Delhi District Court
M/S. Khullar Hospitality Pvt. Ltd vs M/S. Nourish Organic Foods Pvt. Ltd on 9 May, 2018
IN THE COURT OF GAURAV RAO, ADJ02 & Waqf Tribunal /
NEW DELHI DISTRICT, PATIALA HOUSE COURTS, NEW DELHI.
CS No. 57432/16( Old No. 17/16)
CNR No. DLND010016062016
M/s. Khullar Hospitality Pvt. Ltd.
Through C.M.D.,
Mr. Gaurav Khullar,
D202, 6, Aurangzeb Road,
New Delhi
........Plaintiff
Vs.
M/s. Nourish Organic Foods Pvt. Ltd.
Through its Director/ Authorized Signatory
23rd Floor, Mohta Building,
Bhikaji Cama Place,
New Delhi.
..........Defendant
Date of institution : 08.03.2011
Date on which reserved for judgment : 09.05.2018
Date of decision : 09.05.2018
Decision : Suit as well as Counter Claim
dismissed
J U D G M E N T
1. The present suit for recovery of Rs.38,40,000/ and permanent
injunction has been filed by the plaintiff against the defendant.
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1.1 The suit was filed before Hon'ble High Court of Delhi on
08.03.2011 and in view of the notification No. 27187/DHC/Orgl. dated
24.11.2015, the same was transferred to Ld. District & Sessions Judge, New
Delhi District, Patiala House Courts vide orders dated 30.11.2015 and
thereupon assigned to this Court vide orders dated 12.01.2016.
Plaint
2. It is the case of the plaintiff that it is a private limited company
duly incorporated under the Companies Act, 1956 and the present suit has
been filed through its CMD who is duly authorized to sign and verify the
present suit.
2.1 It is further its case that defendant represented itself, to the
plaintiff, to be the absolute owner in possession of entire basement, entire
ground floor with front lawn, rear courtyard and entire right side driveway
when facing the building of property bearing No.7, Poorvi Marg, Vasant
Vihar, New Delhi (hereinafter referred to as the suit property)
2.2 It is further its case that defendant agreed to let out the suit
proprety, to the plaintiff, on a lease for a period of six years w.e.f.
10.05.2009 to 06.05.2015.
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2.3 It is further its case that defendant entered into a lease deed dated
09.03.2009, through its Authorized Signatory Shri Naresh Saini, which was
duly registered in the office of SubRegistrarIX, New Delhi vide
registration No.1691 in Addl. Book No.1, Volume No.4749 on pages 21 to
47 dated 09.03.2009.
2.4 It is further its case that it intended to take the suit property for
the purpose of running a guest house, after obtaining all necessary approvals.
2.5 It is further its case that the possession of suit property
alongwith fixtures and fittings installed therein was to be handed over to the
plaintiff on 10.05.2009 and the monthly rent was fixed at Rs. 6,40,000/,
subject to income tax deduction, at source, commencing from 10.05.2009.
2.6 It is further its case that the rent was exclusive of electricity and
water charges, payments of which were to be made by the plaintiff directly
to the authorities concerned.
2.7 It is further its case that at the time of signing lease deed dated
09.03.2009, it paid a sum of Rs.19,20,000/ vide cheque No.495208 dated
09.03.2009 drawn on Andhra Bank, Green Park, New Delhi as security
deposit being equivalent to rent of three months and the said cheque was
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duly acknowledged and encashed by the defendant.
2.8 It is further its case that it also paid a sum of Rs.19,20,000/ vide
cheque No.495209 dated 09.03.2009 drawn on Andhra Bank, Green Park,
New Delhi to the defendant as three months advance rent which was to be
adjusted in the first three months of the tenancy.
2.9 It is further its case that it incurred expenses to the tune of
Rs.2,53,000/ for getting the lease deed registered as per law.
2.10 It is further its case that that in utter disregard to the terms and
conditions of the lease deed, the defendant did not handover the possession
of the suit property on 10.05.2009 to it, as was assured by the defendant and
when plaintiff asked the reason for the delay, the defendant showed its
inability as the construction in the suit property was not complete and thus
wanted some time.
2.11 It is further its case that since then the plaintiff contacted the
defendant on several occasions and requested it to handover the possession
of the suit property but defendant delayed the same on one pretext or other
thereby causing loss to its business and as such, plaintiff served a legal
notice dated 01.05.2010 terminating the lease deed and demanded the return
of the entire amount of Rs.38,40,000/ besides interest and compensation /
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damages. It is its case that the notice was duly acknowledged by the
defendant but it did not refund the amount.
2.12 It is further its case that defendant has been misusing the amount
extracted from the plaintiff in the name of security deposit and advance rent
without allowing the plaintiff to take the possession of the suit property
which act/conduct of the defendant has caused immense mental tension, pain
and agony to it.
2.13 It is further its case that the when the suit property was not ready
to be handed over to it, the defendant should not have collected such huge
amount of Rs. 38,40,000/ from it thereby causing wrongful loss to the
plaintiff and wrongful gain to itself.
2.14 Hence the present suit.
Written Statement and Counter Claim
3. Defendant took a preliminary objection that the plaintiff has
suppressed and concealed material fact that it had taken the possession of the
suit property on 10.05.2009 i.e. the date which was agreed to between the
parties under the lease deed dated 09.03.2009 which is evident from letter
dated 22.09.2009 written by the plaintiff to the defendant. It was pleaded
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that the actual, physical peaceful and vacant possession of the suit property
was handed over to the plaintiff on 10.05.2009, immediately after the
execution of the lease deed so as to enable the plaintiff to carry out necessary
renovation in order to convert the suit property for running a guest house.
3.1 It was pleaded that though the plaintiff has averred that because
of nondelivery of possession of the suit property by the defendant, it is
entitled to refund of the amount paid by it to the defendant however in letter
dated 22.09.2009, the plaintiff has stated that because it could not get the
approvals from the statutory authorities, for the purpose of running the guest
house, it is terminating the said lease deed. It was pleaded that in the said
letter the plaintiff demanded refund of 50% of the amount, paid as security
and advance rent, solely on humanitarian and sympathetic ground.
3.2 It was further pleaded that by virtue of Clause 4 (iii) of the Lease
Deed, the defendant is entitled to forfeit the entire security amount and any
advance payment made by the plaintiff, in case defendant fails to perform its
obligation under the Lease Deed. It was pleaded that the plaintiff by
terminating the Lease Deed within the lock in period as well as having failed
to secure necessary approvals has violated its obligation.
