Delhi High Court
Rama Associates Pvt. Ltd. vs D.D.A./M.C.D. (Slum Wing) on 16 December, 2013
Author: M.L. Mehta
Bench: M.L. Mehta
* THE HIGH COURT OF DELHI AT NEW DELHI
+ C.S. (O.S.) No. 1633/1983
Date of Decision: 16.12.2013
RAMA ASSOCIATES PVT. LTD. ....Plaintiff
Through: Mr. Ashok Gurnani, Mr.
Ramesh Vats, Advs for the
plaintiff
Versus
D.D.A./M.C.D. (SLUM WING) ....Defendant
Through: Dr. K.S Sidhu, Sr. Adv, with
Ms. Maldeep Singh, Adv for the
defendant/DDA
CORAM:
HON'BLE MR. JUSTICE M.L. MEHTA
M.L. MEHTA, J.
1. The plaintiff has filed this suit for recovery of Rs. 60,79,875/- along with interest at the rate of 18% per annum from the date of filing of the suit till the date of realization. A brief summary of the facts leading to the instant suit is as follows:
2. Delhi Development Authority (DDA), the defendant, held a public auction on March 12, 1982, for sale of a commercial plot admeasuring 351 sq. yds at No. 9, Asaf Ali Road, New Delhi (suit C.S. (O.S.) No. 1633/1983 Page 1 of 24 property). Rama Associates, the plaintiff participated in the auction and being the highest bidder at Rs. 186 lakhs, its bid was accepted on March 20, 1982.In accordance with the Terms and Conditions of the auction (contract), the plaintiff deposited a sum of Rs. 46.50 lakhs, being 25% of the total bid amount. However, disputes arose between the parties and the plaintiff cancelled the contract, seeking return of the sum of Rs. 46.50 lakhs. However, the defendant has appropriated the said sum on the ground that the plaintiff failed to comply with the terms within the stipulated time.
3. The plaintiff‟s case is as follows:
4. The plaintiff submits that it is a private limited company, and that M/s. Essel Properties and Industries is its unit. The plaintiff was declared as the highest bidder at Rs. 186 lakhs, and it deposited a sum of Rs. 46.50 lakhs, being the 25% of the bid amount. The plaintiff claims that a copy of the Architectural Control Drawings (AC drawings) was to be supplied to the successful bidder, keeping in mind that the successful bidders were to enter into transactions with prospective buyers to sell the property acquired through the auction. However, the plaintiff alleges that at the time of bid, the AC drawings were not exhibited or shown, but instead, there was a declaration by the defendant at the time of auction that the permissible floor area of the four storey building shall be 400%.
C.S. (O.S.) No. 1633/1983 Page 2 of 245. The plaintiff submits that the defendant failed to supply the said AC drawings even after the auction despite repeated requests, which were eventually supplied only on October 15, 1982, after seven months from the date of auction. The plaintiff submits that the delay in supplying the AC drawings greatly prejudiced and jeopardized the interests of the plaintiff as they could not negotiate with prospective purchasers of the proposed commercial flats, in order to finance the balance amount payable to the defendants. The plaintiff further submits that even the AC drawings were not prepared in accordance with the building bye-laws, framed by the Municipal Corporation of Delhi, which meant that the property was not auctionable for commercial buildings/office space since the space could only be utilized for common path/passage and/or parking etc.
6. The plaintiff also contends that the auction by the defendant was contrary to the terms and conditions of the Master Plan for Delhi, in that, the plots auctioned fall under „main street‟. And that when the local inhabitants learnt about the auction, they protested by agitation/dharna and also instituted various legal actions before different Civic Authorities, which also hindered the negotiation talks of the plaintiff with prospective purchasers. And that the plaintiff wrote two letters, dated April 14, 1982 and April 22, 1982 informing the defendant about the agitation and that many people were claiming common rights in the said plot. And that articles appeared in various newspapers alleging the auction to be illegal. As all these created C.S. (O.S.) No. 1633/1983 Page 3 of 24 serious impediments in the plaintiff‟s negotiations, it, vide letter dated May 14, 1982 requested the defendant for extension of time to make balance payment by three months. And that vide letter dated August 20, 1982, the defendant issued a Notice to the plaintiff stating that if they did not deposit the balance amount by August 29, 1982 along with interest at the rate of 36%, the earnest money would stand forfeited.
