* THE HON’BLE SRI JUSTICE V.V.S.RAO + SECOND APPEAL No.1209 of 2009 % Dated 31.05.2010 # Kone Satyanarayana, And others. …Appellants VERSUS $ Alapati Jayaprakash Narayana. …Respondent ! Counsel for Appellants: Sri K.S.Murthy. ^ Counsel for Respondent : Sri Srinivas Emani <GIST: >HEAD NOTE: ? Cases referred 1. AIR 1995 SC 1769 2. (1999) 5 SCC 77 3. (2006) 7 SCC 756 4. (2009) 1 SCC 530 5. 2008 (6) Supreme 672 6. 2009 (1) Supreme 472 THE HON’BLE SRI JUSTICE V.V.S.RAO SECOND APPEAL No.1209 of 2009 Dated:31.05.2010 Between: Kone Satyanarayana, And others. ….Appellants And Alapati Jayaprakash Narayana. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO SECOND APPEAL No.1209 of 2009 JUDGMENT: The defendants in O.S.No.100 of 2000 on the file of the Court of the Senior Civil Judge, Tadepalligudem, are the appellants in this Second Appeal which raises an interesting question as to the rate of interest that can be awarded by a Court of law to the plaintiff in a suit for specific performance of agreement of sale of immovable property when specific enforcement of the agreement of sale is denied for one reason or the other. The fact of the matter is not in dispute. The defendants entered into agreement of sale dated 02.12.1997 (Ex.A1) in respect of a house bearing Door No.2-19-2 (new assessment No.21965) along with the land admeasuring 213½ square yards situated at Tadepalligudem for a total consideration of Rs.5,40,116/-. The plaintiff paid advance amount of Rs.1,85,000/- on 02.12.1997, 07.12.1997 and 14.01.1998 – which were marked as Exs.A2 and A3 in the suit. When the sale deed was not executed the plaintiff issued notice of demand and filed a suit for specific performance, being O.S.No.100 of 2000, on the file of the Court of the Senior Civil Judge, Tadepalligudem. The defendants opposed the suit, inter alia, on the ground that defendant Nos.1 to 3 did not receive any amount, that signature of defendant No.1 were obtained on white papers, that the plaintiff had no capacity to pay the amounts, and that defendant No.4, being a minor, Ex.A1 is not binding on her. The suit went to trial. The oral and documentary evidence was let in. Trial Court on considering the evidence denied specific performance, but directed the defendants to pay Rs.1,85,000/- with interest at 24% per annum from 14.01.1998 and post decree interest at 12% per annum till realization. The defendants (appellants herein) filed A.S.No.158 of 2006 on the file of the Court of the II Additional District Judge, Eluru. The appellate Court affirmed the judgment of the trial Court. The only grievance made out by the appellants is with regard to the rate of interest awarded by the trial Court as well as the first appellate Court at 24% per annum on the amount directed to be refunded. Relying on S.Rangaraju Naidu v S.Thiruvarakkarasu[1], K.Narendra v Riviera Apartments (P) Limited[2], Jai Narain Parasrampuria v Pushpa Devi Saraf[3] and Hamid Khan v Ashabi[4], Counsel for the defendants/appellants submits that Ex.A1 does not oblige alleged vendors to refund the advance amount with interest at 24% per annum. He nextly contends that even while exercising jurisdictional equity the trial Court cannot exceed interest at 12% per annum on the amount to be refunded. Per contra, Counsel for respondent/plaintiff relies on S.Abdul Khader v Abdul Wajid[5] and Deepa Bhargava v Mahesh Bhargava[6] and submits that in appropriate cases while granting equitable relief interest at 18% per annum can also be granted by the Court. In S.Rangaraju (supra) the respondents therein filed three suits for recovery of certain amounts from the appellant. The appellant executed promissory note and also executed an agreement of sale for discharge of the very same promissory note debt. Since he was not able to pay the debt, he agreed to sell three plots of land for the same consideration. When the appellant did not execute the agreement of sale, respondents filed the suits. They were decreed by the trial Court and also confirmed by the appellate Court. The matter was then carried to the Supreme Court, which after considering the facts and circumstances of the case felt that justice would be met by granting alternative relief sought for in the suit, namely, the decree for refund of the money due with simple interest at 12% per annum as claimed. The decree of Courts below was modified and a money decree for Rs.21,000/- with interest at 12% from the date of the suit till the date of recovery was granted. In K.Narendra (supra) the appellant entered into an agreement with respondent to sell a plot of land to respondent to construct a multi- storied building in the area covered by Master/Zonal Plan requiring several sanctions and clearances which were not within the power of the parties but the parties knowingly depended on the respondent for securing the requisite sanctions and clearances. Part of the consideration was paid in cash and in lieu of remaining amount respondent undertook to give the appellant a few flats in the proposed building. Despite lapse of seven to eight years, respondent failed to perform his obligation and due to some circumstances construction of the building on the plot in question had become impracticable. The appellant filed the suit seeking annulment of the sale agreement on the ground of being impossible of performance and return of the portion of land possession whereof he had given to the respondent. The respondent also filed a suit against the appellant seeking specific performance of the contract of sale and possession of the remaining portion of the plot. The High Court held that legal possession of the plot had been handed over by the appellant to respondent and that having got encashed the cheque the appellant was obliged to handover the physical possession thereof to the respondent. Pursuant to the decree in the respondent’s suit permission to construct the building was granted subject to certain conditions. The question before the Supreme Court was whether in the said circumstances the Court should exercise its jurisdiction in favour of decreeing the specific performance. After dealing with all the relevant issues it was observed that it was a