1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O.C. J. SUIT NO.1336 OF 1988 Dr.Arun Subrao Prabhu, of Bombay Indian Inhabitant,residing at A/602, Bafna Apartments, 276, Pandit Satvalekar Marg, Mogul Lane, Mahim, Bombay-400 016. ...Plaintiff. Versus -1. M/s.Rizvi Builders, a partnership firm carrying on business at Rizvi House, Hill Road, Bandra, Bombay-400 050. -2. M.M. Gulabani. -3. Mrs.Pushpa M. Gulabani, both of Bombay, Indian Inhabitant, residing at Devdarshan Bldg., 6th floor, Mogal Lane, Mahim, Bombay-400 016. ...Defendants. ....... Dr.Virendra Tulzapurkar, Sr. Advocate with Mr. Karl Shroff i/b. M/s.Dhru & Co. for the Plaintiff. Mr. Pankaj Kowali i/b. Mr.Deepak A. Lad for Defendant No.1. Mr.M.Rathod i/b. A.A.S. Shaikh for Defendants Nos.2 and 3. ...... CORAM : DR. D.Y. CHANDRACHUD, J. September 10, 2009. 2 ORAL JUDGMENT: The Plaintiff seeks specific performance of an agreement to sell entered into with the First Defendant on 6th March 1980. -2. The First Defendant had agreed to purchase an immovable property - Survey No.1/1175 of TPS III, Mahim – with the building and structures standing thereon. On 6th March 1980, the Plaintiff, who is a doctor, entered into an agreement with the First Defendant by which he agreed to purchase a residential flat, Flat No.104, in the building which the First Defendant was to construct on the property, at and for a consideration of Rs. 1.80 lakhs. Clause 4 of the agreement noted that the old structures standing on the land were tenanted and that it was necessary for the First Defendant as developer to settle with the tenants. Consequently, development of the land was dependent on the cooperation of the tenants of the building, and the developer entering into a settlement with them. Subject to this, clause 5 of the agreement provided that the Plaintiff was purchasing the residential premises comprised in Flat No.104 on 3 the first floor. Clause 6 of the agreement stipulated that the Plaintiff had paid an amount of Rs.5,000/- prior to the execution of the agreement and that the balance would be linked to the casting of slabs by the First Defendant; payment being required to be made within ten days of a notice in writing by the First Defendant, under Certificate of posting, which would constitute a sufficient discharge. However, clause 28 provided that the Plaintiff agreed to pay all the amounts due under the agreement when they fell due and time was of the essence. The First Defendant was not bound to give a notice requiring payment and his failure to do so would not be treated as an excuse for non-payment. -3. Now, it is an admitted position that between March 1980 and October 1987, the construction of the building in which the Plaintiff had agreed to purchase a residential flat did not commence. The case of the First Defendant is that the construction of the building commenced in October 1987. The Plaintiff paid, besides the initial amount of Rs.5,000/-, a further sum of Rs.31,000/- to the First 4 Defendant. On 3rd June 1987, the Plaintiff addressed a letter to the First Defendant reiterating that the payment of the balance was due slabwise within ten days of a notice in writing calling for payment but, that the Plaintiff had not received any letters from the First Defendant presumably because there was no progress in the construction of the building. The Plaintiff recorded that he had sought nearly twenty appointments from the First Defendant during the previous two years but, that the First Defendant had avoided a meeting. The Plaintiff sought another meeting for discussion on 27th June 1987. There was no reply to the letter. -4. On 25th January 1988, the First Defendant accepted two cheques drawn in the total amount of Rs.4 lakhs by the Second and Third Defendants and addressed a letter on the same date to the Second and Third Defendants. The letter records that the Second and Third Defendants “are insisting” in buying the residential flat which was already sold to the Plaintiff. The First Defendant recorded that the Plaintiff had not made any payment of instalments except the 5 earnest money on the execution of the agreement. The First Defendant stated that as a developer, it would wait for sometime in case the Plaintiff were to come forward to make payment of instalments due. If the Plaintiff did not make further payment of the instalments and the agreement was cancelled, the First Defendant stated that an agreement for sale would be entered into with the Second and Third Defendants. On 4th April 1988, during the subsistence of the agreement between the Plaintiff and the First Defendant, the First Defendant entered into an agreement with the