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by sayum
26 August 2026 10:38 AM
“Construction of 8 Flats Was the Essential Object — Contract Violated Building Laws and Is Void,” Supreme Court of India affirming that courts cannot enforce or modify a contract whose essential object is prohibited by law. The two-judge bench of Justices Aravind Kumar and Vipul M. Pancholi upheld the Delhi High Court Division Bench’s reversal of a trial court decree granting partial specific performance of an agreement for construction of eight residential flats on a plot in East of Kailash, New Delhi.
The Court held that the agreement was void under Section 23 of the Indian Contract Act, 1872 for contravening Delhi’s Building Bye-Laws and that the construction of eight flats was the heart of the bargain, not a severable or optional term.
“The construction and delivery of the eight flats formed the core and essential terms of the agreement, without which the agreement itself could not subsist,” the Court held in para 13.
The appeal filed by Canara Bank was dismissed, and the Court reiterated that specific performance cannot be granted when the contract itself is void, even if partial compliance might seem possible under Section 12 of the Specific Relief Act.
“Illegality Once Brought to Light, Must Be Acted Upon by the Court Suo Motu”
“No polluted hand shall touch the pure fountain of justice”: Ex turpi causa doctrine invoked
The Supreme Court strongly applied the doctrine of ex turpi causa non oritur actio—no right of action arises from a base cause—and reinforced that courts must deny relief where the object of the contract is unlawful, regardless of whether the plea of illegality was raised at the outset.
Citing Narayanamma v. Govindappa, (2019) 19 SCC 42, the Court stressed:
“Even if illegality is not pleaded by the defendant… the Court will take notice of it and will dismiss the action. No polluted hand shall touch the pure fountain of justice.”
The Court noted that both the Trial Court and High Court found the agreement to sell and construct eight flats on a 300 square yard plot unlawful, as only 2.5 dwelling units were permissible under the Delhi Master Plan and Bye-Laws, 1983. The construction sought was “non-compoundable” and beyond regulatory permissions.
Thus, the agreement was held to be void ab initio, not merely voidable or partially unenforceable. Section 23 of the Contract Act, which voids contracts whose object or consideration is forbidden by law, squarely applied.
“Specific Relief Cannot Enforce a Contract by Removing Its Very Object”: Section 12 SRA Inapplicable
“Courts cannot remove the heart of a contract and enforce the skeleton”
Canara Bank had relied on Section 12 of the Specific Relief Act, 1963, pleading for partial specific performance by accepting fewer flats or “as is” delivery. The trial court agreed and permitted enforcement to the extent allowed by law, allowing construction of fewer flats.
However, the Supreme Court categorically rejected this reasoning:
“The Court cannot remove the essential part of an agreement or the very object for which it was executed… this would amount to creating a new agreement between the parties, which is impermissible in law.” [Para 22]
Citing Mayawanti v. Kaushalya Devi, (1990) 3 SCC 1, the Court reiterated that:
“Specific performance will not be ordered if the contract itself suffers from some defect which makes it invalid or unenforceable.”
Thus, partial enforcement under Section 12 was impermissible, as the essence of the agreement—construction and delivery of eight specific flats—could not be severed from the rest.
“Public Sector Banks Must Uphold Legality, Not Circumvent It”: Court Slams Canara Bank for Camouflaged Agreement
“State instrumentalities must act lawfully—illegality cannot be cloaked under commercial arrangements”
In a sharp rebuke to the conduct of the public sector bank, the Court criticized Canara Bank for entering into an agreement that effectively sought to bypass statutory norms.
The agreement was purportedly entered for purchasing residential flats, but its terms revealed an attempt to construct 8 to 10 flats on land that permitted only 2.5. The Court noted that the advance consideration of ₹28.86 lakhs (out of ₹32.07 lakhs) paid by the bank was structured to mask a loan transaction, with refund terms disguised as contractual fallback.
“It is not expected from the State or its instrumentalities to enter into camouflage agreements, especially where the object of the agreement would result in law being violated.” [Para 27]
Despite being a nationalized bank, Canara Bank was held to have acted in contravention of legal obligations and thus was not entitled to equitable relief.
“Courts Cannot Grant Specific Performance of a Void Contract—Refund Remedy Must Follow Contractual Terms”
Plaintiff entitled only to refund with interest, not conveyance of illegal flats
Having found the agreement void and unenforceable, the Court upheld the High Court’s direction that Canara Bank was only entitled to a refund, not specific performance. The refund was governed by Clause 5 of the agreement, which expressly provided that if title could not be conveyed, the payment would be treated as a loan repayable with interest.
Accordingly, the defendant was directed to refund ₹28,86,750 with:
This reinforced the principle under Section 65 of the Contract Act, which governs restitution under void agreements.
In dismissing the appeal, the Supreme Court firmly rejected the notion that equity or intent can override statutory compliance in contractual enforcement. The judgment serves as a clear reaffirmation that contracts violating zoning or construction laws are void, and courts cannot reconstruct illegal agreements to make them enforceable.
“Courts must refrain from rewriting contracts to suit the parties’ commercial convenience when doing so would offend the law,” the Bench concluded.
The judgment is a cautionary precedent for public authorities and commercial entities alike: compliance with statutory norms is not optional, and specific performance is a remedy only for lawful, enforceable contracts.
Date of Decision: October 9, 2025
