DESH RAJ & ORS. versus ROHTASH SINGH

DESH RAJ & ORS.

ROHTASH SINGH

(Civil Appeal No. 9217 of 2022)

DECEMBER 14, 2022

[SURYA KANT AND BELA M. TRIVEDI, JJ.]

Contract Act, 1872: s. 55, 74 – Specific Relief Act - s. 22 –Specific performance of agreement - Effect of failure to perform atfixed time, in contract in which time is essential – Refund of earnestmoney – Appellants, joint owners of their respective share in theproperty entered into separate sale agreement with the respondent– As per the agreements, the earnest money could be confiscated bythe appellants if the sale deed was not executed on prescribed date– Respondent made part payment towards the sale as earnestmoney – Respondent was liable to secure necessary No ObjectionCertificates and intimate the appellant before the date of executionfailing which the agreement was deemed to be cancelled – Appellantwas to obtain the permission under the HMGA and they obtainedthe same and appeared before the sub-registrar on the date ofexecution, however, the respondent failed to appear for executionof the sale deed as also on the extended date – Appellant forfeitedthe earnest money and treated the sale deed as cancelled –Respondent then filed suit for specific performance of the contract– During pendency, the State Government initiated acquisitionproceedings and acquired the said property – Trial court holdingthat both the parties were equally responsible for rendering saleagreements as unenforceable, and that the sale agreements wereeither way rendered impossible to perform in view of the landacquisition proceedings, granted decree of recovery of earnestmoney to the respondent, along with requisite interest – Firstappellate court and High Court upheld the same – On appeal, held:Sale Agreements clearly indicate the intention of the parties to treattime-bound performance as an essential condition – There was anundue delay on behalf of the respondent to institute the suit, therelief of specific performance cannot be granted – Respondent led

DEF

Ano evidence to indicate that he took any proactive steps to obtainthe purported NOC necessary to execute the sale deed – Plea ofnon-corporation against the appellants in respect of obtaining theNOC not made out by the respondent – Furthermore, no such NOCwas required in the first place as the property was agricultural landon the date of execution – Respondent failed to prove that theBappellants were willfully avoiding the performance of their contract– Further, as respondent did not pray for refund of earnest moneyin original plaint, the court cannot suo moto grant the refund ofearnest money – Forfeiture of earnest money by appellants wasjustified and within the confines of reasonable compensation asCper s. 74 of Contract Act since the nature of forfeiture was nevercontested by the respondent and the respondent never prayed forthe refund of earnest money – Sale agreements should have beenrightly held to be terminated instead of being declared impossibleto perform – Thus, the judgments of courts below side aside andsuit is dismissed – Hindu Minority and Guardianship Act, 1956 –DHaryana Development and Regulation of Urban Areas Act, 1975.Satish Batra v. Sudhir Rawal (2013) 1 SCC 345 :[2012] 9 SCR 662; Fateh Chand v. Balkishan Dass[1964] 1 SCR 515; Citadel Fine Pharmaceuticals v.Ramaniyam Real Estates Private Ltd. (2011) 9 SCCE147 : [2011] 13 SCR 605; Saradamani Kandappan v.S. Rajalakshmi (2011) 12 SCC 18 : [2011] 8 SCR 874;Kailash Nath Associates v. DDA (2015) 4 SCC 136 :[2015] 1 SCR 627; ONGC Ltd. v. Saw Pipes Ltd.(2003) 5 SCC 705 : [2003] 3 SCR 691 - referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 921 of2022.

From the Judgment and Order dated 15.05.2019 of the High Courtof Punjab and Haryana at Chandigarh in RSA No.1847 of 2017 (O&M).

Siddharth Mittal, Prabhat Kumar, Kshitiz Chauhan, SahilAmarnath, Ms. Shilpa G. Mittal, Advs. for the Appellants.

Ms. Sonali Joon, Gaurav Bhatt, Karunakar Mahalik, Advs. forthe Respondent.

The Judgment of the Court was delivered by

SURYA KANT, J.

1. Leave Granted.

2. The present appeal is directed against the judgment dated15.05.2019 passed by the High Court of Punjab and Haryana wherebya second appeal preferred by the Appellants was dismissed and judgmentand decree of the Trial Court as well as the First Appellate Court wereaffirmed. The decree entitled the Respondent for the recovery of earnestmoney, which constituted of partly paid sale consideration in lieu of theconcerned agreements to sale along with requisite interest. The factualmatrix is succinctly discussed before delving into the issue of lawregarding breach of contractual terms which requires adjudication beforeus.

