Karnataka High Court
Lt. Col K.C. Bheemaiah vs Kakamada A. Kuttappa And Ors. on 19 September, 2003
Equivalent citations: AIR2004KANT224, ILR2003KAR4206, 2004(2)KARLJ349, AIR 2004 KARNATAKA 224, 2004 AIR - KANT. H. C. R. 727, (2004) 2 ALLCRILR 839, (2004) 1 CRIMES 695, 2004 (1) ICC 435.2, (2004) 13 ALLINDCAS 644 (KAR), (2003) ILR (KANT) (4) 4206, (2004) 2 CIVILCOURTC 130, (2004) 1 KANT LJ 349, (2004) 1 ICC 435(2), (2004) 1 KCCR 202, (2004) 2 CURCC 369
Bench: Tirath S. Thakur, H.G. Ramesh
JUDGMENT Thakur, J.
1. This is a Plaintiffs appeal arising out of a suit for specific performance of an Agreement to Sell. The Court below has by its Judgment and decree dated 22.12.1993 dismissed the suit holding that the alleged agreement set up by the plaintiff did not in law constitute an agreement to sell the suit schedule property. The facts given rise to the institution of the suit and the filing of the present appeal may be summarized as under:
2. The Plaintiff-appellant herein filed O.S.No. 80/1991 for specific performance of what according to him was an agreement to sell the suit schedule property. The plaintiff's case was that the defendants-respondents herein had received a sum of Rs. 2,50,000/ - towards part payment of a total consideration of Rs. 3 lakhs for the transfer of the schedule property in his favour. His further case was that the agreement executed between the parties stipulated that the defendants shall execute a Sale Deed in respect of the suit property within a period of twelve months from the date of the execution of the Agreement. According to the plaintiff, the Agreement also contained a clause giving an option to the defendants to retain the property by returning an amount of Rs. 2,50,000/- with interest thereon at the rate of 21% p.a. This option was according to the plaintiff reserved to the defendants on compassionate grounds, but since the defendants had failed to exercise the said option within the time stipulated for the same, they had forfeited their right to retain the property. The failure of the defendants to execute a proper Sale Deed had given to the plaintiff a right to seek specific performance of the Agreement in question. The plaintiff was according to the averments in the plaint always ready and willing to perform his part of the agreement and to have the Sale Deed executed by paying the balance amount of Rs. 50,000/- to the defendants.
3. In the written statement filed by the defendants, the execution of the agreement in question was admitted. But, it was denied that the same was meant to be an agreement to sell the suit schedule property. It was also alleged that the plaintiff had lent a sum of Rs. 1 lakh to the defendants and got certain documents signed in consideration thereof including a few cheques, a demand promissory note and the agreement which is now sought to be construed as an Agreement to Sell. All these documents were according to the defendants meant only to ensure repayment of the amount advanced by the plaintiff. Instead of returning the said documents, the plaintiff had according to the defendants misused the same and filed O.S. No. 105171991 before the City Civil Judge at Bangalore for recovery of a sum of Rs. 3,47,767/- on account of a loan allegedly taken by the defendants on the basis of a pro-note. The plaintiff had also instituted proceedings against one Sri K.T. Thammaiah under Section 138 of the Negotiable Instruments Act for dishonouring of a cheque of Rs. 1 lakh issued by the latter. The defendants' case was that the entire transaction with regard to the alleged Agreement to Sell and the Pro-notes was one and the same but the plaintiff had by misuse of the documents shown them as different transactions. There was according to the defendants no legal obligation to execute any Sale Deed in respect of the suit property nor any intention to transfer the said property.
4. On the basis of the pleadings of the parties, the Trial Court framed eight issues for trial and adjudication. In so far as issues No. 1 and 2 were concerned, the Trial Court answered the same in the affirmative holding that the Agreement in question executed by the defendants was for legal necessity and that the defendants had pursuant to the said agreement received a sum of Rs. 2,50,000/- from the plaintiff, Issues No. 3, 4, 5 and 6 were answered in the negative holding that the stipulation contained in the agreement giving an option to the defendant to retain the property at his choice was not inspired by any compassion for the defendant as alleged by the plaintiff and that the transaction did not constitute a mortgage. The Court also held that the agreement was not rendered unenforceable or illegal on account of inadequacy of consideration.
