Specific Performance Decree Does Not Automatically Rescind Due To Delay; Courts Can Extend Time For Deposit: Supreme Court

"Non-payment of the balance consideration within the time period fixed by the Trial Court does not amount to abandonment of the contract and consequent rescinding of the same. The real test must be to see if the conduct of the plaintiff will amount to a positive refusal to complete his part of the contract," Supreme Court.

The Supreme Court, in a latest ruling, held that a decree for specific performance does not undergo automatic rescission merely because the purchase money was not deposited within the period stipulated by the Trial Court. A bench of Justice Manoj Misra and Justice Manmohan observed that Section 28 of the Specific Relief Act, 1963, vests discretionary power in the courts to either rescind the contract or extend the time for payment, ensuring that a "justice-oriented approach" is adopted over hyper-technicalities.

The court noted that since a decree for specific performance is in the nature of a preliminary decree, the court which passed it does not become functus officio and retains control over the matter until the sale deed is executed. The bench emphasized that unless the decree expressly provides that the suit shall stand dismissed upon default of payment, the court has the jurisdiction to condone the delay and accept late deposits upon balancing the equities between the parties.

The dispute arose from an agreement for the sale of 3.75 acres of land in Madhya Pradesh. In March 2017, the Trial Court decreed the suit in favor of the appellant (decree-holder), directing him to deposit the balance consideration within one month. Although the appellant initiated execution proceedings and eventually deposited the amount in November 2020 following an order by the Execution Court to "test his bona fides," the Execution Court later dismissed the execution application, citing the delay. The High Court of Madhya Pradesh affirmed this dismissal, leading to the present appeal.

The primary question before the court was whether the delay in depositing the balance consideration leads to an automatic rescission of the contract under Section 28 of the Specific Relief Act. The court was also called upon to determine whether a Trial Court decree merges with an appellate order when the appeal is dismissed for non-prosecution, and whether permitting a deposit "to test bona fides" forecloses the judgment-debtor’s right to seek rescission.

No Automatic Merger Upon Dismissal For Non-Prosecution

The Supreme Court first addressed the "Doctrine of Merger," clarifying that for a trial court decree to merge into an appellate decree, there must be an adjudication on merits. The bench observed that Section 2 (2) of the CPC specifically excludes an order of dismissal in default from the definition of a "decree."

Court Clarifies Scope Of Doctrine Of Merger

Since the respondent’s appeal against the original decree was dismissed for non-prosecution rather than on merits, the bench held that the Trial Court’s decree did not merge with the appellate order. Consequently, the appellant could not argue that the time for deposit was automatically extended by the pendency of the appeal under the merger doctrine.

"The doctrine of merger would only apply in a case when a higher forum entertains an appeal or revision and passes an order on merit and not when the appeal or revision is dismissed on the ground of delay in filing the same or for non-prosecution."

Discretionary Power Under Section 28 Of Specific Relief Act

Analyzing the statutory framework, the court held that Section 28 of the 1963 Act is designed to provide complete relief to both parties. It noted that the power to rescind is discretionary and not a mechanical consequence of a missed deadline. The bench remarked that the court must examine the "attending circumstances" and the "conduct of the parties" before invoking the power of rescission.

Court Rejects Hyper-Technical Approach To Delays

The bench found that the High Court and Execution Court adopted a pedantic approach by focusing solely on the one-month deadline. It observed that the appellant had shown readiness by initiating execution shortly after the decree and that the delay was partially attributable to the court's own inconsistent orders and the intervening Covid-19 pandemic.

"There must be an element of willful negligence on the part of the plaintiff before a court proceeds to invoke Section 28 of the Act and rescind the contract."

Duties Of Appellate Courts Under Order XX Rule 12A CPC

The Supreme Court took the opportunity to remind appellate courts of their mandatory duty under Order XX Rule 12A of the CPC. This provision requires the court to specify the period within which the purchase money must be paid. The bench noted that when an appellate court disposes of an appeal against a specific performance decree, it must fix a fresh reasonable period for the deposit.

Equitable Balancing Of Interests

The bench held that if a decree-holder fails to deposit within the specified time but later seeks permission, the court should exercise discretion judiciously. While the decree can be saved, the court may put the decree-holder to terms, such as paying additional compensation to the judgment-debtor, to offset any loss caused by the delay in payment.

"Specific performance is an equitable relief and he who seeks equity can be put on terms to ensure that equity is done to the opposite party even while granting the relief."

The Supreme Court set aside the orders of the High Court and the Execution Court, restoring the execution application. It remanded the matter to the Court of first instance to reconsider the application for rescission and extension of time in light of the settled legal principles. The bench concluded that the focus should be on whether the buyer genuinely intended to complete the contract, rather than penalizing them for a non-willful delay.

Date of Decision: May 8, 2026