A. FACTS

3. The subject matter of the original suit was property measuring23 Kanals 4 Marlas bearing Khewat No. 226, Khatoni No. 225, Rect.No. 27, Kila No 3 min (2-9), 4 min (4-15), 7(8-0), 14(4-0) situated in therevenue estate of Village Tigra, Tehsil and District Gurgaon (hereinafter,‘Concerned Property’) which the Appellants jointly owned to the extentof their respective shares.

4. Two separate agreements to sell were entered between thepresent parties for the Concerned Property on 17.02.2004 (hereinafter,‘Sale Agreements’). In the first agreement, Appellant Nos. 1 to 4 agreedto sell their share to the extent of 4/5[th] of the Concerned Property whilein the second agreement, Appellant No. 5 agreed to sell the remaining 1/5[th] share to the Respondent which accrued to her and her minor son. It

Amust be noted that the material terms of both agreements are identicalexcept that in the second agreement, Appellant No. 5 was contractuallybound to secure the permission under The Hindu Minority andGuardianship Act, 1956 to sell the share of the minor.

5. Under the Sale Agreements, the sale consideration was set atBthe rate of Rs 79,00,000/- per acre. Accordingly, the Respondent is statedto have paid Rs 22,90,000/- in total as part payment of the saleconsideration which was in the nature of earnest money. As per Clause4 of Sale Agreements, the earnest money could be confiscated by theAppellants if the sale deed was not executed on prescribed date, i.e.16.08.2004 (hereinafter, ‘Date of Execution’). Furthermore, as per ClauseC8 of the Sale Agreements, the Respondent was also liable to secure allthe necessary No Objection Certificates (hereinafter, ‘NOC’).Additionally, he had to also intimate the Appellants regarding the grantof NOCs well before the Date of Execution, failing which the agreementwas deemed to be cancelled.D

6. The Appellants state that as per the Sale Agreements, requisitepermission under The Hindu Minority and Guardianship Act, 1956 wasobtained by them before the Date of Execution. The same wascommunicated to the Respondent via notice dated 10.07.2004. Theircase is that in furtherance of the agreements, Appellants appeared beforeEthe Sub-Registrar, Gurgaon on the Date of Execution but the Respondentfailed to appear before the Sub-Registrar for the purpose of executingthe sale deed and payment of balance sale consideration.7. The Appellants served legal notices dated 18.08.2004 on theRespondent giving an additional opportunity to him to appear before theFSub-Registrar on 01.09.2004 to execute the sale deed as per the termsof the Sale Agreements. It is pertinent to note that in the legal notices, itwas explicitly mentioned that time was the essence of the contract. Itwas also clearly stated that as per the agreements, the Appellants werebound to forfeit the earnest money and treat the agreements as cancelled.Still, they were extending last opportunity to the Respondent to performGhis contractual obligations.

8. It appears that 01.09.2004 was declared holiday, hence theAppellants appeared before the Sub-Registrar on 31.08.2004 as well ason 02.09.2004. The Respondent, however, failed to appear for executionand registration of the sale deed, because of which the Appellants forfeitedH

the earnest money and treated the Sale Agreements as cancelled. Allappearances of the Appellants before the Sub-Registrar were markedby way of their respective affidavits.

9. The situation remained dormant until January 2006 when theRespondent, the original plaintiff, initiated suit seeking relief of specificperformance of Sale Agreements and other consequential reliefs.However, during the pendency of the suit before the Trial Court, Stateof Haryana initiated acquisition proceedings vide notification dated12.12.2008 issued under Section 4 of Land Acquisition Act, 1894.Consequently, the subject land was acquired by the State vide awarddated 23.11.2011. Due to this subsequent event, the Respondent soughtand was permitted by the trial court to amend the plaint.

10. In the amended plaint, the Respondent took the stand that hewas always ready and willing to execute the Sale Agreements and thatthe Appellants were the ones who did not furnish the required documentsfor the necessary sanction and grant of NOCs. Apart from the relief ofspecific performance, he additionally prayed that decree of permanentinjunction be passed to the effect that the Concerned Property cannotbe sold to any third party, possession must be granted to him along witha declaration that the Sale Agreements were still binding. In the alternative,he sought that money decree of Rs 2,29,10,000/- be passed in hisfavour on the estimated land value along with requisite interest and costs.