Second and Third Defendants for the sale of the same premises. -5. On 11th April 1988, the First Defendant addressed a telegram to the Plaintiff purporting to cancel the agreement on the ground that the Plaintiff had defaulted in not paying several instalments for the flat, booked in the building of the First Defendant described as 'Rizvi Mansion'. The Plaintiff responded to the notice of termination on 28th April 1988 stating that the First Defendant had still not removed the old structure standing on a part of the property 6 and that he had not started construction of that portion of the new building wherein the Plaintiff's residential flat was to be situated. The Plaintiff claimed that as the construction had not been commenced at all, the further instalments had not become due and there was no question of default. The suit for specific performance was instituted soon thereafter before this Court on 27th April 1988. -6. The First Defendant filed a Written Statement. The defence is that the construction of the building commenced in October 1987 and upon receipt of statutory permissions, the first slab of the building was cast in or about December 1987. According to the First Defendant, the Plaintiff was aware of the progress of the construction and though he was repeatedly requested to pay the instalments of the balance of the consideration, he had failed and neglected to do so. According to the First Defendant, the Plaintiff had purchased the flat with the sole object to profiteer by the sale. According to the First Defendant, the residence and dispensary of the Plaintiff were situated in close proximity and though he was aware of the construction 7 having commenced in 1987, he had defaulted in the payment of instalments under the agreement. The First Defendant admits that no notice was sent to the Plaintiff demanding payment of the instalments but, his defence is that not sending a notice in writing to the Plaintiff would not result in the lapsing of the obligation to pay the amount due under the agreement. The construction of all the flats is alleged to have been completed by March 1988 when a sum of Rs.1,32,000/- was payable. The First Defendant has relied upon clause 28 of the agreement in order to buttress the defence that the failure to address a written notice to the Plaintiff did not absolve the Plaintiff of his obligation to pay the amount due under the agreement. According to the First Defendant, he entered into an agreement on 4th April 1988 with the Second and Third Defendants for the sale of the residential flat. The Second and Third Defendants entered into an agreement with full knowledge of the previous agreement dated 6th March 1980 with the Plaintiff and of the default committed by the Plaintiff. 8 -7. The Second and Third Defendants have also filed a Written Statement in which a reference is made to the letter of the First Defendant dated 25th January 1988, to the agreement between the Plaintiff and the Second and Third Defendants dated 4th April 1988 and to the payment of an amount of Rs.4 lakhs to the First Defendant on 25th January 1988. -8. On the pleadings between the parties, the following issues arise : 1. Whether the Plaintiff is entitled to specific performance of the suit agreement dated 6th March 1980 (Exhibit ‘A’) to the plaint; 2. Whether the Plaintiff was ready and willing to perform his obligations under the agreement and continues to be ready to do so; 3. Whether the Plaintiff is entitled to recover the amount of Rs.5,00,000/- with interest as damages from Defendant No.1 in the event of this Court holding that the Plaintiff is not entitled to specific performance of the suit agreement dated 6th March 1980; 4. Whether the Plaintiff is entitled to recover the amount of Rs.36,000/- paid pursuant to the suit agreement with interest from the Defendants in the event of this 9 Court holding that the Plaintiff is not entitled to specific performance of the agreement dated 6th March 1980; 5. Whether Defendant No.1 proves that the Plaintiff has committed alleged breach of the suit agreement dated 6th March 1980; 6. Whether Defendant No.1 proves that he was entitled to terminate and/or has validly terminated the suit agreement dated 6th March 1980 by telegram dated 11th April 1988 as alleged; 7. Whether the Defendants prove that the agreement for sale dated 4th April 1988 (exhibit ‘B’ to the written statement of Defendant Nos.2 and 3) is valid or binding on and/or enforceable against the Plaintiff; 8. What order and relief? -9. In support of his case, the Plaintiff filed an affidavit in lieu of the Examination-in-Chief and stepped into the witness box. On behalf of