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Saturday, February 22, 2014

Stamp Act and Registration Act -Or.21, rule 58 C.P.C. - Power of Attorney executed between family member claim petition filed by General Power of Attorney holder cum purchaser - from Nirmal Verma wife of vendor of respondent - against the execution petition filed by the decree holder against Prem Chand Verma, husband of Nirmal Verma by obtaining an exparte decree - Lower court and High court dismissed the claim petition basing on the judgement of Apex court in Suraj Lamp and Industries Private Limited “SA/GPA/will transactions” are not valid transactions as per stamp duty and registration act - Apex court held that both courts committed wrong in applying the judgment as it only bars the commercial transactions but it saved the transactions between the family members which were done bonafide and genuine and as such apex court set aside the orders of lower courts = Maya Devi .. Appellant Versus Lalta Prasad .. Respondent = 2014(Feb.Part) judis.nic.in/supremecourt/filename=41237

    Stamp Act and Registration Act -Or.21, rule 58 C.P.C. - Power of Attorney executed between family member claim petition filed by General Power of Attorney holder cum purchaser -  from Nirmal  Verma  wife  of vendor of respondent  - against the execution petition filed by the decree holder  against Prem  Chand  Verma,  husband  of Nirmal Verma   by obtaining an exparte decree - Lower court and High court dismissed the claim petition basing on the judgement of Apex court in Suraj  Lamp  and Industries Private Limited  “SA/GPA/will transactions”  are  not  valid transactions as per stamp duty and registration act - Apex court held that both courts committed wrong  in applying the judgment as it only bars the commercial transactions but it saved the transactions between the family members which were done bonafide and genuine and as  such apex court  set aside the orders of lower courts =

  I am of the view that the Executing Court as well as High  Court
      have  committed  a  grave  error  in  not  properly  appreciating  the
      objections filed by the Appellant. 
We are in this case concerned  with
      the question 
whether  we  must  give  credibility  to  the  registered
      General Power of Attorney executed on 12.5.2006 between  Nirmal  Verma
      and the appellant or on the alleged Agreement  for  Sale  executed  on
      3.11.2003 between the respondent and  Prem  Chand  Verma,  husband  of
      Nirmal Verma.  
Further, we have to examine the manner in  which  Civil
      Suit No.407 of 2007 was decreed without contest by Prem  Chand  Verma,
      husband of Nirmal Verma.


      6.    The registered Power of Attorney was executed by none other than
      the wife of Prem Chand Verma and the appellant herein on 12.5.2006  in
      respect of the property  in  question  for  a  sale  consideration  of
      Rs.70,000/-, which was received by Nirmal Verma in cash in advance and
      she acknowledged the same before the Sub-Registrar,  Delhi.    
On  the
      same day, Nirmal Verma, wife of Prem Chand Verma. handed over physical
      vacant possession of the land and building situated thereon  and  from
      12th May, 2006 onwards, the appellant is in possession of  the  above-
      mentioned property.


      7.    We are, in  this  case,  therefore,  concerned  with  
the  legal
      validity of a General Power of Attorney executed by  none  other  than
      the wife of Prem Chand Verma against whom a decree has  been  obtained
      by the respondent without any proper contest and the  court  proceeded
      against him ex-parte.   
These facts speak for itself.   
Evidently, the
      collusive decree was obtained  by  the  respondent  to  get  over  the
      registered Power of Attorney executed in favour of the appellant  and,
      it is in this perspective, we have to understand and apply  the  ratio
      laid down by this Court in Suraj Lamp and Industries  Private  Limited
      (2) (supra).


      8.    Paragraph 27 of the judgment of this Court  in  Suraj  Lamp  and
      Industries Private Limited (2) (supra) reads as follows :


           “27.  We make it clear that our observations are not intended to
           in any way affect the validity of sale agreements and powers  of
           attorney executed in genuine transactions. For example, a person
           may give a power of  attorney  to  his  spouse,  son,  daughter,
           brother, sister or a  relative  to  manage  his  affairs  or  to
           execute a  deed  of  conveyance.  A  person  may  enter  into  a
           development agreement with  a  land  developer  or  builder  for
           developing the land either by forming plots or  by  constructing
           apartment buildings and in that behalf execute an  agreement  of
           sale and grant a power of attorney empowering the  developer  to
           execute  agreements  of  sale  or  conveyances  in   regard   to
           individual plots  of  land  or  undivided  shares  in  the  land
           relating to apartments in favour of prospective  purchasers.  In
           several States, the execution of such development agreements and
           powers of attorney are already regulated by law and subjected to
           specific stamp duty.  Our  observations  regarding  “SA/GPA/will
           transactions”  are  not  intended  to   apply   to   such   bona
           fide/genuine transactions.”
         In the above judgment, it has been stated that the  observations
      made by the Court are not intended to in any way affect  the  validity
      of  sale  agreements  and  powers  of  attorney  executed  in  genuine
      transactions.  
 I am of the view that the Power of  Attorney  executed
      on 12.5.2006 in favour of the Appellant by  the  wife  of  Prem  Chand
      Verma is a genuine transaction executed years before the  judgment  of
      this Court.   Facts will clearly indicate that the Agreement for  Sale
      dated 3.11.2003 was created by none other than the husband  of  Nirmal
      Verma, who had executed the General Power of Attorney  and  possession
      was handed over to the Appellant. That being the fact situation, in my
      view, the Objection filed by the Appellant under Order 21 Rule  58  in
      execution has to be allowed.   I, therefore, hold that  the  Executing
      Court can execute the decree in Civil Suit No.407 of 2007, but without
      proceeding against the property referred to  in  registered  Power  of
      Attorney dated 12.5.2006.


      10.   The appeal is allowed, as above, and the impugned orders are set
      aside.  There shall, however, be no order as to costs.