3.3 It was further pleaded that Clause 4 (iv) of the Lease Deed further
provides that in case of a termination within the lock in period, by the
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plaintiff, the defendant shall be entitled to receive rents for the remaining
months of the lock in period. It was pleaded that the lease was terminated by
the plaintiff on 22.09.2009 and the lock in period was till 09.05.2010,
therefore, as per the said clause, the defendant is entitled to a rent of 9
months since the plaintiff has only paid advance rent for 3 months and thus it
is the defendant who is entitled to recovery of money from the plaintiff and
not vice versa.
3.4 It was further pleaded that plaintiff has also suppressed reply
dated 01.06.2010 given by the defendant to its legal notice dated 01.05.2010
whereby the defendant had clearly denied any claim made by the plaintiff
and in fact reiterated the claim of the defendant to recover the money from
the plaintiff.
3.5 It was further pleaded that defendant is filing a counterclaim to
recover the said amount of Rs. 57,60,000/. It was pleaded that it was on
account of inability of the plaintiff to obtain the statutory approvals for
running the guest house that led to the plaintiff terminating the lease deed. It
was pleaded that in letter dated 22.09.2009 plaintiff has stated that it
undertook renovation work in the suit property which clearly shows that it
was in actual possession of the suit property. It was pleaded that plaintiff had
commenced work and carried out renovation/repair in the suit property.
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3.6 It was denied that the plaintiff incurred losses on account of non
delivery of the possession of the suit property by the defendant. It was
pleaded that it being the owner of the suit property is free to deal with the
same in any manner whatsoever.
3.7 It was pleaded that the suit filed by the plaintiff deserves to be
dismissed with exemplary costs and the counterclaim deserves to be
allowed.
Replication and Written Statement to the Counter Claim
4. In its replication plaintiff denied the averments of the written
statement as well as the counterclaim while simultaneously reiterating and
reaffirming the contents of the plaint.
Replication to the written statement to the counter claim
5. Similarly the defendant denied the averments of the plaintiff's
written statement in the counter claim while simultaneously reiterating and
reaffirming the contents of its counter claim/written statement.
Admission/denial
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6. Admission/denial of the documents took place vide proceedings
dated 24.07.2013 and 21.01.2014. The admitted document of the plaintiff is
Ex. P1. The admitted document of defendant is Ex. D1.
Issues
7. On the basis of pleadings of the parties, following issues were
framed by the Hon'ble High Court of Delhi vide proceedings dated
12.03.2014:
1. Whether the plaintiff is entitled to a decree for the recovery of
Rs.38,40,000/. If so, with what rate of interest and for what
period? OPP.
2. Whether the plaintiff was put in possession of the tenanted
premises on 10.05.2009? If so, its effect? OPD
3. Whether the defendant/counter claimant is entitled to a decree for
recovery of Rs. 85,25,000/? If so, with what rate of interest and
for what period? OPP (Should be OPD in fact)
4. Whether the plaintiff is guilty of suppression of letter dated
22.09.2009? If so, its effect. OPD
5. Relief.
Plaintiff's evidence
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8. In support of its case, plaintiff examined Shri Gaurav Khullar as
PW1 who tendered his evidence by way of affidavit Ex. PW1/A and relied
upon the following documents:
A. Site plan as Ex. PW1/1.
B. Certified copy of lease deed dated 09.03.2009 as Ex. PW1/2.
C. Legal notice dated 01.05.2010 as Ex. PW1/3.
D. Copy postal receipts dated 04.05.2010 as Ex. PW1/4.
E. AD card as Ex. PW1/5.
F. Photographs as Ex. PW1/6 (colly)
Defendant's evidence
9. Defendant did not lead any DE despite opportunity given and
vide proceedings dated 16.01.2018 DE was closed.
Findings
10. I have heard the Ld. counsels for the parties, given due
consideration to the rival contentions raised at bar and have carefully gone
through the record.
10.1 My issue wise finding is as under:
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1. Whether the plaintiff is entitled to a decree for the recovery
of Rs. 38,40,000/. If so, with what rate of interest and for
what period? OPP.
2. Whether the plaintiff was put in possession of the tenanted
premises on 10.05.2009? If so, its effect? OPD
4. Whether the plaintiff is guilty of suppression of letter dated
22.09.2009? If so, its effect. OPD
10.2 In nutshell the case of the plaintiff is that it had entered into a
duly registered lease deed, dated 09.03.2009 i.e. Ex. PW1/2, with the
defendant in respect of the suit property however despite the same and
payment of three months rent and security amounting to Rs. 38,40,000/, in
terms of the lease deed, the possession of the suit property was never handed
over to it by the defendant, as a result it suffered loss of business. It is for
recovery of said amount, paid as advance rent and security, that the plaintiff
has filed the present suit.
10.3 However after considering the entire material on record I find no
merits whatsoever in the claim of the plaintiff. In fact the plaintiff has
instituted this false and frivolous suit by suppressing material facts. This suit
is rather a blatant example of a dishonest litigant who has tried to misuse and
abuse the process of law.
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10.4 Though the plaintiff had claimed that he was not handed over the
possession of the suit property however said claim is nothing but sheer
falsehood. The relevant document which clinches the dispute and nails the
lie of the plaintiff is letter dated 22.09.2009 i.e. Ex. D1. This letter written by
the plaintiff and authenticity, genuineness of which stands admitted in view
of pleadings, replication of the plaintiff in particular, is itself sufficient to
reject the plaintiff's claim outrightly. The said letter is reproduced hereunder:
KHULLAR HOSPITALITY PVT. LTD
Nourish Organic Foods Pvt. Ltd. 22 September 2009
Mohta Building, 3rd Floor,
Bhikaji Cama Place,
New Delhi
Subject: Lease of Basement & Ground Floor of 7, Poorvi Marg, Vasant
Vihar, New Delhi
Dear Sir,
This is in respect of the lease signed between us in respect of your above
property for a period of 6 years which was to commence from 15th May
2009 after completion and finishing of the said property.
We have taken the above property on lease from you for the purpose of
running a Guest House/Hotel. Due to some unfavourable by laws we
couldn't get the permission/approval for running of the guest house in the
said premises, due to which we have suffered huge losses because of
renovation and changes on the above floors which are owned by us. We
have also advanced you a 3 months security amount and 3 months advance
rent @ 6,40,000 per month for the property which was not completed as
scheduled. Since we have not received the permission for running the guest
house. We are no more interested in continuation of the said lease of the
above referred property. Therefore we hereby terminate the said lease.
We would like to request you that since we have suffered huge losses on the
said account. We will be really obliged and it will be friendly and helpful of
you to refund at least 50% of the amount given to you as deposit and
advance.
Thanking you
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 12/ 38
For Khullar Hospitality Pvt. Ltd.
