FAO(OS)/199/2017 of CHANDAN SINGH (SINCE DECEASED) THR LRS & ORS Vs ADHUNIK DATAMATICS PRIVATE LIMITED

$~1*IN THE HIGH COURT OF DELHI AT NEW DELHI+FAO(OS) 199/2017 & CM No.24256/2017

Reserved on ;September, 2017Date"^decision ; /j^^eotemben 2017DECEASED)Appellants:Mr. Ravi Gupta, Sr. Adv. WithMr.L.B.Rai,Mr.SumitNagpal, Mr. Sachin Jain andMs. Mallika Bhatia, Advs.

CHANDANSINGH(SINCEDECEASED)THR LRS & ORS.

:Through

versus

ADHUNIKDATAMATICSPVT. LTD

PVT. LTD LTDRespondentThrough:Mr. Ratan Kumar Singh, Mr.NikhileshKrishnan,Mr. A.K.Tiwari, Mr. Gaurav and Ms.Sushila, Advs.

CORAM:HON'BLE THE ACTING CHIEF JUSTICEHON'BLE MR. JUSTICE C.HARI SHANKAR

JUDGMENT

GITA MITTAL. ACTING CHIEF JUSTICE

1.The appellantsbeforeus assail the order dated 29"' May, 2017passed by theId. Single .ludge granting l.A.No.14/2016 inCS(OS)JSo.4052/2014M/s Adhunik Datamatics Private Limited(respondentherein) vs. CItandanSingh & Ors. (appellantshereinrepresentedby legalheirswho have filed the presentappeal)

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2.The factsrise to theare withina narrow giving appealcompassand to the extentnecessary,we setthe sameouthereunder

3.The respondenthad enteredintoAgreementto Selldated 11'%fApril2013forpurchase of1/5^shareeachoftheappellants/predecessorin interestofthe appellantsin agriculturallandad measuring 45 bighas 12 biswas situated in Revenue Estate ofVillage Neelwal, Tehsil, Punjabi Bagh, District West, Delhi. Theagreementwas for atotalsaleconsiderationofRs.28.50crore.

4.As per clause2of the Agreementto Sell, the respondentswererequiredto pay atotal sale considerationof Rs. 28.50 crore. As perclause2.1.1,the respondentpaid amountofRs.2.85 crore as advancesale consideration. We extract hereunderthe payment mechanismpostulatedin clause2ofthe Agreementto Sell dated 11"" April,2013in extenso which reads thus:

"2.finip Considerationand PaymentMechanism

2.1Purchasers shall the sale considerationto the paysellers in thefollovAng manner :

2.1.1 Advance Sale consideration : sum equivalent to[10% approx, of the Sale Consideration amount toRs.2,85,00,000/-(Rupees Two crore Eighty Five Lac only)("Advance Sale Consideration") has been paid by thepurchasersat the time ofexecutionofthis Agreementin thefollowing manner:

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loilA

The Sellersconfirmandacknowledgethe receiptoftheabove AdvanceSaks Considerationfrom the Purchaserandthe sameshallbe adjustedagainstthe Saleconsideration.

2.1.2 Balance Sale Consideration :The balance SaleConsideration amounting toRs.26,65,00,000/- (RupeesTwenty Five Crore Sixty Five Lac only) ( 'Balance SaleConsideration") shallbepaidby Purchasersto SellerswithinNinety(90) daysfrom the executionofthisAgreement,i.e., onorbefore9'^ July, 2013 in thefollowingmanner:

(Emphasis by us)

5.In 3ofthethehadinter para agreement, parties postulatedthe foliowingseventsto takeplaceon or beforethe executiondated:

In 3ofthethehadinteralia para agreement, parties postulated

"3.Transfer ofProperty

(a)XXXXXXXXX(b)the BalanceSale Considerationshall be paid by thePurchasers to the Sellers simultaneously with the executionofthe sale deed by sellersinfavouro^the purchaseron orbeforeexecutionofthe saledeedi.e. 9^^ July, 2013.'

6.We also extractclause 10 oftherefersto may agreement-whichbreachofagreement. The samereadsas follows:

"10.Breach ofAsreement

10.1In case the sellers cause breach of this Agreementfails/defaults/avoidsor refusesto implementthe termsofthisAgreementin this manner as stipulatedherein then in thateven the purchasers shall have the right to enforce thespecificperformanceofthis Agreementat the cost and riskofthe sellers.