2014(Feb.Part) judis.nic.in/supremecourt/filename=41237
K.S. RADHAKRISHNAN, VIKRAMAJIT SEN

                                                     REPORTABLE
                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL NO. 2458 OF 2014
                  [Arising out of SLP (C) No.23069 of 2012)




      Maya Devi                                    .. Appellant


                                   Versus


      Lalta Prasad                                 .. Respondent






                               J U D G M E N T




      K. S. RADHAKRISHNAN, J.




      1.    Leave granted.




      2.    The appellant herein filed an Objection Petition under Order  21
      Rule 58 CPC, when the decree obtained by the respondent in Civil  Suit
      No.407 of 2007 was sought to be executed.
Suit  was  filed  for  the
      recovery of an amount of Rs.3,40,000/- with interest, which was sought
      to be realized, on the property covered by an agreement for sale dated
      3.11.2003  between  the  judgment  debtor  and  decree  holder.    
The
      appellant claimed that she became  the  absolute  owner  of  the  suit
      property by virtue of a registered General  Power  of  Attorney  dated
      12.5.2006 and that she has been in actual physical possession  of  the
      suit  property.  
The  Petition   was   contested   by   the   decree
      holder/respondent stating that the  applicant/objector  had  no  legal
      right, title or interest and that the execution of the  General  Power
      of Attorney and its registration would not confer any ownership  right
      in favour of the appellant/objector.  Reliance was also placed on  the
      judgment of this Court in Suraj Lamp and  Industries  Private  Limited
      Through Director v. State of Haryana & Anr. (2009)  7  SCC  363.
The
      Executing Court vide its order dated 23.7.2010 dismissed the Objection
      Petition filed by the appellant. 
Aggrieved by the same, the  appellant
      preferred Execution First Appeal No.23 of 2010 before the  High  Court
      of Delhi at New Delhi.  
The High Court also  placed  reliance  on  the
      judgment of this Court in Suraj Lamp and  Industries  Private  Limited
      (supra) and dismissed the appeal holding  that  the  documents  relied
      upon by the appellant would not confer ownership  or  possession  over
      the property in her favour.  
The High Court also vide its order  dated
      24.1.2011 upheld the order of the Executing Court.  Aggrieved  by  the
      same, this appeal has been preferred by the appellant.


      3.    Shri Rajesh Kumar, learned counsel appearing for  the  appellant
      submitted that the ratio laid down by this Court  in  Suraj  Lamp  and
      Industries  Private  Limited  (supra)  was  wrongly  applied  by   the
      Executing Court as well as the High Court.  Learned counsel  submitted
      that in the final  judgment  which  is  reported  in  Suraj  Lamp  and
      Industries Private Limited (2) Through Director v. State of Haryana  &
      Anr. (2012) 1 SCC 656, this Court has clarified the position that  the
      judgment would not affect the validity of sale agreements  and  powers
      of attorney executed in genuine transactions  and  that  the  judgment
      would operate only prospectively.  
 Learned  counsel  also  submitted
      that the alleged agreement executed between  the  respondent  and  one
      Prem Chand Verma  on  3.11.2003  was  a  collusive  one,  subsequently
      created, to get over the registered  Power  of  Attorney  executed  on
      3.6.1982 between the appellant and wife  of  Prem  Chand  Verma,  viz.
      Nirmal Verma.
Learned counsel also pointed out that Civil Suit No.407
      of 2007 was preferred by the  respondent  herein  against  Prem  Chand
      Verma based on the deed of agreement dated 3.11.2003 created  for  the
      said purpose.  Referring  to  the  above-mentioned  judgment,  learned
      counsel further pointed out that Prem Chand Verma did not contest  the
      Suit and he was declared ex-parte and a decree was passed in favour of
      the respondent. 
Learned  counsel  pointed  out  that  the  decree  was
      obtained by collusion and  practicing  fraud  on  the  Court  and  the
      Executing Court has committed an  error  in  rejecting  the  Objection
      filed by the appellant herein, so  also  by  the  High  Court  by  not
      appreciating the facts in the correct perspective.


      4.    Shri K. Krishna  Kumar,  learned  counsel  for  the  respondent,
      submitted that both the Executing Court and High Court have  correctly
      applied the principles laid down in Suraj Lamp and Industries  Private
      Limited (supra).
Learned counsel pointed out that any  process  which
      interferes with regular transfers under deeds of  conveyance  properly
      stamped, registered and recorded in the registers of the  Registration
      Department, is to be discouraged  and  deprecated  and  the  Executing
      Court has rightly declined to give its seal  of  approval  to  General
      Power of Attorney, Agreement for Sale, etc. dated 12.5.2006.


      5.    I am of the view that the Executing Court as well as High  Court
      have  committed  a  grave  error  in  not  properly  appreciating  the
      objections filed by the Appellant.
We are in this case concerned  with
      the question
whether  we  must  give  credibility  to  the  registered
      General Power of Attorney executed on 12.5.2006 between  Nirmal  Verma
      and the appellant or on the alleged Agreement  for  Sale  executed  on
      3.11.2003 between the respondent and  Prem  Chand  Verma,  husband  of
      Nirmal Verma.  
Further, we have to examine the manner in  which  Civil
      Suit No.407 of 2007 was decreed without contest by Prem  Chand  Verma,
      husband of Nirmal Verma.


      6.    The registered Power of Attorney was executed by none other than
      the wife of Prem Chand Verma and the appellant herein on 12.5.2006  in
      respect of the property  in  question  for  a  sale  consideration  of
      Rs.70,000/-, which was received by Nirmal Verma in cash in advance and
      she acknowledged the same before the Sub-Registrar,  Delhi.  
On  the
      same day, Nirmal Verma, wife of Prem Chand Verma. handed over physical
      vacant possession of the land and building situated thereon  and  from
      12th May, 2006 onwards, the appellant is in possession of  the  above-
      mentioned property.


      7.    We are, in  this  case,  therefore,  concerned  with  
the  legal
      validity of a General Power of Attorney executed by  none  other  than
      the wife of Prem Chand Verma against whom a decree has  been  obtained
      by the respondent without any proper contest and the  court  proceeded
      against him ex-parte.   
These facts speak for itself.   
Evidently, the
      collusive decree was obtained  by  the  respondent  to  get  over  the
      registered Power of Attorney executed in favour of the appellant  and,
      it is in this perspective, we have to understand and apply  the  ratio
      laid down by this Court in Suraj Lamp and Industries  Private  Limited
      (2) (supra).


