Specific Relief Act, 1963 - Section 14 - Contracts not specifically enforceable - Whether Section 14(3)(c) of the Act is a bar to a suit by a developer for specific performance of a development agreement between himself and the owner of the property ?
By giving a purposive interpretation to Section 14(3)(c)(iii), the anomaly and absurdity created by the third condition will have no applicability in a situation where the developer who has an interest in the property, brings a suit for specific performance against the owner. The developer will have to satisfy the two conditions laid out in sub clause (i) and (ii) of Section 14(3)(c), for the suit for specific performance to be maintainable against the owner. This will ensure that both owners and developers can avail of the remedy of specific performance under the Act. A suit for specific performance filed by the developer would then be maintainable. Whether specific performance should in the facts of a case be granted is a separate matter, bearing on the discretion of the court.
IN
THE SUPREME COURT OF INDIA
CIVIL
APPELLATE JURISDICTION
[A M KHANWILKAR, J]
AND [Dr
DHANANJAYA Y CHANDRACHUD]
October
09, 2018.
CIVIL
APPEAL NO. 1129 OF 2012
SUSHIL
KUMAR AGARWAL .....Appellant
Versus
MEENAKSHI
SADHU & ORS. .....Respondents
J U
D G M E N T
Dr
Dhananjaya Y Chandrachud, J
1. The present appeal (Leave was granted on
12 January 2012.) is from the judgment of a Division Bench of the High Court of
Calcutta (The
High Court delivered judgment on 18 February 2009).
The appellant, who is a builder, instituted a suit for specific performance of
a development agreement, against the respondents, who are owners of the
premises. The suit was dismissed by the City Civil Court. The High Court
dismissed the first appeal.
2. The subject matter of the suit for specific performance is a
development agreement dated 14 April 1992, entered into by the appellant with
the predecessor-in-interest of the respondents (Late Kalidas Sadhu) (Late Kalidas Sadhu was
the original respondent. Upon his death, by an order dated 12 May 2018, the
legal heirs of the original respondent were substituted as existing respondents)
in respect of premises situated at 243N, Acharya Prafulla
Chandra Road, P.S. Burtolla, Kolkata – 700 006. The agreement recites that the
owners had approached the appellant for construction of a building on the land
and that the following terms, inter alia, were agreed upon by and
between the parties:
a) The appellant
agreed to apply at his own costs and expenses for sanction of the plan of a
proposed building complex on 14 cottahs 5 chittacks and 40 square feet, to the
Calcutta Municipal Corporation (Clause-1 of the agreement);
b) The plan of the
building complex would be prepared and submitted by the appellant to the Calcutta
Municipal Corporation, after the approval of the respondent (Clause -2 of
the agreement);
c) The appellant
shall deposit with the respondent an amount of ₹ 4,00,000/- without interest
which shall be refundable upon the completion of the building (Clause-3 of
the agreement);
d) If for any reason
after the plan is sanctioned or for any act or omission on the part of the
appellant, the construction cannot take place, the appellant shall refund the
deposit in addition to all costs, charges and expenses incurred by the
respondent (Clause-22 of the agreement);
e) The respondent
shall retain 42% of the total constructed area as ‘sole owned’ and the balance
58% of the total constructed area shall remain secured for due payment of the
construction costs. The total construction cost shall not exceed the value of
58% of the constructed area. The respondent agreed to pay the appellant the
costs and expenses along with agreed remuneration upon completion of the
construction and if the respondent failed to pay, the appellant was entitled to
realise its money by selling 58% of the total constructed area (Clauses – 6,
10 and 11 of the agreement); and
f) The respondent was
entitled to demand any loss and/or damage suffered by him for any illegal
activities of the appellant and the appellant was also entitled to recover
damages from the respondent for lapse and negligence, in addition to the right
of the parties to claim specific performance (Clause -24 of the agreement).
3. The appellant alleged that upon the execution of the
agreement, he found that the premises were encumbered and that there were
arrears of municipal tax and electricity dues, besides which there were labour
and industrial disputes and ‘factory closure problems’. The respondent is
alleged to have requested the appellant to make payments and assured that he
will reimburse him before the sanction of the building plan was obtained.
Accordingly, the appellant claims to have made a payment of ₹ 7,03,000/-.
4. On 18 March 2002, the respondent addressed a letter to the
appellant and denied the execution of the agreement. The appellant, by a letter
dated 4 April 2002 protested the denial and requested the respondent to give
him the authority to obtain sanction of the building plans. Parties thereafter
met and agreed to modify the terms of the agreement with revised terms under
which (i) allocation of the owner would be 47% instead of 42%; and (ii)
allocation of the developer would be 53% instead of 58%.
