Delhi District Court
West District vs Avtar Singh Page1/32 on 4 December, 2018
1
IN THE COURT OF SH. HASAN ANZAR, ADJ-06
WEST DISTRICT, TIS HAZARI COURTS, DELHI
CS No. 11491/16
Rajnish Sharma
S/o Late Sh Chetan lal Sharma
R/o WZ-32/1, S.F Shardapuri, Ramesh Nagar
New Delhi-110015
.........Plaintif
Versus
Avtar Singh
S/o Late Sh Jorawar Singh
R/o A-26, S.F Double Storey, Ramesh Nagar,
New Delhi-110015
...... Defendant
Date of Institution: 19.05.2016
Date reserved for Order: 28.11.2018
Date of Order: 04.12.2018
JUDGMENT
1. Plaintiff has filed the present suit for recovery of Rs. 9,30,000/- against the defendant alongwith pendente lite and future interest.
Case of plaintiff
2. It is the case of the plaintiff that defendant represented himself to be the CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page1/32 2 owner of the roof/terrace of second floor and land above it admeasuring 122 sq yards of built up property bearing no. A-26 Ramesh Nagar, Double Storey, New Delhi-15. (hereinafter referred as suit property or the property in question). The defendant claimed himself to be Legal heir of Jorawar Singh and other Legal heirs of Jorawar Singh have released their share in the property in favour of defendant and thus Defendant is the sole owner of suit property.
3. It is further averred that based on this representation plaintiff entered into an agreement for sell and purchase of Suit property on 15.12.2012 for a total sale consideration of Rs. 20,50,000/-. It is further averred that plaintiff paid a sum of Rs. 2,50,000/ in cash on 15.12.2012 in presence of witness Sh. Sandeep Walia and another sum of Rs. 2.5 Lacs on 19.05.2013. It is further averred that balance amount of Rs. 15,50,000/- was to be paid on or before 30.07.2013.
4. It is further averred that on 30.7.2013, it came to the knowledge of plaintiff that sale deed in respect of the property in question cannot be executed. Plaintiff further avers that if he would have knowledge of the fact that sale deed cannot be executed, he would not have entered into any agreement for sell. It is further averred that plaintiff is entitled for return of the double money of the Bayana (earnest money) which he paid to the defendant and along with interest. Plaintiff further avers that when he requested defendant to return back the advance consideration of Rs. 5 Lakhs as sale deed cannot be executed but defendant started to avoid by giving one or other reasons.
CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page2/32 35. It is further averred that plaintiff served a legal notice dated 28.10.2015 asking the plaintiff to perform his part of the contract but defendant did not give any reply to the said legal notice sent by the plaintiff. Plaintiff sent another legal notice dated 02.05.2016 which was replied by defendant on 11.05.2016 in which defendant admitted that he cannot perform the agreement. Plaintiff further avers that upon finding no alternative, the present suit for recovery of an amount of Rs. 9,30,000/- along with interest from the defendant was instituted before the court.
Case of defendant
6. Defendant filed his written statement and took an objection that agreement dated 15.12.2012 is unregistered and no reliance can be placed on the said agreement. Another objection was that plaintiff is required to make balance payment of Rs. 15,50,000/- but instead of making payment, he sent legal notice through his lawyer on 28.10.2015 and 02.05.2016 wherein false and frivolous allegations were made. It is further averred that time for execution of sale deed was 30.07.2013 and due to insufficient fund, plaintiff could not perform his part of agreement and therefore earnest money of Rs 5 Lakhs as given by plaintiff stands forfeited. It has further been averred that plaintiff is basically trying to take advantage of his own wrong as plaintiff has seen the documents of the property and after fully satisfying himself with regard to nature of document, the plaintiff agreed to purchase the suit property.
