A correct perspective relating to the question whether time is not of the essence of the contract in contracts relating to immovable property, is given by this court in K.S. Vidyanadam and Others vs. Vairavan - (1997) 3 SCC 1 (by Jeevan Reddy J. who incidentally was a member of the Constitution Bench in Chand Rani). This Court observed:
It has been consistently held by the courts in India, following certain early English decisions, that in the case of agreement of sale relating to immovable property, time is not of the essence of the contract unless specifically provided to that effect.
In the case of urban properties in India, it is well-known that their prices have been going up sharply over the last few decades - particularly after 1973. .........We cannot be oblivious to the reality and the reality is constant and continuous rise in the values of urban properties - fuelled by large scale migration of people from rural areas to urban centres and by inflation.
Indeed, we are inclined to think that the rigor of the rule evolved by courts that time is not of the essence of the contract in the case of immovable properties - evolved in times when prices and values were stable and inflation was unknown - requires to be relaxed, if not modified, particularly in the case of urban immovable properties. It is high time, we do so
(emphasis supplied)
Therefore there is an urgent need to revisit the principle that time is not of the essence in contracts relating to immovable properties and also explain the current position of law with regard to contracts relating to immovable property made after 1975, in view of the changed circumstances arising from inflation and steep increase in prices. We do not propose to undertake that exercise in this case, nor referring the matter to larger bench as we have held on facts in this case that time is the essence of the 30
contract, even with reference to the principles in Chand Rani and other cases. Be that as it may.
28. Till the issue is considered in an appropriate case, we can only reiterate what has been suggested in K.S. Vidyanadam (supra) : (i) Courts, while exercising discretion in suits for specific performance, should bear in mind that when the parties prescribe a time/period, for taking certain steps or for completion of the transaction, that must have some significance and therefore time/period prescribed cannot be ignored.
(ii) Courts will apply greater scrutiny and strictness when considering whether the purchaser was `ready and willing' to perform his part of the contract.
(iii) Every suit for specific performance need not be decreed merely because it is filed within the period of limitation by ignoring the time-limits stipulated in the agreement. Courts will also `frown' upon suits which are not filed immediately after the breach/refusal. The fact that limitation is three years does not mean a purchaser can wait for 1 or 2 years to file a suit and obtain specific performance. The three year period is intended to assist purchasers in special cases, as for example, where the major part of the consideration has been paid to the vendor and possession has been delivered in part performance, where equity shifts in favour of the purchaser.
Supreme Court of India
Saradamani Kandappan vs S. Rajalakshmi & Ors. on 4 July, 2011
Bench: R.V. Raveendran, K.S. Panicker Radhakrishnan
These appeals by special leave (CA Nos.7254 to 7256 of 2002) are directed against the common judgment and decree dated 19.6.2002 2
passed by the Madras High Court in O.S.A. Nos.12 of 1992, 32 of 1995 and 148 of 1999 filed by the appellant herein against the common judgment dated 29.11.1991 passed by a learned Single Judge of that court in Civil Suit Nos. 95/1984, 302/1989 and 170/1984 and filed by the respondents herein. The appellants and respondents herein who were the plaintiffs and defendants respectively in the three suits, will be referred, for the purpose of convenience, by their ranks in the suit also.
2. Respondent Nos.2, 3 and 4 are respectively the son, daughter and husband of first respondent. The first respondent is the owner of Survey Nos. 13, 14 and 15, the second respondent is the owner of lands bearing Survey Nos. 16 and 18 and the third respondent is the owner of Survey Nos. 19 and 20, all situated in Chettiaragaram Village, Saidapet Taluk, Chingleput District in all measuring 24 acres 95 cents. The said lands along with the trees, wells, pump-houses, farm godowns, perimeter fence and some furniture, are together referred to as the `schedule properties'. Respondents 1 to 4 entered into agreement of sale dated 17.1.1981 with the appellant herein for sale of the schedule properties, at a price of Rs.15,000 per acre (in all Rs.3,74,250 rounded off to Rs.3,75,000). On the date of the agreement, Rs.1,00,000 was paid as advance to respondents, which was duly acknowledged in the agreement. Clauses 3, 3
4, 5, 6, 7, 12 and 15 of the agreement which are relevant for our purposes are extracted below :-
"3. The execution of the sale deeds shall depend upon the party of the second part getting satisfied regarding the title to the land, so also the nil encumbrance.
4. The mode of payment of the balance of Rs.2,75,000/- (Rupees Two lakhs and seventy five thousand only) shall be as under : (a) Rs.1,00,000/- (one lakh) on or before 28.2.1981
(b) Rs.1,00,000/- (one lakh) on or before 6.4.1981
(c) Rs.75,000/- (seventy five thousand) on or before 30.5.1981
5. If however any of the above mentioned dates are subsequently declared as holidays then the next immediate working day shall be the day of the payment.
6. The payments on due dates is the essence of this contract and in case of failure on the part of the party of the second part, the party of the first part shall cancel this agreement.