      8.    Paragraph 27 of the judgment of this Court  in  Suraj  Lamp  and
      Industries Private Limited (2) (supra) reads as follows :


           “27.  We make it clear that our observations are not intended to
           in any way affect the validity of sale agreements and powers  of
           attorney executed in genuine transactions. 
For example, a person
           may give a power of  attorney  to  his  spouse,  son,  daughter,
           brother, sister or a  relative  to  manage  his  affairs  or  to
           execute a  deed  of  conveyance.  
A  person  may  enter  into  a
           development agreement with  a  land  developer  or  builder  for
           developing the land either by forming plots or  by  constructing
           apartment buildings and in that behalf execute an  agreement  of
           sale and grant a power of attorney empowering the  developer  to
           execute  agreements  of  sale  or  conveyances  in   regard   to
           individual plots  of  land  or  undivided  shares  in  the  land
           relating to apartments in favour of prospective  purchasers.  In
           several States, the execution of such development agreements and
           powers of attorney are already regulated by law and subjected to
           specific stamp duty.  
Our  observations  regarding  “SA/GPA/will
           transactions”  are  not  intended  to   apply   to   such   bona
           fide/genuine transactions.”




      9.    In the above judgment, it has been stated that the  observations
      made by the Court are not intended to in any way affect  the  validity
      of  sale  agreements  and  powers  of  attorney  executed  in  genuine
      transactions.  
 I am of the view that the Power of  Attorney  executed
      on 12.5.2006 in favour of the Appellant by  the  wife  of  Prem  Chand
      Verma is a genuine transaction executed years before the  judgment  of
      this Court.   Facts will clearly indicate that the Agreement for  Sale
      dated 3.11.2003 was created by none other than the husband  of  Nirmal
      Verma, who had executed the General Power of Attorney  and  possession
      was handed over to the Appellant. That being the fact situation, in my
      view, the Objection filed by the Appellant under Order 21 Rule  58  in
      execution has to be allowed.   I, therefore, hold that  the  Executing
      Court can execute the decree in Civil Suit No.407 of 2007, but without
      proceeding against the property referred to  in  registered  Power  of
      Attorney dated 12.5.2006.


      10.   The appeal is allowed, as above, and the impugned orders are set
      aside.  There shall, however, be no order as to costs.


                                                    eard Hear……………………………..J.
                                         (K. S. Radhakrishnan)


      New Delhi,
      February 19, 2014.
                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL No. 2458 OF 2014

                    [Arising out of SLP©No.23069 of 2012]




MAYA DEVI                                       .…..APPELLANT

            vs

 LALTA PRASAD                     …..RESPONDENT




                               J U D G M E N T

VIKRAMAJIT SEN,J.




1     I have perused  the  judgment  of  my  learned  and  esteemed  Brother
Radhakrishnan, and I entirely and respectfully  agree  with  his  conclusion
that the appeal deserves to be allowed.   My learned Brother has  succinctly
analysed the sterling judgment in Suraj Lamp and Industries Private  Limited
vs State of Haryana (2009) 7 SCC 363,  which has been rendered by  a  Three-
Judge Bench of this Court.  I completely concur with  the  view  that  since
General Power of Attorney (GPA) in favour of the Appellant was executed  and
registered on 12.05.2006, it could not be impacted or affected by the  Suraj
Lamp dicta.   Furthermore, a reading of the order of the Executing Court  as
well as of the High Court makes it palpably clear that both the  Courts  had
applied the disqualification and illegality  imposed  upon  GPAs   by  Suraj
Lamp, without keeping in mind  that  the  operation  of  that  judgment  was
pointedly and poignantly prospective.    This question has been  dealt  with
by my esteemed Brother most comprehensively.

2     What strikes us as a perverse,  certainly  misplaced  or  inconsistent
approach, is that if the  Appellant  does  not  possess  any  title  to  the
property predicated on the GPA executed in her favour by Smt.  Nirmal  Verma
(the wife of  the  Judgment  Debtor  Shri  Prem  Chand  Verma),  this  legal
infirmity would  inexorably  invalidate  the  title  of  Smt.  Nirmal  Verma
herself, thereby denuding any titular claim of  her  husband,  the  Judgment
Debtor, and rendering the  property  impervious  to  the  subject  execution
proceedings.   Additionally, there is not even a semblance  of  a  right  in
favour of the Judgment Debtor whose wife was not even impleaded in the  suit
or in the execution.   The  impugned  judgment  notes  this  contention  but
fails to address it.   The evidence of the Decree Holder has not been  filed
and therefore the judicial records were summoned from the High Court.

3     The Statement of the Respondent/Decree Holder reads thus:-

      “Ex. No. 224/2009

      DHW-1: Sh.Lalta Prasad, S/o Sh. Naubat Ram, aged 58 years,  R/o  1908,
      Gali Mata Wali, Chandni Chowk, Delhi-6.

      ON S.A.

           I, hereby, tender my affidavit in my  evidence.    The  same  be
      read as part and parcel of my statement.   My affidavit  is  Ex.  DHW-
      1/A(running in 2 pages) which bears my signatures at point A and B  on
      page 1 & 2.

      XXXXXX by  Sh. Pradeep Chaudhary Adv. for objector.

           I have passed 11th standard.   The  affidavit  Ex.  DHW-1/A  was
      prepared in the office of my counsel.   My counsel  has  explained  me
      contents of the same to me before I  signed  the  same.    Whatever  I
      stated to my counsel  was incorporated in Ex. DHW-1/A.   The Agreement
      with Prem Chand Verma was entered on 11.11.2003.   I had seen original
      documents of the property at that time in  possession  of  Prem  Chand
      Verma.  He also gave me some copies of the same.

           Remaining cross-examination of  the  witness  is  deferred  till
      12.00 P.M.

      RO&AC

                                               BRIJESH KUMAR GARG

                                    ADJ CENTRAL-18

                                                           DELHI/ 29.01.10




      DHW-1: Sh.Lalta Prasad, recalled for his further cross-examination  at
      12.50 P.M.

      ON S.A.




      XXXXXX by  Sh. Pradeep Chaudhary Adv. for objector.

            I have no knowledge that Smt. Maya Devi had purchased the  suit
      property  from  Smt.  Nirmal  Verma.    The  documents  filed  by  the
      objectors are forged and fabricated documents.   I have  no  knowledge
      that Smt. Nirmal Verma  purchased  the  suit  property  from  one  Sh.
      Rajender Kumar.

           Sh. Prem Chand Verma was my friend for the last about 30  years.
       It is correct that Sh.  Prem  Chand  Verma  had  already  expired  on
      7.10.2008.   It is wrong to suggest that Sh. Rajender  Kumar  was  the
      owner of the property and he sold the property to  Nirmal  Verma  from
      whom Smt. Maya Devi purchased the suit  property.    It  is  wrong  to
      suggest that Sh. Prem Chand Verma was never  the  owner  of  the  suit
      property.   It is wrong to suggest that I have filed a false affidavit
      and I am deposing falsely in the court today.

