- 1 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 20TH DAY OF JANUARY, 2026 BEFORE THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM REGULAR FIRST APPEAL NO. 398 OF 2023 (SP) BETWEEN: 1. GURULINGAIAH S/O MUDDAIAH AGED ABOUT 62 YEARS R/AT NO 26, 18TH CROSS BHUVANESHWRINAGAR BENGALURU-560 023. …APPELLANT (BY SRI. GURUDATH .B.S, ADVOCATE) AND: 1. SMT. RADHA W/O GAJENDRA AGED ABOUT 52 YEARS R/AT NO 9/18, 12TH CROSS K P AGRAHARA BHUVANESHWARI NAGAR BANGALORE-560 023. …RESPONDENT (BY SRI. BHADRAGOUDAR VEERABHADRA GOUDA, ADVOCATE FOR C/R) THIS RFA IS FILED UNDER SECTION 96 R/W ORDER 41 RULE 1 OF CPC AGAINST THE JUDGMENT AND DECREE DATED 18.11.2022 PASSED IN OS No.5461/2017 ON THE FILE OF THE LXIX ADDITIONAL CITY CIVIL AND SESSIONS JUDGE, BENGALURU, DISMISSING THE SUIT FOR SPECIFIC PERFORMANCE. Digitally signed by CHAITHRA A Location: HIGH COURT OF KARNATAKA - 2 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM ORAL JUDGMENT Though this appeal is listed for admission, with the consent of learned counsels on record, this matter is taken up for final disposal. 2. The captioned appeal is filed by the plaintiff being aggrieved by non-granting of interest on the refund of earnest money of Rs.5,00,000/- while dismissing the plaintiff’s suit in O.S.No.5461/2017. 3. For the sake of brevity, the ranks of the parties are referred as they are ranked before the Trial Court. 4. Brief facts leading to the case are as under; The plaintiff instituted O.S.No.5461/2017 seeking relief of specific performance based on an agreement to sell dated 06.10.2016. It is the case of the plaintiff that the defendant, being the absolute owner of the suit - 3 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 schedule property, agreed to sell the same for a total sale consideration of Rs.20,00,000/-. Pursuant thereto, the defendant executed a sale agreement on 06.10.2016 and received a sum of Rs.5,00,000/- as earnest money. The plaintiff asserted that he was always ready and willing to perform his part of the contract and alleged that despite issuance of legal notice and repeated demands, the defendant failed to execute the sale deed in terms of the agreement. 5. Upon service of summons, the defendant entered appearance and filed a written statement, stoutly denying the plaint averments. While admitting execution of the agreement dated 06.10.2016, the defendant contended that the agreement was obtained under coercive circumstances. It was alleged that the plaintiff, in collusion with BBMP officials, had encroached upon a common passage and had commenced construction in front of the defendant’s property. According to the defendant, the construction undertaken by the plaintiff was of inferior - 4 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 quality and had collapsed, resulting in severe injuries to her son and causing substantial damage to her property. On these grounds, the defendant pleaded that she was no longer willing to sell the suit schedule property and sought dismissal of the suit. 6. Both parties were afforded adequate opportunity to substantiate their respective pleadings. Accordingly, the plaintiff and the defendant adduced oral as well as documentary evidence in support of their rival claims. 7. The Trial Court, while answering issue No.1 in the affirmative and holding that the execution of the agreement was proved, nevertheless concluded that the plaintiff had failed to establish continuous readiness and willingness to perform his part of the contract. On that basis, the Trial Court declined the discretionary relief of specific performance and instead directed refund of the earnest money of Rs.5,00,000/-. It is relevant to note that the plaintiff has not assailed the refusal of the decree for - 5 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 specific performance. The present appeal is confined only to the limited question of the Trial Court’s failure to award interest on the refunded earnest money. 8. Learned counsel for the plaintiff, reiterating the grounds urged in the memorandum of appeal, vehemently contended that once the execution of the agreement stood proved and the Trial Court itself ordered refund of the earnest money, denial of interest was wholly unjustified. He would submit that the amount was paid as early as in the year 2016 and the Trial Court, having declined the principal relief, ought to have at least balanced the equities by awarding reasonable interest. It is further contended that the impugned judgment does not assign any reasons whatsoever for denying interest, thereby resulting in manifest injustice. 9. Per contra, learned counsel for the defendant fairly conceded that there is no challenge to the direction for refund of earnest money. However, he submitted that - 6 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 the defendant is in severe financial distress and is not in a position to bear the burden of interest. On this premise, he urged that the appeal deserves to be dismissed. 10. Having heard the learned counsel appearing for both sides and on careful perusal of the records, the following points arise for consideration:- (i) Whether the Trial Court, having directed refund of earnest money, erred in law in not awarding interest and whether such omission has resulted in miscarriage of justice? (ii) Whether the plaintiff is entitled to interest on the earnest money amount from the date of payment till realization? (iii) What order or decree? Findings on Point Nos.