7. Plaintiff submits that on August 25, 1982, it wrote to the defendants that the auction of the suit property was not in accordance with the Master Plan of Delhi and the bye-laws of Municipal Corporation of Delhi, and hence was illegal. It also requested the defendant to refund the full earnest money paid by them. And that, vide letter dated September 8, 1982, the plaintiff once again requested for refund of the earnest money. And that, in the interregnum, a civil suit being Suit No. 89/1982 in re: Raj Narain & Ors. v. Essel Properties and Industries & Ors., before the Ld. Sub-Judge, II Class, Delhi, came to be filed by residents of the area neighbouring the suit property. The plaintiffs in the suit sought an injunction against the plaintiff herein, alleging that the said area, where the suit property was situated was ear-marked for common facilities for the residents of that area, and was shown as such in the Master Plan, and that the auction of the suit property by the defendant was contrary to the Master Plan, and thereby was illegal. On the said grounds, the plaintiffs in that suit, sought an interim injunction against the plaintiff herein, restraining it from constructing any building or from disturbing peaceful utilization C.S. (O.S.) No. 1633/1983 Page 4 of 24 of the area in question, pending final disposal of the suit. And that an order of interim injunction was passed against the plaintiff to maintain status quo till further orders. The plaintiff submits that all the above extraneous circumstances, made it impossible for it to negotiate and market the suit property to prospective buyers, in order to generate funds to pay the balance amount.
8. The plaintiff submits that the defendant, vide its letter dated March 28, 1983, rejected the its request for refund and ordered the forfeiture of the earnest money of Rs. 46.50 lakhs, without even waiting for the final outcome in Suit No. 89/1982. And that after repeated correspondences failed, it served a Notice upon the defendants in accordance with Section 53-B of the Delhi Development Authority Act, 1957 (D.D.A. Act), demanding refund of the earnest money along with interest. The plaintiff submits that the cause of action arose in its favour on March 12, 1982, when the suit property was illegally auctioned, and when it deposited Rs. 46.50 lakhs as earnest money. And on October 15, 1982, when the AC drawings were supplied after a delay of 7 months. Further, in April 1982, when agitations started. And on August 25, 1982, when the defendant served a Notice upon the plaintiff to make the payment of the balance amount. Further on February 25, 1983, when the Court of Sub-Judge, granted an injunction against the plaintiff ordering maintenance of status quo. And finally on March 31, 1983, when the plaintiff received the notice of forfeiture dated March 28, 1983, from the defendant.
C.S. (O.S.) No. 1633/1983 Page 5 of 249. The defendant filed its written statement. The case of the DDA in brief is as follows:
10. The defendant has taken the preliminary objection that the suit property was purchased by M/s. Essel Properties and not by the plaintiff herein, viz. Rama Associates Pvt. Ltd., thereby contending that the instant suit has been filed without proper authorization, and that there is no cause of action qua the plaintiff.
11. Regarding the merits of the case, the defendant has provided a brief history of the suit property, stating that the commercial set-up of Asaf Ali Road was developed by the Delhi Improvement Trust before 1946, which was developed as a part of Delhi Ajmeri Gate Redevelopment Scheme in the year 1946. And that the strip of the land admeasuring 294.50 sq. mts. between Life Insurance Corporation Building and the Hoechst Building form part of Chunk No. 7 of the Delhi Ajmeri Gate Scheme. And that there was a Notification dated April 10, 1957 notifying the area as a slum under Section 11 of the Slum Areas (Improvement & Clearance) Act, 1956 (Slums Act). The defendant submits that the area was cleared out in the year 1976, and a redevelopment plan for this pocket was prepared by the Slum Department and was put into operation in the year 1977. And that five out of the ten pockets were auctioned by the Slum Department, D.D.A. on March 12, 1982. And that detailed Terms and Conditions of the auction were furnished by the Office of Junior Town Planner (Slum).
C.S. (O.S.) No. 1633/1983 Page 6 of 2412. Defendant submits that the plaintiff‟s bid of Rs. 186 lakhs was selected being the highest and that its deposit of earnest money amounting to Rs. 46.50 lakhs was accepted. And that when the plaintiff wrote to it about the agitations, the defendant replied by stating that the agitations had been withdrawn and assured the plaintiff that vacant possession shall be handed over to the plaintiff upon payment of the balance bid money. The defendant submits that the plaintiff sought extension of time to pay the balance amount vide its letter May 14, 1982, and that the said extension for three months ending August 29, 1982 was granted vide its letter dated August 20, 1982. However, it was upon failure of the plaintiff to make payment of the balance amount even after the extension of time, that the defendant ordered forfeiture of the earnest money.
