My photo




Tuesday, May 5, 2015

Suit for specific performance / refund of amount - Plaintiff deposited nearly 78 lakhs as earnest money -balance is to be paid with in 3 months from date of acceptance - due to uncertain events requested for extention of time - Defendant appointed two committees for studying both committees recommended for extention of time - pending consideration of recommendations - issued a letter of cancellation dated 6.10.1993 and consequent forfeiture of earnest money was made without putting the appellant on notice that it has to deposit the balance 75% premium of the plot within a certain stated time. -Single judge decreed the suit for refund of earnest money as the property was re auctioned for more than 3 1/2 times value pending suit -Division Bench reversed the order - Apex court held that In the absence of such notice, there is no breach of contract on the part of the appellant and consequently earnest money cannot be forfeited. and further held that like Sections 73 and 75 of Indian Contract Act , compensation is payable for breach of contract under Section 74 only where damage or loss is caused by such breach.- where as in this case defendant fetched good value than sold earlier - Hence the defendant can not forfeit the amount and is liable to refund the same - allowed the appeal and dismissed the order of Division Bench and restored the order of Single Judge - 2015 S.C. MSKLAWREPORTS

 As  per  the  terms  and
conditions  of  the  auction,  the  appellant,  being  the  highest  bidder,
deposited a sum of Rs.78,00,000/- (Rupees Seventy Eight  Lakhs),  being  25%
of the bid amount, with the DDA, this being earnest money  under  the  terms
of the conditions of auction.
as per the one of the terms
(iv) In case of default, breach or non-compliance of any of  the  terms  and
conditions of the auction  or  mis  -representation  by  the  bidder  and/or
intending purchaser, the earnest money shall be forfeited.

within 3 months  thereof,  pay  to  the  Delhi  Development  Authority,  the
balance 75% amount of the bid...

 On 18.2.1982, the  DDA  acknowledged  the  receipt  of  Rs.78,00,000/-
(Rupees Seventy Eight Lakhs), accepted the appellant's bid and directed  the
appellant to deposit the remaining 75% by 17.5.1982.  
However, as there  was
a general recession in the industry, the  appellant  and  persons  similarly
placed made representations sometime in May, 1982  for  extending  the  time
for payment of the  remaining  amount

High  Powered  Committee  recommended  that  the  time  for
payment be extended and specifically mentioned the  appellant's  name  as  a
person who should be given more time to pay  the  balance  amount.  
the fact that on 14.5.1984 the  DDA  accepted  the  recommendations  of  the
second High Powered Committee, nothing  happened  till  1.12.1987.  
letters had been written by the appellant to DDA from 1984 to  1987  but  no
answer was forthcoming by the DDA.

The appellant then filed a suit for specific performance on  17.2.1994
and in the alternative for recovery of damages and recovery of  the  earnest
amount of Rs.78,00,000/- (Rupees Seventy Eight Lakhs).  
 Shortly  after  the
suit was filed, on  23.2.1994,  the  DDA  re-auctioned  the  premises  which
fetched a sum  of  Rs.11.78  Crores  (Rupees  Eleven  Crores  Seventy  Eight

The learned Single Judge by  a  judgment  and  order  dated  10.9.2007
dismissed the appellant's suit for  specific  performance  and  damages  but
ordered refund of the earnest money forfeited together  with  9%  per  annum

 The present case is one where defendant no.1 has not even  suffered  a
The plot was to be purchased by the plaintiff at Rs.3.12  crores  and
it was finally sold to a third party at Rs.11.78 crores, i.e.  almost  three
and a half times the price. 
 During this period defendant no.1 continued  to
enjoy the earnest money of the plaintiff of Rs.78.00 lacs.

 It is in view thereof that  the  matter  went  as
far as setting up of two committees to repeatedly examine the matter and  to
come to a conclusion.  The case of defendant  no.1  was  that  the  material
produced by the plaintiff and such similar persons gave rise to a  cause  to
extend the time  for  making  the  payment  subject  to  certain  terms  and

In view of the  prolonged  period,  exchange  of  communications,  the
plaintiff making various offers but not complying with  the  initial  terms,
defendant no.1 taking its own time in the decision making process, I  am  of
the considered view that the plaintiff is entitled  to  the  refund  of  the
earnest money of Rs.78.00 lacs but no further amount is liable  to  be  paid
to the plaintiff."

 DDA appealed against the Single Judge's judgment to a  Division  Bench
of the Delhi High Court.  
The Division Bench set aside the judgment  of  the
Single Judge holding that the forfeiture of the earnest  money  by  the  DDA
was in order.