7. The sale deed shall be executed at the convenience of the party of the second part as and when she wants them to be executed either in her name or in the name of her nominee or nominees.
12. If the party of the second part finds the titles of the properties herein above mentioned to be unsatisfactory or unacceptable, the party of the first part shall be put on notice revealing her intention not to conclude the sale and in such event if the party of the first part, fails to satisfy the party of the second part regarding the title the party of the first part shall pay to the party of the second part within three months the date there of all the monies advanced by the party of the second part till then.
15. The party of the first part has a caretaker at present. From the day of this agreement the party of the second part shall act as a caretaker for the entire properties and be in trust of all the properties till the party of the first part given the possession of the entire properties to the party of the second part on payment of the sale amount i.e. after the entire sale amount is paid.
(emphasis supplied)
3. On the same day (17.1.1981) the fourth respondent, in a letter addressed to the appellant, acknowledged the receipt of Rs.1,25,000 paid 4
on various dates as commission for the said transaction relating to sale of the said 24.95 acres of land. By the said letter, he agreed that in case the transaction of sale remained unconcluded or got cancelled because of the default on the part of the sellers or buyers under the agreement dated 17.1.1981 or because of defective title, the entire amount of Rs.1,25,000 received by him as commission would be refunded within three months thereof.
4. In pursuance of the said agreement the appellant paid further advances of Rs.1,00,000 on 28.2.1981 and of Rs.25,000 on 2.4.1981. The balance of 75,000 in regard to the instalment payable on 6.4.1981 and the last instalment of Rs.75,000 payable on or before 30.5.1981 was not paid by the appellant.
5. Respondents 1 to 3 caused a notice dated 2.8.1981 to be issued through their counsel to appellant, cancelling the agreement dated 17.1.1981, on the ground of default in paying the balance of the sale consideration, in exercise of their right to cancel the agreement on such default, under clause 6 of the agreement. The relevant portion of the cancellation notice is extracted below:
"My clients state that even at the time of entering into the said agreement of sale, you looked into the documents of title and satisfied yourself about the title of my clients to the said property. My clients were always ready 5
and wiling to conclude the sale and expected you to pay the balance of sale consideration of Rs.2,75,000/- in accordance with clause 4 of the said agreement. Now that you have committed defaults in the payment of the balance of consideration. Not withstanding the fact that you have not even sent any communication whatsoever to my clients as to whether you were ready and willing to pay the balance of consideration under the said agreement, my clients waited for a long time and in the circumstances my clients have no other alternative except to invoke clause 6 of the said agreement. Accordingly, my clients hereby cancel the said agreement dated 17th January 1981 entered into between yourself and my clients in view of your failure to have paid the balance of sale consideration according to clause 4 of the said agreement, as the payment of the instalment on due dates was agreed to be the essence of the contract. Please take notice that the said agreement dated 17.1.1981 has been cancelled and my clients will be refunding the sum of Rs. 2,25,000/- only so far received by them as aforesaid on their concluding the sale with any third party and ascertaining the deficit, if any, in the sale price for deducting the same from the amounts refundable to you in receipt of which you may expect a communication from my clients on their concluding the sale with third party".
6. The appellant sent a reply dated 7.8.1981 through counsel contending that time was never intended to be the essence of the agreement though it was formally mentioned in the agreement that time was of the essence; that respondents had failed to produce the original documents of title in spite of repeated demands and therefore it was agreed between the appellant's husband and the fourth respondent during discussions held in March 1981 in the presence of witnesses, that the original documents would be made available as soon as possible and the appellant should pay the balance only thereafter, and that sale should be completed within a reasonable time of handing over the documents; and that as a token of such understanding, a further advance of Rs.25,000 was received on 2.4.1981. The appellant also denied the claim of the 6
respondents that the appellant had got examined the documents of title and satisfied herself about that title at the time of entering into the agreement of sale. The appellant asserted that there was no default on her part and contended as follows :-
"The allegation that your client was always ready and willing to conclude the sale and expected my client to pay the balance of the sale consideration of Rs. 2.75 lakhs in accordance with clause 4 of the said agreement etc. is not correct. The very attitude your client is not giving the documents of title for scrutiny from January 1981 for the past 6 months will prove the hollowness of the claim. The further allegation that my client has committed default in payment etc. is also not true, because my client has already paid Rs. 2,25,000/- and on 2.4.1981 when the sum of Rs. 25,000/- was paid it was specifically understood that the balance of money will be paid and the sale will be completed within a reasonable time as soon as the documents of title were handed over to her. Therefore, the question of default in payment of the instalment does not arise. Moreover, it is very unreasonable on the part of your client to allege that default has been committed when the truth is otherwise.
My client is ready and willing to pay the balance of sale consideration and have the sale completed provided the documents are handed over to her immediately for scrutiny and approval. Once again in the circumstances set out above, there is no default on the part of my client and she is always ready and willing to perform her part of the agreement provided your client hands over the documents for scrutiny and the title is found good to the satisfaction of my client's legal advisers.