Gaurav Khullar
(Director)"
10.5 The above letter unambiguously proves that the renovation and
changes in the suit property were undertaken by the plaintiff and not by the
defendant. This letter nullifies the plaintiff's claim that it was the defendant
who had to hand over the possession of the suit property after carrying on
the construction, renovation which it failed to do so. In the said letter the
plaintiff not only admits the renovation and changes done by it but on
account of non receipt of permission/approval to run the guest house from
the suit property as well as on account of expenditure incurred by it for
renovation and changes, terminates the lease as well as requests for refund of
50% of the amount paid by it to the defendant towards advance rent and
security.
10.6 Though the words used in the letter are "we have suffered huge
losses because of renovation and changes on the above floors which are
owned by us" however it appears that the words "above floors" refers to the
suit property as detailed in subject of the letter. Though the word "us"
appears in the said letter however it should be "u" referring to the defendant
who are the owners of the suit property and who had let out the same to the
plaintiff. Otherwise also it is not the case of the plaintiff that the floors above
the suit property were/are owned by it. Let that be the case, in his cross
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examination PW1 stated "I was staying in the first, second and third floor of
7, Poorvi Marg, New Delhi therefore I came in contact with the defendant
company and its employees" what emerges from the record especially the
photographs, as has been discussed in the later part of the judgment, is that it
was the plaintiff who was carrying out the repair and renovation work and
not the defendant. It is not clear in what capacity PW1 was occupying the
above floors of the suit property but I have no hesitation in concluding that
whatever renovation/repair work was being carried out, it was done by the
plaintiff and not the defendant.
10.7 Hence in letter dated 22.09.2009 i.e. Ex. D1 the plaintiff prays to
the defendant for refund of 50% of the amount paid by it as it would be
"friendly and helpful" and the plaintiff would be obliged if the defendant
does so as defendant "have suffered huge losses on the said account".
Whereas in the present suit the plaintiff takes a complete U turn and is
demanding the entire amount paid as advance rent and security by claiming
that the defendant had failed to hand over the possession of the suit property
to the plaintiff because of which plaintiff could not run the guest house and
thus suffered huge loss. When confronted with the said letter during the
cross examination, PW1 gave absolutely evasive answers which casts
serious doubt upon the demeanor of the witness and renders the plaintiff's
version untrustworthy and unreliable. Same is read as under:
"....I do not remember whether I had received any letter dated 29.09.2009
from the defendant. I do not remember whether I had written any letter to
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the defendant regarding the permission which has not been obtained for
running the Guest House........I do not remember whether letter dated
22.09.2009 was sent by me. I also can not identify the signatures on the
said letter as the same is neither visible nor clear."
10.8 Though this letter is itself sufficient to nail the plaintiff's lies,
however there are other material on record, surrounding facts and
circumstances which further renders its version completely unreliable and
untrustworthy. Plaintiff has based its entire claim on certain lines of para 1
of the lease deed i.e. Ex. PW1/2 which has been reproduced hereunder and
highlighted in bold. The relevant portion read as under:
"1. That the Lessor hereby demises unto the Lessee the said Demised
Premises for the purpose of running Guest House, for a period of 6 (Six)
Years commencing from 10.05.2009. The Lessor shall deliver the possession
of the Demised Premises alongwith fixtures and fittings installed and laying
thereat, details of which are specified in Annexure B, (Colly) to the Lessee
and paying therefore during the said period on monthly rent as provided
herein below w.ef. 10.05.2009, to the Lessor in respect of the Demised
Premises payable in advance by the 7th day of each and every month
alongwith all other charges if any, and in case of any delay, same shall
carry interest @ 24% per annum, for the delayed period. The lay out plan
of the demised premises is Annexed and marked as Annexure B.
Notwithstanding anything contained herein this lease or otherwise, if the
notice for handing over possession of the demised premises before/after
10052009, is given by the lessor to the lessee, lessee shall accept
possession of the demised premises with effect from such date as specified
in the above said notice (hereinafter referred as Commencement date) and
all obligation including payment of rent and other charges period of lease
and other obligations, of each party shall commence from commencement
date instead of 10.05.2009."
10.9 It was argued on behalf of the plaintiff that though the lease deed
was registered on 09.03.2009 and the payments as above were made
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however the possession was not handed over on 10.05.2009 and it was to be
handed over by way of a notice in terms of the above clause in the lease deed
which notice was never issued and which possession was never handed over
to the plaintiff. However reliance on the said clause in the lease deed and the
submission that the possession was never handed over on 10.05.2009 is
absolutely misconceived. It is to be seen that the lease deed was entered into
and registered on 09.03.2009 and the lease was to commence w.e.f.
10.05.2009 i.e. after two months of the execution of the lease deed. The
reason why the lease deed was to be w.e.f. 10.05.2009, as emerges from the
records, is that this period was required by the plaintiff to make the changes,
carry out necessary renovation in the suit property, to make it suitable for the
business of running a guest house for which the suit property was taken on
lease. The clause as above in the lease deed merely takes note of a situation,
eventuality i.e. handing over the possession of the suit property before or
after 10.05.2009. The possession could have been handed over on
10.05.2009 or any time before or after 10.05.2009. Herein what emerges
from the record is that the possession was duly handed over to the plaintiff
and thus there was no occasion for issuance of any such notice as
contemplated under clause 1 of the lease deed. Fact remains that a breathing
period of two months was provided to the lessee/plaintiff to carry out the
renovation, changes as per its needs and it was for this purpose that the lease
was to be effective from 10.05.2009. At this stage it will be relevant to
highlight clause 2 (xvi) and (xvii) of the lease deed which further go on to
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prove that the lessee/plaintiff was handed over the possession and it was he
who had carry out the renovation, changes in the suit property. The relevant
portion is reproduced hereunder:
(xvi) That no structural/major alterations shall be made by the Lessee in
the Demised Premises or any part thereof, without the prior written
permission of the Lessor. However, the Lessee shall have the right to put
up temporary partitions and other furniture required for the running of the
guest house.
(xvii) That the Lessee shall be at liberty to fix air conditioners in the
Demised Premises, and water tank, Genset, Gas Bank and other
electronic/electrical equipments for running the guest house. Further in
case any approvals permission required, same shall be obtained by the
lessee at its own cost.
