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.
Despite
the fact that on 14.5.1984 the DDA accepted the recommendations of the
second High Powered Committee, nothing happened till 1.12.1987.
Several
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
Lakhs).
dismissed the appellant's suit for specific performance and damages but
ordered refund of the earnest money forfeited together with 9% per annum
interest.
The present case is one where defendant no.1 has not even suffered a
loss.
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
conditions.
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
Bench.
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
terminated."
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
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.
"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