5. On 26 May 2003, the appellant issued to the respondent a
notice for payment of his share of the sanctioned fees. On 3 June 2003 the
owner wrote a letter to the appellant through his advocate, denying the
contents of the notice on the ground that he had by a notice dated 19 May 2003
cancelled the agreement and requested the appellant to return all documents and
collect the deposit.
6. On 6 August 2003, the appellant instituted a suit (TS No.1150/03) in
the City Civil Court seeking a declaration that the cancellation of the agreement
by the respondent was invalid and a permanent injunction restraining the
respondent from entering into any agreement with a third party for sale of the
premises. On 28 September 2005 the City Civil Court allowed an amendment of the
plaint, by which a prayer for specific performance was included.
7. On 28 February 2007, the City Civil Court dismissed the Suit
with the following observation:
“No tangible evidence
is forthcoming in the instant suit by which it can be said that the plaintiff
(developer) obtained possession of the suit property i.e. the possession of the
suit property is/has handed over to him after the execution of the agreement in
question.”
The City Civil Court
relied on a judgment of a Division Bench of the High Court of Calcutta in Vipin
Bhimani v Smt Sunanda Das, (2006) 2 CHN 396 that
a suit for specific performance of a development agreement at the instance of a
developer is barred by the provisions of Section 14(3)(c) of the Specific
Relief Act 1963 (“the Act”). Upon examining various clauses of the agreement,
the City Civil Court concluded that the appellant had agreed to apply at his
own cost and expense to the Calcutta Municipal Corporation for getting the
plans of the proposed building approved. The City Civil Court noted that it was
an admitted fact that sanction was not obtained by the appellant and therefore,
it could not be said that he had obtained possession. As a result, the suit at
the instance of the appellant was held to be barred by Section14(3)(c).
8. Aggrieved
by the judgment and order of the City Civil Court, the appellant preferred an
appeal (F.A.
No. 175 of 2007) before the High Court of Calcutta. On 18 February 2009 the
Division Bench of the High Court dismissed the appeal, on the ground that the
suit was not maintainable under Section 14(3)(c) of the Act. The High Court rejected the
appellant’s argument that even if Section 14(3)(c) stood in the way of getting
a decree for specific performance, the Specific Relief Act not being
exhaustive, there was no bar in granting a decree. The High Court held:
“….if in the Act
there is a clear prohibition in granting a decree for specific performance in a
given situation, such provision is exhaustive and cannot be made nugatory by
contending that the Act is not exhaustive and thus, the Court can ignore such
provision.”
9. The High Court also rejected the argument of the appellant
that the agreement in question was not a contract for construction of building
on the land in a real sense, as the respondent was not getting any
consideration for building. The High Court held that the agreement was in
substance a contract of construction within the meaning of sub-section (3)(c)
of Section 14 and the consideration was payable only upon the completion of the
work.
10. The issue which has been raised before
this Court is whether Section 14(3)(c) of the Act is a bar to a suit by a
developer for specific performance of a development agreement between himself
and the owner of the property. In dealing with this issue, the court needs to
assess whether the word “defendant” in Section 14(3)(c)(iii) has the effect of
confining the scope of the suit for specific performance only to a particular
class (consisting of owners) or whether a purposive interpretation to the
legislation would be required, so as to provide a broader set of remedies to
both owners and developers. In deciding this issue the court will need to
scrutinise the nature of a development agreement.
11. Section 14 provides thus:
“14. Contracts not
specifically enforceable-
(1) The following
contracts cannot be specifically enforced, namely -
(a) a contract for
the non-performance of which compensation in money is an adequate relief;
(b) a contract which
runs into such minute or numerous details or which is so dependent on the
personal qualifications or volition of the parties, or otherwise from its
nature is such, that the court cannot enforce specific performance of its
material terms;
(c) a contract which
is in its nature determinable;
(d) a contract the
performance of which involves the performance of a continuous duty which the
court cannot supervise.
(2) Save as provided
by the Arbitration Act, 1940 (10 of 1940), no contract to refer present or future
differences to arbitration shall be specifically enforced; but if any person
who has made such a contract (other than an arbitration agreement to which the
provisions of the said Act apply) and has refused to perform it, sues in
respect of any subject which he has contracted to refer, the existence of such
contract shall bar the suit.