10.10 If indeed the possession was not handed over on 10.05.2009 then,
in its letter dated 22.09.2009, the plaintiff would have agitated the same
instead of highlighting its inability to obtain the necessary permission to run
the guest house. Had that been the case plaintiff would not have terminated
the lease and sought refund of 50% on friendly, helpful grounds. If indeed
the possession was not handed over on 10.05.2009 or any time till
22.09.2009, then the plaintiff would have issued notice to the defendant
demanding either the handing over of the possession or recovery of the
entire amount paid as advance rent and security. Instead as discussed above
it is requesting the defendant, vide its above letter, to refund the amount as it
had suffered losses. Not even once does the plaintiff blames the defendant or
agitates non handing over of the possession of the suit property in the said
letter which itself proves the falsehood of the plaintiff's claim. Similarly it is
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not even once claimed that it was the defendant who had to complete the
repair/ renovation work, leave apart the details of repair and renovation, or
that it failed to do so. Requests, as in the situation in the present case, are
made by the party who is at fault or else it is always a demand or a notice. It
was only after more than 7 months that the plaintiff, I am constrained to say
so, became greedy and issued legal notice Ex. PW1/3 dated 01.05.2010
wherein it took a completely different stand as against letter dated
22.09.2009 i.e. Ex. D1. This legal notice is otherwise sham and frivolous as
neither in the legal notice nor in the entire pleadings the plaintiff has given a
single date when it, orally or in writing, requested the defendant to hand
over the possession. If indeed that was the case the plaintiff would not have
written letter Ex. D1 but would have issued a notice forthwith.
10.11 This letter dated 22.09.2009 i.e. Ex. D1 was suppressed by the
plaintiff for the obvious reasons as it would have nailed its lie at the outset.
When the plaintiff was confronted for not filling the said letter, it merely
claimed that filing of the said letter was not necessary which reply/response/
explanation itself proves the malafide of the plaintiff.
10.12 Though Ld. counsel for the plaintiff also relied upon photographs
Ex. PW1/6 (colly) to argue that these photographs make it amply clear that
the suit property was under repair, renovation etc. and accordingly
possession was not handed over by the defendant to it and therefore the
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plaintiff is entitled to recovery of amount as claimed however the said
photographs do not help the plaintiff at all. Undoubtedly from the
photographs what emerges is that the suit property is under repair,
renovation and the laborers can be seen carrying out certain work however
that by itself does not the prove the plaintiff's case. At the outset the
photographs are undated, do not bear any date. In the absence of date or
pleadings and statement in the affidavit regarding the dates when the
photographs were taken no presumption whatsoever can be drawn that the
photographs are of the period when the suit property was let out or any time
till the issuance of the legal notice Ex. PW1/3. It cannot be ruled out that the
photographs might be of the breathing period as discussed above i.e.
09.03.2009 to 10.05.2009 during which it was for the plaintiff, lessee to
carry out the renovation, repair work in the suit property so as to make it fit
to be used as a guest house. Furthermore it emerges from the photographs
that the suit property is old construction and what was being carried out is
repair, renovation and not new construction. ACs are seen lying in the suit
property, woodwork is being carried out which as per the lease Ex. PW1/2
was to be done by the lessee/plaintiff. Had it been a new construction or any
major construction work being carried out in the suit property being visible
in the photographs things would have been different. But that is not the case.
It is a case of repair, renovation work which as per the lease was to be
undertaken by the plaintiff and not the defendant and this further proves that
the possession was duly handed over to the plaintiff, as in the absence of the
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possession being given no repair, renovation work would have been
possible. Even otherwise it does not appeal to a prudent mind that after
having let out the premises/suit property on rent the lessor/owner would
undertake renovation, repair work so as to make the suit property suitable for
the intended purpose/use by the lessee/plaintiff. It was the plaintiff who had
to run the guest house, hence it was the plaintiff who would have carried out
the necessary repair, renovation as per its needs, desires to make the suit
property compatible, in sync with the intended purpose of its use. This is
more so when there is not even a single clause in lease deed Ex. PW1/2
which mandated, casted obligation upon the defendant to carry out any kind
of renovation or repair work in the suit property.
10.13 Though the words used in letter dated 22.09.2009 i.e. Ex. D1 are
"for the property which was not completed as scheduled" however the letter
does not even remotely suggests that the work was to be completed by the
defendant. Furthermore the scheduled time it talks of is nowhere to be
inferred from i.e. either from the lease deed or any other agreement to that
effect. Fact remains that the suit property was taken on rent for the purpose
of running a guest house but as the necessary permission could not be
obtained by the plaintiff/lessee it terminated the lease vide letter dated
22.09.2009 i.e. Ex. D1. For this the lessor/ defendant cannot be blamed even
remotely.
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10.14 At this stage it will be pertinent to highlight the relevant clause of
the lease deed. Same are reproduced hereunder:
2 (iii) The Lessee shall use the Demised Premises for the purpose of
running a Guest House only and after obtaining all necessary approvals
whether statutory or otherwise at its own cost. .........
2 iv) To obtain all permission, approvals and Licenses etc. required for
the running of the Guest House in its own name and at its own cost and
expenses and to get the same renewed from time to time at its own cost.
10.15 The plaintiff could not get the approval, permission and thus the
intended purpose of taking the suit property was foiled, frustrated, thwarted.
Plaintiff had no option but to seek termination of lease which it did vide
letter dated 22.09.2009 i.e. Ex. D1.
10.16 The defendant had received Rs. 38,40,000/ as three months rent
and security @ Rs. 6,40,000/ per month. It is not the case of either of the
parties that any further amount towards rent was ever demanded or tendered.
Once the lease was terminated by the plaintiff there is nothing on record to
suggest that the defendant demanded rent for the remaining period. Reason
was simple. The lease commenced from 10.05.2009. Rate of rent was Rs.
6,40,000/ per month. Total amount received at the time of execution of the
lease deed was Rs. 38,40,000/. Lease was terminated vide letter dated
22.09.2009 i.e. Ex. D1. Hence till the time of termination of the lease, the
plaintiff had received rent for all those months, if the advance and security
amount is adjusted towards the rent for those months. Defendant in addition
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 21/ 38
to that had an amount of Rs. 6,40,000/ left with it. This is the reason why
the defendant did not insist for any amount towards the rent till the plaintiff
served a legal notice Ex. PW1/3. It appears that there was an understanding
in that regard between the parties which got disturbed, shaken when the said
legal notice was served by the plaintiff.
10.17 Defendant was within its right to forfeit the said amount i.e.
advance rent, adjust it towards rent upto September 2009 more so when no
rent was paid except for the advance rent. Same applies for the security
amount as all this while it was the plaintiff who had the possession of the
suit property. The forfeiture clause in the lease deed read as under:
4 (iii) That the lessor shall be entitled to forfeit the amount of
security Deposit and Advance rent as stated hereinabove, if lessee fails to
accept possession of the demised premises and fulfillment of all of its
obligation in consequence thereto, in terms of this lease deed.
10.18 This forfeiture was not only well within the defendant's right as
per the lease deed but is also reasonable and fair in the given facts and
circumstances. Till the lease was terminated by the plaintiff, the plaintiff was
duty bound to pay the monthly rent. Amount as discussed above stood
adjusted for the period till the time of termination of the lease by the
plaintiff.