13. The defendant submits that contrary to the averments of the plaintiff, the AC drawings were exhibited at the time of the auction. And that the contract provided for furnishing of the said AC drawings upon payment of money by the successful bidder. However, although the plaintiff had applied for the supply of AC drawings for plot no. 10, it did not apply for the supply of drawings for plot no. 9. Regarding the allegation that the auction was contrary to the Master Plan and the Delhi Municipal bye-laws, the defendant submits that Sec. 39 of the Slums Act has the overriding effect over Master Plan, D.D.A. Act as well as the building bye-laws made thereunder. The defendant further submits that it had not acted against the Scheme and the Master Plan C.S. (O.S.) No. 1633/1983 Page 7 of 24 because the commercial area of 10 plots in the Re-development Scheme was provided with open space/ parks in such a manner that the total sum of the FAR of 10 plots did not exceed 300. However, it is also submitted that in view of the provisions of Sec. 53 of the D.D.A. Act and Sec. 39 of the Slums Act, the competent authority under the Slums Act could permit construction of buildings even with higher FARs. On these grounds, the defendant claims that the plaintiff committed breach of the contract and therefore is not entitled to the return of the earnest money paid or interest thereupon.
14. Vide Order dated October 9. 1985, the following issues were framed for trial.
1) Whether the plaintiff is a Limited Company and M/s. Essel Properties and Industries is its security, and Sh.
Lakshminarayan is its Director, competent to sign and verify the plaint, and to file the suit?
2) Whether the supply and exhibition of architectural control drawings to bidders prior to auction is an integral part of the sale by auction. If so, has the defendant violated it or the terms and conditions of auction regarding the sale of Plot No. 9?
3) Whether the architectural control drawings were not exhibited or furnished as per the terms and conditions of auction?
4) Whether the architectural control drawings were not in accordance with the Municipal Bye-laws, the Master Plan or the Zonal Plan as alleged? If so, its effect?
C.S. (O.S.) No. 1633/1983 Page 8 of 245) Whether plot No. 9 in question falls under the Slums Area (Improvement and Clearance) Act, 1965? If so, its effect?
6) Whether the said plot which was shown in the Master Plan as a main street/totlot, could not be auctioned by the defendant for commercial and official buildings without changing the land use from residential to commercial, as per Master Plan?
7) Whether the said plot could not be auctioned with a declaration that permissible Floor Area Ratio (FAR) is 400?
8) Whether the defendants had no right to confiscate/forfeit of earnest money of over Rs. 46.50 lakhs when there was an injunction against the plaintiff and the defendants for maintaining status-quo in Suit No. 89/82 filed before the Sub-judge?
9) Whether there is any practice of making payment of balance auction money dependent on plaintiff's negotiations with prospective purchasers and are the defendants bound by it?
10) Whether the plaintiff waived their right to sue, acquiesce in the terms and conditions of auction and are estopped from challenging the validity of auction as per preliminary objections in the written-statement? If so, its effect?
11) Whether the defendants are liable to refund the earnest money as claimed?
12) Whether the plaintiffs are entitled to interest as claimed? If so, at what rate?
13) Relief.
C.S. (O.S.) No. 1633/1983 Page 9 of 2415. I have heard the Ld. Sr. Counsel appearing for the defendant as well as the Ld. Counsel for the plaintiff. I have also perused through the evidence on record. Before proceeding to decide the issues on merits, it is pertinent to note that the instant suit was decreed vide Order dated July 24, 1998. However, an appeal was preferred, and the Division Bench of this Court vide order dated March 3, 1999 set aside the Order dated July 24, 1998 and remanded the matter back to this Court. Subsequently, the matter was decreed once again vide Order dated July 16, 2012. However, the said Order was once again set-aside by the DB vide its order dated January 17, 20013, and the matter was remanded back again, on the same ground that the impugned judgment failed to make findings on each issue separately. In view of the above, it is imperative that this Court decides each issue separately, in accordance with the mandate of the DB. At this juncture, it is pertinent to note that while framing the issues vide Order dated October 9. 1985, the onus of proof of each issue has not been mentioned. Therefore, from the averments of the parties, a conjoint reading of the plaint and written statement, it is apparent that burden of proof of all issues except issues no. 4, 5 and 10 lie on the plaintiff. Proceeding accordingly, my issue wise findings are as follows:
Issue 1:
16. This issue can be divided into two questions. Whether Sh. Lakshminarayan is the Director of the plaintiff company; and is competent to sign and verify the plaint, and to file the suit? And if M/s.