(3) Notwithstanding
anything contained in clause (a) or clause (c) or clause (d) of sub-section
(1), the court may enforce specific performance in the following cases--
(a) where the suit is
for the enforcement of a contract,-
(i) to execute a
mortgage or furnish any other security for securing the repayment of any loan
which the borrower is not willing to repay at once:
Provided that where
only a part of the loan has been advanced the lender is willing to advance the
remaining part of the loan in terms of the contract; or
(ii) to take up and
pay for any debentures of a company;
(b) where the suit is
for-
(i) the execution of
a formal deed of partnership, the parties having commenced to carry on the
business of the partnership; or
(ii) the purchase of
a share of a partner in a firm;
(c) where the suit is
for the enforcement of contract for the construction of any building or the
execution of any other work on land:
Provided that the
following conditions are fulfilled, namely: -
(i) the building or
other work is described in the contract in terms sufficiently precise to enable
the court to determine the exact nature of the building or work;
(ii) the plaintiff has
a substantial interest in the performance of the contract and the interest is
of such a nature that compensation in money for non-performance of the contract
is not an adequate relief; and
(iii) the defendant
has, in pursuance of the contract, obtained possession of the whole or any part
of the land on which the building is to be constructed or other work is to be
executed.”
Section 14(1)
provides categories of contracts which are not specifically enforceable.
Sub-section (3) of Section 14 is an exception to clauses (a), (c) and (d) of
sub-section (1). Though the species of contract stipulated in clauses (a), (c)
and (d) of sub-section (1) cannot be specifically enforced, a suit for specific
performance of contracts of that description will be maintainable if the
conditions set out in sub-clauses (i), (ii) and (iii) of clause (c) of Section
14(3) are satisfied.
12. The consistent position of the common
law is that courts do not normally order specific performance of a contract to
build or repair. But this rule is subject to important exceptions, and a decree
for specific performance of a contract to build will be made only upon meeting
the requisite requirements under law. According to Halsbury’s Laws of
England, Halsbury’s
Laws of England, Fourth Edition, Volume 44(1), para 801 the
discretion to grant specific performance is not arbitrary or capricious; it is
governed by principles developed in precedents. The judge must exercise the
discretion in a judicious manner. Circumstances bearing on the conduct of the
plaintiff, such as delay, acquiescence and breach or some other circumstances
outside the contract, may render it inequitable to enforce it. The position as
elucidated in Halsbury’s Laws of England, Halsbury’s Laws of
England, Fourth Edition, Volume 44(1), para 806 is
thus:
“… the court does not normally order specific
performance of a contract to build or repair. However, this rule is subject to
important exceptions, and a decree for specific performance of a contract to
build will be made if the following conditions are fulfilled: (1) that the
building work is defined by the contract between the parties; (2) that the
plaintiff has a substantial interest in the performance of the contract of such
a nature that he cannot be adequately be compensated in damages; (3) that the
defendant is in possession of the land on which the work is contracted to be
done.”
13. This principle was followed by the Court
of Appeal in Wolverhampton Corporation v Emmons, [1901] 1 K. B. 515 where
the plaintiff, the urban sanitary authority, in pursuance of a scheme of street
improvement, sold and conveyed to the defendant a plot of land abutting a
street, the defendant covenanting with them that he would erect buildings
within a certain time. Upon the defendant failing to perform the agreement, the
plaintiffs brought a suit against him claiming specific performance. Romer L.J,
held that a plaintiff can bring himself within the exception, if three things
are shown to exist: (i) the building work, the performance of which the
plaintiff seeks to enforce, is defined by the contract allowing the court to
know the exact nature and extent of work; (ii) the plaintiff must have a
substantial interest in having the contract performed and the interest must be of
such a nature that damages will not be an adequate compensation for the
non-performance of the contract; and (iii) the defendant has obtained from the
plaintiff by means of the contract the possession of the land on which the work
is to be done. The case was held to come within the class of cases which had
been recognised as forming an exception to the general rule that specific
performance of a building contract will not be ordered.
14. In a decision of the Chancery Division
in Carpenters Estate v Davies, (1940) Ch. D 160 an
owner of land sold a certain portion of it to the purchaser for development,
retaining land adjoining it, and agreed to lay roads and provide mains, sewers
and drains on the land retained. The purchaser brought a suit for specific
performance against the owner for not performing his obligations under the
agreement. Farwell J., observed that the plaintiff is required to establish
that the defendant is in possession of the land on which the work is contracted
to be done. The facts of the case, indicated that the defendant was already in
possession of the land, and there was no difficulty for her to carry out her
obligations. Finding that the plaintiff proved all three conditions as laid out
in Wolverhampton Corporation (supra), the court granted specific
performance to the plaintiff.
