K. Narendra v. Riviera Apartments (P) Ltd.

A leaseholder agreed in 1972 to let a builder develop a Delhi plot into a multi-storeyed complex. For about sixteen years the land could not be transferred under the urban land ceiling law, and the building plans were refused. The Supreme Court refused specific performance (a court order to carry out the contract), because the hardship to the owner was greater, and ordered a refund with compensation.

Quick Revision

Read the full judgment: Indian Kanoon (unofficial copy)

Parties

K. Narendra — appellant; a joint lessee of the plot, who agreed to sell his rights. He was the plaintiff in the first suit and defendant in the second.

Riviera Apartments (P) Ltd. — respondent; the builder and intending buyer. Its Managing Director was Inder P. Choudhary. It was the plaintiff in the suit for specific performance.

Procedural History

1. On 3 May 1979 the appellant filed a suit for a declaration that the agreement of 25 July 1972 was void and impossible of performance, and for possession of about 45 square yards.
2. On 14 March 1980 the respondent filed a suit asking for:
   • Specific performance.
   • A mandatory injunction for vacant possession of the premises and the part of the old building in the appellant's possession.
   • In the alternative, a refund of Rs 3,25,000 with 18 per cent interest, and compensation.
3. On 15 December 1990 the trial court decreed the respondent's suit. The decree directed the appellant to obtain all necessary permissions from all authorities to give effect to the agreement.
4. The trial court's judgment and decrees were confirmed in appeal. The Division Bench found the vacant possession was handed over on 25 July 1972 as legal possession.
5. The appellant filed Civil Appeal Nos. 1928 and 1929 of 1993 in this Court. The judgment governs both appeals, which concern the same property.