C.S. (O.S.) No. 1633/1983 Page 10 of 24Essel Properties and Industries is the security of the plaintiff company? Regarding the first question, the plaintiff has placed on record, Resolution of Board of Directors of Rama Associates dated September 27, 1983 as Ex. P20. The Resolution clearly stipulates:
"Shri. Lakshmi Narain, Director be and is hereby authorized to engage a lawyer, institute suits, sign and verify the plaint, affidavit & Vakalat Nama, and other connected documents for and on behalf of the Company including any other instruments that may be required from time to time in connection with any proceedings by or against Rama Associates (P) Ltd."
17. It is also pertinent to note that the defendant has conceded that it is established on record that the plaintiff is a limited company incorporated under the Companies Act and that Sh. Lakshminarain was its Director at the relevant time. Therefore, this part of this issue is essentially a non-issue to that effect, and is decided in favour of the plaintiff.
18. However, what remains to be seen is whether M/s. Essel Properties and Industries, which placed the highest bid at the auction, and procured the contract for the purchase of the suit property is a unit of the plaintiff company. In furtherance of this issue, the plaintiff has placed reliance upon the copy of the Resolution passed by the Board of Directors of Rama Associates Pvt. Ltd. on March 10, 1982, placed (Ex. P18) and the copy of the Resolution passed by the Board of Directors of Rama Associates Pvt. Ltd. on September 27, 1983 (Ex. P19).
C.S. (O.S.) No. 1633/1983 Page 11 of 2419. However, the defendant has vehemently contended that M/s. Essel Properties and Industries is a separate and independent legal entity. The defendant has averred that Essel Properties is a partnership firm having its own legal status and personality, which could sue or be sued in its own name through one of its partners, subject to the provisions of Sec. 69 of the Partnership Act, read with Order 30 Rules 1 and 2 of the CPC. In furtherance of its argument, the defendant has placed reliance upon the communications between the parties, being letters dated March 30, 1982; April 14, 1982; and April 22, 1982, placed on record as Ex. P10, P.11 and P.12, respectively. The defendant has invited my attention to the salutations in the said letters, wherein the said communications has been signed by the „Partner‟ for and behalf of M/s. Essel Properties and Industries.
20. At this juncture, it is amply clear that while the contract was procured by M/s. Essel Properties and Industries, the instant suit has been instituted by Rama Associates Pvt. Ltd. Therefore, the documents sought to be relied upon by the plaintiff in support of its averments, need to be subjected to strict scrutiny. It is seen from Ex. P18, that the plaintiff has resolved as under:
"It is resolved that Rama Associates Pvt. Ltd. can enter in the business of to acquire, to sale, to purchase, to contract and let out of land and properties under it object clause No. 7, 9, 10 & 16 of the Memorandum & Articles of Associates (sic.) of Company. The Company will start the above mentioned object in the name & style of M/s. Essel Properties & Industries which C.S. (O.S.) No. 1633/1983 Page 12 of 24 will be the proprietary concern of M/s. Rama Associates Pvt. Ltd." (emphasis supplied)
21. Further, Ex. P19 clearly stipulates:
"Shri. Lakshmi Narain, Director be and is hereby authorized to engage a lawyer, Vakalat Nama, petition and other connected documents, affidavits, etc. sign for and behalf of the company including any other instruments as may be required from time to time in connection with any legal proceedings by or against the Essel Properties & Industries." (emphasis supplied)
22. The abovementioned documents have been attested by Sh. Laxmi Narain, Director of the plaintiff company. However, during the trial, Sh. Laxmi Narain was not examined as the primary plaintiff witness. Instead, Sh. Basant Sharma was examined as PW1 by the plaintiff. He is stated to be the Accountant in the plaintiff company from 1979 to April, 1990. He has spoken to the incorporation of the plaintiff company, Essel Properties being a unit of the plaintiff company as well as the authorization of Sh. Laxmi Narain to institute the instant suit on behalf of M/s. Essel Properties and Industries.