My client therefore stated that the purported cancellation of the agreement by the said notice is not legal and valid and your client is called upon to perform her part of the obligation, viz., the handing over of the original documents forthwith and without any undue delay, so that the transaction may be completed. I hope that your client will see the reasonableness in the offer and will not precipitate the matter any further. My client expects an early reply in this regard."
7. This brought forth a rejoinder dated 26.8.1981 from respondents 1 to 3 through their counsel. They denied the claim of the appellant that there was a variation in the term regarding payment of balance consideration in specified instalments. They also denied that such a 7
variation was agreed at a meeting held in March 1981. They reiterated that the time was the essence of the contract and that the agreement was executed only after the appellant had satisfied herself about their title and the respondent's husband had in fact taken true copies of all the documents together with the encumbrance certificate upto 1980, and in those circumstances, the question of appellant again seeking any document of title did not arise. They contended that they were not bound to deliver the original documents before payment of the entire price. It was pointed out that payment of instalments relating to sale consideration stipulated in the agreement did not depend upon the appellant satisfying herself about the title after scrutinising the documents of title and that the appellant had unconditionally agreed to pay the entire consideration on the due dates mentioned in clause (4) of the agreement. It was further pointed out that as appellant was already in possession of xerox copies of the documents of title, if she wanted inspection of the originals, she could have addressed a letter seeking inspection.
8. This brought forth a second reply dated 4.9.1981 from the appellant, reiterating the averments in the reply notice dated 7.8.1981. Thereafter the appellant got a public notice published in the newspaper `Hindu' dated 11.11.1981 through her counsel, informing the public that she had purchased the schedule properties (as also Sy. Nos.20/1, 21 and 8
24) from respondents 1 to 3 through the fourth respondent and that she was in possession thereof and was cultivating them. The notice further stated that pending completion of documentation, she had learnt that respondents were trying to resell the properties and issued a warning that if any third party enters into any agreement with the owners, they will be doing so at their own risk, and the same will not bind her. This public notice brought forth two responses. The first was a notice dated 14.11.1981 from one Gulecha stating that the documents relating to Sy. Nos. 16 and 18 were deposited with him by the second respondent as security for a loan taken from him and that if appellant purchased the said lands, she will be doing so at her risk. The second was a notice dated 14.11.1981 from respondent Nos. 1 to 3 through their counsel stating that the claim of the appellant that she had purchased the lands bearing Nos.8, 10, 12, 13, 14, 15, 16, 17, 18, 19, 20, 20/1, 21 and 24 and was in possession thereof was false; the survey numbers mentioned were erroneous; that after the agreement dated 17.1.1981 was cancelled, they had entered into an agreement with a third party which fell through because of the public notice, causing loss to them; that the appellant had been appointed only as a caretaker of the lands under the agreement dated 17.1.1981 and the said appointment was cancelled and a new caretaker had been appointed. Respondents 1 to 3 called upon the appellant to hand over all movables on 19.11.1981 to the new caretaker.
9
9. In this factual background the appellant filed the following three suits:-
(i) O.S. No. 1709/1981 on the file of the District Munsif, Poonamallee against respondents 1 to 4 for a permanent injunction restraining the respondents, their men and agents from in any way interfering with her peaceful possession and enjoyment of the suit properties. (This suit was subsequently transferred to Madras High Court and renumbered as C.S. No.302 of 1989).
ii) C.S. No. 95/1984 on the file of Madras High Court, filed on 19.6.1982, against respondents 1 to 4 seeking a decree for specific performance of the agreement of sale dated 17.1.1981 and a direction to respondents 1 to 3 to execute a sale deed after receiving the balance. iii) C.S. No. 170 of 1984 on the file of the Madras High Court, filed on 12.1.1984 against the fourth respondent for return of Rs.1,25,000/- paid as commission along with the interest at market rate from 17.1.1981 to date of payment.
10. The first two suits were resisted by the defendants contending that time was of the essence of the term regarding payment of sale price and that the agreement was cancelled as a consequence of default committed by appellant in paying the balance sale price in terms of the agreement. It was alleged that appellant's husband knew even before the agreement was signed that the original documents were with State Bank of Mysore and Gulecha and that the release of the documents could be obtained only 10
on payment of amounts due and that could have been done only if the appellant had paid the instalments in terms of the agreement.
11. The four respondents contested the third suit (C.S. No.170 of 1984) filed against him by denying that he had received a commission of Rs.1.25 lakhs and contending that it was received as security for due performance of the contract in terms of the agreement dated 17.1.1981.
12. The following issues were framed in the injunction suit : (i) Whether the plaintiff is entitled to the permanent injunction as prayed for against the defendants?
(ii) To what reliefs, the plaintiff is entitled to?
The following issues were framed in the specific performance suit : (1) Whether the plaintiff has committed breach of the contract by way of default in payment and thus was lacking in readiness and willingness to perform his part of the contract? (2) Is the time essence of the contract?
