Calcutta High Court
Mono Orion Foods India Limited vs Syndicate Realtyinfra Private Limited on 23 December, 2021
Author: Shekhar B. Saraf
Bench: Shekhar B. Saraf
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
Original Side
Present:
The Hon'ble Justice Shekhar B. Saraf
G.A. NO. 1 of 2021
C.S. NO. 165 of 2021
Mono Orion Foods India Limited
Versus
Syndicate Realtyinfra Private Limited
For the Plaintiff/Petitioner : Mr. Ranjan Bachawat, Senior Advocate
Mr. Rudraman Bhattacharyya, Advocate
Mrs. Suchismita Ghosh Chatterjee,
Advocate
Ms. Amrita Panja Moulick, Advocate
For the Defendant/Respondent : Mr. Abhrajit Mitra, Senior Advocate
Mr. Dhirendra Nath Sharma, Advocate
Mr. Naresh Balodia, Advocate
Mr. Bhawani Shankar Purohit, Advocate
Mr. Pallav Choudhury, Advocate
Heard on : November 16, 2021, November 26, 2021, December 1, 2021, December 2,
2021, December 6, 2021, December 7, 2021, December 8, 2021, December
9, 2021 and December 13, 2021
Judgment on : December 23, 2021
Shekhar B. Saraf, J.:
Facts:
1. The plaintiff/petitioner has instituted the present suit being CS No. 165 of 2021, inter-alia, for specific performance of a registered development 2 agreement entered into with the defendant/respondent on August 17, 2015 in respect of premises no. 1, Upper Wood Street, Kolkata, pursuant to which a Power of Attorney was given in favour of the Petitioner's nominee Mahesh Kumar Agarwal (now deceased) on the same day i.e. August 17,2015 for obtaining necessary sanctions and approvals from the KMC as well as other authorities for the purpose of carrying out the development work. This interlocutory application being G.A. No. 1 of 2021 has been filed for seeking a new Power of Attorney in favour of new Nominee of the plaintiff company and some other reliefs.
2. The petitioner incurred Rs. 5,70,33,888.90/- on account of the development work of the subject premises along with a sum of Rs.
5,00,00,000/- towards the security deposit against the said development agreement between the parties. As per accounts of the petitioner, only in the financial year 2018-2019 a cost of around Rs. 1,79,00,000/- was incurred by the petitioner towards construction of the said premises. The work was being performed by the petitioner till the demise of its nominee and/or director Mr. Mahesh Kumar Agarwal on April 3, 2020. Sanction plan for the development of the premises was granted on November 18, 2016 and the same was due to expire on November 17, 2021. Taking this into consideration the petitioner was allowed an ad-interim order restraining the respondent from creating any third party rights in respect of the subject premises on November 16, 2021 and the same has been extended from time to time, lastly extended till December 31, 2021.
3Arguments:
3. Mr. Ranjan Bachawat, Senior Advocate appearing for the plaintiff argues that defendant is contractually obligated for specific performance of a registered development agreement dated August 17, 2015. It is the case of the petitioner that despite repeated reminders to the respondents/defendant to issue a fresh power of attorney in favour of the petitioner's nominee, the respondent has failed and/or neglected to carry out its reciprocal obligation under the terms of the contract. It is further argued by the counsel for the petitioner that the Agreement for Development dated August 17, 2015 (hereinafter referred to as "the development agreement") was never terminated. He further submits that the conduct of the parties shows that the contract still continues.
4. The petitioner avers that time is never the essence of contract in case of immovable property unless expressly provided by the parties to a contract. The petitioner places reliance on M/s. Hind Construction Contractors -v- State of Maharashtra reported in (1979) 2 SCC 70 to contend that the question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to be gathered from the terms of the contract. Thereafter, the petitioner states that the intention of the parties was to not make time the essence of the contract. Thus, the principle as laid down in the case of Hind Construction (supra) squarely applies.4
5. Further, Mr. Bachawat, argues that specific performance in respect of contracts is no longer discretionary post the amendment of Specific Relief Act, 1963 and the same is governed by the new amended provisions of the Specific Relief Act, 1963. He relies on B. Santoshshamma and Another -v- D. Sarala and Another decided on September 18, 2020 in Civil Appeal Nos. 3574-3577 of 2009 to contend that the power of the Court to direct specific performance of an agreement may have been discretionary earlier but such power could not be arbitrary and it has to be exercised in accordance with sound and reasonable judicial principles. Another submission made by the petitioner is with regard to share in the contractual building i.e. 35% which he is entitled to as per Clause 6.3 of the development agreement;
he states that the petitioner would have a right to sell in terms of the development agreement. Such right as embedded in the development agreement creates a right of the petitioner in the land itself which cannot be compensated in the form of damages.
6. Lastly, it is submitted by the petitioner that under Section 55 of the Indian Contract Act, 1872, the contract becomes voidable after the lapse of the specified time if the intention of the parties was that time should be of the essence of the contract. The petitioner relies on Kalidas Ghosh -v- Mugneeram Bangur and Co. reported in AIR 1955 Cal 298 to state that the intention of parties should be ascertained not only from the written words of the contract, but the nature of the property which 5 is the subject matter of the contract, the nature of the contract itself and also from the surrounding circumstances.
