Source: Delhi High Court

Why in News?

Recently, the Delhi High Court in the matter of Sanghi Bros (Indore) Pvt. Ltd. v. Kamlendra Singh, held that sale of property to a third party makes it inequitable to grant and enforce the specific performance decree.

Background

• In the year 2004, a suit for specific performance was filed by the plaintiff against the defendant for the transfer/ sale of the suit property as per the Memorandum of Understanding (MOU) executed between the parties.
• Under the MOU, the defendant had agreed to assign all his interest in the Suit Property to which he was entitled as the major beneficiary of a Will.
• During the pendency of this Suit, the said Will, was sub-judice before the HC of Madhya Pradesh.
• Later, the HC of Madhya Pradesh upheld the validity of the Will in favor of the defendant.
• Hence, the defendant, being the owner of the Suit Property had sold the property to a third party for consideration.
• Thereafter, a suit was filed before the Delhi HC on behalf of the plaintiffs for a decree for specific performance against the Defendant.
• The Delhi HC refused to grant a decree of specific performance against the suit property.

Court’s Observations

• The bench of Justice Chandra Dhari Singh refused to grant a decree of specific performance against a suit property after noting that the property had been sold to a third party during the pendency of the suit as the said circumstance made it inequitable to grant and enforce the specific performance decree.
• The Court reiterated that it is a settled law that specific performance is not granted by the Courts due to the various hardships which may be caused to the third party in case the specific performance is granted.
• The Court said that while exercising the discretion of granting specific performance, the court has to balance the interests of justice and equity for the parties involved and has to look into the probable consequences of granting such specific performance.
• The Court held that since the Court had not granted the relief of specific performance, therefore, in terms of Sections 20 and 21 of the Specific Relief Act, 1963, the plaintiffs were entitled for grant of compensation in lieu of specific performance.

Legal Provisions

Specific Performance

• Specific performance constitutes an equitable remedy granted by a court to uphold the contractual commitments among the parties.
• Unlike a claim of damages, which involves compensation for not fulfilling the contractual stipulations, specific performance operates as a remedy that enforces the terms agreed between the parties.
• It is governed by the Specific Relief Act, 1963 (SRA).
• Section 10 of SRA deals with the specific performance in respect of contracts. It states that-
  • The specific performance of a contract shall be enforced by the court subject to the provisions contained in sub-section (2) of section 11, section 14 and section 16.
• The Supreme Court in the case of Katta Sujatha Reddy v. Siddamsetty Infra Projects (P) Ltd. (2023) held that the relief of specific performance of a contract can only be granted when the party claiming such relief shows its readiness and willingness to perform its obligations under the contract.

Section 20, SRA

• This Section deals with the substituted performance of contract. It states that —

(1) Without prejudice to the generality of the provisions contained in the Indian Contract Act, 1872 and, except as otherwise agreed upon by the parties, where the contract is broken due to non-performance of promise by any party, the party who suffers by such breach shall have the option of substituted performance through a third party or by his own agency, and, recover the expenses and other costs actually incurred, spent or suffered by him, from the party committing such breach.

(2) No substituted performance of contract under sub-section (1) shall be undertaken unless the party who suffers such breach has given a notice in writing, of not less than thirty days, to the party in breach calling upon him to perform the contract within such time as specified in the notice, and on his refusal or failure to do so, he may get the same performed by a third party or by his own agency:

Provided that the party who suffers such breach shall not be entitled to recover the expenses and costs under sub-section (1) unless he has got the contract performed through a third party or by his own agency.

(3) Where the party suffering breach of contract has got the contract performed through a third party or by his own agency after giving notice under sub-section (1), he shall not be entitled to claim relief of specific performance against the party in breach.

(4) Nothing in this section shall prevent the party who has suffered breach of contract from claiming compensation from the party in breach.

Section 21, SRA

• This Section deals with the power to award compensation in certain cases. It states that—

(1) In a suit for specific performance of a contract, the plaintiff may also claim compensation for its breach in such performance.

(2) If, in any such suit, the court decides that specific performance ought not to be granted, but that there is a contract between the parties which has been broken by the defendant, and that the plaintiff is entitled to compensation for that breach, it shall award him such compensation accordingly.

(3) If, in any such suit, the court decides that specific performance ought to be granted, but that it is not sufficient to satisfy the justice of the case, and that some compensation for breach of the contract should also be made to the plaintiff, it shall award him such compensation accordingly.

(4) In determining the amount of any compensation awarded under this section, the court shall be guided by the principles specified in Section 73 of the Indian Contract Act.

(5) No compensation shall be awarded under this section unless the plaintiff has claimed such compensation in his plaint.

Provided that where the plaintiff has not claimed any such compensation in the plaint, the court shall, at any stage of the proceeding, allow him to amend the plaint on such terms as may be just, for including a claim for such compensation.