Essence of Time in cases of Immovable Property

In matters relating to immovable property, there is a general presumption that time is not the essence of contract i.e. there is no time limit per se within which the contract relating to an immovable property is to be performed. The aforesaid position of developed in the first half of the twentieth century when prices of immovable properties were stable and did not undergo sudden changes which gave birth to the aforementioned position of law which is grounded on the principle that even if a contract relating to sale of an immovable property is to be performed beyond the time stipulated in the contract by a period of say 4-5 months, then the same would not cause much changes in the prices of the immovable property and at the same time no prejudice would be caused to the vendor-defendant financially.

The Privy Council in Irani vs Burjorji¹ extrapolated the position of law in this regard from the laws of England, wherein the laws of equity govern the rights of the parties in cases relating to specific performance of immovable property, which lay more emphasis on the substance of the contract rather than the strict terms of it, for ascertaining whether the parties to a contract, intended to make time as stipulated in the contract, the essence of contract and is based on the principle that a court of equity will grant specific performance of a contract despite failure of the party to adhere to the timeline envisaged in the agreement if express stipulation of the contract, the nature of agreement or the surrounding circumstances do not act as a bar or do not make it inequitable to interfere and grant specific performance. In equity, time is not the essence of the Contract. However, the presumption as to time not being the essence of contract in cases relating to immovable property is subject to just exceptions, and even in cases of immovable property, the parties can make time the essence of contract.

Section 55 of the Contract Act,1872 [“The Act”] governs the position of law in this regard, which states as follows:

“55. Effect of failure to perform at fixed time, in contract in which time is essential- When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be the essence of the contract.”

Notably, Section 55 of the Act do not lay down any distinction between contracts relating to immovable property and other contracts. The position of law in this regard was adopted by the Indian courts by following the English law.

Section 55 of the Act postulates that merely because a contract had not been performed within the stipulated timeline envisaged in the contract would not make it voidable at the option of the promisee, the same is subject to intention of the parties i.e. whether they intended to make time the essence of contract. The intention to make time the essence of contract in cases of immovable property must be in a language which is unmistakable and unequivocal.² The intention of the parties can be ascertained from:

the express terms of the contract;
the nature of the property which forms the subject matter of the contract;
the nature of the contract itself; and
the surrounding circumstances.³

The question of intention of parties may be a blended question of fact and law.⁴ Even if the contract specifically stipulate that time is the essence of the contract, then the same is to be read along with the provisions of the contract if any inference can be drawn to the contrary to the express stipulation. For instance, if the contract were to include clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract, such clauses would be construed as rendering ineffective the express provision relating to the time being the essence of contract. At the same time, even if time is not the essence of contract, the court may infer that it is to be performed within reasonable time.⁵ Notably Section 46 of the Act stipulate that where, in a contract, time for performance is not specified, then it must be performed within reasonable time and “what is a reasonable time” is, in each particular case, a question of fact.

CASE LAWS

1. Gomathinayagam Pillai and Ors. vs Palaniswami Nadar⁶

The Appellants in this case entered into an agreement to sell with the Respondent for sale of their immovable property. On 04.04.1959, the Appellant received Rs 2000 from the Respondent and executed a writing to the effect that the sale deed will be executed on or before 15.04.1959. The Agreement also incorporated default clause imposing penalty upon the party failing to carry out the terms of the contract. The sale deed, however, could not be executed on 15.04.1959 and parties executed another agreement on 15.04.1959 and revised the date for execution of sale deed as 30.04.1959. The Respondent was not ready with the requisite funds on 30.04.1959 which prompted the Appellants to terminate the agreement citing time was of the essence of the contract and the Respondent failed to carry out the contract within the stipulate time. The Respondent, however, did not accept the termination of contract by Appellant and on 03.08.1959 deposited the balance amount payable under the agreement to the Appellant citing time was never the essence of contract. The court held that intention to make time the essence of contract can be gathered by either express stipulations or by circumstances which are sufficiently strong to displace the ordinary presumption that in a contract of sale of immovable property stipulations as to time are not of the essence. Since in the present case, there was no express stipulation and no circumstances to indicate that parties intended time to be the essence of the contract, the court concluded that time was not the essence of contract in this case. The majority opinion of court confirmed the judgment of High Court allowing the suit of specific performance.

