REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   6437   OF 2011 (Arising out of Special Leave Petition (C)  No.28251/2008)

M/s Citadel Fine Pharmaceuticals ... Appellant(s)

- Versus -

M/s Ramaniyam Real Estates P. Ltd. & Anr.  ...Respondent(s)

WITH CIVIL APPEAL NO. 6438      OF 2011

(Arising out of Special Leave Petition (C)  No.31269/2008)

M/s Ramaniyam Real Estates P. Ltd.  ... Appellant(s)

- Versus –

M/s Citadel Fine Pharmaceuticals & Anr.   ...Respondent(s)

J U D G M E N T

GANGULY, J. 1

1. Leave is granted in both the special leave  

petitions.

2. These appeals have been preferred from the  

judgment  and  final  order  dated  2nd  

September,  2008  passed  in  O.S.A.  

No.332/2007  and  C.M.P.  No.1/2007  by  the  

Division Bench of the Madras High Court.

3. The  controversy  arose  out  of  a  suit  of  

specific  performance.  M/s.  Citadel  Fine  

Pharmaceuticals  (defendant  No.1),  a  

partnership  firm,  owned  66  cents  of  

agricultural  land  (hereinafter  ‘the  suit  

property’),  forming  a  part  of  total  of  

2.87 acres of agricultural land in survey  

nos. 363, 364, 366/1 of Velachery village,  

Mamblam,  Guindy  Taluk,  Registration  

District of Madras, and entered into an  

agreement for sale of the suit property  

(hereinafter  ‘the  agreement’)  for  a  

consideration  of  Rs.1,00,00,000/-  with  2

M/s.  Ramaniyam  Real  Estates  Private  

Limited (plaintiff), which was a company  

incorporated under the Companies Act, 1956  

and  engaged  in  the  business  of  

constructing buildings.  

4. The agreement dated 7th July, 1995 was the  

subject matter of suit between the above  

parties.  As  per  the  agreement,  

Rs.10,00,000/-  of  the  sale  consideration  

was to be paid upfront as earnest money,  

and the remainder of Rs.90,00,000/- was to  

be paid at the time of the registration of  

the sale deed. At the time of agreement,  

the suit property was encumbered by way of  

security with M/s. State Bank of India,  

Guindy  Branch  (defendant  No.2)  and  

therefore  one  of  the  conditions  of  the  

agreement was that defendant No. 1 would  

get the suit property released from such  

encumbrance  before  the  final  payment  of  

3

Rs.90,00,000/- was to be made. Apart from  

this  encumbrance,  it  was  stated  in  the  

agreement,  the  suit  property  was  to  be  

without  any  other  encumbrance;  vide  

clauses 2 and 6 of the agreement.  

5. Of the said 66 cents, however, 19 cents  

were considered excess urban vacant land  

under the Tamil Nadu Urban Land (Ceiling  

and  Regulations)  Act  (24  of  1978),  

(hereinafter ‘the Tamil Nadu Act’). As per  

clause 7 of the agreement, it was for the  

plaintiff  to  have  the  land  cleared  for  

sale  from  the  urban  land  ceiling  

authorities. Under clauses 8, 10 and 11 of  

the  agreement,  the  sale  was  made  time  

bound. Clause 10 stated that time was the  

essence  of  this  contract.  Clause  8  

mandated that under all circumstances, the  

sale had to materialize within a year from  

the  date  of  the  agreement.  In  terms  of  

4

clause 9, if the sale failed on account of  

lapses on plaintiff’s part, the sale was  

to  stand  completely  cancelled,  and  the  

earnest money of Rs.10,00,000/- was to be  

returned. As per clause 11, however, if  

the sale failed because of defendant No.  

1, the plaintiff was at liberty to sue for  

specific performance of the contract.

6. In pursuance to the agreement, the earnest  

money  was  paid  by  the  plaintiff  and  

received by defendant No. 1. The plaintiff  

then preferred an application in Form 37-I  

prescribed under Rule 48-L of the Income  

Tax  Rules,  1962,  before  the  Appropriate  

Authority for the clearance of the suit  

property for sale vide section 269UC in  

Chapter XX of the Income Tax Act, 1961.

7. However, the Income Tax Authority refused  

such clearance on the ground that as per  

5

section 6 of the Tamil Nadu Act, agreement  

to  sell  a  piece  of  urban  land  declared  

excess vacant land, or a piece of land,  

part  of  which  had  been  declared  excess  

vacant urban land, was deemed as null and  

void.  

8. From the Statement and Objects and Reasons  

of the Tamil Nadu Act it appears that it  

was  enacted  to  impose  a  ceiling  on  the  

quantum  of  land  that  could  be  held  or  

owned within an urban agglomeration. The  

object  of  the  Act  was  to  prevent  

concentration of ownership of urban land  

in the hands of a few, and to regulate the  

construction of buildings on such lands,  

speculative  trading  of  urban  land  and  

illegal profiteering.  Under the Act, the  

ceiling limit had been fixed by Section 5.  