5. The findings on issues No. 1 to 6 notwithstanding the Court below answered issue No. 7 in the affirmative and held that the agreement sought to be specifically enforced did not constitute a valid or enforceable agreement and that in the absence of a prayer for refund of the money already paid to the defendants, no decree for any refund could be passed in favour of the plaintiff in the light of provisions of Section 22(2) of the Specific Relief Act. The suit filed by the plaintiff was accordingly dismissed, aggrieved whereof the plaintiff has appealed to this Court as noticed earlier.
6. We have heard learned Counsel for the parties and perused the record.
7. The short question that falls for consideration is whether the agreement executed between the parties is an Agreement for the sale of immovable property mentioned therein and where the same is legally enforceable in a suit for specific performance. The Trial Court has as seen earlier held the Agreement to be unenforceable while rejecting the contention urged by the plaintiff that Clause-6 contained in the agreement giving an option to the defendants to retain the property was simply compassionate in nature and did not affect the true character of the transaction between the parties. Clause-6 of the Agreement may at this stage be extracted. It runs as under:
"The purchaser hereby agrees that in the event of the vendors opting to retain the schedule properties, they shall jointly and severally pay to the Purchaser the sum of Rs. 2,50,000/- (Rupees Two lakhs and fifty thousand Only) together with interest thereon at 21% P.A. on or before the time fixed for the execution of the sale deed viz. 24.4.1991. If the vendors fail or neglect to pay the above said sum of Rs. 2,50,000/- with interest as aforesaid, the purchaser shall be entitled to specific performance of the agreement by payment of the balance of Sale Price to seek enforcement of the agreement of sale and for registration of the Sale Deed in his name or in the name of his nominee/nominees immediately after 24.4.1991."
8. A closer reading of the above would show that the respondents-vendors had reserved an option to retain the schedule properties to themselves. In the event of exercise of that option all that the respondents-vendors were supposed to do was to return to the plaintiff-purchaser a sum of Rs. 2,50,000/- received by the former with interest at the rate of 21% p.a. According to the plaintiff, since the option reserved to the defendants-vendors was time bound, their failure to exercise the same within the stipulated period would obliterate the clause from the agreement and render the agreement specifically enforceable in a suit for specific performance. The defendants vendors, on the other hand, contended that the Agreement as a whole was got executed from them only with a view to ensure repayment of the amount and loan advanced by the plaintiff. There was at no point of time any real intention on the part of the defendants to sell the suit schedule property or any portion thereof. The non-exercise of the option for retention of the property by refund of the amount mentioned therein with an exorbitant rate of interest had therefore to be understood only in that background. It was also their contention that even assuming the document to be one agreeing to sell the immovable property for a consideration, Clause-6 supra made the payment mentioned therein as a substitute for the performance of the act stipulated by the agreement at the choice of the defendants. The case therefore fell under Section 23 of the Specific Relief Act, 1923 making it permissible for the Court to decline specific performance of the same.
9. Two distinct aspects arise for consideration in the context of the above submissions. The first is whether an Agreement which does not create an unqualified obligation for the vendors to sell the suit property in favour of the plaintiff-vendee can at all be treated to be an agreement for purposes of directing a specific performance of the same. The second aspect is whether Clause-6 of the agreement names an amount, the payment of which may be a substitute for the performance of the act at the option of the person to whom the money is to be paid or the act done and if it does, whether the Court would be justified in declining specific performance of the agreement of such an agreement.
10. Section 10 of the Specific Relief Act, 1963 enumerates cases in which specific performance of contracts is enforceable and inter alia stipulates that specific performance of the contract may in the discretion of the Court be enforced when there exist no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done or when the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief. Explanation(i) to Section 10 makes it clear that unless and until the contrary is proved, the Court shall, presume that the breach of a contract to transfer immovable property cannot be adequately relieved by compensation in money whereas the breach of a contract to transfer moveable property can be so relied except in the cases indicated under the said explanation. Section 14 of the Act enumerates contracts which cannot be specifically enforced and inter alia states that a contract which is in its nature determinable cannot be specifically enforced. Section 20 of the Act deals with discretion and powers of the Court and inter alia provides that the jurisdiction to decree for specific performance is discretionary and that the Court is not bound to grant such relief merely because it is lawful to do so. It also enumerates situations in which the Court may properly exercise discretion not to decree specific performance. Section 23 stipulates that a contract may be specifically enforced though a sum be named in it as the amount to be paid in case of its breach, if the Court is satisfied that the same was named only for purposes of securing the performance of the contract and not for the purpose of giving to the party in default an option of paying money in lieu of specific performance.