7. Mr. Abhrajit Mitra, Senior Advocate appearing for the defendant/respondent argues that the Registered Development Agreement dated August 17, 2015 does not create any right in the property and the development agreement is not an Agreement for Sale because no stamp duty has been paid by the plaintiff as per Entry 5 (d) of Schedule 1A of Indian Stamp Act (West Bengal). Furthermore, it is argued by him that as per Section 14 (b) of the Specific Relief Act, 1963 the contract which involves the performance of a continuous duty is not specifically enforceable. The defendant relies on Sushil Kumar Agarwal -v- Meenakshi Sadhu reported in (2019) 2 SCC 241 to state that specific conditions as mentioned in Section 14(3)(c)(i) of the Specific Relief Act, 1963 (before amendment) are not fulfilled by the plaintiff which would allow the relief sought by the petitioner/plaintiff. Subsequently, it was submitted by the Counsel for the defendant/respondent that the development agreement was dependant on the personal qualification of Late Mahesh Agarwal, the defendant's Power of Attorney holder. The defendant does not have faith in the personal qualification of his widow Meena Agarwal whom the Plaintiff wants to be appointed as new Power of Attorney holder of the defendant. Hence, Section 14(c) of the Specific Relief Act, 1963 (after amendment) which states that contract of which performance is dependent on the 6 personal qualifications of the parties is not specifically enforceable would be applicable in the instant case.
8. The Counsel for the defendant submits that the contract for development expressly comes to an end on expiry of 36 months from the date of receipt of sanctioned plan. He primarily relies on Section 14 (d) of the Specific Relief Act, 1963 to state that nature of the development contract makes it terminable.
9. Thereafter, it is submitted by the defendant that time is the essence of the development contract in the instant case. He places reliance on Venkateswara -v- Jugal Kishore reported in AIR 1986 Kar 14 and more particularly the quotation therein from the Supreme Court judgment in the case of Keshavalal Lallubhai Patel -v- Lalbhai Trikumlal Mills Ltd. reported in AIR 1958 SC 512 to make this submission. Furthermore, the defendant submitted that by virtue of the mutual consent clause for extension of the development contract comes to an end as both parties did not mutually extend the time period beyond 36 months. He relies on Anandram Mangturam -v- Bholaram reported in AIR 1946 Bom 1 to buttress this argument. Subsequently, the defendant avers that time is as much of essence in a contract for transfer of immovable property as it is in the case of movable property. He relies on Saradamani Kandappan -v- S. Rajalakshmi & Ors reported in (2011) 12 SCC 18 and Ferrodous Estates Pvt. Ltd. -v- P. 7 Gopiram (Dead) & Ors reported in AIR 2020 SC 5041 to make the above submission.
10. The defendant further placed the judgement passed in Ambalal Sarabhai Enterprise Ltd. -v- KS Infrapace LLP Limited & Anr reported in AIR 2020 SC 307 to contend that Amendment of Section 10 of Specific Relief Act expressly excludes Explanation-1, which had earlier created a presumption that breach of contract to transfer an immovable property cannot be adequately relieved by compensation of any money. In the context of a suit for specific performance of contract for transfer of immovable property and/or specific performance of a development agreement this principle has to be applied and if found that compensation by way of damages can and/or should be granted then the court will refuse to pass an interim injunction. Subsequently, Mr. Mitra placed Sushil Kumar Agarwal -v- Meenakshi Sadhu & Ors reported in (2019) 2 SCC 241 to argue that securing the damages is the only remedy which could be granted by the court at the interlocutory stage.
Analysis and Conclusion
11. I have heard the Counsels appearing for both the parties and perused the materials placed on record. The primary issue that needs to be decided in this application is whether time is of the essence of the development agreement entered into by both the parties. This issue requires interpretation of various clauses and conditions mentioned in 8 the agreement. The relevant clauses of the development agreement are as follows:
"Clause 3.2 - This agreement will remain in force till such time the entire construction is completed and subject to the terms and conditions hereinafter appearing.
Clause 5.3 - The Developer shall construct and complete the construction within 36 months from the date of receipt of Building permits sanction of plan. However this time may be extended on mutual consent of the parties.
Clause 6.3 - The Developer's allocation will comprise 35% (thirty five percent) of the sanctioned area in the said new building and/or buildings (which includes covered and/or open Car parking space) will form part of the Developer's Allocation in the new building Clause 6.4 - The Owner and Developer hereby agree to identify therein respective allocations within 30 days from the date of preparation of plan of sanction of the plan by specifying the same in detail and/or within such period as may be mutually agreed by and between the parties.
Clause 6.6 - The Owner shall execute the deed of conveyance or conveyances in respect of the Developer's allocation in favour of the developer or its nominee of nominees in such part of parts as shall be required by the Developer provided however the cost of such conveyance or conveyances including the stamp and registration expenses shall be paid, borne and discharged by the Developer or its nominee or nominees. For the purpose of expediency the Owner shall execute and register a power of attorneys in favour of the Developer or its nominee who on the strength of such power of attorney shall be entitled to execute all the relevant deeds, instruments and documents in respect of the Developer's allocation in the name of the Owner.