(3) If so, whether the termination of the contract by the defendant is valid?
(4) Is not the plaintiff entitled to specific performance? (5) To what relief is the parties entitled?
Addl. Issue (1) : Whether the fourth defendant is a necessary and proper party to the suit?
11
Addl. Issue (2) : Whether by reason of filing of C.S. No. 170 of 1984, is the plaintiff entitled to specific
performance?
In the suit for refund of Rs.1,25,000/-, the following issues were framed: (1) Whether the payment of Rs. 1,25,000/- made by the plaintiff to the defendant on 17.1.1981 was towards the commission charges as per the letter given by the defendant or towards part of consideration for the sale in question?
(2) Whether the plaintiff is entitled to return of the said amount of Rs.1,25,000/-.
(3) To what other relief, if any, the plaintiff is entitled?
13. Common evidence was recorded in the three suits. On behalf of the plaintiff, three witnesses were examined, that is plaintiff as PW1 and one Babu as PW-2 and one Balaraman as PW-3. Ex P-1 to P-20 were marked on behalf of the plaintiff. On behalf of the defendants, two witnesses were examined, that is one Rajendran as DW-1 and fourth defendant as DW-2. Ex.D-1 to D-6 were marked on behalf of the defendants. After considering the oral and documentary evidence, a learned Single Judge of the High Court, by his common judgment dated 29.11.1991, dismissed all the three suits.
14. Aggrieved by the said judgment, the appellant filed three original side appeals. A Division Bench of the Madras High Court dismissed the said appeals by common judgment dated 19.6.2002, affirming the 12
judgment of the trial court. The Division Bench however directed the respondents to repay Rs.3,50,000 (i.e. Rs.2,25,000 paid to defendants 1 to 3 and Rs.1,25,000 paid to defendant No. 4) with interest at 9% per annum for the period during which the appellant was not acting as caretaker till the complete payment was made. While disposing of the said three appeals, the Division Bench also dismissed three applications. The first (CMP No.2888/1996) was an application filed for appointment of an Advocate Commissioner to note the existing condition and physical features of the suit property. The second (CMP No.17401/1997) was an application filed by the appellant's son to implead him as a party alleging that the substantial part of the amounts paid to defendant came from him. The third (CMP No.7471/1002) was an application by the appellant to receive by way of additional evidence, a judgment rendered by this Court in suo moto contempt proceedings, as also a letter from the appellant's counsel to the Bank of India, Mylapore Branch and a reply thereto.
15. The learned Single Judge and the Division Bench, after exhaustive consideration of the evidence, have recorded the following findings of fact :
(a) Respondents 1 to 3 entered into an agreement dated 17.1.1981 agreeing to sell 24 acres 95 cents of land to the plaintiff for a 13
consideration of Rs.3,75,000/- and received in all, Rs.2,25,000 as advance.
(b) Plaintiff had paid an additional consideration of Rs.1,25,000 for the movables and taken a letter from the fourth respondent describing it as `commission', by way of security, with the understanding that if the sale did not take place, the amount should be refunded.
(c) The time for payment of the balance sale price stipulated in Clause (4) of the agreement of sale was the essence of the contract. (d) Plaintiff's claim that in March, 1981, clause (4) regarding payment schedule was modified by oral agreement under which it was agreed that the instalments due on 6.4.1981 and 30.5.1981 could be paid after the defendants satisfied the plaintiff about their title to the property agreed to be sold, was not established by plaintiff. The terms of the agreement remained unaltered.
(e) Plaintiff committed breach by failing to pay the sum of Rs.1,00,000 due on 6.4.1981 (except Rs.25,000 paid on 2.4.1981) and the sum of Rs.75,000 due on 30.5.1981 and the defendants were therefore justified in cancelling the agreement on 2.8.1981.
(f) The defendants did not deliver possession of the properties agreed to be sold, to the plaintiff in part performance of the agreement of sale dated 17.1.1981. The defendants delivered the property to the plaintiff in trust to hold the same as caretaker, until the vendors received the entire sale price and delivered possession. Therefore when the agreement was cancelled and consequently the appointment as caretaker came to an end, 14
the plaintiff became liable to return the suit schedule properties to the defendants.
(g) The plaintiff and her husband had knowledge of the existence of mortgage, before entering into the agreement of sale on 17.1.1981; and the case put forth by the defendants that as per the understanding between the parties, the defendants had to discharge the mortgage debts and secure the original title deeds after receiving the entire consideration, merited acceptance. As per the term of the agreement, the defendants had no obligation to produce the original title deeds or proof of clearance of loans, before plaintiff paid the entire sale consideration. (h) The plaintiff failed to establish her readiness and willingness to complete the sale in terms of the agreement and she was not entitled to the relief of specific performance.
