Specific Performance Denied Where Buyer Accepted and Encashed Refunds; Agreement Held Cancelled

A bench of Justice Manmohan and Justice Dipankar Datta heard a civil appeal challenging a decree for specific performance of an unregistered Agreement to Sell dated 25 January 2008. The appeal concerned whether a suit for specific performance could be sustained where the buyer had, before and during litigation, accepted a partial refund of the earnest money and encashed demand drafts sent by the seller.

The Court allowed the appeal, set aside the judgments and decrees of the lower courts, declared the sale deed executed pursuant to those decrees null and void, and directed the appellant to refund Rs. 24,61,000 deposited by the buyer. The Court held that continuous readiness and willingness to perform the contract was lacking and that the seller’s letter of cancellation and the buyer’s subsequent encashment of the demand drafts amounted to termination of the agreement. The Court, in its reasoning, observed: "It is trite law that ‘readiness’ and ‘willingness’ are not one but two separate elements. ‘Readiness’ means the capacity of the Respondent No.1-buyer to perform the contract, which would include the financial position to pay the sale consideration. ‘Willingness’ refers to the intention of the Respondent No.1-buyer as a purchaser to perform his part of the contract, which is inferred by scrutinising the conduct of the Respondent No.1-buyer/purchaser, including attending circumstances." The Court further noted that "the conduct of the Respondent No.1-buyer in encashing the demand drafts establishes beyond doubt that the Respondent No.1-buyer was not willing to perform her part of the Agreement to Sell."

Background The dispute arose from an unregistered Agreement to Sell executed on 25 January 2008 for a Patna property with a total consideration of Rs. 25 lakh. The buyer paid Rs. 2,51,000 in cash and issued three post-dated cheques. The seller alleged fraud, complained to police, sent a cancellation letter dated 7 February 2008 and enclosed five demand drafts totalling Rs. 2,11,000 and two returned post-dated cheques. The buyer filed a suit for specific performance on 5 May 2008; the Trial Court decreed the suit and a sale deed was executed after deposit of the balance consideration. The Patna High Court upheld the decree in 2024. The appellant (beneficiary under a will who claimed title) challenged that decree before this Court.

The appellant contended that the agreement stood cancelled before suit by repudiation through the cancellation letter and refund, and that encashment of the demand drafts by the buyer during the suit amounted to acceptance of repudiation and showed lack of willingness to perform. The buyer contended that only part of the earnest money was refunded, that a unilateral cancellation by returning earnest money was impermissible, and that the seller died before proving alleged fraud. The Supreme Court examined settled principles under the Specific Relief Act, 1963 and precedent law on specific performance, especially the requirement of continuous readiness and willingness and the necessity to challenge a termination by seeking declaratory relief. The Court applied authorities including Kamal Kumar and subsequent decisions on readiness and willingness, and concluded that the buyer had suppressed material facts in the plaint and failed to demonstrate continuous readiness and willingness. The Court treated the seller’s cancellation as a jurisdictional fact which had to be set aside by declaratory relief before specific performance could be granted. Accordingly, the appeal succeeded, the decrees and sale deed were set aside, and the appellant was directed to refund the deposited balance.

Case Details: Case No.: Civil Appeal No. 4972 of 2025 (Arising out of SLP (C) No. 28460 of 2024; 2025 INSC 450) Case Title: Sangita Sinha v. Bhawana Bhardwaj and Ors. Appearances: For the Petitioner(s): Shri S.B. Upadhyay, learned senior counsel (for appellant) For the Respondent(s): Mr. Mungeshwar Sahoo, learned senior counsel (for Respondent No.1)