Time when of Essence to a Contract

India– S.55, Indian Contract Act, 1872 discusses when time is of essence to a contract. Whether time is of essence is a question of fact and the real test is the intention of the parties. It depends upon the facts and circumstances of each case. This question does not depend only upon express stipulation made by the parties, but it also depends upon the intention of the parties. Notwithstanding that a specific date was mentioned in the agreement, one has not only to look at the letter but also at the substance of the contract. Even where the parties have expressly provided that time is of the essence of the contract such a stipulation will have to be read along with other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental; for instance, if the contract were to include clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract such clauses would be construed as rendering ineffective the express provision relating to the time being of the essence of contract. The intention can be ascertained from:

(i) the express words used in the contract;
(ii) the nature of the property which forms the subject-matter of the contract;
(iii) the nature of the contract itself; and
(iv) the surrounding circumstances.

Certain principles laid in this context are:

(i) The courts, while exercising discretion in suits for specific performance, should bear in mind that when the parties prescribe a time/period, for taking certain steps or for completion of the transaction, that must have some significance and therefore time/period prescribed cannot be ignored.
(ii) The courts will apply greater scrutiny and strictness when considering whether the purchaser was “ready and willing” to perform his part of the contract.
(iii) Every suit for specific performance need not be decreed merely because it is filed within the period of limitation by ignoring the time-limits stipulated in the agreement. The courts will also “frown” upon suits which are not filed immediately after the breach/refusal. The fact that limitation is three years does not mean that a purchaser can wait for 1 or 2 years to file a suit and obtain specific performance. The three-year period is intended to assist the purchasers in special cases, as for example, where the major part of the consideration has been paid to the vendor and possession has been delivered in part-performance, where equity shifts in favour of the purchaser.

Importantly, currently, time is presumed not to be of essence of the contract relating to immovable property, but it is of essence in contracts of reconveyance or renewal of lease. The distinction between contracts relating to immovable properties and other contracts was not drawn by Indian Contract Act. The courts made the distinction, by following the English law evolved during the nineteenth century.
Please see the following judgments on this topic: Swarnam Ramachandran v. Aravacode Chakungal Jayapalan (Supreme Court of India, 2004); Saradamani Kandappan v. S. Rajalakshmi (Supreme Court of India, 2011); Hind Construction Contractors v. State of Maharashtra (Supreme Court of India, 1979); A.K. Lakshmipathy v. Rai Saheb Pannalal H. Lahoti Charitable Trust (Supreme Court of India, 2010); Arosan Enterprises Ltd. v. Union of India (Supreme Court of India, 1999); Madhya Pradesh Housing Board v. Progressive Writers (Supreme Court of India, 2009); Citadel Fine Pharmaceuticals v. Ramaniyam Real Estates Private Limited (Supreme Court of India, 2011)

Author: Vikrant Narayan Vasudeva
Photo by Hartwig HKD/ CC BY-ND 2.0