Case Note & Summary
This civil appeal before the Supreme Court of India arose from a dispute over the sale of shares between Hungerford Investment Trust Limited (In Voluntary Liquidation) and Haridas Mundhra and others. The appellant was the owner of 100% shares in Company A. By an agreement dated October 30, 1956, the respondent purchased 49% of the shares with an option to purchase the balance 51%. The respondent exercised the option, but the shares were not transferred to him, leading him to file a suit for specific performance. The trial court decreed specific performance, directing delivery of the 51% shares against payment of their value and granting an injunction restraining the appellant from voting except in accordance with the respondent's instructions. Execution of the decree, except the injunction, was stayed by the trial court and continued by the appellate court until the appeal was dismissed in 1965. Thereafter, the appellant filed an application in 1965 seeking a direction to the respondent to pay the consideration amount, but that application was dismissed. Meanwhile, attachments were placed on the decree by creditors, and Company B, which had obtained a decree against a holding company of the appellant, got the 51% shares attached. The executing court ordered that the shares be produced for delivery to the respondent against payment of the consideration. Company A also instituted a suit against the appellant claiming a lien over the 51% shares for payments made to income-tax authorities on behalf of the appellant. A receiver was appointed, and the court directed that the receiver could deliver the shares to the respondent on payment of the purchase money. This order was communicated to the respondent on January 11, 1967. Prior letters from the appellant asking the respondent to be ready with payment and take delivery were refused by the respondent. In response, the respondent contended that the appellant was not in a position to give delivery and that the court order was not binding on him. By a letter dated February 11, 1967, the appellant informed the respondent that he had forfeited his right to purchase the shares under the specific performance decree due to failure to fulfil his obligation. In March 1967, the appellant filed an application for rescission of the agreement and the decree. The trial court held that the respondent was not keen to pay the purchase money because the injunction made him virtually the owner of 100% of the shares, that the respondent had committed breach of the contract, and that the decree should be rescinded. The trial court appointed the receiver in the Company A suit as receiver of the 51% shares and directed the respondent to pay the consideration within a fortnight, failing which the contract and decree would stand rescinded. The appellate court, however, held that the application for rescission was not maintainable under either the Specific Relief Act, 1877 or the 1963 Act. The appellant then appealed to the Supreme Court. The main legal issues before the Supreme Court were whether the rescission application was maintainable under Section 28 of the Specific Relief Act, 1963 or under the inherent power of the court; whether the appellant had an accrued right under Section 35 of the repealed Specific Relief Act, 1877 read with Section 6 of the General Clauses Act, 1897; whether a decree for specific performance could be executed by the defendant as a money decree; and whether absence of a time fixed in the decree precluded rescission. The appellant argued that the respondent had defaulted in paying the purchase money and had refused to take delivery, thereby entitling the appellant to rescind. The respondent contended that the application was not maintainable because Section 28 of the 1963 Act applied only to immovable property and no right had accrued under the repealed Act; that the appellant was not in a position to deliver the shares due to attachments; that the remedy, if any, was execution of the decree as a money decree; and that no time having been fixed, there was no default. The Supreme Court held that no accrued right existed under Section 35 of the 1877 Act because reasonable time for performance had not elapsed before repeal, and execution had been stayed. It noted that Section 28 of the 1963 Act did not apply to movable property, but the Act was not exhaustive. The Court relied on the principle that a court passing a decree for specific performance retains control over the decree even after it is passed, and could order rescission if the party moved against positively refused to complete the contract. The Court further held that the contract was not extinguished by the decree and that under Section 46 of the Contract Act, performance had to be within a reasonable time; the appellant's letter of February 11, 1967, validly rescinded the contract, and the court's role was only to adjudge the validity of that rescission. The Court also ruled that a specific performance decree cannot be executed by the defendant as a money decree, as it can only be executed under Order 21 Rule 32 CPC. The attachments did not excuse the respondent's default, and the attachment of shares by Company B did not make delivery impossible because the executing court had directed delivery against payment. The Supreme Court allowed the appeal, set aside the appellate court's order, and held that the appellant was entitled to rescission of the agreement and the decree, and that the rescission effected by the letter dated February 11, 1967 was valid.