15. The requirements to be satisfied by the
plaintiff bringing forth a suit for specific performance have been analysed in Hudson’s
Building and Engineering Contracts, Hudson’s Building and
Engineering Contracts, Eleventh Edition, Volume 1, page 677 and
in Price v Strange, [1978] 1
Ch. 337 at page 359 where the rule has been settled that the court will order
specific performance of an agreement to build if:
(i) the building work
is sufficiently defined by the contract, for example by reference to detailed
plans;
(ii) the plaintiff
has a substantial interest in the performance of the contract of such a nature
that damages would not compensate him for the defendant’s failure to build; and
(iii) the defendant
is in possession of the land so that the plaintiff cannot employ another person
to build without committing a trespass.
16. The expression “development agreement”
has not been defined statutorily. In a sense, it is a catch-all nomenclature
which is used to be describe a wide range of agreements which an owner of a
property may enter into for development of immovable property. As real estate
transactions have grown in complexity, the nature of these agreements has
become increasingly intricate. Broadly speaking, (without intending to be
exhaustive), development agreements may be of various kinds:
i
(i) An agreement may envisage that the owner of the immovable
property engages someone to carry out the work of construction on the property
for monetary consideration. This is a pure construction contract;
i
(ii) An agreement by which the owner or a person holding
other rights in an immovable property grants rights to a third party to carry
on development for a monetary consideration payable by the developer to the
other. In such a situation, the owner or right holder may in effect create an
interest in the property in favour of the developer for a monetary
consideration;
ii
(iii) An agreement where the owner or a person holding any
other rights in an immovable property grants rights to another person to carry
out development. In consideration, the developer has to hand over a part of the
constructed area to the owner. The developer is entitled to deal with the
balance of the constructed area. In some situations, a society or similar other
association is formed and the land is conveyed or leased to the society or
association;
iii
(iv) A development agreement may be entered into in a
situation where the immovable property is occupied by tenants or other right
holders. In some cases, the property may be encroached upon. The developer may
take on the entire responsibility to settle with the occupants and to
thereafter carry out construction; and
i
(v) An owner may negotiate with a developer to develop a plot
of land which is occupied by slum dwellers and which has been declared as a
slum. Alternately, there may be old and dilapidated buildings which are
occupied by a number of occupants or tenants. The developer may undertake to
rehabilitate the occupants or, as the case may be, the slum dwellers and
thereafter share the saleable constructed area with the owner.
When a pure
construction contact is entered into, the contractor has no interest in either
the land or the construction which is carried out. But in various other
categories of development agreements, the developer may have acquired a
valuable right either in the property or in the constructed area. The terms of
the agreement are crucial in determining whether any interest has been created
in the land or in respect of rights in the land in favour of the developer and
if so, the nature and extent of the rights.
17. In a construction contract, the
contractor has no interest in either the land or the construction carried out
on the land. But, in other species of development agreements, the developer may
have acquired a valuable right either in the property or the constructed area.
There are various incidents of ownership of in respect of an immovable
property. Primarily, ownership imports the right of exclusive possession and
the enjoyment of the thing owned. The owner in possession of the thing has the
right to exclude all others from its possession and enjoyment. The right to
ownership of a property carries with it the right to its enjoyment, right to
its access and to other beneficial enjoyments incidental to it. (B Gangadhar
v BG Rajalingam, (1995)
5 SCC 239 at para 6). Ownership denotes the relationship between a person and an
object forming the subject matter of the ownership. It consists of a complex of
rights, all of which are rights in rem, being good against the world and not
merely against specific persons. There are various rights or incidents of
ownership all of which need not necessarily be present in every case. They may
include a right to possess, use and enjoy the thing owned; and a right to
consume, destroy or alienate it. (Swadesh Ranjan Sinha v Haradeb
Banerjee, (1991)
4 SCC 572). An essential incident of ownership of land is the right to
exploit the development, potential to construct and to deal with the
constructed area. In some situations, under a development agreement, an owner
may part with such rights to a developer. This in is essence is a parting of
some of the incidents of ownership of the immovable property. There could be
situations where pursuant to the grant of such rights, the developer has
incurred a substantial investment, altered the state of the property and even
created third party rights in the property or the construction carried out to
be carried out. There could be situations where it is the developer who by his
efforts has rendered a property developable by taking steps in law. In
development agreements of this nature, where an interest is created in the land
or in the development in favour of the developer, it may be difficult to hold
that the agreement is not capable of being specifically performed. For example,
the developer may have evicted or settled with occupants, got land which was
agricultural converted into non-agricultural use, carried out a partial
development of the property and pursuant to the rights conferred under the
agreement, created third party rights in favour of flat purchasers in the
proposed building. In such a situation, if for no fault of the developer, the
owner seeks to resile from the agreement and terminates the development
agreement, it may be difficult to hold that the developer is not entitled to
enforce his rights. This of course is dependent on the terms of the agreement
in each case. There cannot be a uniform formula for determining whether an
agreement granting development rights can be specifically enforced and it would
depend on the nature of the agreement in each case and the rights created under
it.