Clause 8.1 - The Developer shall at its own costs construct erect and complete the New Building at the said premises in accordance with the sanctioned plan with such materials and/or specifications as shall be recommended by the Architect of the said New Building and shall be completed within a period 36 months from the date of receipt sanctioned plan.
Clause 10.8 - However, any term or condition may be varied or modified by consent of the parties in writing."
12. The new amended provisions of the Specific Relief Act, 1963 are also required to be highlighted for adjudication of the issues involved in the 9 instant case. Relevant provision of the Specific Relief Act, 1963 are extracted below:
"Section - 10: Specific performance in respect of contracts. -- The specific performance of a contract shall be enforced by the court subject to the provisions contained in sub-section (2) of section 11, section 14 and section
16. Section -14: Contracts not specifically enforceable. -- The following contracts cannot be specifically enforced, namely: --
(a) where a party to the contract has obtained substituted performance of contract in accordance with the provisions of section 20;
(b) a contract, the performance of which involves the performance of a continuous duty which the court cannot supervise;
(c) a contract which is so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms; and
(d) a contract which is in its nature determinable.
Section - 16: Personal bars to relief.--Specific performance of a contract cannot be enforced in favour of a person--
(a) who has obtained substituted performance of contract under section 20; or
(b) who has become incapable of performing, or violates any essential term of, the contract that on his part remains to be performed, or acts in fraud of the contract, or wilfully acts at variance with, or in subversion of, the relation intended to be established by the contract;
or
(c) who fails to prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented or waived by the defendant.
Explanation.--For the purposes of clause (c) --
(i) where a contract involves the payment of money, it is not essential for the plaintiff to actually tender to the defendant or to deposit in court any money except when so directed by the court;
(ii) the plaintiff must prove performance of, or readiness and willingness to perform, the contract according to its true construction."
10
13. In the case of Hind Construction (supra) it was held by the Hon'ble Supreme Court that the question whether time of the essence of the contract is to be determined from the intention of the parties to a contract and where parties to a contract contemplate postponement of completion, time is not of the essence. The court interpreted various clauses that specified time limit for the works to be performed as per the building contract. Relevant paragraphs of the judgement are extracted below:
"7. The first question that arises for our consideration, therefore, is whether time was of the essence of the contract that was executed between the parties on July 12, 1955 (Ex. 34). It cannot be disputed that question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to be gathered from the terms of the contract. The contract in the instant case is for the construction of an aqueduct across the Alandi River at Mile 2 of the Nasik Left Bank Canal and unquestionably 12 months' period commencing from the date of the commencement of the work had been specified within which the construction had to be completed by the appellant-plaintiff. Indisputably, in the work order dated July 2, 1955 the Executive Engineer had directed the appellant-plaintiff to commence the work by July 5, 1955 intimating in clear terms that the stipulated date for starting the work would be reckoned from July 5, 1955. Both the trial court as well as the High Court have found that mentioning of July 5, 1955 as the date for starting the work was not nominal but was real date intended to be acted upon by the parties. It is, therefore, clear that 12 month's period mentioned for the completion of the work was to expire on July 4, 1956. The question is whether this period of 12 months so specified in the contract was of the essence of the contract or not? On the one hand, counsel for the appellant-plaintiff contended that the contract being analogous to a building contract the period of 12 months would not ordinarily be of the essence of the contract as the subject-matter thereof was not such as to make completion to time essential, that an agreement to complete it within reasonable time would be implied and that reasonable time for completion would be allowed. On the other hand, counsel for the respondent-defendant contended that time had been expressly made of the essence of the contract and in that behalf reliance was placed upon clause (2) of the "Conditions of Contract" where not only time was stated to be of the essence of the contract on the part of the contractor but even for completion of proportionate works specified periods had been specified and, therefore, the appellant-plaintiff's failure 11 to complete the work within the stipulated period entitled the respondent- defendant to rescind it. In the latest 4th Edn. of Halsbury's Laws of England in regard to building and engineering contracts the statement of law is to be found in Vol. 4, para 1179, which runs thus:
"1179. Where time is of the essence of the contract.--The expression time is of the essence means that a breach of the condition as to the time for performance will entitle the innocent party to consider the breach as a repudiation of the contract. Exceptionally, the completion of the work by a specified date may be a condition precedent to the contractor's right to claim payment. The parties may expressly provide that time is of the essence of the contract and where there is power to determine the contract on a failure to complete by the specified date, the stipulation as to time will be fundamental. Other provisions of the contract may, on the construction of the contract, exclude an inference that the completion of the works by a particular date is fundamental: time is not of the essence where a sum is payable for each week that the work remains incomplete after the date fixed, nor where the parties contemplate a postponement of completion.
Where time has not been made of the essence of the contract or, by reason of waiver, the time fixed has ceased to be applicable, the employer may by notice fix a reasonable time for the completion of the work and dismiss the contractor on a failure to complete by the date so fixed."
(Emphasis supplied)
8. It will be clear from the aforesaid statement of law that even where the parties have expressly provided that time is of the essence of the contract such a stipulation will have to be read along with other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental; for instance, if the contract were to include clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract such clauses would be construed as rendering ineffective the express provision relating to the time being of the essence of contract."
