Specific Performance Decree Does Not Automatically Stand Rescinded For Delay In Deposit; Courts Retain Power To Extend Time U/S 28 Specific Relief Act: Supreme Court
The Court summarised the legal principles governing Section 28 of the Specific Relief Act, 1963, holding that decrees for specific performance are like preliminary decrees and that courts retain continuing jurisdiction to either rescind the contract or extend time for deposit based on equitable considerations.
The Supreme Court has held that a decree for specific performance does not automatically stand rescinded merely because the decree-holder fails to deposit the balance of the sale consideration within the time stipulated in the decree.
The Court further observed that courts retain continuing jurisdiction under Section 28 of the Specific Relief Act, 1963, to either rescind the contract or extend time for deposit after considering the equities of the case.
The Court was hearing an appeal arising from execution proceedings in a suit for specific performance where the execution court had dismissed the execution application on the ground that the decree-holder had failed to deposit the balance of the sale consideration within the period stipulated in the decree. The High Court had affirmed the order in exercise of jurisdiction under Article 227 of the Constitution.
A Division Bench of Justice Manoj Misra and Justice Manmohan observed: “A decree for specific performance of a contract is in the nature of a preliminary decree and therefore, till the deed is executed pursuant to the decree, the Court that passed the decree is vested with the jurisdiction to either rescind the contract / the decree for non-payment/non-deposit within the stipulated period or extend the period for making such payment/ deposit.”
The Bench further observed: “Neither is there an automatic rescission of the contract/ decree for non-payment/ non-deposit within the period stipulated by the decree, nor is there an automatic extension of time by making such deposit, if the stipulated period for payment/ deposit has expired.”
Senior Advocate Saurabh Mishra appeared for the appellant. Advocate Ajay Marwah appeared for the respondent.
Background
The dispute arose out of an agreement for the sale of immovable property executed in 2011 under which the respondent agreed to sell approximately 3.75 acres of land to the appellant. An advance amount had been paid at the time of execution of the agreement.
The trial court decreed the suit for specific performance in 2017 and directed the plaintiff to pay or deposit the balance sale consideration within one month, following which the defendant was required to execute and register the sale deed.
The decree-holder thereafter issued notice calling upon the judgment-debtor to execute the sale deed upon receipt of the balance consideration. However, neither was the amount accepted by the judgment-debtor nor was the amount deposited within the stipulated period.
Meanwhile, the judgment-debtor filed a first appeal challenging the decree. Though no stay was granted, the decree-holder initiated execution proceedings in 2017 and expressed readiness to deposit the balance amount before the execution court.
The execution proceedings thereafter witnessed repeated adjournments. Initially, the execution court merely directed payment to the judgment-debtor and did not specifically order a deposit in court. It was only in April 2019 that a direction to deposit the amount in court was first issued.
Ultimately, after delays including those occasioned by the Covid-19 pandemic, the balance sale consideration was deposited pursuant to an order dated 26.11.2020.
Subsequently, the judgment-debtor moved an application under Section 28 of the Specific Relief Act seeking rescission of the contract on the ground that the balance consideration had not been deposited within the stipulated period. The execution court allowed the application and dismissed the execution proceedings, whose order was affirmed by the High Court.
Court’s Observation
The Supreme Court extensively examined Section 28 of the Specific Relief Act, 1963 and the precedents governing rescission of contracts after decrees for specific performance.
The Court observed that the use of the expression “may, by order, rescind” in Section 28 clearly demonstrates that rescission is discretionary and not automatic upon default in payment or deposit.
The Bench held that the court passing the decree does not become functus officio after the decree for specific performance is passed, and retains continuing control over the decree until execution of the sale deed.
Summarising the legal principles governing Section 28, the Court held: “Prayer to extend the time for making a deposit in compliance with the conditions stipulated in the decree may be made prior to, or even after, expiry of the period stipulated therefor.”
The Bench further clarified: “There is no form prescribed for making the prayer to extend the time to make such payment or deposit. Therefore, the prayer seeking permission to deposit the defaulted amount may be treated as one for extension of time to deposit.”
The Court held that even oral prayers seeking permission to deposit the amount may, in appropriate circumstances, be treated as applications for extension of time.
The Bench emphasised that specific performance is an equitable relief and therefore courts, while exercising powers under Section 28, must be guided by equitable principles and balance the interests of both parties.
The Court observed: “Though each day’s delay in deposit need not be explained as in an application under Section 5 of the Limitation Act, the test is whether from the conduct of the decree holder it could be logically inferred that he had no intention to complete his part of the contract.”
It further held that rescission may be justified only where there is “an element of willful negligence” on the part of the decree-holder in complying with the decree.
The Supreme Court also clarified that where appellate courts pass decrees for specific performance or dismiss appeals on merits, they are required under Order XX Rule 12A CPC to specify the time within which the balance consideration must be deposited.
Examining the facts of the present case, the Court found that neither the execution court nor the High Court had considered whether an extension of time ought to have been granted upon equitable terms instead of mechanically rescinding the decree.
The Court noted that the decree itself did not provide for automatic rescission in the event of failure to deposit the amount within the stipulated time.
Conclusion
The Supreme Court set aside the orders passed by the execution court, and the High Court rescinded the contract and dismissed the execution proceedings.
The Court restored the execution application as well as all pending applications relating to rescission and extension of time for fresh consideration in accordance with the principles laid down in the judgment.
The Bench directed that such applications shall be treated as applications in the suit itself and numbered accordingly.
The appeal was accordingly allowed.
Cause Title: Anand Narayan Shukla v. Jagat Dhari (Neutral Citation: 2026 INSC 463)
Appearances
Appellant: Senior Advocate Saurabh Mishra; Advocates Sanchit Garga, Sankalp Mishra, Mithu Jain, Kunal Rana, Shashwat Jaiswal, Bhanu Pratap Singh, Diksha Arora
Respondent: Advocates Ajay Marwah, Swaroopanada Mishra, Mrigank Bhardwaj, Dhriti Sharma, Rahul Kumar, Ravideep Badyal, Shivani Singh, Neeharika Mazumdar