2. Chand Rani (Dead) by Lrs vs Kamal Rani (Dead) by Lrs⁷

The Agreement to sell executed between the parties recorded a receipt of Rs 30,000/- paid by the Plaintiff to the Defendant-Vendor. The Agreement stipulated that the next instalment of Rs 98,000/- will be paid by the Plaintiff within a period of ten days only and the balance of Rs 50,000/- at the time of registration. As per the terms of the agreement, the Defendant-vendor was to get a clearance certificate from the income tax authorities to sell the immovable property to the Plaintiff. The Plaintiff, however, failed to pay the sum of Rs 98,000/- within ten days of the agreement, which prompted the Defendant to terminate the agreement and forfeit the payment of Rs 30,000/- earnest money paid by the Plaintiff. The matter reached Supreme Court which formed a constitution bench to answer the substantial questions of law arising in the matter. The entire issue hinged upon clause 1 of the agreement that whether payment of Rs 98,000/- within 10 days constitutes making time the essence of contract, especially in a case like this involving an immovable property. The court emphasised on the word “only” appearing in the clause and observed that the payment of Rs 98,000/- within 10 days amounted to making time the essence of the contract between the parties and failure of the Plaintiff to pay the said amount within 10 days entitled the defendant to terminate the agreement. The Court also observed that the Plaintiff insisted upon the defendant to obtain clearance of income tax authorities first before the disbursement of Rs 98,000/- which amounted to imposing conditions precedent for the release of said amount which is contrary to the terms of the agreement.Therefore the court, in the facts and circumstances of the this case held that time was the essence of contract and took a stark departure from the general assumption that in cases of immovable property time is not of essence.

3. Rathnavathi v. Kavita Ganashamdas ⁸

Clause 2 and 3 of the agreement to sell between the parties recorded the receipt of Rs 50,000/- advance paid by the Plaintiff to the Defendant-vendor and the balance consideration was to be paid by the Plaintiff within 60 days from the date of expiry of lease period. The defendant, as per clause 3, agreed to make efforts to get the scheduled property transferred in favour of the Plaintiff from the Bangalore Development authority and in case it was not possible to do then the parties were entitled to revise the time stipulated for the balance payment and completion of the sale deed. The court observed that time was not made essence of the contract as even after payment of balance consideration, the defendant was to make efforts to transfer the land in the name of the plaintiff and in the absence of any clause stipulating that the sale deed was to be executed within a specified period of time, the court held that the parties did not intend to make time the essence of contract.

Does the law require reconsideration?

The presumption as to time not being the essence of contract in cases related to immovable property originated in a time where the rates of immovable properties remained stagnant and caused no prejudice whatsoever to the vendor if the time stipulated in the contract for executing the sale deed was not strictly adhered. However, in times like today where prices of real estate properties undergo changes overnight, it is prejudicial to the rights of the vendor who entered into an agreement to sell of his immovable property stipulating in the agreement the timeline of say 5 months to complete the execution. The purchaser, however, takes his own sweet time to make the balance consideration and takes the ground that time is not of essence in cases of immovable property. Therefore, by the time the purchaser finally makes the balance consideration, the property rates will have arose causing huge financial losses to the Vendor. The Supreme Court, in at least two cases flagged concerns and a need to take departure from the aforementioned position of law keeping in view of rising inflation and fluctuating prices of properties-

1. S. Vidyanadam and Ors. Vs Vairavan⁹

The agreement executed between the parties recorded that out of the total consideration of Rs 60,000/- the Plaintiff had paid an advance amount of Rs 5000/- and the balance consideration was to be paid within 6 months from the date of the agreement and failure to make the balance consideration within 6 months would result in forfeiture of the advance amount paid by the Plaintiff and cancellation of the agreement to sell. The Plaintiff failed to make the balance payment within 6 months and issued a notice to the Defendant after 2.5 years to execute the sale deed citing time was not the essence of contract. This was in the backdrop of price of the property rising three fold in the intervening period. The court observed that it would amount to abuse of the aforementioned position of law that time is not of essence in case of immovable property, if it is applied to the facts of this case wherein the delay in the execution of sale deed was solely because of the lackadaisical conduct of the purchaser who only woke from his slumber after 2.5 years when he noticed the prices of property rising in the area and then demanded specific performance of the agreement.

The court observed as follows-

“We are inclined to think that the rigor of the rule evolved by courts that time is not of the essence of the contract in the case of immovable properties-evolved in times when prices and values were stable and inflation was unknown-requires to be relaxed, if not modified, particularly in the case of urban immovable properties. It is high time we do so.