7. In para no. (E) preliminary objection of Written Statement that it was CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page3/32 4 averred "it was well within the knowledge of the plaintiff that there was no sale deed in favour of the defendant and the plaintiff has agreed to purchase the property by execution of sale documents such as power of attorney, agreement to sell, receipt, Will etc along with possession of the property and sale deed was to be executed, whenever it was permitted by the government. Since the plaintiff failed to perform his part of contract so there was no occasion for execution of sale papers in his favour".
8. Upon completion of pleadings, vide order dated 29.11.2016 following issues were framed:-
Issue No.1:- Whether suit is liable to be dismissed as per preliminary objection No.A of WS ? OPD Issue No.2:- Whether plaint is liable to be rejected u/o VII Rule 11 CPC as per preliminary objection No. B of WS? OPD Issue No.3:- Whether present suit is liable to be dismissed as per preliminary objection No. F of WS ? OPD Issue No.4:- Whether plaintiff is entitled to the relief claimed? OPP Issue No.5:- Relief.
9. In support of its case, plaintiff examined himself as PW-1 by way of affidavit Ex.PW1/A and relied upon the documents Ex.PW1/1 to Ex.PW1/4 however, Ex.PW1/1 and Ex.PW1/2 were de-exhibited, were marked as mark A and mark B being photocopy. PW-1 also relied upon document Ex.PW1/5. Mark A is agreement to sell, Mark B is agreement to Receipt, PW-1/3 is legal CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page4/32 5 notice dated 28.10.2015, PW-1/4 Legal Notice sent by defendant on 11.5.2016.
On statement of ld counsel for plaintiff, PE was closed vide order dated 02.07.2018.
10. Defendant has examined himself as DW1 by way of affidavit Ex.DW1/A and relied upon document Ex.PW1/4. During the course of cross examination, the defendant admitted the documents mark A and which HAS been given Ex DW-1/1.
Vide separate statement of defendant, DE stands closed vide order dated 01.10.2018.
11. I have heard Mr Arbind Kumar Garg, Ld Counsel for Plaintiff and Ms Ritu Jain Ld. Counsel for the defendant and perused the case file. I have considered the written arguments filed by Defendant.
12. Ld Counsel for Plaintiff has relied upon the following judgments of Hon'ble High Court of Delhi in support of his case.
(i) Sunil Sehgal Vs. Chander Batra and Ors in CS (OS) No. 1250/06 dated 23.09.2015
(ii) Kriti Kohli Vs. Hari Nand in RFA No.51/12 dated 17.05.2012
(iii) Bhuley Singh Vs. Khazan Singh and Ors in RFA No.422/2011 dated 09.11.2011.
13. My issue wise finding is as hereunder:-
CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page5/32 614. Issue no.1 Whether suit is liable to be dismissed as per preliminary objection No.A of WS ? OPD The first objection raised by defendant is that agreement dated 15.12.2012 is unregistered and same is liable to be impounded. The contention of defendant is liable to be rejected as an agreement of sell without seeking protection under section 53A of Transfer of Property Act cannot be impounded under Section 33 of the Stamp Act. In the present case, plaintiff only seeks the recovery of money. Hence, Article 23 A of Schedule I of Indian Stamp (Delhi Amendment) would not be attracted as it is a suit for recovery of money and more over in suit for specific performance, there is no requirement of law that same to be registered when plaintiff is not taking protection as envisaged under Section 53 A Transfer of Property Act and therefore same does on require registration and in this regard, the reliance can be placed on Vinod Kumar vs Ajeet Singh C.S No.2661/2012 dated1.10.2013 it was held ;
" the plaintiff has not sought relief based on part performance under Section 53A of the Transfer of Property Act and that being so, Section 17 (1A) of the Registration Act, which was only meant for the provisions of Section 53A of the Transfer of Property Act, was not attracted and thus, the agreement did not require registration. Such an agreement falls under the mischief of Section 17 (2) (v) of the Registration Act, and it itself does not create, declare, assign, limit or extinguish any right, title or interest in the property. Rather as held in Sukhwinder Kaur (supra) it creates a right to obtain another document which will, CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page6/32 7 when executed, create, declare, assign, limit or extinguish right, title or interest in the property. Not only this, provisions of Section 49 of the Registration Act make the position more clear.
