Canara Bank vs. K.L.Rajgarhia (D) Thru Lrs.

REPORTABLE
2025 INSC 1278

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION


CIVIL APPEAL NO. 2483 OF 2014


CANARA BANK …...APPELLANT(S)

VERSUS

K.L. RAJGARHIA (D) THRU LRS. ….RESPONDENT(S)

J U D G M E N T

Aravind Kumar, J.
1
1. The Appellant before this Court is the unsuccessful Plaintiff in a suit for
Specific Performance, and the Respondent is the Defendant in the suit.
(The parties hereinafter are referred to by their respective ranks in the suit.)
2 3
The Single Judge of the Delhi High Court had decreed the suit filed by
the Plaintiff against the Defendant, directing the Defendant to execute a
Registered Sale Deed in favor of the Plaintiff, based on the Agreement to
4
Sell dated 27.12.1984. This judgment and decree of the Trial Court was
challenged in RFA (OS) No. 47 of 2009 by the Defendant before the
Division Bench of the High Court which came to be allowed by the
impugned order dated 08.05.2012 and dismissed the Plaintiff’s suit with
respect to specific performance. However, directed the refund of the
Signature Not Verified

Digitally signed by
RADHA SHARMA
Date: 2025.11.01
12:11:52 IST
Reason:
1
Suit No. 1669 of 1989, hereinafter referred to as the Suit.
2
Hereinafter referred to as the Trial Court.
3
Hereinafter referred to as the High Court.
4
Hereinafter referred to as the Agreement.
1


consideration already paid by the Plaintiff. This order of the Division
Bench of the High Court is now assailed before this Court in the present
appeal by the plaintiff.
BRIEF FACTS:
2. The plaintiff and defendant entered into an agreement to sell dated:
27.12.1984, wherein the defendant agreed that he would sell the property
5
bearing Plot No. 9, Block B, East of Kailash for a sum of Rs. 32,07,500.
According to the Agreement the Defendant was responsible for
construction of 8 (eight) flats on the schedule property in following terms:
SCHELDULE - I:
(A) 2(Two) Flats of approximately 1000 sq.ft. in Ground floor.
1 (one) flat of approximately 1000 sq.ft. in Mezzanine floor.
2 (Two) Flats of approximately 1000 sq.ft. in first floor.
2 (Two) Flats of approximately 1000 sq.ft. in Second floor.
1 (One) Flat of approximately 1000 sq.ft. in Third / Barsati
floor.
(B) Basement of approximately 1950 sq.ft. The actual covered
area will be determined after the construction is completed in
all respects and the flats are ready for occupation legally".


3. Disputes arose between the parties regarding the Registration of the
agreement and therefore the Plaintiff filed a Suit for Specific Performance,
contending the following:
3.1. In December 1984, the plaintiff entered into an agreement with the
defendant for purchase of residential flats to be constructed on a plot in
East of Kailash, Delhi, at a total consideration of ₹32,07,500/-, of which
about 90% (₹28,86,750/-) was paid by the plaintiff. The defendant was
obligated to complete construction within 18 months, with an additional
six-month grace period, obtain all necessary statutory approvals, and
hand over possession of the flats. The agreement also provided for

5
Hereinafter referred to as the Schedule Property.
2


payment of damages at Rs. 1,000/- per day for delays and allowed the
plaintiff to complete unfinished work at the defendant’s cost if necessary.
3.2. The defendant failed to complete the construction or hand over
possession despite repeated requests, allegedly abandoning the project.
The plaintiff contends that the defendant’s claimed difficulties with their
contractor are irrelevant, as construction and delivery were solely the
defendant’s responsibility. The Plaintiff contends that the mere monetary
compensation is inadequate given the purpose of the flats for officers and
public interest.
4. On service of summons, the Defendant appeared before the Court and filed
his Written Statement contending the following:
4.1. The Agreement to Sell (27.12.1984) was not a genuine sale but a cover
for a loan transaction executed under the assurance of the plaintiff
bank’s officers, with an understanding that advances would be repaid
with 18% interest. The defendant contended the agreement was
obtained under undue influence and coercion, as he was in urgent need
of funds, indebted to the bank, and had no real freedom to negotiate
terms.
4.2. The agreement imposed unfair conditions such as low consideration
rates below market value, liability for all levies/charges on defendant,
cancellation rights and penalties favouring the bank and exclusive rights
over future construction. Specific performance would cause
disproportionate hardship to the defendant who needed the premises for
his family and sons, whereas the plaintiff (a bank) would suffer no real
loss and could be adequately compensated by repayment amount paid
with interest.
3