the First Defendant an affidavit in lieu of the Examination- in-Chief was filed of Mr.Khalid Badshah stated to be the Manager of the First Defendant. The Second and Third Defendants have not entered into the witness box. 10 -10. The issues would now be taken up for consideration: Issues 1, 2, 5 and 6 can be dealt with together for convenience of exposition. On 6th March 1980, an agreement to sell was entered into between the Plaintiff and the First Defendant by which the First Defendant agreed to sell a residential flat described as Flat No.104 on the First Floor of the building which was to be constructed by the First Defendant on Survey No.1/1175 of TPS III, Mahim. Clause 5 of the agreement specifically provides that a plan and specifications of the residential flat had been seen and approved of by the buyer. The agreement has been marked in evidence as Exhibit P-2. Clause 4 of the agreement put the Plaintiff on notice of the existence of tenanted structures on the property and of the fact that the development was dependent on the First Defendant entering into settlement with the tenants. Clause 4 provided as follows : “4. The Buyer is aware that there is old structure standing on the said land more particularly described in the Schedule hereunder written which is at present occupied by various tenants/occupiers of the said Owners. The Builders have agreed to purchase and the owners have agreed to sell the said land hereditaments and premises in “As is where is condition” i.e. with the existing tenancies aforesaid. Under the terms of the said Agreement the Builders have agreed to 11 develop the said property by demolishing the said old structure and constructing thereon a new building as aforesaid. Therefore, it is necessary in fact and in law to amicably settle with the Tenants either by paying the compensation or providing them with alternate accommodation in the said new building proposed to be constructed. It is agreed that development of the said land as contemplated above is dependent on the Tenants co- operation and assistance to accept the proposal of the Builders in the matter of settling with them.” It is in this background that clause 5 states that “it is subject to what is stated above” that the Plaintiff had agreed to take and acquire the residential flat. Clause 6 of the agreement provides for the payment of consideration in the following terms: “6. The Buyer agrees to pay and discharge the consideration for the acquisition of the said shop/flat to be acquired by him as under:- -(a) On or before execution hereof Rs. 5,000/- On 13th March 1980 Rs.31,000/- -(b) On laying the first slab. Rs.22,000/- -(c) On laying the second slab. Rs.22,000/- -(d) On laying the third slab. Rs.22,000/- -(e) On laying the fourth slab. Rs.22,000/- -(f) On laying the fifth slab. Rs.22,000/- -(g) On laying the sixth slab. Rs.22,000/- -(h) At the time of handing over the possession of the said flat Rs.12,000/- (Rupees Twelve thousand only) The aforesaid payments shall be made within 12 10 days of notice in writing by the Builders to the Buyer to be given as hereinafter mentioned.” (emphasis supplied) Clause 7 stipulated the mode in which the notice that is required to be issued by the First Defendant would be transmitted, and provided thus: “7. The Notice referred in the preceding clause will be sent by the Builders to the Buyers through post under certificate of posting at the address herein mentioned and the same shall be a sufficient discharge to the Builders.” Clause 8 provided that on default in payment of any instalment by the Plaintiff, the agreement would, at an option of the First Defendant, come to an end and the amount paid would stand forfeited. Time was made the essence of the contract. Upon the termination of the agreement, the First Defendant would be entitled to resell the flat again. -11. Now it is admitted by the First Defendant in the Written Statement that until October 1987, the construction of the building had not commenced. The case of the First Defendant is that statutory 13 permissions were received and the first slab of the building was laid on or about 5th December 1987. According to the First Defendant, all the slabs had been cast by March 1988; the Plaintiff failed to pay the instalments which fell due on the casting of each successive slab, and was in breach of the obligation under the agreement. The First Defendant relies on clause 28 of the agreement in order to support the submission that notwithstanding the fact that no written notice was issued to the Plaintiff demanding payment of the instalments, that did not absolve the Plaintiff of his obligation to pay the instalments