(i) and (ii):- 11. On a careful and independent re-appreciation of the entire material on record, this Court finds that there is no serious or substantive dispute with regard to the - 7 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 execution of the sale agreement dated 06.10.2016. The defendant, both in the written statement and during the course of trial, has unequivocally admitted execution of the agreement and receipt of earnest money of Rs.5,00,000/-. The defence set up by the defendant is confined to a limited contention, namely that owing to the collapse of the plaintiff’s construction allegedly on account of poor quality workmanship, her property sustained damage and her son suffered injuries and therefore she was justified in declining to complete the transaction by accepting the balance sale consideration. It is in the backdrop of this defence that the Trial Court exercised its discretion and declined the larger and discretionary relief of specific performance of contract. Significantly, the plaintiff has consciously accepted that part of the decree and has not called in question the refusal of specific performance in the present appeal. 12. The lis before this Court is thus circumscribed to a narrow compass, namely, the legality and propriety of - 8 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 the Trial Court’s failure to award interest while directing refund of the earnest money. 13. It is well settled that in suits for specific performance, the relief is essentially equitable in nature and the Court is duty bound to balance the equities between the parties. Once the Court declines to grant the principal relief of specific performance and proceeds to grant the alternate relief of refund of earnest money, it cannot ignore the time value of money and the financial prejudice caused to the party who has parted with a substantial sum. In commercial and property transactions, denial of interest on amounts paid long prior, without cogent reasons, would amount to unjust enrichment of one party and corresponding impoverishment of the other. In the present case, it is an admitted position that the plaintiff paid a sum of Rs.5,00,000/- as earnest money in the year 2016. Having regard to the prevailing economic conditions and the value of money at that point of time, the said amount cannot be characterised as insignificant. - 9 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 The Trial Court, while directing refund of the earnest money, has failed to assign any reasons whatsoever for denying interest on the said amount. Such omission, in the opinion of this Court, has resulted in serious prejudice to the plaintiff and has led to miscarriage of justice. 14. Once a partial decree is passed directing refund of earnest money, the Court is under an obligation to balance the equities by awarding reasonable interest on the principal amount, unless there are exceptional circumstances warranting denial of such relief. No such circumstances are either pleaded or established by the defendant. The plea of financial hardship, urged before this Court, cannot by itself constitute a valid ground to deny interest which otherwise flows as a natural and equitable consequence of refund. It is also relevant to note that the plaintiff had instituted the suit for specific performance by paying substantial court fee of Rs.1,09,875/-, thereby demonstrating bona fides and seriousness in prosecuting the claim. In such - 10 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 circumstances, refusal to award interest on the earnest money is clearly unsustainable. 15. On an independent re-appraisal of the record, it is evident that the sale agreement dated 06.10.2016 stands admitted and that the Trial Court, while refusing the discretionary relief of specific performance, directed refund of the earnest money of Rs.5,00,000/-. Where a court, in exercise of its equitable jurisdiction, refuses specific performance and directs refund of the advance or earnest money, it is obliged to balance the equities between the parties and to consider grant of interest on the amount so ordered to be refunded. The Supreme Court has repeatedly held that alternative reliefs including refund of earnest/advance money with interest must be considered and awarded where just and where no special circumstances disentitle the claimant to interest. 16. In the present case, there are no pleaded or proved exceptional circumstances that would disentitle the - 11 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 plaintiff to interest on the refunded earnest money; the defendant has not shown any bona fide loss which justifies depriving the plaintiff of interest and has not pleaded any contractual entitlement to forfeit the amount. Having regard to the admitted payment of Rs.5,00,000/- in 2016, the long delay and the absence of any justification for withholding interest, and consistent with the aforementioned authorities, the plaintiff is entitled to interest at 6% per annum on the amount of Rs.5,00,000/- from the date of filing of the suit until actual realisation.” 17. Therefore, this Court is of the considered view that the plaintiff is entitled to interest on the refunded earnest money at the rate of 6% per annum from the date of filing of the suit till the date of realisation. To this limited extent, the judgment and decree passed by the Trial Court warrant interference and modification. Accordingly, Point Nos. (i) and (ii) are answered in the "Affirmative". - 12 - HC-KAR NC: 2026:KHC:2866 RFA No. 398 of 2023 18. Point No.(iii):- In view of the findings recorded on point Nos.(i) and (ii), this Court proceeds to pass the following; ORDER (i) The appeal is allowed. (ii) The suit of the plaintiff is partly decreed with cost. The plaintiff is entitled to get an amount of Rs.5,00,00/- along with interest at the rate of 6% p.a. from the date of filing of the suit till realization. (iii) Draw decree accordingly. (iv) Pending applications, if any, are also disposed off. SD/- (SACHIN SHANKAR MAGADUM) JUDGE NBM List No.: 1 Sl No.: 17