It envisages that an unregistered document affecting immovable property and required by this Act and the Transfer of Property Act to be registered may be received as evidence of a contract in a suit for specific performance under Chapter -II of Specific Relief Act, 1877. As further held in Sukhwinder Kaur (supra), a conjoint reading of Section 17 (2) (v) and proviso of Section 49 of the Act leaves no room for doubt that agreement to sell property itself does not create any right or title over the property. It is the sale deed, which when executed will create such right in the property. Hence, an agreement to sell is not required to be registered and the same is receivable in evidence in a suit for specific performance under Chapter-II of the Specific Relief Act, 1877"
In the present case, the situation is much better as in the present case, the plaintiff seeks the recovery of money and he is not even enforcing a suit for specific performance of Contract.
In view of the above discussion, Issue no.1 vide preliminary objection no. (A) as raised in Written Statement is decided against the defendant and in favour of plaintiff.
15. Issue no.2 Whether plaint is liable to be rejected u/o VII Rule 11 CPC as CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page7/32 8 per preliminary objection no. B of WS? OPD Defendant contended that suit filed by plaintiff is not maintainable as plaintiff has suppressed material facts. Upon consideration of the entire facts and circumstances, the suit filed by plaintiff is very much maintainable as under
order 7 Rule 11 CPC, the plaint can only be rejected if it does not disclose cause of action. Plaint contains necessary averment to the effect that plaintiff has made payment of Rs. 5 Lacs out of Rs. 20,50,000/- and furthermore defendant failed to execute sale deed in favour of plaintiff. Plaintiff has filed the suit for recovery amount of Rs. 5 Lacs which has been paid by him as Earnest Money ( Bayana). The question requires adjudication of disputed facts and thus it cannot be said that suit filed by plaintiff does not disclose any cause of action to be dismissed under Order 7 Rule 11 CPC. Hence, issue no.2 is decided against the defendant and in favour of plaintiff.
16. Issue no.3 Whether present suit is liable to be dismissed as per preliminary objection no. F of WS ? OPD This issue is regarding that plaintiff has not properly valued the suit for the purpose of court fees and jurisdiction and liable to be dismissed as defendant as to provide any evidence or arguments that suit filed by plaintiff was incorrect valued.
Perusal of plaint as filed by plaintiff would reveal that plaintiff has filed advalorem Court fees of Rs 11,430/- which indeed is correct court fee and thus it can not be said that plaintiff has incorrectly valued either for the purpose CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page8/32 9 of jurisdiction or the purpose of relief. Section 7 of Court fees Act provides that advalorem court fee has to be paid. The plaintiff has paid the correct Court fees on Rs 9, 30,000/-.
17. Issue no.4 Whether plaintiff is entitled to the relief claimed? OPP The plaintiff has prayed for recovery of Rs 9,30,000/- alongwith interest from the defendant. Plaintiff has examined himself as PW-1 and deposed on the line of his plaint. Reading of the plaint, written statement and deposition of PW-1 and DW-1 would make it clear that following facts stands admitted:-
i) Execution of agreement ii) Receipt of money iii) Receipt of legal notice
It is pertinent to mention that plaintiff has filed the photocopy of agreement to sell dated 5.12.2102 vide Mark A. Earlier at the time of tendering his Evidence by way of Affidavit, plaintiff has exhibited same as PW-1/1 but same was de exhibited and Mark A was put on agreement to sell however during the cross examination of Defendant, defendant admitted the execution of agreement to sell dated 15.12.2012 and also admitted his signature and therefore same was Exhibited as DW-1/1(though it should have been written as (DW-1/PX-1). Dehors, exhibition of agreement to sell, agreement to sell dated 15.12.2012 was admitted by Defendant in his written statement and also his deposition.