5. The Trial Court framed nine issues for its consideration, and evidence was
recorded in relation to these issues. The matter was then posted for final
arguments. At that stage, the Defendant submitted that he was abandoning
all his claims, including those relating to the agreement being a loan
transaction and the aspects of undue influence and coercion, and thereafter
contended as follows:
5.1. That no sanctioned building plan was actually annexed to the agreement
despite being referred to therein, and only a photocopy of a sanctioned
plan was later handed over without being duly filed or proved by either
party. The agreement was not for the sale of land but for the construction
of residential flats, as shown in Schedule I, which mentioned eight
proposed units to be built on the 300 sq. yard plot. Under the applicable
master plan, only 2.5 residential units were permissible on a 300 sq. yard
plot at the time, and even under the current plan, a maximum of five
dwelling units would be allowed, whereas the sanctioned plan permitted
only 2.5 units.
5.2. The agreement, however, envisaged construction of far more units i.e.
two flats on each of the ground, first, and second floors, one on the
mezzanine, and one on the terrace, totalling 8 to 10 flats which contrary
to the sanctioned plan and building bye-laws, which made the proposed
construction non-compoundable. It was therefore argued that the contract
was illegal, being contrary to the master plan, sanctioned plan, and
building regulations, and hence void and not specifically enforceable and
furthermore, even refund of the advance consideration could not be
claimed, as the agreement was void ab initio and not merely discovered
to be void later under Section 65 of the Contract Act.
6. After noting the new plea raised by the Defendant, the Plaintiff filed an
application contending that, in the event the Trial Court accepts the
4


Defendant’s new plea, the Plaintiff is willing to take the property “as is,” in
6
accordance with Section 12 of the Specific Relief Act.
7. The Trial Court after considering the evidence available on record decreed
the suit filed by the Plaintiff and directed the Defendant to execute a
registered sale deed in favour of the Plaintiff. The trial court while
decreeing the Suit held that:
7.1. Just because there is a clause which says that the Plaintiff is entitled to
refund in case if the defendant breaches the agreement, it cannot be a
ground to delete his right to file suit for specific performance. The
defendant’s plea that the plaintiff obstructed completion of the
agreement cannot be accepted, as the plaintiff’s architect was only
supervising construction, not hindering it. Since the plaintiff had paid
90% of the consideration and even offered to finish the remaining 10%
work under Clause 10, its readiness and willingness to perform were
conclusively proved.
7.2. Regarding the new plea the Trial Court held that the new plea raised by
the defendant for the first time during arguments was malafide and an
attempt to take advantage of their own wrong. It further held that even if
the agreement for sale of eight flats was void for being contrary to
building regulations or the master plan, the agreement could still be
enforced to the extent permitted under Section 12, with respect to a lesser
number of flats. The Court clarified that neither the object nor the
purpose of the agreement was illegal, since the defendant had never
raised the defence of inability to perform until the final hearing, the
plaintiff’s prompt election under Section 12(3) was valid. A meaningful
reading of the agreement revealed that it merely referred to a proposal

6
Hereinafter referred to as ‘the Act’
5


for eight flats, while the operative terms indicated that the consideration
was to be paid based on the covered area constructed, with no specific
reference to eight flats, showing that the transaction was essentially for
property and land rights rather than a fixed number of flats.
8. The defendant filed a Regular First Appeal (OS) No. 47 of 2009 challenging
the judgment and decree of the Trial Court before the Division Bench of
the High Court. The Division Bench by the impugned judgment allowed
the Regular First Appeal filed by the Defendant, and dismissed the suit filed
by the Plaintiff with respect to the seeking relief of specific performance,
however ordered for the refund of the consideration which the plaintiff had
filed to the Defendant i.e. Rs. 28,86,750 with interest at the rate of 18% per
annum, compounded quarterly, for the period from April 8, 1986, to August
31, 1988. Thereafter, from September 1, 1988, until the date of actual
payment, the said sum shall carry interest at the rate of 12% per annum,
simple interest. Setting aside the judgment and decree of the Trial Court the
Division Bench held that:
8.1. At the time the agreement was executed, it was inherently incapable of
performance because only two residential units (one each on the ground
and first floors) with a small barsati of 300 sq. ft. were permissible on the
plot, and construction of eight flats as agreed was legally impermissible.
Additionally, the basement could be used only for storage, not for
residential purposes. Whether the arrangement was to be treated as a loan
or as a failed sale transaction, any recompense to the plaintiff would have
to be governed strictly by Clause 5 of the agreement, which provided that
in the event the defendant was unable to transfer title, the amounts paid
would be treated as a loan repayable with interest and this interpretation
also clarified that the only issue given up earlier was the plea of undue
influence or coercion.
6