      RO&AC

                             BRIJESH KUMAR GARG

                                  ADJ CENTRAL-18

                                  DELHI/ 29.01.10”




It discloses that the Decree Holder has failed altogether  to  disprove  the
title of the Appellant, and he has maintained  that  the  Defendant/Judgment
Debtor was the owner, which is admittedly not  the  actual  legal  position.
If the Decree Holder has been defrauded by  the  Defendant/Judgment  Debtor,
largely because of the former’s  careless  disregard  to  conduct  a  title-
search,  he   must   face   the   legal   consequences;   they   cannot   be
transferred/imposed upon a third party to its detriment.   In  the  wake  of
the Decree Holder/Plaintiff denying the title  of  Smt.  Nirmal  Verma,  the
Courts below erred in proceeding against her property.

4     Both the Courts below have preferred the view that the Appellant,  who
has been in possession from the date of the execution of the registered  GPA
in her favour, has been introduced into the scene in  order  to  defeat  the
interests of the Respondent, which is a perverse approach for  reasons  that
shall be presently explained.   The documents purportedly in favour  of  the
Respondent/Decree Holder are unregistered and the alleged  payment  made  by
him to  Shri  Prem  Chand  Verma  is  in  cash.    Therefore,  there  is  no
justification for favouring the view that the  alleged  transaction  between
Shri Prem Chand Verma and the Respondent/Decree Holder was  genuinely  prior
in time to the execution of the registered Power of Attorney  in  favour  of
the  Appellant  Smt.  Maya  Devi  by  Smt.  Nirmal  Verma,  and  the  former
simultaneously  and  contemporaneously  was  put  into  possession  of   the
property by the latter.

5     There can be no gainsaying that when the probative value of  documents
is to be  assessed,  specially  those  dealing  with  the  creation  of  any
interest in property  or  its  transfer,  of  a  value  exceeding  Rs.100/-,
obviously documents which have been duly registered  regardless  of  whether
or not that was legally mandatory, would score over  others.      A  perusal
of the judgment shows that whether the sum of Rs.1,70,000/-  allegedly  paid
by the Plaintiff in Suit No.407 of 2007, namely, Shri Lalta Prasad  to  Shri
Prem Chand Verma was in cash or through  a  traceable  Bank  transaction  or
through a registered acknowledgment has not been cogitated upon.   Proof  of
payment by the Plaintiff to the Defendant/husband of the previous  owner  of
the property has not been adjudicated upon.   It is  not  controverted  that
the Appellant Smt. Maya Devi has been  in  possession  of  the  property  in
question from May, 2006.    A reading of the judgment by which the Suit  was
decreed for  a  sum  of  Rs.3,40,000/-  does  not  shed  any  light  on  the
circumstances which made the Plaintiff wait to initiate  legal  action  till
after the property was sold and its possession delivered to  the  Appellant.
 I,  therefore,  disbelieve  the  genuineness  of  the  so-called  “Deed  of
Agreement for Earnest Money” allegedly executed almost three  years  earlier
on 03.11.2003.   And, I would rather discount the veracity of  the  document
dated  3.11.2003,  then  looking  upon  the  Power  of  Attorney  and  other
documents executed in favour of the Appellant Smt. Maya Devi by Smt.  Nirmal
Verma as mala fide.   What is important is that it is not disputed that  the
title and possession of the property  which  has  been  brought  within  the
sweep of the execution proceedings, was never held in any  capacity  by  the
Defendant/Shri Prem Chand Verma, but by his wife, Smt.  Nirmal  Verma.    To
give even a semblance of a case to the Plaintiff Lalta Prasad, the  Deed  of
Agreement for Earnest Money should have been  between  the  Plaintiff/Decree
Holder/Respondent and Smt. Nirmal Verma.

6     The Trial Court had framed the following issues in  Suit  No.407/2007,
from which subject of proceedings emanates:

             “(1) Whether the plaintiff is entitled for the suit amount?  If
             so to what sum? OPP

             (2)  Whether the plaintiff is entitled for the  interest?    If
             so at what rate and for which period?  OPP

             (3)  Relief.”




The Trial Court having  accepted   the  payment  of   Rs.1,70,000/-  without
insisting on any proof, did not go into  the  question  whether  a  covenant
stipulating that double the amount of earnest money would be payable in  the
event the contract was not performed,  is  legal  in  terms  of  the  Indian
Contract Act.   The imposition and the recovery of penalty on  breach  of  a
contract is legally  impermissible  under  the  Indian  Contract  Act.    As
regards  liquidated  damages,  the  Court  would  have  to  scrutinize   the
pleadings as well as evidence in proof thereof, in order to  determine  that
they are not in the nature of a penalty, but rather as a  fair  pre-estimate
of what the damages are likely to arise in case of breach of  the  contract.
 No evidence whatsoever has been led by the  Plaintiff  to  prove  that  the
claim for twice the amount of earnest money  was  a  fair  measure  or  pre-
estimate of damages.

