# SUSHIL KUMAR AGARWAL v. MEENAKSHI SADHU & ORS

- **Citation:** [2018] 12 S.C.R. 756
- **Court:** Supreme Court of India
- **Decided:** 2018-10-09
- **Case number:** Civil Appeal No. 1129 of 2012
- **Bench:** A. M. Khanwilkar, Dr. D. Y. Chandrachud
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sushil-kumar-agarwal-v-meenakshi-sadhu-ors-32323
- **Pages:** 25

## Headnote

Specific Relief Act, 1963 - s.14(3)(c)(i) and (ii) - Specific
performance of contract under - Appellant-developer and
predecessor-in-interest of the respondents entered into a
development agreement for construction of a building on the land
of the respondents - Respondent denied execution of the agreement
- Appellant filed for specific performance of the contract against
the respondent - Held: The appellant-developer need to satisfy the
two conditions laid out in sub clause (i) and (ii) of s.14(3)(c), for
the suit for specific performance to be maintainable against the
owner - The clauses 8, 13, 20 and 22 of the agreement had not
clearly brought out, the exact extent of work to be carried out by
the developer and the obligation of the parties - Parties had not
clearly defined, inter alia, the nature of material to be used, the
requirements of quality, structure of building, sizes of flats and
obligations of the owner after the plan is sanctioned - Also, clause
9 of the agreement stated that the owner shall pay the contractor
costs, expenses along with agreed remuneration only after
completion of the building on receiving the possession - However,
exact amount of remuneration payable by the owner to the contractor
was not found in the agreement - Agreement between the parties
was vague, so the first condition in s.14(3)(c)(i) was not fulfilled -
Furthermore, the developer had incurred an expenditure of
Rs.18,41,000/- towards clearing outstanding dues, security deposit
and development, incidental and miscellaneous expenses - The
alleged losses/damages incurred by the plaintiff could be quantified
and recompensed with - Thus, developer had failed to satisfy the
conditions under sub-clause (i) and (ii) of s.14(3)(c) of the Act - In
such a case, specific performance could not be granted.
Specific Relief Act, 1963 - s.14(3)(c)(iii) - Interpretation of
- Held: Anomaly is created by the use of the words "the defendant
has, by virtue of the agreement, obtained possession of the whole
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or any part of the land" in s.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 the possession under the
agreement, however, the owner is in possession of the land by virtue
of the lawful title, the defendant-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
s.14(3)(c)(iii) would not be fulfilled in the case of a suit by a
developer - Thus, purposive interpretation has to be given to
s.14(3)(c)(iii), departing from the literal rule of interpretation - By
giving a purposive interpretation to s.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 - Interpretation of Statutes - Purposive
rule of Interpretation.
Appellant and predecessor-in-interest of the respondents
entered into a development agreement for construction of a
building on the land of the respondents. Respondent denied
execution of the agreement. Appellant filed a suit against the
respondent for specific performance of the contract. Trial Court
held that sanctioned plans of the proposed building was not
obtained by the appellant as per agreement and therefore, it could
not be said that he had obtained possession of the land, as a result
suit was barred by s.1

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[2018] 12 S.C.R.
SUSHIL KUMAR AGARWAL
v.
MEENAKSHI SADHU & ORS.
(Civil Appeal No. 1129 of 2012)
OCTOBER 09, 2018
[A. M. KHANWILKAR AND DR. D. Y. CHANDRACHUD, JJ.]
