JUDGMENT Sunil Ambwani, J.
1. Heard Shri V. Sahai, learned Counsel for the appellants and Shri Vishnu Gupta for the respondent. Learned Counsel for the respondent has waived the cross-objection.
2. This second appeal was allowed by this Court on 28.11.1996. The matter was taken to the Supreme Court in which Civil Appeal Nos. 868 and 869 of 2001 were allowed and the matter was remanded to this Court to be decided expeditiously.
3. Brief facts giving rise to this appeal are as below:
The plaintiff Shri Gopal filed a suit for specific performance of contract with the allegations that Shri Matru Mal, father of the defendants had agreed to sell his residential house for a sum of Rs. 9,500 for which he executed a written agreement dated 15.1.1972 and accepted Rs. 2,000 by way of earnest money, with the stipulation that out of this earnest money Rs. 1,000 will bear the interest at the rate of 2% per month to be taken into account at the time of execution of the sale deed. At the time of execution of the agreement late Matru Mal was not the owner of the property. He had sold it to Harish Chand son of Tejpal towards a loan of Rs. 4,000 after executing a sale deed with an agreement of re-purchase dated 13.2.1969. Late Matru Mal inserted a clause in the agreement stating that he required the money for getting his daughter Kunti Devi married and for that purpose he is taking Rs. 2,000 as earnest money from Shri Gopal. As soon as the suit for re-purchase of property is decreed against Harish Chand he shall pay Rs. 4,000 to him and executed the sale deed in favour of Shri Gopal, and if by that time Shri Gopal is not in a position to pay the remaining amount, the advance of Rs. 2,000 shall be forfeited. Shri Matru Mal succeeded in getting his suit decreed against Harish Chand. The plaintiff also filed a document from the office of the Registrar certifying that he had reached the office of the Registrar along with Rs. 5,760 but Matru Mal did not appear in spite of notice for executing the sale deed.
4. The trial court decreed the suit for specific performance of contract, and also found that interest at the rate of 2% on the amount of Rs. 1,000 was payable by the defendant and is liable to be taken into account to be adjusted in the sale consideration.
5. The Civil Appeal No. 508/80 arising out of Suit No.76/1979 was partly allowed on 15.7.1982 modifying the judgment and decree of the trial court to the extent that the plaintiff will not be entitled to adjust the amount of interest against the sale consideration. Aggrieved the defendants have filed this second appeal and the plaintiffs filed a cross-objection to the extent that the decree was modified.
6. The appeal was admitted on 26.8.1982 without framing any substantial question of law, though five substantial questions of law were part of the grounds of appeal.
7. On the submissions made by Shri V. Sahai I have framed the following questions of law, which arise for consideration of this case under the proviso of Section 100, C.P.C.:
(1) Whether the condition of payment of interest on earnest money vitiates the agreement to sale ;
(2) Whether the plaintiff has complied with Section 16(c) of the Specific Relief Act, 1963 ;
(3) Whether the court below had erred in law in exercising its discretion in decreeing the suit for specific performance of contract.
8. Shri V. Sahai submits that a plain reading of the agreement shows that loan agreement is for sale of the house. The document specifically provided that on date of execution late Matru Mal was not the owner of the property. He had filed the suit for repurchase from Shri Harish Chand and had agreed to sell the house only after he got a decree against Harish Chand. He was in need of money and received a sum of Rs. 2,000 as loan from Shri Gopal, which was agreed to be paid with interest at the rate of 4%, which was more conveniently described as 2% per month on Rs. 1,000. The very fact that the earnest money carried interest clearly suggest that this agreement was loan and not for sale of the house, which in any case not owned by late Matru Mal on the date of execution.
9. Shri Sahai has relied upon H.U.D.A. and Anr. v. Kewal Krishar Goel and Ors. , in which earnest money is defined in paragraphs 8, 9, 10 and 11, as follows:
The next question that arises for consideration is that, where the allottee accepts the allotment and indicates the same within the stipulated period and makes additional deposits on installment basis and thereafter intimates the authority that he will not be in a position to pay up the balance amount and makes a request for refund of the money deposited, would the authority be justified in forfeiting the earnest money which had been deposited along with the application form? The answer to this question depends upon the basic concept of 'earnest'. In the case of Shri Hanuman Cotton Mills and Ors. v. Tata Air Craft Limited 1969 (3) SCO 522, this Court laid down the following regarding 'earnest':
(1) It must be given at the moment at which the contract is concluded.
(2) It represents a guarantee that the contract will be fulfilled or, in other words, "earnest" is given to bind the contract.
(3) It is part of the purchase price when the transaction is carried out.
(4) It is forfeited when the transaction falls through by reason of the default or failure of the purchaser.
(5) Unless there is anything to the contrary in the terms of the contract, on default committed by the buyer, the seller is entitled to forfeit the earnest.