11. In response, the defence set up by the Appellants was that itwas the Respondent who was at fault for not executing the sale deedwithin the agreed time period and that the suit must be dismissed for hiswillful non-performance. The Appellants specifically took the stance thatthe suit was filed after inordinate delay and as tactic to grab the landbecause of the subsequent increase in its commercial value.

12. After perusal of both the documentary as well as oral evidence,the Trial Court concluded that both the parties were equally responsiblefor rendering the Sale Agreements as unenforceable. While it hesitantlyaccepted the stance of both the parties in respect to the contention thatthey were present before the Sub-Registrar on the Date of Execution, itheld that the same was meaningless as the Appellants were at fault fornot taking effective steps in procuring the NOC under Section 7A ofHaryana Development and Regulation of Urban Areas Act of 1975(hereinafter, ‘HUDA Act’). However, the Trial Court then went on to

Ahold that the Sale Agreements were either way rendered impossible toperform in view of the land acquisition proceedings and proceeded togrant decree of recovery of earnest money on the priciple of unjustenrichment. The First Appellate Court upheld the decree granted byTrial Court on entirely identical reasons.

B13. The High Court in its impugned judgment made twoobservations which are pertinent to note – first that no evidence was ledby the parties to prove whether they took requisite steps to obtain theNOC under Section 7A of HUDA Act and; second that presence ofAppellants before the Sub-Registrar on 31.08.2004 or 01.09.2004 whenlast opportunity to execute the sale deed was granted to Respondent,Cwas doubtful as the evidence of marking their presence was not provedand that legal notices dated 18.08.2004 were not served on theRespondent. The High Court, thus, went on to uphold the decree passedby the courts below, noting that in view of the acquisition proceedings,the alternate relief of recovery of earnest money was legally correct.

D14. The aggrieved Appellants are before this Court.

B. CONTENTIONS

15. We have heard learned counsel for parties and perused thedocuments produced on record.

E16. Mr. Siddharth Mittal, learned counsel for the Appellants,contended - Firstly, that all the courts below have failed to note thattime was the essence of contract as per the Sale Agreements underSection 55 of The Indian Contract Act, 1872. (hereinafter, ‘ContractAct’). He submitted that the contractual performance of Sale AgreementsFneeded to be mandatorily effectuated by the Respondent on or beforethe Date of Execution. He stated that the Appellants reiterated the samestance in their legal notices dated 18.08.2004. Secondly, the High Courthas completely overlooked the fact that at the relevant period of time,i.e. Date of Execution, there was no necessity to procure NOC underSection 7A of HUDA Act. He submitted that the land was ‘agriculturalGland’ on the Date of Execution of Agreements and was first time includedwithin the limits of Municipal Corporation, Gurugram through notificationdated 02.06.2008. Thirdly, under Clause 8 of the Sale Agreements, itwas the Respondent and not the Appellants, responsible to procurerelevant NOCs. Hence, the onus to prove that steps were taken to obtain

NOCs under Section 7A of HUDA Act was on the Respondent whichhe miserably failed to discharge.

17. The composite essence of all the above-mentioned argumentsby Mr. Mittal is that non-performance of contractual obligations on thepart of Respondent by the stipulated time resulted in lawful exercise ofright of termination by the Appellants and the consequent forfeiture ofearnest money as stipulated under the Sale Agreements which was inaccordance with the settled law in Satish Batra v Sudhir Rawal.[1]