18 In Chheda
Housing Development Corporation v Bibijan Shaikh Farid, (2007) 3 Mah LJ 402 a
Division Bench of the Bombay High Court while dealing with the question of
whether specific performance should be granted of a development agreement held
as follows:
“In our opinion from
a conspectus of these judgments, what is relevant would be the facts of each
case and the agreement under consideration. Agreements considering what is
discussed, amongst others, could be:
(a) An Agreement only
entrusting construction work to a party for consideration.
(b) An Agreement for
entrusting the work of development to a party with added rights to sell the
constructed portion to flat purchasers, who would be forming a Co-operative
Housing Society to which society, the owner of the land, is obliged to convey
the constructed portion as also the land beneath construction on account of
statutory requirements.
(c) A normal
agreement for sale of an immovable property.
An Agreement of the
first type normally is not enforceable as compensation in money is an adequate
remedy. An Agreement of the third type would normally be specifically
enforceable unless
the contrary is proved. A mere agreement for development, which creates no
interest in the land would not be specifically enforced.”
19. The judgement of the Bombay High Court
in Della Developers Private Limited v Noble Organics Private Limited,
(2010) 2
Bom CR 13 deals with a case where a development agreement was executed
between the petitioners and the respondents. A dispute arose between the
parties and arbitration proceedings were initiated. An order was passed by the
Arbitrator under Section 17 of the Arbitration and Conciliation Act 1996
against which an appeal was filed under Section 37. Before the High Court, the
findings of the sole arbitrator under Section 17 were challenged. Upon
examining the agreement, the High Court held that the agreement created a right
or interest in immovable property. On the issue of the maintainability of a
proceeding initiated by the developer against the owner under Section 14(3)(c),
the court reiterated the requirement of fulfilling the three conditions under
Section 14(3)(c). Hon’ble Mr. Justice A M Khanwilkar (as my learned Brother
then was) held as follows:
“Insofar as present case is concerned, out of the
three conditions specified in Section 14(3)(c), prima facie, from
the terms of the Agreement as executed between the parties, there is nothing to
indicate that the Petitioner in pursuance of the contract, was put in
possession of the whole or any part of the land on which the building is to be
constructed or other work is to be executed.”
20. In Ashok Kumar Jaiswal v Ashim
Kumar Kar, AIR
2014 Cal 92 a Full Bench of the Calcutta High Court held that a
development agreement with a clause for conditional
sale of the premises in question will also be an agreement for sale subject to
certain conditions. While deciding whether a suit at the instance of a
developer is maintainable in view of Section 14(3)(c), the Court, inter alia,
held that in the absence of a definition of "developer" or
"development agreement" the nature of the agreement which is the
subject-matter of a suit must be considered in order to determine whether it is
an agreement to merely provide construction of a building or whether the
developer has obtained a share of, and interest in, the developed property
which is the outcome of the agreement, creating a contract for transfer of
immovable property. The Full Bench observed thus:
“An owner without any
funds or the independent resources to construct a new building on such owner’s
land may engage for such purpose with the consideration for the construction
being paid by allocation of a part of the constructed area. There could be
several variants of the same basic structure of a development agreement…..Such
agreements are not merely for the construction of any building or for the mere
execution of any other work on the land. The developer is not merely a
contractor engaged to undertake the construction; the developer is, under the
agreement with the owner, promised a part of the constructed premises as owner
thereof together with the proportionate area of the land.”
The Full Bench held
that a right to seek specific performance of a development agreement is not
barred either expressly or by necessary implication by the 1963 Act and a broad
interpretation should be given to allow an adequate remedy:
“….it would be
preposterous to say that only the owner can maintain a suit against the
developer for enforcing his rights and not vice-versa. If the developer has a
right under the contract
he must be having a remedy in the form of approaching a forum for appropriate
redressal. A question of maintainability of a suit is completely different from
the question of whether the suit will succeed or not on the facts of the case
and in the light of the applicable law. Section 14 (3)(c) of the Act can in no
manner be interpreted as debarring a developer from approaching the legal forum
for redressal of his grievance.”