Section 6 of the Act prevented transfer of  

6

such excess vacant urban land by its owner  

to any other person. Section 6 is set out:

6. Transfer of vacant land. – No person holding  in  excess  of  the  ceiling  limit  immediately  before  the  commencement  of  this  Act,  vacant  land,  shall  transfer  any  such  land  or  part  thereof by way of sale, mortgage, gift, lease or  otherwise  until  he  has  furnished  a  statement  under section 7 and a notification regarding the  excess  vacant  land  held  by  him  has  been  published under sub section (1) of section 11;  and any such transfer made in contravention of  this provision shall be deemed to be null and  void.  

9. The section thus enjoined that landowners  

holding excess vacant land are to furnish  

a statement under Section 7. In this case,  

19  cents  were  considered  excess  urban  

vacant land vide case no. R.C.6160/86 and  

defendant No. 1 filed its statement under  

Section 7.  

10. Section 9 provided for preparation of a  

draft  statement  as  regards  the  excess  

vacant land. Under clause (5) of Section  

7

9, the Competent Authority, so designated  

under the Tamil Nadu Act, was to consider  

objections preferred by a land owner, and  

then  pass  orders  with  respect  to  the  

question of excess land. Defendant no. 1  

preferred  its  objections  before  the  

Competent  Authority.  The  objections  

however were dismissed. The defendant no.  

1  then  preferred  an  appeal  before  the  

Special  Commissioner  (Land  Reforms),  

Madras and the appeal was kept pending.

11. In  accordance  with  Section  11  (1),  a  

notification regarding the 19 cents being  

excess vacant land was published and any  

transfer  made  in  contravention  of  this  

provision was deemed to be null and void.  

Section  11  provided  for  acquisition  of  

such  vacant  urban  land  by  the  State  

Government.

8

12. Defendant  no.  1  also  preferred  an  

application for exemption of that 19 cents  

of land under the provisions of Section  

21.  Section  21  empowered  the  State  

Government  to  exempt  a  piece  of  vacant  

excess  land  from  acquisition  mentioned  

above.

13. That  application  was  also  dismissed.  

Defendant  no.  1  then  preferred  Writ  

Petition  No.  13906/2008  before  the  High  

Court challenging the declaration in R. C.  

6160/86. In the writ petition, defendant  

no. 1 prayed for a stay of the proceedings  

and which was allowed. However, during the  

pendency of this writ petition the Tamil  

Nadu Act was repealed on 16th June, 1999 by  

the  Tamil  Nadu  Urban  Land  (Ceiling  and  

Regulation) Repeal Act, 1999 (20 of 1999)  

(hereinafter ‘the Repealing Act’).  Under  

Section  4  of  the  repealing  Act,  all  

9

proceedings relating to any order made or  

purported to be made under the Principal  

Act,  that  is  the  Tamil  Nadu  Act,  shall  

abate.  Section 4 of the Repealing Act is  

as follows:-

“4.  Abatement  of  legal  proceedings.  -  All  proceedings  relating  to  any  order  made  or  purported  to  be  made  under  the  Principal  Act  pending immediately before the commencement of  this  Act  before  any  court,  tribunal  or  any  authority shall abate.  

Provided that this section shall not apply to  the proceedings relating to Sections 12, 13, 14,  l5, 15-B and 16 of the Principal Act in so far  as such proceedings are relatable to the land,  possession of which has been taken over by the  State Government of any person duly authorised  by the State Government in this behalf or by the  competent authority.”  

14. Admittedly,  possession  of  19  cents  of  

land, in respect of which proceeding was  

pending,  was  not  taken  over  by  the  

Government.  So the pending proceeding in  

respect of that land under the Principal  

Act,  that  is  the  Tamil  Nadu  Act,  shall  10

abate  in  view  of  Section  4  of  the  

Repealing Act.  

15. However, Income Tax authorities, as noted  

above, had refused to process Form 37-I in  

view  of  the  proceedings  initiated  under  

the  Tamil  Nadu  Act.  Having  referred  to  

section  6  of  the  Act,  the  appropriate  

authority,  while  rejecting  form  37-I  

stated:

“…In  column  8,  it  has  been  mentioned  that  an  extent of 19 cents has been declared as excess  vacant land under section 9 (5) of Tamil Nadu  Urban Land (Ceiling and Regulations) Act, 1978  that  an  appeal  is  pending  before  the  Special  Commissioner (Land Reforms), Madras and that the  transferor  has  also  applied  to  the  State  Government for exemption under Section 21 of the  said Act but the same has been rejected and the  matter  is  pending  in  W.  P.  No.  13906/1988,  before the High Court, Madras.  2. It  transpires,  therefore,  that  the  transferor intends to transfer the entire extent  of 66 cents, inclusive of the 19 cents of land  which is declared as excess vacant land by the  Competent Authority under the Urban Land Ceiling  Act,  which  is  prohibited  by  section  6  of  the  Tamil Nadu Urban Land (Ceiling and Regulations)  Act, 1978. ….  

In  view  of  the  prohibition  contained  in  section 6, quoted above, the agreement entered  into between the parties on 7.7.95 to transfer  

11

the  entire  land,  including  the  excess  vacant  land of 19 cents, shall be deemed to be null and  void. In view of this legal prohibition, we are  unable to process the 37-I statement filed by  you and therefore, the same is lodged in this  office. If you are so advised, you may file a  fresh 37-I statement for transfer of the balance  land only.”