23. Furthermore, it is also seen from the Declaration by the Slum & JJ Dept., DDA, dated March 30, 1982, confirming the plaintiff‟s bid (Ex.P2). The said letter is addressed to „M/s. Essel Properties & Industries, Prop: Rama Associates Pvt. Ltd‟. In light of the above, it is apparent that the plaintiff carried on real estate business through its C.S. (O.S.) No. 1633/1983 Page 13 of 24 unit M/s. Essel properties. This part of the issue is also decided in favour of the plaintiff.
Issues 2 to 7:
24. Issues 2 to 7 can be conveniently clubbed together and reworded into the following four questions:
1) What is the definition of the following expressions:
a. Architectural Control Drawings;
b. Floor Area Ratio (FAR);
c. Master Plan; and
d. Zonal Plan.
2) What is the scope and extent of effect of each of the above expressions, if any, upon the public auction held by the defendant for the sale of the suit property (and similar other plots) on March 12, 1982?
3) What was the FAR in the Zone in which the suit property was situated as on the date of auction?
4) If the FAR is found to be less than 400, does the representation of the defendant vitiate the consent of the plaintiff and render the contract voidable?
24.(1)(a) Meaning of Architectural Control Drawings:
While there is no strict definition for the term, it is used in common parlance in the construction industry to connote a document prepared C.S. (O.S.) No. 1633/1983 Page 14 of 24 by an architect for the purpose of enabling a local authority to exercise control over the external face, or façade of the building, so as to harmonize the said building‟s external appearance with that of other buildings in the neighbouring area.
24.(1)(b) Meaning of Floor Area Ratio:
The Apex Court, in the case of Express Newspapers Pvt. Ltd. v. Union of India, AIR 1986 SC 878, has defined the term as:
"FAR means the quotient obtained by dividing the total floor area (plinth area) of the floor multiplied by 100, by the area of the plot."
24.(1)(c) Meaning of Master Plan Master Plan is a statutory documents prepared in accordance with the provisions of Sec. 7 of the D.D.A. Act. Sec. 7 of the Act stipulates:
"The master plan shall-
(a) define the various zones into which Delhi may be divided for the purposes of development and indicate the manner in which the land in each zone is proposed to be used (whether by the carrying out thereon of development or otherwise) and the stages by which any such development shall be carried out; and
(b) serve as a basic pattern of frame-work within, which the zonal development plans of the various zones may be prepared."C.S. (O.S.) No. 1633/1983 Page 15 of 24
24.(1)(d) Meaning of Zonal Plan Zonal Plan or Zonal Development Plan is a statutory documents prepared in accordance with the provisions of Sec. 8 of the D.D.A. Act. Sec. 8 of the Act stipulates:
"A zonal development plan may -
(a) contain a site plan and use-plan for the development of the zone and show the approximate locations and extents of land-uses proposed in the zone for such things as public buildings and other public works and utilities, roads, housing, recreation, industry, business, markets, schools, hospitals and public and private open spaces and other categories of public and private uses;
(b) specify the standards of population density and building density;
(c) show every area in the zone which may, in the opinion of the Authority be required or declared for development or redevelopment."
24.(2) Effect of the above upon the auction:
24.(2).1 A perusal of the Master Plan and Zonal Development Plan shows that urban Delhi is divided into 8 planning divisions, denoted by alphabets „A to H‟. In the Zonal Map, Old Delhi planning division is denoted by alphabet „A‟ and New Delhi planning division is denoted C.S. (O.S.) No. 1633/1983 Page 16 of 24 by alphabet „D‟. Planning Division „A‟ is subdivided into 23 Development Zones, one of which is numbered as Zone A-13. Zone A- 13 is the Development Plan for the locality of Old City known as Kucha Pati Ram. A Copy of the Original Zonal Development Plan of Zone A-13 is placed on record as Ex. D33. It is seen that this plan was enforced in the year 1970. Ex. D34 depicts the boundary between Zone A-13 to the north and Zone D-2 of New Delhi to the south.
24.(2).2 At this juncture, it is also important to consider the Notification dated April 10, 1957, which is placed on record as Ex. D1.
This Notification is issued under Sec. 3 of the Slums Act, stipulating the following:
" NOTIFICATION
NEW DELHI, 10TH April 1957
S.R.O. 1252. Whereas I, G. Mukharjea, Secretary, Delhi Development (Provisional) Authority and Competent Authority under the Slum Areas (improvement and Clearance) Act, 1956, am satisfied that the buildings in the areas mentioned in the Schedule below are unfit for human habitation or are detrimental to safety, health or morals. Now, therefore, I, under the powers vested in me under Section 3 of the said Act, declare the areas mentioned in the Schedule below to be Slum Areas.