14. In the case of Kalidas Ghosh (supra) it was held by this Hon'ble Court that subsequent conduct of the parties is also of relevance to determine 12 the intention of the parties regarding the stipulated time limit of the agreement. Relevant paragraphs of the judgement are extracted below:
"13. I now come to the real crux of the problem, viz., whether time should be regarded to be of the essence of the contract contained in Ex. 5. Paragraph 1 of this document which relates to the price of the land offered for sale and the receipt of the earnest money of Rs. 101/- by the company is not relevant for our purpose. The next two paragraphs which are very important for our purpose are quoted here:
"The conveyance must be completed within one month from date of payment of the balance of the consideration money, time being deemed as the essence of the contract. In case of default, his agreement will be considered as cancelled with forfeiture of earnest money.
One-third of the value of the land will be paid at the time of registration and the balance within 6 years bearing 6 per cent, interest per annum."
14. There is, therefore, an express stipulation in the contract that the time should be deemed to be of the essence of the contract, and that if the contract was not performed within one month from the date of the receipt, the agreement would be considered as cancelled with forfeiture of the earnest money. The receipt was given in a printed form.
15. The mere mentioning of the fact that time should be deemed to be of the essence of the contract does not make it voidable at the instance of one of the contracting parties. Under Section 55 of the Contract Act, the contract becomes voidable after the lapse of the specified time if the intention of the parties was that time should be of the essence of the contract. Vide in this connection the case reported in -- 'Bhudar Chandra v. C.R.S. Berts', AIR 1916 Cal 901 (A). This intention should be ascertained not only from the written words of the contract, but the nature of the property which is the subject-matter of the contract, the nature of the contract itself and also from the surrounding circumstances.
.............
.............
19. The subsequent conduct of the parties would also throw some light on the original intention of he parties regarding the stipulated time limit of the agreement. The respondent is a company and not private individual, yet it did not think it proper necessary to give any notice to the appellant 13 on the expiry of the time limit intimating that the contract was avoided or that it stood cancelled.
20. What is more surprising is that although the appellant himself wrote two registered letters to the company, one on 20-6-1944 (Ex. 3) and another on 26-8-1945 (Ex. 3(a)) enquiring what was the position with regard to his plot and when he might expect to be called upon to complete the conveyance, the respondent never replied to those letters and never took up the position that the contract had already come to an end.
21. Mr. Sen Gupta appearing on behalf of the appellant at one stage of his argument submitted that the silence of the company over these two letters amounted to a waiver of its right to rescind the contract. To this Mr. Gupta on behalf of the respondent rightly pointed out that there could be no waiver if the contract had already come to an end automatically by the force of its own terms. In my judgment the omission of the company to answer the above letters would not constitute a waiver on its part, but it is a significant piece of conduct which would tend to show that the company had never intended that the contract would automatically come to an end if it was not performed within a month from 15-4-1943. It was not until 24-1-1946 that the respondent intimated to the appellant by a letter (marked Ex. C) that the contract had stood cancelled on account of appellant's laches to perform his share of it. This letter was written in answer to appellant's letter, dated 22-10-1945, demanding specific performance of the contract (Ex. 6).
22. On a careful examination of the contract between the parties, the circumstances in which the property was placed at the time of the contract and the subsequent conduct of the parties in relation to the contract, I am clearly of opinion that time was never intended to be of the essence of the contract although such a clause was put in the contract, and so the appellant who has not violated any of the material terms of the contract is entitled both in law and in equity to get specific performance of it."
15. In the case of B. Santoshamma (supra) it was held by the Hon'ble Supreme Court that if there are no express consequences for not complying with a term mentioned in the agreement between the parties for sale of immovable property then it cannot be said that time is of essence. Relevant paragraphs of the judgement are delineated below: 14
"62. The effective concurrent finding of the High Court and the Trial Court, that the Vendee had been ready and willing to perform and had in fact performed her obligations under the Agreement dated 21.3.1984, is also unexceptionable for the following reasons:
(i) As observed above, the Vendee paid Rs. 40,000/- out of the total consideration of Rs. 75,000/- on the date of execution of the Agreement dated 21.3.1984 itself.
(ii) It is not disputed that the Vendee paid a further Rs. 5,000/- to the Vendor's husband against a receipt.
(iii) It is the Vendor's own case that in terms of the Agreement dated 21.3.1984, the full consideration was to be paid within 45 days. The Vendee's claim that she tendered Rs. 30,000/- on 30.4.1984 was not disputed by the Vendor in her legal notice/letter dated 20.6.1984.
(iv) In any case the Vendee obtained Demand Draft No. 463961 dated 4.5.1984 for Rs. 30,000/- in favour of the Vendor towards balance consideration, within 47 days from the execution of the Agreement dated 21.3.1984.
(v) It is well settled that time is not of essence to agreements for sale of immovable property, unless the agreement specifically and expressly incorporates the consequence of cancellation of the agreement, upon failure to comply with a term within the stipulated date."