11. Let us then examine whether the agreement set up by the plaintiff in the instant case is one that can be specifically enforced against the defendants. The Trial Court has held and in our opinion rightly so that Clause-6 of the agreement was a part of the transaction not because of any compassion that was being shown to the defendants, but because the parties had agreed to incorporate such a clause in the agreement. A careful reading of Clause-6 would however show that there is no unconditional and unequivocal offer by the defendants-vendors to sell the suit schedule property to the plaintiff-vendee. The Clause on the contrary recognizes in no uncertain terms the right of the defendants-vendors to decline a sale in favour of the plaintiff at their option. The exercise of the option is not regulated by any considerations capable of being ascertained or examined by a Court of law. The discretion to retain the property or the option not to sell the same to the plaintiff-vendee is absolute and unequivocal. Such being the case, even when the Sale Deed had to be executed before 24.4.1991 and so had the option to retain the property to be exercised before that date, the Agreement to Sell was at the option of the vendors terminable. The vendors could at their sweet will and option put an end to the agreement by delivering to the plaintiff-vendee the amount received by them with interest at the stipulated rate. Whether or not, the amount was really offered with or without interest is not material for purposes of determining the true nature of the arrangement between the parties. The question is not whether the amount was actually offered within the period stipulated, thereby putting the arrangement to an end. The question is whether the agreement could at the option of the defendants-vendors have been put to an end by paying to the vendee the amount received from him with interest. If the answer be in the affirmative, the case would squarely fall under Section 14(c) of the Specific Relief Act, 1963 making the contract unenforceable. We may at this stage mention that learned Counsel for the parties had fairly conceded that the time stipulated for execution of the Sale Deed was not the essence of the contract. If that be so, just as a sale deed could have been executed beyond the stipulated period so also the option to retain the property could have been exercised by the vendors beyond the said date. It follows that the right given to the vendors to retain the property at their will was exercisable by them at their discretion not only up to 24.4.1991, but even beyond, thereby meaning that the agreement executed between the parties did not in essence constitute an agreement to sell the suit property nor could such an agreement be a basis for a decree for specific performance.
12. Chitty on Contracts has dealt with situations where an agreement gives a wide discretion to one party including the discretion to rescind the contract itself. The following passage is in this regard instructive:
"An agreement may give one party a discretion to rescind. That party will not be bound if his promise means "I will only perform if I do not change my mind". But the power to rescind may only be inserted as a safeguard in certain eventualities which are not exhaustively stated, for example where a contract for the sale of land entitles the vendor to rescind if the purchaser persists in some requisition or objection which the vendor is "unable or unwilling to satisfy". In such a case there is a contract and the Court will control the exercise of the power to rescind by insisting that the vendor must not rescind "arbitrarily, or capriciously, or unreasonably. Much less, can he act in bad faith."
13. The situation in the instant case is no different. The agreement set up by the plaintiff means no more than saying that the vendors will sell the suit property if they do not change their mind to do so. Clause-6 contained in the agreement also means that the vendors would sell if they don't decide to retain which right is implicity recognized by the clause. There are no eventualities enumerated in which the option to retain the property may be exercised. It follows that the option not to sell is exerciable at will and without any questions being asked about why the same is exercised. There is in that view no enforceable contract between the parties in regard to the sale or purchase of the suit property. The receipt of money as part consideration, the fixing of a time limit within which the option can be exercised or even the letter allegedly written by one of the vendors to the vendee stating that he is unable to return the money before the stipulated date will not change the character of the agreement which will continue to remain an agreement that is unenforceable in law and terminable at the discretion of the vendors at any stage. It would therefore be sound exercise of discretion by the Court to decline the specific performance of such an agreement.