16. As per clause (7) of the agreement, it was  

the plaintiff’s responsibility to have the  

suit  property  cleared  for  sale  by  the  

urban land ceiling authorities. Since Form  

37–I was not cleared, the plaintiff sent  

two letters dated 10th June, 1996 and 3rd  

July,  1996  to  the  defendant  requesting  

that the sale be split up and two separate  

agreements be entered into. The first for  

the unencumbered 47 cents and the second  

for 19 cents termed as the excess land by  

the  urban  land  ceiling  authority.  This  

proposal was rejected by the defendant no.  

1 on the grounds that the agreement is not  

divisible.  According  to  defendant  No.1,  

12

the splitting up of the agreement into two  

in effect meant the writing of an entirely  

new contract. The bar under section 6 of  

the Tamil Nadu Act, as pointed out by the  

Appropriate  Authority  was  applicable  not  

only in respect of the 19 cents of land  

termed as excess, but in fact the entire  

66 cents for the reason that the said 19  

cents  could  not  be  severed  from  the  66  

cents. The defendant No.1 urged that the  

contract  was  hit  by  illegality  and  was  

thus frustrated.

17. The  plaintiff,  the  proposed  purchaser,  

under these circumstances instituted on 9th  

September,  1998  the  suit  for  specific  

performance of the contract, viz. C. S.  

589/1996 for the entire 66 cents of land.

18. The plaint case is that at the time the  

agreement for sale was entered into, it  

13

was  known  to  both  the  parties  that  19  

cents  of  the  suit  property  had  been  

declared excess land under the Tamil Nadu  

Act,  and  that  an  appeal  to  the  Special  

Commissioner  (Land  Reforms),  Madras  was  

pending.  It  also  submitted  that  the  

parties  knew  that  a  writ  petition  

challenging the State Government’s refusal  

to exempt the property under section 21 of  

the Tamil Nadu Act was also pending. With  

knowledge  the  parties  entered  into  the  

agreement to sell. The plaintiff submitted  

that this meeting of minds was reflected  

in clause 7 of the agreement. There was  

thus  no  new  and  unforeseen  development  

leading to the frustration of contract as  

such the relief for specific performance  

of  the  contract  was  prayed  or  in  the  

alternative, it was prayed the plaintiff  

be allowed a refund of the earnest money  

with  an  interest  of  25%  per  annum  and  

14

liquidated  damages  to  the  tune  of  

Rs.75,00,000/- along with costs.  

19. The  defendant,  the  proposed  vendor,  

resisted the suit by submitting that the  

agreement to sell was with respect to the  

entire suit property, i.e. 66 cents, and  

thus  could  not  have  been  split  into  

separate agreements to sell for 47 cents  

and 19 cents. It submitted that in view of  

the bar placed because of section 6 of the  

Tamil  Nadu  Act  and  the  consequential  

refusal by the appropriate authority under  

the  income  tax  department  to  allow  the  

execution of the sale, the contract itself  

had  become  frustrated and  thus  

unenforceable in law.

20. It  was  further  urged  that  time  was  the  

essence of the contract and it was for the  

plaintiff purchaser to seek exemption for  

15

the said 19 cents land from the urban land  

ceiling  department,  which  however  it  

failed to do. As a result of this failure,  

the sale could not be affected within a  

year’s  time.  This  clearly  rendered  the  

contract void in terms of clauses 8 and 10  

insofar as the contract was not performed  

within a year’s time. Hence, clause 9 was  

attracted and the contract stood cancelled  

for default of the plaintiff. It submitted  

that in terms of clause 9, the proposed  

vendor  (defendant  no.1)  refunded  the  

earnest money to the plaintiff-purchaser.  

However the cheque sent under registered  

post  came  back  to  the  defendant  no.  1  

‘refused’.   It  appears  that  the  same  

refused by the plaintiff-purchaser either  

by 6th or 7th September, 1996.  

21. As  such  the  defendant  no.  1  prayed  for  

dismissal  of  the  suit  in  view  of  

16

impossibility  of  performance  of  the  

contract  and  non-performance  by  the  

plaintiff  of  its  obligation  under  the  

contract within the stipulated time.  

22. However,  the  learned  Single  Judge  held  

that the suit property was in respect of  

agricultural land and not about an urban  

land as contemplated under the Tamil Nadu  

Act.  It was further noted by the learned  

Judge that as the Tamil Nadu Act had been  

repealed in 1999, its application itself  

would be limited to only those instances  

where possession of the excess vacant land  

had  been  taken  over  by  the  State  

Government.  

23. The  learned  Judge  noted  that  the  suit  

property  in  the  instant  case  did  not  

attract any of the provisions mentioned in  

Section 3 of the Repealing Act. According  

17

to  the  learned  Judge,  there  were  two  

reasons for which the provisions of Tamil  

Nadu Act would not apply to the instant  

agreement: firstly, the suit property was  

agricultural in nature and thus the same  

was  outside  the  purview  of  the  Act.  

Secondly, after the repeal of the Tamil  

Nadu Act in 1999, none of its provisions  

affected the agreement.  The Judge held  

that clause (7) in itself, however, was  

not a condition precedent to the contract.  

