Kamal Kant Jain v. Surinder Singh (D) Thr. LRs.
Background
In 1978, the respondent authorised a power-of-attorney holder to sell a property, and an agreement to sell was executed for Rs. 3,25,000, with Rs. 32,500 paid as earnest money. When the respondent later refused to complete the sale, the appellant sued for specific performance in 1979. The trial court and First Appellate Court found that the agreement was genuine and that the appellant was ready and willing to perform his part, but still refused specific performance, reasoning (relying on a precedent called Dadarao) that because the agreement's forfeiture clause did not explicitly mention "specific performance" (unlike the original authorisation letter), only damages, not specific performance, were available. The High Court agreed, and the appellant approached the Supreme Court.
Decision Breakdown
The Supreme Court held that all factual findings already favoured the appellant, the agreement was proved, and he was always ready and willing to perform, so the only error was in how Section 23 of the Specific Relief Act was read. Reviewing earlier precedent, the Court explained that Section 23 only disqualifies specific performance where a named sum was clearly intended by the parties as a substitute for performance, not merely as a penalty securing performance; the lower courts' reliance on Dadarao's case was misplaced because that decision was itself distinguishable on facts and had been held per incuriam (wrongly decided due to not considering binding precedent) in two later judgments. Reading the 1978 authorisation letter together with the 1978 agreement, the Court found the earnest money/penalty clause was clearly meant only to secure performance, not to buy an exit from the contract. It set aside the High Court's judgment and ordered specific performance, with the appellant, given the decades that had passed, agreeing to pay the respondent an enhanced Rs. 10 crore within nine months (instead of the small balance price) in exchange for vacant possession.
Lesson Learnt
A clause requiring forfeiture of earnest money or payment of a penalty if a property sale falls through does not, by itself, let the seller simply pay their way out of the deal: courts can still order the sale to go through (specific performance) unless the contract clearly shows the parties meant the penalty to be a substitute for actual performance.