10.2 In case the purchasersfail/default/avoidor refuse to the Balance Sale Consideration in the manner aspaystipulatedherein then in that event the sellershallhave theright toforfeitthe AdvanceSale Considerationpaid by thepurchaserunder Clause 2.1.1 and the sale agreementshallstand cancelled."

(Emphasisby us)

7.We find that the agreementalso postulatedthat sincethe land inquestion was agricultural land, compliance with provisions of theDelhi Land (Restrictionson Transfer) Act, 1972 was required. Intermsof Section(5)(1)ofthis enactmenta no objectioncertificatewas

required to be obtained from the competentauthority. The partiestherefore,had agreed in clause4.2(a)of the Agreementto Sell datedApril, 2013 that the sellers/defendantsin the suit would sign thenecessaryapplicationsforms for approvals/permissionand applicationforms for issuanceof the no objectioncertificate('NOC hereafter)and that it would be the obligationof the purchaser/respondentoobtain all necessary approvals, permissions and NOC from theconcerned authorities for execution of the sale deed.Thewasto informthe sellerafterpurchaser/respondent requiredobtainingthe NOC approvals/permissionat least 15 days prior to the date ofexecution of the sale deed.

8.It was the case of the purchaser/plaintiff(respondentherein)that they got issued the requisiteNOC on 29^'^ June, 2013 and dulyinformedthe sellers/defendants(appellantsherein)who requestedthatthe originalNOC be handedover to them, which they would bringatthe timeofregistrationofthe saledeedon 9"^ July, 2013. The plaintiffhas asserted that in the first week of July, 2013, the defendantsinformedthattheNOC was them. The original misplacedby plaintiffstates that it had insistedthat the defendantsshould make efforts totrace out the originalNOC, failingwhich it would not be possibletoget the sale deed registeredon the scheduleddate of 9''' July, 2013.For the reasonthat the NOC couldnot be tracedout by the defendantsthe saledeedcouldnot be executedby the 9"" July, 2013

9.Itthat defendantsalso issuednoticedated 12"' appears gotlegalJuly,2013 statinginteraliathatthe plaintiffhad failedto appearin theoffice of the Sub-Registraron 9"^ July, 2013 to make payment of

balance amount and have failed to purchase the non-judicialstamp for the sale deed and so the advance amount stoodpapers requiredforfeited and the agreement stood cancelled. It was inter aliaspecificallyassertedas follows:

"2That you, as purchaser agreed in the aforesaidagreementthat in case ofpurchaser'sfail/default/avoidorrefuse to pay the balancesale considerationin this mannerstipulatedin the agreementthen in that eventthe sellershallhave the righttoforfeitthe advancesale considerationmidby the purchaser and the sale agreement shall standcancelled"

10.In this communication,the appellantsinformedthe respondents

as follows:

"In the above givenfacts and circumstancesofthe case theadvanceamountgiven byyou to my clientsin respectofthisabovesaidagreementto sellstandforfeitedandthe abovesaidagreementto sell stand cancelledin terms ofconditionsofthis agreementto sell dated 11/4/2013and also because myclient have even been ready to complete all and everyobligationon theirpartbutyoufailedtofulfilyourobligationin this matter "

Thus the appellantsnotifiedthe respondentsofthe forfeitureofthe amountas well as the cancellationofthe Agreementto Sell datedll'*^April,2013.

nd11.In the plaint,the respondentstatesthat it sent reply dated 22July, 2013 pointingout that it was the defendants/appellantswho hadlostthe NOC dated 29"" June, 2013, delayedexecutionofthe sale deedand who were in breach of the agreement.

12.We are told that the appellant/defendantsagain issued replydated 28^^ July, 2013 disputingreceiptofthe originalNOC as well asthe fact that it was lost by them.

13.Vide another letter dated 3^" August, 2013, the defendantsinformedthe plaintiffthat they had obtainedaNOC dated T' August,2013 from the Tehsildarand that the sale deed be executedby 14^^August,2013. The purchaserrespondedby the letterdatedAugust,2013 inter alia the seller to furnish the ofthe no callingupon copyobjection certificate. This was followed by the letter dated 2September, 2013 addressed by the seller/plaintiffto the defendant ofthe NOC so as tothe same and toagain seekingcopy verify preparethe draft sale deed.14.As nothing was received according to the respondent,in thisbackground, on 15"" December, 2014, it filed summary suit forrecovery oftheamountofRs.2,85,00,000/- againsttheappellant/defendant/sellerunder Order 37 of the Code of CivilProcedure.

