Is Unilateral Termination Of Agreement To Sell By One Party Permissible?: Supreme Court Explains

The Supreme Court has explained certain principles with respect to the unilateral termination of an agreement to sell.

The Court was hearing Civil Appeals filed against the Judgment of the Karnataka High Court, which allowed Appeals of the vendees and set aside the Trial Court’s Judgment and Decree.

The two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan took note of the following principles of law –

(i) Unilateral termination of the agreement to sell by one party is impermissible in law except in cases where the agreement itself is determinable in nature in terms of Section 14 of the Act of 1963;

(ii) If such unilateral termination of a non-determinable agreement to sell is permitted as a defence, then virtually every suit for specific performance can be frustrated by the defendant by placing an unfair burden on the plaintiff, who despite performing his part of the obligations and having showcased readiness and willingness, would require to also seek a separate declaration that the termination was bad in law. In such cases, the burden cannot be casted upon the plaintiff to challenge the alleged termination of agreement;

(iii) Where a party claims to have valid reasons to terminate or rescind a non-determinable agreement to sell, with a view to err on the side of caution, it should be such terminating party, if at all, who ideally should approach the court and obtain a declaration as to the validity of such termination or rescission, and not the non-terminating party. However, this must not mean that the defendant (the terminating party) in such cases would mandatorily be required to seek a declaration because Sections 27 and 31 of the Act of 1963 respectively, while using the phrase “may sue” merely give an option to any person to have the contract rescinded or adjudged as void or voidable;

(iv) Once the alleged termination of a non-determinable agreement in question is found to be not for bona fide reasons and being done in a unilateral manner on part of the defendant, it cannot be said that any declaration challenging the alleged termination was required on part of plaintiff;

(v) If a contract itself gives no right to unilaterally terminate the contract, or such right has been waived, and a party still terminates the contract unilaterally then that termination would amount to a breach by repudiation, and the non terminating party can directly seek specific performance without first seeking a declaration; and

(vi) In the event it is found that the termination of agreement to sell by the defendant was not valid, then such an agreement to sell will remain subsisting and executable.

Senior Advocates Aditya Sondhi and Joseph Aristotle S. appeared for the Appellants, while Senior Advocate Devadatt Kamat appeared for the Respondents.

Facts of the Case

In 2000, the original vendors executed an unregistered Agreement to Sell (ATS) in favour of original vendees in respect of an agricultural land for a total sale consideration of Rs. 26,95,501/- out of which the original vendees paid an amount of Rs. 2,00,000/- as earnest money to the original vendors. It was agreed that an additional amount of Rs. 5,00,000/- would be paid by the original vendees to the original vendors at the time of registration of the ATS and the balance sale amount would be paid at the time of registration of the sale deed. It was also agreed that the original vendees would execute the sale deed within two months of the original vendors, informing them about the change of subject land from new tenure to old tenure in the record of rights, surveying, measuring, fixing the boundaries of subject land and shifting 19 tenants residing on the subject land to one particular place.

Between the years 2000 and 2001, the original vendees paid some further amount to the original vendors, in all aggregating to Rs. 8,12,500/-. Thereafter, the nephew of the vendors instituted a suit against the vendors, seeking partition and possession of certain properties including the subject land, to which vendees were not parties. An Order of status quo was passed by the Principal Senior Civil Judge and the vendees took steps to enforce their rights under ATS and sought to implead themselves as parties in the said suit. Their impleadment application was rejected and being aggrieved, they went to the High Court. However, their Writ Petition was dismissed. Subsequently, the vendors sent a legal notice to the vendees, thereby terminating the ATS. The Trial Court dismissed the suit as being withdrawn and the vendors executed the sale deeds in favour of subsequent purchasers. The vendees instituted a suit and being dissatisfied with the Trial Court’s Judgment, they filed Appeals, which were allowed. Hence, the case was before the Apex Court.

