Jaspal Singh v. Ashwani Kumar: Earnest Money Refund Clause Does Not Bar Specific Performance unless it is a Substitute for Sale

Contents in a Nutshell

  • Suit for Specific Performance – if co-owner’s share is a marketable one; it will not be a suspicious circumstance.
  • Evidence of fraud could not substitute omission to plead collateral transaction.
  • High Court ought not to have revisited findings of facts.
  • Clause for refund – If, only a consequence it will not curtail right of sp. performance.
  • Mere naming a sum as penalty – not defeat specific performance.
  • High Court not to interfere findings of fact (ready and willing) given by first appellate court.
  • Effect of no express clause in the agreement for specific performance through court.

Jaspal Singh v. Ashwani Kumar, 2026 INSC 700

The Supreme Court, in Jaspal Singh v. Ashwani Kumar, 2026 INSC 700 (Justice K.V. Viswanathan and Justice Alok Aradhe), held that existence of a clause for refund of earnest money does not, by itself, bar specific performance, unless the contract clearly shows an option to the defaulting party to pay money instead of performing the contract – as provided in Section 23 of the Specific Relief Act, 1963.

Section 23 of the Specific Relief Act, 1963

  • 23. Liquidation of damages not a bar to specific performance — (1)A contract, otherwise proper to be specifically enforced, may be so enforced, though a sum be named in it as the amount to be paid in case of its breach and the party in default is willing to pay the same, if the court, having regard to the terms of the contract and other attending circumstances, is satisfied that the sum was named only for the purpose of securing performance of the contract and not for the purpose of giving to the party in default an option of paying money in lieu of specific performance.
  • (2)When enforcing specific performance under this section, the court shall not also decree payment of the sum so named in the contract.
Read also:
Forfeiture of Earnest Money and Reasonable Compensation
Godrej Projects: Did the SC Miss to State Something – on Forfeiture of Earnest Money?

Effect of No Express Clause for Specific Performance Through Court

The Supreme Court did not agree with the view of the High Court that the purchaser was not entitled to the relief, for the agreement did not contain an express clause enabling specific performance through the court.

The Apex Court observed as under:

  • “The High Court construed this clause as conferring upon the respondent an option to walk away from the bargain upon refund of the earnest money, holding that the absence of an express stipulation enabling the appellant to enforce the Agreement through court rendered the remedy of specific performance unavailable to him. In our opinion, such a construction cannot be sustained, either on the plain terms of the clause or on the settled position of law.”

HC Not to Interfere Findings of Fact (Ready and Willing) Given by First Appellate Court

The Supreme Court observed as under:

  • “It is trite law that First Appellate Court is the final court of fact and the High Court, in a Second Appeal cannot interfere with findings of fact merely because it would have arrived at a different conclusion on the appreciation of the same evidence; interference is permissible only where the findings are recorded without evidence, or by ignoring material evidence, or are otherwise vitiated by perversity. This test finds its origin in a decision of this Court rendered in 1962 and was reaffirmed later. Subsequently, the aforesaid principles have been reiterated in recent years to state that a finding of fact will not be disturbed unless it is vitiated for want of perversity.”

The Court referred to

  • Sir Chunilal v. Mehta & Sons Ltd. v. Century Spinning & Manufacturing Co. Ltd. (1962),
  • Kondiba Dagadu Kadam v. Savitribai Sopan Gujar (1999),
  • Jaichand v. Sahnulal (2024), and
  • Russi Fisheries P. Ltd. v. Bhavna Seth (2026).

Mere Naming a Sum as Penalty – Not Defeat Specific Performance

Relying on M.L. Devender Singh v. Syed Khaja (1973), the Apex Court approved the principle that the mere naming of a sum as damages or penalty is not sufficient to defeat a claim for specific performance. The Court observed as under:

  • “The said principles have been referred to with approval by this Court wherein this Court held that Section 23 of the 1963 Act contains a comprehensive statement of the principles governing construction of such clauses and if mere naming of a sum of damages or penalty were by itself sufficient to defeat the claim for specific performance of a contract for transfer of immovable property, the provision would be rendered wholly meaningless. It was reiterated that the mere naming of an amount which may sound in damages is not, by itself, sufficient to defeat a claim for specific performance unless it is clear on the facts that the sum was named in lieu of performance, and that a party in breach cannot resist specific performance merely on the ground that the agreement contains no express stipulation for that relief.”

