
the whole transaction". (page 1410)
38. Fry in his Treaties on the Specific
Performance of Contracts (Sixth Edition)
has dealt with this aspect in paragraph
1075:-
"Time is originally of the essence of the
contract, in the view of a Court of Equity,
whenever it appears to have been part of the
real intention of the parties that it should be
so, and not to have been inserted as a merely
31
formal part of the contract. As this intention
may either be separately expressed, or may be
implied from the nature or structure of the
contract, it follows that time may be originally
of the essence of a contract, as to any one or
more of its terms, either by virtue of an
express condition in the contract itself making
it so, or by reason of its being implied....
" (page 502)
39. In paragraph 1079, the learned author has
explained the position further by saying
the time may be implied as essential in a
contract from the nature of the subject
matter with which the parties are dealing.
The learned author explained this by
saying:-
"1079. Time may be implied as essential in a
contract, from the nature of the subject-matter
with which the parties are dealing. "If,
therefore," said Alderson B., "the thing sold be
of greater or less value according to the
effluxion of time, it is manifest that time is
of the essence of the contract: and a
stipulation as to time must then be literally
complied with in Equity as well as in Law...."
(page 504)
32
40. At paragraph 1081 page 505, the learned
author made it very clear that in a
contract relating to commercial enterprise
the Court is strongly inclined to hold
time to be essential, whether the contract
is for the purchase of land or for such
purposes or more `directly for the
prosecution of trade'. The elaboration of
this point by the learned author is as
follows:-
"1081. And so, again, where the object of the
contract is a commercial enterprise, the Court
is strongly inclined to hold time to be
essential, whether the contract be for the
purchaser of land for such purposes, or more
directly for the prosecution of trade. This
principle has been acted on in the matter of a
contract respecting land which had been
purchased for the erection of mills, also in
relation to a sale of pasture lands, required by
the purchaser, as the vendor new, for stocking,
and in several cases of contracts for the sale
of public-houses as going concerns...." (page 505)
41. The aforesaid principles squarely apply to
the facts of the present case. Here the
33
purchaser is admittedly in the business of
building construction and is entering with
agreement for purchasing the plot on
commercial basis.
42. Gareth Jones and William Goodhart in their
Treaties on Specific Performance (Second
Edition, Butterworths) expressed similar
views by saying:
"If the parties have expressly agreed that
time is to be of the essence, the courts will
generally if not always give effect to that
stipulation. An intention that a stipulation as
to time should be of the essence may be implied
from the circumstances. In the absence of
agreement to the contrary, time will generally
be considered of the essence in mercantile
contracts and in contracts for the sale of a
business or of property which has a fluctuating
or speculative value...." (page 74)
43. The instant case obviously relates to a
contract in commercial transaction and the
Court can take judicial notice of the fact
that in the city of Chennai the price of
34
real estate is constantly escalating and
the clear intention of the parties, as it
appears from the stipulations of the
agreement, was to treat time as the
essence of the contract.
44. Having regard to the aforesaid principles
the court cannot attribute a different
intention to the parties and cannot
specifically enforce the contract at the
instance of the plaintiff-purchaser who
has failed to perform his part of the
obligation within the time stipulated.
45. In K.S. Vidyanadam and others v. Vairavan
reported in (1997) 3 SCC 1 this Court
explained how discretion is to be
exercised by the Court before granting
specific performance. This Court held
that in cases of urban properties in India
it is well known that prices are going up
35
sharply over the last few decades
particularly after 1973. In Vidyanadam
(supra) the court was dealing with a
property in Madurai in the State of Tamil
Nadu and it was argued before this Court
by referring to the Madras High Court
judgment in S.V. Sankaralinga Nadar v.
P.T.S. Ratnaswami Nadar (AIR 1952 Mad 389)
that mere rise in price is no ground for
denying the specific performance. This
Court did not agree with the decision of
the Madras High Court and held that the
Court cannot be oblivious of the reality
of constant and continuous rise in the
value of urban properties. In that
context the time limit set in the contract
has to be strictly construed. In the case
of Vidyanadam (supra) there is no such
strict stipulation as time being of the
essence of the contract as is in the
instant case even then the Court refused
36
to grant the relief of specific
performance.
46. In Vidyanadam (supra) reference was made
to a Constitution Bench judgment of this
Court in Chand Rani (Smt.) (Dead) by LRs.
v. Kamal Rani (Smt.) (Dead) by LRs.
reported in (1993) 1 SCC 519. The same
question, whether time was of essence of
the contract was discussed in Chand Rani
(supra). The Constitution Bench of this
Court while dealing with this question
referred to another decision of this Court
in the case of M/s. Hind Construction
Contractors by its sole proprietor
Bhikamchand Mulchand Jain (Dead) by LRs.
v. State of Maharashtra reported in (1979)
2 SCC 70. By referring to various
judgments, the Constitution Bench in Chand
Rani (supra) formulated the proposition
that even where parties have expressly
37
provided time to be of the essence of the
contract, such a stipulation will have to
be read along with other terms of the
contract. Such other terms, on a proper
construction, may exclude the inference
that the completion of work by a
particular date was meant to be
fundamental. The learned Judges indicated
the following circumstances which may
indicate a contrary inference; (a) if a
contract includes clauses providing for
extension of time in certain
contingencies, or (b) if there are clauses
for payment of fine or penalty for every
day or week the work undertaken remains
unfinished after the expiry of time. The
Constitution Bench held that such clauses
would be construed as rendering
ineffective the express provision relating
to time being of the essence of contract
(see para 22 at page 528 of the report).
