Supreme Court Restores Trial Court Dismissal of Specific Performance Suit, Cites Appellate Courts’ Failure to Address Suspicious Circumstances

A Division Bench found the First Appellate Court and High Court brushed aside discrepancies identified by the Trial Court without proper reasoning, reviving the defendant’s case.

The Supreme Court has allowed an appeal against concurrent decrees of specific performance granted by a First Appellate Court and confirmed by the High Court in Second Appeal, restoring instead the Trial Court’s original order dismissing the suit. A Division Bench of Justice J. B. Pardiwala and Justice K. Vinod Chandran held that the appellate courts reversed a reasoned Trial Court judgment without applying their minds to the suspicious circumstances it had identified. The suit itself was filed in 1987, arising from an agreement to sell dated 16 August 1984. The Court directed the appellants to refund the earnest money and balance consideration deposited by the respondents, with simple interest at 12.5 per cent per annum, failing which the amounts would become a charge on the property.

The Dispute and Its Path to the Supreme Court

The agreement in question was executed on 16 August 1984 for four acres of agricultural land at Rs. 12,000 per acre. The respondents paid Rs. 27,300 as earnest money. The balance sale consideration was to be paid within two years, by 16 August 1986. The respondents contended that this period was extended by one year — to 19 June 1987 — at the request of the defendant.

The appellant-defendants denied executing any agreement for sale. Their case was that the entire transaction was a loan arrangement with the father of the plaintiffs, and that various documents, including blank papers, were signed in that context. They produced a receipt dated 27 May 1987 — marked Exhibit D1 — issued by the father of the plaintiffs, acknowledged by him as PW4, for Rs. 27,875. The defendant contended that this payment represented the return of the loan amount, and that despite this repayment the documents were not returned.

The Trial Court dismissed the suit after examining multiple witnesses on both sides, finding several discrepancies in the case set up by the plaintiffs. The First Appellate Court reversed that dismissal and decreed specific performance. The High Court confirmed the decree in Second Appeal. The defendants then approached the Supreme Court by way of a special leave petition, which was converted into a civil appeal.

Discrepancies Found by the Trial Court

The Trial Court identified a cluster of suspicious circumstances. PW2, one of the plaintiff-respondents, deposed that the deal was struck about a fortnight before execution on 16 August 1984. Yet the stamp paper on which the agreement was written was purchased, as shown by an endorsement on it, on 6 July 1984 — well before the deal was said to have been struck.

The agreement recited that possession of the property had been handed over to the plaintiffs on payment of earnest money. The plaintiffs themselves admitted that possession in fact remained with the defendant throughout. This directly contradicted the recital in the document they sought to enforce.

The extension of the period to 19 June 1987 was found to have been tampered with. The Trial Court considered the explanation offered by PW2 for the tampering — that the defendant had requested an extension — and rejected it. The Court reasoned that the extension of time would be in the defendant’s interest only if the defendant needed time to arrange funds, yet what remained for the defendant to do was merely execute the deed and not arrange funds.

The witness to the agreement, PW3, was from a different village. The Trial Court also found that PW4’s claim that Exhibit D1 represented only Rs. 875 rather than Rs. 27,875 was directly contradicted by the clear writing in the receipt, which bore the thumb impression of PW4 as well as two witnesses.

On readiness and willingness, the Trial Court found that the plaintiffs had not proved their capacity to pay the balance consideration. Exhibit P4 showed only one of the other plaintiffs, Saudagar Singh, having visited the Sub-Registrar’s Office on the extended date — and he did not give evidence. PW2 claimed to have carried Rs. 56,000 to the Sub-Registrar’s Office, a figure far in excess of the balance consideration of only Rs. 20,700.

How the Appellate Courts Reasoned — and Where the Supreme Court Disagreed

The First Appellate Court and the High Court took the view that nothing established that the agreement Exhibit P1 was fabricated. They noted that the extension endorsement carried the defendant’s thumb impression, and treated Exhibit D1 as relating to a separate transaction. Specific performance was ordered and confirmed on this basis.

The Supreme Court found this reasoning insufficient. It held that the appellate courts, while adverting to the suspicious circumstances flagged by the Trial Court, did not properly debunk them before shifting the onus of proof onto the defendant. The Court drew a pointed distinction between the defendant’s actual case and a case of outright fabrication: the defendant had not claimed that the document was created wholesale, but that blank papers he was made to sign were used to draw up the agreement without his knowledge. The Court described this as “subtly distinct and different from a fabrication.”

The extension date was found tampered with by the Trial Court, but the appellate courts dismissed this on what the Supreme Court called a “mere conjecture” — that one party would have disagreed on the date, leading to a correction — without any oral testimony supporting that inference.

The Court also returned to Exhibit D1. The receipt of Rs. 27,875 was issued on 27 May 1987, just weeks before the extended deadline of 19 June 1987. The defendant’s specific case was that this amount was the loan repayment, after which the documents should have been returned. The Court observed that there was no good reason for the plaintiffs’ father to accept an amount exceeding the balance sale consideration if a genuine agreement to sell was subsisting: the sale could simply have been concluded by adjusting that amount against the balance due.

On the readiness and willingness issue, the Court noted the internal inconsistency in PW2’s testimony. PW2 maintained that he, his brothers, and his father were financially separate from each other, but simultaneously claimed that the Rs. 56,000 carried to the Sub-Registrar’s Office on the appointed day came from joint funds.

The Court’s Approach to Appellate Reversal of Trial Court Findings

The Supreme Court was direct in its criticism. It held that the suspicious circumstances identified in the Trial Court’s judgment were brushed aside by the First Appellate Court and the High Court “without application of mind.” The Court emphasised that before the onus could be shifted to the defendant to disprove fabrication, the appellate court was required to properly debunk each of the suspicious circumstances. Merely finding an absence of proof of fabrication was not sufficient when the Trial Court had recorded positive discrepancies going to the root of the plaintiffs’ case.

The Court was persuaded, on a reckoning of the suspicious circumstances taken together with the admitted execution of the Rs. 27,875 receipt shortly before the agreement’s expiry, to restore the Trial Court’s order dismissing the suit.

Directions on Refund

Having allowed the appeal on merits, the Court addressed what should be done with the amounts paid by the plaintiffs, given the long passage of time since 1984.

The plaintiffs had paid Rs. 27,300 as earnest money in 1984. They had also deposited Rs. 20,700 on 29 January 1994 in the Treasury as the balance consideration. The Court directed the appellants to repay the money paid by the respondents with simple interest at 12.5 per cent per annum, or to deposit the amounts in the Trial Court for disbursal. Interest on Rs. 23,700 was directed to run from 16 August 1984, and interest on Rs. 20,700 from 29 January 1994. The deposit of Rs. 20,700 in the Treasury, along with any interest accrued on it, was to be reimbursed to the plaintiffs and deducted from the total refund payable by the appellants. The Court added that if the directed payment was not made, it would constitute a charge on the property.

Order

The civil appeal was allowed. The decrees of specific performance passed by the First Appellate Court and confirmed by the High Court in Second Appeal were set aside. The Trial Court’s order dismissing the suit stood restored. The appellants were directed to refund the amounts paid by the respondents with simple interest at 12.5 per cent per annum in the manner detailed above, failing which the same would be a charge on the property. Pending applications were disposed of. The order was passed on 31 August 2026.