14. Let us now examine the issue from the angle of Section 23 of the Specific Relief Act, 1963. Learned Counsel for the parties placed reliance upon a decision of the Supreme Court in M.L. DEVENDER SINGH AND ORS. v. SYED KHAJA, . That was a case where the parties had themselves stipulated a sum of Rs. 20,000/- as liquidated damages in the event of breach of the agreement by the defendants. It was argued that stipulation of the said amount by itself rebutted the presumption contained in the explanation to Section 12 of the Old Act comparable to Section 10 of the Specific Relief Act, 1963. The argument was that once the presumption under Section 10 was rebutted, the bar against the enforcement of the contract for the non-performance of which compensation in terms of money is an adequate relief would get attracted rendering the suit for specific performance untenable. The Supreme Court however repelled the contention holding that mere existence of a clause in the contract providing for liquidated damages or a penalty was not sufficient to rebut the presumption raised in explanation to Section 10 or that once the presumption is rebutted, the bar contained in Section 21 of the old Act corresponding to Section 14 of the new Act would get attracted. Their Lordships thought that Section 23 of the new Act made a comprehensive statement of the principles on which the presence of a term in a contract specifying a sum of money to be paid for breach of the contract has to be construed. Where payment made is an alternative to carry out other terms of the contract, it would exclude by the terms of the contract itself the specific performance of contract to convey a property. The Court classified the contracts into following three categories:
"i) Where the sum mentioned is strictly a penalty a sum named by way of securing the performance of the contract, as the penalty is a bond;
ii) Where the sum named is to be paid as liquidated damages for a breach of the contract; and
iii) where the sum named is an amount the payment of which may be substituted for the performance of the act at the election of the person by whom the money is to be paid or the act done."
Having done so, the Court observed:
"Where the stipulated payment comes under either of the two first mentioned heads, the Court will enforce the contract, if in other respects it can and ought to be enforced, just in the same way as a contract not to do a particular act, with a penalty added to secure its performance or a sum named as liquidated damages, may be specifically enforced by means of an injunction against breaking it. On the other hand, where the contract comes under the third head, it is satisfied by the payment of the money, and there is no ground for the Court to compel the specific performance of the other alternative of the contract."
15. The ratio of the above decision is squarely applicable to the instant case, in as much as the case in hand falls in category (iii) where the sum named is a substitute for the performance of the act at the choice of the person to whom the money is to be paid or act to be done. It is evident from a plain reading of Clause-6 that the vendors had the option of putting an end to the entire transaction by paying to the vendee the amount mentioned in the clause as a substitute for performance of the agreement or sale of the property to the vendee. The Court below was in that view justified in holding that the plaintiff's suit for specific performance of the agreement was liable to be dismissed.
16. That brings us to the only other question argued at some length by learned Counsel for the parties. It was contended by Mr. Holla that even if the plaintiff was not entitled to a decree for specific performance, the Court below ought to have directed refund of the earnest money or deposit paid or made by him. He urged that although the plaintiff had the opportunity to amend the plaint so as to incorporate a specific prayer for grant of such a relief in terms of Section 22(2) of the Specific Relief Act, yet the omission on the part of the plaintiff to seek a suitable relief by such an amendment should not prevent the plaintiff from seeking such a relief by way of an amendment in terms of proviso to Section 22(2) of the Act. An application for such an amendment having been made at the appellate stage, the same ought to be allowed and relief of refund granted to the plaintiff.
17. Section 22 of the Specific Relief Act starts with a non-obstinate clause and inter alia provides that any person suing for the specific performance of a contract for the transfer of immovable property may, in an appropriate case ask for among other reliefs, refund of the earnest money or deposit paid or made by him in case his claim for specific performance is refused. Sub-section (2) to Section 22 however forbids the grant of any such relief by the Court unless it has been specifically claimed. No such relief has been admittedly claimed by the plaintiff in the plaint. The Trial Court was in that view justified in holding that the relief of refund could not be granted. That does not however materially affect the right of the plaintiff to seek such a relief at the appellate stage in the light of proviso to Sub-section (2) to Section 22 which reads as under:
"Provided that where the plaintiff has not claimed any such relief in the plaint, the Court shall, at any stage of the proceeding, allow him to amend the plaint on such terms as may be just for including a claim for such relief."