18. On the contrary, Ms. Sonali Karwasra Joon, learned counselfor the Respondent, argued that – Firstly, the Appellants were unwillingand they failed to perform their contractual obligations, especially regardingsecuring NOC under Section 7A of HUDA Act. She forcefully arguedthat Clause 8 of the Sale Agreements ought to be interpreted to meanthat only such sanction or NOCs which the Respondent could obtainunilaterally, was his contractual obligation. In other words, she arguedthat securing NOC under Section 7A of HUDA Act was solely theresponsibility of the Appellants, irrespective of the onus fastened on theRespondent under Clause 8 of the Sale Agreements. She heavily reliedupon the observations of the High Court regarding the Appellant’s doubtfulappearance before the Sub-Registrar and non-effectuation of service oflegal notices dated 18.08.2004, to support the claim of willful non-performance on behalf of the Appellants. Secondly, she argued, thatthe Sale Agreements had been rendered impossible as the State ofHaryana lawfully acquired the suit land. Hence, all the courts belowhave rightly directed the refund of the earnest money with interest.Additionally, she argued that the amount in question cannot be forfeitedcontrary to the settled principles enunciated by the Constitution Benchof this Court in Fateh Chand v Balkishan Dass[2]which bars forfeitureof earnest money when it is ‘penal’ in nature. Thirdly, she highlightedthat the second appeal, which confirmed the decree passed in favor ofRespondent, was heard ex-parte. Finally, she drew our attention to thefact that during the acquisition proceedings, the Appellants weresuccessful in obtaining release of land measuring 8 Marlas out of theacquired land as noted in the award dated 23.11.2011. She stated that asper the available revenue records, the said property was still in possessionof the Appellants who are guilty of suppression of material facts. It must

1 Satish Batra v Sudhir Rawal (2013) 1 SCC 345.

2 Fateh Chand v Balkishan Dass (1964) 1 SCR 515.

Abe noted that the Respondent on coming to know about the factum ofrelease, had directly approached this Court against the First AppellateCourt’s decision via SLP (C) No 11901 of 2022 but the same was disposedof with liberty to approach the High Court in the second appeal underSection 100 of the Code of Civil Procedure, 1908.[3]

B19. We now examine these contentions of both sides.

C. ANALYSIS

C.1 WHETHER TIME WAS THE ESSENCE OFTHECONTRACT?

C20. Before venturing into the aforementioned issue, we musthighlight that throughout the entire dispute, Appellants have taken aconsistent stand of time-bound performance being an essence of thecontract. They have maintained that sale deed was needed to be executednecessarily on the Date of Execution as agreed between the parties. Itis unfortunate that all the courts below have failed to render finding onDthis aspect despite the fact that this was one of the key defenses takenby the Appellants in respect of the prayer seeking specific performance.

21. In this respect, we must now take note of Section 55 of ContractAct which stipulates the aftermath in case of failure to performcontractual obligations at fixed time. The provision states –

55. Effect of failure to perform at fixed time, incontract in which time is essential.

When party to contract promises to do certainthing at or before specified time, or certain thingsat or before specified times, and fails to do any suchthing at or before the specified time, the contract,or so much of it as has not been performed,becomes voidable at the option of the promisee, ifthe intention of the parties was that time shouldbe of the essence of the contract.

Effect of such failure when time is notessential.—If it was not the intention of the partiesthat time should be of the essence of the contract,the contract does not become voidable by thefailure to do such thing at or before the specified

H3 Rohatash Singh v Deshraj (SLP (Civil) No. 11901 of 2022, 11 July 2022).

time; but the promisee is entitled to compensationfrom the promisor for any loss occasioned to himby such failure.

Effect of acceptance of performance at timeother than that agreed upon.—If, in case of acontract voidable on account of the promisor’sfailure to perform his promise at the time agreed,the promisee accepts performance of such promiseat any time other than that agreed, the promiseecannot claim compensation for any loss occasionedby the non-performance of the promise at the timeagreed, unless, at the time of such acceptance, hegives notice to the promisor of his intention to doso.

22. The Sale Agreements in the present case clearly indicate theintention of the parties to treat time-bound performance as an essentialcondition. They stipulate that in case the sale deed was not executed onthe Date of Execution, the Sale Agreements were liable to be treated ascancelled, and the earnest money was to be forfeited. Even in the legalnotices dated 18.08.2004, through which last opportunity was extendedto Respondent to execute the sale deed, the factum of time being anessential condition for performance was reiterated. On the other hand,no evidence or communication has been brought on record by theRespondent to contradict the defense of time-bound performance takenby the Appellants.

23. At this juncture, we must note the decision of this Court inCitadel Fine Pharmaceuticals v Ramaniyam Real Estates PrivateLtd[4] and Saradamani Kandappan v S. Rajalakshmi[5] wherein it washeld that defense under Section 55 of Contract Act is valid against anyonewho is seeking the relief of specific performance. The facts of the instantcase make the observations in Saradamini Kandappan[6]even morepertinent, which are to the following effect -

“36. The principle that time is not of the essenceof contracts relating to immovable properties took

4 Citadel Fine Pharmaceuticals v Ramaniyam Real Estates Private Ltd (2011) 9 SCC147, para 53.

5 Saradamani Kandappan v S. Rajalakshmi (2011) 12 SCC 18.

6 ibid.

