Delhi High Court
Harbans Lal vs Daulat Ram on 6 December, 2006
Equivalent citations: AIR 2007 (NOC) 2470 (DEL.), 2008 AIHC (NOC) 188 (DEL.)
Author: T.S. Thakur
Bench: T.S. Thakur, S.L. Bhayana
JUDGMENT T.S. Thakur, J.
1. This appeal arises out of a suit filed under Order xxxvII of the CPC representing twice the amount of earnest money paid by the plaintiff on an agreement to sell and interest due thereon. The trial court has, while dismissing the suit, held that refund of the earnest money paid pursuant to an agreement to sell could not be claimed in a suit filed under Order xxxvII of the CPC having regard to the provisions of Section 22 of the Specific Relief Act.
2. The plaintiff-appellant before us appears to have entered into an agreement to purchase property bearing No. E-400, Raghubir Nagar, New Delhi and paid a sum of Rs. 50,000/- towards earnest money to the seller of the said property. A Receipt-cum-Agreement dated 04th July, 1993 executed between the parties stipulated the terms and conditions subject to which the transaction had to be completed. For the sake of easy reference, the said terms and conditions may be gainfully extracted:
(a) I am the owner/ALLOTTEE/Attorney of the above said property which was Free from MORTGGE, GIFT, ENCUMBRANCES Etc.
(b) I will be responsible to the pay the GOVT. DUES if any like HOUSE TAX, LEASE, WATER AND ELECTRICITY BILLS AND MONTHLY InstallmentS OF D.D.A. up to Date will be clear before the Execution of Power of Attorney or Sale deed.
(c) I shall execute the Power of Attorney/Sale deed in favor of the Purchaser as any person nominated by him.
(d) I shall hand over the vacant possession of this said property to the purchaser.
(e) If the prospective purchaser fail to fulfilll the above condition, the Transaction shall stand cancelled and earnest money will be forfeited. In case I fail to complete the transaction as stipulated above, the purchaser will get the DOUBLE amount of the earnest money. In the both condition, DEALER will get 4% commission from the fault party.
3. The transaction did not, admittedly, fructify in a completed sale. According to the plaintiff, the sale had to be completed by the 4th September, 1993 and the necessary instrument of transfer got registered by that date. Formalities in that regard such as No Objection Certificates from the authorities and income tax clearance etc. had to be obtained by the defendant within the period stipulated by the agreement. The plaintiff's further case was that although the defendant was contacted through the property dealer to arrange the completion of sale transaction and even when the defendant assured the plaintiff that he would be ready for registration of the deed on 4th September, 1993, the needful was not done. On the contrary, the plaintiff received a notice from Smt. Poonam, Sister-in-law of the defendant informing the plaintiff that an order had been issued in Civil Suit No. 402/1993 by the court of Special Judge, Delhi directing maintenance of status quo in regard to the sale of the property in question. A copy of the order of injunction was also enclosed with the said notice. This position was conveyed to the defendant where after the defendant did not come forward to have the sale transaction completed. Vacant possession of the property was also never offered by the defendant in terms of the agreement between the parties.
4. It was in the above backdrop that the plaintiff claimed twice the amount of earnest money paid by him to the defendant in a notice dated 11th March, 1996 followed by a reminder dated 10th May, 1996 which the defendant received but to no effect. A suit for recovery of a sum of Rs. 1,51,000/- representing the principal amount of Rs. 1,00,000/- and interest on the same calculated @ 18% per annum up to the date of the suit was therefore filed by the plaintiff under Order xxxvII of the CPC.
5. The defendant appeared in response to the summons sent to him and filed a memo of appearance on 6th September, 1996. No application seeking leave to defend was, however, filed by him despite service of summons for judgment in the court on 7th May, 1997. Even so, the suit filed by the plaintiff was in terms of the impugned judgment and decree, dismissed by the trial court holding that a claim for refund of the earnest money was not maintainable without seeking specific performance of the agreement to sell. According to the trial court, Section 22 of the Specific Relief Act envisages grant of refund only if the plaintiff was not otherwise held entitled to a decree for specific performance. Independent of such a suit, the plaintiff could not claim refund of the amount paid by him as earnest money.
6. We have heard learned Counsel for the parties and perused the record. The respondent has remained unrepresented despite service. The existence of a written contract between the parties which constitutes the very basis of the claim made by the plaintiff has therefore to be taken as admitted. The document placed on record by the plaintiff also supports the plaintiff's claim that there was a written agreement between the parties which envisaged sale of the property in question to the plaintiff and in the event of the failure of the defendant to complete the transaction, payment of twice the amount of earnest money received by him to the former. In that view, therefore, order xxxvII of the CPC which inter alia provides for suits in which the plaintiff seeks to recover a debt or liquidated amount of money payable by the defendant with or without interest arising out of a written contract is clearly attracted. The plaintiff has, as noticed above, sought a decree for recovery of liquidated money payable on a written contract. Since the existence of the written agreement is not disputed by the defendant, we have no hesitation in holding that the suit filed by the plaintiff was maintainable under Order xxxvII.