15.Upon receiptofthe summonsin the suit, the appellantfiled anapplicationunder Order 37 Rule 3 of the Code of Civil Procedure I.A.No.14/2016interalia that as clause 10.2 ofbeingcontending perthe agreementto sell, ifthe purchaserfails or avoidsor refusesto paythe balancesale considerationinthe mannerasstipulatedtherein,thenin that eventthe sellershall have theright to forfeitthe advancesaleconsiderationpaid by the purchaserunder Clause 2.1.1 and the saleagreementshall standcancelled.

16.This applicationofthe appellants/defendantsfor leaveto defendthe suit was contested theand consideredby plaintiffs/respondentsbythe court. It came to be decided by the impugnedorder dated 29*^May, 2017 wherebythe Id. SingleJudgehas grantedconditionalleaveto defend and the was directed to sum of appellant depositRs.2,56,50,000/- (after deducting 10%oftheamount ofRs.2,85,00,000/-).For clarity, we extract the operative part of theorder as follows :

"12. Thus, the law is wellsettledthat who may be at defaultthe advance money cannot be forfeited, unless the loss is The of the defendants that the advance waspleaded. pleainfactthe earnestmoneythen also,per law, it couldnot havebeen forfeited in and even if one treat the entirety mayadvanceamountto be an earnest the law as itstandsmoney,todaywouldonly allowthe defendantsto deduct5% to 10%ofsuch amount, given thefacts ofeach case. Hence makingprovisionfor 10% ofthe considerationviz Rs.28.50Lac topleadandprove the loss, ifany, sufferedby the defendants,the leave to defend is hereby grantedto the defendantsontheir depositingan amountofRs.2,56,50,000/-(RupeesTwoCrore FiftySix Lacs &Fifty thousands)in the Courtor inthe alternative on giving Bank Guaranteefor the saidamount, with the RegistrarGeneralofthis Courtwithinfourweeksfrom today. In case the amountis depositedit shall beconvertedinto afixeddepositwith nationalisedbankfor atermofoneextendableorderofthe Court.yearinitially,per

(Emphasisby us)

17.This orderhas been thebeforeus. It is challengedby appellantsubmittedby Mr. Ravi Gupta, Id. Senior Counsel for the appellantsthat to the size of the considerationwhich was to the having regardtune of Rs.28.5 Crores, the purchaser/respondenthad paid an

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extremelyminisculeamountof Rs.2.85 Crores at the time of signingthe agreementto sell dated 11^'^ April,2013 whichclearlyshowedthatsame was in the nature of earnest and could never have beenmoneytreatedas paymentof advancesale consideration.It is submittedthatsuch token amount was to establishtheand bona paid only sincerityfide ofthethat it wasinto atransactionof purchaser enteringgenuinepurchase. The submissionis that this amount, though referredto as''Advancesale Consideration"in the agreementwas actuallyonly inthe nature of earnest money.

18.It is submittedthat in view of Clause 10 of the agreementandthe law, the appellants/sellershad an absoluteright to forfeitthe fullamount thereof breach of thethe uponagreement bypurchaser/respondent,withouthavingto establishanythingmore. Thesubmissionis thatthewere entitledto consequently, appellants/sellersunconditional leave to defend in the suit. In support of thissubmission,Mr. Ravi Gupta, Id. SeniorCounselfor appellantsplacesrelianceon thejudicialpronouncementsreportedat (2015)4SCC136,KailashNathAssociatesvs. DelhiDevelopmentAuthority; JT 2012(11) SC 70 Satish Batra vs. SudhirRawal and the judgmentof thiscourt reportedat (2015) SCC OnlineDelhi 12831 Manoj Tomar vs.Neena Khatter& Ors.We may brieflyadvertto the principleslaiddown in these judgments.

