Supreme Court Clarifies "Readiness and Willingness" Requirement in Specific Performance Cases

Recent Judgment Sets Precedent on Acceptance of Earnest Money Refund

By Abhishek Jat, Advocate

In a significant ruling that reshapes the landscape of real estate contract enforcement, the Supreme Court of India has delivered a noteworthy judgment in Sangita Sinha v. Bhawana Bhardwaj and Ors. (Civil Appeal No. 4972 of 2025). The Court has clarified crucial aspects regarding the "readiness and willingness" requirement for specific performance of contracts and established that acceptance of refunded earnest money may render a specific performance claim untenable.

Case Background

The dispute originated from an unregistered Agreement to Sell executed on January 25, 2008, for a property in Patna valued at ₹25 lakhs. The buyer (respondent) had paid ₹2.51 lakhs in cash and issued three post-dated cheques of ₹2.5 lakhs each.

Shortly thereafter, the seller alleged that her signatures had been fraudulently obtained on the agreement. She filed a police complaint on February 6, 2008, and subsequently issued a cancellation letter on February 7, 2008, along with refunding ₹2.11 lakhs through demand drafts and returning two of the three post-dated cheques.

Despite receiving this cancellation and later encashing the demand drafts in July 2008, the buyer had already filed a suit for specific performance in May 2008. Both the Trial Court and the High Court ruled in favor of the buyer, prompting the appeal to the Supreme Court.

Key Legal Principles Established

Justice Manmohan, authoring the judgment, articulated several landmark principles:

1. Distinguishing "Readiness" from "Willingness"

The Court emphasized that "readiness" and "willingness" constitute two distinct elements. As the judgment explains: "'Readiness' means the capacity of the buyer to perform the contract, which would include the financial position to pay the sale consideration. 'Willingness' refers to the intention of the buyer to perform his part of the contract, which is inferred by scrutinizing the conduct of the buyer, including attending circumstances."

2. Continuous Readiness and Willingness Requirement

The Court reinforced the principle that continuous readiness and willingness from contract execution until decree is a condition precedent for specific performance:

"It is not enough to show the readiness and willingness up to the date of the plaint as the conduct must be such as to disclose readiness and willingness at all times from the date of the contract and throughout the pendency of the suit up to the decree."

3. Effect of Encashing Refunded Earnest Money

In a crucial determination, the Court held that the buyer's act of encashing the demand drafts constituted acceptance of the seller's repudiation, thereby terminating the agreement:

"The conduct of the buyer in encashing the demand drafts establishes beyond doubt that the buyer was not willing to perform her part of the Agreement to Sell and proceed with execution of the sale deed; for the buyer would not have encashed the demand drafts if she was indeed willing to perform the contract and have a sale deed executed."

4. Jurisdictional Prerequisite for Specific Performance

The Court clarified that when an agreement has been cancelled prior to filing suit, seeking a declaration that such cancellation is invalid becomes a jurisdictional prerequisite:

"Absent a prayer for declaratory relief that termination/cancellation of the agreement is bad in law, a suit for specific performance is not maintainable."

5. Material Fact Suppression

The judgment also highlighted that suppression of material facts disentitles a party from obtaining discretionary equitable relief:

"The failure of the buyer to disclose [the cancellation letter and refund] in her plaint amounts to suppression of material fact, disentitling her from the discretionary relief of specific performance."

Implications for Legal Practice

This judgment carries significant implications for real estate transactions and contract enforcement:

1. Evidentiary Requirements: Plaintiffs seeking specific performance must now be prepared to demonstrate not just readiness to perform at filing, but continuous willingness throughout the proceedings.
2. Strategic Considerations: Parties who receive cancellation notices with refunds must carefully evaluate their options before encashing such refunds, as doing so may undermine future claims.
3. Pleading Practices: When agreements have been cancelled, plaintiffs must explicitly seek declarations invalidating such cancellations as part of their prayer for relief.
4. Disclosure Obligations: The judgment underscores the importance of full and frank disclosure in pleadings, particularly when seeking discretionary remedies.

The Court's reasoning provides valuable clarity on the equitable nature of specific performance as a discretionary remedy. By setting these parameters, the Supreme Court has reinforced that parties seeking court intervention must approach with clean hands and demonstrate genuine, continuous commitment to their contractual obligations.

This judgment will undoubtedly serve as a landmark reference point for lower courts handling specific performance cases, especially those involving prior cancellations or partial refunds of earnest money.