16. Judgements relied on by the defendant/respondent on the issue of time is of essence need to be observed next. In the case of Saradamani Kandappan (supra) it was held by the Hon'ble Supreme Court that in an agreement for sale of immovable property the purchaser can no longer take shelter under the principle that time is not of essence in performance of contracts relating to immovable property when he does not take steps to complete the sale within the agreed period. Relevant paragraphs of the judgment are extracted below:
15
"35. 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 the Contract Act (or any other provisions of the Contract Act or the Specific Relief Act, 1963). The 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 [AIR 1967 SC 868 : (1967) 1 SCR 227] , Govind Prasad Chaturvedi [(1977) 2 SCC 539] , Indira Kaur v. Sheo Lal Kapoor [(1988) 2 SCC 488] and Chand Rani [(1993) 1 SCC 519] following the decision of the Privy Council in Jamshed Khodaram Irani v. Burjorji Dhunjibhai [(1915-16) 43 IA 26 :
AIR 1915 PC 83] and other cases.) Of course, the Constitution Bench in Chand Rani [(1993) 1 SCC 519] made a slight departure from the said view.
36. The principle that time is not of the essence of contracts relating to immovable properties took shape in an era when market values 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 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.
37. 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 16 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 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 rupees one lakh and received rupees ten thousand as advance may be required to execute a sale deed a quarter century later by receiving the remaining rupees ninety thousand, when the property value has risen to a crore of rupees."
17. Subsequently, in the case of Ferrodous Estates (supra) a similar finding was made by the Hon'ble Supreme Court wherein the court observed that property prices have risen drastically it may not be correct to state that time is not of essence for sale of immovable property. Relevant paragraphs of the judgement are delineated below:
"50. It is settled law that mere delay by itself, without more, cannot be the sole factor to deny specific performance - See Mademsetty Satyanarayana v. G. Yelloji Rao, (1965) 2 SCR 221 at pp. 229-230. Thus, in K.S. Vidyanadam v. Vairavan, (1997) 3 SCC 1, this Court made it clear that if property prices have risen dramatically within a period of two and a half years before filing of the suit for specific performance, and it is coupled with violation of the agreement by the plaintiff, specific performance will not be decreed. The Court held:
"10. ... In other words, the court should look at all the relevant circumstances including the time-limit(s) specified in the agreement and determine whether its discretion to grant specific performance should be exercised. Now in the case of urban properties in India, it is well-known that their prices have been going up sharply over the 17 last few decades -- particularly after 1973 [It is a well-known fact that the steep rise in the price of oil following the 1973 Arab-Israeli war set in inflationary trends all over the world. Particularly affected were countries like who import bulk of their requirement of oil]. In this case, the suit property is the house property situated in Madurai, which is one of the major cities of Tamil Nadu. The suit agreement was in December 1978 and the six months' period specified therein for completing the sale expired with 15-6-1979. The suit notice was issued by the plaintiff only on 11-7-1981, i.e., more than two years after the expiry of six months' period. The question is what was the plaintiff doing in this interval of more than two years? ... The defendants' consistent refrain has been that the prices of house properties in Madurai have been rising fast, that within the said interval of 2½ years, the prices went up three times and that only because of the said circumstance has the plaintiff (who had earlier abandoned any idea of going forward with the purchase of the suit property) turned round and demanded specific performance. Having regard to the above circumstances and the oral evidence of the parties, we are inclined to accept the case put forward by Defendants 1 to 3. We reject the story put forward by the plaintiff that during the said period of 2½ years, he has been repeatedly asking the defendants to get the tenant vacated and execute the sale deed and that they were asking for time on the ground that tenant was not vacating. The above finding means that from 15-12-1978 till 11-7-1981, i.e., for a period of more than 2½ years, the plaintiff was sitting quiet without taking any steps to perform his part of the contract under the agreement though the agreement specified a period of six months within which he was expected to purchase stamp papers, tender the balance amount and call upon the defendants to execute the sale deed and deliver possession of the property. We are inclined to accept the defendants' case that the values of the house property in Madurai town were rising fast and this must have induced the plaintiff to wake up after 2½ years and demand specific performance.
11. Shri Sivasubramaniam cited the decision of the Madras High Court in S.V. Sankaralinga Nadar v. P.T.S. Ratnaswami Nadar [AIR 1952 Mad 389 : (1952) 1 Mad LJ 44] holding that mere rise in prices is no ground for denying the specific performance. With great respect, we are unable to agree if the said decision is understood as saying that the said factor is not at all to be taken into account while exercising the discretion vested in the court by law. 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. Take this very case. The plaintiff had agreed to pay the balance consideration, purchase the stamp papers and ask for the 18 execution of sale deed and delivery of possession within six months. He did nothing of the sort. The agreement expressly provides that if the plaintiff fails in performing his part of the contract, the defendants are entitled to forfeit the earnest money of Rs. 5000 and that if the defendants fail to perform their part of the contract, they are liable to pay double the said amount. Except paying the small amount of Rs. 5000 (as against the total consideration of Rs. 60,000) the plaintiff did nothing until he issued the suit notice 2½ years after the agreement. 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. The learned counsel for the plaintiff says that when the parties entered into the contract, they knew that prices are rising; hence, he says, rise in prices cannot be a ground for denying specific performance. May be, the parties knew of the said circumstance but they have also specified six months as the period within which the transaction should be completed. The said time-limit may not amount to making time the essence of the contract but it must yet have some meaning. Not for nothing could such time-limit would have been prescribed. Can it be stated as a rule of law or rule of prudence that where time is not made the essence of the contract, all stipulations of time provided in the contract have no significance or meaning or that they are as good as non-existent? All this only means that while exercising its discretion, the court should also bear in mind that when the parties prescribe certain time-limit(s) for taking steps by one or the other party, it must have some significance and that the said time-limit(s) cannot be ignored altogether on the ground that time has not been made the essence of the contract (relating to immovable properties)."
xxx xxx xxx "13. In the case before us, it is not mere delay. It is a case of total inaction on the part of the plaintiff for 2½ years in clear violation of the terms of agreement which required him to pay the balance, purchase the stamp papers and then ask for execution of sale deed within six months. Further, the delay is coupled with substantial rise in prices -- according to the defendants, three times -- between the date of agreement and the date of suit notice. The delay has brought about a situation where it would be inequitable to give the relief of specific performance to the plaintiff.