16. Feeling aggrieved by the judgment of the division bench, the appellant has filed these appeals (CA Nos. 7254 to 7256 of 2002), challenging the findings of fact arrived at by the High Court and also raising some legal contentions. Where findings of fact recorded by the learned single Judge (trial court) are affirmed by the appellate bench of the High Court in appeal, this court will be reluctant to interfere with such findings in exercise of jurisdiction under Article 136 of the Constitution, unless there are very strong reasons to do so. On the contentions urged, the following questions arise for our consideration: 15
(i) Whether the time stipulated for payment of balance consideration was the essence of contract and whether the defendants were justified in cancelling the agreement, when the time schedule stipulated for such payment was not adhered to?
(ii) Whether the parties had agreed upon sequence of performance, which required payment of balance consideration by appellant, as stipulated in clause (4) of the agreement, only after the respondents satisfied the appellant regarding their title to the lands? (iii) Whether the respondents had failed to disclose the encumbrances over the properties and thereby committed fraud, entitling the appellant for extension of time stipulated for payment corresponding to the delay caused by the fraud and consequently the cancellation of the agreement by notice dated 2.8.1981 is illegal and invalid?
(iv) Whether an adverse inference ought to be drawn on account of the non-examination of defendants 1 to 3 who were the vendors under the agreement of sale?
Re: Question (i)
17. The appellant contends that time is not the essence of the agreement of sale dated 17.1.1981. She contends that where the vendors fail to give the documents of title to satisfy the purchaser about their title, and the purchaser is ready and willing to perform the contract, the termination of the agreement of sale by the vendors is illegal and amounts 16
to breach of contract. They submit that High Court had failed to apply section 55 of the Contract Act, 1872. Section 55 of Contract Act deals with the effect of failure to perform at a fixed time, in contract in which time is essential. Said Section is extracted below :
"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 a specified time, and fails to do such thing at or before a specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of essence of the contract.
Effect of such failure when time is not essential: If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure. Effect of acceptance of performance at time other than agreed upon: If, in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than agreed, the promisee cannot claim compensation of any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of acceptance, he give notice to the promisor of his intention to do so."
The above section deals with the effect of failure to perform at a fixed time, in contracts in which time is essential. The question whether time is the essence of the contract, with reference to the performance of a contract, what generally may arise for consideration either with reference to the contract as a whole or with reference to a particular term or condition of the contract which is breached. In a contract relating to sale of immovable property if time is specified for payment of the sale price 17
but not in regard to the execution of the sale deed, time will become the essence only with reference to payment of sale price but not in regard to execution of the sale deed. Normally in regard to contracts relating to sale of immovable properties, time is not considered to be the essence of the contract unless such an intention can be gathered either from the express terms of the contract or impliedly from the intention of the parties as expressed by the terms of the contract.
18. Relying upon the observation of this court in N.Srinivasa v. Kuttukaran Machine Tools Ltd.[2009 (5) SCC 182] that "in the contract relating to immovable property, time cannot be the essence of the contract", the appellant put forth the contention that in all contracts relating to sale of immovable property, time stipulated for performance, even if expressed to be the essence, has to be read as not being the essence of the contract and consequently the contract does not become voidable by the failure to perform before the specified time. A careful reading of the said decision would show that the sentence relied on (occurring in para 31) apparently was not the statement of legal position, but a conclusion on facts regarding the contract that was being considered by the court in that case, with reference to its terms. In fact the legal position is differently stated in para 27 of the said decision, thus: 18
"27. In a contract for sale of immoveable property, normally it is presumed that time is not the essence of the contract. Even if there is an express stipulation to that effect, the said presumption can be rebutted. It is well settled that to find out whether time was the essence of the contract. It is better to refer to the terms and conditions of the contract itself."
19. The legal position is clear from the decision of a Constitution Bench of this court in Chand Rani v. Kamal Rani [1993 (1) SCC 519], wherein this court outlined the principle thus:
"It is a well-accepted principle that in the case of sale of immovable property, time is never regarded as the essence of the contract. In fact, there is a presumption against time being the essence of the contract. This principle is not in any way different from that obtainable in England. Under the law of equity which governs the rights of the parties in the case of specific performance of contract to sell real estate, law looks not at the letter but at the substance of the agreement. It has to be ascertained whether under the terms of the contract the parties named a specific time within which completion was to take place, really and in substance it was intended that it should be completed within a reasonable time. An intention to make time the essence of the contract must be expressed in unequivocal language." Relying upon the earlier decisions of this court inGomathinayagam Pillai v. Pallaniswami Nadar [1967 (1) SCR 227] and Govind Prasad Chaturvedi v. Hari Dutt Shastri [1977 (2) SCC 539], this Court further held that fixation of the period within which the contract has to be performed does not make the stipulation as to time the essence of the contract. Where the contract relates to sale of immovable property, it will normally be presumed that the time is not the essence of the contract. Thereafter this court held that even if time is not the essence of the contract, the Court may infer that it is to be performed in a reasonable 19
time : (i) from the express terms of the contract; (ii) from the nature of the property and (iii) from the surrounding circumstances as for example, the object of making the contract. The intention to treat time as the essence of the contract may however be evidenced by circumstances which are sufficiently strong to displace the normal presumption that time is not the essence in contract for sale of land. In Chand Rani, clause (1) of the agreement of sale required the balance consideration to be paid as under: "Rs.98,000/- will be paid by the second party to the first party within a period of ten days only and the balance Rs.50,000 at the time of registration of the sale deed....". This court held that time regarding payment of Rs.98,000 was the essence, on the following reasoning: "The analysis of evidence would also point out that the plaintiff was not willing to pay this amount unless vacant delivery of possession of one room on the ground floor was given. In cross-examination it was deposed that since income-tax clearance certificate had not been obtained the sum of Rs. 98,000 was not paid. Unless the property was redeemed the payment would not be made. If this was the attitude it is clear that the plaintiff was insisting upon delivery of possession as a condition precedent for making this payment. The income-tax certificate was necessary only for completion of sale. We are unable to see how these obligations on the part of the defendant could be insisted upon for payment of Rs. 98,000. Therefore, we conclude that though as a general proposition of law time is not the essence of the contract in the case of a sale of immovable property yet the parties intended to make time as the essence under Clause (1) of the suit agreement."
