Buyers Must Prove They Are Ready To Complete Property Deals, Says Supreme Court

The Supreme Court has held that a valid agreement to sell does not automatically entitle a purchaser to specific performance. The court said buyers must continuously demonstrate their readiness and willingness to fulfil their contractual obligations from the date of the agreement until the decree.

Continuous Readiness Must Be Proven

According to a news report by LiveLaw, the ruling came while allowing an appeal against a Madras High Court order directing specific performance of a 2004 agreement to sell. The Supreme Court restored the trial court’s decision refusing the relief and ordered a refund of the advance with interest.

The dispute involved an April 1, 2004 agreement to sell a property in Udhagamandalam for Rs 2.25 crore. The purchasers had paid Rs 85 lakh as advance. The trial court declined to order the sale, but the High Court later directed execution of the sale deed.

Funds Produced Years Later Not Enough

The Court rejected the purchasers' reliance on a demand draft for Rs 1.40 crore produced during the appellate proceedings in 2011. It said the availability of funds had to be demonstrated continuously from the time of the agreement until the decree.

The court observed that the property purchasers had to establish both their financial capacity and willingness to perform their part of the contract at all relevant stages. Merely producing funds several years after the agreement could not prove continuous financial readiness.

The court also noted that two cheques issued towards the sale consideration, for Rs 25 lakh and Rs 5 lakh, were dishonoured because of insufficient funds. It further found that the purchasers sold their Chennai properties only in May 2006, after filing the suit in September 2005.

The Memorandum of Understanding (MoU) cited by the purchasers to show their ability to raise funds was also not mentioned in their legal notice or plaint. The court said it did not establish that the purchasers had actually received the money.

Two-Decade Delay Also Considered

The court also referred to the purchasers’ conduct, including a criminal complaint seeking recovery of the advance while pursuing specific performance in the civil suit. It noted inconsistent positions regarding assignment of contractual rights to a third party.

The court said more than two decades had passed since the agreement, which was another factor against granting specific performance. It also noted the advanced age of the property owner and the death of one purchaser. The trial court's order directing refund of Rs 85 lakh with interest was restored. The purchasers were also allowed to withdraw the Rs 1.40 crore deposited under the High Court’s order, along with accrued interest.