Facts

1. The property is a plot of nazul (government-owned) land, 6, Tolstoy Marg, New Delhi. The President of India gave lease rights to M/s Shiv Ram, Mahashaya Krishna and K. Narendra under a perpetual lease from 29 May 1956.
2. The lease barred alterations, new buildings, wells, trade or business and use other than a single-storey residence for one or two families, without the lessor's written consent. It required the lessor's written approval before assignment or transfer.
3. The lease let the lessor, at its option and with its decision final, re-enter and remove or demolish unauthorised alterations or buildings, and fill excavations, if the lessee did not remedy certain breaches within seven days of notice. The lessee had to pay the expenses.
4. On 25 July 1972 the appellant agreed to sell and transfer all his rights in the property and its structures to the respondent for Rs 8,97,740, to build a multi-storeyed building.
5. Rs 50,000 was paid on 25 July 1972 by demand draft. A post-dated cheque of Rs 2,75,000 dated 25 January 1973 was to be encashed after plans were cleared by the NDMC and the L&DO, or earlier by mutual agreement. The balance of Rs 5,72,740 was payable after the building was completed.
6. Clause 3 made the purchaser responsible for obtaining the Land Development Officer's permission and paying unearned increase and other charges. Clause 4 let the purchaser plan, sanction and construct and sell flats.
7. Clause 6 allowed the purchaser to convey flats only after full payment. Clause 7 said vacant physical possession was given to the purchaser. Clause 8 let the purchaser store materials in the rear, but possession had to be returned at once if the Rs 2,75,000 cheque was dishonoured.
8. Clause 9 required an irrevocable power of attorney. Clause 13 required refund and return of possession if the Government acquired or requisitioned the property, or an urban property ceiling law prohibited transfer, before plans were sanctioned.
9. Clause 16 required the purchaser to complete construction within two to three years from sanction of plans. Clause 17 allowed the purchaser to dismantle the existing buildings and use the debris.
10. On 26 July 1972 a supplementary agreement replaced the balance cash payment with flats on the 2nd, 3rd and 4th floors of 8,182 square feet at Rs 70 a square foot, worth Rs 5,72,740. The area could be reduced or increased by 5 to 6 per cent.
11. The respondent paid Rs 50,000 on 25 July 1972 and delivered a post-dated cheque for Rs 2,75,000. The appellant encashed it even though the plans had not been sanctioned.
12. On 26 July 1972 the appellant executed a registered irrevocable power of attorney in favour of Inder P. Choudhary and Ms Minakshi Choudhary of the respondent company, to represent him before the NDMC, the L&DO and other authorities.
13. On 7 and 11 September 1972 the respondent submitted plans for a group housing project called Girnar: an eight-storey building and two five-storey blocks, with 18 three-bedroom and 23 two-bedroom flats, and a power sub-station, pump house and lifts.
14. On 6 November 1972 the plans were rejected, mainly because the plot lay in a redevelopment area under zonal plan D-3, under Section 193(2) of the Punjab Municipalities Act. On 9 November 1972 the respondent asked the NDMC to keep the plans pending.
15. On 31 October 1972 the Government of India served a show-cause notice on the appellant for selling without the lessor's prior approval, a breach of clause II(13) of the lease. On 9 November 1972 the respondent replied that there was only an agreement to sell, not a sale. The respondent said the objectionable structures had been removed.
16. On 22 November 1973 the NDMC rejected the plans again, after consideration on 21 September 1973. The area was marked for redevelopment, and the plot was under one acre while group housing needed a minimum of one acre. The master or zonal plan was approved by the Central Government under Section 9(2) of the Delhi Development Act and had statutory effect.
17. Letters of 12 August 1985 and 19 November 1990 show that plans were only rejected. Sanction came on 4 June 1991, valid up to 29 April 1993, with about 13 conditions and void from the start if any condition was not met. It followed the trial court decree of 15 December 1990.
18. The land includes 368.23 square metres of excess land under the Urban Land Ceiling and Regulation Act, 1976 (ULCRA). Permission to sell was repeatedly denied. The respondents' application of 14 September 1976 under Section 20, filed by way of precaution on the plea that group housing did not come within the Act, was turned down by the Delhi Administration on 2 May 1979.
19. On 9 August 1976 the appellant applied for exemption. By letter of 1 January 1978 he was told an exemption for a multi-storeyed building was likely to be rejected. On 16 August 1978 he argued the agreement could be deemed infructuous and asked for exemption for his own group housing.
20. On 26 April 1985 the competent authority exempted the excess land under Section 20(1)(a) read with Section 22, for group housing on conditions. The building plan had to conform to zone controls. Construction had to finish within two years. Each dwelling unit could not exceed 300 square metres. A person, including a company, could own only one unit. No transfer of a unit without the Administrator's prior approval.
21. A communication of 8 February 1988 describes Lutyens' Bungalow Zone restrictions: new construction must have the same plinth area and height as existing bungalows or the lowest adjoining bungalow. The respondents disputed that the plot lies in that zone. The Court could not make a categorical finding.
22. Part of the land was acquired by notification of 5 September 1991 for road widening. Award No. 6/92-93 valued the land at Rs 33,400 per square metre. It said only property No. 6 had group housing sanction, obtained from the DDA and NDMC before the Lutyens' Bungalow Zone was extended over Hailey Road and Tolstoy Marg, so the plot has future potential for commercial use. The respondents received compensation, solatium (extra payment on compulsory acquisition) and interest.
23. By a communication of 17 June 1993 the L&DO withdrew the sanction for a multi-storeyed group housing building, offered on 18 September 1992, for non-compliance with its conditions.
24. The agreement recites delivery of possession. The trial judge found that only about 45 square yards was given for storing material, on which temporary structures were raised, and that physical possession was to follow the sanctions.
25. On 16 August 1975 the appellant wrote asking the respondents to get the transaction completed with all sanctions within three months, failing which he would enforce his legal rights. On 25 January 1979 a legal notice said the agreement was void and unenforceable and asked them to vacate about 405 square feet.
26. In 1972 the price of about 4,000 square metres worked out at roughly Rs 225 a square metre. In 1991 the Land Acquisition Collector valued it at Rs 33,400 a square metre. The Court noted that the Land Acquisition Collector's standard is always on the lower side.