Specific Relief Act, 1963 - s.14(3)(c)(i) and (ii) - Specific
performance of contract under - Appellant-developer and
predecessor-in-interest of the respondents entered into a
development agreement for construction of a building on the land
of the respondents - Respondent denied execution of the agreement
- Appellant filed for specific performance of the contract against
the respondent - Held: The appellant-developer need to satisfy the
two conditions laid out in sub clause (i) and (ii) of s.14(3)(c), for
the suit for specific performance to be maintainable against the
owner - The clauses 8, 13, 20 and 22 of the agreement had not
clearly brought out, the exact extent of work to be carried out by
the developer and the obligation of the parties - Parties had not
clearly defined, inter alia, the nature of material to be used, the
requirements of quality, structure of building, sizes of flats and
obligations of the owner after the plan is sanctioned - Also, clause
9 of the agreement stated that the owner shall pay the contractor
costs, expenses along with agreed remuneration only after
completion of the building on receiving the possession - However,
exact amount of remuneration payable by the owner to the contractor
was not found in the agreement - Agreement between the parties
was vague, so the first condition in s.14(3)(c)(i) was not fulfilled -
Furthermore, the developer had incurred an expenditure of
Rs.18,41,000/- towards clearing outstanding dues, security deposit
and development, incidental and miscellaneous expenses - The
alleged losses/damages incurred by the plaintiff could be quantified
and recompensed with - Thus, developer had failed to satisfy the
conditions under sub-clause (i) and (ii) of s.14(3)(c) of the Act - In
such a case, specific performance could not be granted.
Specific Relief Act, 1963 - s.14(3)(c)(iii) - Interpretation of
- Held: Anomaly is created by the use of the words "the defendant
has, by virtue of the agreement, obtained possession of the whole
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or any part of the land" in s.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 the possession under the
agreement, however, the owner is in possession of the land by virtue
of the lawful title, the defendant-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
s.14(3)(c)(iii) would not be fulfilled in the case of a suit by a
developer - Thus, purposive interpretation has to be given to
s.14(3)(c)(iii), departing from the literal rule of interpretation - By
giving a purposive interpretation to s.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 - Interpretation of Statutes - Purposive
rule of Interpretation.
Appellant and predecessor-in-interest of the respondents
entered into a development agreement for construction of a
building on the land of the respondents. Respondent denied
execution of the agreement. Appellant filed a suit against the
respondent for specific performance of the contract. Trial Court
held that sanctioned plans of the proposed building was not
obtained by the appellant as per agreement and therefore, it could
not be said that he had obtained possession of the land, as a result
suit was barred by s.14(3)(c). Appeal was dismissed by the High
Court. Thus, the present appeal.
Dismissing the appeal, the Court
HELD: 1. The issue before this Court is whether Section
14(3)(c)(iii) of Specific Relief Act, 1963 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
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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. [Para 23] [775-C-H]
2. 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. [Para 24] [776-E-G]
3. It is necessary to determine whether, in the facts of the
present case, the agreement between the appellant and the
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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. The condition under
Section14(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. 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
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 1 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
SUSHIL KUMAR AGARWAL v. MEENAKSHI SADHU & ORS.
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the building or work. The first condition in Section 14(3)(c)(i) is
not fulfilled. [Paras 25 and 26] [777-A-H; 778-A-B]
4. 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, there is a need to analyze 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. [Para 27] [778-B-E]
Vipin Bhimani v. Smt Sunanda Das (2006) 2 CHN 396;
B Gangadhar v BG Rajalingam (1995) 5 SCC 239;
Swadesh Ranjan Sinha v Haradeb Banerjee (1991) 4
SCC 572 : [1991] 1 Suppl. SCR 245 ; Chheda Housing
Development Corporation v Bibijan Shaikh Farid
(2007) 3 Mah LJ 402; Della Developers Private Limited
v Noble Organics Private Limited (2010) 2 Bom CR
13; Ashok Kumar Jaiswal v Ashim Kumar Kar AIR
2014 Cal 92; Her Highness Maharani Shantidevi
P Gaikwad v Savjibai Haribai Patel AIR 2001 SC
1462 : [2001] 2 SCR 590 ; Faqir Chand Gulati v Uppal
Agencies Private Limited (2008) 10 SCC 345 : [2008]
10 SCR 697 - referred to.
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Wolverhampton Corporation v. Emmons [1901] 1 K. B.
515; Carpenters Estate v. Davies (1940) Ch. D 160;
Price v Strange [1978] 1 Ch. 337; Stock v Frank Jones
(Tipton) Ltd. (1978) 1 WLR 231 - referred to.
Halsbury's Laws of England, Fourth Edition, Volume
44(1); Hudson's Building and Engineering Contracts,
Eleventh Edition, Volume 1; Principles of Statutory
Interpretation, 12th Edition - 2010, Lexis Nexis - page
144 and Maxwell, Interpretation of Statutes, 11th
Edition - referred to.