10.19 Therefore in view of the above discussion, issue no. 1 is decided
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 22/ 38
against the plaintiff and in favour of the defendant. Issue no. 2 is decided in
favour of the defendant and against the plaintiff. Issue no. 4 is decided in
favour of the defendant.
10.20 As issue no. 4 is decided in favour of the defendant it is a fit case
wherein plaintiff should be burdened with heavy cost for instituting this false
and frivolous litigation as well as for suppression of material facts i.e.
document dated 22.09.2009 of which the plaintiff is itself is the author. This
litigation is an audacious display of malafides and malacious prosecution of
suit. This abuse of the process of law has to be dealt with sternly.
10.21 In case titled Goyal MG Gases Pvt. Ltd. Vs. AIR Liquide
Deutschland th Gmbh & Ors. CCPO No. 130/2005 in OMP No. 361/2004
decided on 19 October 2006 by Hon'ble High Court of Delhi it was held as
under:
"Vexatious and frivolous litigation poses a number of threats to the efficient
operation of any civil justice system. Those threats stem from the manner in
which the vexatious and frivolous litigant conducts litigation before the
courts. Such proceedings, apart, from the oppression and the harassment
inflicted on the adversary, are extremely damaging to public interest.
Judicial resources are valuable and scarce. The resources of the court are
not infinite, especially in terms of judicial time. Therefore, administration
of justice and interests of equity and fair play mandate that a party which
succeeds is compensated by award of costs in respect of false or vexatious
claims or defences. A faulting party may be required to pay to the other
party such costs as would, in the opinion of the court, be reasonably
sufficient to reimburse the other party in respect of the expenses incurred by
him in attending the court on that date and payment of such costs on the next
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 23/ 38
date following the date of such order if unreasonable adjournments are
taken by the parties.
However, many unscrupulous parties take advantage of the fact that either
costs are not awarded or nominal costs alone are awarded against the
unsuccessful party.
The legislature has recognised the need for imposition of costs and
consequently, so far as the civil proceedings are concerned, has enacted
Section 35 of the Code of Civil Procedure which provides for imposition of
costs. The Hon'ble Apex Court was concerned with the manner in which the
costs are imposed resulting in undue advantage being taken by parties of the
fact that notional costs are awarded which do not deter or discourage
persons from filing vexatious or frivolous claims or defences. ................ The
courts have recognised the inherent power of the court to award costs in the
interest of justice. .................................... In this background, there is yet
another more imperative reason which necessitates imposition of costs. The
resources of the court which includes precious judicial time are scarce and
already badly stretched. Valuable court time which is required to be
engaged in adjudication of serious judicial action, is expended on frivolous
and vexatious litigation which is misconceived and is an abuse of the
process of law. A judicial system has barely sufficient resources to afford
justice without unreasonable delay to those having genuine grievances.
Therefore, increasingly, the courts have held that such totally unjustified
use of judicial time has to be curbed and the party so wasting precious
judicial resources, must be required to compensate."
10.22 In Salem Advocate Bar Association Vs. Union of India (2005)
6 SCC 344 , Hon'ble Supreme Court observed as under:
"Judicial notice can be taken of the fact that many unscrupulous parties take
advantage of the fact that either the costs are not awarded or nominal costs
are awarded against the unsuccessful party. Unfortunately, it has become a
practice to direct parties to bear their own costs. In a large number of cases,
such an order is passed despite Section 35(2) of the Code. Such a practice
also encourages the filing of frivolous suits."
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 24/ 38
10.23 In Morgan Stanley Mutual Fund Vs. Kartick Das (1994) 4
SCC, 225 the Hon'ble Supreme Court observed as under:
"There is an increasing tendency on the part of the litigants to indulge in
speculative and vexatious litigation and adventurism which the fora seem
readily to oblige. We think such a tendency should be curbed."
10.24 In Rajappa Hanamantha Ranoji v. Sri Mahadev
Channabasappa & Ors . 2000(4) SCALE 692
the Hon'ble Apex Court held
that such tendency deserves to be taken serious note of and curbed by
passing appropriate orders including imposition of exemplary costs. In this
behalf , the court observed as under:
"It is distressing to note that many unscrupulous litigants in order to
circumvent orders of Courts adopt dubious ways and take recourse to
ingenious methods including filing of fraudulent litigation to defeat the orders
of Courts. Such tendency deserves to be taken serious notices of and curbed
by passing appropriate orders and issuing necessary directions including
imposition of exemplary costs."
10.25 In Satyender Singh V. Gulab Singh
, MANU/DE/1047/2012
, the
Hon'ble Delhi High Court following Dalip Singh v. State of U.P. (2010)
2SCC 114 observed that the courts are flooded with litigation with false and
incoherent pleas and tainted evidence led by the parties due to which the
judicial system in the country is choked and such litigants are consuming
Court's time for a wrong cause. It was further observed as under:
"As rightly observed by the Supreme Court, Satya is a basic value of life which
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 25/ 38
was required to be followed by everybody and is recognized since many
centuries. In spite of cautions, courts are continued to be flooded with
litigation with false and incoherent pleas and tainted evidence led by the
parties. The judicial system in the country is choked and such litigants are
consuming courts time for a wrong cause. Efforts are made by the parties to
steal a march over their rivals by resorting to false and incoherent statements
made before the court. Indeed, it is a nightmare faced by a Trier of Facts;
required to stitch a garment, when confronted with a fabric where the weft,
shuttling back and forth across the warp in weaving, is nothing but lies. As the
threads of the weft fall, the yarn of the warp also collapses; and there is no
fabric left."
10.26 In Ramrameshwari Devi v. Nirmala Devi
, (2011) 8 SCC 249
, the
Supreme Court has held that the Courts have to take into consideration
pragmatic realities and have to be realistic in imposing the costs. The
relevant paragraphs of the said judgment are reproduced hereunder:
"We are clearly of the view that unless we ensure that wrongdoers are denied
profit or undue benefit from the frivolous litigations, it would be difficult to
control frivolous and uncalled for litigations. In order to curb uncalled for
frivolous litigations, the courts have to ensure that there is no incentive or
motive for uncalled for litigation. It is a matter of common experience that
court's otherwise scarce and valuable time is consumed or more appropriately
wasted in a large number of uncalled for cases.................The main question
which arises for our consideration is whether that prevailing delay in civil
litigation can be curbed? In our considered opinion the existing system can be
drastically changed or improved if the following steps are taken by the trial
courts while dealing with the civil trials. C. Imposition of actual, realistic or
proper costs and or ordering prosecution would go a long way in controlling
the tendency of introducing false pleadings and forged and fabricated
documents by the litigants. Imposition of heavy costs would also control
unnecessary adjournments by the parties. In appropriate cases the courts may
consider ordering prosecution otherwise it may not be possible to maintain
purity and sanctity of judicial proceedings...".