It is an admitted case of parties that an amount of Rs 2.5 Lakhs was paid at the time of execution of agreement to sell and remaining amount of Rs 2.5 CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page9/32 10 Lakhs on 19.5.2013 and time for execution of agreement was extended upto 30.7.2013 and in the evidence by way of affidavit in Paragraph 4, it was deposed by Defendant that plaintiff did not have any sufficient fund and after the expiry of 15.2.2013, plaintiff paid a sum of Rs 2.5 Lakhs on 19.5.2013 and the time of execution of execution of agreement to 30.7.2013 and accordingly, on this basis, one can say that both the parties have extended the due execution of sale deed till 30.07.2013.
Both the parties have blamed each other for non execution of sale deed and defendant justified forfeiture of Bayana Amount on the ground that as per clause 3 of agreement to sell dated 15.12.2012, the balance amount was to be paid on or before 15.3.2013, however as discussed earlier, this date was extended to 30.7.2013.
Plaintiff deposed that on 30.7.2013, a document writer at Janakpuri told that sale deed in respect of the property cannot be executed and interestingly, Defendant in his Deposition vide DW-1 in paragraph 7 has stated that it was well within the knowledge of plaintiff that sale deed cannot be executed and the plaintiff had agreed to purchase property on the basis of the documents such as power of attorney, agreement to sell receipt will, etc along with the possession of the property and Sale Deed was to be executed when it was permitted by Government and as the plaintiff fail to perform his part of the contract, so there is no occasion for the execution of sale deed. However, the plaintiff in his legal notice vide Ex PW-1/3 dated 28.10.2015 asked the defendant to execute the sale document and other formalities within a period of 15 days or to refund the double amount alongwith interest and compensation.
This notice was sent by plaintiff to defendant t by Plaintiff after CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page10/32 11 about more than two years from the date of last payment. It is also relevant to mention that plaintiff has not filed any document with regard to his financial fitness as on 30.7.2013 except the bald statement that he was having the balance amount of Rs 15, 50,000 during the cross examination has mentioned that he was having the balance consideration and it was admitted by him that he had two bank accounts.
Agreement dated 15.12.2012(vide Exhibit DW-1/1) would reveal that in clause 4 and 5 both the parties are conscious of the fact that Registration of Sale Deed is necessary condition and it was for this reason in clause 5 of the agreement it was noted that if registration is not done, then double amount is to be paid amount. The relevant clause read as under ;
4. That the first party shall execute and get registered the necessary documents in favour of second party or its nominee.
5. That if the first party fail to execute and get registered the necessary documents in favour of the second party or its nominee on or before stipulated period then the first party will be liable to pay the double amount of the earnest money.
It appears that both parties were aware that there are some problems in getting the registered sale deed done in favour of plaintiff although the case of defendant is that property has been sold on whereas basis and it is perhaps one of the reason that both parties have waited for more than two years and the case of the plaintiff is that he has been asking for the return of money of his money CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page11/32 12 was avoided by the defendant and although in his legal notice dated 28.10.2015, the plaintiff interestingly takes two stand that he was aware about the defect in the title of the property, yet he is ready to take get the registration and double the amount to be refunded.
The defendant in his written statement as well in his deposition has deposed that suit property cannot be sold unless it is converted from the leasehold to free hold, bare perusal of agreement to sell would reveal that no responsibility was fixed on any party for taking any steps for converting the property into free hold.
A broad reading of the stand and conduct of both the parties would reflect that that both plaintiff and defendant are not ready and willing to perform the part of contract to complete the obligations as provided in agreement to sell dated 15.12.2012 as it was an admission on the part of defendant that he has sold the property on the basis of certain documents (It is pertinent to mention that defendant filed certain documents which were neither exhibited nor marked.) and plaintiff was aware that registration of property cannot be done whereas plaintiff has failed to establish on record as to whether he has the necessary consideration to pay the money to defendant from 30.7.2013 to filing of the suit and it has not been shown by the plaintiff on the basis of which document he agreed to purchase the suit property.