It  merely  stated  that  clearance  of  the  

said 19 cents from the urban land ceiling  

authorities  was  upon  the  plaintiff,  and  

that in the event the plaintiff was unable  

to have it cleared, the defendant no. 1  

shall not be provided with any alternative  

piece of land or any compensation. Thus,  

the learned Judge held that the plaintiff  

was  entitled  to  specific  performance  of  

the contract and decreed the suit.

18

24. Aggrieved, the defendant no. 1 preferred  

an  appeal.  The  learned  Division  Bench  

partly  allowed  it  holding  that  the  

respondents could be given the relief of  

specific performance only to the extent of  

47 cents of the lands that were not part  

of the proceedings under the Tamil Nadu  

Act.  

25. Apart from upholding the judgment of the  

learned  Judge  with  respect  to  the  

agricultural nature of the suit property,  

the Division Bench noted that in none of  

the letters exchanged between the parties  

it had come on record that the agreement  

had  become  illegal  in  view  of  the  

provisions of Section 6 of the Tamil Nadu  

Act.  On  the  contrary,  in  all  these  

communications, the only position that the  

defendant no. 1 had insisted upon was the  

19

satisfaction  of  the  conditions  mentioned  

in  clause  (7)  of  the  agreement,  viz.,  

permission for the sale of 19 cents by the  

urban  land  ceiling  authorities.  The  

learned Division Bench noted that if this  

was the stance of the defendant no. 1, it  

could not be allowed to resist the suit on  

the grounds of illegality of contract.

26. However, it disagreed with the decision of  

the learned Judge to the extent the repeal  

of the Tamil Nadu Act did not in itself  

released  19  cents  of  the  excess  vacant  

land from the proceedings initiated under  

that Act. It held that Section 3 of the  

Repeal Act provided that repealing of the  

Tamil  Nadu  Act  would  not  affect  the  

vesting  of  any  vacant  land  under  sub  

section  (3)  of  Section  11  of  the  Tamil  

Nadu Act in cases where the possession of  

such vacant land had been taken over by  

20

the  State  Government.  Relying  upon  and  

following decision of a Full Bench of the  

High Court in P. Gopirathnam and 4 Others  

v.  Ferrodous  Estate  (Private)  Limited,  

represented  by  its  Power  of  Attorney  

Holder  Sri  G.  John  Arthur, 1999  (2)  

Current Tamil Nadu Cases 181, the learned  

Bench  held  that  the  proceedings  with  

respect  to  the  said  19  cents  had  been  

initiated and that the same were pending.  

The Division Bench held that decree for  

specific  performance  as  given  by  the  

learned Judge had to be modified to the  

extent that the same was possible only to  

the extent of the unencumbered portion of  

the land.  

27. One of the main questions which arise for  

consideration in the facts of this Court  

is whether in the said agreement time is  

of the essence of the contract.  In order  

21

to appreciate this question, the Court has  

to consider several clauses in the said  

agreement.   The  relevant  clauses  are  

clauses 7, 8, 9 & 10, which are set out  

below:

“7.  The vendor states that an extent of 770  sq.mts. in S.No.363/1B & 363/1C forming part of  the property described below and agreed to be  sold  has  been  declared  as  excess  vacant  land  under  Sec  9(5)  of  the  Tamil  Nadu  Urban  Land  Ceiling (C&R) Act, 1978.  An appeal is pending  before the Special Commissioner (Land Reforms),  Madras.  The Vendor also applied to the State  Government for exemption under Sec 21 of the Act  but the same has been rejected and the matter is  pending in W.P.13906/1988 before the High Court,  Madras.  It shall be the sole responsibility of  the Purchaser to get clearance from the Urban  Land  Ceiling  Authorities  by  negotiation  or  getting exemption under the Act or permission to  sell, at his own cost and the Vendor shall not  be responsible for the same.  But, the Vendor  shall  sign  all  applications  or  petitions  necessary  for  this  purpose.   While,  getting  permission to sell or exemption under the Act in  respect of the property agreed to be sold, the  Purchaser  shall  ensure  that  no  compensatory  claim or alternate land is claimed by the Urban  Land Ceiling authorities in the rest of the land  to be retained by the Vendor.  

8. The  time  for  completion  of  the  purchase  shall  be  one  year  from  the  date  of  this  agreement.

22

9. If  the  purchaser  fails  to  complete  the  transaction  within  the  time  stipulated,  this  agreement  shall  stand  cancelled  and  a  sum  of  Rs.10,00,000/- (Rupees Ten Lakhs only) paid as  earnest money will be returned without interest  to  the  Purchaser  and  the  Vendor  shall  be  at  liberty to sell the property to whomsoever he  likes.

10. Time shall be the essence of the contract.”

28. Admittedly, the agreement was entered into  

on 7th July, 1995 and the period of one  

year expired by 6th July, 1996. Within that  

period  the  plaintiff-purchaser  could  not  

get clearance from the Urban Land Ceiling  

Authorities  nor  could  they  obtain  the  

exemption under the Act for permission to  

sell a part of the property in respect of  

which  the  suit  for  specific  performance  

was filed.   