14. Shri Sivasubramaniam then relied upon the decision in Jiwan Lal (Dr) v. Brij Mohan Mehra [(1972) 2 SCC 757 : (1973) 2 SCR 230] 19 to show that the delay of two years is not a ground to deny specific performance. But a perusal of the judgment shows that there were good reasons for the plaintiff to wait in that case because of the pendency of an appeal against the order of requisition of the suit property. We may reiterate that the true principle is the one stated by the Constitution Bench in Chand Rani [(1993) 1 SCC 519]. Even where time is not of the essence of the contract, the plaintiffs must perform his part of the contract within a reasonable time and reasonable time should be determined by looking at all the surrounding circumstances including the express terms of the contract and the nature of the property."
51. Likewise, this Court, in Saradamani Kandappan v. S. Rajalakshmi, (2011) 12 SCC 18, made it clear that given the steep rise in urban land prices, it may not be correct now to say that time is not of essence in performance of a contract of sale of immovable property. Thus, where time can be said to be of the essence in the facts of a given case, and the purchaser does not take steps to complete the sale within the stipulated period and the vendor is not responsible for any delay, the steep rise in price within the stipulated time would be a circumstance which would make it inequitable to grant the relief of specific performance........"
18. In the case of Sushil Kumar Agarwal (supra) it was held by the Hon'ble Apex Court that the developer could be compensated with the damages for the money incurred by him on the development of the property as the developer of the property had failed to satisfy the conditions as mentioned in Section 14 (3) (c) of the Specific Relief Act, 1963 (before amended) therefore specific performance cannot be granted. Relevant paragraphs of the judgement are extracted below:
"30. Use of such vague terms in the agreement such as "first class materials", "residential apartment of various sizes and denomination", "etc.", "similar condition", and "special fittings", while discussing the scope of work clearly shows that the exact extent of work to be carried out by the developer and the obligations of the parties, have not been clearly brought out. The parties have not clearly defined, inter alia, the nature of material to be used, the requirements of quality, structure of the building, sizes of the flats and obligations of the owner after the plan is sanctioned. Further, Clause 9 of the agreement states that the owner shall pay the 20 contractor costs, expenses along with agreed remuneration only after completion of the building on receiving the possession. However, the exact amount of remuneration payable by the owner to the contractor is not to be found in the agreement. The agreement between the parties is vague. The court cannot determine the exact nature of the building or work. The first condition in Section 14(3)(c)(i) is not fulfilled.
31. Another condition under Section 14(3)(c)(ii) is that the plaintiff has a substantial interest in the performance of the contract and the interest is of such a nature that compensation in money for non-performance of the contract is not an adequate relief. The intent of the section is to make a distinction between cases where a breach of an agreement can be remedied by means of compensation in terms of money and those cases where no other remedy other than specific performance will afford adequate relief. Therefore, before granting the remedy of specific performance, we need to analyse the extent of the alleged harm or injury suffered by the developer and whether compensation in money will suffice in order to make good the losses incurred due to the alleged breach of the agreement by the owner. From the facts of the case, it is clear that the case of the developer is that he incurred an expenditure of Rs 18,41,000 towards clearing outstanding dues, security deposit and development, incidental and miscellaneous expenses. The alleged losses/damages incurred by the plaintiff can be quantified. The plaintiff can be provided recompense for the losses allegedly incurred by payment of adequate compensation in the form of money. The developer has failed to satisfy the conditions under sub-clauses (i) and (ii) of Section 14(3)(c) of the Act. In such a case, specific performance cannot be granted."
19. In the case of Ambalal Sarabhai (supra), the Hon'ble Supreme Court held that breach of contract to transfer an immovable property can be adequately relieved by compensation of money and if it is found that compensation by way of damages can be granted then the court will refuse to pass an interim injunction. Relevant paragraphs of the judgement are mentioned below:
"15. Chapter VII Section 36 of the Specific Relief Act, 1963 (hereinafter referred to as "the Act") provides for grant of preventive relief. Section 37 provides that temporary injunction in a suit shall be regulated by the Code of Civil Procedure. The grant of relief in a suit for specific performance is itself a discretionary remedy. A plaintiff seeking temporary injunction in a suit for specific performance will therefore have to 21 establish a strong prima facie case on basis of undisputed facts. The conduct of the plaintiff will also be a very relevant consideration for purposes of injunction. The discretion at this stage has to be exercised judiciously and not arbitrarily.
