Sign­ing a con­tract? Find out why time is of the essence

The finer points of a con­tract, its time­lines and other as­pects have to be care­fully scru­ti­nised by both buy­ers and sell­ers. Non-com­pli­ance of ‘time is of the essence’ clause can spell trou­ble for buy­ers

HT Estates - - HTESTATES - Su­nil Tyagi

Con­tracts are of crit­i­cal im­por­tance. The finer points of a con­tract, its time­lines and other as­pects have to be care­fully scru­ti­nised by the par­ties con­cerned. They must be care­ful while en­ter­ing into con­tracts in which time is of the essence, as non­com­pli­ance of this con­di­tion can lead to vi­o­la­tion of con­tract.

When an agree­ment to sell for an im­move­able prop­erty has been ex­e­cuted be­tween par­ties and time of essence clause has been in­cluded, will any vi­o­la­tion re­gard­ing time­line en­ti­tle the party which suf­fered losses to ter­mi­nate such agree­ment to sell?

This ques­tion came up for con­sid­er­a­tion in the Supreme Court in the case of Pad­maku­mari and oth­ers ver­sus Dasayyan and oth­ers in 2015.

In the case, the pro­terty own­ers en­tered into an un­reg­is­tered agree­ment to sell on April 19, 1992, with buy­ers in­ter­ested in the prop­erty. The buy­ers paid an ad­vance when the agree­ment was signed and the par­ties agreed that the re­main­ing amount would be paid within nine months from the date of the agree­ment to sell.

How­ever, as the buyer failed to pay up the fi­nal sum within the agreed time pe­riod, the own­ers sold part of the suit prop­erty vide a reg­is­tered sale deed dated April 19,1993, to some third par­ties.

Af­ter al­most one year from the date of ex­e­cu­tion of the agree­ment to sell, the buy­ers is­sued a le­gal no­tice to the erst­while own­ers, de­mand­ing ex­e­cu­tion of sale deed as per the agree­ment to sell. When they did not get a re­sponse, the buy­ers filed a suit against the own­ers and the third par­ties in the trial court.

The trial court ob­served that the sale deed was not valid and the third par­ties had not pur­chased the suit prop­erty in good faith and passed a de­cree in favour of the buyer.

Ag­grieved by the or­der the third par­ties filed an appeal be­fore the high court, which con­curred with the find­ings of the trial court. There­after, the third par­ties ap­proached the Supreme Court with their com­plaint.

The apex court on its part took up the is­sue se­ri­ously. Ex­plain­ing the con­cept of time be­ing the essence of the con­tract, SC re­lied on the clause in the agree­ment to sell, wherein the buyer had agreed to pay the bal­ance con­sid­er­a­tion within nine months.

It held that if time or date was stip­u­lated in a con­tract and it was not per­formed by such time or date, the in­no­cent party could ter­mi­nate the con­tract.

How­ever, SC also pro­vided an ex­cep­tion, say­ing there could be sit­u­a­tions where in­fer­ence could not be made of time be­ing the essence of the con­tract.This could hap­pen if the con­tract stip­u­lated a time­line for ful­fill­ment of an obli­ga­tion, but had other clauses that spec­i­fied penal­ties for time ex­ten­sions or de­lay in per­for­mance of work or had clauses that al­lowed post­pone­ment of per­for­mance. SC also ob­served that it was an undis­puted fact that the buyer had not made the pay­ment in the stip­u­lated time and ruled in favour of the third par­ties.

The apex court also ob­served that the agree­ment to sell ex­e­cuted by the buy­ers was un­regis- tered and the third par­ties even upon ver­i­fi­ca­tion could not have rea­son­ably known about it.

