Refund Of Earnest Money In Specific Performance Suit Cannot Be Granted Without Specific Prayer U/S 22 Specific Relief Act: Delhi High Court

The High Court held that the Trial Court cannot order a refund of earnest money merely to work out equities after refusing specific performance, unless such refund has been specifically claimed in the plaint or by amendment.

Update: 2026-07-20 08:30 GMT

Justice Neena Bansal Krishna, Delhi High Court

The Delhi High Court has held that refund of earnest money in a suit for specific performance is a statutory relief governed by Section 22 of the Specific Relief Act, 1963, and cannot be granted merely on equitable considerations unless it has been specifically claimed.

The Court set aside a trial court direction requiring a refund of Rs. 17 lakh with interest, holding that the plaintiff had neither sought such relief in the plaint nor amended the plaint to include it.

The Court was hearing a regular first appeal filed by the defendant against a decree by which the trial court had dismissed the suit for specific performance and permanent injunction, but nevertheless directed refund of the amount received under the agreement along with pendente lite and future interest at 8% per annum.

A Bench of Justice Neena Bansal Krishna, while holding that equitable discretion cannot override the statutory requirement under Section 22, observed that “The exercise of equitable discretion by the learned Trial Court, however respectable the motivation, could not travel beyond the statutory boundaries within which such discretion has been confined. The relief of refund of earnest money in a Suit for Specific Performance is not an unstructured equitable relief; it is a statutory relief governed by Section 22 of the Specific Relief Act, 1963. The refund cannot be granted unless specifically claimed.”

Advocate Anshuman Upadhyay appeared for the appellant, while Advocate Arun Sharma appeared for the respondent.

Background

The plaintiff had filed a suit seeking specific performance of an agreement to sell and a permanent injunction restraining alienation of the suit property. The plaintiff claimed that he had paid advance money under the transaction and had remained ready and willing to perform his part of the agreement.

The defendant contested the suit and argued that the plaintiff had failed to pay the balance of the sale consideration within the agreed time. The defendant also raised objections on limitation, stamping and registration, and pleaded that the agreement itself provided for forfeiture of the advance amount in case of default by the purchaser.

The trial court dismissed the relief of specific performance after finding that the plaintiff had failed to establish continuous readiness and willingness. It also declined a permanent injunction. However, noting that receipt of Rs. 17 lakh was admitted, the trial court directed a refund of that amount with interest, even though the plaint contained no specific or alternative prayer for refund.

In appeal, the defendant argued that once specific performance was refused and no refund had been claimed, the trial court could not grant a refund merely on equitable grounds. The plaintiff defended the decree by relying on broad equitable considerations and the court’s general powers under the Code of Civil Procedure.

Court’s Observations

The High Court began by identifying the principal issue: whether a court, after declining specific performance, could still direct the refund of earnest money despite the absence of a specific prayer in the plaint. It noted that the plaintiff had sought only specific performance and a permanent injunction. There was no alternative prayer for a refund, and no amendment was sought at any stage.

The Court held that Section 22 of the Specific Relief Act squarely governs such relief. The provision enables a plaintiff in a specific performance suit to ask for possession, partition, separate possession, or refund of earnest money or deposit where specific performance is refused. But Section 22(2) places a clear condition: such relief cannot be granted unless specifically claimed.

The Court noted: “Section 22(2), however, imposes an unequivocal bar: no such relief shall be granted unless it has been specifically claimed. The proviso, while permitting amendment of the Plaint at any stage of the proceeding to incorporate such a claim, does not dispense with the requirement of a specific prayer; it merely provides a procedural window for the Plaintiff to seek amendment.”

Relying on Desh Raj v. Rohtash Singh (2023) and K.R. Suresh v. R. Poornima (2025), the Court said that a prayer clause seeking refund is a sine qua non for such a decree. A general prayer for “any other relief” cannot substitute the statutory requirement of a specific claim for refund.

The plaintiff argued that the refund direction could be sustained under Order VII Rule 7 or Order XLI Rule 33 CPC. The High Court rejected this submission, holding that Section 22 is a specific provision governing reliefs in specific performance suits and begins with a non-obstante clause.

The Court observed: “Section 22 of the Specific Relief Act is a specific statutory provision governing reliefs in a suit for Specific Performance. It opens with a non-obstante clause and expressly stipulates that the refund of earnest money or deposit cannot be granted unless specifically claimed. The general powers of the Court under the CPC cannot, therefore, be invoked to override the express statutory bar of Section 22(2).”

The Court added that although Section 22 permits amendment even at the appellate stage, the plaintiff had not availed that opportunity. Written submissions defending the refund decree on equitable grounds could not cure the omission in the plaint.

The Court also examined the defendant’s limitation objection. The defendant argued that the later agreement was only a continuation of the earlier agreement and that the suit was time-barred. The High Court rejected this argument after comparing the two agreements.

It found that the later agreement fixed a different sale consideration, acknowledged a different advance amount, prescribed a date for execution of title documents, and contained a complete set of reciprocal obligations. It did not refer to the earlier agreement and was not framed as a continuation of it.

The Court held that the later agreement amounted to novation under Section 62 of the Indian Contract Act, 1872. Therefore, the limitation had to be reckoned from the date fixed for performance under the later agreement, and the suit had been filed within time.

The Court stated: “The Agreement dated 07.08.2013 constituted a novation of the earlier Agreement dated 23.09.2011, within the meaning of Section 62 Indian Contract Act, 1872. The parties, by their own admissions in the pleadings, conduct and the terms of the two Agreements, substituted a fresh contract, for the earlier one.”

The Court then dealt with the broader question of equity in suits for specific performance. It acknowledged that the trial court had intended to do broad justice after refusing specific performance, since the defendant would otherwise retain the admitted amount. However, it held that equity cannot travel beyond the statute.

Referring to Universal Petro Chemicals Ltd. v. B.P. PLC (2022), Kamal Kumar v. Premlata Joshi (2019) and Pydi Ramana v. Davarasetty Manmadha Rao (2024), the Court reiterated that specific performance is an equitable relief, but the exercise of that discretion is codified and controlled by the Specific Relief Act.

The Court underscored: “The Court, therefore, while exercising equitable jurisdiction in a Suit for Specific Performance, is bound by the parameters that the statute itself has laid down. The language of 'broad justice' cannot be invoked to grant a relief which the statute expressly conditions upon a specific claim, or to travel beyond the four corners of the statutory scheme.”

Applying that principle, the Court held that the trial court erred in invoking equity despite the statutory bar under Section 22(2). Since the refund was never specifically pleaded or claimed, the decree for refund could not stand.

Conclusion

The Delhi High Court allowed the appeal and set aside the part of the trial court decree directing the refund of Rs. 17 lakh with pendente lite and future interest at 8% per annum. As specific performance and permanent injunction had already been refused, the Court directed that the plaintiff’s suit stood dismissed.