21. In the present case, the respondent
agreed to pay the appellant the costs and expenses along with the agreed
remuneration upon completion of the construction. If the respondent failed to
pay, the appellant was entitled to realise its money by selling 58% of the
total constructed area. Clauses 6, 10 and 11 of the agreement indicate that the
respondent would retain 42% of the total constructed area and
the balance 58% would remain secured for due payment of the construction costs.
It was further agreed, that the total construction costs shall not exceed 58%
of the constructed area. The intention of the parties is clear from the
agreement. This was an agreement to carry out the construction of the building
for which payment of the construction costs and agreed remuneration had to be
made. The agreement did not create an interest in the land for the developer.
If the payment due to the developer was made, there would arise no security
interest. Moreover, the security interest in respect of 42% of the constructed
area would arise only if the construction came up and the payment due to the
builder was not made. In present case, admittedly there is no construction at
all.
22. Various High Courts have interpreted the
requirements under Section 14(3)(c) of the Act and opined on the
maintainability of a suit by the developer for specific performance against the
owner of the property for a breach in the conditions of the development
agreement. A common thread that runs through the analysis in decided cases is the
following:
(i) The courts do not
normally order specific performance of a contract to build or repair. But this
rule is subject to important exceptions, and a decree for specific performance
of a contract to build will be made only upon meeting the requirements under
law;
(ii) The discretion
to grant specific performance is not arbitrary or capricious but judicious; it
is to be exercised on settled principles; the conduct of the plaintiff, such as
delay, acquiescence, breach or some other circumstances outside the contract,
may render it inequitable to enforce it;
(iii) In order to
determine the exact nature of the agreement signed between the parties, the
intent of the parties has to be construed by reading the agreement as a whole
in order to determine whether it is an agreement simpliciter for construction
or an agreement that also creates an interest for the builder in the property.
Where under a development agreement, the developer has an interest in land, it
would be difficult to hold that such an agreement is not capable of being
specifically enforced; and
(iv) A decree for
specific performance of a contract to build will be made if the following
conditions are fulfilled:
a) the work of
construction should be described in the contract in a sufficiently precise
manner in order for the court to determine the exact nature of the building or
work;
b) the plaintiff must
have a substantial interest in the performance of the contract and the interest
should be of such a nature that compensation in money for non-performance of
the contract is not an adequate relief; and
c) the defendant
should have, by virtue of the agreement, obtained possession of the whole or
any part of the land on which the building is to be constructed or other work
is to be executed.
23. The issue before this Court is whether
Section 14(3)(c)(iii) is a bar to a suit by a developer for specific
performance of a development agreement between himself and the owner of the
property. The condition under Section 14(3)(c)(iii) is that the defendant has,
by virtue of the agreement, obtained possession of the whole or any part of the
land on which the building is to be constructed or other work is to be
executed. If the rule of literal interpretation is adopted to interpret Section
14(3)(c)(iii), it would lead to a situation where a suit for specific
performance can only be instituted at the behest of the owner against a
developer, denying the benefit of the provision to the developer despite an
interest in the property having been created. This anomaly is created by the
use of the words “the defendant has, by virtue of the agreement, obtained
possession of the whole or any part of the land” in Section 14(3)(c)(iii).
Under a development agreement,
an interest in the property may have been created in favour of the developer.
If the developer is the plaintiff and the suit is against the owner, strictly
applied, clause (iii) would require that the defendant should have obtained
possession under the agreement. In such a case if the developer files a suit
for specific performance against the owner, and the owner is in possession of
the land by virtue of a lawful title, the defendant (i.e. the owner) cannot be
said to have obtained possession of the land by way of the agreement. This
would lead to an anomalous situation where the condition in Section
14(3)(c)(iii) would not be fulfilled in the case of a suit by a developer.
Application of the literal rule of interpretation to Section 14(3)(c)(iii), would
lead to an absurdity and would be inconsistent with the intent of the Act.
24. The conditions that should be present to
justify a departure from the plain words of any statute, have been elucidated
in Justice GP Singh’s treatise on Principles of Statutory Interpretation, Principles of
Statutory Interpretation, 12th Edition
- 2010, Lexis Nexis - page 144 (while discussing the
decision of the House of Lords in Stock v Frank Jones (Tipton) Ltd., (1978) 1 WLR 231):
“...a court would only be justified in
departing from the plain words of the statute when it is satisfied that (1)
there is clear and gross balance of anomaly; (2) Parliament, the legislative
promoters and the draftsman could not have envisaged such anomaly and could not
have been prepared to accept it in the interest of a supervening legislative
objective; (3) the anomaly can be obviated without detriment to such a
legislative objective; and (4) the language of the statute is susceptible of
the modification required to obviate the anomaly.”