29. It  is  not  the  case  of  the  plaintiff-

purchaser  that  the  vendor  in  any  way  

delayed  the  signing  of  application  or  

petition  necessary  for  getting  such  23

permission  for  clearance.  From  some  

correspondence  exchanged  between  the  

parties it is clear that purchaser took a  

few steps but could not get the clearance  

within the time agreed by it. The Vendor,  

however, by a letter dated 4th September,  

1996 cancelled the agreement in terms of  

clause 9 of the agreement and returned the  

advance  money  of  Rs.10,00,000/-  vide  a  

cheque  in  terms  of  clause  9.  The  said  

letter written by the vendor is set out  

below:-

“CITADEL FINE PHARMACEUTICALS Ref: 3852/96

4th September 1996

M/s. Ramaniyam Real Estates Pvt. Ltd., Rep. by Mr. V. Jagannathan, Managing Director, ‘Sruthi’. No.11, 2nd Main Raod, Gandhi Nagar, Madras 600 020.

Dear Sir, Re: 1.  Our letter dated 11.7.96     2.  Your letter dated 19.7.96.

24

As would be appreciated by you, at the meeting  had with you, by ourself through our Mr. Rajiv  and  further  by  telephone  on  30.8.1996  as  you  have expressed your reluctance in accepting our  terms put to you on the sale of the property, we  are  returning  the  advance  money  of  Rs.10,00,000/-  vide  SBI,  Guindy,  Cheque  No.904014 dt.4.9.1996 in terms of Clause 9 of  the Agreement dated 7th July, 1995.

Kindly acknowledge the receipt of this.

Thanking you,

Yours faithfully, For CITADEL FINE PHARMACEUTICALS Sd/- Partner

Encl: as above”  

30. Under these circumstances, the question is  

whether from the facts of this case vendor  

can  raise  a  defence  to  the  suit  for  

specific performance of the contract that  

time  being  of  the  essence  of  this  

contract,  the  Court  cannot  order  its  

specific performance when plaintiff failed  

to  discharge  its  part  of  the  contract  

within time and when after expiry of time,  

25

the contract was cancelled by the vendor  

in terms of clause 9 of the Contract.   

31. The settled law seems to be that in a case  

for  specific  performance  of  contract  

relating to immovable property time is not  

normally of the essence. However, this is  

not  an  absolute  proposition  and  it  has  

several exceptions.  

32. Reference in this connection may be made  

to  the  decision  of  Privy  Council  in  

Jamshed  Khodaram  Irani v.  Burjorji  Dhunjibhai reported in (1915-16) 43 I.A.  26.   Viscount  Haldane  delivering  the  

judgment for the Judicial Committee of the  

Privy Council held that the law applicable  

to this question is contained in Section  

55  of  the  Indian  Contract  Act  and  the  

learned Law Lord was of the opinion that  

Section 55 of the Indian Contract Act does  

26

not  lay  down  any  principle  which  is  

different  from  those  which  obtain  under  

the  law  of  England  with  regard  to  

contracts for sale of land. It was further  

held that in cases relating to specific  

performance,  equity,  which  governs  the  

rights  of  the  parties,  does  not  look  

always  at  the  express  term  of  the  

agreement but at the substance of it in  

order  to  ascertain  whether  the  parties  

named  a  specific  time  within  which  

completion was to take place and whether  

the parties in substance intended that the  

completion  should  take  place  within  a  

reasonable time.  The legal position was  

as follows:-

“…A  Court  of  Equity  will  indeed  relieve  against  and  enforce  specific  performance,  notwithstanding  a  failure  to  keep  the  dates  assigned by the contract; either for completion  or for the steps towards completion,  if it can  do justice between the parties, and if (as Lord  Justice Turner said in Roberts v. Berry [3 D.M.&  G. 284 at 289] there is nothing in the ‘express  stipulation between the parties, the nature of  

27

the property, or the surrounding circumstances’,  which  would  make  it  inequitable  to  interfere  with and modify the legal right….” (page 32 of  the report)

33. The learned Law Lord made it clear that  

equity can operate in the construction of  

a contract “unless excluded by any clearly  

expressed  stipulation”.  However,  it  was  

made  clear  that  equity  will  not  assist  

where there has been undue delay on the  

part of one party to the contract and one  

party has given notice to the other party  

that  the  defaulting  party  must  complete  

the  contract  within  a  definite  time.  A  

further caution was added by saying that  

equity  will  not  assist  when  other  

circumstances will result in injustice on  

application of equitable principle. In the  

words of Lord Haldane the principles have  

been formulated as follows:-

“…Nor will it (equity) exercise its jurisdiction  when  the  character  of  the  property  or  other  

28

circumstances would render such exercise likely  to  result  in  injustice.   In  such  cases  the  circumstances  themselves,  apart  from  any  question  of  expressed  intention,  exclude  the  jurisdiction.   Equity  will  further  infer  an  intention  that  time  should  be  of  the  essence  from what has passed between the parties prior  to the signing of the contract….” (Page 33 of  the report)

34. In this case, prior to the signing of the  

agreement,  the  terms  were  discussed  

between  the  parties  and  the  plaintiff  

purchaser willingly took upon itself the  

burden of obtaining the clearance within  

the time stipulated in the agreement.  

