Supreme Court’s Landmark Ruling on Specific Performance: Equity Overrides Strict Contract Law in Long-Delayed Property Dispute

In a landmark ruling that underscores the role of equity in Indian contract law, the Supreme Court of India, in Subhash Aggarwal v. Mahender Pal Chhhabra & Anr. (Civil Appeal No. of 2026, arising from SLP(C) No. 30936 of 2025), delivered a nuanced judgment that balances legal principles with fairness. Decided on January 5, 2026, by a bench comprising Justices Vikram Nath and Sandeep Mehta, the case revisits a long-standing dispute over the specific performance of a property agreement dating back to 2008. The judgment offers critical insights into the interpretation of "readiness and willingness," the forfeiture of earnest money, and the court’s inherent power to do "complete justice" under Article 142 of the Constitution. This blog explores the facts, legal arguments, and far-reaching implications of this significant decision.

Facts of the Case: A Timeline of Delay and Default

The dispute centers around an Agreement to Sell dated January 22, 2008, for a property measuring 300 square yards in Ashok Vihar, Phase-1, Delhi. The total sale consideration was ₹6.11 crores. The appellant-buyer, Subhash Aggarwal, paid ₹60 lakhs as earnest money on the execution date and an additional ₹30 lakhs on March 24, 2008, which the respondents-sellers duly acknowledged. The balance payment of ₹5.21 crores was due on May 10, 2008.

The appellant filed a suit for specific performance in 2008. The Trial Court decreed the suit in his favor on February 15, 2021, finding that the appellant had demonstrated readiness and willingness, while the respondents had defaulted on their obligations, such as obtaining mutation and converting the property from leasehold to freehold. The respondents appealed to the Delhi High Court, which initially dismissed the appeal but was later directed by the Supreme Court to reconsider the matter afresh. On September 3, 2025, the High Court’s Division Bench set aside the decree for specific performance, holding that the appellant failed to prove financial readiness. It allowed the respondents to forfeit the ₹60 lakhs earnest money but ordered the refund of the additional ₹30 lakhs with 9% interest. Aggrieved, the appellant approached the Supreme Court.

Legal Analysis: Key Principles at Play

1. Readiness and Willingness: A Fact-Specific Inquiry

The cornerstone of any specific performance suit is the plaintiff’s ability to prove continuous readiness and willingness to perform their part of the contract. As the Supreme Court reiterated, there is "no straitjacket formula" for determining this; it must be construed based on the facts of each case.

In this instance, the Court found that the appellant failed to demonstrate that he had the financial wherewithal to pay the balance of ₹5.21 crores on the due date. Moreover, he did not even visit the Sub-Registrar’s office on May 10, 2008, to complete the transaction. These lapses led the Court to agree with the High Court’s finding that the appellant was not entitled to the equitable relief of specific performance, especially after a lapse of over seventeen years from the agreement date.

2. Mutual Default and the Role of Equity

The Court noted that both parties were at fault. While the appellant failed to prove readiness, the respondents also neglected their contractual duties—specifically, obtaining mutation and securing the conversion from leasehold to freehold. In such scenarios of mutual default, the Court emphasized that equity must operate to prevent unjust enrichment and restore parties to their original position as far as possible.

3. Forfeiture of Earnest Money: Not an Automatic Windfall

A critical issue was the forfeiture of the ₹60 lakhs earnest money. The High Court had permitted it, but the Supreme Court intervened on equitable grounds. It held that allowing forfeiture would grant the respondents an "equitable windfall," especially since they too had breached the contract. The Court stressed that forfeiture clauses must be reasonable and not punitive, aligning with precedents that discourage unjust enrichment.

4. Supreme Court’s Power to Do "Complete Justice"

Invoking its powers under Article 142 of the Constitution, the Supreme Court modified the High Court’s order to ensure fairness. Instead of ordering a simple refund, it directed the respondents to pay a lumpsum compensation of ₹3 crores to the appellant within four weeks. This amount—significantly higher than the total ₹90 lakhs paid—was deemed appropriate to "fully restitute" the appellant for the long-drawn litigation, inflation, and opportunity cost, while bringing "quietus" to the protracted dispute.

Implications of the Judgment

This ruling has several important implications for property transactions and contract law in India:

1.- Emphasis on Equity Over Formalism: The judgment reaffirms that courts will not apply contract law rigidly but will intervene to ensure fairness, especially in cases of mutual fault and long delays.

2.- Financial Readiness as a Decisive Factor: Buyers seeking specific performance must maintain and provably demonstrate financial readiness at all stages, not just at the time of agreement.

3.- Limited Forfeiture of Earnest Money: Sellers cannot automatically forfeit earnest money if they are also in breach. Courts will examine the proportionality and fairness of such forfeiture.

4.- Use of Article 142 for Pragmatic Justice: The Supreme Court’s willingness to award a lumpsum compensation beyond conventional refunds showcases its role in delivering holistic justice, particularly in decade-old disputes.

5.- Encouragement of Timely Resolution: The Court’s reference to the seventeen-year delay underscores the importance of timely legal action and the diminishing likelihood of specific performance in stale claims.

Conclusion: A Balanced Precedent for Future Disputes

The Supreme Court’s judgment in Subhash Aggarwal v. Mahender Pal Chhhabra & Anr. is a masterclass in balancing legal doctrine with equitable principles. By denying specific performance but awarding substantial compensation, the Court acknowledged the realities of long-drawn litigation and mutual default. This decision serves as a cautionary tale for parties to property agreements: diligence, readiness, and timely action are paramount. For legal practitioners, it highlights the evolving judicial approach where equity often trumps strict legal entitlements in the interest of justice.

Ultimately, the ruling paves the way for more nuanced resolutions in contract disputes, ensuring that neither party gains unduly from the other’s misfortune or failure.

Case Reference: Civil Appeal No(s). of 2026 (Arising out of SLP (Civil) No. 30936 of 2025) – Subhash Aggarwal vs. Mahender Pal Chhhabra & Anr., Supreme Court of India, decided on January 5, 2026.