7. The only other aspect that needs to be examined is whether the plaintiff could have claimed the refund of the earnest money without seeking specific performance of the agreement to sell in connection with which the same was made. The trial court appears to be of the view that so long as the agreement to sell was not formally cancelled by the plaintiff, the liability to refund did not arise. In the opinion of the trial court, the question of refund of earnest money may arise as an incidental matter under Section 22 of the Specific Relief Act which entitles the party suing for specific performance to seek any other relief including refund of the earnest money or deposit paid by him in case his claim for specific performance is refused.
8. On a plain reading of Section 22 of the Specific Relief Act, there can be no quarrel with the proposition that a person suing for specific performance of a contract can in appropriate cases ask for further/additional reliefs by way of possession or partition and separate possession of the property or by way of refund of the earnest money or deposit paid in case his claim for specific performance is refused. That is however far from saying that a party must necessarily seek specific performance of the agreement to sell in order to seek refund of the earnest money paid by him in terms of the agreement to sell. The provisions of Section 22 do not, in our opinion, go that far nor do they forbid a claim for refund of the earnest money paid by a party who is not at fault for the failure of the transaction. The trial court was not, therefore, correct in holding that refund of earnest money was impermissible so long as the suit for specific performance was not filed and a claim for refund made only by way of an alternative prayer. The true position appears to be that if the seller under an agreement to sell defaults in the discharge of his obligations, as was the position in the present case, the purchaser has the option of filing a suit for specific performance and for additional reliefs as indicated earlier or for cancelling the agreement and demanding the refund of his earnest money. As a matter of fact, the demand of the earnest money back from the seller may in itself constitute a repudiation of the agreement by the purchaser for such a demand would be inconsistent with his readiness and willingness to go ahead with the transaction. In other words, no sooner the purchaser demands the refund of the earnest money on the ground that the seller is unable to perform his part of the agreement, the demand must constitute a cancellation of the agreement at the instance of the purchaser. Institution of a suit for specific performance for taking a refund of the earnest money would in such an event be wholly unnecessary.
9. That is precisely what had happened in the instant case. After the plaintiff was informed about the issue of an injunction by the competent court restraining sale of the property, the plaintiff issued three notices to the defendant dated 3rd September, 1993, 11th March 1996 and 10th May, 1996 demanding refund of twice the amount of earnest money in terms of the agreement to sell together with interest on the same. These demands in their very nature repudiated and cancelled the agreement to sell at the instance of the purchaser though the cancellation came because of the default committed by the seller in performing his part of the contract. There was, in the light of the said notices, no further requirement of formally cancelling the agreement to sell before claiming the refund. The finding of the trial court to the contrary must, therefore, be and is hereby reversed.
10. There is one other aspect to which we may briefly advert, at this stag. The plaintiff, as seen earlier, had paid an earnest money of Rs. 50,000/- only. What he now claims is a sum of Rs. 1,00,000/- representing twice the said amount with interest on the same. The terms of the contract relied upon by the plaintiff supports that claim. The defendant did not appear to contest the plaintiffs version that the transaction had fallen through on account of the latter's inability to complete the same. We shall, therefore, have to assume that the transaction failed on account of the failure of the defendant. If that be so, the amount of Rs. 50,000/- would indeed be refundable as that was the amount actually paid by the plaintiff. The question however is whether the additional amount which the plaintiff claims in terms of the agreement could be denied to him.
11. Section 74 of the Contract Act inter alia provides that when a contract has been broken and a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of the breach shall be entitled to receive from the party who has broken the contract compensation not exceeding the amount so named whether or not actual damage or loss is proved to have been caused thereby. The question whether the amount stipulated in the contract as compensation payable to the aggrieved party is or is not reasonable would depend upon the facts and circumstances of each case. The nature of the contract, the amount stipulated for payment in proportion to the money value of the transaction, the circumstances in which the breach was committed may be some of the matters that would require to be kept in view by the court while examining whether or not the amount is reasonable and can be awarded.
12. Applying the above parameters to the present case and in the absence of a contest to the suit both before the trial court as also before this Court, we are inclined to hold that the defendant does not grudge the award of the entire amount stipulated in the contract to the plaintiff. We, therefore, hold the plaintiff entitled to recover from the defendant the principal amount of Rs. 1,00,000/-. We, however, see no real justification to award interest on the said amount @18% per annum claimed by the plaintiff. In our opinion, interest @6% per annum from 4th September, 1993 when the refund was first claimed, pendente lite and till realisation should meet the ends of justice.
13. We accordingly allow this appeal; set aside the impugned judgment and decree the suit filed by the plaintiff-appellant for a sum of Rs. 1,00,000/- with interest @6% per annum w.e.f. 4.9.1993, pendente lite and till realization. The plaintiff shall also be entitled to proportionate costs in the suit and in this appeal.