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MOOT PROBLEM

PROPERTY LAW

SUIT FOR SPECIFIC PERFORMANCE

X v. Y

1.         On 21 July 2009, a Perpetual Lease Deed was executed by the Varanasi Development Authority (“VDA”) in favour of Y with effect from 14 April 2005 in respect of Property A. The said Perpetual Lease Deed was registered on 1 August 2009. Clause 4 (a) of the Perpetual Lease Deed provides that the possession of the Plot could not be transferred except with the consent of the VDA. It is further provided that the consent for transfer shall not be given for a period of 10 years from the commencement of the Perpetual Lease (i.e. upto 13 April 2015) unless in the opinion of the VDA, exceptional circumstances existed for the grant of such consent. The relevant portion of Clause 4 (a) is reproduced herein below:

“(4) a) The Lessee shall not sell, transfer, assign or otherwise part with the possession of the whole or any part of the commercial plot except with the previous consent in writing of the Lessor which he shall be entitled to refuse in his absolute discretion.

PROVIDED that such consent shall not be given for a period of ten years from the commencement of this Lease unless in the opinion of the Lessor, exceptional circumstances exist for the grant of such consent…”

2.         Around July - August 2009, the Y constructed a building over the plot. Y agreed to sell the Property to X for a total consideration of Rs. 2 crores excluding the charges payable to VDA.

3.         Due to the embargo in the Perpetual Lease Deed regarding transfer of the Property, the parties entered into a Lease Deed dated 12 August 2009 in respect of the Property, which was for an initial period of 3 years and renewable for two further periods of 3 years each at the option of X, and which option was to be exercised by the X one month prior to the expiry of the lease.

4.         On the next day, the parties also entered into an Agreement to Sell dated 13 August 2009 in respect of the Property. X paid Rs. 50 lacs as part consideration out of the total consideration of Rs. 2 crores. The balance sale consideration of Rs. 1.50 crores was payable within one month of the notice of Y that the permission of the VDA had been secured. Clause 3(b) of the Agreement to Sell stipulates that if the permissions required (including permission from the VDA to sell the Property) were not obtained by Y within 12 months, the Agreement to Sell was terminable only at the option of X. Clause 3(b) of the Agreement to Sell reads:

“(b)      It is hereby clearly understood that since the permission required to be obtained by the VENDORS in terms of Clause 2 above are crucial and the very basis of this Agreement, and if the VENDORS fail to obtain the said permission / sanctions within the stipulated period of 12 months, the PURCHASER shall have the option to terminate this Agreement, in which event the sum of Rs. 50,00,000 /- (Rupees Fifty Lacs only) paid as advance sale consideration upon execution of this Agreement by the PURCHASER to the VENDORS shall become adjustable by the PURCHASER against future rent for the said building in the PURCHASER’s capacity as Lessees thereof under the Lease Deed dated 12^th August, 2009 notwithstanding the aforesaid and in any event, should the VENDORS fail to fulfill their obligations hereunder or to complete the sale transaction within the time specified hereunder, the PURCHASER shall be entitled to have this Agreement specifically enforced through Court. The Purchaser shall also be entitled to claim any damages resultant upon the VENDORS delay or failure, except when such delay or failure is due to reasons beyond the Vendors Control. On the other hand should the PURCHASER be in breach of any of its obligations hereunder, VENDORS may enforce against the PURCHASER such legal rights as may be available to the VENDORS in this behalf.

5.         On 19 June 2010, VDA declined to grant permission for transfer of the property only on the ground that the 10-year period prescribed in the Perpetual Lease Deed had not expired.

6.         On 24 September 2010, X informed Y of the rejection letter issued by the VDA and sent a cheque of Rs. 50 lacs on the ground that the Agreement to Sell stood terminated / frustrated on account of VDA’s rejection.

7.         X, in response to the above letter, vide letter dated 24 October 2010 informed Y that both parties were always aware of the fact that it was always possible that in view of terms of the Perpetual Lease Deed, the VDA may not grant its permission before the expiry of the 10-year period and it was for this reason only that the option to determine the Agreement to Sell was given only to the purchaser, which X had decided not to exercise and consequently the Agreement to Sell was very much alive.

8.         Consequently, in 2012, the X filed a suit for specific performance of the Agreement to Sell.

ISSUES

A.        Whether X is entitled to specific performance of the Agreement to Sell dated 13 August 2009?

B.        Whether the Agreement to Sell dated 13 August 2009 is a contingent contract and whether the same stood frustrated on account of rejection by the VDA?

C.        Whether the terms of the Agreement to Sell require Y to make a subsequent application despite VDA’s rejection in the first instance?

D.        Whether the Lease Deed dated 12 August 2009 and the Agreement to Sell dated 13 August 2009 formed part of the same transaction?