Case at a Glance
A buyer agreed in November 2007 to purchase a 300 sq. yard property in Village Shalimar, Delhi, for Rs. 30 lakh and paid Rs. 4.15 lakh as earnest money and part payment. When the deal collapsed, the trial court refused specific performance but ordered a refund with 6% interest. In the buyer’s appeal, the Delhi High Court held that he had not proved financial readiness, so specific performance was rightly refused; but because the seller proved no loss and no termination, the earnest money could not be forfeited and the refund decree was affirmed.
Under an Agreement to Sell dated 01.11.2007, the defendant agreed to sell property No. 258, Village Shalimar, Delhi, for Rs. 30,00,000. The property was caught up in probate litigation: probate was granted to the seller in April 2007, an appeal against it was dismissed on 14.12.2010, Letters of Administration followed in February 2011, and possession was recovered from the occupant only on 30.05.2013. The plaintiff-buyer says he paid Rs. 2,00,000 as earnest money and Rs. 2,15,000 in part payments between 2007 and 2011.
The buyer claimed he was always ready and willing and that the seller refused to execute the sale deed; the seller claimed the buyer had orally terminated the deal in January 2012 and wanted to pay in instalments. The Additional District Judge, on 30.10.2019, dismissed the claim for specific performance but decreed a refund of Rs. 4,15,000 with 6% interest from 30.05.2013. The buyer appealed to the High Court under Section 96 CPC seeking specific performance.
The Key Question Before the Court
Was the buyer entitled to specific performance of the agreement, and could the seller have forfeited the earnest money when the contract had no forfeiture clause and no loss was proved?
Readiness Needs Proof of Funds; Forfeiture Needs Proof of Loss
The Court first held there was no legal impediment to the sale after the probate litigation ended on 14.12.2010, and possession was not a condition precedent to executing the sale deed. On readiness and willingness, it explained that readiness refers to financial capacity and must be proved by evidence. “Mere mechanical reproduction of the statutory language in the plaint does not suffice.” The buyer’s bank statement, produced only in cross-examination, covered May–June 2013, after the suit, not the crucial 2010–2012 period; and his small part payments in 2011 suggested he did not have the balance. Relying on decisions such as Satya Jain v. Anis Ahmed Rushdie, K. Prakash v. B.R. Sampath, (2014) 09 SC CK 0080 and H.P. Pyarejan v. Dasappa, (2006) 02 SC CK 0067, specific performance was refused.
On earnest money, the Court distinguished earnest money (Rs. 2,00,000) from advance or part payment (Rs. 2,15,000), and noted that the agreement provided double earnest money only for the seller’s default and “does not contain any stipulation for forfeiture” on the purchaser’s default. Applying Sections 73 and 74 of the Contract Act and Kailash Nath Associates v. Delhi Development Authority, (2015) 01 SC CK 0032 and Fateh Chand v. Balkishan Das, (1963) 01 SC CK 0004, it held that “forfeiture of earnest money paid under an Agreement to Sell, is not an automatic consequence of breach.” The seller led “not an iota of evidence” of loss, still held the property amid rising prices, and never issued a termination or forfeiture notice. The buyer’s claim for double the amount (Rs. 8,30,000) also failed, as no loss beyond deprivation of money was shown.
What the Court Actually Held
- Readiness to perform must be proved with evidence of financial capacity for the relevant period; generic pleadings and post-suit bank statements are not enough.
- Specific performance was rightly refused because the buyer failed to prove readiness after the legal impediments ended in December 2010.
- Forfeiture of earnest money is not automatic on breach; under Section 74 the seller must prove legal injury, and the agreement here had no forfeiture clause.
- The refund decree of Rs. 4,15,000 with 6% interest from 30.05.2013 was affirmed and the appeal dismissed; the claim for double the amount failed.
Why This Judgment Matters
- Property buyers and sellers in Delhi frequently litigate over earnest money; the ruling restates that forfeiture needs both a contractual basis and proof of loss.
- It warns buyers that seeking specific performance requires documentary proof of funds for the period when performance was due.
- It shows how a court can refuse specific performance yet protect the buyer’s money through a refund with interest.
What Should Advocates Take Away From the Judgment?
For Buyers and Sellers
- Buyers: keep bank records showing you had the balance consideration when the sale was due, not just after filing suit.
- Sellers: a forfeiture clause alone is not enough; you will need to prove actual loss and should issue a clear termination notice.
For Counsel
- Plead readiness with specifics and file contemporaneous financial documents with the plaint.
- On forfeiture, frame the case around Kailash Nath Associates: separate earnest money from part payment and lead evidence of loss.
Key Takeaways
- Readiness means financial capacity, and it must be proved for the relevant period.
- Earnest money and part payment are different; the agreement’s terms matter.
- No forfeiture without a forfeiture clause and proof of legal injury under Section 74.
- A refund with interest can be the fair outcome when specific performance is refused.
Frequently Asked Questions
Can a seller keep the earnest money if the buyer backs out?
Not automatically. The Delhi High Court held that forfeiture of earnest money is not an automatic consequence of breach; the seller must show legal injury under Section 74 of the Contract Act, and here the agreement had no forfeiture clause on buyer default.
What does ‘ready and willing’ mean in a specific performance suit?
Readiness is the buyer’s financial capacity to pay the balance; willingness is shown by conduct. Both must be proved with evidence, and merely repeating the statutory words in the plaint does not suffice.
Did the buyer get double the earnest money?
No. The clause for double earnest money applied only to the seller’s default, and the Court found no loss beyond deprivation of money. The buyer gets Rs. 4,15,000 back with 6% interest from 30.05.2013.
Conclusion
The judgment balances both sides of a failed property deal: the buyer could not compel the sale without proving he had the money, and the seller could not keep the money without proving he had been harmed. The refund with interest stands.
Practical takeaway: Before suing for specific performance, assemble proof of funds for the period performance was due; before forfeiting earnest money, check for a forfeiture clause, issue a termination notice and be ready to prove loss.
For more judgments, legal opinions and case analysis, visit courtkutchehry.com