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SPECIFIC RELIEF ACT = 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.

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                                               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
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