8.2. The Court emphasized that the plaintiff being a public sector bank was
expected to act lawfully and transparently, and should not have entered
into an agreement whose object was in contravention of building laws or
was designed to circumvent legal restrictions. The agreement clearly
referred to the construction of eight dwelling units, which constituted the
object of the contract and was patently in violation of the governing master
plan and building bye-laws, making the agreement unlawful on its face.
Since the bank was aware of the legal prohibitions and the agreement itself
contained a clause treating the advance payment as a loan in case of
breach, the application of Section 12 of the Specific Relief Act was held
to be erroneous, as the plaintiff could not compel the defendant to perform
an act expressly prohibited by law.
8.3. It is this judgment that the Plaintiff is challenging in this Appeal.
9. Ms. Raakhi Sahijwal, Learned Counsel appearing on behalf of the
Appellant-Plaintiff has vehemently contended:
9.1. That Division Bench erred in law by setting aside the judgment of the
Single Judge without examining the reasoning of the trial court in
proper perspective. The Single Judge, had carefully considered the
agreement for construction of two flats per floor, which allegedly
violated the Building Bye-Laws, and, relying on judicial precedents and
Section 12 of the Specific Relief Act, and yet had granted specific
performance in favor of the plaintiff. The Division Bench, without
addressing these findings or establishing any perversity or legal error,
substituted its own conclusions, disregarding the detailed analysis of
the Single Judge, and incorrectly assumed that the trial court ignored
the legality of the agreement;
7


9.2. She further contends that agreement dated 27.12.1984 cannot be
deemed void-ab-initio merely because it proposed construction
exceeding the permissible number of dwelling units under the Building
Bye-Laws. The Single Judge correctly recognized that the construction
could be modified to comply with the law, including merging of flats or
making other adjustments, and that the enforceable portion of the
contract could be executed using the Blue Pencil Rule. The plaintiff had
also expressly waived claims to performance of the non-compliant
portions of the contract and had agreed to accept the property as-is,
undertaking to ensure compliance with the law, thus rendering the claim
of illegality untenable;
9.3. It is further argued that, the Division Bench had erroneously entertained
a plea of illegality which was never raised in the written statement, nor
framed as an issue, nor supported by evidence, but raised only at the
time of oral arguments. The Defendant, who initially proposed
construction exceeding legal limits, cannot now claim the agreement as
void to avoid his obligations. The Division Bench’s decision
overlooked the substance of the contract and gave undue weight to the
respondent’s inconsistent conduct, which included prolonging the
litigation, raising false pleas, and taking contradictory positions
regarding the legality of construction;
9.4. The judgment of Division Bench is inequitable, unjust, and prejudicial,
causing significant hardship to plaintiff. The petitioner, a public
institution that fulfilled its contractual obligations in good faith, has
been denied the relief of specific performance despite compliance with
Section 12 of the Specific Relief Act and willingness to accept
modifications necessary to conform to law. In sum, the judgment of
Division Bench disregards established legal principles, the detailed
8