Furthermore, defendant in paragraph of his Evidence by way of Affidavit vide Ex DW-1/A admitted the receipt of the legal notice(Ex PW-1/3) and attempted to run away with the answer by stating that he did not deem it proper to reply the said legal notice, meaning thereby that defendant has no answer to the concern of the plaintiff and thus, refusal of defendant to answer CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page12/32 13 the said legal notice vide exhibit fully justifies the case of plaintiff that defendant cannot forfeit the earnest money.
Hence, in view of the above discussion, it is held that both plaintiff and defendant are not ready and willing to perform their respective obligations.
18. Necessary sequel to the above discussion would pose other questions whether in the suit for recovery of money based on agreement to sell where both the parties have failed to discharge their obligations, whether plaintiff would be entitled for the recovery of double of the earnest money where plaintiff is guilty of not performing his obligations and Whether defendant would be justified in forfeiting the earnest money as plaintiff has failed to discharge the obligations.
The agreement to sell Ex DW-1/1(admitted during cross examination and also admitted in the pleadings) provided forfeiture of earnest money in the case of default on the part of plaintiff and payment of double amount in the case of breach by defendant. Both these clauses have to considered in light of Section 74 of Indian Contract Act, 1870 and which read as under ;
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. 11491/16 Rajnish Sharma vs Avtar Singh Page13/32 14Application of Section 74 of Contract Act, has come up for consideration in the celebrated case of Fateh Chand Vs Balkishan Das AIR 1963 SC 1405, it was held by Hon'ble Supreme Court ;
Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of the parties pre-determined, 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 CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page14/32 15 contract. Such compensation has to be ascertained having regard to the conditions existing on the date of the breach..
19. The question as to whether a plaintiff could seek the double amount of earnest money directly came for the consideration before Hon'ble Delhi High Court in Ram Mehar vs Murari Lal and others. RFA No. 177/1999 and Hon'ble Delhi High Court after referring to number of judgments and precedents applied the analogy of "forfeiture of earnest money" and held that likewise, the principle pertaining to forfeiture of earnest money that losses have to be proved. It was held as under ;
It is argued that the trial Court could not have on the basis of a clause in the Agreement to Sell entitling payment of double the amount passed such a decree inasmuch as the same would be violative of the Section 74 of the Contract Act, 1872 as the clauses such as the subject clause are clauses in terrorem.
2. Learned counsel for the respondents has however pleaded with the Court that at least some damages ought to be granted. This request made by the learned counsel for the respondents, is a request which I cannot accept inasmuch as before damages can be granted, the damages have to be pleaded and proved in accordance with law. Counsel for the respondents does not dispute that there is no pleading or proof with respect to any loss having been caused to the respondents/plaintiffs. I have had an occasion to consider the CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page15/32 16 issue with respect to entitlement to damages and validity of a clause entitling double the payment as being violation of Section 74 of the Contract Act, 1872 in the judgment of Dilip Kumar Bhargava Vs. Urmila Devi Sharma & Ors. decided on 31.3.2011 in RFA No.129/2011. Paras 3 to 7 of this judgment are relevant and the same read as under:-
"3. Learned counsel for the appellant relies upon the Constitution Bench decision of the Supreme Court in the case of Fateh Chand Vs Balkishan Dass, (1964) 1 SCR 515; AIR 1963 SC 1405 and more particularly its paras 8,10,15 and 16 which read 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 CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page16/32 17 liquidated damages and stipulations in the nature of penalty. Under the common law a genuine pre-estimate 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 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 CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page17/32 18 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 pre-determined, 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 CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page18/32 19 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 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 CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page19/32 20 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.CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page20/32 21
(Underlining added)
4. 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 CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page21/32 22 amounts claimed as security for guaranteeing due performance of the contracts. Such deposits cannot be regarded as earnest money.
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. 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 CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page22/32 23 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 CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page23/32 24 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."