Case Law Reference
(2006) 2 CHN 396
referred to
Para 7
(1995) 5 SCC 239
referred to
Para 17
[1991] 1 Suppl. SCR 245
referred to
Para 17
(2007) 3 Mah LJ 402
referred to
Para 18
(2010) 2 Bom CR 13
referred to
Para 19
AIR 2014 Cal 92
referred to
Para 20
[2001] 2 SCR 590
referred to
Para 29
[2008] 10 SCR 697
referred to
Para 30
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1129
of 2012
From the Judgment and Order dated 18.02.2009 of the High
Court at Calcutta in F.A. No. 175 of 2007.
Rana Mukherjee, Sr. Adv., Ms. Daisy Hannah, Ms. Ekta Pradhan,
Shekhar Kumar, Advs. for the appellant.
Bhaskar P. Gupta, Sr. Adv., Prateek Jalan, Rauf Rahim, Rahul
Kripalani, Ankit Yadav, Advs. for the respondents.
The Judgment of the Court was delivered by
DR. D. Y. CHANDRACHUD, J. 1. The present appeal1 is from
the judgment of a DivisionBench of the High Court of Calcutta2. The
1 Leave was granted on 12 January 2012.
2 The High Court delivered judgment on 18 February 2009.
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appellant, who is a builder, instituted a suit for specific performance of a
development agreement, against therespondents, 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)3
in respect of premises situated at 243N, Acharya Prafulla Chandra Road,
P.S. Burtolla, Kolkata - 700006.Theagreement recites that the
ownershad approached the appellant for construction of a building on
the land and that the following terms, interalia, 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 1
4,00,000/-without interest which shall be refundable upon the
completion of the building (Clause-3of 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(Clause22of the agreement);
e)
The respondent shall retain 42% of the total constructed area as
'soleowned' 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
3 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.
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pay, the appellant was entitled to realise its money by selling
58% of the total constructed area (Clauses - 6, 10 and 11of
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 -24of the
agreement).
3. The appellant alleged that upon the execution of the agreement,
he found that the premises wereencumbered 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 1
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 2003cancelled the agreement and requested the appellant to return
all documents and collect the deposit.
6. On 6 August 2003, the appellant instituted a suit4 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
4 TS No.1150/03
SUSHIL KUMAR AGARWAL v. MEENAKSHI SADHU & ORS.
[DR. D. Y. CHANDRACHUD, J.]
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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 Benchof
the High Court of Calcutta in Vipin BhimanivSmtSunanda Das5, 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 plansof the proposed building approved. The
City Civil Court noted that it was an admitted fact that sanctionwasnot
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 appeal6 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."
5 (2006) 2 CHN 396
6 F.A. No. 175 of 2007
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9. The High Court also rejected the argument of the appellant
that the agreement in question was not a contract for construction of
buildingon 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
SUSHIL KUMAR AGARWAL v. MEENAKSHI SADHU & ORS.
[DR. D. Y. CHANDRACHUD, J.]
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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."
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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
descriptionwill 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 England7,the discretion to grant specific performanceis 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 England8 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 Emmons9, 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
7 Halsbury's Laws of England, Fourth Edition, Volume 44(1), para 801
8 Halsbury's Laws of England, Fourth Edition, Volume 44(1), para 806
9 [1901] 1 K. B. 515
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plaintiffs brought asuit 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 Davies10, 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 Contracts11 and in Price v Strange12, 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;
10 (1940) Ch. D 160
11 Hudson's Building and Engineering Contracts, Eleventh Edition, Volume 1, page 677
12 [1978] 1 Ch. 337 at page 359
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(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)
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;
(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;
(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;
(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
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(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
otherspecies 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
toit. (B Gangadhar v BG Rajalingam13). Ownership denotes the
relationshipbetween 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 Banerjee14).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
13 (1995) 5 SCC 239 at para 6
14 (1991) 4 SCC 572
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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 agreementis 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 vBibijan
Shaikh Farid15, 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
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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 Limited16,
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 AM 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. InAshok Kumar Jaiswal vAshim Kumar Kar17, 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
16 (2010) 2 Bom CR 13
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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 propertywhich 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.