SCHEDULE Areas within the limits of the Delhi Municipal Committee
(a) Wards Nos. I to VI
(b) Wards No. VII to IX, excluding the areas described below:
i. GB Road North - Road from Khari Baoli to Kutab Road C.S. (O.S.) No. 1633/1983 Page 17 of 24 West - Boundaries of the Arabic College and Railway South -Ajmeri Gate East -Gali Ghosian and a street in its continuation ii. Delhi-Ajmeri Gate Scheme between Asaf Ali Road and Zer-e-Fasil Road:
North -Zer-e-Fasil Road
West -Road to Ajmeri Gate
South -Asaf Ali Road
East -Road along the Delhi
Gate"(emphasis supplied)
24.(2).3 From a combined perusal of the abovementioned
documents, it is apparent that the Notification declares Ward No. VII of the Municipal Area to be a slum area, but excluding therefrom, certain areas which are situated between Asaf Ali Road to the south and Zere-i-Fazil Road to the north, which is compendiously referred to as the Delhi Ajmeri Gate Scheme Area. However, the suit property, viz. Plot No. 9 is situated to the north of Zere-i-Fazil Road in Chunk No. 7 (as shown in Ex. D35) of Kucha Pati Ram. It is essentially carved out of property no. 3345. This makes it amply clear that the suit property is not covered by the exclusion clause mentioned in placitum
(ii) of the said Notification and is a part and parcel of Ward No. VII, which has been declared to be a Slum Area.
24.(3) FAR of the Zone in which the suit property was located:
C.S. (O.S.) No. 1633/1983 Page 18 of 2424.(3).1 It is also apparent to me that under the Act, the competent authority could redevelop this area and carry out or cause to be carried out, any building activity there, without any restrictions imposed under the aegis of the D.D.A. Act or the building bye-laws, including restrictions in respect of FAR, promulgated thereunder. In this regard, the relevant provisions are as follows:
Section 39 of the Slums Act:
"39. Act to override other laws - The provisions of this Act and the rules made thereunder shall have effect not withstanding anything inconsistent therewith contained in any other law."
Section 53 of the D.D.A. Act:
"53. Effect of other laws - Nothing in this Act shall affect the operation of the Slum Areas (Improvement and Clearance) Act, 1956."
24.(3).2 Therefore, even if the plaintiff‟s averment that the FAR for Ward No. VII (Zone A-13) as fixed by the MCD to be 300, was to be considered, the same is not binding on the competent authority under the Slums Act. And the competent Authority under the Slums Act is empowered to declare an FAR as it deems fit, in light of the overriding effect of the Slums Act.
C.S. (O.S.) No. 1633/1983 Page 19 of 2424. (4) Alternatively, is the contract voidable?
24.(4).1 In any event, if it were to be assumed that the FAR was less than 400, the representation made by the defendant would not ipso facto render the contract voidable; for the reason that the FAR is a matter of public record, which could have been ascertained by the ordinary due diligence. In any case the defendant was competent to enhance the FAR in the Slum Area and had assured the plaintiff. There was no reason for the plaintiff to dispute the same. This was nothing but an excuse sought to be tried by the plaintiff to delay payment or come out of the contract.
24.(4).2 In light of the above, I find that the competent authority under the Slums Act was competent to declare the FAR of the Zone in which the suit property was located to be 400. Therefore, Issues 2 to 7 are decided in favour of the defendant.
Issue 9:
25. Sh. Manohar Lal Gosain, PW 4 was examined to determine if there was any prevalent practice of making payment of balance auction money dependent on plaintiff's negotiations with prospective purchasers. However, he has failed to shed any light on the issue and has only stated that he was interested in the auction since any bidder at the auction would be a prospective customer for booking flats. The contract was not contingent upon marketability of the suit property. In C.S. (O.S.) No. 1633/1983 Page 20 of 24 the absence of any concrete evidence, this issue is decided against the plaintiff.
