Returning Advance Sale Consideration Does Not Terminate Agreement Unless Cancellation Is in Accordance With Contract: Telangana High Court Allows Suit for Specific Performance to Proceed

"The court must look only at the plaint and not the defence while deciding an application under Order VII Rule 11 CPC", In a significant ruling reinforcing the procedural discipline under civil jurisprudence, the Telangana High Court set aside an order of the Trial Court which had wrongly rejected a suit for specific performance under Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC).

Bench of Justice K. Lakshman and Justice N. Narsing Rao held that the plaintiff’s pleadings did disclose a clear cause of action and triable issues, and that the return of the advance sale consideration by the defendant did not, by itself, annul the agreement unless such cancellation was done in accordance with the agreed contractual terms. The Court emphasized that the plaintiff had specifically pleaded that the agreement of sale dated 03.11.2020 remained subsisting, and such averments were sufficient to sustain the plaint at this stage.

“Triable Issues Cannot Be Shut Down at the Threshold Merely Because the Defendant Disputes Them”: High Court Reiterates Narrow Scope of Order VII Rule 11

The Court sternly reminded that the scope of Order VII Rule 11 CPC is limited to examining the plaint alone to determine whether it discloses a cause of action. Observing that the trial court had erroneously relied upon the defence version and untested allegations, the Bench held:

“The trial Court has to consider only the contents of the plaint and documents filed by the plaintiff along with plaint, nothing more… The pleas taken by the defendant… are wholly irrelevant at that stage.”

Referring to the Supreme Court’s ruling in Dahiben v. Arvindbhai Kalyanji Bhanusali (2020), the Court reiterated that while frivolous litigation must be curtailed early, a court must not dismiss a suit based on assumptions, inferences or disputed facts.

“Existence of Dispute About Cancellation and Return of Consideration Itself Creates a Triable Issue”

The heart of the dispute was an agreement of sale dated 03.11.2020 between the appellant and the respondent concerning a residential apartment. The appellant had paid a substantial amount — ₹1.55 crore — towards the total consideration of ₹1.89 crore. The balance was only ₹34.55 lakhs, which the appellant was willing to pay, as per her pleadings.

The respondent had returned the advance amount via RTGS in March and April 2022 and claimed the agreement stood cancelled. However, the appellant argued that the refund was not in cancellation of the agreement, but part of an understanding that she would repay the same on finalisation of registration, as the flat was not completed on time. She maintained that the agreement was never terminated under Clause 5.5, which governed cancellation, and even the original agreement remained with her and was filed in court.

The High Court found merit in this contention, noting:

“The appellant has specifically pleaded that the agreement of sale dated 03.11.2020 was not cancelled as per Clause 5.5 and that she is in possession of the original agreement of sale… These are triable issues and cannot be decided in an application under Order VII Rule 11 CPC.”

“Readiness and Willingness Adequately Pleaded”: Compliance with Section 16(c) of the Specific Relief Act Demonstrated

A key issue raised by the respondent was the alleged failure of the plaintiff to plead her readiness and willingness, as required under Section 16(c) of the Specific Relief Act, 1963. Rejecting this contention, the High Court observed that:

“The plaintiff has specifically pleaded that she is ready and willing to perform her part of the contract and has the financial capacity to pay the balance consideration… She has also filed a bank statement to support her plea.”

The Court stressed that mechanical reproduction of statutory language is not required so long as the substance of the plea is made out, relying on the Supreme Court’s decisions in Syed Dastagir v. T.R. Gopalakrishna Setty and R.C. Chandiok v. Chuni Lal Sabharwal.

“Return of Advance Alone Does Not Invalidate the Agreement Unless Done in Accordance With the Contractual Clause”

The trial court had heavily relied on the fact that the respondent had returned the amount paid by the plaintiff and therefore held that no subsisting contract remained. The High Court rebuked this reasoning as legally and factually incorrect:

“The trial Court erred in concluding that the agreement stood terminated merely because the amount was returned… The return of funds must be seen in light of the plaintiff’s specific plea that it was done with an assurance that the transaction would be concluded later.”

Further, the Court held that the existence of another agreement involving a different flat and the respondent’s father did not negate the existence of the disputed agreement, as both were distinct transactions.

Trial Court’s Order Reversed, Suit to Proceed on Merits

Allowing the civil revision, the Telangana High Court held that the plaint disclosed triable issues, the plaintiff had adequately pleaded cause of action, readiness and willingness, and non-cancellation of the agreement in terms of Clause 5.5. The Court remarked:

“These are not instances of clever drafting, but factual assertions which must be tested during trial. Rejecting the suit at this stage amounts to pre-judging the dispute.”

Accordingly, the Court set aside the order dated 09.08.2023 passed by the VI Additional District and Sessions Judge, Ranga Reddy District at Kukatpally, and dismissed the application under Order VII Rule 11 CPC filed by the respondent.

The matter has been remanded for trial, with both parties permitted to raise all contentions, and the trial court directed to adjudicate the matter uninfluenced by the prior findings.

Date of Decision: December 1, 2025