Reasoning

The Supreme Court after hearing the contentions of the counsel, observed, “The language of the termination notice itself discloses the unilateral and self-serving character of the so-called termination. A bare reading of the notice of termination shows that the original vendors had stated therein that due to the status quo order in effect and the death of one of the original vendors, they were “unable to execute a regular sale deed in respect of land in question” and that they “cannot wait for an indefinite period”. Thus, the original vendors cited their own inability to execute a sale deed in view of the status quo order operating in the Original Suit No. 30 of 2001 and the death of one of the original vendors. Such grounds, as already discussed, were matters of inconvenience very much personal to the original vendors and not the breaches attributable to the original vendees.”

The Court said that the subsequent purchasers, upon a bare reading of the notice of termination, ought to have made inquiries to ascertain whether the original vendees had challenged the factum of termination by any subsequent communication.

“This was all the more necessary because the language employed by the original vendors in the notice of termination itself clearly gave away that what was being asserted was not a termination arising out of any breach or default attributable to the original vendees but rather a unilateral act grounded in the original vendors’ own inability and inconvenience”, it added.

The Court reiterated that a subsequent purchaser who relies merely on the assertions of the vendor or who chooses to remain content with his own limited knowledge while consciously abstaining from making further inquiry into the subsisting interests in the property cannot escape the consequences of deemed notice.

“Equity ought not assist a transferee who deliberately avoids the truth that lies open to discovery. Thus, a purchaser who has before him a document which on its very face shows the termination to be unilateral and rooted in the vendors’ inconvenience cannot by shutting his eyes claim the benefit of “good faith”. … Even more significant is the fact that the subsequent purchasers had sufficient means to unearth the prudent queries as the same notice of termination that subsequent purchasers have gone through provided all means to them to contact the original vendees. This is because the notice of termination itself provided the names and addresses of all the original vendees”, it noted.

The Court remarked that the subsequent purchasers had in their hands the most direct and reliable means of verifying the truth of the assertions made by the original vendors and they could, with little effort, have contacted the original vendees to ascertain whether the ATS had indeed been terminated or whether any amount had been refunded.

“Their deliberate abstention from this inquiry despite having the means readily available cannot be dismissed as mere oversight. It would constitute in the words of Sir James Wigram VC “designed abstention for the very purpose of avoiding notice”, it further said.

Conclusion

The Court also observed that there is no good reason to re-examine the question of limitation at this stage and that the Trial Court, while deciding the issues as framed had specifically considered whether the suit for specific performance instituted by the original vendees was barred by limitation and upon a detailed assessment returned a finding that the suit was well within the prescribed period.

“Significantly, when the subsequent purchasers carried the matter in appeal before the High Court, no ground of challenge was raised against the said finding. The subsequent purchasers, having consciously chosen not to assail the finding on limitation, must be deemed to have acquiesced therein. Once the finding of the Trial Court on the question of limitation attained finality, re-agitation of the same before this Court ought not be entertained. Accordingly, we hold that the issue of limitation raised by the subsequent purchasers is untenable and stands concluded against them”, it concluded.

Accordingly, the Apex Court dismissed the Appeals and directed the Appellants to execute a sale deed in favour of the Respondents.

Cause Title- K.S. Manjunath and Others v. Moorasavirappa @ Muttanna Chennappa Batil, since deceased by his LRs and Others (Neutral Citation: 2025 INSC 1298)

Appearance:

Appellants: Senior Advocates Aditya Sondhi, Joseph Aristotle S., AOR Priya Aristotle, Advocates Naveen Nagarjuna, Maeen Mavara M, Anubhav Kumar, and B. Lekshmi.

Respondents: Senior Advocate Devadatt Kamat, AORs Supreeta Sharanagouda, Nishanth Patil, Advocates Sharanagouda Patil, Yash S Tiwari, Rohit Sharma, Bhumi Agrawal, Harsh Pandey, Awanish Gupta, Abhishek Gupta, and Arijit Dey.

Click here to read/download the Judgment