The Supreme Court has ruled that a clause requiring refund of earnest money does not automatically prevent a buyer from seeking specific performance of a property sale agreement. Setting aside the Punjab and Haryana High Court's judgment, the Court restored the decree directing execution of the sale deed in favour of the purchaser, holding that the High Court exceeded its jurisdiction while deciding the second appeal.
Background of the Case
The dispute arose from an Agreement to Sell executed on 22 June 2003 between Jaspal Singh and Ashwani Kumar for the sale of the respondent's half share in a property situated in Jalandhar, Punjab. The purchaser paid ₹9 lakh as earnest money, while the parties later executed two extension agreements extending the date for execution of the sale deed.
When the sale deed was not executed despite the purchaser appearing before the Sub-Registrar, he filed a suit seeking specific performance of the agreement, or alternatively, recovery of the money paid with damages. The seller disputed the agreement, claiming the documents had been signed as security for a separate travel-related arrangement.
The Trial Court held that the agreement had been validly executed but refused specific performance, directing only the refund of earnest money with interest. The First Appellate Court reversed that decision and granted specific performance. However, the High Court later restored the Trial Court's decree, prompting the purchaser to approach the Supreme Court.
Court's Observations
A Bench of Justice K.V. Viswanathan and Justice Alok Aradhe held that the High Court wrongly interpreted the agreement by treating the refund clause as giving the seller an option to avoid completing the sale.
The bench observed,
"The stipulation for refund operates as a deterrent reinforcing the obligation to perform, and not as a substitute for it."
It clarified that merely providing for refund of earnest money in case of non-execution of the sale deed does not bar a decree for specific performance.
The Court further explained that Section 23 of the Specific Relief Act permits specific performance even where an agreement mentions payment of money upon breach, unless the contract clearly shows that payment was intended as an alternative to performance. In the present case, no such option was provided to the seller.
High Court Exceeded Its Jurisdiction
The Supreme Court also found that the High Court had gone beyond the limited scope of a second appeal under Section 100 of the Code of Civil Procedure.
The Bench noted that both the Trial Court and the First Appellate Court had concurrently found that the agreement was genuine, the purchaser had always been ready and willing to perform his obligations, and the seller had failed to establish his defence regarding alleged fraud.
According to the Court, these factual findings could not be disturbed in a second appeal without first recording that they were perverse or unsupported by evidence.
The bench observed that the High Court had improperly reassessed evidence and drawn fresh conclusions despite accepting the concurrent findings on execution of the agreement and the purchaser's readiness and willingness.
Supreme Court's Decision
Allowing the appeals, the Supreme Court quashed the Punjab and Haryana High Court's judgment dated 8 February 2019 and the review order dated 10 July 2019. It restored the First Appellate Court's decree directing specific performance of the agreement to sell.
The Court held that the refund clause did not prevent enforcement of the contract and reaffirmed that the purchaser was entitled to specific performance based on the facts already established by the courts below.
No order as to costs was passed.
Case Details
Case Title: Jaspal Singh v. Ashwani Kumar
Case Number: Civil Appeal Nos. 2448–2449 of 2023
Judges: Justice K.V. Viswanathan and Justice Alok Aradhe
Decision Date: 14 July 2026
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