…Can it be stated as a rule of law or rule of prudence that where time is not made the essence of the contract, all stipulations of time provided in the contract have no significance or meaning or that they are as good as non-existent? All this only means that while exercising its discretion, the court should also bear in mind that when the parties prescribes certain time-limits for taking steps by one or the other party, it must have some significance and that the said time-limits cannot be ignored altogether on the ground that time has not been made the essence of the contract [relating to immovable properties].”. (emphasis supplied)

Holding in the aforementioned terms, the court did not allow specific performance of the agreement.

2. Saradamani Kandappan and Ors. Vs Rajalaksmi and Ors.¹⁰

As per the Agreement to Sell, Plaintiff paid an advance amount of Rs 1 lakh to the Defendant. Clause 4 of the agreement stipulated a time schedule for payment of balance consideration. Clause 6 further stipulated that payments on due dates is the essence of contract and in case of failure on the part of the purchaser to adhere to timeline would entitle the defendant to cancel the agreement. The Plaintiff failed to adhere to the timelines for payment of balance consideration which prompted the Defendant to cancel the agreement in terms of clause 6. The Plaintiff took the defence that time was not the essence of contract in cases of immovable property and filed suit for specific performance of contract. The Court observed that the agreement explicitly provides the payment of balance consideration in accordance with the schedule provided in the agreement and for failure of the purchaser to adhere to the schedule, the Defendant was justified in terminating the agreement. Therefore, in the facts and circumstances of this case, the court held that the parties intended to make time the essence of contract. As a side note, the court raised prescient concerns about the position of law qua the presumption in cases of immovable properties. The Court observed that it cannot stay oblivious to changed circumstances viz. inflation and price rise of immovable properties. The steep increase in the prices is a circumstance which makes it inequitable to grant the relief of specific performance. The Court observed as follows:

“A purchaser can no longer take shelter under the principle that time is not of essence in performance of contracts relating to immovable property, to cover his delays, laches, breaches and ‘non-readiness’. The precedents from an era, when high inflation was unknown, holding that time is not of the essence of the contract in regard to immovable properties, may no longer apply, not because the principle laid down therein is unsound or erroneous, but the circumstances that existed when the said principle was evolved, no longer exist”

To arrive at the aforesaid conclusion the court relied upon the principle of law that laws which may be reasonable and valid when made, can, with passage of time and consequential change in circumstances, become arbitrary and unreasonable. The court, however, refrained from referring the issue to a larger bench for reconsidering the position of law qua the presumption in cases relating to immovable properties, as in the facts of this case, the court held that time was the essence of contract. In the meanwhile, till the issue is considered in an appropriate case, the court suggested to follow the following principles-

“(i) Courts, while exercising discretion in suits for specific performance, should bear in mind that when the parties prescribe a time/period, for taking certain steps or for completion of the transaction, that must have some significance and therefore time/period prescribed cannot be ignored.

(ii) Courts will apply greater scrutiny and strictness when considering whether the purchaser was ‘ready and willing’ to perform his part of the contract.

(iii) Every suit for specific performance need not be decreed merely because it is filed within the period of limitation by ignoring the time-limits stipulated in the agreement. Courts will also ‘frown’ upon suits which are not filed immediately after the breach/refusal. The fact that limitation is three years does not mean that purchase can wait for 1 or 2 years to file a suit and obtain specific performance.”

Conclusion

As the Supreme Court observed in K.S. Vidyanandam and S. Rajalakshmi (supra), the law qua presumption of time not being of essence of contract relating to immovable property requires a relook in light of changed circumstances viz. inflation and fluctuating prices of immovable properties. The law of presumption in cases of immovable property is often taken as a right by the plaintiff despite the vendor-defendant not being at any fault for the non-execution of sale deed. This law, in effect, leaves the vendor-defendant, at the mercy of the purchaser to execute the sale deed according to his convenience. This is juxtaposed to the fact that there are various supreme court judgments to the effect that mere increase in price of properties or inadequacy of consideration cannot be a ground to deny specific relief to the Plaintiff.¹¹ Furthermore, pursuant to the introduction of Specific Relief Amendment Act 2018, grant of specific performance is now a rule rather than an exception in contrast to the pre amended Act which conferred wide discretionary powers upon the courts to grant specific performance and gave primacy to damages as a relief over the decree of specific performance. Therefore, an appropriate judgment is required from the apex court taking all the aforementioned facts/laws into consideration.

By Daksh Pandit