findings of the Single Judge, and the equitable rights vested with the
appellant-plaintiff, leading to an outcome of a finding which is both
legally and factually unsustainable.
10. On the other hand, Sri. T.K. Ganju, Learned Counsel appearing for the
Defendant contends:
10.1. That defendant is the lawful owner of the property No. B-9, East of
Kailash, New Delhi, under a perpetual lease deed dated 19.08.1974.
Due to financial constraints, the defendant could not complete
construction within the stipulated time prescribed under the lease and
had sought extensions from the Delhi Development Authority. To
finance the construction, the defendant approached the Plaintiff, a
regular banker, for advances secured through equitable mortgage, with
the understanding that if the construction or sale could not be
completed, the amounts received would be treated as a loan repayable
with interest.
10.2. The agreement dated 27.12.1984 contemplated construction of eight
dwelling units and a basement totalling 9,950 sq. ft., which exceeded
permissible limits under the Building Bye-Laws, 1983, and the
sanctioned plan which was well within the knowledge of plaintiff. All
amounts received from the Plaintiff were invested in construction,
leaving the defendant with no profit and when it became apparent that
the construction could not comply with legal requirements, the
defendant repeatedly offered to refund the amounts borrowed from
plaintiff with interest, but Plaintiff refused and instead filed a suit for
specific performance. The terms of the agreement were contrary to the
Master Plan, sanctioned plan, and Building Bye-Laws, making the
agreement void-ab-initio and incapable of specific performance;
9


10.3. The defendant further submits that neither Section 12 of the Specific
Relief Act nor the Blue Pencil Rule applies, as the agreement was
illegal, void from inception and could not be partially enforced. The
agreement linked both the land and the flats inseparably, making any
attempt to enforce it equivalent to rewriting the contract, which the
court cannot do. Enforcing the agreement would contravene public
policy and settled principles of law under the Indian Contract Act, 1872,
as a contract with an unlawful object is void. The defendant emphasizes
that the Plaintiff’s suit for specific performance is therefore untenable,
and the Division Bench was correct in observing that the Single Judge
had ignored the illegality of the agreement;
10.4. The property has remained vacant and in a dilapidated condition since
1989, and the defendant has not earned any profit from it. The
agreement, being in violation of building regulations and statutory
plans, could not be enforced, and the only lawful course was to treat the
amounts advanced as repayable loans as agreed between the parties. It
is further contended that granting specific performance under these
circumstances would be contrary to law, equity, and public policy, and
the Plaintiff’s claims are thus entirely without merit.
11. We have heard the learned counsels appearing on behalf of the parties and
perused the material on record. The scrutiny of the same, gives rise to the
following points for our consideration:
i. Whether the construction and delivery of the eight flats specified in
Schedule–I formed an essential condition of the agreement, the
absence of which would render the agreement incapable of
subsistence?
ii. Whether the agreement in its current form unenforceable as it is in
violation of the Building laws?
10


iii. Whether the course adopted by the Trial Court in modifying or
interpreting the agreement to render it workable in its present form
was legally justified?
iv. Whether the Division Bench of the High Court erred in setting aside
the judgment and decree of the Single Judge/Trail Court?

RE: POINT NO.1
12. Before proceeding to answer the above point, it is vital to consider the terms
of the agreement to determine whether it is enforceable without the
construction of the eight flats, and whether such construction constitutes an
essential element of the agreement. This question must be considered first,
as the Plaintiff, by filing an application under Section 12 of the Act, has taken
the plea that in the event the Court accepts the Defendant’s new contention
i.e. the agreement is unenforceable and invalid, they are willing to take the
property “as is.”
13. Before proceeding to answer the issue regarding construction of flats being
the essential element of the agreement, it is important for us to reproduce few
recitals of the agreement, which are relevant and have bearing on the point
to be determined:
“1. The purchaser will pay a total sum of Rs.32,07,500/- (Thirty two
lakhs seven thousand five hundred only) to the vendor as
consideration for the flat set out in Schedule-I together with the lease
hold rights over the said land at the rate of Rs.340/- per sq.ft. of
covered area of the flat and Rs.250/- per sq.ft. of the covered area in
basement which is more specifically described in Schedule II and in
the instalments set out in Schedule III hereto. The said total
consideration has been arrived at by taking into consideration the
approximate area of each flat mentioned in Schedule I. This
consideration is however subject to variation which will finally be
determined after the completion of the construction in all respects and
the actual area is measured. The total consideration payable is on the
actual covered area ascertain on actual measurement. The vendor
acknowledges that he has already received a sum of Rs. 10 lakhs (Rs.
Ten lakhs only) as part of the above consideration. The purchaser,
however, is at liberty to stop further payments in accordance with the
11