ABC

DEF

shape in an era when market values of immovableproperties were stable and did not undergo anymarked change even over few years (followedmechanically, even when value ceased to be stable).As consequence, time for performance,stipulated in the agreement was assumed to be notmaterial, or at all events considered as merelyindicating the reasonable period within whichcontract should be performed. The assumption wasthat grant of specific performance would notprejudice the vendor defendant financially as therewould not be much difference in the market valueof the property even if the contract was performedafter few months. This principle made senseduring the first half of the twentieth century, whenthere was comparatively very little inflation, inIndia. The third quarter of the twentieth centurysaw very slow but steady increase in prices. Buta drastic change occurred from the beginning ofthe last quarter of the twentieth century. There hasbeen galloping inflation and prices of immovableproperties have increased steeply, by leaps andbounds. Market values of properties are no longerstable or steady. We can take judicial notice of thecomparative purchase power of rupee in the year1975 and now, as also the steep increase in thevalue of the immovable properties between thenand now. It is no exaggeration to say that propertiesin cities, worth lakh or so in or about 1975 to1980, may cost crore or more now.

x-x-x-x

43. Till the issue is considered in an appropriatecase, we can only reiterate what has beensuggested in K.S. Vidyanadam [(1997) 3 SCC 1]:

(i) The courts, while exercising discretionin suits for specific performance, should bear inmind that when the parties prescribe time/period,for taking certain steps or for completion of the

transaction, that must have some significance andtherefore time/period prescribed cannot beignored.

(ii) The courts will apply greater scrutinyand strictness when considering whether thepurchaser was “ready and willing” to perform hispart of the contract.

(iii) Every suit for specific performanceneed not be decreed merely because it is filed-within the period of limitation by ignoring the timelimits stipulated in the agreement. The courts willalso “frown” upon suits which are not filedimmediately after the breach/refusal. The fact thatlimitation is three years does not mean that apurchaser can wait for 1 or 2 years to file suit and-obtain specific performance. The threeyear periodis intended to assist the purchasers in specialcases, as for example, where the major part of theconsideration has been paid to the vendor and-possession has been delivered in partperformance, where equity shifts in favour of thepurchaser.”

(Emphasis Applied)

24. Hence on the dual factual premise that it was the clear intentionof the parties to treat time as the essence of the contract and that therewas an undue delay on behalf of the Respondent to institute the suit, therelief of specific performance cannot be granted. We must clarify thatthis finding also holds true for the land subsequently released in favor ofthe Appellants.

C.2 WHETHER ITWAS PROVED THATAPPELLANTSWERE WILLFULLYAVOIDING PERFORMANCE OF THEIRCONTRACTUAL OBLIGATIONS?

25. The courts below have harped on the inability of the Appellantsto procure the necessary NOC under Section 7A of HUDA Act, to holdthat they were non-cooperative and willfully avoiding the performanceof their contractual obligation. However, as the learned counsel for

AAppellants rightfully pointed out, the evidence on record clearly indicatesthat they gave duly signed blank proformas and relevant documents tothe Respondent in order to obtain any necessary sanction or NOCs.This was done in order to fulfil the obligation under Clause 8 of the SaleAgreements which stated –

B“8. That the Second Party will be liable to secureall the necessary NOCand the said NOC will beintimated to the First Party by way of RegisteredPost before the date 16.08.2004 fixed forregistration of sale deed. If the Second Party failsto secure the required NOC then this agreementCto sell will be deemed to be cancelled.The costincurred for securing the NOC will be borne bythe Second Party.”[7]

(Emphasis Applied)