19.So far as pronouncementin Satish Batra is concerned, the under considerationbefore the Court was as toquestion Supremewhetherthe sellerwas entitledto forfeitthe earnest money depositedwhere the sale of immovable property falls through, by reasons of

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faultsor failureofthe purchaser. Clause(e), the relevantclauseoftheagreementto sell dated 29'^ November,2015, which was in questionin Satish Batra's case has been extracted in the pronouncement,clearly states that ifthe prospectivepurchaserdefaults in paying thebalance sale considerationof Rs.63 crore, the transactionshall standcancelled and that the earnest money will be forfeited.20.In Satish Batra, the Supreme Court considered the earlierjudicial pronouncementsreported at AIR 1926 P.C. 1 (Kunwar)ChiranjitSingh vs. Har Swarup;1969 (3) SCC522Shree HanumanCottonMills &Ors. vs. TataAir CraftLimited;1995Supp (1) SCC751 Delhi vs. DevelopmentAuthority Grihstrapana CooperativeGroup Housing Society Limited; (1995) Supp. (2) SCC 33 V.Lakshmanan vs. B.R. Mangalgiri; (1996) 4 SCC 249 HousingUrban DevelopmentAuthority and Anr. vs. KewalKrishan Goel &Ors. and (2004) 3 SCC 711, Videocon Properties Ltd. Vs. Dr.Bhaichandra Laboratories & Ors. and held as follows:

" 15.Law is, therefore,clearthat to justifytheforfeitureof

advancemoney beinspart of "earnestmoney"the terms ofthe contract should be clear and explicit.Earnest money ispaid or given at the time when the contract is entered intoand, as pledse for its due performance by the depositor tohe forfeited in case of non-performanceby the depositor.There can be conversesituationalso that ifthe sellerfails toperform the contractthe purchasercan also get double theamount, if it is so stipulated. It is also the law that part-payment of purchase price cannot be forfeited unless it is aguarantee for the due performance of the contract. In othery^ords, ifthe paymentis made only towardspart-pavmentofconsiderationand not intended as earnest money then theforfeiture clause will not apply. "

(Emphasis by us)

21.On considerationof the factual matrix of Satish Batra, theSupremeCourtconcludedthat the amountpaidat the time ofexecution of the contract was represented as suaranteethat thecontract would be fulfilled that is to say ''earnest" was given to bindthe contract, which, if the transaction is carried out, would form partof the purchase price and it would be forfeited when the transactionfalls through by reasons of default or failure of the purchaser. Thecourt observed that there was no other clause which militated againstsuch an interpretation of the stipulation.The Supreme Courttherefore, declared the legal position that upon breach of an agreementto sell by the purchaser, it is only earnest money given as guaranteethat the contract would be abided with, could be forfeited.

22.InKailashNathAssociates,thecourtconsideredtheapplicability of Section 73 and Section 74 of the Contract Act. TheCourt noted that Section 74 is placed between Section 73 and 75which deals with compensation for loss or damage caused by breachof contract and compensation for damage which party may sustainthrough non-flilfilment of contract by the other party compellingsuch party to rightfully rescind such contract. It is important to notethat like Section 73 and Section 75, compensation is payable forbreach of contract under Section 74 only where damage or loss iscaused by such breach.

23.This appeal {Kailash Nath Associates) arose out of publicauction conducted by the DDA wherein the appellant was the highestbidder for commercial plot. As per the te^nns and condition of theauction, the appellant deposited an amount of Rs.78 lakhs being 25%of the bid amount with the DDA as earnest money, under the termsand conditionsof the auction.The balance75% amount of the bidwas liable to be deposited after the three months of the communicationof the acceptance of the bid. On request of the appellant, the DDAextended the time for payment of the balance amount upto 28"'October,1982 with interest.

24.We may usefully extract the consideration by the court in paras31, 32, 33 and in para 40 of Kailash Nath Associates wherein thecourt noted the enunciation of law in Maula Bux vs. Union of India(1969) 2 see 554 and Fateh Chandvs. Balkishan Das 1964 (1) SCR

515. ITiese paras read as follows:

"31.Section 74 as it originally stood read thus:

When contract has been broken, if sum is namedin the contract as the amount to be paid in case ofsuch breach, the party complaining of the breach isentitled,whether or not actual damage or loss isproved to have been caused thereby, to receive fromthe party who has broken the contractreasonablecompensation not exceeding the amount so named.

32. By an amendment made in 1899, the Section was amendedto read:

74. Compensationforbreachof contractwherepenalty stipulated for - V/hen contracthas beenbroken, if sum is named in the contractas the

amount to be paid in case of such breach, or if thecontractcontains any other stipulationby way ofpenalty,the partycomplainingof thebreachisentitled, whether or not actual damage or loss isproved to have been caused thereby, to receive fromthe party who has broken the contractreasonablecompensationnot exceedingthe amount so namedor, as the case may be, the penalty stipulated for.