under the agreement. Clause 28 of the agreement provides as follows: “28. The Buyer hereby agrees to pay all the amounts payable under the terms of this agreement as and when they become due and payable from time to time and time in this respect being the essence of the contract. Further the Builders are not bound to give notice requiring payment and the failure thereof shall not be pleaded as an excuse for non-payment of any amounts of the respective due dates. -12. The principle bone of contention during the course of the hearing, has been whether the Plaintiff has pleaded and proved his 14 readiness and willingness to perform the terms of the contract. The defence is that the Plaintiff has not pleaded his readiness and willingness save and except for an averment in paragraph 7 of the Plaint which is a submission and that there is no positive evidence on whether the Plaintiff was ready and willing to perform his part of the contract. -13. Now, in assessing as to whether the Plaintiff was ready and willing to perform his obligation under the agreement, the submission of the Learned Senior Counsel for the Plaintiff is that the relevant date for considering readiness and willingness is when the obligation to perform arises. In the present case, the Plaintiff had admittedly paid Rs.5,000/- as earnest money and Rs.31,000/- subsequently as provided in the agreement and the occasion for the payment of the balance would arise under clause 6 only when a notice was sent by the First Defendant to the effect that the amount was payable against the casting of each slab. No notice having been given by the First Defendant, the payment – it is urged - did not fall due. 15 Principles of interpretation of contracts : -14. While interpreting the words of a contract, the effort of the Court must be to read all the provisions harmoniously. A construction which results in any part of the contract being rendered otiose must be avoided. -15. A Constitution Bench of the Supreme Court in Ramkishorelal vs. Kamalnarayan,1 held thus: “The golden rule of construction, it has been said, is to ascertain the intention of the parties to the instrument after considering all the words, in their ordinary, natural sense. To ascertain this intention the Court has to consider the relevant portion of the document as a whole and also to take into account the circumstances under which the particular words were used. ... It is clear, however, that an attempt should always be made to read the two parts of the document harmoniously, if possible; it is only when this is not possible, e.g., where an absolute title is given in clear and unambiguous terms and the later provisions trench on the same, that the later provisions have to be held to be void.” 1 AIR 1963 SC 890 16 The same principle was reiterated in a subsequent judgment of the Supreme Court in the context of the construction of a rent deed in a suit for eviction under Rent Control Legislation in M.Arul Jothi v. Lajja Bal:2 “Once parties enter into a contract then every word stated therein has to be given its due meaning which reveals the rights and obligations between the parties. No part of the agreement or words used therein could be said to be redundant.” In a judgment in Mumbai Metropolitan Region Development Authority vs. Unity Infraproject Ltd.,3 I had occasion to consider the principles which the Court must apply in interpreting a contract. The judgment held thus: “In interpreting a contract, the Court cannot place emphasis on an isolated provision divorced from the context and unrelated to the other provisions which govern contractual obligations. ... The duty of the Court when called upon to assess where the balance lies in a contractual dispute, is to read the contract as a whole in order to understand the business meaning which the parties attributed to their 2 (2000) 3 SCC 723 3(Arbitration Petition Nos. 287 and 288 of 2007, decided on 15th February 2008) 17 obligations. Interpretation in law must ensure in commercial matters that the view which the Court takes records the sense which the parties to an arms length transaction attribute to the terms which they incorporate. The law is not divorced from business realities nor can the vision of the Judge who interprets the law be disjointed from the modern necessities to make business sense to business dealings.” A succinct statement of law is to be found in a judgment of Lord Wilberforce in Prenn v. Sunmonds:4 “The common and universal principle ought to be applied, namely that an agreement ought to receive that construction which its language will admit, and which will best effectuate the intention of the parties, to