Introduction:

In Jaspal Singh v. Ashwani Kumar [2026 LiveLaw (SC) 682], the Supreme Court of India delivered an important judgment clarifying the legal effect of clauses providing for the refund of earnest money in agreements to sell immovable property. The judgment was delivered by a Bench comprising Justice K.V. Viswanathan and Justice Alok Aradhe, which held that the mere existence of a contractual clause requiring refund of earnest money upon failure to execute the sale deed does not deprive the purchaser of the right to seek specific performance of the agreement. Such a clause cannot be interpreted as giving the seller an option to avoid the contract by simply returning the amount received.

The dispute arose from an Agreement to Sell dated 22 June 2003. Under the agreement, the appellant agreed to purchase the respondent’s half share in a property measuring 12 marlas for a total consideration of ₹12.50 lakh. At the time of execution, the appellant paid ₹9 lakh as earnest money. Subsequently, the parties mutually extended the time for execution of the sale deed on two occasions, during which the respondent also received an additional sum of ₹60,000.

Despite these extensions and substantial payment, the sale deed was never executed. Claiming that he had always remained ready and willing to perform his part of the contract, the appellant instituted a suit for specific performance in 2006. The respondent denied the transaction altogether, alleging that his signatures had been obtained on blank papers merely as security for a financial arrangement connected with his proposed foreign travel.

The Trial Court accepted the existence of the agreement but declined specific performance, directing only refund of the earnest money. The First Appellate Court reversed that finding and granted specific performance. However, the High Court, exercising jurisdiction under Section 100 of the Code of Civil Procedure, restored the Trial Court’s decree on the reasoning that the clause providing for refund of earnest money indicated that monetary compensation was the intended remedy. Aggrieved, the appellant approached the Supreme Court.

The appeal raised significant questions concerning the interpretation of Section 23 of the Specific Relief Act, 1963, the scope of specific performance in contracts involving immovable property, and the limitations on the High Court’s jurisdiction in second appeals.

Arguments of the Parties:

The appellant contended that the agreement to sell was genuine, duly executed, and repeatedly acknowledged by the respondent through extensions of time for execution of the sale deed. It was argued that payment of ₹9 lakh as earnest money and an additional ₹60,000 clearly established the existence of a valid transaction. The appellant further submitted that he had consistently remained ready and willing to perform his contractual obligations, satisfying the essential requirement for obtaining specific performance under the Specific Relief Act.

The appellant challenged the High Court’s interpretation of the refund clause. According to him, the clause merely protected the purchaser by ensuring repayment of the earnest money in the event of default and did not confer any contractual right upon the seller to walk away from the agreement. It was argued that if such clauses were treated as permitting vendors to escape contractual obligations by refunding money, agreements relating to immovable property would lose their binding character and Section 23 of the Specific Relief Act would become ineffective.

The appellant also argued that the High Court had exceeded its jurisdiction under Section 100 CPC by re-examining factual issues already settled by the Trial Court and the First Appellate Court. Since there were concurrent findings regarding execution of the agreement, payment of consideration and readiness and willingness, interference was legally impermissible.

The respondent, on the other hand, denied the genuineness of the transaction. He maintained that the documents relied upon by the appellant were never intended to operate as agreements to sell. According to him, his signatures had been obtained on blank papers as security in connection with financial assistance for his proposed travel abroad. It was submitted that the property was jointly owned, making the transaction doubtful, and that repeated extensions suggested that the agreement lacked genuine commercial intent.

The respondent further argued that the contractual clause providing for refund of earnest money demonstrated the parties’ intention that monetary compensation would constitute the appropriate remedy if the sale could not be completed. Consequently, specific performance ought not to have been granted.

Court’s Judgment:

Allowing the appeal, the Supreme Court restored the judgment of the First Appellate Court granting specific performance. The Court held that the High Court had fundamentally misconstrued the contractual clause relating to refund of earnest money.

The Bench observed that the clause merely stipulated the consequence of failure to execute the sale deed by requiring refund of the earnest money. It did not contain any language suggesting that the seller had an option to terminate the agreement by repaying the amount. Nor did it indicate that payment of money was intended as a substitute for performance. Instead, the clause merely secured the purchaser’s minimum entitlement while preserving his right to insist upon completion of the contract.

The Court emphasised that contractual interpretation must be based upon the language actually employed by the parties. Unless the agreement expressly confers an option to substitute monetary payment for contractual performance, courts cannot infer such a right merely because compensation is mentioned. The refund clause therefore reinforced, rather than diluted, the seller’s obligation to execute the sale deed.

Interpreting Section 23 of the Specific Relief Act, 1963, the Court reiterated that the mere specification of a sum payable upon breach does not automatically exclude the remedy of specific performance. The legislative intent behind the provision is that naming compensation in a contract does not permit the defaulting party to avoid performance where the contract is otherwise specifically enforceable. Accepting the contrary interpretation would render Section 23 largely redundant and encourage parties to evade solemn contractual obligations.

The Court observed that the High Court’s reasoning effectively rewarded the defaulting vendor, who had accepted a substantial portion of the sale consideration and thereafter obtained two extensions for execution of the sale deed. Such an interpretation, according to the Bench, would defeat rather than promote the object of the Specific Relief Act.

The Supreme Court also found serious error in the High Court’s exercise of jurisdiction under Section 100 CPC. The Bench reiterated the settled principle that a second appellate court cannot reassess evidence or disturb findings of fact unless they are perverse, unsupported by evidence, or give rise to a substantial question of law.

In the present case, the High Court accepted the concurrent findings that the agreement had been executed, earnest money had been paid, and the purchaser had remained ready and willing to perform. Despite this, it proceeded to question the genuineness of the transaction by relying upon surrounding circumstances such as alleged financial dealings, joint ownership of the property and extensions of time. The Supreme Court held that these considerations did not justify interference.

The Court further rejected the respondent’s allegation that the agreements had been fabricated from signed blank papers. The respondent had admitted his signatures on all three agreements but failed to produce handwriting or forensic evidence to establish fraud. Mere allegations, unsupported by convincing evidence, could not displace duly executed contractual documents.

Addressing the issue of joint ownership, the Court clarified that transfer of an undivided share in jointly owned property is perfectly permissible under Indian law. Therefore, the fact that the respondent owned only a half share did not cast any suspicion on the validity of the agreement. Likewise, consensual extensions of time reflected continued recognition of the contract rather than its falsity.

Accordingly, the Supreme Court set aside the High Court’s judgment and restored the decree passed by the First Appellate Court directing specific performance of the agreement to sell. The decision reinforces the principle that contracts relating to immovable property must ordinarily be honoured according to their terms and that courts will not permit defaulting parties to evade performance merely by relying upon clauses providing for refund of earnest money.