Schedule III, if the vendor has committed any breach of his
undertakings.
1. It is agreed that according to the present plan, the ground floor, first
floor and second floor will each contain two flats of approximate
covered area of 1000 sq.ft. and mezzanine floor and the third floor of
Barsati floor will each contain one flat of 1000 sq.ft. In addition, there
will be a basement of an approximately covered area of 1950 sq.ft. If,
however, the vendor constructs additional two flats, the vendor shall
sell the same only to the purchaser at the same rates and subject to the
same conditions and specifications as applicable to the other flats as
set out in this agreement, provided however, the Vendor shall not
construct even if it is permissible to do so in excess of flats and
basement. The agreed broad specifications of the building and flats
are set out in Schedule IV hereto.
2. It is agreed that on the plot of land in question, no other structure or
building will be erected, the intention being that no one else other than
the purchaser will have any right, title or interest to any part of the plot
or any structure thereon.
…….
. It shall be the duty of the vendor to obtain all the necessary permissions
5
from the Delhi Development Authority or other government authorities
for transferring and conveying all the rights, title and interest in respect
of the land and the flats to the purchaser . If for whatever reason, the
vendor is not able to convey and transfer the right, title and interest
as mentioned herein above to the purchaser, the entire amount paid
by the purchaser to the vendor shall be treated as a loan advanced by
the purchaser to the Vendor and will be repayable on demand with
interest at 18% per annum compounded quarterly from the date on
which the flats are to be handed over under this agreement . It is
specifically agreed that all expenses, charges in connection with
transfer including the payment of any statutory dues or amount by way
of unearned increase in the value of the plot to the Delhi Development
Authority or any other authority shall be borne by the vendor.
6. It is specifically understood that the purchaser is interested in
purchasing the flats to be constructed thereon along with the rights
concerning the plot of land and not the rights over the land alone and
therefore the construction of the flat within the period and subject to
the specification set out herein is the essential term of this agreement.
The Vendor therefore shall not sell or lease or otherwise transfer the
flats to any other person .
7. It is agreed that the vendor will construct the flats and complete the
same in all respects and hand over possession of the same within a
period of 18 months from the date of this agreement.
PROVIDED however, the vendor is given a grace period of six
months by the purchaser in writing from the above stipulated date of
completion and handing over possession and subject to this, the time
is the essence of this contract.
PROVIDED further that if it becomes impossible for the Vendor to
complete the construction within the period mentioned above, on
account of or by reason of war, act of State, natural calamities and such
12


other events which the vendor could not prevent or which were not
within the control of the vendor, the time for completion of the
construction shall be extended by a period equivalent approximately to
the duration of the event specified above.
…….
11. Immediately after the construction of the flats are complete to its
satisfaction, the purchaser may at its discretion occupy the flats
without any specific permission by the Vendor to so occupy the flats.”
(emphasis supplied)

On perusal of the above clauses, particularly the highlighted portions, it
becomes evident that the construction of eight flats, as mentioned in
Schedule–I, along with two additional flats (making a total of ten flats), was
not merely an essential part of the agreement but its very object and intent
with which parties entered the contract. Without the construction of these
number flats, the agreement to sell does not, and cannot, subsist. This
position becomes clear from Clause 6 of the agreement, which states: “It is
specifically understood that the purchaser is interested in purchasing the
flats to be constructed thereon along with the rights concerning the plot of
land and not the rights over the land alone, and therefore, the construction
of the flats within the period and subject to the specifications set out
herein is an essential term of this agreement.” . T his clause explicitly
stipulates that the construction and handing over of the number of flats
constitute an essential term of the agreement and it was so agreed. In
conclusion, the construction and delivery of the eight flats formed the core
and essential terms of the agreement, without which the agreement itself
could not subsist.
RE-POINT– II:
14. Having concluded that the agreement cannot subsist without the
construction and delivery of the eight flats, we shall now proceed to
examine point-II.
13