35. The  aforesaid  principles  in  Jamshed  Khodaram (supra) were accepted by a three- Judge Bench of this Court in the case of  

Gomathinayagam  Pillai  and  others v.  Palaniswami Nadar reported in AIR 1967 SC  868.   

29

36. From the terms of agreement in this case  

which  have  been  set  out  in  the  earlier  

part of the judgment it is clear that the  

time is of the essence and this is clearly  

stipulated and understood by the parties  

having  regard  to  the  previous  

correspondence and also having regard to  

the laid down terms of the contract and  

especially  when  the  consequence  of  non-

completion  of  the  terms  by  purchaser  

within the stipulated time was spelt out  

in clause 9.

37. In a case where time is of the essence of  

the  contract,  the  consequence  of  non-

performance  of  such  term  has  been  very  

succinctly  explained  by  Chitty  on  

Contracts, (Volume 1, Thirteenth Edition,  

Sweet & Maxwell in paragraph 21-015) and  

the same is set out:

30

“Consequences  of  time  being  "of  the  essence". In determining the consequences of a  stipulation that time is to be "of the essence"  of  an  obligation,  it  is  vital  to  distinguish  between the case where both parties agree that  time is to be of the essence of the obligation  and the case where, following a breach of a non- essential  term  of  the  contract,  the  innocent  party serves a notice on the other stating that  time is to be of the essence. In the former case  the  effect  of  declaring  time  to  be  of  the  essence is to elevate the term to the status of  a  "condition"  with  the  consequences  that  a  failure to perform by the stipulated time will  entitle  the  innocent  party  to:  (a)  terminate  performance of the contract and thereby put an  end  to  all  the  primary  obligations  of  both  parties  remaining  unperformed;  and  (b)  claim  damages from the contract-breaker on the basis  that he has committed a fundamental breach of  the contract (“a breach going to the root of the  contract”) depriving the innocent party of the  benefit of the contract (“damages for loss of  the whole transaction”. (page 1410)

38. Fry in  his  Treaties  on  the  Specific  

Performance of Contracts  (Sixth  Edition)  

has dealt with this aspect in paragraph  

1075:-

“Time is originally of the essence of the  contract,  in  the  view  of  a  Court  of  Equity,  whenever  it  appears  to  have  been  part  of  the  real intention of the parties that it should be  so, and not to have been inserted as a merely  

31

formal part of the contract.  As this intention  may either be separately expressed, or may be  implied  from  the  nature  or  structure  of  the  contract, it follows that time may be originally  of the essence of a contract, as to any one or  more  of  its  terms,  either  by  virtue  of  an  express condition in the contract itself making  it  so,  or  by  reason  of  its  being  implied…. ” (page 502)

39. In paragraph 1079, the learned author has  

explained the position further by saying  

the time may be implied as essential in a  

contract from the nature of the subject  

matter with which the parties are dealing.  

The  learned  author  explained  this  by  

saying:-

“1079.  Time may be implied as essential in a  contract, from the nature of the subject-matter  with  which  the  parties  are  dealing.   “If,  therefore,” said Alderson B., “the thing sold be  of  greater  or  less  value  according  to  the  effluxion of time, it is manifest that time is  of  the  essence  of  the  contract:  and  a  stipulation as to time must then be literally  complied  with  in  Equity  as  well  as  in  Law….”  (page 504)

32

40. At paragraph 1081 page 505, the learned  

author  made  it  very  clear  that  in  a  

contract relating to commercial enterprise  

the  Court  is  strongly  inclined  to  hold  

time to be essential, whether the contract  

is for the purchase of land or for such  

purposes  or  more  ‘directly  for  the  

prosecution of trade’.  The elaboration of  

this  point  by  the  learned  author  is  as  

follows:-

“1081.  And so, again, where the object of the  contract is a commercial enterprise, the Court  is  strongly  inclined  to  hold  time  to  be  essential,  whether  the  contract  be  for  the  purchaser  of  land  for  such  purposes,  or  more  directly  for  the  prosecution  of  trade.   This  principle has been acted on in the matter of a  contract  respecting  land  which  had  been  purchased  for  the  erection  of  mills,  also  in  relation to a sale of pasture lands, required by  the purchaser, as the vendor new, for stocking,  and in several cases of contracts for the sale  of public-houses as going concerns….” (page 505)

41. The aforesaid principles squarely apply to  

the facts of the present case.  Here the  33

purchaser is admittedly in the business of  

building construction and is entering with  

agreement  for  purchasing  the  plot  on  

commercial basis.   

42. Gareth Jones and William Goodhart in their  

Treaties on Specific Performance (Second  

Edition,  Butterworths) expressed  similar  

views by saying:

“If the parties have expressly agreed that  time is to be of the essence, the courts will  generally  if  not  always  give  effect  to  that  stipulation.  An intention that a stipulation as  to time should be of the essence may be implied  from  the  circumstances.   In  the  absence  of  agreement to the contrary, time will generally  be  considered  of  the  essence  in  mercantile  contracts  and  in  contracts  for  the  sale  of  a  business or of property which has a fluctuating  or speculative value….” (page 74)

43. The instant case obviously relates to a  

contract in commercial transaction and the  

Court can take judicial notice of the fact  

that in the city of Chennai the price of  

34

real estate is constantly escalating and  

the clear intention of the parties, as it  

appears  from  the  stipulations  of  the  

agreement,  was  to  treat  time  as  the  

essence of the contract.