7     The pronouncements of the Constitution Bench in Sir Chunilal V.  Mehta
& Sons Ltd. vs Century Spinning and  Manufacturing  Co.  Ltd.  AIR  1962  SC
1314, and later in Fateh  Chand vs Balkishan Dass AIR 1963  SC  1405,   hold
the field, making it unnecessary to refer to  any  other  precedent  for  an
enunciation of the law,  except  to  appreciate  the  manner  in  which  the
opinion of the Constitution Benches have been applied to the factual  matrix
in later cases.   With  the  number  and  volume  of  precedents  increasing
exponentially  each  year,  reference  to  all  decisions   make   arguments
excruciatingly  lengthy  and   judgments  avoidably  prolix.     The   first
important judgment of this Court on the question of Sections 73  and  74  of
the Contract Act is that of the Constitution Bench  in  Chunilal  V.  Mehta.
The two significant issues which  arose  were  firstly,  as  to  what  would
constitute a substantial question of law requiring the  grant  by  the  High
Court of a Certificate to appeal to this Court, and  secondly,  the  quantum
of damages that can be awarded in that case  owing  to  the  breach  of  the
subject contract.   It is the second question  which  is  relevant  for  the
present purposes.   The admitted position was that  the  contract  had  been
wrongfully breached by the Defendant.   A clause in the compact between  the
parties stipulated that in  these  circumstances,  the  Plaintiff  would  be
entitled to receive  from  the  Defendant  “as  compensation  or  liquidated
damages for the loss of such  appointment  a  sum  equal  to  the  aggregate
amount of the monthly salary of not  less  than  Rs.6000/-  which  the  Firm
would have been entitled to receive from the  Company, for  and  during  the
whole of the then unexpired portion of the said period of 21  years  if  the
said Agency of the Firm  had  not  been  determined.”    The  Plaintiff  had
initially claimed a sum of Rs.50 Lakhs which  was  subsequently  reduced  by
way of amendment of the plaint to Rs.28,26,804/-.   The  Constitution  Bench
opined that “when parties name a sum of  money  to  be  paid  as  liquidated
damages they must be deemed to exclude the right to claim  an  unascertained
sum of money as damages.  ….   Again the right to claim  liquidated  damages
is enforceable under S. 74 of the Contract Act and where  such  a  right  is
found to exist no question of ascertaining  damages  really  arises.   Where
the parties have deliberately specified the  amount  of  liquidated  damages
there can be no presumption that they, at the same time, intended  to  allow
the party who has suffered by  the  breach  to  give  a  go-by  to  the  sum
specified and claim instead a sum of money  which  was  not  ascertained  or
ascertainable at the date of the breach”.   This precedent  prescribes  that
if a liquidated sum has been mentioned in a contract to be  payable  on  its
breach, then if damages have actually been  suffered,  the  said  liquidated
amount would be the maximum and upper limit  of  damages  awardable  by  the
Trial Court.

8     The judgment of the Constitution Bench one year later, in Fateh  Chand
concerns award of  damages  of  the  ‘liquidated’  sum  even  though  actual
damages may have been less.   In that respect it  is  the  converse  of  the
factual matrix  that  existed  before  the  earlier  Constitution  Bench  in
Chunilal V. Mehta.    J.C. Shah, J (who authored  Fateh  Chand)  along  with
Chief  Justice  B.P.  Sinha  were  members  of  both  Constitution  Benches.
Whilst the aspect of the  liquidated  damages  being  in  the  nature  of  a
penalty or in terrorem did not arise in Chunilal V.  Mehta,  It  did  so  in
Fateh Chand where the complaint  was   that  the  Plaintiff,  namely,  Fateh
Chand had agreed to sell an immovable property for  Rs.1,12,500/-  of  which
Rs.1000/-  had  been  received/paid  as  earnest  money.     The   Agreement
envisaged  payment of a further sum of Rs.24,000/- and  it  stipulated  that
if the vendee failed to get the Sale Deed registered  thereafter,  then  the
sum  received  i.e.  Rs.25,000/-  would  stand  forfeited.     Fateh   Chand
alleging a breach of the Agreement, sought to forfeit the sum of Rs.25,000/-
  which  was  found  to  be  impermissible  in  law.     It  was  in   those
circumstances that the Constitution Bench opined as follows:

       “10. Section 74 of the Indian Contract Act deals with the measure of
       damages in two classes of cases (i) where the contract names  a  sum
       to be paid in case of breach and (ii) where  the  contract  contains
       any other stipulation by way of penalty.  We are in the present case
       not concerned to decide whether a contract containing a covenant  of
       forfeiture of deposit for due performance of a contract falls within
       the first class.  The measure of damages in the case of breach of  a
       stipulation by way of penalty is by S.  74  reasonable  compensation
       not exceeding the penalty stipulated for. In assessing  damages  the
       Court  has,  subject  to  the  limit  of  the  penalty   stipulated,
       jurisdiction to award  such  compensation  as  it  deems  reasonable
       having regard to all the circumstances of tile case.    Jurisdiction
       of the Court to award compensation in case of breach of contract  is
       unqualified except as to the maximum  stipulated;  but  compensation
       has to be reasonable, and that imposes upon the Court duty to  award
       compensation  according  to   settled   principles.    The   section
       undoubtedly says that the aggrieved party  is  entitled  to  receive
       compensation from the party who has broken the contract  whether  or
       not actual damage or loss is proved  to  have  been  caused  by  the
       breach. Thereby it merely dispenses with proof of  "actual  loss  or
       damage"; it does not justify  the  award  of  compensation  when  in
       consequence of the breach  no  legal  injury  at  all  has  resulted
       because compensation for breach of contract can be awarded  to  make
       good loss or damage which naturally arose in  the  usual  course  of
       things, or which the parties knew when they made the contract, to be
       likely to result from the breach.
       11.  Before turning to the question about the compensation which may
       be awarded to the plaintiff, it is necessary to consider whether  S.
       74 applies to stipulations for forfeiture of  amounts  deposited  or
       paid under the contract.   It was urged that the  section  deals  in
       terms with the right to receive from the party who  has  broken  the
       contract reasonable compensation and not the right to  forfeit  what
       has already been received by the party aggrieved.  There is  however
       no warrant for the assumption made by some of  the  High  Courts  in
       India, that S. 74 applies only to cases where the aggrieved party is
       seeking to receive some amount on breach  of  contract  and  not  to
       cases where upon breach of contract an  amount  received  under  the
       contract is sought to be forfeited.   In our judgment the expression
       "the contract contains any other  stipulation  by  way  of  penalty"
       comprehensively  applies  to  every  covenant  involving  a  penalty
       whether it is for payment on breach of contract of money or delivery
       of property in future, or for forfeiture of right to money or  other
       property already delivered. Duty not to enforce the  penalty  clause
       but only to award reasonable  compensation  is  statutorily  imposed
       upon Courts by S. 74.   In all cases, therefore, where  there  is  a
       stipulation in the nature of penalty for  forfeiture  of  an  amount
       deposited pursuant to the terms of contract which expressly provides
       for forfeiture, the Court has jurisdiction to award such sum only as
       it considers reasonable, but not exceeding the amount  specified  in
       the contract as liable to forfeiture.”




After reading the entire evidence that had been recorded,  the  Constitution
Bench found that  the  value  of  the  property  had  not  depreciated  and,
therefore, no damages could be awarded.