case where the discretionary jurisdiction to decree the specific performance ought not to be exercised in favour of the respondent. However, the Supreme Court thought it fit that the respondent should be awarded some compensation in spite of its specific performance being refused and reasonable compensation with interest at 12% per annum from the date of decision till realization with a direction that a small part of the plot, possession whereof had been delivered to the respondent by the appellant, should be restored to the appellant. Jai Narain Parasrampuria (supra) is a matter involving specific performance of agreement entered into between the appellants and respondents for sale of property in question. It was regarding purchase of immovable property for the company by its promoters prior to incorporation of the Company. Title in relation to the said property passed on to the said Company which was subsequently incorporated. Prior to the incorporation of the Company, respondents acquired the property in their capacity of Promoters and the sale consideration was repaid to respondents by the Company. Respondents resolved to sell the property in favour of appellants. Pursuant thereto, an agreement of sale of the said property was executed by respondents as Directors of the Company and some amount was paid as advance and the balance amount was to be paid at the time of execution and registration of the sale deed. A resolution to let out the property in favour of others was also adopted and a registered deed of lease pursuant to the said resolution was also executed and registered in favour of them. Another agreement for sale was purported to have been executed by respondents in favour of their close relation. The appellants issued a notice to respondents to execute a deed of sale, and filed suit against the respondents for injunction and subsequently a relief by way of decree of specific performance of agreement of sale was also prayed for. Apart from this there were certain other proceedings and suits filed by appellants and respondents against each other. A purported dispute was raised as regards ownership of the said property by and between the Company on the one hand and respondents on the other. After deciding all the questions involved, the Supreme Court directed the respondents to refund the amount of advance with interest at 12% per annum. In Hamid Khan (supra) defendant No.1 was a charitable trust. By a registered deed the plaintiff purchased the leasehold rights in respect of land together with superstructure standing thereupon from one Hasansab Bepari. In 1955 the original defendant filed a suit against certain alleged trespassers. Plaintiff got herself impleaded as a defendant therein. Defendant No.1 having regard to the fact that the plaintiff had already purchased the superstructure agreed to sell the land to her by an agreement for some consideration. Out of the said amount some amount was paid by way of earnest money. Under the said agreement, permission from the Charity Commissioner in terms of Section 36 of the Bombay Public Trusts Act was required to be taken. On or about 30.10.1982 the Charity Commissioner passed an order directing that the land should be sold in public auction. Pursuance thereof, defendant No.1 issued a notice asking the plaintiff to participate in the public auction if she liked or to get back the balance of the earnest money subject to certain deductions. The said order was set aside by the High Court and the matter was remitted directing the Chief Commissioner to pass a fresh order. It was noticed in his order that defendant No.2 (appellant before Supreme Court) was in possession of the said property. A deed of sale was executed in his favour by defendant No.1 in 1988. Plaintiff thereafter filed suit in 1988 for specific performance of the agreement executed in her favour and furthermore questioning the validity of the deed executed in favour of defendant No.2. The trial Court decreed the suit and the appellate Court as well as the High Court upheld the same. Appellant (defendant No.2), therefore, carried the matter before Supreme Court. The Supreme Court after considering the issues involved, gave a finding that appellant shall vacate the premises within one month from the date of deposit of amount by the plaintiff in the trial Court and execute a registered deed of sale in favour of plaintiff. The Supreme Court also directed defendant No.1 to refund the amount of earnest money to the plaintiff with interest at 9% per annum from the date of institution of the suit till realization. In S.Rangaraju Naidu (supra), K.Narendra (supra), Jai Narain Parasrampuria (supra), and Hamid Khan (supra), the principle laid down is as follows. In a case where specific performance is denied, the vendee can be compensated by awarding interest at 12% per annum. This, however, is subject to condition that if the vendee is delivered possession of suit schedule property, the consideration would differ. In the considered opinion of this Court the appropriate test to be applied would be that if the vendee had invested the amount paid as advance in a fully secured bank deposit what would be reasonable rate of interest that may be allowed. At the relevant time the rate of interest at 12% per annum would be very reasonable. The decision in K.Narendra (supra) is appropriate to the facts of the present case, and therefore, this Court holds that both the Courts below erred in awarding interest at 24% per annum. In the result, for the above reasons, this Second Appeal is partly allowed to the extent of modifying the rate of interest payable on the amount directed to be refunded. The defendants shall pay Rs.1,85,000/- with interest at 12% per annum from 14.01.1998 till the date of the decree of the trial Court and thereafter 12% per annum till realization. In view of the peculiar facts and circumstances of the case, there shall be no order as to costs in the Second Appeal. _______________ (V.V.S.RAO, J) 31.05.2010 Note: LR Copy to be marked. B/o. vs [1] AIR 1995 SC 1769 [2] (1999) 5 SCC 77 [3] (2006) 7 SCC 756 [4] (2009) 1 SCC 530 [5] 2008 (6) Supreme 672 [6] 2009 (1) Supreme 472