D26. bare reading of this clause, in our opinion, clearly spells outthe intention of the parties in respect of Respondent’s liability for obtainingthe required NOC. We are bound to interpret the contractual terms intheir literal sense and hence, we expressly reject the Respondent’scontention that this clause should be interpreted to construe that hisobligation was limited to NOCs which he could obtain unilaterally.EAdditionally, since Respondent has led no evidence to indicate that hetook any proactive steps to obtain the purported NOC necessary toexecute the sale deed, we must hold that the plea of non-cooperationagainst the Appellants in respect of obtaining the NOC are not made outby the Respondent.F27. However, even assuming in arguendo, that Respondent hadfulfilled his contractual obligation under under Clause 8 of the SaleAgreements by taking all necessary steps necessary to obtain NOCunder Section 7A of HUDA Act, we find merit in the Appellants’contention that no such NOC was required in the first place as theGConcerned Property was agricultural land on the Date of Execution. Inthis respect, learned counsel for the Appellants correctly pointed outthat the Concerned Property was brought under the Municipal Corporationof Gurugram vide notification dated 02.06.2008 only.

7 Under the Sale Agreements, ‘First Party’ refers to the present Appellants whileH‘Second Party’ refers to the present Respondent.

28. The Respondent in his counter affidavit has taken stancethat the Concerned Property was an ‘urban area’ as per Section 2(o) ofthe HUDA Act, which includes lands situated within five kilometres of anotified municipal area. However, this stand cannot sustain for the reasonthat neither he raised such plea before the courts below nor adducedany evidence to suggest that on the Date of Execution, the ConcernedProperty was within the five kilometre radius of Municipal Area asspecified under Section 2(o) of the HUDA Act.29. Finally, we must shift our attention to the High Court’sobservation that the presence of Appellants before the Sub-Registrarwas doubtful on 31.08.2004 and 02.09.2004 as the affidavits of theirpresence were not proved in the evidence. In contrast, the Trial Courthas found that these affidavits were duly proved in the cross examinationof the Appellants and the said finding of fact was affirmed by the FirstAppellate Court. The High Court, therefore, ought not to have made anyfact based observations especially when the records of the courts belowwere not requisitioned to reach an independent conclusion to hold thatthe said finding of fact by the two courts was contrary to the record.The re-appreciation of evidence is ordinarily impermissible and beyondthe scope of second appeal. Even otherwise, the presence of Appellantsbefore the Sub-Registrar on the Date of Execution is not disputed. Inthis backdrop where time was the essence of the contract, we concludethat the Respondent has failed to prove that the Appellants were willfullyavoiding the performance of their contractual obligations.

C.3 WHETHER RESPONDENTWAS ENTITLED TORECOVERY OF EARNEST MONEY?

30. The final aspect of this dispute is with respect to the reliefgranted by the courts below to the Respondent in the form of recoveryof earnest money with requisite interest. However, before inquestinginto this issue we must take note of the following relevant clauses of theSale Agreements -

“1. That it has been decided that date of executionof this agreement to sell is 16.08.2004 [SixteenAugust Two Thousand Four].

4. That if the Second Party is not able to executethe sale deed on the prescribed date then the FirstParty will be entitled to confiscate the earnestmoney”

[Emphasis Applied]

31. Firstly, we may refer to Section 22 of the Specific Relief Actof 1963 (hereinafter, ‘SRA Act’) which provides that any person suingfor the specific performance of the contract for the transfer of propertymay ask for - (a) possession or partition and separate possession of theproperty in addition of such performance OR (b) such person may seekCany other relief to which he is entitled to “including the refund of anyearnest money or deposit paid or made by him” in case his claim forspecific performance is refused. However, sub-Section (2) thereof putsa caveat that the abovementioned reliefs shall not be granted by thecourt unless “it has been specifically claimed”. The proviso to sub-Section(2) further says that even if such relief was not specifically claimed inDthe plaint, it is the discretion of the Court to permit the plaintiff to amendthe plaint “at any stage of the proceedings” and allow him to include theclaim for refund of the earnest money or deposit paid. The relevant partof the provision of SRA Act reads as follows -

22. Power to grant relief for possession, partition,—refund of earnest money, etc.

(1) Notwithstanding anything to the contrarycontained in the Code of Civil Procedure,1908 (5of 1908), any person suing for the specificperformance of contract for the transfer ofFimmovable property may, in an appropriate case,ask for—

(a) possession, or partition and separatepossession, of the property in addition to suchperformance; or

(b) any other relief to which he may be entitled,including the refund of any earnest money ordeposit paid or made by him, in case his claim forspecific performance is refused.