5. 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 CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page24/32 25 be for liquidated damages or for unliquidated damages. Section 74 of the Indian Contract Act eliminates the somewhat 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 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 CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page25/32 26 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)
6. A contract pertaining to breach of an Agreement to Sell is a contract where loss can be calculated, the loss ordinarily being the lesser value of the immovable property on the date of the contract. Such contracts of Agreements to Sell, being contracts where damages can be calculated, even if, there is a provision of forfeiture of a huge amount of Rs.5 lacs, the same would be a Clause in terrorem. The Clause being in the nature of a penalty or in terrorem, such forfeiture of a huge amount cannot be allowed unless damages are actually proved, the law being that Section 74 only provides the outer limit of damages which can be awarded. The court always awards reasonable compensation depending upon the outer limit of compensation/damages which are prescribed under CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page26/32 27 the contract, and which are in the nature of liquidated damages under Section 74 of the Contract Act. The present case, and other similar cases of breaches of Agreements to Sell, must be distinguished from those class of cases where loss cannot be proved and which contracts were the subject matter before the Supreme Court in the cases reported as O.N.G.C. Vs. Saw Pipes Ltd., 2003 (5) SCC 705 and Sir Chunilal V. Mehta & Sons Ltd. Vs. Century Spinning and Manufacturing Co. Ltd. AIR 1962 SC 1314 (1).
7. On reading of the aforesaid decisions of the Supreme Court it becomes clear that there cannot be forfeiture of an amount which is paid by a buyer under an Agreement to Sell to the respondents, even if, the buyer is guilty of breach of contract because the seller who has received monies, cannot forfeit the monies unless he has suffered loss in the bargain. A seller ordinarily suffers loss under an Agreement to Sell only if value of the property decreases as per the breach committed by the buyer/plaintiff/appellant and in the present case no loss has been pleaded or proved by the respondents. Even assuming therefore that the appellant/plaintiff is guilty of breach of contract, the respondent no.1, at best, can forfeit only a reasonable amount and not an amount of Rs.10 lacs out of the total sale consideration of Rs.55 lacs. It could not be argued with any conviction by the learned counsel for the CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page27/32 28 respondent no.1/defendant no.1 that there are any pleadings in the trial court that the respondent no.1/defendant no.1 has been caused loss in any manner including by the value of the property having gone down. It is because of lack of any pleadings in this behalf that the respondent no.1/defendant no.1 led no evidence as to any fall in the value of the property by a specific amount of Rs.10 lacs so as to entitle him to forfeit the amount of Rs.10 lacs received as advance price."
20. The issue with regard to forfeiture of earnest money was also considered by Hon'ble High Court of Delhi in M.C. Luthra Vs. Ashok Kumar Khanna 2018 (248) DLT 161, wherein the law relating to the forfeiture of earnest money was dealt in an exhaustive manner as per which it was held that only a nominal amount could be forfeited as an earnest money. It was further held that if a defendant seeks to forfeit the earnest money then he has to prove the loss, in the present case, there is nothing in the testimony of Defendant where any loss was pleaded and thus, defendant in law cannot forfeit the entire earnest money and Defendant in his testimony has blamed the plaintiff for non fulfilment of contract but has not specified or proved that he suffered any loss. Even if the plaintiff is at fault, the entire advance money cannot be forfeited by seller.
21. Therefore, in the absence of any evidence of loss, defendant cannot forfeit the earnest money of Rs 5 Lakhs in view of specific provision of law and also in light of judgement of Fateh Chand (Supra) and MC Luthra(Supra) and it is also relevant to note that in the cross examination of defendant and also in the CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page28/32 29 order sheet dated 12.10.2017 wherein it has been noted :
"Today, three photographs on single page filed by the plaintiff and submitted that lawyers are stated to be on strike as such counsel for the parties not present. Defendant has stated that he will not raised any further construction as alleged in the application, till 16.10.2017 and he is ready to give statement in this regard and also submitted that he is ready to give back earnest money, which has been paid by plaintiff, which is counter opposed by the plaintiff with request to consider the application under Order 39 Rule 1and 2. Heard. Since this matter is for the double Recovery of money alongwith the interest. Hence, application at this stage, cannot be considered.
