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ANALYSIS OF THE CASE OF SPECIFIC PERFORMANCE – WHETHER TIME IS OF THE ESSENCE

Introduction

That contracts are not mere agreements, can be understood from the fact that parties to a contract are bound to perform their obligations. To further prove the legality of contracts, a time factor is brought into purview, where parties are either supposed to perform on a specific date, or by a specific time. In those contracts, where a time period is specified, failure to perform the agreed within the same time, would bring Section 55 of the Indian Contract Act[1] into action – this section makes the contract voidable at the promisee’s option owing to the promisor’s failure to fulfill the contract, but only in those cases where time is considered to be the contract’s essence. The promisee is also entitled to compensation, in case they have faced any damages because of the contract’s non-performance within the period specified.[2] Section 55 also clarifies that the contract is not voidable if time is not of the essence, but the promisee is entitled to compensation in case of damages suffered due to the failure of the promisor to fulfill the contract within the time agreed.[3]

In this blog, the writer analyses the situation in which parties have not performed the stipulated conditions of the contract. Can, in that case, time be considered to be of the essence? The Supreme Court recently passed its ruling in the case of Gaddiapti Divija & Anr v Pathuri Samrajyam & Ors[4] dealing with this issue, and it is the same that would be analyzed along with previous judgements of similar nature.

Factual Situation & Analysis

A certain person had entered into a contract with the respondent regarding the sale of his immovable property.[5] The respondent paid the advance amount which was a part of the consideration, but later came to know that the property was attached in a recovery proceeding going on in a civil court, so the respondent asked the owner to get the attachment removed following which the respondent would pay the balance amount and get the property registered in her name.[6] The owner of the property died after which the respondent then sent a legal notice to the heirs (appellants in this case) of the owner, and showed her willingness to pay the balance amount.[7] Thereafter she filed a case for the specific performance of that contract.

The fact that the consideration is for an immovable property, makes one question, whether time can be considered to be of the essence. The Supreme Court over the years, had made it clear, that in cases dealing with immovable property, time cannot be considered to be of the essence in that contract[8]. In the case of Chand Rani v Kamal Rani, the apex court clearly held that there, in fact, there is a presumption that time is not of the essence in contracts related to immovable property.[9] By the same court, the ruling has also been rebutted in cases like that of Saradamani Kandappan v S. Rajalakshmi & Ors[10]. The court in that case, held that this distinction of time being essential in cases of moveable property but not of immovable property is not created by Section 55, rather it has been created through rulings of the apex court and by following the position of the English law.[11] In the current times, when market values of property fluctuate at an increasing rate, the judiciary cannot ignore it and conclude that time is not essential. Hence the court held in the case of Saradamani Kandappan v S Rajalakshmi & Ors[12], that the previous stance of the Supreme court has to be relaxed. In the case of K.S. Vidyanadam & Ors v Vairavan, the Supreme Court had laid down that while dealing with cases of specific performance, courts must keep in consideration when parties to a contract specify a period for completion of the transaction, it must be of some significance which cannot be ignored.[13]

Whether the parties are ready and willing to fulfill their obligations of the contract also needs to be taken into account. This is where Section 16 of the Specific Relief Act[14] comes into purview because it says that the contract’s specific fulfillment cannot be implemented in favour of the party who failed to demonstrate that it was prepared and able to perform its necessary obligations. The above precedents and the law laid down in Section 16 of the Specific Relief Act[15] together, makes it imperative to check whether in the present case (Gaddiapti Divija & Anr v Pathuri Samrajyam & Ors[16]) the contract had a stipulated time mentioned and whether the respondent was prepared and able to perform her contractual obligations which are necessary. The deceased who was the original party to the contract along with the respondent, had agreed to execute the contract within 3 months after demarcating the property and receiving the remaining part of the consideration.[17] This shows that a time was stipulated in the contract. While the trial court held that the respondent was not entitled to specific performance of the contract, because time was not essential, the high court overruled and set aside that judgement.[18] Aggrieved by the same, the heirs of the deceased appealed to the Supreme Court and it was here where the Court dealt with the issue of respondent being “ready and willing” to perform her contractual obligations.[19] It was clear from the facts that the deceased failed to demarcate the land and measure it, as was stated in the contract. While the deceased and his heirs had not performed their contractual obligations diligently, the respondent did prove that she was always “ready and willing” to perform her part by paying the balance amount. A complication arises from the fact that in 2018, Section 16 (c) of the Specific Relief Act[20] was amended. Earlier, the plaintiff just needed to “assert” that he “has performed” or is “ready and willing” to perform the contract. But with the amendment, it became necessary to prove and not just assert that he “has performed” or is “ready and willing to perform”. However, since the dispute dates back to 2002, the earlier version of Section 16(c)[21] would be applicable, and the respondent completely fulfills the criteria. Thus, it entitles the respondent, to the specific performance of the contract by the appellants.

Conclusion

The stance of the apex Court in the case of Chand Rani v Kamal Rani[22] stands correct even today – that it is the contractual terms, the surrounding circumstances and the nature of the property which help determine whether the parties to the contract meant time as essential or not (even in cases involving immoveable property where time is generally considered not essential). The court in Gaddiapti Divija & Anr v Pathuri Samrajyam & Ors[23] only improves its stance by clearly laying down the need to involve Section 16(c) of the Specific Relief Act[24] while dealing with contracts involving immovable property. This intersection of Section 55 of the Indian Contract Act[25] and Section 16 (c) of the Specific Relief Act[26], while laying down certain strict rules, also shows that it all depends on the circumstances surrounding the contract. It is appreciable to see how the court has evolved from classifying contracts of immovable property as not having time to be of essence, to relaxing its stance because of increasing market price fluctuation. While it may seem the court went back on its words, in reality, the Supreme Court only made it clear as daylight that its stance regarding this issue cannot be put into a pigeon-hole, as this is something that is intrinsically linked with changing society and economy.

Author(s) Name: Ujjaini Biswas (NALSAR University of Law, Hyderabad)

 Reference(s):

[1] Indian Contract Act (9 of 1872).

[2] Indian Contract Act (9 of 1872).

[3] Indian Contract Act (9 of 1872).

[4] Gaddiapti Divija & Anr v Pathuri Samrajyam & Ors 2023 LiveLaw (SC) 327.

[5] Ibid.

[6] Ibid.

[7] Ibid.

[8] N. Srinivasa v Kuttukaran Machine Tools Ltd. (2009) 5 SCC 182.

[9] Chand Rani v Kamal Rani (1993) 1 SCC 519.

[10] Saradamani Kandappan v S. Rajalakshmi & Ors AIR 2011 SC 3234.

[11] Ibid.

[12] Ibid.

[13] K.S. Vidyanadam & Ors v Vairavan (1997) 3 SCC 1.

[14] Specific Relief Act (47 of 1963).

[15] Ibid.

[16] Gaddiapti Divija & Anr v Pathuri Samrajyam & Ors 2023 LiveLaw (SC) 327.

[17] Ibid.

[18] Ibid.

[19] Ibid.

[20] Specific Relief Act (47 of 1963).

[21] Specific Relief Act (47 of 1963).

[22] Chand Rani v Kamal Rani (1993) 1 SCC 519.

[23] Gaddiapti Divija & Anr v Pathuri Samrajyam & Ors 2023 LiveLaw (SC) 327.

[24] Specific Relief Act (47 of 1963).

[25] Indian Contract Act (9 of 1872).

[26] Specific Relief Act (47 of 1963).