Supreme Court Upholds Original Vendees' Right to Specific Performance, Rejects Subsequent Purchasers' Claim of Bona Fide Purchase

SC rules unilateral termination of non-determinable Agreement to Sell invalid; directs subsequent purchasers to execute sale deed in favour of original vendees after payment of balance consideration and compensation

In a significant judgment dated November 10, 2025, the Supreme Court of India dismissed appeals filed by subsequent purchasers in a protracted property dispute, affirming the original vendees’ right to specific performance of an Agreement to Sell (ATS) executed in 2000. The Court, comprising Justices J.B. Pardiwala and R. Mahadevan, held that the unilateral termination of the ATS by the original vendors was not bona fide and thus invalid, and that the subsequent purchasers could not claim protection as bona fide purchasers without notice.

The facts pertain to an unregistered ATS dated April 28, 2000, for the sale of 354 acres of agricultural land in Haveri, Karnataka, executed by original vendors in favour of original vendees for Rs. 26,95,501, with earnest money of Rs. 2,00,000 paid. The original vendees undertook significant steps including land survey, tenure conversion, and tenant relocation, and paid further sums aggregating Rs. 8,12,500. However, the original vendors issued a notice of termination in March 2003 citing pendency of a civil suit with a status quo order and the death of one vendor as grounds, demanding the return of earnest money and treating the ATS as cancelled if not claimed within a month.

The original vendees promptly replied denying validity of termination, asserting readiness and willingness to perform, and refusing to accept refund of earnest money. No refund was made. Subsequently, after withdrawal of the civil suit and vacation of the status quo order in February 2007, the original vendors sold the land to subsequent purchasers through sale deeds executed in February and March 2007.

The original vendees filed suit for specific performance in 2007 against both original vendors and subsequent purchasers. The Trial Court initially dismissed the suit in favour of subsequent purchasers, holding they were bona fide purchasers for value without notice. On appeal, the Karnataka High Court set aside the trial court judgment, holding that subsequent purchasers had notice of the ATS and the termination notice, and that the termination was unilateral and not taken to its logical end, thus the ATS subsisted. The High Court decreed specific performance in favour of original vendees.

The Supreme Court, on appeal by subsequent purchasers, thoroughly analyzed the legal principles on unilateral termination, determinable contracts, bona fide purchase, readiness and willingness to perform, and limitation.

Key legal findings include:

• 1. Unilateral Termination Invalidity: The Court reaffirmed that unilateral termination of an agreement to sell is impermissible unless the contract is determinable in nature under Section 14 of the Specific Relief Act, 1963. The ATS here was non-determinable, as it contained no clause permitting unilateral termination and made performance conditional on future contingencies executed by original vendors.

• 2. No Necessity of Declaratory Relief: Though case law such as I.S. Sikandar mandates challenge to termination by declaratory relief in some contexts, the Court held that where termination is unilateral, not bona fide, and without contractual right, the non-terminating party can directly seek specific performance without such declaration.

• 3. Bona Fide Purchase Test: Section 19(b) of the Specific Relief Act protects subsequent purchasers who pay value in good faith without notice of prior contract. The Court found that subsequent purchasers had actual notice of the ATS and the termination notice, which itself raised suspicion due to its conditional “deemed cancellation” clause and non-refund of earnest money. They failed to make reasonable inquiries from original vendees despite knowing their names and addresses from the termination notice. This constituted constructive notice, negating their claim as bona fide purchasers.

• 4. Readiness and Willingness: The original vendees were continuously ready and willing to perform their contractual obligations, including payment and assisting in land formalities. The original vendors failed to complete their part by not informing about completion of subdivision work, which was a condition precedent for sale deed execution.

• 5. Limitation: The trial court’s finding that the suit was filed within limitation was not challenged before the High Court and is deemed final.

Accordingly, the Supreme Court upheld the High Court's decree directing subsequent purchasers to execute sale deeds in favour of original vendees and hand over possession within six months, subject to payment of balance sale consideration of Rs. 18,83,001 with 16% interest and an additional Rs. 5 crores as compensation by the original vendees to subsequent purchasers. The Court emphasized that failure by either party to comply would entitle recourse to appropriate remedies.

This judgment clarifies critical aspects of property law, particularly the impermissibility of unilateral termination of non-determinable agreements, the parameters of bona fide purchase, and the necessity of bona fide purchasers to exercise due diligence, especially when presented with documents raising doubts. It also underscores the equitable principle that contractual obligations cannot be evaded through convenience or technicalities, and that courts must ensure substantive justice.

Statutory provision(s):  Section 14, Section 16(c), Section 19(b) of the Specific Relief Act, 1963; Section 3(22) of the General Clauses Act, 1897; Section 2(11) of the Bharatiya Nyaya Sanhita, 2023; Article 54 of the Limitation Act, 1963; Section 3 of the Transfer of Property Act, 1882

K.S. Manjunath v. Moorasavirappa @ Muttanna Chennappa Batil, (SC) : Law Finder Doc Id # 2806095