Clause for Refund – Says only Consequence; Not Curtail Right of Sp. Performance

Applying the principle to the agreement under consideration, the Bench stated:

  • “Tested on this touchstone, the clause in question does no more than provide that, in case the Sale Deed could not be executed for any reason, the respondent would be bound to refund the earnest money. There is neither any language of election, nor any stipulation entitling the respondent to discharge the bargain, at his option, by payment of any sum in lieu of executing the Sale Deed. The clause records no more than bare consequence flowing from non-execution of the Sale Deed; the stipulation for refund operates as a deterrent reinforcing the obligation to perform, and not as a substitute for it. It protects the purchaser’s minimum entitlement in the event of default, without in any manner curtailing his right to insist upon performance”.

HC Ought Not to have Revisited Findings of Facts

The Apex Court took note of the following facts:

  • Trial Court and First Appellate Court had rejected the defence of the defendant that the agreement was fabricated from blank signed papers.
  • The defendant had admitted signatures on the documents.
  • The defendant did not produce expert evidence to support the allegation of fabrication.
  • The High Court permitted the very suspicion underlying the discarded defence – “an aspect it ought not to have revisited.”

Evidence of Fraud Could Not Substitute Omission to Plead Collateral Transaction

The Court held it as under:

  • “Suppression of a collateral financial dealing between parties who admittedly had continuing dealings with one another may reflect on the completeness of the plaint and go to the credibility of the appellant on that peripheral matter, but it does not, without more, establish that the Agreement to Sell, itself proved through the unimpeached testimony of the scribe and the attesting witnesses, was a fabrication superimposed on blank signatures. An omission bearing on a collateral transaction cannot be permitted to do the work of positive proof of fraud that the respondent himself failed to discharge, particularly where the cheque relied upon was not shown to correspond to the structured terms of the very arrangement he had pleaded, and the High Court erred in allowing this circumstance to colour its view of the genuineness of the Agreement.”

Co-Owner’s Share is a Marketable Subject Matter; Not a Suspicious Circumstance

The Supreme Court rejected the view of the High Court saying as under:

  • “Nor could the mere fact that the subject matter of the Agreement was an undivided half share in a jointly owned property support an inference that the transaction was not genuine. A co-owner’s undivided share in immovable property is a valid and marketable subject matter of transfer, and an Agreement to Sell such a share cannot be viewed with suspicion merely because the vendor’s co-sharer brother was not made a signatory. It is well settled that a transfer of an undivided share is a legally recognised and enforceable transaction in its own right, the only consequence being that the transferee’s remedy for actual enjoyment of the property lies in a suit for partition, and a consequence bearing upon the mode of enjoyment following the decree; has no bearing whatsoever on the genuineness or enforceability of the underlying Agreement to Sell.”

The Apex Court relied on the following decisions –

  • Sidheshwar Mukherjee v. Bhubneshwar Prasad Narain Singh (1953),
  • M.V.S. Manikayala Rao v. M. Narasimhaswami (1966), and
  • Ramdas v. Sitabai (2009).

Time Gap for Execution of Deed, and Extensions Granted – Not to Doubt Genuineness

The Court also rejected the views of the High Court on ‘time gap’ and extensions as under:

  • “Equally unsustainable is the interference that the time gap between the Agreement and the stipulated date for execution of Sale Deed, and the two extensions granted, indicated that the transaction was not genuine. In any event, the delay was not unreasonable: the date originally fixed as 22.06.2004 was extended, with the consent of parties, only to 22.01.2005 – a total period of barely seven months from the original date. There was, moreover, no material on record to substantiate the respondent’s plea that the parties had entered into a separate transaction relating to his travel to the USA. Extensions of time granted by consent, without more, are wholly consistent with the genuineness of the transaction cannot, by themselves, found an interference to the contrary.

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