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 26/ 38
10.27 Vexatious litigation drain the resources of the court, which
are already scarce and barely sufficient to afford justice to those who
have genuine needs and grievances. Having regard to the entire
conspectus and facts noticed above, in my view, punitive and exemplary
costs deserve to be imposed on the plaintiff. The plaintiff has
deliberately wasted precious time of this court with impunity and
without remorse. Therefore, the plaintiff cannot be permitted to get
away without compensation to the judicial system as well as the
defendant.
10.28 I hereby impose punitive and exemplary cost of Rs. 3,00,000/
upon the plaintiff. Out of the said amount Rs. 1,00,000/ shall be deposited
with the Delhi Legal Services Authority within one month from today. Delhi
Legal Services Authority be intimated accordingly so as to take steps in case
there is failure on the part of the plaintiff to deposit the cost. Remaining Rs.
2,00,000/ shall be paid to the defendant who has been compelled, forced to
defend a false and frivolous litigation which is now more than 7 years old
which would have definitely drained the defendant financially apart from
causing mental pain and agony to it, its Directors, representatives etc.
Issue no. 3: Whether the defendant/counter claimant is entitled to a
decree for recovery of Rs. 85,25,000/? If so, with what rate of
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interest and for what period? OPP (Should be OPD in fact)
11 As far as issue no. 3 is concerned defendant in its counter claim
has claimed the said amount towards the rent for the lock in period as per the
lease deed Ex. PW1/2. The relevant clause in the lease deed, as relied upon
by the defendant, is reproduced hereunder:
4 (iv) That it is further clarified that the present Lease is for a period of 6 Years
commencing from 10.05.2009 subject to lock in period of one year from the date
of commencement of this Lease. If during the period of lock in period of one
year, if this lease is being terminated by lessee, it shall be liable to pay to lessor,
an amount which shall be equal to the rent and other charges for the unexpired
period of lock in period.
11.1 The lease stands terminated. It stands proved that the
termination of the lease was by the plaintiff, lessee. It is also the admitted
case of the parties that apart from advance rent and security no other
payment towards the rent was ever made. Rent was Rs. 6,40,000/ per
month. The amount of Rs. 38,40,000/ if calculated @ Rs. 6,40,000/ per
month comes about to be the rent for six months. Hence out of the agreed
lock in period of one year defendant did receive, adjusted rent towards six
months from Rs. 38,40,000/ which it had received towards advance rent and
security. As far as remaining six months are concerned no doubt the lease
deed did entitle the defendant to receive the rent for the lock in period of one
year i.e. outstanding six months however in the given facts and
circumstances of the case I am not inclined to grant any such amount for that
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 28/ 38
lock in period, outstanding amount. Reason is that the defendant did not
suffer any loss. Even if the defendant did suffer any loss, defendant did not
prove that it had suffered such loss. No evidence whatsoever was led by the
defendant to prove the loss.
11.2 It is to be seen that even the plaintiff could not utilize the suit
property it had taken on rent for the purpose of running a guest house. No
doubt it was on account of its own shortcomings, as it could not obtain the
necessary permission from the concerned authorities for running the guest
house but still that aspect cannot be ignored completely. Hence without
being able to use the suit property it had still paid Rs. 38,40,000/ to the
defendant. But this is for the period it was in possession of the suit property
and till the time lease was not terminated i.e. September 2009. For that
period plaintiff indeed was under the obligation to pay rent to the defendant.
After September 2009 though the lease deed, clause of lock in period
mandated payment of rent for the lock in period but that would be too harsh
upon the plaintiff if it is called upon to pay the rent for the lock in period.
Things would have been different had the defendant been able to prove that
after September 2009 the plaintiff continued to occupy and retain the
possession of the suit property or that as it did not get the possession after
September 2009 it could not use, utilize or let out the suit property to some
other prospective tenant. No evidence whatsoever has been led by the
defendant in this regard. No evidence has been led to prove that it attempted
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 29/ 38
to let out the suit property but could not do so as the plaintiff did not let it do
so or did not let it occupy the suit property after September 2009. It was
incumbent upon the defendant to prove the loss. In the absence of the same I
am not inclined to allow the relief of recovery of the amount of lock in
period along with the interest as claimed by the defendant. In fact it was for
this reason, that the defendant did not suffer any loss, that no suit for
recovery of the said amount for the lock in period was filed by the defendant
before filing of the counter claim in the present suit filed by the plaintiff.
For the said reason I do not find any merits in the reliance placed upon by
Ld. counsel for the defendant upon the case laws i.e. M/S. Satya Narain
Sharma (Huf) vs M/S. Ashwani Sarees Private CS (OS) 1439/2008 decided
on 06.04.2009 and Gajender Kumar Loond Vs. Samat Barara 2012 Law
Suit (Del) 255 decided on 09.02.2012.
11.3 Reliance in this regard may be placed upon the law laid down
in Kailash Nath Associates Vs. Delhi Development Authority
MANU/SC/0019/2015, Union of India Vs. Rampur Distillery and
Chemicals Co. Ltd. MANU/SC/0035/1973, Manoj Tomar Vs. Neena
Khatter and ors MANU/DE/3094/2015 Sunil Sehgal Vs. Chander Batra
and ors MANU/DE/2831/2015, Ranbir Singh and ors Vs. Bhup Singh and
ors MANU/DE/2519/2015 and Airports Authority of India Vs. R.K.
Singhal MANU/DE/6556/2011.
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 30/ 38
11.4 In Airport Authority of India (supra) it was held as under:
"2. The facts of the case are that the respondent/plaintiff participated in an auction held
on 19.12.1998 conducted by the appellant/defendant. The respondent/plaintiff gave a bid for Rs.4,00,000/ for a Konica Nice Print System Machine and deposited an amount of Rs.1,35,000/ on the same day. Since the balance amount was not deposited by the respondent/plaintiff, the transaction fell through and the appellant forfeited the amount of Rs.1,35,000/ on the ground that this payment which was made was an earnest money deposit, and by its very nature, earnest money deposited can be forfeited once breach of contract is established.
3. The only issue therefore which is required for determination by this Court is whether taking as correct that the respondent/plaintiff was guilty of breach of contract can the amount paid of Rs.1,35,000/ be forfeited by the appellant/defendant on the ground that the same was an earnest money deposit without pleading and proving that any loss was caused to the appellant / defendant.
