Existence of a valid agreement is sine qua non: SC explains when specific performance fails, Read Judgment

“When a discretionary remedy is prayed for… such party must come to court on proper disclosure of facts. The plaint… must state all the facts with sufficient candour and clarity.”-SC

Recently, the Supreme Court stepped into a contentious dispute over a cancelled property deal and examined whether a buyer can still demand specific performance after accepting a substantial refund. The case, which travelled from the trial court to the apex court, raised fundamental issues on the enforceability of agreements, the limits of equitable remedies, and the legal consequences of material suppression. The judgment offers significant clarity on the obligations of a party seeking discretionary relief under contract law.

Brief Facts:

The dispute arose from an unregistered 2008 Agreement to Sell between the plaintiff–buyer and Kushum Kumari, the original owner of a Patna property. After part-payment, the buyer alleged non-cooperation and issued legal notices to complete the sale. The seller denied the agreement, claimed fraud, and refunded most of the advance via demand drafts and returned cheques. Following her death, her legatee and other heirs were impleaded. The Trial Court decreed the suit in the buyer’s favour, and the Patna High Court upheld it. The matter reached the Supreme Court in a special leave petition, raising the key issue: whether specific performance can be granted if the buyer accepted a substantial refund of the advance during the suit’s pendency.

Contentions of the Petitioner:

The appellant argued that the Agreement to Sell was fraudulently executed, with the seller’s signatures obtained on blank papers. Upon discovering the agreement, the seller lodged a police complaint and issued a cancellation letter along with Rs. 2.11 lakh in refunds and post-dated cheques, accepted and encashed by the buyer after filing the suit. It was contended that this acceptance amounted to revocation, making the suit non-maintainable. The appellant also argued that the buyer was neither ready nor financially capable of performing the contract, and had suppressed material facts in the suit.

Contentions of the Respondent:

Counsel for the buyer argued that the Trial Court and High Court rightly decreed specific performance, and a sale deed was executed after depositing ₹24.61 lakh. He contended that only ₹2.11 lakh of the ₹2.51 lakh earnest money was refunded, leaving ₹40,000 unpaid, thus the agreement wasn’t fully cancelled. He maintained that a bilateral agreement can't be unilaterally revoked and must be cancelled through court or mutual consent. He also noted that the seller died without proving her defense and that the appellant, having no title or interest, lacked the locus to challenge the decree.

The Supreme Court emphasized that the Agreement to Sell dated 25th January 2008 had been effectively cancelled. It observed that the buyer's act of encashing the demand drafts was indicative of acceptance of the seller's repudiation of the agreement. The Court stated: “The act of the Respondent No.1-buyer in encashing the demand drafts leads to an irresistible conclusion that the agreement in question stood cancelled.”

The Court rejected the buyer’s argument that the cancellation could not be unilateral and clarified that the letter of cancellation, along with the refund of demand drafts, amounted to a repudiation of the contract. The Court noted: “The letter dated 07th February 2008 along with the refund of the demand drafts and two postdated cheques was nothing but repudiation of the Agreement to Sell… and the encashment of the demand drafts was acceptance of such repudiation.”

Furthermore, the Court found the buyer’s claim that the encashment was "under protest" to be factually unsubstantiated, as no evidence supported this contention.

The Court reiterated that a valid and subsisting agreement is a precondition for the grant of specific performance. When the agreement has been cancelled, the aggrieved party must challenge the cancellation by seeking a declaratory relief. The Court ruled: “It was incumbent upon the Respondent No.1-buyer to seek a declaratory relief that the said cancellation is bad in law and not binding on parties for the reason that existence of a valid agreement is sine qua non for the grant of relief of specific performance.”

The Court further referred to the precedent in I.S. Sikandar (Dead) By LRs. v. K. Subramani (2013), reinforcing that without seeking such a declaratory relief, the suit for specific performance could not be maintained. It cited additional rulings to clarify that the maintainability of a suit must first address jurisdictional facts, particularly the validity of the agreement's termination.

Addressing the preliminary objection raised by the buyer, the Court held that the appellant had the legal standing (locus standi) to challenge the decree. As a beneficiary under a Will executed by the original seller and impleaded as defendant no. 3 in the suit, the Court affirmed: “The appellant, being a necessary and interested party to the lis, has the locus to file the present appeal.”

Moreover, the Court emphasized that the burden of proving readiness and willingness lies on the buyer. The failure to discharge this burden disentitles the plaintiff from equitable relief.

The Court highlighted that the buyer’s failure to disclose the cancellation letter and refund instruments in her plaint constituted suppression of material facts. The Court reiterated the principle that those seeking equitable relief must come to court with clean hands, quoting from Citadel Fine Pharmaceuticals v. Ramaniyam Real Estates Pvt. Ltd. (2011): “When a discretionary remedy is prayed for… such party must come to court on proper disclosure of facts. The plaint… must state all the facts with sufficient candour and clarity.”

The Court also cited Principle of Equitable Remedies by I.C.F. Spry, to underline that a party who materially misleads the court may be denied equitable relief, stating: “Suppression of the fact that the plaintiff refused to accept the cheque of Rs 10 lakhs… is a material fact. So, on that ground the plaintiff purchaser is not entitled to any relief in its suit for specific performance.”

The Supreme Court ruled that the Agreement to Sell had been legally cancelled before the filing of the suit. The failure to challenge the cancellation through a declaratory relief rendered the suit for specific performance unsustainable. Furthermore, the buyer’s suppression of material facts led to the denial of equitable relief. The Court, therefore, found the buyer's claim to be untenable both in law and equity.

The Agreement to Sell was held to be incapable of specific enforcement. Consequently, the appeal was allowed and the impugned judgment dated 27th April 2018, along with the decrees dated 10th May 2018 and 9th May 2024, were set aside. The sale deed executed in favour of Respondent No.1-buyer pursuant to the impugned judgments was declared null and void. The appellant was directed to refund the balance sale consideration amount of ₹24,61,000 deposited by Respondent No.1-buyer in compliance with the said judgment and decrees.

Case Title: Sangita Sinha v. Bhawana Bhardwaj and Ors.

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