S. 24 Specific Relief Act Does Not Bar Fresh Suit For Refund Of Earnest Money After Dismissal Of Specific Performance Suit: Bombay High Court

The Bombay High Court has held that Section 24 of the Specific Relief Act, 1963, does not bar a plaintiff from filing a fresh suit for refund of earnest money even after dismissal of a suit for specific performance. The Court observed that while Section 24 bars claims for compensation in certain circumstances, it does not extinguish the right to seek other reliefs such as a refund of earnest money arising from the same transaction.

Justice Mehroz K. Pathan was hearing a second appeal arising from a dispute between a cooperative society and a public charitable trust concerning a failed transaction for the sale of immovable property. The plaintiff had deposited Rs. 2,00,000/- as earnest money pursuant to an agreement for the purchase of land, but the transaction did not materialise due to disputes regarding title and objections raised by third parties. The defendants subsequently forfeited the earnest amount, leading to litigation. The defendants contended that once a suit for specific performance had not resulted in relief, a subsequent claim for refund was barred.

The Court examined the earlier proceedings and noted that the previous suit was for an injunction and was based on a different cause of action, whereas the present suit arose from the forfeiture of the earnest money after the transaction failed. It held that the bar under Order II Rule 2 was not attracted.

The Court noted that the Plaintiffs were always ready and willing to perform their part of the contract. It was only due to the objection raised by Babulal that the sale deed could not be executed. The Plaintiffs had issued a notice to the Defendants calling upon them to furnish the title documents. The Defendants, however, issued a reply denying the request and failed to produce a clear title to the property. The Court analysed Section 22 of the Specific Relief Act, which provided that a plaintiff in a suit for specific performance may seek alternative reliefs, including refund of earnest money.

Interpreting Section 24 of the Act, the Court held that the provision only bars a claim for compensation for breach of contract after dismissal of a suit for specific performance, but does not bar claims for other reliefs such as refund of earnest money. It observed:

“Section 24 of the Specific Relief Act bars the Plaintiffs' right to claim compensation for breach of contract after dismissal of a suit for specific performance, it does not bar their right to seek any other relief to which they may be entitled by reason of such breach… if the Plaintiffs are entitled to refund of the earnest money, they are not barred from filing a fresh suit for that relief.”

Accordingly, the High Court upheld the concurrent findings of the courts below, dismissed the second appeal, and confirmed the decree directing refund of the earnest money along with interest at 9% per annum.

Case Title: Khandesh & Ors. v. Late Sau. Taisaheb Sunanda & Ors. [Second Appeal No. 495 of 2022]

Citation: 2026 LiveLaw (Bom) 120

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