There­fore, the SC set aside the de­ci­sion of the trial court and the hight court and held that since third par­ties had paid the con­sid­er­a­tion in good faith and with­out knowl­edge of the orig­i­nal con­tract, they would be pro­tected by law and the sale deed dated April 19.1993 ex­e­cuted be­tween the own­ers and the third par­ties would be con­sid­ered valid. with DDA and should have been a com­pre­hen­sive by­pass to Gur­gaon but it has not been planned that way. So, I would say that his­tor­i­cally there has been a plan­ning la­cu­nae. What are the chal­lenges ahead? Declar­ing Dwarka Ex­press­way as a na­tional high­way does not re­solve the prob­lem be­cause it must con­nect one na­tional high­way to an­other, it must lead some where. As such it will only re­main a spur to NH8.

How­ever, to take it to its log­i­cal con­clu­sion, I feel, as and when the or­der comes in, we will have to look at it more com­pre­hen­sively and to ide­ally con­nect NH8 from Khirki Duala to the ex­ist­ing Dwarka Ex­press­way as it ex­ists and to con­nect it to NH8 near Shiv­murti.

So that would make it use­ful as a de­con­ges­tion ef­fort and not as pal­lia­tive cure for an in­com­plete project. My ef­fort, there­fore, once the ap­proval and the for­mal no­ti­fi­ca­tion comes in, will be to get a com­plete study un­der­taken of the ex­act align­ment that needs to be de­lin­eated. To get it on the ground, it will take three or four months, for con­sid­er­a­tion the align­ment is­sues keep­ing in view the very heavy habi­ta­tion in that area and the need for land ac­qui­si­tion. We will also have to see how it can best be economised so that level of dis­place­ment to ex­ist­ing plot hold­ers and farm hold­ers is not there.

There would be I am sure some vo­cif­er­ous peo­ple who would be ex­pect­ing very ex­or­bi­tant com­pen­sa­tion. We will also have to look at how the ex­ist­ing metro and el­e­vated cor­ri­dors are suit­ably taken aboard and we are able to carve out the cor­rect align­ment which is eco­nom­i­cal, ef­fi­cient and cost ef­fec­tive and which causes the least dis­tur­bance to the ex­ist­ing res­i­dents by giv­ing them max­i­mum com­fort.

This has to be looked at com­pre­hen­sively, holis­ti­cally, and once we have that plan in readi­ness, then we will start bid­ding it out and ex­e­cut­ing it. What ex­pen­di­ture will be in­curred in the process? My un­der­stand­ing is that here the ex­pen­di­ture will be largely on land ac­qui­si­tion for re­main­ing parts and it’s likely to be more ex­pen­sive than civil con­struc­tion work.But that is a pre­lim­i­nary es­ti­mate. And keep­ing in view the fact that it is im­por­tant for the coun­try, we will cer­tainly not com­pro­mise on the spec­i­fi­ca­tions or the fea­tures or struc­tures even if it needs ex­tra money and even if we have to go to the gov­ern­ment for ex­tra funds. By when are you ex­pect­ing the no­ti­fi­ca­tion? Within two to three to months per­haps. I am ex­pect­ing the no­ti­fi­ca­tion any day. I have not got any­thing in writ­ing. I have re­ceived a let­ter from the DDA talk­ing of the spe­cific align­ment that they have in mind. DDA has given us a broad let­ter con­vey­ing the align­ment etc. Now it is up to the min­istry to is­sue a for­mal no­ti­fi­ca­tion which we are await­ing.

As and when it hap­pens, the ball will start rolling. It will take an­other three to four months to get the spec­i­fi­ca­tions, the project re­port through and an­other four or five months to bid it out, get­ting a con­trac­tor to do the work etc. The tar­get to com­plete the project has been set at June 2017. Is it achiev­able? Un­less I see the no­ti­fi­ca­tion, I can­not say. I am look­ing at us as an agency that will de­liver this im­por­tant project. I had a del­e­ga­tion of cit­i­zens from the area com­ing and meet­ing me re­cently. I feel there is a gen­eral pain point there and it needs to be re­solved and as and when the for­mal no­ti­fi­ca­tion is re­ceived, we will take it up from there. For the full in­ter­view go to hin­dus­tan­


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