Institute of Legal and Management Studies

The Supreme Court on Wednesday (October 29) delivered a significant judgment which explained when should a plaintiff seeking specific performance of contract must also seek a declaration that the termination of the contract by the other party was invalid.

The Court distinguished between termination and wrongful repudiation of the contract, clarifying when a declaration seeking invalidation of the contract needs to be sought by the plaintiff before seeking specific performance of the contract.

The Court explained that when a contract expressly confers a right to terminate, and one party exercises that right (for instance, due to delayed payment or breach), the termination carries prima facie legal validity. This creates a “doubt” on whether the contract still subsists. In such cases, the plaintiff must first seek a declaration that the termination is invalid before asking for specific performance. Without clearing this cloud, the Court cannot compel performance of a possibly terminated contract.

Conversely, when a termination is issued without any contractual basis or when the terminating party has waived its right to terminate through subsequent conduct, for example accepting additional consideration from the party, the act of termination is merely a wrongful repudiation, legally void and ineffective. In such instances, the plaintiff can treat the contract as subsisting and directly file a suit for specific performance without seeking declaratory relief. The Court explained that a void act does not generate a legal cloud because it never had legal existence to begin with.

Background

A bench of Justices JB Pardiwala and Manoj Misra heard the case where an agreement to sell was entered into between the Appellant (buyer) and the defendant (vendor). The defendant, despite having no termination rights, had tried to terminate the contract even after accepting an additional amount of consideration from the plaintiff after a lapse of six months from the contract period. Plaintiff's specific performance suit against the defendant (vendor) was dismissed by the trial court, stating that no declaration to invalidate the termination was sought by the plaintiff before filing suit for specific performance.

The First Appellate Court, however, reversed the trial court's decision and decreed the suit for specific performance of the contract, stating that there was no requirement to seek a declaration about invalidation of the termination, as upon accepting the additional consideration amount, the vendor had wrongly repudiated the contract by waiving its right to terminate through his conduct of accepting additional consideration.

The High Court's reversal of the First Appellate Court's decision in a second appeal prompted the plaintiff-buyer to approach the Supreme Court.

Setting aside the High Court's decision and restoring the First Appellate Court's decision, the judgment authored by Justice Manoj Misra observed that the Respondent-vendors, after the lapse of the six-month contract period, accepted an additional payment from the buyer, conduct amounting to a waiver of the right to terminate.

“In our view, acceptance of additional money not only signified waiver of the right to forfeit advance money /consideration but also acknowledged subsistence of the agreement.”, the court said, pointing out that the subsequent notice of termination was therefore a wrongful repudiation, not a valid exercise of contractual right. The buyer was thus entitled to sue directly for specific performance without first seeking a declaration.

Accordingly, the appeal was allowed.

Cause Title: ANNAMALAI VERSUS VASANTHI AND OTHERS

Citation : 2025 LiveLaw (SC) 1041

Click here to read/download the judgment

Appearance:

For Petitioner(s) Mr. S. Parthasarathi, Adv. Mr. M.p. Parthiban, AOR

For Respondent(s) Mr. Naveen Nagarjuna, Adv. Mr. Ashish Yadav, Adv. Ms. Priya Aristotle, AOR