4. The law in this regard is well settled and three premier judgments of the Hon'ble Supreme Court are the judgments in the RFA No.576/2002 cases of Fateh Chand Vs Balkishan Dass, (1964) 1 SCR 515; AIR 1963 SC 1405, Maula Bux Vs. UOI, 1969 (2) SCC 554 and Union of India Vs. Raman Iron Foundry (1974) 2 SCC 231. It has been held in these judgments that clauses of forfeiture of liquidated damages by their very nature are hit by Section 74 of the Contract Act, 1872 inasmuch as such clauses are in the nature of penalty and at best only provide for the upper limit for claim of damages, and which if capable of being proved, have to be proved before the amount paid as earnest money can be forfeited. It is the ratio of these Supreme Court judgments that mere breach of contract eo instanti does not entitle the aggrieved party to forfeit the amount. The Constitution Bench in the case of Fateh Chand (supra) has specifically referred to the fact that the fine distinctions drawn in English law have been obliterated by Section 74 of the Contract Act, and as per which all clauses of liquidated damages are to be treated as bad, once losses otherwise can be established, and only on establishing of which forfeiture can take place. The relevant observations of the Supreme Court in the aforesaid judgment of Fateh Chand (supra) are as under:
8. The claim made by the plaintiff to forfeit the amount of Rs 24,000 may be adjusted in the light of Section 74 of the Indian Contract Act, which in its material part provides: "When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or as the case may be, the penalty stipulated for."
The section is clearly an attempt to eliminate the sometime elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine preestimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties: a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it, awarding to the CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 31/ 38 aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty.
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 Section 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 the 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.
15. Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of the parties predetermined, or where there is a stipulation by way of penalty. But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party; it merely declares the law that notwithstanding any term in the contract predetermining damages or providing for forfeiture of any property by way of penalty, the court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated. The jurisdiction of the court is not determined by the accidental circumstance of the party in default being a plaintiff or a defendant in a suit. Use of the expression "to receive from the party who has broken the contract" does not predicate that the jurisdiction of the court to adjust amounts which have been paid by the party in default cannot be exercised in dealing with the claim of the party complaining of breach of contract. The court has to adjudge in every case reasonable compensation to which the plaintiff is entitled from the defendant on breach of the contract. Such compensation has to be ascertained having regard to the conditions existing on the date of the breach.
16. There is no evidence that any loss was suffered by the plaintiff in consequence of the default by the defendant, save as to the loss suffered by him by being kept out of possession of the property. There is no evidence that the property had depreciated in value since the date of the contract provided; nor was there evidence that any other special damage had resulted. The contact provided for forfeiture of Rs 25,000 consisting of Rs, 1039 paid as earnest money and Rs 24,000 paid as part of the purchase price. The CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 32/ 38 defendant has conceded that the plaintiff was entitled to forfeit the amount of Rs 1000 which was paid as earnest money. We cannot however agree with the High Court that 13 percent of the price may be regarded as reasonable compensation in relation to the value of the contract as a whole, as that in our opinion is assessed on an arbitrary assumption. The plaintiff failed to prove the loss suffered by him in consequence of the breach of the contract committed by the defendant and we are unable to find any principle on which compensation equal to ten percent of the agreed price could be awarded to the plaintiff. The plaintiff has been allowed Rs 1000 which was the earnest money as part of the damages. Besides he had use of the remaining sum of Rs 24,000, and we can rightly presume that he must have been deriving advantage from that amount throughout this period. In the absence therefore of any proof of damage arising from the breach of the contract, we are of opinion that the amount of Rs 1000 (earnest money) which has been forfeited, and the advantage that the plaintiff must have derived from the possession of the remaining sum of Rs 24,000 during all this period would be sufficient compensation to him. It may be added that the plaintiff has separately claimed mesne profits for being kept out possession for which he has got a decree and therefore the fact that the plaintiff was out of possession cannot be taken, into account in determining damages for this purpose. The decree passed by the High Court awarding Rs.11,250 as damages to the plaintiff must therefore be set aside.
(Underlining added)
5. To the same effect are the observations in Maula Bux Vs. UOI, 1969 (2) SCC 554, and para 4 of which reads as under: "4. Under the terms of the agreements the amounts deposited by the plaintiff as security for due performance of the contracts were to stand forfeited in case the plaintiff neglected to perform his part of the contract. The High Court observed that the deposits so made may be regarded as earnest money. But that view cannot be accepted. According to Earl Jowitt in "The Dictionary of English Law" at p. 689 : "Giving an earnest or earnest money is a mode of signifying assent to a contract of sale or the like, by giving to the vendor a nominal sum (e.g. a shilling) as a token that the parties are in earnest or have made up their minds." As observed by the Judicial Committee in Kunwar Chiranjit Singh v. Har Swarup A.I.R.1926 P.C.1 Earnest money is part of the purchase price when the transaction goes forward : it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee. In the present case the deposit was made not of a sum of money by the purchaser to be applied towards part payment of the price when the contract was completed and till then as evidencing an intention on the part of the purchaser to buy property or goods. Here the plaintiff had deposited the amounts claimed as security for guaranteeing due performance of the contracts. Such deposits cannot be regarded as earnest money.
5. Section 74 of the Contract Act provides :
When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 33/ 38 There is authority, no doubt coloured by the view which was taken in English cases, that Section 74 of the Contract Act has no application to cases of deposit for due performance of a contract which is stipulated to be forfeited for breach : Natesa Aiyar v. Appavu Padayachi I.L.R. [1913] Mad. 178 Singer Manufacturing Company v. Raja Prosad I.L.R. [1909] Cal. 960 Manian Patter v. The Madras Railway Company I.L.R.[1906] Mad.188 But this view is no longer good law in view of the judgment of this Court in Fat eh Chand's case MANU/SC/0258/1963 : [1964]1SCR515 : [1964]1SCR515 . This Court observed at p. 526 :
"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.... The measure of damages in the case of breach of a stipulation by way of penalty is by Section 74 reasonable compensation not exceeding the penalty stipulated for."
The Court also observed :
"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 Section 74 applies only to cases where the aggrieved party is seeking to receive some amount on breach of contract and not to cases whereupon 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 Section 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.", and that, "There is no ground for holding that the expression "contract contains any other stipulation by way of penalty" is limited to cases of stipulation in the nature of an agreement to pay money or deliver property on breach and does not comprehend covenants under which amounts paid or property delivered under the contract, which by the terms of the contract expressly or by clear implication are liable to be forfeited."
(Underlining added)
6. In Union of India Vs. Raman Iron Foundry (1974) 2 SCC 231 there are similar conclusions. Para 11 of this judgment reads as under: "11. Having discussed the proper interpretation of Clause 18, we may now turn to consider what is the real nature of the claim for recovery of which the appellant is seeking to appropriate the sums due to the respondent under other contracts. The claim is admittedly one for damages for breach of the contract between the parties. Now, it is true that the damages which are claimed are liquidated damages under Clause 14, but so far as the law in India is concerned, there is no qualitative difference in the nature of the claim whether it be for liquidated damages or for unliquidated damages. Section 74 of the Indian Contract Act eliminates the somewhat elaborate refinements made under the CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 34/ 38 English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine preestimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties : a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it, awarding to aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty, and according to this principle, even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit. It, therefore makes no difference in the present case that the claim of the appellant is for liquidated damages. It stands on the same footing as a claim for unliquidated damages. Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due From the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages.................The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant."