It now remains to deal with the  impugned  judgment  of  the  Division

  The Division Bench followed the judgment of Tilley v. Thomas, (1867  3
Ch.A 61) and distinguished the judgment in Webb v. Hughes, V.C.M. 1870.   It
further went on to follow Anandram Mangturam v. Bholaram Tanumal,  ILR  1946
Bom 218 and held:
"The decision holds that the principle of law is that where,  by  agreement,
time is made of the essence of the  contract,  it  cannot  be  waived  by  a
unilateral act of a party and unless there is consensus ad-idem between  the
parties and a new date is agreed to, merely because a party  to  a  contract
agrees to consider time being extended for the opposite  party  to  complete
the contract, but ultimately refuses to accord concurrence  would  not  mean
that the party has by conduct waived the date originally agreed as being  of
the essence of the contract." (At para 32)

 In our judgment, Webb's case would directly apply to the  facts  here.
In that case, it was held:
  "But if time be made the essence of the contract, that may  be  waived  by
the conduct of the purchaser; and if the time is once allowed to  pass,  and
the parties go on negotiating for completion of the purchase, then  time  is
no longer of the essence of the contract.  But, on the other hand,  it  must
be borne in mind that a purchaser is not bound to wait an  indefinite  time;
and if he finds, while the negotiations are going on, that a long time  will
elapse before the contract can be completed, he may in a  reasonable  manner
give notice to the vendor, and fix a period at which the business is  to  be

 Based on the facts of this case,  the  Single  Judge  was  correct  in
observing that the letter of cancellation  dated  6.10.1993  and  consequent
forfeiture of earnest money  was  made  without  putting  the  appellant  on
notice that it has to deposit the balance 75% premium of the plot  within  a
certain stated time.  In the absence of such notice, there is no  breach  of
contract on the part of the appellant and consequently earnest money  cannot
be forfeited.

 in S. Brahmanand v. K.R. Muthugopal, (2005) 12 SCC 764 the
Supreme Court held:
"34. Thus, this was a situation where the original  agreement  of  10-3-1989
had a "fixed date" for performance, but by the subsequent  letter  of  18-6-
1992 the defendants made a request  for  postponing  the  performance  to  a
future date without fixing  any  further  date  for  performance.  This  was
accepted by the plaintiffs by their act of forbearance and not insisting  on
performance forthwith. There is nothing  strange  in  time  for  performance
being extended, even though originally  the  agreement  had  a  fixed  date.
Section 63 of the Contract  Act,  1872  provides  that  every  promisee  may
extend time for the performance  of  the  contract. 
 Such  an  agreement  to
extend time need not necessarily be reduced to writing, but  may  be  proved
by oral evidence or, in some cases, even by evidence  of  conduct  including
forbearance on the part of the other party.

 We now come  to  the  reasoning  which  involves  Section  74  of  the
Contract Act.
   Section 74 occurs in Chapter 6 of the Indian Contract Act, 1872  which
reads "Of the consequences of breach of contract".
 It is in fact  sandwiched
between Sections 73 and 75 which deal with compensation for loss  or  damage
caused by breach of contract and compensation for damage which a  party  may
sustain through non-fulfillment of a contract after  such  party  rightfully
rescinds such contract.   
It is important to note that like Sections 73  and
75, compensation is payable for breach of contract  under  Section  74  only
where damage or loss is caused by such breach.

The Division Bench held:
"38. The learned Single Judge has held  that  the  property  was  ultimately
auctioned in the year 1994 at a price which fetched DDA  a  handsome  return
of Rupees 11.78 crores and there being no damages suffered by DDA, it  could
not forfeit the earnest money.

The Division Bench has gone wrong in principle.  As has  been  pointed
out above, there has been no breach of contract by the  appellant.  Further,
we cannot accept the view of the Division Bench that the fact that  the  DDA
made a profit from re-auction is irrelevant, as that would fly in  the  face
of the most  basic  principle  on  the  award  of  damages  -  namely,  that
compensation can only be given for damage or loss suffered.   If  damage  or
loss is not suffered, the law does not provide for a windfall.

The DDA  having
chosen to fight the present appellant tooth  and  nail  even  on  refund  of
earnest money, when there was no breach of contract or loss  caused  to  it,
stands on a different footing. We, therefore, turn down this plea as well.

 In the result, the appeal is allowed.  The judgment and order  of  the
Single Judge is restored.  Parties will bear their own costs. =2015 S.C. MSKLAWREPORTS

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.