The principle has
been also adverted to in Maxwell on Interpretation of Statutes, Maxwell,
Interpretation of Statutes, 11th Edition,
page 221 :
“Where the
language of a statute, in its ordinary meaning and grammatical
construction, leads to a manifest contradiction of the apparent purpose of the
enactment, or to some inconvenience or absurdity, hardship or injustice,
presumably not intended, a construction may be put upon it which modifies the
meaning of the words, and even the structure of the sentence.”
By giving a purposive
interpretation to Section 14(3)(c)(iii), the anomaly and absurdity created by
the third condition will have no applicability in a situation where the
developer who has an interest in the property, brings a suit for specific
performance against the owner. The developer will have to satisfy the two
conditions laid out in sub clause (i) and (ii) of Section 14(3)(c), for the
suit for specific performance to be maintainable against the owner. This will
ensure that both owners and developers can avail of the remedy of specific
performance under the Act. A suit for specific performance filed by the
developer would then be maintainable. Whether specific performance should in
the facts of a case be granted is a separate matter, bearing on the discretion
of the court.
25. Having dealt with the first aspect of
the matter, it is now necessary to determine whether, in the facts of the
present case, the agreement between the appellant and the respondent is capable
of specific performance. For this purpose,
it would be necessary to consider the terms and conditions of the agreement
between the parties.
26. The condition under Section 14(3)(c)(i)
is that the building or other work described in the contract is sufficiently
precise to enable the court to determine the exact nature of the building or
work. To examine the question as to whether the scope of the building or work
described in the agreement is sufficiently defined, the Court needs to
determine the exact nature of the work by referring to the relevant clauses of
the agreement. Clause 8 of the agreement provides that the building shall be
constructed in accordance with approved plans and built with “first class
materials” with wooden doors, mosaic floor, basin and lavatories, tap water
arrangement, masonry work, electric points, finished distemper and bath room
fittings of glazed tiles up to 6” height and lift, “etc.” Further, at
clause 13 of the agreement, the parties have agreed that the contractor would
construct a building at the premises consisting of “residential apartments
of various sizes and denomination” in the said building complex in
accordance with plans sanctioned by the Calcutta Municipal Corporation and the
owner shall convey the proportionate share in the land to the respective
buyers. Clause 22 of the agreement states that if for any reason after the plan
is sanctioned or “for any act or omission on the part of the owner” the
building cannot be constructed; the owner shall refund to the contractor ₹4,00,000/-
in addition to all costs, charges and expenses incurred by the contractor. At
clause 20 of the agreement, the parties have agreed that the apartments of the
owner shall be constructed and be made in “similar condition” as that of
the contractor with water connection, sewerage, electric wiring except “special
fittings”. Use of such vague terms in the agreement such as “first class
materials”, “residential apartment of various sizes and denomination”,
“etc.”, “similar condition”, and “special fittings”, while
discussing the scope of work clearly shows that the exact extent of work to be
carried out by the developer and the obligations of the parties, have not been
clearly brought out. Parties have not clearly defined, inter alia, the
nature of material to be used, the requirements of quality, structure of the
building, sizes of the flats and obligations of the owner after the plan is
sanctioned. Further, clause 9 of the agreement states that the owner shall pay
the contractor costs, expenses along with agreed remuneration only after
completion of the building on receiving the possession. However, the exact
amount of remuneration payable by the owner to the contractor is not to be
found in the agreement. The agreement between the parties is vague. The court
cannot determine the exact nature of the building or work. The first condition
in Section 14(3)(c)(i) is not fulfilled.
27. Another condition under Section
14(3)(c)(ii) is that the plaintiff has a substantial interest in the
performance of the contract and the interest is of such a nature that
compensation in money for non-performance of the contract is not an adequate
relief. The intent of the section is to make a distinction between cases where
a breach of an agreement can be remedied by means of compensation in terms of
money and those cases where no other remedy other than specific performance will afford adequate relief.