9     This is also the manner in which  this  facet  of  the  law  has  been
enunciated in England,  as  is  evident  from  the  following  passage  from
Halsbury’s Laws of England (4th edn Reissue,  1998)  Vol  12(1),  para  1065
which reads as follows:-

       “1065.     Liquidated damages distinguished  from  penalties.-   The
       parties to a contract may agree at the time of contracting that,  in
       the event of a breach, the party in default shall pay  a  stipulated
       sum of money to the other.   If this sum is a  genuine  pre-estimate
       of the loss which is  likely  to  flow  from  the  breach,  then  it
       represents the agreed damages, called ‘liquidated damages’,  and  it
       is recoverable without the necessity  of  proving  the  actual  loss
       suffered.   If, however, the stipulated  sum is not a  genuine  pre-
       estimate of the loss but is in the nature of a penalty  intended  to
       secure performance of the contract, then it is not recoverable,  and
       the plaintiff must prove what damages he can.  The operation of  the
       rule against penalties does not depend  on  the  discretion  of  the
       court, or on improper conduct, or on circumstances  of  disadvantage
       or ascendancy, or on the general character or  relationship  of  the
       parties.   The rule is one of public policy and appears  to  be  sui
       generis.   Its absolute nature inclines the  courts  to  invoke  the
       jurisdiction sparingly.   The  burden  of  proving  that  a  payment
       obligation  is  penal  rests  on  the  party  who  is  sued  on  the
       obligation”.




10    The position that obtains in the United States, obviously  because  of
its Common Law  origins  and  adherence,  is  essentially  identical  as  is
evident from these extracted paragraphs of  Corpus  Juris  Secundum,  Volume
25A (2012):

192-  Liquidated damages are a specific sum stipulated to  and  agreed  upon
by the parties in advance or when they enter into a contract to be  paid  to
compensate for injuries in the event of a breach or  nonperformance  of  the
contract.    196-In examining  whether  a  liquidated-damages  provision  is
enforceable, courts consider whether the damages stemming from a breach  are
difficult or impossible to estimate  or  calculate  when  the  contract  was
entered and whether the amount stipulated bears  a  reasonable  relation  to
the damages reasonably anticipated.   198-Liquidated  damages  must  bear  a
reasonable relationship to actual damages, and a  liquidated-damages  clause
is invalid when the stipulated amount  is  out  of  all  proportion  to  the
actual damages.  200- A penalty is in effect  a  security  for  performance,
while a provision for liquidated damages is for a sum to be paid in lieu  of
performance.   A term in a contract calling for the imposition of a  penalty
for the breach of the contract is contrary to  public  policy  and  invalid.
This position  also  finds  elucidation  in  the  following  paragraph  from
American Restatement (Second) of Contracts 1981:-

           “356. LIQUIDATED DAMAGE AND PENALTIES

           (1)   Damages for breach by either party may  be  liquidated  in
        the agreement but only at an amount that is reasonable in the light
        of the anticipated or actual loss caused  by  the  breach  and  the
        difficulties of proof or loss.   A term fixing  unreasonably  large
        liquidated damages is unenforceable on grounds of public policy  as
        a penalty.”




11    Returning to the facts of the present case,  the  so  called  Deed  of
Agreement for Earnest Money inasmuch as it postulates the payment  of  twice
the sum received ought not to have been decreed  as  firstly,  the  contract
itself could not have been specifically enforced  since  the  Defendant  was
devoid of title; and secondly, the Plaintiff had  not  proved  that  he  had
suffered any damages and facially the stipulated sum was in the nature of  a
penalty.

12     In Phulchand Exports Limited Vs O.O.O. Patriot 2011(10)SCC  300,  the
Appellant (Seller) entered into  a  contract  with  the  Respondent  (Buyer)
relating to the sale/purchase of 1000 MT  of  Indian  polished  rice  for  a
total consideration of INR 12,450,000/-.   The Seller  loaded  the  rice  16
days late and the Vessel freighted by the  Sellers  left  port  (Kandla)  38
days later than  the  contractually  stipulated  time  of  departure.    The
specified destination, the port of  Novorossiysk,  Russia,  was  to  be  the
first port of discharge, and even in this regard there  is  a  finding  that
the Vessel on  which  the  shipment  had  been  consigned  was  not  sailing
directly to the said port, leave aside Novorossiysk being its first port  of
call.     The  ship  suffered  an  engine  failure  which  resulted  in  its
requiring salvage operations near Turkey, and the  entire  cargo  on  board,
including the subject consignment of rice was  sold  pursuant  to  Admiralty
proceedings to compensate the cost of  the  rescue  of  the  Vessel.     The
Insurance Company maintained that the lien of the cargo  to  compensate  the
costs  of  the  rescue  of  the  Vessel  was  not  covered  in  the  policy.
Arbitration proceedings under  the  aegis  of  the  International  Court  of
Commercial Arbitration at the  Chamber  of  Commerce  and  Industry  of  the
Russian Federation culminated in the passing of an Award which directed  the
sharing of the price of the rice consignment equally  between  the  parties.
In the Award it has been opined that the Buyer had  failed  to  forward  the
shipping documents and the Insurance Certificate to the Seller and thus  was
equally blameworthy.   The defence of the Seller  was  that  the  goods  had
passed to the  Buyer,  who  had  already  paid  the  entire  sale  price  on
negotiation of documents by the Seller with the concerned Bank.  This  Court
held that despite the fact that it  was  a  CIF  contract,  the  consignment
having been belatedly boarded on the Vessel, which Vessel thereafter  sailed
later than the time agreed upon by the parties, and  which  Vessel  did  not
have the contracted destination Novorossiysk as  the  first  port  of  call,
could not have been in conformity with the contract,  and  hence  the  goods
could not be viewed as having passed to the Buyer  thereby  shifting  to  it
the liability of the lost shipment.   The other  question  that  was  raised
was whether the stipulation in the contract envisaging the reimbursement  of
the consideration received by the Seller in the event of non-performance  of
the contract was in the nature of a penalty.    It was in this context  that
Sections 73 and 74 of the Contract  Act  came  to  be  considered.      This
Court held that the clause requiring the refund of the  price  of  the  Rice
consignment  could  not  be  viewed  as  a  penalty  which  is  not  legally
recoverable in India  and  therefore  the  Award  was  impervious  to  jural
interference as it was not against the public policy of India even in  terms
of the interpretation given in ONGC Ltd. vs Saw Pipes  Ltd.   (2003)  5  SCC
705.