18. The Plaintiff-appellant has made an application which shall have to be allowed and the permission to amend the plaint granted for the right to seek any such amendment at any stage of the proceedings is clearly recognized by the proviso. We have therefore no hesitation in allowing the application filed by the plaintiff and permitting him to amend the plaint so as to incorporate a prayer for refund of the amount paid by the plaintiff to the vendors.
19. The next question then is whether a direction for refund can and ought to be made and if so the terms on which such a refund can be ordered. According to Mr. Subbaiah, Counsel appearing for the defendants-respondents in this appeal, since the suit filed by the plaintiff was not maintainable on the twin grounds indicated earlier, the power to direct refund under Section 22 could not be invoked as it was only in cases where the Agreement to Sell is enforceable in law but is not enforced for some valid reason that such a refund may be ordered. Since the relief prayed for by the appellant was not being denied on any of the grounds stipulated in Section 20(2)(a) to(c), the power vested in the Court under Section 22 could not be exercised nor could the relief of refund be granted to the plaintiff. If was further urged that the suit in the instant case was not in the real sense a suit for specific performance of the Agreement as the agreement in question did not constitute an enforceable Agreement to Sell. The Power of refund could not therefore be invoked in such a situation.
20. Section 22 of the Specific Relief Act, 1963 entitles any person suing for specific performance of a contract to seek further additional or alternate relief's enumerated in clause (a) and (b) to Sub-section (1) to Section 22. One of such reliefs is by way of refund of earnest money or deposit paid or made by the plaintiff incase his claim for specific performance is refused. The provision does not however restrict the exercise of power to direct refund only to cases in which the claim for specific performance is refused on any ground enumerated in Section 20(2) of the Act. It is not therefore possible to restrict exercise of power vested in the Court to any specified class of cases only. What is important is that the suit in which the relief prayed for by the plaintiff or granted by the Court is a suit for specific performance of a contract and the Court is declining to grant such a relief for any reason permissible in law. The Court may indeed decline specific performance of the contract for a variety of reasons including the ground that the agreement sought to be specifically enforced is not so enforceable. Any such reason notwithstanding, the suit would continue to be one for specific performance of the contract making it legitimate for the Court to direct refund of the amount received by the defendants in connection with the said agreement.
21. These requirements are in the instant case fully satisfied. The suit in question is a suit for specific performance of the agreement executed between the parties. This Court is declining the decree of specific performance for the reasons already set out earlier. That being so, the power vested in this Court under Section 22 to direct refund of the amount received by the defendants cannot be disputed or the exercise thereof grudged by the defendants. The argument of Mr. Subbaiah that the plaintiff ought to file a separate suit for recovery of money paid by him has not appealed to us. The policy of law is to avoid multiplicity of legal proceedings. An interpretation that would advance that laudable object ought to be preferred over any other interpretation which may make litigation an endless agony for the litigant public. We therefore have no hesitation in holding that the appellant is entitled to a direction for refund of the amount paid by him to the defendants in terms of the Agreement in question.
22. The only other aspect that needs to be considered is whether the appellant is also entitled for payment of interest at the stipulated rate. The provisions of Section 22 however do not make any mention about the interest payable on the amount received by the defendants, whether the same be contractual or otherwise. The fact however remains that the defendants have made use of the money paid by the plaintiff all this time. Refund of the amount so paid will remain inequitable so long as the plaintiff is not suitably compensated in terms of interest for the period during which the said amount was utilized by the defendants. The interest so payable is however purely on equitable consideration and may not be awarded at the rate contracted between the parties. In the circumstances and having regard to the bank's rate of interest prevalent currently and in the immediate past, We deem it just and proper to direct that the amount of Rs. 2,50,000/- received by the respondents in terms of the agreement shall be refundable to the plaintiff with interest from the suit till the date of refund at the rate of 8% p.a.
23. This appeal accordingly succeeds, but only in part and to the extent that while the relief of specific performance claimed by the plaintiff-appellant shall stand declined, the plaintiff-appellant shall be entitled to recover from the defendants a sum of Rs. 2,50,000/- with interest at the rate of 8% p.a. from the date of the institution of the suit till the date the amount is refunded. A decree shall accordingly follow. The appellant shall also be entitled to the costs of litigation throughout.