be collected from the whole of the agreement, and that greater regard is to be had to the clear intention of the parties than to any particular words which they may have used in the expression of their intent.” The approach of the Court is based on Justice Cardozo's dictum in Utica City National Bank v. Gunn,5 where the Court held that it was the “genesis and aim of the transaction” that must be construed. Lord Diplock has emphasized the business commonsense principle in 4 [1971] 1 WIR 1381 5 (1918) 118 N.B. 607 18 Antaios Comania Naviera S.A. V. Salen Resderierna A.B.:6 “If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.” -16. In Halsbury's Laws of England (4th edition p. 567) the modern rule of interpreting contracts is regarded as giving effect to the real intention of the parties: “The old rule in respect of deeds was that of the two provisions repugnant to each other, that which came first prevailed. That, however, was probably never a rigid rule and is certainly not so today, nor could it realistically be applied to a commercial document. The true principle seems to be that effect is to be given to the real intention of the parties.” (Halsbury's Law of England, 4th Edition, Pg. 567) -17. The same principle is restated in Chitty on Contracts, Volume 1, 29th Edition, pg.744. “Where the different parts of an instrument are inconsistent, effect must be given to that part which is 6 [1985] A.C. 191 19 calculated to carry into effect, the real intention of the parties as gathered from that instrument as a whole, and that part which would defeat it must be rejected.7 -18. Pollock and Mulla on Contracts states the principle thus: “Therefore, in principle, there is no hierarchy among the terms in one contract, and their importance for interpretation of the remaining part of the contract is the same, regardless to the order in which they appear, unless parties themselves expressly provide for a hierarchy among the different provisions or part of the contract.”8 The agreement construed : -19. The terms of the agreement between the parties expressly recognized that before the construction could commence, the First Defendant had to deal with the claim of the tenants and occupiers who were in occupation of structures situated in the precinct. The 7Walker v. Giles (1848) 6 C.B. 662, 702, Love V. Rowter Steamship Co.Ltd. (1916) 2 A.C. 527, 535, Saban Flour & Feed Mills San Bhd. V. Comfez Ltd. (1988) 2 Llyod's Rep. 18. 8Pollock & Mulla, Indian Contract & Specific Relief Act, 12th Edition, Pg.267, Volume 1. 20 work of development was dependent on the cooperation of the tenants and occupiers and the First Defendant entering into a settlement with them. Clause 5 under which the premises are identified, the price is stipulated and the transaction for transfer is elucidated is, therefore, made subject to what is stated in the earlier part of the agreement. It is in this background that clause 6 stipulated the making of the initial payments of Rs.5,000/- and Rs.31,000/- which would be followed by the payment of the remaining instalments, linked to the casting of slabs. The purchaser was required to be informed by the developer by a notice in writing of the casting of slabs and payments were required to be made within ten days of the notice. The agreement even provides for the mode of service of the notice. Evidently, in this case, the construction could not commence, even according to the First Defendant, until October 1987. It would be preposterous to suggest that the purchaser must keep a watchful eye on the casting of each slab and to suffer the consequences of a default in non-payment even without the issuance of a notice by the builder demanding payment. That was not the 21 intention of the parties and if regard is had to all the provisions which the parties stipulated, it would not be permissible to render clause 6 redundant. -20. The contention of the First Defendant is that clause 28 overrides the obligation of the developer to furnish a notice under clauses 6 and 7 and that despite the default of the developer in furnishing a notice, the Plaintiff was not absolved of his liability to pay the amount as and when it became due or to plead the absence of a notice as an excuse for non-payment. If a construction were to be placed on clause 28 in the manner that has been suggested by the First Defendant that would render a large part of the contractual provisions completely otiose. Significantly, clause 6 which requires payment to be made upon a notice in writing by the developer and clause 7 which provides for the mode of service of the notice would be rendered redundant. Such a construction must