The intention to make time stipulated for payment of balance consideration will be considered to be essence of the contract where such intention is evident from the express terms or the circumstances necessitating the sale, set out in the agreement. If for example, the vendor 20
discloses in the agreement of sale, the reason for the sale and the reason for stipulating that time prescribed for payment to be the essence of the contract, that is, say, need to repay a particular loan before a particular date, or to meet an urgent time bound need (say medical or educational expenses of a family member) time stipulated for payment will be considered to be the essence. Even if the urgent need for the money within the specified time is not set out, if the words used clearly show an intention of the parties to make time the essence of the contract, with reference to payment, time will be held to be the essence of the contract.
20. Let us consider the terms of the agreement of sale in this case to find out whether time was the essence. The standard agreements of sale normally provide for payment of earnest money deposit or an advance at the time of execution of agreement and the balance of consideration payable at the time of execution/registration of the sale deed. In the absence of contract to the contrary, the purchaser is bound to tender the balance consideration only at the time and place of completing the sale [see clause (b) of section 55(5) of Transfer of Property Act, 1882 `TP Act' for short]. In this case we find that there is a conscious effort to delink the terms relating to payment of balance price (clauses 4, 5 and 6) from the term relating to execution of sale deed (clause 7) and making the time essence only in regard to the payment of the balance sale 21
consideration. There is also a clear indication that while time would be the essence of the contract in regard to the terms relating to payment of balance price, time would not be the essence of the contract in regard to the execution of the sale deed. The intention making time essence of the contract for payment of balance price is clear from the following : (a) clause 4 requires the balance consideration to be paid in three instalments that is Rs.1,00,000 on or before 28.2.1981; Rs.1,00,000 on or before 6.4.1981; and Rs.75,000 on or before 30.5.1981; (b) Clause 5 makes it clear that if any of the abovementioned dates of payment is subsequently declared as a holiday, then the next immediate working day shall be the date of payment. This shows a clear intention that payment should be made on the stipulated dates and even a day's delay was not acceptable unless the due date was declared to be a holiday; (c) Clause 6 specifically stipulates that the payments on due dates is the essence of the contract and in case of failure on the part of the purchaser the vendors shall cancel the agreement.
21. On the other hand, if we look at the terms relating to performance of sale, there is a clear indication that time was not intended to be the essence, for completion of the sale. Clause 3 provides that the execution of sale deed shall depend upon the second party (purchaser) getting satisfied regarding the title to the lands, so also the nil encumbrance. It is 22
significant that the said clause does not say that payment of balance consideration shall depend upon the purchaser getting satisfied regarding title or nil encumbrances. Clause 7 provides that the sale deed shall be executed at the convenience of the purchaser, as and when she wants them to be executed either in her name or in the name of her nominee or nominees. Clause 12 provides that if the second party (purchaser) finds the title of the properties to be unsatisfactory or unacceptable, the vendors shall be put on notice about her intention not to conclude the sale and in such an event, if the vendors fail to satisfy the purchaser regarding their title, the vendors shall pay to the purchaser within three months from that date, all monies advanced by the purchaser till then. It is thus evident from clause 12 also that the payments of balance sale price in three instalments on the specified due dates were not dependent upon the further examination of title or the satisfaction of the purchaser about the title. It is clear that the purchaser on the basis of whatever initial examination she had taken of the documents, had unconditionally agreed to pay the amounts in three instalments of Rs.1,00,000 on or before 28.2.1981; Rs.1,00,000 on or before 6.4.1981 and Rs.75,000 on or before 30.5.1981; and if the purchaser was not thereafter satisfied with the title or found the title unacceptable and if the vendors failed to satisfy her about their title when she notified them about her dissatisfaction, the vendors had to refund all payments made within three months. Thus it is 23
categorically made clear in the agreement that time regarding payment of balance price was the essence of the contract and such payment was not dependent upon the purchaser's satisfaction regarding title.