(Underlining added)
7. In view of the ratio of the decisions of the Supreme Court in the aforesaid judgments, it is trite that if losses can be proved, then, a clause of liquidated damages is void. I may hasten to add that there are two types of contracts. One set of contracts are those contracts where it is not possible to estimate and prove the losses. One of such contracts was the contract which was the subject matter of a Constitution Bench decision of the Supreme Court in the case of Sir Chunilal V. Mehta & Sons Ltd. Vs. Century Spinning and Manufacturing Co. Ltd. AIR 1962 SC 1314 (1) wherein the Supreme Court allowed liquidated damages where the contract was as managing agents with a return of percentage of profits of 21 years and on which managing agency agreement having been wrongly terminated it would not have been known that how much would have been earned as share of profits over 21 years once the contract was found to be illegally terminated. Therefore claim of liquidated damages was allowed. Other set of contracts are those contracts which were the subject matter of the decision of the Supreme Court in the case of O.N.G.C. Vs. Saw Pipes Ltd., 2003 (5) SCC 705 wherein with respect to contract for construction of an oil rig, the Supreme Court said that liquidated damages can be claimed because it cannot be estimated and proved that what would be the loss on account of the delayed construction of an oil rig because what would have been the losses were dependent on factors such as amount of production (including prices of crude oil at different times) of oil which could not be exactly estimated. In the case of O.N.G.C. Vs. Saw Pipes Ltd. (supra) the Supreme Court has also referred to a case of delay in construction of a toll road and said that in such contracts again there is an entitlement to liquidated damages because what would have been the loss caused by number of days of CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 35/ 38 delay in construction of toll roads cannot be estimated as how many vehicles which would have passed cannot be exactly arrived at and hence therefore the clause with respect to liquidated damages is not in the nature of penalty.
8. In the present case, surely losses which were caused to the appellant/defendant, with respect to the sale of machine in question could very well have been proved because if the appellant/defendant was forced to sell the machine for an amount lesser than Rs.4,00,000/ (the price at which the respondent/plaintiff agreed to buy the same) then, by difference of receipt of lesser price such loss could have been pleaded and proved and hence, subject to the upper limit of the earnest money deposited, such loss could well have been claimed by the appellant/defendant. Admittedly, the appellant/defendant in the facts of the present case has neither pleaded nor proved any loss having been caused to it on account of breach of contract by the respondent/plaintiff.
9. The Trial Court has therefore rightly held that since such loss has not been pleaded and proved, the appellant/plaintiff was bound to refund the earnest money/advance price which was received by the appellant in the auction conducted on 19.12.1998. The relevant observations of the Trial Court in this regard are contained in para 13, and the same reads as under: "13. The question that arises next is whether the defendant could have legally forfeited the earnest money. Needless to say that the clause providing for forfeiture of earnest money was a penal clause. A clause in the nature of penalty could not have been enforced in its entirety by reason of Section 74 of the Indian Contract Act. There is nothing to suggest that the amount of penalty was a genuine preestimate of damages likely to be suffered by the defendant in the event of breach of contract on the part of bidder. Section 74 lays down that the party complaining of breach is entitled, whether or not actual damages or loss is proved to have been caused thereby, to receive from the defaulting party a reasonable compensation not exceeding the amount of penalty stipulated for. The words "whether or not actual damages or loss is proved to have been caused thereby" have been considered in several case and it has been held that these words merely exempt the complaining party from proving the actual loss or damage. These words do not at all covey that compensation is to be awarded in all cases whether some loss or damage has been occasioned or not. Thus, a compensation can be awarded only when the complaining party has suffered some loss or damage as a result of breach of contract by the other party. It is another matter that it is not obligatory to adduce positive evidence of such damage or loss. If there has been no damage or loss in consequence of breach of contract, the question of awarding or claiming compensation does not arise. In the present case, the defendant has nowhere alleged in the Written Statement that it suffered any loss as a result of plaintiff's failure to deposit the balance auction money. Therefore, the forfeiture of earnest money cannot be justified."
11.5 As discussed above the total amount as was received by the defendant in the form of advance rent, security is Rs. 38,40,000/which is CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 36/ 38 equivalent to six months agreed rent which was Rs. 6,40,000/. It has been discussed above that the plaintiff terminated the lease vide letter dated 22.09.2009 i.e. Ex. D1. It has not been even once pleaded by the defendant that after 22.09.2009 defendant was not in possession of the suit property or that plaintiff continued to occupy the suit property. So if the amount as was paid as advance rent, security is adjusted towards the rent from May 2009 till September 2009, still the defendant was left with an additional sum of Rs. 6,40,000/. Hence there was no loss whatsoever to the defendant. Rather the defendant had this extra amount of Rs. 6,40,000/ with it, which otherwise is in the given facts and circumstances of the case, it had every right and reasons to retain the same. Having retained that amount and for that matter having received the rent for all the months for which the plaintiff occupied, remained in the possession of the suit property there is/was no occasion for the defendant to suffer any loss as such. Therefore I am not inclined to grant the relief, the amount claimed by the defendant towards the lock in period.
11.6 In view of the above discussion, issue no. 3 is decided against the defendant.
Relief CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 37/ 38
12. As issue no. 1 and 2 have been decided against the plaintiff, plaintiff is not entitled to any recovery. Suit of the plaintiff is liable to be dismissed. I order accordingly.
12.1 As issue no. 4 has been decided in favour of the defendant and against the plaintiff, plaintiff who has been burdened with a cost of Rs. 3 lacs is directed to deposit the cost of Rs. 1 lac with the DLSA, New Delhi and to pay Rs. 2 lacs to the defendant.
12.2 As issue no. 3 has been decided against the defendant the counter claim of the defendant stands dismissed.
12.3 Though the suit was also filed seeking a relief of permanent injunction however no such issue was ever framed or pressed for by the plaintiff.
13. Decree sheet be prepared accordingly.
14. File be consigned to record room after necessary compliance.
Announced in the open court (Gaurav Rao)
on 9th May 2018 ADJ02 & Waqf Tribunal /
New Delhi District,
Patiala House Courts, Delhi.
CS No. 57432/16 M/s. Khullar Hospitality P.Ltd.V. M/s. Nourish Organic Foods P.Ltd. 38/ 38