15. The position of law regarding the “enforceability of the agreement which is
against the law” is well settled. Section 23 of the Contract Act specially
says “The consideration or object of an agreement is lawful unless it is
forbidden by law, or is fraudulent, or involves injury to a person or
property, or is opposed to public policy.”
7
16. This Court in the case of Narayanamma and Anr v. Govindappa and Ors
addressed the issue whether an agreement to sell land executed during a
non-alienation period under the Karnataka Land Reforms Act was
enforceable wherein the plaintiff had sought for specific performance of the
agreement, but the trial court had dismissed the suit as void in the teeth of
statutory prohibitions, a decision reversed by the appellate court. However,
this Court upheld the trial court’s judgment of dismissal, holding that
agreements contravening law cannot be enforced, as enforcing them
would be in conflict with public interest. The Court emphasized the
doctrine of illegality and the principles ex turpi causa non oritur actio
and ex dolo malo non oritur actio, reinforcing that courts will not assist
in enforcing illegal agreements even if both parties are ad idem on
illegality . The case highlights that adherence to statutory provisions and
public interest being paramount in suits for specific performance. While
dismissing the Suit, this Court concluded as follows:
“26. However, the ticklish question that arises in such a situation is
"the decision of this Court would weigh in side of which party"? As
held by Hidayatullah. J. in Kedar Nath Motant³, the question that
would arise for consideration is as to whether the plaintiff can rest
his claim without relying upon the illegal transaction or as to
whether the plaintiff can rest his claim on something else without
relying on the illegal transaction . Undisputedly, in the present case,
the claim of the plaintiff is entirely based upon the agreement to
sell dated 15-5-1990, which is clearly hit by Section 61 of the
Reforms Act. There is no other foundation for the claim of the
plaintiff except the one based on the agreement to sell, which is hit
by Section 61 of the Act. In such a case, as observed by Taylor, in
his "Law of Evidence" which has been approved by

7
(2019) 19 SCC 42.
14


Gajendragadkar, J. in Immani Appa Rao, although illegality is not
pleaded by the defendant nor sought to be relied upon him by way
of defence, yet the Court itself, upon the illegality appearing upon
the evidence, will take notice of it, and will dismiss the action ex
turpi causa non oritur actio le. no polluted hand shall touch the
pure fountain of justice. Equally, as observed in Story's Equity
Jurisprudence, which again is approved in Immani Appa Rao, where
the parties are concerned with illegal agreements or other
transactions, courts of equity following the rule of law as to
participators in a common crime will not interpose to grant any
relief, acting upon the maxim in pari delicto potior cest conditio
defendentis et possidentis.
27. It could thus be seen that, the trial Judge upon finding that the
agreement of sale was hit by Section 61 of the Reforms Act, had
rightly dismissed the suit of the plaintiff”
(emphasis supplied)
17. Now turning our attention to the facts of the instant case, it can be noticed
that both the Trial Court and the Division Bench have unequivocally
concluded that the agreement, in its present form, is unenforceable as it
contravenes the applicable building laws. The Division Bench observed as
follows:
“9. In the year 1984, the Master Plan for Delhi then in force,
along with the applicable Building Bye-Laws, 1983, permitted
construction on a plot admeasuring 300 sq. yds. of a basement
equal in area to the ground floor, a ground floor and a first floor
of the same area, and a barsati floor with one-fourth of the
covered area of the ground floor. Thus, when the agreement was
entered into, it was incapable of being performed, inasmuch as
only two residential units—one on the ground floor and one on
the first floor—could be constructed, with a barsati floor of 309
sq. ft.”
The Trial Court also reached a similar finding, holding that the agreement,
in its present form, was unenforceable as the construction of eight flats
was impermissible under the building regulations but yet decreed the suit.
18. Accordingly, this answer’s point II in the affirmative, that the agreement in
its current form is unenforceable.

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RE – POINT III
19. Having held that the agreement, in its present form, is unenforceable and
that the construction of eight flats is an essential part thereof, we now
proceed to examine the third point by raising two sub-points. The first is
whether, in a suit for specific performance, the Court can sever the invalid
portion of an agreement from its valid portion ? If first issue is answered
affirmatively, the second is whether, in exercising such severance, the Court
can render the agreement workable by removing an essential part . These
questions arise in the present case as the appellants have contended that the
Trial Court’s judgment and decree was valid. The Trial Court applied
Section 12 of the Specific Relief Act, directing transfer of the ‘rights over
the land’ to the Plaintiff, subject to compliance with the Building
Regulations limiting construction to three flats.
20. Sub-point No.III(1): It is a well-settled principle of law that while
adjudicating suits, or when examining the validity of agreements or
contracts, the Courts generally have the power to sever the invalid portion
of an agreement from its valid portion and give effect to the latter. There
is no bar on the application of the doctrine of severability in suits for
specific performance. However, this power must be exercised with great
caution and only in exceptional cases.
21. Sub-point No.III(2): After the Trial Court concludes that it must resort to
the exercise of severing the invalid portion of an agreement, the second sub-
issue that arises— whether the Court can render the agreement workable by
removing an essential part of it . The answer to this question is obvious, the
Court cannot remove the essential part of an agreement or the very object
for which it was executed. We further caution that, while exercising such
power, the Courts must refrain from re-writing or re-constructing the
agreement between the parties to make it work, which is the law laid down
16