22. Apart from the above, the plaintiff in her evidence admitted that time for performance was the essence of the contract vide the following questions and answers :
Q : The payment of the due date and in case of failure on the part of the party of second part, the party of the first part shall cancel the agreement. Is this in the agreement or not?
Ans. Yes. The dates and the title are important.
Q : Do you know that everywhere in this agreement one thing is made clear that time is the essence of the agreement ?
Ans. Yes. Time is the essence of the contract and also the title must be proved in the agreement.
Her evidence also shows that she apparently did not have the funds to pay the balance of Rs.75,000 due on 6.4.1981 and Rs.75000/- due on 30.5.1981 as was evident from the Bank pass book. It was therefore possible that being not ready to perform the contract in terms of the agreement, the appellant had invented a modification in the terms of the agreement. The learned Single Judge and the Division Bench have recorded a concurrent finding that the time was the essence of the contract and that no change was agreed in respect of the agreement terms 24
as alleged by the appellant. The appellant is unable to place any material which calls for reversal of the said findings. Therefore it has to be held that time regarding payment stipulated in clauses (4), (5) and (6) of the agreement of sale was the essence of the contract and failure of the appellant to adhere to it, justified cancellation of the agreement by the respondents.
An aside regarding the principle "time is not of the essence" for future consideration
23. It is of some interest to note that the distinction between contracts relating to immovable properties and other contracts was not drawn by section 55 of Contract Act (or any other provisions of Contract Act or Specific Relief Act, 1963). Courts in India made the said distinction, by following the English law evolved during the nineteenth century. This Court held that time is not of the essence of the contracts relating to immovable properties; and that notwithstanding default in carrying out the contract within the specified period, specific performance will ordinarily be granted, if having regard to the express stipulation of the parties, nature of the property and surrounding circumstances, it is not inequitable to grant such relief. [vide Gomathinayagam Pillai (supra), Govind Prasad Chaturvedi (supra) and Indira Kaur v. Sheo Lal Kapoor - 1988 (2) SCC 188 and Chand Rani (supra) following the decision of 25
Privy Council in Jamshed Khodaram Irani v. Burjorji Dhunjibhai - AIR 1915 PC 83 and other cases]. Of course, the Constitution Bench in Chand Rani made a slight departure from the said view.
24. The principle that time is not of the essence of contracts relating to immovable properties took shape in an era when market value of immovable properties were stable and did not undergo any marked change even over a few years (followed mechanically, even when value ceased to be stable). As a consequence, time for performance, stipulated in the agreement was assumed to be not material, or at all events considered as merely indicating the reasonable period within which contract should be performed. The assumption was that grant of specific performance would not prejudice the vendor-defendant financially as there would not be much difference in the market value of the property even if the contract was performed after a few months. This principle made sense during the first half of the twentieth century, when there was comparatively very little inflation, in India. The third quarter of the twentieth century saw a very slow but steady increase in prices. But a drastic change occurred from the beginning of the last quarter of the twentieth century. There has been a galloping inflation and prices of immovable properties have increased steeply, by leaps and bounds. Market values of properties are no longer stable or steady. We can take 26
judicial notice of the comparative purchase power of a rupee in the year 1975 and now, as also the steep increase in the value of the immovable properties between then and now. It is no exaggeration to say that properties in cities, worth a lakh or so in or about 1975 to 1980, may cost a crore or more now.
25. The reality arising from this economic change cannot continue to be ignored in deciding cases relating to specific performance. The steep increase in prices is a circumstance which makes it inequitable to grant the relief of specific performance where the purchaser does not take steps to complete the sale within the agreed period, and the vendor has not been responsible for any delay or non-performance. A purchaser can no longer take shelter under the principle that time is not of essence in performance of contracts relating to immovable property, to cover his delays, laches, breaches and `non-readiness'. The precedents from an era, when high inflation was unknown, holding that time is not of the essence of the contract in regard to immovable properties, may no longer apply, not because the principle laid down therein is unsound or erroneous, but the circumstances that existed when the said principle was evolved, no longer exist. In these days of galloping increases in prices of immovable properties, to hold that a vendor who took an earnest money of say about 10% of the sale price and agreed for three months or four months as the 27
period for performance, did not intend that time should be the essence, will be a cruel joke on him, and will result in injustice. Adding to the misery is the delay in disposal of cases relating to specific performance, as suits and appeals therefrom routinely take two to three decades to attain finality. As a result, an owner agreeing to sell a property for Rs.One lakh and received Rs.Ten Thousand as advance may be required to execute a sale deed a quarter century later by receiving the remaining Rs.Ninety Thousand, when the property value has risen to a crore of rupees.