44. Having regard to the aforesaid principles  

the  court  cannot  attribute  a  different  

intention  to  the  parties  and  cannot  

specifically enforce the contract at the  

instance  of  the  plaintiff-purchaser  who  

has  failed  to  perform  his  part  of  the  

obligation within the time stipulated.   

45. In K.S. Vidyanadam and others v. Vairavan  reported  in  (1997)  3  SCC  1  this  Court  

explained  how  discretion  is  to  be  

exercised  by  the  Court  before  granting  

specific  performance.   This  Court  held  

that in cases of urban properties in India  

it is well known that prices are going up  

35

sharply  over  the  last  few  decades  

particularly  after  1973.  In  Vidyanadam  (supra)  the  court  was  dealing  with  a  

property in Madurai in the State of Tamil  

Nadu and it was argued before this Court  

by  referring  to  the  Madras  High  Court  

judgment  in  S.V.  Sankaralinga  Nadar v.  P.T.S. Ratnaswami Nadar (AIR 1952 Mad 389)  that mere rise in price is no ground for  

denying  the  specific  performance.  This  

Court did not agree with the decision of  

the Madras High Court and held that the  

Court cannot be oblivious of the reality  

of  constant  and  continuous  rise  in  the  

value  of  urban  properties.   In  that  

context the time limit set in the contract  

has to be strictly construed.  In the case  

of  Vidyanadam  (supra)  there  is  no  such  strict stipulation as time being of the  

essence  of  the  contract  as  is  in  the  

instant case even then the Court refused  

36

to  grant  the  relief  of  specific  

performance.

46. In  Vidyanadam (supra) reference was made  to a Constitution Bench judgment of this  

Court in Chand Rani (Smt.) (Dead) by LRs.  v.  Kamal  Rani  (Smt.)  (Dead)  by  LRs.  reported in (1993) 1 SCC 519.  The same  

question, whether time was of essence of  

the contract was discussed in  Chand Rani  (supra).  The Constitution Bench of this  

Court  while  dealing  with  this  question  

referred to another decision of this Court  

in  the  case  of  M/s.  Hind  Construction  Contractors  by  its  sole  proprietor  Bhikamchand Mulchand Jain (Dead) by LRs.  v. State of Maharashtra reported in (1979)  2  SCC  70.   By  referring  to  various  

judgments, the Constitution Bench in Chand  Rani (supra)  formulated  the  proposition  that  even  where  parties  have  expressly  

37

provided time to be of the essence of the  

contract, such a stipulation will have to  

be  read  along  with  other  terms  of  the  

contract.  Such other terms, on a proper  

construction,  may  exclude  the  inference  

that  the  completion  of  work  by  a  

particular  date  was  meant  to  be  

fundamental.  The learned Judges indicated  

the  following  circumstances  which  may  

indicate a contrary inference; (a) if a  

contract  includes  clauses  providing  for  

extension  of  time  in  certain  

contingencies, or (b) if there are clauses  

for payment of fine or penalty for every  

day or week the work undertaken remains  

unfinished after the expiry of time.  The  

Constitution Bench held that such clauses  

would  be  construed  as  rendering  

ineffective the express provision relating  

to time being of the essence of contract  

(see para 22 at page 528 of the report).

38

47. In the instant case, in the said agreement  

no  such  clause,  as  aforesaid,  exists.  

Rather the stipulation as time being of  

the  essence  of  the  contract  was  

specifically  mentioned  in  clause  10  and  

the  consequences  of  non-completion  are  

mentioned  in  clause  9.   So  from  the  

express  terms  of  the  contract  and  the  

commercial nature of the transaction and  

the  surrounding  circumstances  make  it  

clear that the parties intended time in  

this  case  was  intended  to  be  of  the  

essence of the contract.   

48. Keeping the above principle if we look at  

the portion of Law in India, it is clear  

that  under  Section  9  of  the  Specific  

Relief  Act,  1963  it  is  provided  as  

follows:-

39

“9.  Defences respecting suits for relief based  on  contract.-  Except  as  otherwise  provided  herein, where any relief is claimed under this  Chapter  in  respect  of  a  contract,  the  person  against whom the relief is claimed may plead by  way of defence any ground which is available to  him under any law relating to contracts.”

49. It is clear from Section 9 of the Specific  

Relief Act, 1963 that Section 55 of The  

Indian  Contract  Act,  1872  enables  a  

defendant  against  whom  suit  for  the  

specific  performance  has  been  filed  to  

raise the defence under Section 55 of the  

Indian Contract Act.   

50. Section  55  of  the  Indian  Contract  Act  

which deals with a contract, in which time  

is of essence is as follows:-

“Section 55 - Effect of failure to perform at a  fixed  time,  in  contract  in  which  time  is  essential.  -   When  a  party  to  a  contract  promises to do a certain thing at or before a  specified time, or certain things at or before  specified times, and fails to do any such thing  at or before the specified time, the contract,  or  so  much  of  it  as  has  not  been  performed,  

40

becomes voidable at the option of the promisee,  if the intention of the parties was that time  should be of the essence of the contract.”