13    After recording that the  opinion  of  the  two  Constitution  Benches
still hold the field, I have nevertheless mentioned Phulchand  Exports  only
for adverting/clarifying that views of this  Court  have  remained  constant
till now.   I must immediately clarify that it would require a Bench  larger
than a Five-Judge Bench to alter the  legal  position  from  what  has  been
enunciated in Chunilal V.  Mehta and Fateh Chand.  The decisions of  smaller
Benches are relevant only for the purpose of  analysing  the  verdict  in  a
particular case on the predication of the elucidation of the law  laid  down
by the Constitution Benches.   This would include an oft-quoted decision  in
Maula Bux vs Union of India, 1969(2)SCC 554, as well as UOI  vs  Raman  Iron
Foundry, 1974(2)SCC 231, and BSNL vs Reliance Communication  Ltd.,   2011(1)
SCC 394, etc.

14     Now  I  come  to  the  next  aspect  of  the  case.    The  Execution
proceedings were initiated by the  Respondent/Decree  holder  on  27.10.2007
under Order XXI Rule 11 of the Code of Civil Procedure (‘CPC’  hereinafter).
  It transpired that Attachment Orders came to be passed.   The  application
dated 3.7.2008, being Objections under Order XXI Rule 58 read  with  Section
151 CPC was preferred by the Appellant Smt. Maya Devi pleading, inter  alia,
that the Decree Holder had wrongly scheduled her property in  the  Execution
Application; that she  was  the  absolute  and  real  owner  thereof  having
purchased it on 12.05.2006 from Smt. Nirmal Verma, wife of Prem Chand  Verma
(Judgment Debtor); that she has no other  connection  or  concern  with  the
Judgment Debtor or with his wife in any manner whatsoever.   The  Appellant,
therefore, respectfully prayed that her aforesaid  property  may  kindly  be
released from the Schedule.    Plaintiff/Decree Holder  Shri  Lalta  Prasad,
Respondent before us, countered by pleading that  the  Objections  had  been
filed at the behest of the Judgment Debtor to avoid the satisfaction of  the
decree; that the Appellant/Objector was not the absolute and real  owner  of
the suit property; that  the  duly  registered  General  Power  of  Attorney
executed by Smt. Nirmal Verma was forged and fabricated;  that  Smt.  Nirmal
Verma was none else than the wife of the Judgment  Debtor.    The  Appellant
has supported her stance by filing her own  affidavit.    In  the  Execution
proceedings, the Plaintiff/Decree Holder/Respondent in cross-examination  of
the Appellant has only suggested  that  the  documents  were  fabricated  in
collusion with Smt. Nirmal Verma.  How this was  possible,  since  they  are
duly registered documents, is difficult to comprehend.   The other  question
put in cross-examination was that Smt. Nirmal Verma was never the  owner  of
the property; and that Smt. Maya Devi’s Objections were filed at the  behest
of Smt. Nirmal Verma.   All these suggestions had  been  denied.    If  Smt.
Nirmal Verma had no title, the consequence would be that the property  would
revert to her predecessor-in- title, thereby  placing  the  property  beyond
the pale of the Execution proceedings.

15    The following issues were framed in the Execution proceedings:-

        (i)      Whether the  objector/applicant  Smt.  Maya  Devi  is  the
           absolute owner of the  disputed  property  No.X-20,  Gali  No.5,
           Brahampuri,      Delhi?       If      so       its       effect?
                                            OP     Applicant.

            (ii)   Whether the judgment and decree dated 6.10.2007

                 are executable against the objector Smt. Maya Devi?

                OP  DH.”




 Smt. Nirmal Verma had also participated in the  Execution  proceedings  and
had filed her affidavit dated 22.10.2008 by way  of  evidence,  asseverating
therein that she had sold the property to Smt.  Maya  Devi  by  executing  a
registered  General  Power  of  Attorney,  Agreement  to  Sell,   Affidavit,
Receipt,  Possession  Letter,  Will  Deed,  which  were  duly  notorised  on
12.05.2006.  She further stated that she had  purchased  the  property  from
Shri Rajinder Parshad by means of similar documentation all  of  which  were
handed over by her to Smt. Maya Devi at the time  of  selling  of  the  said
property.   Very significantly, she  stated  that  her  husband  Prem  Chand
Verma/Judgment Debtor had expired on 8.10.2008.

16    In this backdrop, it needs to be kept in prospective  that  Order  XXI
Rule 97 to Rule 101 of CPC envisage the determination of  all  questions  in
Execution  proceedings  and  not  by  way  of  an  independent  suit.    The
Executing Court, therefore, was  duty  bound  to  consider  and  decide  the
Objections filed by the Appellant with  complete  care  and  circumspection.
I regret to record that this has not been done.   The Objections came to  be
dismissed on 23.7.2010 with brevity bordering on  dereliction  of  duty,  in
the following manner:-

           “…. It has been submitted by the counsel for the  objector  that
        the applicant is the absolute owner of the suit property by  virtue
        of General Power of  Attorney which was registered on 12.5.2006 and
        she is in actual physical possession of the suit  property but  the
        counsel for the DH has stated that the objector has no legal right,
        title or  interest  as  the  execution  of  the  General  Power  of
        Attorney and its registration does not confer any  ownership  right
        in favour of the applicant/objector.   The counsel for DH has  also
        relied upon the judgment of  the  Hon’ble  Supreme  Court  in  case
        titled as Suraj Lamp and Industries Private  Limited  Vs  State  of
        Haryana and Another reported as (2009) 7 Supreme Court Cases 363.”




17    A perusal of the above will show that the Executing Court ignored  and
overlooked the important submission of the Appellant stating  that  she  was
the absolute  owner  of  the  suit  property  and  that  she  had  no  truck
whatsoever either with the Judgment Debtor Shri  Prem  Chand  Verma  or  his
wife Smt. Nirmal Verma beyond  purchasing  the  subject  property  from  the
latter.   What has also escaped the attention of the  Court  is  that  Suraj
Lamp has prospective operation, thereby rendering  it  inapplicable  to  the
subject 2006 transaction.   Secondly, if the General Power  of  Attorney  in
favour of the Appellant Smt. Maya Devi was bereft  of  legal  efficacy,  the
ownership of Smt. Nirmal Verma would also be invalid, and sequentially   the
property would have no connection whatsoever with the Judgment Debtor  since
he had purportedly derived title only through a Will.   Unfortunately,  this
is also the approach which has been preferred by the High Court in terms  of
the impugned order.   The High Court has also  wrongly  applied  Suraj  Lamp
and has also neglected to reflect upon the Appellant’s plea that she is  (i)
the actual owner of the suit  property  having  purchased  it  for  valuable
consideration, and (ii) being a third party not connected in any  mala  fide
manner with the  Judgment  Debtor,  and  (iii)  not  having  received  prior
notice of any action of  late  Shri  Prem  Chand  Verma,  was  imperious  to
Execution  proceedings.    A   miscarriage   of   justice,   of   monumental
proportions, has taken place on an un-substantiated presumption that one  of
the assets of the Judgment Debtor had been illegally transferred  to  defeat
the decree.    The Appellant before us had no other recourse  than  to  file
Objections under Order XXI Rule 58 CPC.