-(2) No relief under clause (a) or clause (b) of subsection (1) shall be granted by the Court unless ithas been specifically claimed:

Provided that where the plaintiff has notclaimed any such relief in the plaint, the Court shall,at any stage of the proceeding, allow him to amendthe plaint on such terms as may be just for includinga claim for such relief.

(Emphasis Applied)

On plain reading of the above reproduced provision, we haveno reason to doubt that the plaintiff in his suit for specific performanceof contact is not only entitled to seek specific performance of thecontract for the transfer of immovable property but he can also seekalternative relief(s) including the refund of any earnest money, providedthat such relief has been specifically incorporated in the plaint. Thecourt, however, has been vested with wide judicial discretion to permitthe plaintiff to amend the plaint even at later stage of the proceedingsand seek the alternative relief of refund of the earnest money. The litmustest appears to be that unless plaintiff specifically seeks the refund ofthe earnest money at the time of filing of the suit or by way of amendment,no such relief can be granted to him. The prayer clause is sine qua nonfor grant of decree of refund of earnest money.

Applying these principles to the facts of the case in hand, wefind that the Respondent has neither prayed for the relief of refund ofearnest money in the original plaint nor he sought any amendment at asubsequent stage. In the absence of such prayer, it is difficult to acceptthat the courts would suo-moto grant the refund of earnest moneyirrespective of the fact as to whether Section 22(2) of SRA Act is to beconstrued directory or mandatory in nature.

32. We may now advert to the contention raised on behalf of theRespondent that even if the respondent is held responsible for breach ofcontract, the forfeited amount was ‘penal’ in nature and was hit by Section74 of The Contract Act as has been interpreted by the Constitution Benchin Fateh Chand.[8]Section 74 of the Contract Act says that -

8 Fateh Chand (n 2).

80SUPREME COURT REPORTS

A74. Compensation for breach of contract where—penalty stipulated for

When contract has been broken, if sum isnamed in the contract as the amount to be paid incase of such breach, or if the contract contains anyBother stipulation by way of penalty, the partycomplaining of the breach is entitled, whether ornot actual damage or loss is proved to have beencaused thereby, to receive from the party who hasbroken the contract reasonable compensation notexceeding the amount so named or, as the caseCmay be, the penalty stipulated for.

(Emphasis Applied)

33. Learned Counsel for the respondent submitted that merelybecause an amount is stipulated as earnest money would not justify its

Dforfeiture. Instead, reliance was placed on Fateh Chand[9]to state thatthe courts were duty bound to ascertain reasonable compensation ineach case. In this respect, it would be prudent for our analysis to extractthe following paragraphs from Fateh Chand[10] which are relied upon bythe respondent -

E“11. ….In all cases, therefore, where there is astipulation in the nature of penalty for forfeiture ofan amount deposited pursuant to the terms ofcontract which expressly provides for forfeiture,the court has jurisdiction to award such sum onlyas it considers reasonable, but not exceeding theFamount specified in the contract as liable toforfeiture….

15. Section 74 declares the law as to liability uponbreach of contract where compensation is byGagreement of the parties pre-determined, or wherethere is stipulation by way of penalty. But theapplication of the enactment is not restricted to

9 Fateh Chand (n 2).

H10 Fateh Chand (n 2).

cases where the aggrieved party claims relief as aplaintiff. The section does not confer specialbenefit upon any party; it merely declares the lawthat notwithstanding any term in the contractpredetermining damages or providing for forfeitureof any property by way of penalty, the court willaward to the party aggrieved only reasonablecompensation not exceeding the amount named orpenalty stipulated. The jurisdiction of the court isnot determined by the accidental circumstance ofthe party in default being plaintiff or defendantin suit. Use of the expression “to receive fromthe party who has broken the contract” does notpredicate that the jurisdiction of the court to adjustamounts which have been paid by the party indefault cannot be exercised in dealing with theclaim of the party complaining of breach of contract.The court has to adjudge in every case reasonablecompensation to which the plaintiff is entitled fromthe defendant on breach of the contract.Suchcompensation has to be ascertained having regardto the conditions existing on the date of thebreach.”

