Patna HC: Defaulting Buyer Not Entitled to Full Refund or Compensation in Property Sale Dispute
Court enforces contract clause allowing deduction of 10% advance money for purchaser’s default.
Specific performance denied due to lack of readiness and willingness under Specific Relief Act.
By Legal Reporter
New Delhi: June 26, 2026:
The Patna High Court has clarified that a purchaser who fails to perform his obligations under a property sale agreement cannot demand specific performance or full refund with compensation. The ruling emphasizes contractual sanctity, readiness and willingness under Section 16(c) of the Specific Relief Act, and the enforceability of penalty clauses agreed between parties.
1. Case Background
The case Prusottam Swaroop v. Umesh Kumar Sahu (First Appeal No. 67 of 2017) arose from a property sale agreement executed on 23 August 2010 for a house property valued at ₹1.55 crore. The plaintiff paid ₹43.30 lakh as advance but failed to make subsequent installments of ₹25 lakh within four months and another ₹25 lakh within eight months, as stipulated.
The plaintiff sought specific performance of the agreement or alternatively refund of the advance with interest and compensation. The trial court denied specific performance but ordered refund of the entire advance with 9% interest plus ₹5 lakh compensation.
The defendant appealed, arguing that the plaintiff defaulted and was entitled only to refund after deduction of 10% of advance money, as per contract terms.
2. Key Legal Issues
Readiness and Willingness: Whether the plaintiff demonstrated continuous readiness and willingness to perform obligations.
Specific Performance: Whether a defaulting purchaser can compel execution of sale deed.
Refund and Compensation: Whether full refund and additional compensation can be granted despite contractual penalty clause.
Contractual Sanctity: Whether courts can override express terms agreed between parties.
3. Court’s Observations
Justice Jitendra Kumar held:
Failure to Perform Obligations: Plaintiff failed to pay installments beyond small sums of ₹6 lakh and ₹2.30 lakh.
Section 16(c), Specific Relief Act, 1963: Bars specific performance for parties who fail to prove readiness and willingness.
Contradictory Trial Court Findings: Trial court acknowledged plaintiff’s default but still ordered full refund and compensation.
Contractual Clause Enforceable: Agreement allowed deduction of 10% of advance money in case of purchaser’s default.
Modified Relief: Defendant directed to refund ₹38.97 lakh (after deduction) with 6% interest from 23 December 2010, payable within two months. Penal interest of 12% per annum applies if delayed.
4. Key Legal Principles
Specific Relief Act, Section 16(c): Readiness and willingness is a mandatory requirement for specific performance.
Contractual Penalty Clauses: Courts must respect agreed terms unless unconscionable.
Equitable Relief: Specific performance is discretionary and not available to defaulting parties.
Unjust Enrichment: Defendant cannot retain balance advance without refund; interest ensures fairness.
5. Implications of the Judgment
For Buyers: Failure to adhere to payment schedules can forfeit part of advance money.
For Sellers: Contractual penalty clauses are enforceable if clearly stipulated.
For Courts: Reinforces principle that equitable relief cannot be granted to defaulting parties.
For Real Estate Transactions: Encourages precise drafting of agreements with clear penalty clauses.
6. Comparative Perspective
Supreme Court Precedent: Courts consistently deny specific performance to parties lacking readiness and willingness (Man Kaur v. Hartar Singh Sangha).
Other High Courts: Similar rulings in Delhi and Madras emphasize contractual sanctity.
Global Context: Common law jurisdictions also enforce penalty clauses unless unconscionable.
FAQ: Legal Points Simplified
Q1: What is “readiness and willingness” under the Specific Relief Act?
It means continuous ability and intent to perform contractual obligations. Without proof, specific performance cannot be granted.
Q2: Can a defaulting purchaser seek specific performance?
No. Section 16(c) bars specific performance for defaulting parties.
Q3: What happens to advance money if purchaser defaults?
Refund is subject to contractual penalty clauses. In this case, 10% deduction was enforced.
Q4: Can courts override penalty clauses?
Generally, no, unless the clause is unconscionable or against public policy.
Q5: Why was compensation denied?
Because plaintiff defaulted; awarding compensation would unjustly penalize the defendant.
Q6: What interest rate was applied?
6% per annum on refund, with 12% penal interest if payment delayed beyond two months.
Q7: What precedent does this set?
It reinforces that contractual sanctity and readiness/willingness are essential in property sale disputes.
Conclusion
The Patna High Court’s ruling is a significant precedent in property law. It underscores that buyers must strictly adhere to contractual obligations and cannot expect courts to rescue them from defaults. By enforcing penalty clauses and denying compensation, the Court reaffirmed the principle that equitable relief is unavailable to those who fail to perform their part of the bargain.
This judgment strengthens contractual certainty in real estate transactions and aligns with broader jurisprudence emphasizing sanctity of agreements and fairness in enforcement.
Citations
Supreme Court precedent: Man Kaur v. Hartar Singh Sangha (2010)
Comparative rulings from Delhi & Madras High Courts on property sale disputes