Buyer Not Paying On Time Frustrated Contract: Bombay High Court Quashes Specific Performance Decree Of A 2005 Sale Agreement Of Santacruz Flat

Justice Anuja Prabhudessai, while allowing the owner’s appeal against the decree of specific performance, observed there has been a steep increase in the price of the flat since 2005, and the buyers, who were supposed to make payment by October 31, 2005, not doing so frustrated the very purpose of the sale.

“The Plaintiffs failed to pay the balance amount within the stipulated time. During the interregnum period there is steep escalation of price. Hence, inaction of the Plaintiffs frustrated the very purpose of sale…Moreover, decree of specific performance would dislocate several members of the Defendant’s family and this would cause undue hardship to the Defendants as compared to the hardship caused to the Plaintiffs”, the court observed.

The court noted that the original owner of the flat, since deceased, had urgently needed money to purchase separate premises for her family members, as 14 of them were residing there.

"...the suit flat was too small to accommodate the large family of the original Defendant. There was pressing need to acquire separate premises for her sons. This being the case, non-payment of the balance sale consideration and non-completion of sale transaction within the stipulated time would frustrate the very purpose of sale", the court observed.

The plaintiffs, US residents Neeta and Paresh Shah gave power of attorney to Neeta’s brother Mukesh Shah to purchase a flat on their behalf in a building in Santacruz where he was residing. Mukesh executed an MoU dated June 3, 2005, with one Vilasben Dhruva (original defendant) to purchase her flat for Rs. 41.75 lakhs. The plaintiffs paid Rs. 2.51 lakhs as earnest money and promised to pay the balance amount by May 31, 2005. The sale was to be completed on receipt of NOC and no dues certificate from the housing society.

The deadline for payment was extended to 31st October 2005 by mutual consent of the parties. The plaintiffs sent a letter to Vilasben on October 29, 2005, claiming to be ready and willing to pay the balance amount and sought the vacant and peaceful possession of the flat along with no dues. Vilasben on October 31, 2005, claimed that the plaintiffs failed to show their readiness and willingness to pay the balance amount and terminated the sale agreement.

Thus, the plaintiffs filed a suit for specific performance of the contract. The original defendant Vilasben Dhruva died during the pendency of the suit and her legal representatives were brought on record. The trial court decreed the suit and directed the defendants to execute the sale deed within 2 months. Thus, the defendants filed the present appeal.

Vilasben Dhruva was compelled to sell the flat due to paucity of space and needed urgent money to purchase separate flats for her three sons and their families, according to the defendants. They claimed that they had already obtained no objection certificate from the society, but the Shahs did not pay the balance amount despite extension of time.

Section 55 of the Indian Contract Act provides that failure to perform contract within the stipulated time when time is of the essence of the contract makes it voidable. The terms of the contract provided that payment of the balance amount by May 31, 2005 was the essence of the contract. The court said that the extension of time with mutual consent was merely a substitution of the original time limit and does not amount to alteration of the basic nature of the contract. “time does not cease to be the essence of the contract with mere extension of the original time period”, the court held.

Under section 16(c) of the Specific Relief Act, the plaintiff must be ready and willing to perform his part of the contract before seeking specific performance. The court noted that there is no evidence in the form of income certificate, tax records, bank statement etc. to prove the nature of the plaintiffs’ employment and income. Mere statement made by power of attorney in absence of such documentary evidence is not proof of financial capacity of the plaintiffs, the court held.

As on September 14, 2005, the plaintiffs had about Rs. 26.50 lakhs in their account against the required amount of about Rs. 39.24 lakhs payable to the defendant. The plaintiffs claimed that they applied and obtained loan of Rs. 15 lakhs from City Bank but did not place any copy of the loan application. The court noted that the bank had not disbursed the loan and the plaintiffs had not taken any steps for disbursement of the loan.

Mukesh Shah in his testimony stated that the plaintiffs had Rs. 26 lakhs in their bank account and their relatives would have put additional money to complete the transaction. The court noted that Mukesh Shah did not state the names of the relatives and friends who would have helped in raising the rest of the amount. Therefore, the court concluded that the plaintiffs did not establish their financial capacity to pay the balance sale consideration and registration charges.

Before October 29, 2005 the plaintiffs did not write a single letter to the defendants stating their readiness and willing to perform their part of the contract, the court noted. The court further noted that the letter dated October 29, 2005 was received by the defendants on October 30, Sunday at 12:30 PM. The sale deed could not have been adjudicated October 31, 2005, the court said. “…letter dated 29/10/2005 was not genuinely intended but was apparently a ploy to make it appear that they had acted within the stipulated time”, the court said.

As the plaintiffs failed to prove that they were ready and willing to perform their part of the contract, they are barred from claiming specific performance, regardless of alleged breach by the defendant, the court held.

Thus, the court allowed the appeal and directed the defendants to return the earnest money with interest and allowed the plaintiffs to withdraw the balance sale consideration they had deposited with the court, along with accrued interest.

Case no. – First Appeal No. 1252 of 2013

Case Title – Girish Vinodchandra Dhruva and Ors. v. Neena Paresh Shah and Anr.