Issues Raised

The judgment does not number the issues. The Court dealt with these questions:

1. Should the court exercise its discretion to decree specific performance, given the delay, the sanctions that were never obtained, the ceiling law, the acquisition, the rise in value and the hardship to each side?
2. Had the agreement become frustrated or impossible of performance?
3. Could the respondents have the contract performed for the part of the property that could still be transferred, without any reduction in price?
4. If specific performance is refused, should compensation be awarded, and how much?

Arguments Contended

For the appellant: the judgment does not record the appellant's counsel by name or any hearing arguments for him. His case, as recorded from his own letters, notice, suit and exemption request, is that the agreement had become impossible of performance:

• On 16 August 1975 the appellant asked the respondents to get the transaction completed with all sanctions within three months. By legal notice of 25 January 1979 he called the agreement void and unenforceable, because the respondents did not obtain sanctions and the ULCRA created a barrier.
• In his own suit the appellant sought a declaration that the agreement was null, void and impossible of performance, and possession of 45 square yards.
• In his exemption request of 16 August 1978 to the ULCRA authority he argued that, because sale could not be sanctioned under the Act, the agreement could be deemed infructuous (of no effect).

For the respondents (the builders):

• Learned counsel for the respondents vehemently disputed that the suit land forms part of the Lutyens' Bungalow Zone.
• In their reply of 9 November 1972 to the L&DO they said there was no breach of clause II(13) of the lease, because there was only an agreement to sell and no sale.
• They said they were builders of repute. If specific performance were denied, they run a grave risk of losing their reputation, because their building plan Girnar would not materialise.
• They were prepared to have a sale deed for the remaining part of the property that can still be transferred, without a reduction in price.
• The ULCRA was repealed by the Urban Land Ceiling and Regulation (Repeal) Act, 1999, which removed the hurdle of excess land.
• In their plaint they claimed compensation in addition to other reliefs.

Court's Reasoning

The judgment has no numbered paragraphs and one opinion, delivered by R.C. Lahoti, J. Both Judges are named on the bench. Steps follow the order of the judgment and are not cited by paragraph.

R.C. Lahoti, J. (judgment of the Bench)