18     Finally another aspect which has come to the fore,  is  the  approach
of the Trial Court in the adjudication of the suit.    The  plaint  contains
an averment that the suit property had already been  sold.    The  Defendant
Shri Prem Chand Verma, (his wife Smt. Nirmal Verma was  not  impleaded)  had
appeared in the Trial Court  and  filed  his  Written  Statement  in  which,
whilst admitting the documentation executed  between  the  parties,  he  had
denied  that he had been served  with  any  legal  notice  and  set  up  the
defence that he was entitled to forfeit the amount received by  him  because
the  Plaintiff/Decree  Holder  had  failed   to   pay   the   balance   sale
consideration as envisaged in the  Deed  of  Agreement  for  Earnest  Money.
After filing his Written  Statement  he  stopped  appearing,  and  the  suit
proceeded ex-parte.   Significantly,  the  Deed  of  Agreement  for  Earnest
Money as well as the Written Statement  predicate  Defendant’s  title  on  a
Will, and in this context there is no evidence on record that it  had  taken
effect because of the death of the Testator.    In the event, as  is  to  be
expected, no appeal against the judgment and decree came to be  filed,  and,
therefore, the decision   was  not  tested  before  or  scrutinized  by  the
Appellate Court.  The absence of the Defendant does not  absolve  the  Trial
Court from fully satisfying itself of the factual and legal veracity of  the
Plaintiff’s claim; nay, this feature  of  the  litigation  casts  a  greater
responsibility and onerous obligation on the Trial  Court  as  well  as  the
Executing Court to be fully satisfied that the claim  has  been  proved  and
substantiated to  the  hilt  by  the  Plaintiff.    Reference  to  Shantilal
Gulabchand Mutha vs Tata Engineering and Locomotive Company Limited,  (2013)
4 SCC 396, will be sufficient.   The failure to file  a  Written  Statement,
thereby bringing Order VIII Rule 10  of  the  CPC  into  operation,  or  the
factum of Defendant having been set ex parte, does not invite  a  punishment
in the form of an automatic decree.  Both under Order VIII Rule 10  CPC  and
on the invocation of Order IX of the CPC, the Court  is  nevertheless  duty-
bound to diligently ensure that the plaint stands  proved  and  the  prayers
therein are worthy of being granted. .

19    I am fully mindful of the fact that the Appellant has  not  taken  any
steps for setting aside the ex parte decree against  late  Shri  Prem  Chand
Verma.   This is only to be expected since  the  Appellant/Objector  has  no
reason to evince or harbour any interest in the  inter  se  dispute  between
the Decree Holder and the Judgment Debtor.   Indeed, if  the  Appellant  had
made any endeavour to assail or nullify the decree,  it  would  be  fair  to
conclude that she had been put up by the Judgment Debtor in an endeavour  to
defeat the decree.    In these circumstances, my in-depth  analysis  of  the
law pertaining to decreeing what is essentially a penalty clause may,  on  a
perfunctory or superficial reading,  be  viewed  as  non  essential  to  the
context.   This, however, is not so.   On a conjoint reading  of  Order  XXI
Rule 58 CPC and the fasciculus of Order XXI comprising Rules 97 to  104,  it
becomes clear  that  all  questions  raised  by  the  Objector  have  to  be
comprehensively considered on their merits.    In  the  case  in  hand,  the
decree from which the Execution proceedings emanate is not one for  delivery
of possession, but is a simple money decree.     Order  XXI  proscribes  the
filing of a separate suit and prescribes that all relevant  questions  shall
be  determined  by  the  Court.   Objection  under  Order  XXI   should   be
meaningfully heard so as to avoid the  possibility  of  any  miscarriage  of
justice.   It is significant in this  regard  that  Rule  103  ordains  that
where any application has been adjudicated upon under rule 98 or  rule  100,
the order made thereon shall have the same force and be subject to the  same
conditions as to an appeal or otherwise, as if it were a decree.    I  shall
only advert to  the  decisions  of  this  Court  in  Brahmdeo  Chaudhary  vs
Rishikesh Prasad Jaiswal, (1997) 3 SCC 694, Shreenath vs  Rajesh,  (1998)  4
SCC 543, and Tanzeem-e-sufia  vs  Bibi  Haliman,  (2002)  7  SCC  50,  where
proceedings were under the aforesaid fasciculus   of  Order  XXI  comprising
Rules 97 to 104, in which the Objectors had  set  up  a  title  distinct  or
different from that of the Judgment Debtor  and   the  Court  had  protected
their interest.    The Appellant before us is a third  party  and  has  been
brought into the lis by a side wind in that her property  is  sought  to  be
attached with the intention of satisfying a decree  in  which  she  was  not
directly or intrinsically concerned.

The Appellant/Objector who has approached the Court under Order XXI Rule  58
is more advantageously or favourably placed  inasmuch  as  she  is  a  third
party so far as the decree  is  concerned,  and  her  property  is  not  the
subject-matter of the decree.       
It is thus clear to me that  the  Courts
below have in a hurried, if not prejudiced manner, rejected  the  Objections
merely because of some sympathy towards the Decree Holder.   
The  Objections
deserved to be allowed without disturbing  the  decree,  leaving  all  other
remedies  open  to  the  Decree  Holder/Respondent,  including   proceedings
against the Estate of the Judgment Debtor.

20    I respectfully agree with my learned Brother that the Appeal  deserves
to be allowed and the impugned orders require to be set aside.


                              ............................................J.

                                                [VIKRAMAJIT SEN]

New Delhi

February 19,  2014.

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