Specific Performance Denied If Buyer Fails To Prove Continuous Readiness With Funds; Part-Payment Can't Be Forfeited Without Specific Clause: Delhi High Court

"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 to complete the sale within the agreed period, and the vendor has not been responsible for any delay," Delhi High Court, in a significant ruling, held that a plaintiff seeking specific performance must demonstrate "continuous" readiness and willingness to perform their part of the contract, particularly the financial capacity to pay the balance consideration.

A bench of Justice Tejas Karia observed that in the current economic climate of galloping inflation, buyers cannot indefinitely delay payments and seek shelter under the traditional doctrine that time is not the essence of a contract for immovable property.

The suit was instituted by the plaintiff, Ravi Arora, seeking specific performance of an Agreement to Sell (ATS) dated January 27, 2003, in respect of a residential property in Safdarjung Development Area. The plaintiff had paid ₹40 lakhs as part consideration but failed to remit the balance of ₹1.95 crore within the stipulated 45 days after the property was converted to freehold. The defendant, appearing as the legal heir of the original owner, contested the suit on the grounds of the plaintiff's lack of readiness and willingness.

The primary questions before the court were whether the plaintiff had demonstrated continuous readiness and willingness to perform his contractual obligations under Section 16(c) of the Specific Relief Act, 1963. The court was also called upon to determine whether the defendant was entitled to forfeit the part-payment of ₹40 lakhs in the absence of an express forfeiture clause in the agreement.

Continuous Readiness And Willingness Under Section 16(c)

The court emphasized that "readiness" refers to the financial capacity of the plaintiff, while "willingness" refers to the conduct of the party. It noted that the words "ready and willing" imply the plaintiff must be prepared to carry out the contract to its logical end. To prove this, the plaintiff must adduce evidence showing the availability of funds to make the payment in terms of the contract at all material times.

In the present case, the court found that the plaintiff only began seeking financial assistance from third parties in January 2004, well after the expiry of the 45-day period following the freehold conversion. The bench observed that the plaintiff never tendered the entire balance consideration but instead offered partial amounts through pay orders that were frequently cancelled and re-issued.

"The requirement of demonstrating continuous readiness and willingness must be established throughout the relevant period."

Modern Economic Realities and Time as Essence of Contract

The Court relied extensively on the Supreme Court’s decision in Saradamani Kandappan v. S. Rajalakshmi, noting that the principle that time is not of the essence in property sales evolved during an era of stable prices. The bench observed that in urban areas with steep price appreciation, allowing a purchaser to delay performance indefinitely would be "inequitable" and a "cruel joke" on the vendor.

The bench noted that the assumption that specific performance would not prejudice a vendor financially no longer holds true. The reality of economic change cannot be ignored, and a purchaser cannot use the "time is not of essence" doctrine to cover their own laches or breaches. Such a postponement cannot simply be compensated with interest in a market where values rise by leaps and bounds.

"A purchaser can no longer take shelter under the principle that time is not of essence... to cover his delays, laches, breaches and 'non-readiness'."

Installment Offers Not Sufficient To Prove Readiness

The court found that the plaintiff’s attempt to pay the balance consideration in installments through various pay orders did not satisfy the contractual requirements. It was noted that the Agreement to Sell did not contain any clause allowing the balance consideration to be paid in such a manner. The evidence showed the plaintiff was "trying to buy time" rather than concluding the transaction.

Furthermore, the court highlighted that the plaintiff expressly denied his obligation to pay the 12% interest stipulated in the agreement for any delay. The bench held that depositing an amount with the court after a considerable delay does not suffice to establish that the plaintiff was ready and willing to perform their contractual obligations at the relevant time.

No Forfeiture Of Part-Payment In Absence Of Express Clause

Turning to the issue of the ₹40 lakhs paid by the plaintiff, the court held that the defendant was not entitled to forfeit this sum. The bench observed that for the forfeiture of advance funds to be justified, the contract terms must be explicit and unambiguous. There was no clause in the ATS that permitted the vendor to forfeit the part-payment in the event of a breach.

The bench distinguished between "earnest money" and "part-payment," stating that any part-payment of the purchase price cannot be subject to forfeiture unless it serves as a guarantee for due performance. During cross-examination, the defendant himself admitted that there was no forfeiture clause in the agreement.

"Absent a contractual clause permitting such forfeiture, and absent evidence demonstrating loss incurred by the Defendant, the claim for forfeiture is unsustainable."

Final Directions and Refund of Consideration

The court concluded that while the plaintiff was not entitled to specific performance due to the lack of continuous readiness and willingness, the defendant could not retain the part consideration. The court directed the defendant to refund the sum of ₹40 lakhs with 9% interest from the date the contract was effectively breached.

The court dismissed the relief for specific performance but decreed the suit to the extent of the refund. The bench held that this was the most equitable outcome, balancing the fact of the plaintiff's default with the defendant's lack of a legal right to appropriate the advance payment.