'No Automatic Recission Of Contract For Non-Deposit Within Time' : Supreme Court Summarises Principles On S.28 Specific Relief Act

The Supreme Court has summarised the legal principles governing rescission of contracts and extension of time in decrees for specific performance under Section 28 of the Specific Relief Act, holding that courts retain jurisdiction to extend time for payment even after expiry of the period fixed in the decree.

The Court held that there is no automatic rescission of a decree for specific performance merely because the purchaser failed to deposit the balance sale consideration within the time stipulated in the decree, and that courts retain the discretion to extend time based on the equities of the case. At the same time, if the decree itself specified that the contract will be rescinded on default, then the decree cannot be executed if there is a failure to comply with the time limit.

A bench of Justice Manoj Misra and Justice Manmohan allowed an appeal against a Madhya Pradesh High Court order which had upheld the dismissal of his execution proceedings in a specific performance suit.

The dispute arose out of a 2011 agreement for sale of 3.75 acres of land at Rs 16 lakh per acre. The trial court had decreed the suit for specific performance on March 3, 2017, directing the purchaser to pay or deposit the balance consideration of Rs 57.5 lakh within one month. The purchaser issued a notice to the seller within time, seeking execution of the sale deed, and later initiated execution proceedings.

However, the balance amount was ultimately deposited in court only on November 26, 2020, pursuant to directions issued by the execution court. The execution court later dismissed the execution proceedings on the ground that the decree-holder had failed to deposit the amount within the stipulated period. The High Court affirmed that view.

Before the Supreme Court, the appellant argued that the courts below had adopted a hyper-technical approach and failed to appreciate that the seller himself had challenged the decree in appeal and was unwilling to accept payment. It was further contended that Section 28 of the Specific Relief Act empowers courts to extend the time for deposit and that rescission of the contract is not automatic.

The respondent, on the other hand, argued that despite repeated directions from the execution court, the decree-holder failed to deposit the amount for over three years and therefore was not entitled to equitable relief.

The Supreme Court noted that the execution court itself had repeatedly adjourned the matter and directed the decree-holder to deposit the amount on future dates. It also took note of the fact that the seller's first appeal against the decree remained pending until it was dismissed for non-prosecution in 2023, and that the Covid-19 lockdown intervened during the execution proceedings.

The bench held that neither the execution court nor the High Court had examined whether the decree-holder deserved extension of time or whether the seller could be compensated for the delay. It found that the courts below had failed to consider the settled principles governing exercise of powers under Section 28 of the Specific Relief Act.

The judgment summarised the principles relating to Section 28 of the Specific Relief Act as follows :

(i) A decree for specific performance of a contract is in the nature of a preliminary decree and therefore, till the deed is executed pursuant to the decree, the Court that passed the decree is vested with the jurisdiction to either rescind the contract / the decree for non-payment/non-deposit within the stipulated period or extend the period for making such payment/ deposit.

(ii) Neither there is an automatic rescission of the contract/ decree for non-payment/ non-deposit within the period stipulated by the decree, nor there is an automatic extension of time by making such deposit, if the stipulated period for payment/ deposit has expired. However, where the decree stipulates that on failure to pay / deposit within the specified period, the decree shall stand rescinded or the suit shall stand dismissed, the decree is rendered inexecutable on failure to pay/ deposit.

(iii) Prayer to extend the time for making deposit in compliance of the conditions stipulated in the decree may be made prior to, or even after, expiry of the period stipulated therefor .

(iv) There is no form prescribed for making the prayer to extend the time to make such payment or deposit. Therefore, the prayer seeking permission to deposit the defaulted amount may be treated as one for extension of time to deposit. Such prayer may be made even orally while the Court seeks to address an application for rescission of the contract/ decree or when the decree is put for execution, provided the execution court is the one which passed the decree. However, if the decree is passed by the appellate court, such prayer/ application may be made before the court of first instance having regard to the provisions of Section 37 of CPC. Further, what is important is that such an application must be treated as an application in the suit and numbered accordingly.

(v) As specific performance of a contract is an equitable relief, while considering the prayer for rescission of the contract/ decree, or for extension of time to make deposit in compliance of the decree, the Court must be guided by principles of equity. Therefore, while considering the prayer for extension of time to make deposit, to balance the equities, the Court would have to consider the attending facts and circumstances of the case, the conduct of the parties and whether, by putting the decree holder to such additional terms and conditions, the judgment debtor could be adequately compensated for the delay.

(vi) Though each day's delay in deposit need not be explained as in an application under Section 5 of the Limitation Act, the test is whether from the conduct of the decree holder it could be logically inferred that he had no intention to complete his part of the contract. If it appears so, and there appears an element of willful negligence on the part of the decree holder in complying with the terms of the decree, the Court may invoke its power under Section 28 and rescind the contract.

(vii) Under Order XX Rule 12 A of CPC, when a decree for specific performance of a contract for the sale, or lease of immovable property, orders that the purchase-money or other sum is to be paid by the purchaser or lessee, the Court must specify the period within which the payment shall be made. Therefore, where the suit for specific performance is dismissed by the trial court but decreed by the appellate court, or where the appeal against the decree for specific performance is dismissed on merits, the Court must fix the time within which such payment is to be made. If no time limit is fixed, the compliance thereof would have to be within a reasonable period. As to what would be the reasonable period would depend on facts of the case.

Case : Anand Narayan Shukla v Jagat Dhari

Citation : 2026 LiveLaw (SC) 477

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