Headnote
A) Specific Relief - Rescission of Decree - Accrued Right under Repealed Act - General Clauses Act, 1897, Section 6; Specific Relief Act, 1877, Section 35 - The appellant filed an application for rescission after the 1877 Act was repealed by the 1963 Act. The Court held that the right to rescind under Section 35 could arise only if the purchaser made default in paying the purchase money ordered under the decree, but because execution was stayed and reasonable time had not elapsed, no right had accrued before repeal; hence Section 6 General Clauses Act did not preserve any accrued right (Paras 700D-G, 700G-H). B) Specific Relief - Scope of Section 28 of 1963 Act - Specific Relief Act, 1963, Section 28 - Section 28 provides only for rescission of a decree for specific performance for sale or lease of immovable property; no application to rescind a decree for sale of movables would lie under that section (Para 701A-B). C) Specific Relief - Court's Control Over Decree - Inherent Power - Specific Relief Act, 1963 (not exhaustive) - The Act is not an exhaustive enactment, and a court which passes a decree for specific performance retains control over the decree even after it has been passed; when a party positively refuses to complete the contract, the court may entertain an application and order rescission of the decree if the allegation is proved (Paras 701B-C, 703B-C). D) Contract Law - Time for Performance - Indian Contract Act, 1872, Section 46 - If a contract does not specify time for performance, the law implies performance within a reasonable time; a specific performance decree does not extinguish the contract, so parties remain obliged to complete within reasonable time; either party can make time essential by giving notice after a reasonable period (Paras 703E-H, 703H, 704A-C). E) Specific Relief - Rescission by Party vs Court - Nature of Order - Specific Relief Act, 1877/1963 - When a party has already rescinded by notice, the court only adjudges whether the rescission was justified; the court does not create a right but decides upon the validity of rescission already made by the party (Paras 706A-E). F) Execution - Specific Performance Decree - Code of Civil Procedure, 1908, Order 21 Rule 32 - A decree for specific performance is in favour of both plaintiff and defendant but can be executed only in the manner prescribed by Order 21 Rule 32; the defendant cannot execute it as a money decree against the purchaser; if the purchaser refuses to pay, the remedy is rescission of the decree (Paras 707E-H, 708G-H, 709B-C). G) Specific Performance - Default by Purchaser - Effect of Attachments - No specific act section - The fact that attachments of the decree by creditors prevented the purchaser from obtaining satisfaction did not make him any less a defaulter; the attachment of shares by a third party did not make delivery impossible because the executing court order directed delivery to the purchaser against payment (Paras 709E-G, 709G-H).
Issue of Consideration
Whether an application for rescission of a decree for specific performance of an agreement to sell movable property was maintainable under Section 28 of the Specific Relief Act, 1963 or under the inherent power of the court; whether the right to apply for rescission had accrued under Section 35 of the Specific Relief Act, 1877 read with Section 6 of the General Clauses Act, 1897 before repeal; whether a decree for specific performance could be executed by the defendant as a money decree; whether absence of a time fixed in the decree precluded rescission for default
Final Decision
Appeal allowed. The Supreme Court held that the rescission application was maintainable under the court's inherent power to retain control over a decree for specific performance; the rescission effected by the appellant's letter dated February 11, 1967 was valid; the respondent had forfeited his right to purchase the shares. The appellate court's finding that the application was not maintainable was reversed.
Law Points
- Specific Relief Act 1963 is not exhaustive
- court retains control over decree for specific performance
- Section 28 of 1963 Act applies only to immovable property
- rescission of movable property contract decree permissible under inherent power
- contract not extinguished by decree
- reasonable time implied under Section 46 Contract Act
- defendant cannot execute specific performance decree as money decree
- rescission by party before court only needs adjudication of validity