26. It is now well settled that laws, which may be reasonable and valid when made, can, with passage of time and consequential change in circumstances, become arbitrary and unreasonable.
26.1) In Rattan Arya v. State of Tamil Nadu - (1986) 3 SC 385, this Court held:
"We must also observe here that whatever justification there may have been in 1973 when Section 30(ii) was amended by imposing a ceiling of Rs. 400 on rent payable by tenants of residential buildings to entitle them to seek the protection of the Act, the passage of time has made the ceiling utterly unreal. We are entitled to take judicial notice of the enormous multifold increase of rents throughout the country, particularly in urban areas. It is common knowledge today that the accommodation which one could have possible got for Rs. 400 per month in 1973 will today cost at least five times more. In these days of universal day to day escalation of rentals any ceiling such as that imposed by Section 30(ii) in 1973 can only be considered to be totally artificial and irrelevant today. As held by this court in Motor General Traders v. State of A.P. (1984) 1 SCC 222, a provision which was perfectly valid at the commencement of the Act could 28
be challenged later on the ground of unconstitutionality and struck down on that basis. What was once a perfectly valid legislation, may in course of time, become discriminatory and liable to challenge on the ground of its being violative of Article 14."
(emphasis supplied)
26.2) In Malpe Vishwanath Acharya v. State of Maharashtra - (1998) 2 SCC 1 a three Judge bench of this court considered the validity of determination of standard rent by freezing or pegging down the rent as on 1.9.1940 or as on the date of first letting, under sections 5(10)(B), 7, 9(2)(b) and 12(3) of the Bombay Rents, Hotel and Lodging House Rates Control Ac, 1947. This court held that the said process of determination under the Act, which was reasonable when the law was made, became arbitrary and unreasonable in view of constant escalation of prices due to inflation and corresponding rise in money value with the passage of time. This Court held:
"In so far as social legislation, like the Rent Control Act is concerned, the law must strike a balance between rival interests and it should try to be just to all. The law ought not to be unjust to one and give a disproportionate benefit or protection to another section of the society. When there is shortage of accommodation it is desirable, nay, necessary that some protection should be given to the tenants in order to ensure that they are not exploited. At the same time such a law to be revised periodically so as to ensure that a disproportionately larger benefit than the one which was intended is not given to the tenants...... Taking all the facts and circumstances into consideration, we have no doubt that the existing provisions of the Bombay Rent Act relating to the determination and fixation of the standard rent can no longer be considered to be reasonable......"
The principle underlying the said decisions with reference to statutes, would on the same logic, apply to decisions of courts also. 29
27. A correct perspective relating to the question whether time is not of the essence of the contract in contracts relating to immovable property, is given by this court in K.S. Vidyanadam and Others vs. Vairavan - (1997) 3 SCC 1 (by Jeevan Reddy J. who incidentally was a member of the Constitution Bench in Chand Rani). This Court observed:
"It has been consistently held by the courts in India, following certain early English decisions, that in the case of agreement of sale relating to immovable property, time is not of the essence of the contract unless specifically provided to that effect.
In the case of urban properties in India, it is well-known that their prices have been going up sharply over the last few decades - particularly after 1973. .........We cannot be oblivious to the reality and the reality is constant and continuous rise in the values of urban properties - fuelled by large scale migration of people from rural areas to urban centres and by inflation.
Indeed, we are inclined to think that the rigor of the rule evolved by courts that time is not of the essence of the contract in the case of immovable properties - evolved in times when prices and values were stable and inflation was unknown - requires to be relaxed, if not modified, particularly in the case of urban immovable properties. It is high time, we do so."
(emphasis supplied)
Therefore there is an urgent need to revisit the principle that time is not of the essence in contracts relating to immovable properties and also explain the current position of law with regard to contracts relating to immovable property made after 1975, in view of the changed circumstances arising from inflation and steep increase in prices. We do not propose to undertake that exercise in this case, nor referring the matter to larger bench as we have held on facts in this case that time is the essence of the 30
contract, even with reference to the principles in Chand Rani and other cases. Be that as it may.
28. Till the issue is considered in an appropriate case, we can only reiterate what has been suggested in K.S. Vidyanadam (supra) : (i) Courts, while exercising discretion in suits for specific performance, should bear in mind that when the parties prescribe a time/period, for taking certain steps or for completion of the transaction, that must have some significance and therefore time/period prescribed cannot be ignored.
(ii) Courts will apply greater scrutiny and strictness when considering whether the purchaser was `ready and willing' to perform his part of the contract.
(iii) Every suit for specific performance need not be decreed merely because it is filed within the period of limitation by ignoring the time-limits stipulated in the agreement. Courts will also `frown' upon suits which are not filed immediately after the breach/refusal. The fact that limitation is three years does not mean a purchaser can wait for 1 or 2 years to file a suit and obtain specific performance. The three year period is intended to assist purchasers in special cases, as for example, where the major part of the consideration has been paid to the vendor and possession has been delivered in part performance, where equity shifts in favour of the purchaser.
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