16. The cardinal principles for grant of temporary injunction were considered in Dalpat Kumar v. Prahlad Singh [Dalpat Kumar v. Prahlad Singh, (1992) 1 SCC 719] , observing as follows : (SCC p. 721, para 5) "5. ... Satisfaction that there is a prima facie case by itself is not sufficient to grant injunction. The Court further has to satisfy that non-interference by the Court would result in "irreparable injury" to the party seeking relief and that there is no other remedy available to the party except one to grant injunction and he needs protection from the consequences of apprehended injury or dispossession. Irreparable injury, however, does not mean that there must be no physical possibility of repairing the injury, but means only that the injury must be a material one, namely, one that cannot be adequately compensated by way of damages. The third condition also is that "the balance of convenience" must be in favour of granting injunction. The Court while granting or refusing to grant injunction should exercise sound judicial discretion to find the amount of substantial mischief or injury which is likely to be caused to the parties, if the injunction is refused and compare it with that which is likely to be caused to the other side if the injunction is granted. If on weighing competing possibilities or probabilities of likelihood of injury and if the Court considers that pending the suit, the subject-matter should be maintained in status quo, an injunction would be issued. Thus the Court has to exercise its sound judicial discretion in granting or refusing the relief of ad interim injunction pending the suit.""
20. After going through the relevant clauses mentioned in the development agreement it can be observed that time limit of 36 months prescribed in Clause 5.3 is extendable if the parties mutually agree to do the same. As per Clause 3.2, the agreement for development of the suit premises will remain in force till the time entire construction is completed. One may also refer to Clause 6.4 which contemplates that time period for identification of allocation may also be extended based on a mutual 22 agreement between the parties. All the above clauses point towards a situation where both the parties did not envisage the development agreement to be time bound. The argument made by the Counsel for the defendant that mutual agreement was not entered into for extension of time, hence the development agreement does not subsist, is not tenable. In fact, presence and wording of such conditions/clauses in the development agreement goes on to highlight that time is not of essence. The principles derived in the case of Hind Constructions (supra) are accordingly applicable to the present case.
21. The development agreement does not envisage any consequences for not sticking to the time limit of 36 months as mentioned in Clause 8.1 and 5.3. That being the case, it is not correct to assume that the intention of the parties was to ensure that the work is completed within the deadline. In Clause 5.3 for mutual extension of time and the Clause 8.1 for development of the suit premises nowhere is it mentioned that failing to comply with the deadline will lead to certain consequence or revocation of the development agreement. In fact, there is no clause in the entire agreement to indicate the consequences for not complying with the prescribed time period. Thus, the intention of the parties has to be looked into in light of the above clauses. The legal principle derived in Kalidas Ghosh (supra) with regard to intention and conduct of the parties is accordingly applicable to the facts of this case. Similarly, legal findings on the issue of time is of essence in the case of B. Santoshamma (supra) are relevant and applicable to the case in hand. 23
22. It is to be noted that the respondent sought to rely upon a purported letter of termination dated November 19, 2020 which was not pressed subsequently for the purpose of deciding this application. Also, when the petitioner sought reply from the respondent via letters and emails sent on July 26, 2021 and on August 7, 2021, there was no communication from the side of the respondent with regard to termination of the said development agreement. Such conduct of the respondent highlights that the development agreement was never terminated.
23. Judgements cited and relied on by Mr. Mitra, Counsel for the defendant/respondent, Saradamani Kandappan (supra) and Ferrodous Estates (supra), are not applicable to the instant case as both relate to sale of immovable property whereas the agreement for development of a building has a different character. The principles obtained from these judgements are relevant for the cases where one party delays its obligation as per the sale agreement and the price of property goes up which makes specific performance of contract inequitable for the seller. In fact, in the case at hand, the primary intention and objective of the parties was to make profits in the future based on rising real estate prices and such intention will get frustrated if specific performance of the agreement is not granted. Hence, both judgements are inapplicable to the current factual scenario. 24
24. Counsel for the respondent has submitted that the Petitioner at the most would be entitled to damages and that the respondent is willing to secure such sum as claimed to have been spent on account of construction by the petitioner is also completely misplaced. According to Clause 6.3 of the development agreement, the Developer's allocation will comprise of 35% of the sanction-able area in the said new building, which the Developer would have a right to sell in terms of Clause 6.5. Such right as embedded in the Development Agreement creates a right of the Developer in the land and proposed construction itself, which cannot be compensated in the form of damages.
25. In the case of Sushil Kumar Agarwal (supra), Clause 2.5 of the development agreement mentions payment of the construction cost via 58% of the constructed area as security and upon failure to pay the owner the developer was entitled to realize its money by selling this 58% of the area kept as security. There is an apparent distinction between the nature of development agreement entered into by the parties in this case and the case that presently we are dealing with. In our case, Clause 6.3 and 6.4 are unambiguous with respect to share allocation in the suit property between both the parties. Moreover, the above judgment does not examine the effect of amended provision, that is, Section 14 of the Specific Relief Act, 1963. The judgment passed in Ambalal Sarabhai (supra) is also inapplicable to the present factual scenario as we are not dealing with the sale of an immovable property. In the present case, the 25 development agreement has to be looked in a separate light and perspective.