1. Noted: The common judgment governs Civil Appeal Nos. 1928 and 1929 of 1993, which concern the same property.
2. Noted: The Court sets out the lease and the relevant clauses of the lease, and then the agreement of 25 July 1972 and its clauses 3, 4, 6, 7, 8, 9, 13, 16 and 17.
3. Noted: It sets out the supplementary agreement of 26 July 1972, the payments, the encashment of the cheque and the power of attorney.
4. Noted: It records the plans submitted and rejected by the NDMC, the notices from the Government, the replies and the eventual sanction of 4 June 1991, which came after the trial court's decree.
5. Noted: It records the ULCRA facts: the excess land, the refusals of permission, the respondents' application filed by way of precaution, the exemption order of 26 April 1985 and its conditions.
6. Held: The agreement to sell could not be honoured in the light of those conditions. Under the supplementary agreement the appellant was to get flats of 8,182 square feet, but the exemption order allowed him only one dwelling unit. The building plan also had to conform to zone restrictions.
7. Noted: The Court sets out the dispute over whether the land lies in the Lutyens' Bungalow Zone. If it does, a multi-storeyed building is out of the question. On the record, no categorical finding is possible.
8. Noted: It refers to the acquisition notification of 5 September 1991 and the award at Rs 33,400 per square metre. The award says only this plot had group housing sanction, obtained before the zone was extended, so it could be used commercially. It also refers to the withdrawal of the sanction by the communication of 17 June 1993.
9. Noted: The trial judge found the recital of delivery of possession untrue and that only 45 square yards was given. The Division Bench held that vacant possession was handed over on 25 July 1972 as legal possession and that the appellant, having encashed the cheque, must give physical possession.
10. Held: The Division Bench's finding is laconic and oscillating (too brief and inconsistent).
11. Noted: The parties knew each other well. The appellant had confidence in the respondents as builders. He lacked finance and was unsure he could get the several permissions needed, so he entered the agreement and gave a wide power of attorney.
12. Held: The expectations did not materialise. The parties intended that the respondents would secure performance within a reasonable time, and that has been belied. Meanwhile the value of the land has risen sharply, from about Rs 225 a square metre to Rs 33,400 a square metre.
13. Noted: The question is whether the court should exercise its jurisdiction to decree specific performance in these circumstances.
14. Noted: The agreement of 25 July 1972 has no time limit for performance. The Constitution Bench in Chand Rani v. Kamal Rani held that in a sale of immovable property there is no presumption that time is of the essence. Even if it is not, the court may infer a reasonable time from the express terms, the nature of the property and the surrounding circumstances.
15. Held: The agreement itself shows an intention of performance within a reasonable time. The cheque for Rs 2,75,000 was dated 25 January 1973 and valid for six months, so sanctions were expected within about six months. Clause 16 gave two to three years from sanction for construction. So performance was expected within about two and a half to three and a half years from 25 January 1973.
16. Noted: The appellant's letter of 16 August 1975 was written without legal advice, with simplicity. It asked the respondents to place themselves in a position to complete the transaction with all sanctions within three months. It said that otherwise he might enforce his legal rights.
17. Noted: The legal notice of 25 January 1979 followed, and then the appellant's suit of 3 May 1979. The respondents' suit followed on 14 March 1980.
18. Noted: Section 20 of the Specific Relief Act, 1963 makes specific performance discretionary. The court is not bound to grant it merely because it is lawful. The discretion is sound and reasonable, guided by judicial principles and open to correction on appeal.
19. Held: Performance that involves hardship on the defendant, which he did not foresee, while non-performance would involve no such hardship on the plaintiff, is a circumstance in which the court may properly decline specific performance. "The doctrine of comparative hardship has been thus statutorily recognized in India." Mere inadequacy of consideration or an onerous or improvident contract is not by itself such hardship.
20. Noted: The Court cites Lourdu Mari David v. Louis Chinnaya Arogiaswamy, which summed up that the decree is discretionary and the discretion must be exercised on sound principles of law and not arbitrarily.
21. Noted: Chitty on Contracts (27th Edn., 1994, Vol. 1, p. 1296) says severe hardship may be a ground for refusing specific performance even if it comes from circumstances after the contract, which affect the defendant and not the subject matter, and for which the plaintiff is not responsible.