51. On a combined reading of Section 9 of the  

Specific Relief Act and Section 55 of The  

Indian Contracts Act it is clear that in  

this case the vendor as a promisee, was  

within its right to terminate the contract  

by sending the letter dated 4th September,  

1996 in terms of Clause 9 of the Contract  

while  returning  the  advance  money  of  

Rs.10,00,000/-.   It  is  clear  that  the  

plaintiff  has  not  discharged  its  burden  

within  the  time  specified  and  is  not  

entitled to a specific performance of the  

contract.   

52. Therefore, the approach of the High Court  

both by the Single Judge and the Appellate  

Bench cannot be sustained.   

41

53. There  is  another  aspect  of  the  matter  

also.  In the instant case by asking for  

specific performance of the contract, the  

plaintiff-purchaser  is  praying  for  a  

discretionary  remedy.   It  is  axiomatic  

that when discretionary remedy is prayed  

for by a party, such party must come to  

court on proper disclosure of facts.  The  

plaint which it filed before the Court in  

such  cases  must  state  all  facts  with  

sufficient candour and clarity.  In the  

instant case the plaintiff-purchaser made  

an  averment  in  the  plaint  that  the  

defendant-vendor be directed to return the  

advance  amount  of  Rs.10,00,000/-  at  the  

rate  of  24%  interest  from  the  date  of  

payment  of  the  said  amount  till  the  

realization and an alternative prayer to  

that effect was also made in the prayer  

clause (c).   

42

54. However, the fact remains that prior to  

the  filing  of  the  suit  the  defendant-

vendor  returned  the  said  amount  of  

Rs.10,00,000/-  by  its  letter  dated  4th  

September, 1996 by an account payee cheque  

in favour of the plaintiff and the same  

was sent to the plaintiff under registered  

post which was refused by the plaintiff on  

6.9.1996.  The plaintiff suppressed this  

fact in the plaint and filed the suit on  

9.9.1996  with  a  totally  contrary  

representation before the court as if the  

amount has not been returned to it by the  

vendor.  This is suppression of a material  

fact,  and  disentitles  the  plaintiff-

purchaser  from  getting  any  discretionary  

relief of specific performance by Court.

55. In  this  connection  we  may  refer  to  the  

Principle of Equitable Remedies by I.C.F.  

SPRY,  Fourth  Edition  (Sweet  &  Maxwell,  

43

1990). Dealing with the question of ‘Clean  

Hands’  the  learned  author  opined  that  

where  the  plaintiff  is  shown  to  have  

materially  misled  the  court  or  to  have  

abused its process, or to have attempted  

to  do  so,  the  discretionary  relief  of  

specific performance can be denied to him.  

In laying down this principle, the learned  

author relied on a decision of the English  

Court in the case of Armstrong v. Sheppard  & Short Ltd. (1959) 2 Q.B. 384 at page  397.  (See  SPRY  Equitable  Remedies  page  

243).

56. This Court has also taken the same view in  

the  case  of  Arunima  Baruah v.  Union  of  India and others reported in (2007) 6 SCC  120.  At  paragraph  12,  page  125  of  the  

report, this Court held that it is trite  

law that to enable the court to refuse to  

exercise  its  discretionary  jurisdiction  

44

suppression must be of a material fact.  

This  Court,  of  course,  held  what  is  a  

material  fact,  suppression  whereof  would  

disentitle  the  suitor  to  obtain  a  

discretionary  relief,  would  depend  upon  

the facts and circumstances of each case.  

However,  by  way  of  guidance  this  Court  

held that material fact would mean that  

fact which is material for the purpose of  

determination of the lis.  

57. Following the aforesaid tests, this Court  

is of the opinion that the suppression of  

the  fact  that  the  plaintiff  refused  to  

accept the cheque of Rs.10 lac sent to it  

by  the  defendant  under  registered  post  

with  A.D.  in  terms  of  Clause  9  of  the  

Contract is a material fact. So on that  

ground  the  plaintiff-purchaser  is  not  

entitled  to  any  relief  in  its  suit  of  

specific performance.

45

58. For  the  reasons  aforesaid,  this  Court  

allows the appeal filed by M/s. Citadel  

Fine  Pharmaceuticals  [SLP(C)  

No.28251/2008]  and  dismisses  the  appeal  

filed by the M/s Ramaniyam Real Estates P.  

Ltd., [SLP(C) No.31269/2008].   

59. The  Court  directs  M/s.  Citadel  Fine  

Pharmaceuticals  to  return  the  amount  of  

Rs.10,00,000/- by an account payee cheque  

to M/s. Ramaniyam Real Estates P. Ltd., if  

not already returned, within 4 weeks from  

date.   In  default  M/s.  Citadel  Fine  

Pharmaceuticals will have to pay interest  

at the rate of 12% per annum on the same  

from the expiry of the period of 4 weeks  

from date till actual payment.  

46

60. Having  regard  to  the  facts  and  

circumstances of this case there will be  

no order as to costs.

.......................J. (G.S. SINGHVI)

.......................J. New Delhi (ASOK KUMAR GANGULY) August 08, 2011   

47