Supreme Court ruling raises Indian contracts challenge risk

The Supreme Court set aside a previous judgment by the High Court regarding a long-running dispute over the sale of property.

The case, which occurred in 2010, involved a property purchaser who had paid 90% of the price of the property to the vendors.

Following the deadline for paying the remainder of the price, the buyer had not paid the full amount but made further payments to the seller, who accepted them before terminating the agreement to sell the property, claiming the full sum had not been paid in time.

After a previous appeal, the High Court had backed the sellers on technical grounds, but the Supreme Court has now thrown that out, restoring the specific performance decree granted by the first appellate court. 

The two-judge panel ruled that parties who accept late payments after the initial deadline for the sale has passed, effectively treating the contract as ongoing, can be found to have waived their right to terminate the deal, and that post-contractual breach conduct should play an important part in deciding whether or not to enforce the contract.

Mohammed Talib, a legal expert with Pinsent Masons, said the ruling would mean organisations and customers would need to take greater care in how they exit agreements in future.

“This case has significant implications on the termination of contracts in India,” he said.

“It underscores that post-breach conduct such as accepting late payments can override technical defaults, potentially sustaining contractual obligations even after a potential right of termination has arisen.”

“If a contract termination is challenged, a claim for specific performance may still be maintainable without a separate declaration that the termination is invalid, if the facts show the contract was treated as subsisting.”

Frederic Gillion, a disputes expert at Pinsent Masons in Singapore, added: “This ruling by India’s Supreme Court elevates the importance of behaviour post-breach and demands a more nuanced understanding of the implications of a finding that there is contractual continuity”.

“Any party considering a termination of its contract will need to reflect on this evolving judicial approach.”