22. Noted: The Court quotes K.S. Vidyanadam v. Vairavan at length (paragraphs 10, 11 and 14 of that decision). It says a mere rise in prices is no ground to deny specific performance, but courts must be alive to realities and judicially noticeable inflationary tendencies. Time is not of the essence in a land sale unless specifically provided. It does not follow that every suit filed within limitation must be decreed, whatever time limits the agreement sets. That would deny the discretion under Sections 10 and 20.
23. Held: Following K.S. Vidyanadam, the court should look at all relevant circumstances including the time limits in the agreement. Urban property prices have risen sharply since 1973. The rule that time is not of the essence needs to be relaxed, if not modified, for urban immovable property. Time limits cannot be ignored altogether. Even where time is not of the essence, the plaintiff must perform within a reasonable time judged from all the circumstances.
24. Held: The respondents defaulted in performing their obligations. The period lost from 25 July 1972 to 1979 and 1980, when litigation began, was not a reasonable period for the appellant to wait. The agreement needed several sanctions that were not in the parties' power, and both knew the respondents were relied on for them.
25. Held: Part of the land was excess land under the ULCRA and could not be sold. Part was acquired by the State, so the agreement became incapable of performance to that extent. A multi-storeyed complex appears impracticable.
26. Held: How the remaining consideration would be paid, if the respondents could not build and deliver some of the flats, defies answer on the record. There was also an very large rise in land value that neither party foresaw. The Court did not hold the price was inadequate when agreed. It only noticed the later event.
27. Held: Possession of a meagre part was given later, not with the agreement. To that extent the recital in the agreement and the respondents' plaint averments are false. The appellant kept possession of most of the property.
28. Held: The respondents neither pleaded nor produced material to show they acted so as to make refusal of specific performance inequitable, or that their hardship exceeds the appellant's. Performance would cause the appellant hardship he did not foresee, while non-performance would not cause the respondents such hardship. The discretionary jurisdiction ought not to be exercised in their favour.
29. Held: The respondents' plea that they are builders of repute and will lose reputation is hardly a consideration that outweighs these circumstances. If a multi-storeyed complex cannot come up, their plans will fail in any case.
30. Held: Until the ULCRA was repealed in 1999 the property could not be transferred without permission, for about sixteen years from the agreement. The Court did not think it appropriate to give the respondents the benefit of the later repeal after sixteen years.
31. Held: Permission for a multi-storeyed complex was refused repeatedly until the trial court decreed the suit. Neither party controlled these events. The Court was clearly of the opinion that "at one point of time the contract had stood frustrated by reference to Section 56 of the Contract Act". Subsequent events cannot revive it for specific performance.
32. Noted: The respondents said they would take a sale deed of the remaining transferable part without a corresponding reduction in price. They also said the repeal of the ULCRA by the Urban Land Ceiling and Regulation (Repeal) Act, 1999 removed the hurdle.
33. Held: The Court was not impressed. Even if the respondents agree to lesser property, that is not permissible. Section 18 of the Specific Relief Act covers non-enforcement except with variation. When the defendant sets up a variation, the plaintiff may have the contract performed with that variation only in cases of fraud, mistake of fact, misrepresentation, a failure to produce the intended legal result, or a later variation of terms by the parties. This case is not covered.
34. Held: This is a fit case to award some compensation even though specific performance is refused. Section 21 provides for compensation in addition to or in substitution for performance. The Explanation says the court may award it even where the contract has become incapable of specific performance.
35. Held: "Compensation to some extent is a matter of guess work." An amount of Rs 3,25,000, equal to what the respondents paid, is reasonable compensation in substitution for specific performance. The respondents had also claimed compensation in their plaint.
36. Held: The appeals are allowed. The trial court's judgment and decrees, confirmed in appeal, are set aside. A consolidated decree is passed in both suits on the terms set out under Judgement.