Explanation.- stipulation for increased interestfromthe date of default may be stipulation by way ofpenalty.

Exception.—When anypersonentersintoanybailbond, recognizance or other instrument of thesame nature, or, under the provisions of any law, orunder the orders ofthe Central Government or ofanyStateGovernment,givesanybondfortheperformance of any public duty or act in which thepublic are interested, he shall be liable, upon breachof any condition of any such instrument, to pay thewhole sum mentioned therein.

Explanation. - person who enters into contractwithGovernment doesnotnecessarilytherebyundertake any public duty, or promise to do an act inwhich the public are interested.33. Section 74 occurs in Chapter 6 ofthe Indian Contract Act,1872 which reads "Of the consequences of breach ofcontract". It is infact sandwiched between Sections 73 and 75which deal with compensationfor loss or damage caused bybreach of contract and compensation for damage which aparty may sustain through non-fulfdlment of contract aftersuch party rightfully rescinds such contract. It is important tonote that like Sections73 and 75. compensationis payablefor breach of contract Under Section74 only where damaeeor loss is caused by such breach."

40. From the above, it is clear that this Court held that MaulaBux case [Maula Buxv. Union of India, (1969) 2 SCC 554 :(1970) 1 SCR 928] was nol onfacts, case that related toearnestmoney.Consequently,theobservationin MaulaBux [Maula Bux v. UnionofIndia, (1969)2 SCC554 : (1970)1 SCR 928] thatforfeiture of earnest money under contractif reasonabledoes notfall within Section 74, and wouldfallwithin Section 74 only if earnest money is considered apenalty is not on matter that directly arose for decision inthat case. The law laid down by Bench offive Judgesin FatehChandcase [FatehChand v. BalkishanDass,(1964) 1 SCR 515 : AIR 1963 SC 1405] is that allstipulations naming amounts to be paid in case of breachwould be covered by Section 74. This is because Section 74cuts across the rules ofthe English commonlaw byenactinga uniform principle that would apply to all amounts to bepaid in case of breach, whether they are in the nature ofpenalty or otherwise. It must not be forgotten that as hasbeen stated above,forfeiture of earnest money on thefactsin FatehChandcase [FatehChand v. BalkishanDass,(1964) 1 SCR 515 : AIR 1963SC 1405] wasconceded.In thecircumstances, it would therefore be correct to say that asearnest money is an amount to be paid in case of breach ofcontractand namedin the contractas such,it wouldnecessarilybe covered by Section74. "(Emphasis by us)

25.Thereafter the law of compensation for breach of contract andSection74 of the ContractAct was summedup in para 43 of KailashNath in the following terms :

"43.On conspectus of the above authorities, the law oncompensationfor breach of contract under Section74 canbe stated to be asfollows:

1. Where sum is named in contract as liquidatedamountpayablebywayof damages,thepartycomplainingof breachcan receiveas reasonablecompensationsuch liquidatedamount only if it is agenuine pre-estimateof damages fixed by both partiesand found to be such by the court.In other cases,where sum is named in contract as liquidatedamount payableby way of damages, only reasonablecompensation can be awarded not exceeding the amountso stated. Similarly, in cases where the amount fixed isin the nature ofpenalty, only reasonable compensationcan be awarded not exceeding the penalty so stated. Inboth cases, the liquidated amount or penaltyis theupperlimitbeyond whichthe courtcannotgrantreasonable compensation.

2. Reasonablecompensationwill be fixedon well-knownprinciplesthat are applicableto the law ofcontract, which are to befound inter alia in Section 73ofthe Contract Act,

3. Since Section 74 awards reasonable compensationfor damage or loss caused by breach of contract,damageor loss causedis sine qua non for theapplicability ofthe section.

4. The section applies whether person is plaintiff ora defendant in suit.

5. Thesum spoken ofmay already bepaid or bepayableinfuture.

6. The expression "whether or not actual damage orloss is proved to have been caused thereby " means thatwhere it is possible to prove actual damage or loss, suchproof is not dispensed with. It is only in cases wheredamage or loss is difficult or impossible to prove thatthe liquidated amount named in the contract, if

genuine pre-estimateof damageorloss,canbeawarded.

