Specific Performance of Contracts
Specific Performance of Contracts is an equitable relief granted by the court to perform the contract when there is a breach of the same.
Performance of the contract is of two types:-
- Specific Performance or Primary Performance-
When breach is made by a party to contract then the court may direct him to perform his respective duty as promised in the contract.
Example- A agrees to sell his one kanal house in Chandigarh to B for Rs. 5 crore. He makes breach of contract. If suit is filed by B then court may grant specific performance and may compel A to sell that house to B.
- Secondary Performance-
Secondary performance means asking the party who has made breach of contract has to give compensation to the other party.
Example- A, trustee (without authority) agrees to sell the trust property to B for Rs. 5 Lakh. Subsequently, A makes breach of contract. If suit is filed by B then the relief is claimed may plead by way of defense any ground which is available to him under any law relating to contracts.
Specific Performance No longer Discretionary [Secs. 10. 11]
(‘Specific performance the Rule; Monetary compensation the Exception”)
The relief of ‘specific performance’ evolved as a discretionary remedy granted by English courts of equity in cases where either the common law courts could not provide a remedy, or the remedy was inadequate. In India, the S.R. Act, 1963, was enacted embodying this same outlook towards specific performance. It gave courts a discretionary power to grant specific performance of a contract under two circumstances i.e. where (a) monetary compensation for non-performance of contract was inadequate; or (b) the extent of damage caused by the non-performance of contract could not be ascertained. Consequently, grant of specific reliet for breach of contract was more of an exception, with courts granting damages as a general rule.
9. Defences respecting suits for relief based on contract: Except as otherwise provided herein, where any relief is claimed under this Chapter in respect of a contract, the person against whom the relief is claimed may plead by way of defense any ground which is available to him under any law relating to contracts.
Under Section 9 whenever specific performance is claimed under this Chapter, defendant may take any defence under law relating to contract.
- Incomplete documents or formalities
- Plaintiff’s failure to perform in time
- Unlawful agreement
- Contingent contract
- Alteration in contract by the plaintiff
- Consent of the defendant is not free
1. Incomplete documents or formalities
Where in the contract the plaintiff is required to complete the documents or to do some formalities before the defendant can perform his promise and he fails to then the court may refuse to grant specific relief as failure to complete documents or formalities is good defence.
In a case Vijay Kumar Sharma V. Davesh Behari Saxena, where a document is required to be registered under the Registration Act, 1908 or the Transfer of Property Act, 1882, has not been registered, it may still be received as evidence of a contract in a suit for specific performance. The amendment to the Registration Act and the Transfer of Property Act of 2001 does not affect the right to claim specific performance. Specific Performance can be claimed even though the agreement for sale of immovable property has not been registered. The Courts can receive and adjudicate upon suits for specific performance of unperformed and unregistered agreements; the conditions of performance would depend upon the circumstances of the case. However, specific performance cannot be granted on the basis of an unregistered sale deed, though it may be used as evidence of its terms.
2. Plaintiff’s failure to perform in time
Where time is an essence of the contract and the plaintiff failed to perform his duty in time then the specific relief can be refused as failure to perform in time is a good defence.
In case of Nanjachary v. P. Chennaveerachari, where a decision was taken to sell a house immediately to raise urgently needed funds and six month’s time was specified for payment, it was held that time of payment was essence of contract. The vendee’s failure to make payment in time disentitled him from claiming specific performance.
3. Unlawful agreement
Another good defence against specific relief is unlawful agreement. Where the agreement is unlawful and violates the provisions of law the specific relief can be refused.
In State Bank of India v. Aditya Finance and Leasing Co. Pvt. Ltd. , Delhi High Court has supported this view and stated that another defence for specific performance is the agreement violates the provisions of any law, e..g law relating to town development prohibiting use of property for certain purposes and the agreement involves using that property for that purpose. The Court held that it amount to violation of law and is a good defence. The Court has accepted such defence in number of cases.
The Kerala High Court in John Thomas V. Joseph Thomas, has held that a decree for specific performance cannot be refused on the ground that a low value of property was shown in the document to avoid stamp duty or income tax, and it is for the authorities under those status to take action for violation of any provisions; yet this view conflicts with the view of the Supreme Court that specific performance will also be refused where the property was deliberately undervalued in the agreement with a view to avoid stamp duty, and registration fees.