Put up for further proceedings on 16.10.17."
Sd/-
Rakesh Kumar - IV ADJ-06, West District THC/12.10.2017 Defendant in his cross examination dated 1.10.2018 stated ;
" After 30.07.2013, I asked the plaintiff to take back his Rs 5 Lakhs but he was not agreeable for the same. Plaintiff never asked for any interest from me and the story of interest only started when a legal notice Ex PW-1/4 was CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page29/32 30 sent by counsel to the plaintiff".
In view of aforesaid admission of defendant, the defendant cannot forfeit the earnest money. Surprisingly, in his pleadings and also in his written argument, defendant took a stand that earnest money has been forfeited.
22. The plaintiff in paragraph 12 of his plaint has claimed the return of double of his earnest money, however, in prayer clause, the plaintiff has claimed an amount of Rs 9,30,000 i.e. slightly less than Rs 10 Lakhs (Double amount of bayana). The aforesaid reading of the judgments as referred above of Hon'ble High Court exhaustive dealt and considered the judgement of judgments of Hon'ble Supreme Court and Delhi High Court that like defendant who seeks forfeit the earnest money (Bayana) and the plaintiff seeking the recovery of the double amount of earnest money, has to prove the loss , perusal of plaint and deposition of plaintiff vide Exhibit PW-1/1 would evinced that neither such loss was pleaded nor any evidence was lead to prove that plaintiff suffered any loss. Hence, plaintiff would not be entitled for the double of advance money as claimed by the plaintiff view of the ratio of aforesaid judgments as referred in earlier paragraphs.
23. Award of Interest In the present case, as per the admitted case of both parties, an amount of Rs 5 Lakhs stands paid by defendant. It has been held that both parties have failed to discharge their respective obligations. The question would be whether plaintiff would be entitled for interest Hon'ble Delhi High Court in Ramesh Chander vs Shiva Promoters Ltd, RFA No. 211/2017 dated 21.8.2018 has CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page30/32 31 relied upon South Eastern Coalfields Ltd. Vs. State of M.P. and ors., (2003) 8 SCC 648 and which holds that interest is payable in equity in certain circumstances. South Eastern Coalfields Ltd. (supra) reads as under:-
"21. Interest is also payable in equity in certain circumstances. The rule in equity is that interest is payable even in the absence of any agreement or custom to that effect though subject, of course, to a contrary agreement. Interest in equity has been held to be payable on the market rate even though the deed contains no mention of interest. Applicability of the rule to award interest in equity is attracted on the existence of a state of circumstances being established which justify the exercise of such equitable jurisdiction and such circumstances can be many."
In the present case, agreement to sell was entered on 15.12.2012 and time of performance was extended upto 30.7.2013 and plaintiff paid an amount of Rs 5 Lakh out of Rs 20.50,000 for the purchase of immovable property. Rates in immovable property has not much appreciated for the last few years and also taking note of the conduct of parties during the course of trial and other factors such as defendant benefitting from the amount taken from the plaintiff and the prevalent interest rates in last few years, it would be just and proper to award an interest at the rate of 9 percent per annum on Rs 5.00 Lakhs from 30.7.2013 till the date of realisation. Therefore, issue no.4 is decided in favour of plaintiff and against defendant.
CS No. 11491/16 Rajnish Sharma vs Avtar Singh Page31/32 3224. RELIEF Accordingly, the plaintiff is entitled for money decree of Rs 5 Lakh against defendant at the rate of 9 percent per annum from 30.7.2013 till the date of its realisation along with the cost. Decree sheet be prepared.
File be consigned to record room as per rules.
Announced in the Open Court
on 04.12.2018 (Hasan Anzar)
Additional District Judge-06
West District, THC
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