7. Section 74 will apply to cases offorfeitureofearnestmoney under contract. Where, however, forfeituretakesplace under the terms and conditionsof publicauction before agreement is reached. Section 74 wouldhave no application."

(Emphasis by us)

26.We may also note the pronouncementof this court in Manoj may also note the pronouncementof this court in Manoj also note the pronouncementof this court in Manoj note the pronouncementof this court in Manoj the pronouncementof this court in Manoj pronouncementof this court in Manojof this court in Manoj this court in Manoj court in Manoj in Manoj ManojTomar on which reliance has been placed by Mr. Ravi Gupta, IdSeniorCounsel for the appellants. In this case, the Id. Single Judgewas consideringthe issuesas to whether,even if, the plaintiffis guiltyof breachof contract,the defendantsare entitledto forfeitthe advance received the defendantsunder theto sell? Inmoney by agreement3 ofthisthe Id.notedthus :parajudgment, SingleJudge

We may also note the pronouncementof this court in Manoj may also note the pronouncementof this court in Manoj also note the pronouncementof this court in Manoj note the pronouncementof this court in Manoj the pronouncementof this court in Manoj pronouncementof this court in Manojof this court in Manoj this court in Manoj court in Manoj in Manoj Manoj

" 5.The issue is that even if the of plaintiffis guiltybreach of contract, whether the defendantsare entitledtoforfeit the advance received the defendantsunder moneybythe agreementtosell Para 14of the writtenstatementshowsthat defendantshave made an avermentthat the defendantshaveforfeitedthe amount because the plaintiffdid not callupon thedefendantstocompletethesale transaction,howeverthere is no avermentin the writtenstatementthat defendantshaveforfeitedthe amounton accountofloss beingcausedtothem by the plaintiffon accountof the breach of contract,much less details of loss and how caused as required byOrder VI Rule 4 CPC is pleaded. In law, once no loss iscausedtotheSection 73 and 74 ofthe aggrievedpartyasperIndian ContractAct, 1872, no cause of action arisesforclaimingdamagesorforfeitureof advancemoney receivedundertheagreementtosellas damages...."(Emphasis by us)

27.The Id. Single Judge has summed up the appUcable principles inparas 6 and 7 in the following terms :

"6.A reading of the ratio of Kailash Nath Associates'scase (supra) makes it more than clear that the law withrespect to entitlement ofa defendant/proposed seller toforfeitan amount received under the agreement to sell is subject toloss being caused and appropriationis actually pursuant toSection 74 of the Indian Contract Act by taking the advancepayment received as liquidated damages, but once there is noplea of loss being caused alongwith necessary details, theredoes not arise issue ofappropriationby the defendants, of theadvance pricereceivedunderthe contractas liquidateddamages.

7. In my opinion, an amount of Rs.1,35,00,000/- cannot betaken as earnest money inasmuch as, earnest money is only anominal amount. In similar circumstancesI have recently inthe case ofSh. Sunil Sehgal Vs. Shri Chander Batra &. Ors.CS(OS) No. 1250/2006 decided on 23.9.2015 held that whatis to be seen is the substance and not the label and merelybecause huge amount is called as earnest money, the samewill not become an earnest money but would be an advanceprice paid under the agreement to sell. The relevant paras ofthis judgment are paras 8 and 9, and which read as under:

8. In the present case, the nature of contract is such thatlosses could have been proved by the defendants by provingthe falling ofprices of the subject property, and only if theprices of the property had fallen and breach was committedby the plaintiff/buyer,the defendants could have only thenbeen entitled to forfeit the amount paid by the plaintiff asdamageson account of loss caused. Para43.4 of thejudgment of the Supreme Court in the case of Kailash NathAssociates(supra)reproducedaboveshowsthattheprovisions of Sections 73 and 74 of the Indian Contract Actapplies whether person is plaintiff or defendant in the suitie defendant who is seller cannot forfeitany moneys

unless loss is proved to be caused byfall in the price of theproperty.

9. In the present case, defendants have led no evidence ofanyloss caused to them, and therefore, assuming that plaintiff isguilty of breach ofcontract, yet, the defendants cannot forfeitthe amount of Rs.15 lacs lying with them. huge amount ofRs.l5 lacs out ofthe total sale consideration ofRs. 79,50,000/-cannot in law be called earnest money. By giving stamp of'earnest money' to advance price, the latter cannot becomethe former.What is to be seen is the substance and not thelabel. Only nominal amount can be said to be earnestmoney and not an amount of Rs.l5 lacs out of Rs.79.50 lacs,by noting that ifsuppose an amount of Rs. 30 lacs or 40 lacswould be called as earnest money by the parties, that wouldnot take away the fact that such amount cannot be earnestmoney but would in fact be part of the price to be paid forsale."