38
47. In the instant case, in the said agreement
no such clause, as aforesaid, exists.
Rather the stipulation as time being of
the essence of the contract was
specifically mentioned in clause 10 and
the consequences of non-completion are
mentioned in clause 9. So from the
express terms of the contract and the
commercial nature of the transaction and
the surrounding circumstances make it
clear that the parties intended time in
this case was intended to be of the
essence of the contract.
48. Keeping the above principle if we look at
the portion of Law in India, it is clear
that under Section 9 of the Specific
Relief Act, 1963 it is provided as
follows:-
39
"9. Defences respecting suits for relief based
on contract.- Except as otherwise provided
herein, where any relief is claimed under this
Chapter in respect of a contract, the person
against whom the relief is claimed may plead by
way of defence any ground which is available to
him under any law relating to contracts."
49. It is clear from Section 9 of the Specific
Relief Act, 1963 that Section 55 of The
Indian Contract Act, 1872 enables a
defendant against whom suit for the
specific performance has been filed to
raise the defence under Section 55 of the
Indian Contract Act.
50. Section 55 of the Indian Contract Act
which deals with a contract, in which time
is of essence is as follows:-
"Section 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
specified times, and fails to do any such thing
at or before the specified time, the contract,
or so much of it as has not been performed,
40
becomes voidable at the option of the promisee,
if the intention of the parties was that time
should be of the essence of the contract."
51. On a combined reading of Section 9 of the
Specific Relief Act and Section 55 of The
Indian Contracts Act it is clear that in
this case the vendor as a promisee, was
within its right to terminate the contract
by sending the letter dated 4th September,
1996 in terms of Clause 9 of the Contract
while returning the advance money of
Rs.10,00,000/-. It is clear that the
plaintiff has not discharged its burden
within the time specified and is not
entitled to a specific performance of the
contract.
52. Therefore, the approach of the High Court
both by the Single Judge and the Appellate
Bench cannot be sustained.
41
53. There is another aspect of the matter
also. In the instant case by asking for
specific performance of the contract, the
plaintiff-purchaser is praying for a
discretionary remedy. It is axiomatic
that when discretionary remedy is prayed
for by a party, such party must come to
court on proper disclosure of facts. The
plaint which it filed before the Court in
such cases must state all facts with
sufficient candour and clarity. In the
instant case the plaintiff-purchaser made
an averment in the plaint that the
defendant-vendor be directed to return the
advance amount of Rs.10,00,000/- at the
rate of 24% interest from the date of
payment of the said amount till the
realization and an alternative prayer to
that effect was also made in the prayer
clause (c).
42
54. However, the fact remains that prior to
the filing of the suit the defendant-
vendor returned the said amount of
Rs.10,00,000/- by its letter dated 4th
September, 1996 by an account payee cheque
in favour of the plaintiff and the same
was sent to the plaintiff under registered
post which was refused by the plaintiff on
6.9.1996. The plaintiff suppressed this
fact in the plaint and filed the suit on
9.9.1996 with a totally contrary
representation before the court as if the
amount has not been returned to it by the
vendor. This is suppression of a material
fact, and disentitles the plaintiff-
purchaser from getting any discretionary
relief of specific performance by Court.
55. In this connection we may refer to the
Principle of Equitable Remedies by I.C.F.
SPRY, Fourth Edition (Sweet & Maxwell,
43
1990). Dealing with the question of `Clean
Hands' the learned author opined that
where the plaintiff is shown to have
materially misled the court or to have
abused its process, or to have attempted
to do so, the discretionary relief of
specific performance can be denied to him.
In laying down this principle, the learned
author relied on a decision of the English
Court in the case of Armstrong v. Sheppard
& Short Ltd. (1959) 2 Q.B. 384 at page
397. (See SPRY Equitable Remedies page
243).
56. This Court has also taken the same view in
the case of Arunima Baruah v. Union of
India and others reported in (2007) 6 SCC
120. At paragraph 12, page 125 of the
report, this Court held that it is trite
law that to enable the court to refuse to
exercise its discretionary jurisdiction
44
suppression must be of a material fact.
This Court, of course, held what is a
material fact, suppression whereof would
disentitle the suitor to obtain a
discretionary relief, would depend upon
the facts and circumstances of each case.
However, by way of guidance this Court
held that material fact would mean that
fact which is material for the purpose of
determination of the lis.
57. Following the aforesaid tests, this Court
is of the opinion that the suppression of
the fact that the plaintiff refused to
accept the cheque of Rs.10 lac sent to it
by the defendant under registered post
with A.D. in terms of Clause 9 of the
Contract is a material fact. So on that
ground the plaintiff-purchaser is not
entitled to any relief in its suit of
specific performance.
45
58. For the reasons aforesaid, this Court
allows the appeal filed by M/s. Citadel
Fine Pharmaceuticals [SLP(C)
No.28251/2008] and dismisses the appeal
filed by the M/s Ramaniyam Real Estates P.
Ltd., [SLP(C) No.31269/2008].
59. The Court directs M/s. Citadel Fine
Pharmaceuticals to return the amount of
Rs.10,00,000/- by an account payee cheque
to M/s. Ramaniyam Real Estates P. Ltd., if
not already returned, within 4 weeks from
date. In default M/s. Citadel Fine
Pharmaceuticals will have to pay interest
at the rate of 12% per annum on the same
from the expiry of the period of 4 weeks
from date till actual payment.
46
60. Having regard to the facts and
circumstances of this case there will be
no order as to costs.
.......................J.
(G.S. SINGHVI)
.......................J.
New Delhi (ASOK KUMAR GANGULY)
August 08, 2011
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