The Supreme Court held that an agreement mandating construction violating building laws is void and unenforceable. The illegality rendered specific performance impossible under Section 12 of the Specific Relief Act, as the unlawful object was essential to the contract. The Court affirmed that contracts contravening statutory provisions cannot be severed to remove their core illegal purpose.
Facts Of The Case:
The appellant, Canara Bank, entered into an agreement with the respondent, K.L. Rajgarhia, on 27.12.1984 for the purchase of residential flats to be constructed on a plot in East of Kailash, Delhi. The total consideration was ₹32,07,500, of which approximately 90% (₹28,86,750) was paid upfront. The agreement stipulated the construction and delivery of eight flats and a basement within 18 months. When the respondent failed to complete the construction, the bank filed a suit for specific performance. The respondent defended, initially alleging the agreement was a camouflaged loan transaction, but later abandoned that plea. During final arguments, the respondent contended the agreement was void as it mandated construction of eight flats, which violated the permissible limits under the Delhi Master Plan and Building Bye-Laws, which only allowed a maximum of 2.5 dwelling units on the plot. The bank, invoking Section 12 of the Specific Relief Act, offered to accept the property “as is” with permissible construction. The Trial Court decreed the suit, but the Division Bench of the Delhi High Court reversed this, holding the agreement unlawful and unenforceable, ordering only a refund of the advance with interest. The bank’s appeal to the Supreme Court challenged this reversal.
Procedural History:
The procedural history commenced with the appellant-bank filing Suit No. 1669 of 1989 before the Single Judge of the Delhi High Court (acting as the Trial Court) seeking specific performance of the agreement. The Trial Court decreed the suit in favor of the bank, directing the respondent to execute a sale deed. The respondent then challenged this decree before the Division Bench of the Delhi High Court by filing Regular First Appeal (OS) No. 47 of 2009. The Division Bench, by its order dated 08.05.2012, allowed the appeal, set aside the Trial Court’s judgment, and dismissed the suit for specific performance while ordering a refund of the bank’s advance payment with interest. The appellant-bank’s subsequent civil appeal (No. 2483 of 2014) before the Supreme Court culminated in the present judgment, which dismissed the appeal and affirmed the Division Bench’s decision.
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