(Emphasis by us)

28.In para 40 of Kailash Nath, it has been clearly stated that itwould be correct to say that ""as earnest money is the amount to bepaid in case of breach and named in the contract as such it would benecessarily covered by Section 74".

29.From the above, the clear principle that emerges is thatreasonableness of compensation under Section 74 would apply to allamounts to be paid in cases of breach whether they are in the nature ofpenalty or otherwise.So far as forfeiture of the earnest money isconcerned, reliance on Fateh Chand's case may not be appropriateinasmuch as, on the facts of that case, the same was conceded.

30.There can be no dispute with the foregoing well settledprinciples. Let us examine the same as against the factual matrixplaced by the parties before us.

31.We find that even the Id. Single Judge has rightly observedinpara 10 of the impugnedjudgment that it was settled law that evenearnest cannot be forfeited in the unless the loss is money entiretypleaded.

Whether the amount in the instant case was earnest money oradvance?

32.The question which has to be answered in the present casetherefore is as to whether the amount paid by the plaintiffto therespondentwas in the natureofearnestmoney orpaymentofadvanceconsideration?

33.Mr. Ravi Gupta, Id. Senior Counsel for the appellants hasstrongly pressed that in the instant case, the amount paid by thepurchaserat the time of executionof the agreementhad to be treatedas the earnest thethat it formed of the full money given percentageconsideration. In this regard,it is necessaryto advertto the terms ofthe agreement as extracted above.

34.Clause 2.1.1 of the Agreementto Sell dated 11*'' April, 2013(extracted by us heretofore)stipulatedpayment of sum of Rs.2.85crore as ''Advance Sale Consideration''' and notes the manner in whichthe same is paid.The agreement records the confirmation andacknowledgement of the receipt of the said amount as advanceconsideration.Clause2.1.2 refersto the paymentof the "balancesaleconsideration" of Rs.25,65,00,000/-.

35.Furthermore,there is reference to payment of ''balancesaleconsideration'''in clause3ofthe agreement. Again in Clause 10.2 ofthe Agreementto Sell dated 11'" April, 2013, there is referenceto therightsofthe sellerto forfeitthe ''advancesale considerationpaidbythe purchaser under clause 2.1.7".

36.We note that the seller/defendanthas also not treated the maypayment of the amount of Rs.2,85,00,000/-as earnest money andaddressedthe legal notice dated 12"^ July, 2013 noted above whichclearlyrefers to the amount as "advancesale consideration".By thisvery communication,the appellantalso notifiedthe respondentsthatthe "advanceamount"given by it to the appellantsstandsforfeitedintermsofthe agreementdated 11April, 2013.

^"7-In I.A.No.14/2016,also the appellant/sellerhas referredto theofthe amountas advancewas addressedasreceiptpayment. Paymentadvance payment.

38.We may note that in the impugnedorderdated 29'^ May, 2017,the Id.has notedtheofthe defendantsin SingleJudge arguments para4 when it has argued that as there was failure on the part of theplaintiffto get the sale deed executedin time, so the forfeitureof itsadvance of Rs.2.85 crore and consequently cancellation of theagreement to sell raises triable issue and hence they be grantedunconditionalleave to defend.

Clearly,the sellerhas not treatedthe paymentas paymentof atoken/earnestmoney but has treatedthe same as paymentof advancesale consideration.

39.There can be no dispute with the submission that it is not thelabel ofthe amountto thewhich is ofassigned paymentconsequencebut the substance thereof which is relevant and material has not beenheld that it is paymentof only nominalamount can be said to be inthe natureof earnestmoney. Paymentof the sum of Rs.2,85,00,000/- no stretchofcouldbe treatedasofa tokenorby imagination paymentnotional amount.

