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CASE NO.: Appeal (civil)  853 of 2007

PETITIONER: Thiriveedhi Channaiah

RESPONDENT: Gudipudi Venkata Subba Rao (D) by Lrs. & Ors

DATE OF JUDGMENT: 20/02/2007

BENCH: S.B. Sinha & Markndey Katju

JUDGMENT: J U D G M E N T (Arising out of SLP (C) No.  24297 of 2005)  S.B. SINHA, J.         Leave granted.

       This appeal is directed against the judgment and order dated  22.07.2005 passed by a learned Single Judge of the High Court of Judicature  at Andhra Pradesh in First Appeal No. 2692 of 1988 whereby and  whereunder the appeal preferred by the respondents herein from a judgment  and decree dated 28.11.1998 passed by the Additional Subordinate Judge,  Guntur in O.S. No. 258 of 1984 decreeing the suit for specific performance  of an agreement of sale dated 19.07.1981 was allowed.    

       The basic fact of the matter is not in dispute.  An Agreement of Sale  was entered into by and between the parties on 19.07.1981, in terms whereof  the respondent offered to sell the suit property admeasuring 2.96 cents out of  11.82 cents for Rs.44,000/- per acre in D. No. 140 situate at Agatavareppadu  Village in the District of  Guntur.  Appellant advanced a sum of Rs. 50,000/-  towards part payment of the said consideration.   The balance amount of  consideration was to be paid on or before 25.02.1982 whereupon a regular  sale deed was to be executed.   On the said date, however, another agreement  was entered into by the parties in terms whereof it was agreed that on default  of the appellant to pay the balance of sale consideration on or before  25.02.1982, the said amount of advnace shall be forfeited.

       However, before the Deed of Sale could be executed, a notification  under Section 4 (1) of the Land Acquisition Act, 1894 (for short, ’the Act’)  was issued. Legality of the said notification was questioned by the  respondent by filing a Writ Petition before the High Court of Andhra  Pradesh which was marked as Writ Petition No. 434/1982.  A suit was also  filed by him for a decree for permanent injunction restraining the State of  Andhra Pradesh from interfering with his possession.

       In view of the aforementioned developments, the appellant herein by a  notice requested the respondent to refund the said sum of Rs. 50,000/- with  interest at the rate of 18 per cent  per annum as he was not informed about  the said land acquisition proceeding.  However, in reply thereto, the  respondent contended that as he has failed and/or neglected to pay the  balance amount, the money stand forfeited in terms of the said agreement  dated 19.07.1981.  The suit filed by the appellant herein, was allowed by a  judgment and order dated 28.11.1998,  holding :

       "In the result, the suit is decreed with costs for  specific performance of contract of sale dated 19.07.1981  directing the defendant to execute the registered sale  deed in favour of the plaintiff in respect of the plaint  schedule property after receiving the balance of sale  consideration.  It was also directed that the balance of  sale consideration shall be deposited on or before

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31.1.1989 and that the defendant shall execute the sale  deed on or before 28.2.1989.  Failure to execute the sale  deed by the defendant on or before 28.2.1989 the plaintiff  is at liberty to obtain the sale deed from the Court."     

       The said decree was passed having regard to the fact that in the  meanwhile, the High Court had quashed the aforementioned notification  issued by the State under Section 4(1) of the Act by a judgment and order  dated 18.02.1986.  By reason of the said judgment the contention of the  respondent herein that in view of the issuance of the said notification, the  contract between the parties stood frustrated, was rejected.    

       The High Court, however, reversed the said judgment and decree  passed by reason of the impugned judgment opining :

i)      The appellant was not ready and willing to perform his part of  contract;   ii)      He was aware of the proceedings under the Act; iii)    Issuance of mere notification would not lead to the conclusion  that the contract had become frustrated; and iv)     In the aforementioned situation, forfeiture of the advance  money was justified.

       This Court issued a limited notice to the respondent as to why the  amount of earnest money/advance should not be directed to be refunded to  the appellant.

       Execution of the Agreement of Sale on 19.7.1981 is not in dispute.     However, the same did not contain  any stipulation in regard to the  right of  the respondent to forfeit the amount of advance.  Such stipulation was made  in a separate document which reads as under:-

"You executed an agreement of sale on 19.7.1981 in my  favour to sell land admeasuring 2.9 acres for a  consideration of Rs. 44,000/- per acre and today I paid  Rs. 50,000/- as advance.  If I failed to pay the balance of  consideration before 25.02.1982 there is no need to  refund my advance amount.   Before the above said date,  if I pay the balance of consideration, I will get the sale  deed on my own expenses.  On my consent if I sold  partly, I would get the registration accordingly."

       Notification under Section 4(1) of the Act was issued on 02.01.1982.  Appellant evidently was of the view that the respondent was aware of the  intention of the State to acquire the said property, but despite his knowledge,  he executed the said Agreement for Sale.

       The notice dated 4.3.1983 was issued on behalf of the appellant on the  said premise that the respondent did not have any transferable title.   It was  on that basis refund of  Rs. 50,000/-, which was paid by way of advance,  was sought for from the respondent.   It is only at that stage, the respondent  invoked the forfeiture clause.

       The only question which arises for our consideration is as to whether  in a situation of this nature, the respondent could exercise his right of  forfeiture of the entire amount.   It is not his case that he had suffered any  damage.   He did not deny or dispute that after the Agreement of Sale was  executed, a notification under Section 4(1) of the Act had been issued.   He  himself raised a contention that the Agreement stood frustrated.   It may be  true that he not only questioned the validity of the said notification, but had  also filed a suit, but indisputably the parties were aware that unless and until,  the notification was set aside, the Agreement for Sale, in the aforementioned  situation,  cannot be enforced by either of them.  

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       In the aforementioned facts and circumstances of this case, we are of  the opinion that the respondent could not have forfeited the amount of  advance.  The High Court, in our opinion, committed a manifest error in that  behalf in arriving at the finding that the respondent was justified in forfeiting  the said amount.  We, however, agree with the High Court that enforcement  of  agreement for sale would be inequitable.   

       We, therefore, direct that respondents to refund the amount of advance  paid by the appellant to him.  Such payment should be made within a period  of 4 weeks from date;  failing which the same would carry interest at the rate  of 12 per cent per annum from the said date till the date of actual payment.   

       The appeal is allowed to the aforementioned extent. However, in the  facts and circumstances of this case, there shall be no order as to costs.