Therefore, before granting the remedy of specific performance, we need to analyse
the extent of the alleged harm or injury suffered by the developer and whether
compensation in money will suffice in order to make good the losses incurred
due to the alleged breach of the agreement by the owner. From the facts of the
case, it is clear that the case of the developer is that he incurred an
expenditure of ₹ 18,41,000/- towards clearing outstanding dues, security
deposit and development, incidental and miscellaneous expenses. The alleged
losses/damages incurred by the Plaintiff can be quantified. The plaintiff can
be provided recompense for the losses allegedly incurred by payment of adequate
compensation in the form of money. The developer has failed to satisfy the
conditions under sub-clause (i) and (ii) of Section 14(3)(c) of the Act. In
such a case, specific performance cannot be granted.
28. By the Specific Relief (Amendment) Act
2018, Act
18 of 2018 Section 14 has been amended to read as follows:
“14. The following contracts cannot be specifically
enforced, namely:—
(a) where a party to
the contract has obtained substituted performance of contract in accordance
with the provisions of section 20;
(b) a contract, the
performance of which involves the performance of a continuous duty which the
court cannot supervise;
(c) a contract which
is so dependent on the personal qualifications of the parties that the court
cannot enforce specific performance of its material terms; and
(d) a contract which
is in its nature determinable.”
However, the amended
section has been notified on 19 September 2018 and the central government has
appointed 1 October 2018 as the date on which the provision of Act 18 of 2018
will come into force, S.O.4888(E)
dated 19.09.2018. However, in the present case, we are not called upon to
examine the effect of this amended provision. In any case, we have indicated
the reasons why Section 14(3)(c) was not attracted.
29. The
appellants have relied on the decision of this Court in Her Highness
Maharani Shantidevi P Gaikwad v Savjibai Haribai Patel, AIR 2001 SC 1462 where
an agreement was entered into between the landowner and the developer for the
purpose of construction of houses for the weaker sections on excess vacant land
under a scheme sanctioned under Section 21 of the Urban Land (Ceiling and
Regulation) Act 1976. This Court reversed the decision of the High Court that
granted the decree of specific performance to the developer on the grounds that
it was inequitable to enforce specific performance in view of a change in the
Master Plan. The court noted that a contract which involved continuous
supervision of the court, was not specifically enforceable. Further, in the
opinion of the court, at best the plaintiff - builder could claim damages and
the expenditure incurred by him for the implementation of the terms of the
agreement. The above case has no applicability to the facts of the present case
and is of no relevance as the issue in relation to the maintainability of a
suit for specific performance by the builder against the owner has not been
discussed.
30. The appellant has also placed reliance
on the decision in Faqir Chand Gulati v Uppal Agencies Private
Limited, (2008)
10 SCC 345 where the issue before this Court was whether a landowner,
who enters into an agreement with the builder, for construction of an apartment
building is a “consumer” entitled to maintain a complaint against the builder
as a service provider under the Consumer Protection Act, 1986. The Court held:
“We may notice here that if there is a breach by the
landowner of his obligations, the builder will have to approach a civil
court as the landowner is not providing any service to the builder but merely
undertakes certain obligations towards the builder, breach of which would
furnish a cause of action for specific performance and/or damages. On the other
hand, where the builder commits breach of his obligations, the owner has two
options. He has the right to enforce specific performance and/or claim damages
by approaching the civil court. Or he can approach the Forum under Consumer
Protection Act, 1986 for relief as consumer, against the builder as a service-
provider.”
The issue involved
before this Court was in relation to the interpretation of the Consumer
Protection Act, 1986 and not on the maintainability of a suit filed by the
developer against the owner for specific performance in view of Section
14(3)(c) of the Act. Therefore, the decision cannot be relied upon in relation
to the issue before us.
31. Ordinarily, if there was an alternative
plea for damages or monetary relief, we would have remanded the case to the
High Court for consideration of the prayer. However, in the impugned judgment,
the Division Bench has observed thus:
“Although we find no
merit in this appeal, we wanted to give liberty to the plaintiff for amendment
of the plaint for the purpose of getting alternative relief by way of return of
security of money and damages, if at all suffered, in terms of Section 22 of
the Specific Relief Act; but Mr. Das, the learned Advocate appearing on behalf
of the appellant after taking instruction from his client submitted before us
that his client did not want to avail of such remedy and wanted to challenge
our decision by preferring an appeal if we decided to refuse the prayer for
specific performance of the contract. ”
The same statement
has been made before this Court, as was made before the High Court. In the
absence of any plea for damages or monetary relief by the respondents, there is
no reason to remit the appeal back to the High Court.
32. For the above reasons we find no merit
in this appeal. The appeal stands dismissed. There shall be no order as to
costs.
Comments
Post a Comment