40.On this aspect, in the impugnedjudgment,the Id. SingleJudgehas rightlyobservedthat underthe agreementto sell dated 11"' April,2013, the balance sale considerationwas payable by 9"* July, 2013when the sale deed was to be executed. However, this event did nothappen.The plaintiff has contended that this was for reason of themischievousloss of the originalNo ObjectionCertificatedated 29""June, 2013, though the defendantsallege that as the plaintiffdid notcome forward, so they had obtained the another No ObjectionCertificate dated1^' August, 2013 and afforded yet anotheropportunity to the plaintiff to pay the balance sale consideration andget the sale deed executedby 14"" August,2013. In thesefacts, the Id.Single Judge has held that the stipulatedtime limit as agreed by thein theto sell dated 11"" 2013 was not adheredparties agreement April,too andthat time was notof the essenceof the agreement.

Whetherthe seller had an absoluterishtto forfeitthe advancepayment made by the purchaser to it.

41.We have agreed with the Id. SingleJudge that the amountpaidby the respondent was in the nature of advance sale consideration andnot earnest money.Even if the same could be treated as earnestmoney, the above extract shows that entitlement of the seller to forfeitthe amount received under the agreement to sell is subject to lossbeing occasioned and such appropriationcan be effected only inaccordance with Section 74 of the Indian Contract Act, 1872.

Therefore, even upholding of the forfeiture of any amountnecessarilyrequires considerationof the pleadings of loss on behalfofthe seller as well as evidence on the issue,

42.We have extractedabove, the noticedated 12"" July, 2013 sentby the seller/appellant to the respondentsherein. The same makes noreference to any loss at all but places reliance on clause 10 of theagreementto sell dated 1April, 2013 and asserts an absolutepowerpremisedwhereon it claimsto haveforfeitedthe advanceamountpaidby the purchaserto the seller. There is not the remotestsuggestionofany loss having been occasionedto the appellant. Even the letter dated28"^ July, 2013 (atpage 159)sent by the appellantsthroughits counselmakes reference to only payment of the 'advance' and payment of'balancesaleconsideration'on or before9"^ July, 2013 and 'forfeitureof advance amounf.There is not single reference of any loss ashaving occasioned therefrom.

43.Even in the 1.A.No.14/2013,the leave to defend applicationfiled bythe appellant,there is not whisperof pleadingto the effectthat any loss had occasionedto the appellant.

Even if the plea of the defendantthat the advancepaymentwas if the plea of the defendantthat the advancepaymentwas defendantthat the advancepaymentwasthat the advancepaymentwas advancepaymentwaspaymentwaswas

44.Even if the plea of the defendantthat the advancepaymentwas if the plea of the defendantthat the advancepaymentwas defendantthat the advancepaymentwasthat the advancepaymentwas advancepaymentwaspaymentwaswasin fact the earnestmoney was accepted,asper the settledlaw, it couldnot have been forfeited in its entiret)'. There can be no forfeiturewithout pleadings of loss.

In the present case, the defendants have miserably failed toplead any loss having been caused.

45.In para 12 ofthe impugnedjudgmentdated 29"" May, 2017, theId. Single Judge has further held that in any case, the entire amountpaid by the plaintiff/respondent could not have been forfeited in itsentirety. We have extractedthe direction by the Id. Single Judgehereinbeforewhere it has been held that even if one may treat theadvanceamountto be in the natureof an earnestmoney, the law as itstands today would only allow the defendants to deduct 5% to 10% ofsuch amount given the facts of each case.

46.It is well settled that party can lead evidence only on itspleadings. In thepresentcase, the appellantshave failedto evenpleadany loss suffered by it.

47.In our view therefore, the Id. Single Judge has exercised itsdiscretiongenerouslywhile enablingthe appellantsto make provisionfor 10% of the considerationwhich is Rs.28.5 lac to plead and proveloss, if any, suffered by them and granted leave to defendconditionally on their depositing the sum of Rs.2,56,50,000/- in the

court or in the alternative by furnishing security in the nature of bankguarantee for the said amount.

48.The respondent/plaintiffhas not assailedthe libertygrantedbythe Id. Single Judge to withhold the amount of 10% of the saleconsideration of the amount of advance payment.

49.In view thereof, we t'lnd no merit in this appeal and pendingapplication,which are herebydismissed.

50.The respondentsshall be entitledto costs of the appeal whichare quantified at Rs.25,000/-.

51.We make it clear tha: we have not expressed any opinion on themerits of the case of the parties which has to abide by fmaladjudication after evidence has been led. Nothing herein containedshall be so construed.._

^._ACTINCHIEF tJUSflCEC.HARl SKAR, J

SEPTEMBER/^2017