8
by this Court in the case of Mayawanti v. Kaushalya Devi which held as
follows:

22. It is trite law that the power of the Court to sever the invalid portion of an
agreement from its valid portion must be exercised sparingly and only in
exceptional circumstances. While doing so, the Court cannot, under the guise
of severance, redraft or reconstitute the fine tunes of the contract by
removing its essential terms or altering its fundamental object which the
parties had arrived at by way of their consensus ad idem , as such the exercise
would amount to creating a new agreement between the parties, which is
impermissible in law.
23. Having discussed the settled proposition of law, it is apposite to apply the
same to the facts of the present case. The Trial Court in the present case, after
taking the effort for separation of the invalid part from the valid part of the
agreement held as follows:
“66. The next question which arises is as to the relief to be
granted to the plaintiff. The agreement in the present case
expressly provided for the plaintiff entering in possession and
completing the works. The plaintiff has also claimed the specific

8
(1990) 3 SCC 1.
17


performance of that clause of the agreement. The specific
performance of that clause cannot be' denied to the plaintiff. The
plaintiff, of course, by stepping into the shoes of the defendant
in the matter of raising construction shall not be entitled to raise
any illegal / unauthorized construction even if that was the
agreement. The plaintiff can raise only construction in
accordance with law . The plaintiff has given its assent therefore.
The, defendant who has been found in default can be directed to
perform specifically so much of his part of the contract as he can
perform, i.e. by putting the plaintiff into possession of the
property and by transferring / selling / conveying the property to
the plaintiff as agreed. The defendant would, of course, have a
choice whether to first have the leasehold rights in the property
converted into freehold in his own name or to pay the unearned
increase and transfer the leasehold rights in the land to the
plaintiff.”

24. We have already held, while deciding the first point for consideration, that
the construction and handing over of eight flats constituted an essential part
of the agreement, without which the agreement could not have subsisted and
while deciding the second point, we have concluded that the agreement for
construction of eight flats was contrary to law and therefore unenforceable.
Taking clue from the conclusion arrived at by us under the first and second
sub-issues, it follows that the Trial Court was not justified in reworking the
agreement to make it enforceable by removing its essential object—namely,
the construction of eight flats on the subject land. In effect, the Trial Court
re-wrote the agreement by reducing the number of flats to be constructed
from eight to three, in conformity with the Building Regulations, which it
could not have done since the very essence of the agreement was the
construction of eight flats.
25. Thus, we conclude that the course adopted by the Trial Court in modifying
or interpreting the agreement to render it workable in its present form was
not legally justified and as such the appellate court has rightly reversed the
findings of trial court and rejected the prayer for specific performance.

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RE- POINT – IV
26. Having decided the foregoing issues, we hold that the Division Bench rightly
allowed the appeal filed by the Defendant and rightly dismissed the suit
instituted by the Plaintiff.
27. Before parting with the matter, we consider it appropriate to reiterate the
observations made by the Division Bench, which are reproduced below:
“27. Suffice would it be to state that the respondent is a public
sector bank and it is not expected from the State or its
instrumentalities to enter into camouflage agreements and
especially where the object of the agreement would result in law
being violated.”
28. In the light of aforesaid discussion, we are of the considered view that the
appeal must fail and accordingly, the appeal is dismissed. The Judgement and
decree passed by the High Court of Delhi, in RFA (OS) No. 47 of 2009 dated
08.05.2012 stands affirmed. Parties to bear their respective costs. Pending
Application(s), if any, shall stand disposed of.

.……………………………., J.
[ARAVIND KUMAR]



……………………………., J.
[VIPUL M. PANCHOLI]


New Delhi;
October 9, 2025.


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