Wright, J. in the case of Farr, Smith and Co. v. Ltd., LR (1928) 1 KBD 397, quoted the observations of Hamilton, J., in Summer and Leivesley v. John Brown and Co. 25 Times LR 745, with regard to the meaning of 'earnest' as thus:
'Earnest'...meant something given for the purpose of binding a contract, something to be used to put pressure on the defaulter if he failed to carry out his part. If the contract went through, the thing given in earnest was returned to the giver, or, if money, was deducted from the price. If the contract went off through the giver's fault the thing given in earnest was forfeited.
The law on the subject has been discussed fully in a recent case of Delhi Development Authority v. Grishthapana Cooperative Group Housing Society Ltd. .
10. In the case at hand the terms of the agreement to sale are very clear. It was specifically agreed by late Matru Mal that as soon as he gets a decree he will sell the property in favour of Shri Gopal after receiving a sum of Rs. 4,000. The fact that earnest money carried interest did change the character of the earnest money and converts the transaction to a loan agreement. The agreement clearly suggested that it was possible that the suit may not be decreed and in that case the earnest money had to carry interest. Once this fact was accomplished before filing of the suit, the agreement could not be treated to be a loan agreement only on the ground that earnest money carried interest. All other ingredients of the earnest money namely that it was paid when the contract was concluded; it represented a guarantee, it was part of the purchase price and had to be forfeited in case the transaction fell through, were present in the agreement.
11. The discretion to award a decree for specific performance of contract is based on the facts and circumstances pleaded and proved on record. There is nothing to show that the house was residential and was in possession of the defendants or that it was the only property left by late Matru Mal. The area of the land on which the house was constructed, nature of construction, the measurement of the boundaries have not been given. There is nothing founded in the pleading or in the evidence that this was the only house left by late Matru Mal in favour of his children and thus the judgments in K. Narendra v. Riviera Apartments (P.) Ltd. 1999 (3) AWC 2.104 (SC) (NOC) : 2001 All CJ 828 ; Raghubir Singh and Ors. v. Sher Singh (Dead) through L.Rs. 2004 (3) AWC 2114 : (2004) 56 ALR 16 and (1996) 7 JT 499, have no application to the present case.
12. Coming to the last submission whether the provisions of Section 16(c) with regard to averments of readiness and willingness to perform the contract were complied with, I find that in paragraphs 7 and 8 of the plaint it is clearly stated that the plaintiff was ready and willing to perform his part of this contract. In paragraph 8, the plaintiff stated that he was ready to execute the sale deed and to get the sale deed executed at the time and to pay the expenses for such sale and that on 13.2.1979 he was present in the office of the Registrar, Chandausi but the defendant did not come, nor was prepared to execute the sale deed.
13. In Pukhraj D. Jain and Ors. v. G. Gopalakrishna , the Supreme Court has explained the decision with regard to the compliance of Section 16(c) of the Specific Relief Act. Paragraph 6 of the judgment is quoted as below:
Section 16(c) of the Specific Relief Act lays down that specific performance of a contract cannot be enforced in favour of a person who fails to aver and prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented or waived by the defendant. Explanation II to this sub-section provides that the plaintiff must aver performance of, or readiness and willingness to perform, the contract according to its true construction. The requirement of this provision is that plaintiff must aver that he has always been ready and willing to perform the additional terms of the contract.
Therefore not only there should be such an averment in the plaint but the surrounding circumstances must also indicate that the readiness and willingness continue from the date of the contract till the hearing of the suit. It is well-settled that equitable remedy of specific performance cannot be had on the basis of pleadings which do not contain averments of readiness and willingness of the plaintiff to perform his contract in terms of Forms 47 and 48 of C.P.C. Here the respondent No. 1 himself sent a legal . notice rescinding the contract and thereafter filed O.S. No. 801 of 1977 on 7.11.1977 claiming refund of the advance paid by him. In fact the suit for recovery of the amount was decreed by the trial court on 24.7.1985 but he himself preferred a revision against the decree wherein an order of rejection of the plaint was passed by the High Court. In such circumstances, it is absolutely apparent that the respondent No. 1 was not ready and willing to perform his part of the contract and in view of the mandate of Section 16 of the Specific Relief Act no decree for specific performance could be passed in his favour. The trial court, therefore, rightly held that the suit filed by respondent No. 1 was not maintainable.
14. I find that there is clear averment in paragraph 8 that the plaintiff has been ready and willing to perform the terms of the contract and there is sufficient evidence to indicate that he was present after notice dated 6.2.1979 in the office of the Registrar, Chandausi on 13.9.1979, with the balance sale consideration for execution of sale deed. In his statement also Shri Gopal P.W. 1 clearly stated that he is at all times ready to get the sale deed executed and is still ready for the same. There is as such sufficient averments in the pleading and attending circumstances that the plaintiff was all along ready and willing to perform the part of the contract. The fact that he was present along with only Rs. 5,760 instead of Rs. 7,500 stated in paragraph 11 (a) of the plaint does not change the effect of the averment inasmuch, as he was entitled to the interest on the earnest money and this was part of the stipulation in the agreement to sale, which was proved by the attesting witnesses.
15. No other ground was raised. The second appeal is, accordingly, dismissed.