Buyer can not enforce agreement to sell when he accepted & encashed demand drafts of refund of earnest money given to seller.
In a recent judgment, the Hon’ble Supreme Court had held that Agreement to Sell cannot be specifically enforced as the buyer encashed the demand drafts issued as refund of earnest money given to seller. The buyer not seeking a declaratory relief leads to an irresistible conclusion that the agreement to sell stood cancelled.
ABCAUS Case Law Citation:
4527 (2025) (04) abcaus.in SC
In the instant case, the primary question was whether a suit for specific performance of an Agreement to Sell is liable to be decreed if the buyer had accepted the refund of majority of the earnest money deposit/advance consideration, during the pendency of the civil suit?
The original seller was allotted the subject property by a cooperative society vide a registered sub-lease. Later, an unregistered Agreement to Sell with respect to the subject property was executed between the Respondent buyer-plaintiff and the seller for a total sale consideration of Rs. 25,00,000/-. At the time of the execution of the Agreement to Sell, the Respondent buyer paid a sum of Rs. 2,51,000/- in cash to the seller and issued three post-dated cheques worth Rs. 7,50,000/-.
The Respondent buyer issued legal notices expressing her intention to pay the balance sale consideration and to get the property registered in her favour. Upon the failure of the seller to execute the sale deed, the buyer filed a suit before the Trial Court under the Specific Performance Act, 1963 (Act 1963) seeking specific performance of the Agreement to Sell.
The suit was contested by the seller stating that when she came to know about the Agreement to Sell and immediately thereafter, made a complaint with the Inspector of Police stating that her signatures had been fraudulently taken on the Agreement to Sell. It was further stated that the seller had issued a letter cancelling the Agreement to Sell and refunded the amount received vide demand drafts and returned post-dated cheques which were issued by the seller.
The Trial Court framed three additional issues vide order dated 21st January 2013. The issues were framed once again on 27th April 2018, and a passed the judgment in favour of the respondent buyer, The Patna High Court vide the impugned Judgment dismissed the appeal of the seller.
The Hon’ble Supreme Court observed that buyer had admitted that the letter cancelling the agreement to sell had been received prior to filing of the suit for specific performance and demand drafts had been encashed by him after institution of the subject suit, without raising any objection with respect to the difference in the cash amount and the demand drafts furnished by the seller.
The Hon’ble Supreme Court observed that it is settled law that under the Act, prior to the 2018 Amendment, specific performance was a discretionary. The Hon’ble Supreme Court had an occasion to frame material questions which require consideration prior to grant of relief of specific performance.
The Hon’ble Supreme Court observed that it is trite law that ‘readiness’ and ‘willingness’ are not one but two separate elements. ‘Readiness’ means the capacity of the Respondent buyer to perform the contract, which would include the financial position to pay the sale consideration. ‘Willingness’ refers to the intention of the Respondent buyer as a purchaser to perform his part of the contract, which is inferred by scrutinising the conduct of the Respondent buyer, including attending circumstances. Continuous readiness and willingness on the part of the Respondent buyer from the date of execution of Agreement to Sell till the date of the decree, is a condition precedent for grant of relief of specific performance. In various judicial pronouncements it has been held that it is not enough to show the readiness and willingness up to the date of the plaint as the conduct must be such as to disclose readiness and willingness at all times from the date of the contract and throughout the pendency of the suit up to the decree.
The Hon’ble Supreme Court opined that the readiness and willingness of the buyer to go ahead with the sale of the property at the time of the institution of the suit loses its relevance, if the Respondent buyer is unable to establish that the readiness and willingness has continued throughout the pendency of the suit.
The Hon’ble Supreme Court observed that the Respondent buyer was not willing to perform the Agreement to Sell and go ahead with the purchase of the property, as admittedly, the five demand drafts were encashed by the buyer. This conduct of the buyer in encashing the demand drafts establishes beyond doubt that the buyer was not willing to perform her part of the Agreement to Sell and proceed with execution of the sale deed.
The Hon’ble Supreme Court further opined that in view of the act of the Respondent buyer in encashing the demand drafts leads to an irresistible conclusion that the agreement in question stood cancelled.
Further, the Hon’ble Supreme Court opined that though the demand drafts enclosed with the cancellation letter were subsequently encashed, yet, it was incumbent upon the buyer to seek a declaratory relief that the said cancellation is bad in law and not binding on parties for the reason that existence of a valid agreement is sine qua non for the grant of relief of specific performance. Consequently, absent a prayer for declaratory relief that termination/cancellation of the agreement is bad in law, a suit for specific performance was not maintainable.
The Hon’ble Supreme Court further observed that the buyer also failed to disclose in the plaint that the seller had issued the cancellation letter enclosing therewith the demand drafts and post-dated cheques. The failure of the buyer to disclose the same in plaint amounted to suppression of material fact, disentitling her from the discretionary relief of specific performance.
The Hon’ble Supreme Court held that the Agreement to Sell could not be specifically enforced.
Accordingly, the appeal was allowed and the impugned Judgment as well as decrees were set aside. Further, the sale deed executed in favour of Respondent buyer in pursuance of the impugned judgments was declared as null and void and the appellant was directed to refund the balance sale consideration.
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