(Emphasis Applied)

34. Per contra, the Appellants have heavily relied on the followingpassage of the decision of this Court in Satish Batra[11] to justify theforfeiture of earnest money -

“15. The law is, therefore, clear that to justify theforfeiture of advance money being part of “earnestmoney” the terms of the contract should be clearand explicit. Earnest money is paid or given at thetime when the contract is entered into and, as apledge for its due performance by the depositor tobe forfeited in case of non-performance by thedepositor. There can be converse situation alsothat if the seller fails to perform the contract the

11 Satish Batra (n 1).

ABC

82SUPREME COURT REPORTS

Apurchaser can also get double the amount, if it isso stipulated. It is also the law that part-paymentof purchase price cannot be forfeited unless it is aguarantee for the due performance of the contract.In other words, if the payment is made only towardspart-payment of consideration and not intended asBearnest money then the forfeiture clause will notapply.”

In sum and substance, the Appellants contend that forfeiture ofsum is justified when it is - (a) clearly stipulated as earnest money; (b)forms part of sale consideration and (c) intended to be in the nature ofC‘guarantee for the due performance of the contract’, and (d) the bindingagreement between the parties provides its forfeiture in the event ofbreach of contract.

35. In our considered opinion, Section 74 of Contract Act primarilypertains to the grant of compensation or damages when contract hasDbeen broken and the amount of such compensation or damages payablein the event of breach of contract, is stipulated in the contract itself. Inother words, all pre-estimated amounts which are specified to be paidon account of breach by any party under contract are covered bySection 74 of Contract Act as noted by this court inKailash NathEAssociates v DDA[12]. In Fateh Chand[13], the Constitution Bench ruledthat Section 74 dispenses with proof of “actual loss or damage” andattracts intervention by Courts where the pre-estimated amount is ‘penal’in nature. We may at this juncture also note the following observationsmade by this court in ONGC Ltd. v. Saw Pipes Ltd.[14] -

F“64. …. Section 74 emphasizes that in case ofbreach of contract, the party complaining of thebreach is entitled to receive reasonablecompensation whether or not actual loss is provedto have been caused by such breach. Therefore,the emphasis is on reasonable compensation. If theGcompensation named in the contract is by way ofpenalty, consideration would be different and the

12 Kailash Nath Associates v DDA (2015) 4 SCC 136, para 43.7.

13 Fateh Chand (n 2).

H14 ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705.

party is only entitled to reasonable compensationfor the loss suffered. But if the compensationnamed in the contract for such breach is genuinepre-estimate of loss which the parties knew whenthey made the contract to be likely to result fromthe breach of it, there is no question of provingsuch loss or such party is not required to leadevidence to prove actual loss suffered by him.Burden is on the other party to lead evidence forproving that no loss is likely to occur by suchbreach….”

(Emphasis Applied)

Hence, in scenario where the contractual terms clearly providethe factum of the pre estimate amount being in the nature of ‘earnestmoney’, the onus to prove that the same was ‘penal’ in nature squarelylies on the party seeking refund of the same. Failure to discharge suchburden would treat any pre-estimated amount stipulated in the contractas ‘genuine pre-estimate of loss’.

36. The Respondent in the instant case has neither pleaded forrefund of the earnest money nor has he claimed any damages or penaltyfrom the Appellants. From the perusal of the records, it is conspicuousthat Respondent never raised any concern that the pre estimated amountwas ‘penal’ in nature and instead his sole objective was to gain titularrights over the Concerned Property on the strength of Sale Agreements.

D. CONCLUSION

37. In light of the above discussion, we must conclude that thedecree granted by the courts below was hinged on logical fallacy whereinthe Appellants were held to be unjustly enriched on the premise that thecontract was rendered impossible to perform due to acquisitionproceedings. On the contrary, the contract automatically stood terminatedas per the stipulated contractual terms. The Sale Agreements shouldhave been rightly held to be terminated instead of being declaredimpossible to perform.

38. Furthermore, we deem it appropriate to hold that the forfeiturewas justified and within the confines of reasonable compensation as perSection 74 of Contract Act in light of the fact that during the entirety of

Aproceedings – firstly the nature of forfeiture was never contested bythe Respondent and secondly the Respondent never prayed for the refundof earnest money. Consequently, the judgments rendered by the Courtsbelow deserve to be set aside and the suit is liable to be dismissed.Ordered accordingly.

B39. The appeal stands allowed along with any pending applicationsin the above terms. No order as to costs.

Nidhi Jain and Anurag Bhaksar

(Assisted by : Priyanshu Agarwal, LCRA)

Appeal allowed.