Issue 8, 11 and 12:
26. In a recent decision, the Apex Court has settled the law with respect to forfeiture of earnest money, in the case of Satish Batra v. Sudhir Rawal, 2012 (10) SCALE 393, the Court observed:
"Law is, therefore, clear that to justify the forfeiture of advance money being part of 'earnest money' the terms of the contract should be clear and explicit. Earnest money is paid or given at the time when the contract is entered into and, as a pledge for its due performance by the depositor to be forfeited in case of non- performance, by the depositor. There can be converse situation also that if the seller fails to perform the contract the purchaser can also get the double the amount, if it is so stipulated. It is also the law that part payment of purchase price cannot be forfeited unless it is a guarantee for the due performance of the contract. In other words, if the payment is made only towards part payment of consideration and not intended as earnest money then the forfeiture clause will not apply."
27. Further, in the case of Shree Hanuman Cotton Mills and Ors. v. Tata Air Craft Limited, 1969 (3) SCC 522, the Apex Court examined the principles relating to „earnest money‟. It was observed that:
"25. From a review of the decisions cited above, the following principles emerge regarding "earnest":
(1) it must be given at the moment at which the contract is concluded C.S. (O.S.) No. 1633/1983 Page 21 of 24 (2) It represents a guarantee that the contract will be fulfilled or, in other words, 'earnest' is given to bind the contract. (3) It is part of the purchase price when the transaction is carried out (4) It is forfeited when the transaction fall through by reason of the default or failure of the purchaser (5) Unless there is anything on the contrary in the terms of the contract, on default committed by the buyer, the seller is entitled to forfeit the earnest money." (emphasis supplied)
28. I find that the observations of the Supreme Court in the Satish Batra Case (supra) and the Shree Hanuman Cotton Mills Case (supra) are squarely applicable to the present suit. In the instant case, the relevant clauses of the contract dated March 12, 1982 (Ex. P7) are as follows:
Clause ii):
"The highest bidder shall, at the fall of the hammer, pay to the Delhi Development Authority (Slum Wing) through the officer conducting the auction, 25% of the bid amount as earnest money either in cash or Bank Demand Draft in favour of the Director (Slum), Delhi Development Authority. If the earnest money is not paid, the auction held in respect of that plot will be cancelled."
(emphasis supplied).
Clause iv):
"In case of default, breach or non-compliance of any of the terms and conditions of the auction or failure to take over the possession of the plot when asked to do so, or misrepresentation by the bidder and/or intending purchaser, the earnest money shall be forfeited." (emphasis supplied).C.S. (O.S.) No. 1633/1983 Page 22 of 24
29. The plaintiff itself, in various paragraphs of the plaint, has referred to the sum of Rs. 46.50 lakhs as the earnest money paid to the defendant. This payment was given as a pledge for the due performance of contract by the depositor. In the event of performance by the depositor this amount, was to be taken as part payment of consideration or advance money of the transaction. In the event of non- performance this advance money being part of the earnest money was liable to be forfeited. Therefore, the plaintiff cannot contend that the sum in question to be a part-payment but the earnest money.
30. Further, with respect to Suit No. 89/1982, it is seen that the defendant was not a party to the said suit, and the interim injunction ordering maintenance of status quo cannot be said to affect the forfeiture of earnest money. Moreover, the outcome of Issues 2 to 7 as well as Issue 9 means that the primary reason given by the plaintiff for delay in payment of the balance amount i.e. inability to effectively negotiate and market the suit property to prospective builders, is not a valid reason to prevent forfeiture on account of breach by the plaintiff.
31. That being the case, in light of the law as settled in the Satish Batra Case (supra), Issues 8, 11 and 12 cannot be held in favour of the plaintiff.
Issue 10:
32. From a perusal of the Terms and Conditions of Auction (contract) dated March 12, 1982, as well as the communication C.S. (O.S.) No. 1633/1983 Page 23 of 24 between the parties, there is nothing on record to suggest that the plaintiff has waived its right to sue the defendant or question the validity of the Auction. In any event, such a covenant would be void- ab-initio under Sec. 28 of the Contract Act, 1872. In light of the above, this issue is decided against the defendant.
Relief:
33. In light of my issue wise findings, it is held that the auction dated March 12, 1982 was not illegal. And that the forfeiture of earnest money dated February 25, 1983 is valid. The plaintiff is not entitled to the amount prayed. The suit is hereby dismissed. There is no order as to costs.
M.L. MEHTA, J.
DECEMBER 16, 2012 kk C.S. (O.S.) No. 1633/1983 Page 24 of 24