26. The argument raised by Mr. Abhrajit Mitra that specific performance cannot be allowed in a particular case where the contract would require continuous supervision from the Court as per Section 14(b) of the Specific Relief Act, 1963 is not tenable as there is no micro management required by the Court at all. This is not a case where the Court would have to step in at each stage of performance of the contract and supervise it. Accordingly this argument is rejected. Counsel for the defendant has further submitted that a contract of which performance is dependent on the personal qualifications of the parties is not specifically enforceable as per Section 14 (c) of the Specific Relief Act, 1963. I am not inclined to accept this argument because the development agreement clearly highlights that certain works have to be performed by the architects and contractors which does not require the new nominee to be personally qualified to complete and carry out the remaining works. Furthermore, it is to be noted that the development agreement is between two companies and not between an individual developer whose personal qualification was specifically required to carry out the development works. Hence, the above argument that the personal qualification of the earlier power of attorney holder is necessary and the contract can accordingly not be specifically enforced is rejected by me. 26
27. Lastly, the judgments cited by the defendant on the issue of time is of essence are also inapplicable to our case. Venkateswara Minerals (supra) and Anandram Mangturam (supra) deal with contracts where movable property is the subject matter of the sale and purchase. We are not dealing with such property in the present case. Hence, the principles of these two judgments would not apply to the facts of this case.
28. Upon examining the abovementioned judgments, the principles that emerge are delineated below:
A. The terms of contract are to be looked into, specifically the one that prescribes time as the essence of contract.
B. Other provisions of contract may, on its construction, exclude an inference that completion of the works by a particular date is fundamental.
C. Certain clauses that provide for mutual extension of the contract may also lead to the conclusion that time in not the essence of contract.
D. Not providing consequences for breach of time may also lead to the conclusion that time is not the essence of contract.
E. Intention of the contracting parties should be ascertained not only from the written words of the contract, but the nature of the property which is the subject-matter of the contract, the nature of the contract itself and also from the surrounding circumstances.27
F. The subsequent conduct of the parties would also throw some light on the original intention of the parties regarding the stipulated time limit of the agreement.
29. Finally, one may refer to Dorab Cawasji Warden -v- Coomi Sorab Warden reported in AIR 1990 S.C. 867 to understand the guiding principles for passing an order of mandatory injunction at the ad interim stage. The same are highlighted below:
A. The plaintiff has a strong case for trial. That is, it shall be of a higher standard than a prima facie case that is normally required for a prohibitory injunction.
B. It is necessary to prevent irreparable or serious injury which normally cannot be compensated in terms of money.
C. The balance of convenience is in favour of the one seeking such relief.
30. In the present case, certain facts are required to be looked into before coming to a final conclusion. First of all, the relevant clauses of the contract clearly indicate that time is not the essence of the contract as discussed earlier. Secondly, the conduct of the parties even after the alleged time frame indicates that they intended to continue with the contract. Thirdly, the factual angle indicates that the respondent/defendant had a change of mind with regard to the development agreement post the death of one of the directors of the plaintiff/petitioner and it has tried arm twisting tactics to come out of the development agreement at a stage when the building is almost 28 complete. One is to look into these kinds of contracts with a practical intent and if a landlord is allowed to come out of a development agreement once the building is completed, the same would amount to allowing the defendant to get an unfair bargain in the entire aspect. The development agreement is obviously a commercial contract that is to give benefit to both the parties especially since the developer gets a portion of the developed land and has the option to sell and make profits from the same. In such an event, if a person is allowed to wriggle out of the contract at the very end, the entire purpose of the contract is frustrated. The new provisions of the Specific Relief Act, 1963 clearly delineates the procedure to be followed by a court when allowing for specific performance of a contract. In my view, if this particular agreement is not allowed to be specifically performed, irreparable loss and injury would be a result of the same. Just because damages can be computed in the form of money spent by the developer, it does not mean that specific performance cannot be given. Umpteen judgments of the Hon'ble Supreme Court have highlighted this point and one need not go further into the same. Furthermore, the submissions with regard to Section 14(b) and 14(c) have already been discussed and rejected by me at paragraph 26 hereinabove. The judgments cited by the defendant/respondent have been distinguished by me on facts and on law and are clearly inapplicable to the present case. Keeping in mind the prima facie case that has been made out by the petitioner coupled with balance of convenience and inconvenience, this application is allowed with the following directions:
29
a) The respondent is directed to not create any third party rights in the suit premises till further orders.
b) The prayer for the grant of mandatory injunction for execution of Power of Attorney in favour of the nominee of the petitioner/plaintiff to execute the balance work is allowed and the respondent is directed to execute the same within four weeks from date.
31. I would like to appreciate the painstaking efforts and advocacy displayed by Mr. Ranjan Bachawat appearing for the petitioner/plaintiff and Mr. Abhrajit Mitra appearing for the respondent/defendant. Both counsels have done an exemplary job for their respective clients and made my task easier with their clarity of thought and impeccable presentation in court.
32. Since affidavit directions have not been given in this matter, directions are given herein. Let affidavit-in-opposition be filed within four weeks from date; reply thereto, if any, within two weeks thereafter. Parties are at liberty to mention for hearing after completion of affidavits.
33. Urgent Photostat certified copy of this order, if applied for, should be made available to the parties upon compliance with the requisite formalities.
(Shekhar B. Saraf, J.)