Authorities

• Smt. Chand Rani (dead) by LRs. v. Smt. Kamal Rani (dead) by LRs., AIR 1993 SC 1742 (Constitution Bench). Followed. There is no presumption that time is of the essence in a sale of immovable property, but the court may infer a reasonable time.
• Lourdu Mari David and others v. Louis Chinnaya Arogiaswamy and others, AIR 1996 SC 2814. Cited for the principle underlying Section 20.
• Chitty on Contracts (27th Edn., 1994, Vol. 1, p. 1296). Cited on severe hardship as a ground for refusing specific performance.
• K.S. Vidyanadam and others v. Vairavan, 1997 (3) SCC 1. Followed and quoted at length on time limits, rising urban prices and a reasonable time for performance. It quotes Chand Rani (SCC p. 528).

Also cited in footnotes: the judgment has no footnotes.

Provisions

• Section 20, Specific Relief Act, 1963: specific performance is discretionary. Performance involving unforeseen hardship to the defendant, with no such hardship to the plaintiff on non-performance, may justify refusal. Inadequacy of consideration or an onerous contract is not by itself unfair advantage or hardship.
• Section 18, Specific Relief Act, 1963: non-enforcement except with variation, in cases of fraud, mistake of fact, misrepresentation, failure to produce the intended legal result or later variation by the parties.
• Section 21, Specific Relief Act, 1963, with its Explanation: compensation in addition to or in substitution for specific performance, even where the contract has become incapable of specific performance. Section 10 is named in the passage from K.S. Vidyanadam.
• Section 56, Contract Act: frustration. The Court held the contract had at one point stood frustrated.
• Urban Land Ceiling and Regulation Act, 1976, Sections 20(1)(a) and 22: exemption of excess land. The Urban Land Ceiling and Regulation (Repeal) Act, 1999 repealed it.
• Section 193(2), Punjab Municipalities Act, and Section 9(2), Delhi Development Act: the grounds for rejecting the building plans.

Judgement

1. The appeals are allowed. The judgment and decrees of the trial court, confirmed in appeal, are set aside.
2. The respondents' suit for specific performance of the agreement to sell dated 25 July 1972 is dismissed.
3. The appellant must return the consideration paid by the respondents, with interest at 12 per cent a year from the date of payment to the date of return.
4. The appellant must also pay Rs 3,25,000 as compensation in place of specific performance, with interest at 12 per cent a year from the date of decree (24 May 1999) until realisation.
5. The respondents must give the appellant possession of about 45 square yards, shown in red in the plan attached to the appellant's plaint, by removing any structures they raised.
6. The parties bear their costs as incurred throughout.

Legal Principle / Ratio

Specific performance is discretionary. A court may refuse it where performance would cause the defendant unforeseen hardship and refusal would not cause the plaintiff such hardship. Delay, repeated refusal of sanctions, a steep rise in value and an unworkable project all count. A court may then award compensation under Section 21. Key holding: "the discretionary jurisdiction to decree the specific performance ought not to be exercised in favour of the respondents".

Critical Analysis

Analysis based on the judgment text.

• The Court says it makes no finding that the price was inadequate, and treats the rise in value as a later event. This keeps the decision from resting on price alone.
• The Court holds the contract was frustrated at one point under Section 56 and also says later events cannot revive it. It does not say when the frustration occurred.
• The compensation of Rs 3,25,000 is, in the Court's own words, a matter of guess work, and equals the amount the respondents paid.
• The Court calls the Division Bench's finding on possession laconic and oscillating, but does not give a separate finding on the exact area handed over.
• The text has small inconsistencies, such as the lease date of 11 September 1961 in the agreement and 29 May 1956 for the lease term, and the cheque of Rs 2,75,000 against Rs 2,72,000 in one place.

Significance

• The case applies the doctrine of comparative hardship in Section 20 of the Specific Relief Act.
• It applies K.S. Vidyanadam and Chand Rani on reasonable time and rising urban prices.
• It shows that later repeal of a statute does not always revive a contract after many years.
• It shows how Section 21 compensation can be given when specific performance is refused.

Exam-Important Points

• Rule first: Section 20 gives a discretion. Unforeseen hardship to the defendant, with none to the plaintiff on refusal, can justify refusing specific performance.
• Time is not presumed to be of the essence in a land sale, but a reasonable time is inferred from the terms, the property and the circumstances.
• Section 18 does not allow the plaintiff to take less than the contract when the defendant objects, outside its listed cases.
• Section 21: compensation may be awarded in substitution for specific performance, even if the contract is incapable of specific performance.
• Trap: the Court did not hold the price inadequate. It relied on delay, sanctions never obtained and unforeseen later events.
• The later repeal of the ULCRA in 1999 did not revive the contract after sixteen years.
• Directions: refund with 12 per cent interest, Rs 3,25,000 compensation with 12 per cent from decree, return of 45 square yards, costs as incurred.

Prepared from the full text of the judgment. Paragraph numbers follow the official Supreme Court judgment text; law reports may number the same paragraph differently.