Examples of unlawful agreement are: Where the operation of the law disables the purchaser from possessing the property under the agreement, or a tenancy law which prohibits the sale of agricultural land to non-agriculturists, or where an amendment to a law prohibits transfer of thika tenants except to heirs and existing co-sharers, or where after the sale, the land holding of the transferee would exceed that permitted by law.
4. Contingent Contract
Where the contract is contingent and the plaintiff is required to fulfil certain conditions then the Court shall refuse the specific relief if that condition is not fulfilled.
- In case of Dalsukh M. Pancholi V. Guarantee Life and Employment Insurance Co. Ltd., a contract for sale of property under amendment “subject to Court’s approval” cannot be specifically enforced after the Court has refused permission. An agreement to allot and sell flats on the thirteenth floor of a building, if the thirteenth floor was sanctioned by the local authority, could not be specifically enforced when the authority declined the sanction. A promise to pay off the loan of the bank, obtain title deed from the bank and hand over to the purchaser can be enforced; such permissions are incidental and implied covenants of vendors.
- In case of Babulal Agrawal v. Jyoti Shrivastava, where the seller has agreed that he would give vacant possession by obtaining the same from the tenants, specific performance cannot be refused on the mere ground that the property was in occupation of tenants. In a contract of sale of property, the agreement provided that the vendor shall obtain permission to sell, within two months of the agreement, and if the permission was not obtained within that time, the purchaser could cancel the contract, or extend the time of performance. They extended the time by one month. However, the vendor withdrew the application. The purchaser was ready and willing to perform his part of the contract. The purchaser sued for specific performance or in the alternative for damages. The Court held that it was not a contingent contract, and the time was not of the essence. It ordered specific performance of the contract.
5. Alteration in contract by the plaintiff
After entering into the contract no alteration can be made except with the consent of both the parties. Where alteration is made by the plaintiff without the consent of the defendant then it is good defence again specific relief.
6. Consent of the defendant is not free consent
Another good defence is false entry made in the government register. In case of Sobha V. Ram Phal, for the purpose of Sections 8 & 9 the possession claimed by a party should be juridical possession. The Court held that possession of a servant or, of a deputee or appointee for the benefit and on behalf of the master or the person deputing or appointing, is really the possession of the later. The person in actual occupation, being a servant, deputee or appointee of another, holds the property for such other person. His occupation is the occupation of the master, or the person deputing or appointing him.
In this case plaintiff was cousin of the defendant and was entrusted by the defendant to look after certain plot of land during his absence from the country. When the defendant was out of country, the plaintiff gets the false entry made in the register of patwari to show him owner. When defendant came back he took possession of the land. The plaintiff filed a suit to recover possession. The defendant took defence under Section 9 of the Specific Relief Act that he was having possession for long time as owner and the plaintiff was tenant and has made wrong entry in the register of the patwari. On the basis of evidence produced, by the defendant the court accepted the defence that the plaintiff had been holding the plot as tenant.
Increase in price is not a good defence-
Sometime breach is made the seller on the ground that he will suffer huge loss as after entering into contract price has increased manifold. However, the court in number of cases has made it clear that increase in price is not a good defence in a suit for specific performance.
Limitation period for claiming specific relief-
Significantly suit under Section 10 must be filed within the reasonable time period. I K.S. Vidyanandam v. Vairavan it was held by the Court that unreasonable delay by a plaintiff in performing his part of the contract operates as a bar to his obtaining specific performance, provided that:
- Time was originally the essential element of the contract; or
- It was made an essential element by a subsequent notice; or
iii. The delay has been so unreasonable and long that it amounts to abandonment of the contract.
In case of Thakamma Mathew v. M. Azamathula, a suit for specific enforcement should be filed for specific performance within the period stipulated under Article 54 of the Limitation Act, 1963. Significantly, Article 54 of Limitation Act, 1963, provides a period of limitation of three years (from the date fixed for performance, or, if no such date is fixed, from the date when the plaintiff has notice that performance is refused. In an another case M.K. Usman Koya V. C.S. Santha, a contract where no date for performance was final, the Court said that the period of limitation would start running from the date on which the plaintiff came to know that the other party was refusing performance.