Specific Performance of Reconveyance Agreement Denied: Supreme Court Reinstates Trial Court Judgment

The Supreme Court of India, in its judgment dated 07 February 2020, addressed a dispute regarding the specific performance of an agreement for reconveyance of property. The case involved claims of a nominal sale deed, an alternative request for the reconveyance of property, and questions regarding the readiness and willingness of the plaintiff to perform his contractual obligations. The apex court ultimately ruled in favor of the defendants, reinstating the trial court’s decision and setting aside the judgment of the High Court of Karnataka.

Background of the Case

The dispute originated from a suit filed by A.S.C. Murthy (now deceased and represented by his legal heirs) against the defendants, including C.S. Venkatesh, seeking specific performance of an agreement for reconveyance dated 23 April 1975 or, alternatively, a declaration that the sale deed executed on the same date was null and void. The property in question was Site No. 522, 17th Main, Banashankari, Bangalore.

The plaintiff claimed that he initially obtained the property from the City Improvement Trust Board (CITB), Bangalore, and commenced construction. Due to financial difficulties, he borrowed Rs. 2,000 from the defendants, followed by additional advances totaling Rs. 29,000. To secure the debt, a mortgage deed was executed on 11 October 1973. Eventually, a sale deed was executed on 23 April 1975 for Rs. 35,000, but the plaintiff alleged it was a nominal document executed as security for the loan, with an agreement for reconveyance in place.

When the plaintiff later sought to enforce the reconveyance agreement, the defendants refused, leading to the filing of the suit.

Defendants’ Stand

The defendants contended that:

The transaction was an outright sale and not a mortgage.
The plaintiff had failed to pay off the loans and had even defaulted on earlier debts, which the defendants had settled on his behalf.
The agreement for reconveyance was never intended to be acted upon.
The plaintiff was neither ready nor willing to perform his obligations under the contract.

Trial Court’s Judgment

The trial court held that:

The plaintiff had proven the execution of the agreement for reconveyance but failed to establish that the sale deed was nominal.
The plaintiff failed to demonstrate readiness and willingness to perform his obligations under the agreement.
The suit was dismissed.

High Court’s Ruling

The Karnataka High Court reversed the trial court’s decision, holding that:

The sale deed was executed as security for the loan and was not a genuine sale.
The agreement for reconveyance should be enforced.
The defendants were directed to execute a reconveyance deed in favor of the plaintiff.

Supreme Court’s Analysis

The Supreme Court carefully examined the evidence, legal principles, and precedents before arriving at its decision. The key observations made by the Court were:

1. The Sale Deed Was an Outright Sale

The Court analyzed the language and clauses of the sale deed and concluded that it was an outright sale and not a security for a loan. The document clearly transferred ownership, including all rights, easements, and possession, without any mention of conditions.

The Court stated:

“The language employed in the sale deed is plain and unambiguous, and the intention of the parties is also very clear from its recitals. A careful perusal of all clauses of the sale deed and the evidence on record would clearly show that the intention of the parties was to make the transaction a sale.”

2. Section 16(c) of the Specific Relief Act – Readiness and Willingness

The Supreme Court reiterated that in a suit for specific performance, the plaintiff must plead and prove his readiness and willingness to perform his obligations under the contract, as required by Section 16(c) of the Specific Relief Act.

The Court held:

“The words ‘ready and willing’ imply that the plaintiff was prepared to carry out his part of the contract to its logical end. If the plaintiff fails to either aver or prove the same, he must fail.”

The Court noted that the plaintiff had no financial means to pay the consideration and had even applied for relief under the Karnataka Debt Relief Act, seeking exemption from payment. This clearly indicated a lack of readiness.

3. Conduct of the Plaintiff

The Court examined the conduct of the plaintiff and found that:

The plaintiff had defaulted on his loan repayments, requiring the defendants to settle his previous debts.
The plaintiff had sought relief under debt relief laws instead of attempting to pay the consideration.
The plaintiff denied the obligation to pay interest, which contradicted the reconveyance agreement.

The Court held that these factors showed the plaintiff’s unwillingness to perform the contract.

4. Legal Precedents

The Court cited various precedents, including N.P. Thirugnanam v. Dr. R. Jagan Mohan Rao, which held that readiness and willingness must be proved through conduct and financial capability, not just through pleadings.

The Court also cited Umabai v. Nilkanth Dhondiba Chavan, where it was held that a plaintiff’s claim for reconveyance fails if their conduct shows an intention to avoid payment.

Supreme Court’s Ruling

Based on its findings, the Supreme Court ruled as follows:

The High Court erred in treating the sale deed as a nominal document.
The plaintiff failed to prove readiness and willingness to perform the contract.
The High Court’s decision was set aside, and the trial court’s judgment was reinstated.
The plaintiff’s claim for reconveyance was dismissed.

Conclusion

The Supreme Court’s judgment reaffirmed key principles in contract law and specific performance claims. It emphasized that:

Sale deeds executed with clear and unambiguous terms cannot be invalidated based on oral assertions of contrary intent.
Specific performance requires strict compliance with Section 16(c) of the Specific Relief Act, including proof of financial capability.
Courts must consider the conduct of the parties and surrounding circumstances when assessing readiness and willingness.

By reinstating the trial court’s decision, the Supreme Court ensured that contractual obligations are enforced fairly, preventing misuse of reconveyance agreements to evade financial commitments.

Petitioner Name: C.S. Venkatesh.
Respondent Name: A.S.C. Murthy (Deceased) by LRs. & Ors..
Judgment By: Justice S. Abdul Nazeer, Justice Deepak Gupta.
Place Of Incident: Bangalore, Karnataka.
Judgment Date: 07-02-2020.

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