TaxTMI 
TaxTMI 
2015 (1) TMI 1377
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.... auction. The relevant provisions in the conditions of auction read as follows: (ii) The highest bidder shall, at the fall of the hammer, pay to the Delhi Development Authority through the officer conducting the auction, 25% of the bid amount as earnest money either in cash or by Bank Draft in favour of the Delhi Development Authority, or Cheque guaranteed by a Scheduled Bank as "good for payment for three months" in favour of the Delhi Development Authority. If the earnest money is not paid, the auction held in respect of that plot will be cancelled. (iii) The highest bid shall be subject to the acceptance of Vice-Chairman, DDA or such other officer(s) as may be authorized by him on his behalf. The highest bid may be rejected without assigning any reason. (iv) In case of default, breach or non-compliance of any of the terms and conditions of the auction or mis-representation by the bidder and/or intending purchaser, the earnest money shall be forfeited. (v) The successful bidder shall submit a duly filled-in application in the form attached immediately after the close of the auction of plot in question. (vi) When the bid is accepted by the DDA, the intending purchas....
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..../s. Kailash Nath & Associates, 1006, Kanchanjanga Building, 18, Bara Khamba Road, New Delhi-110001. Sub: Regarding payment of balance premium in respect of Plot No. 2-A situated in Bhikaji Cama Place Distt. Centre. Sir, With reference to the above subject, I am directed to inform you that your case for relaxing the provisions of Nazul Rules, 1981, to condone the delay for the payment of balance premium in installments was referred to the Govt. of India, Min. of Urban Development. Before the case is further examined by the Govt. of India, Min. of Urban Development, you are requested to give your consent for making payment of balance amount of 75% premium within the period as may be fixed alongwith 18% interest charges p.a. on the belated payment. Further the schedule of payment and conditions if any will be as per the directions issued by the Ministry of Urban Development, Govt. of India. It is, however, made clear that this letter does not carry any commitment. Your consent should reach to this office within 3 days from the date of issue of this letter. Dated 1.12.87 Yours faithfully, Sd/ DIRECTOR (C.L.) 7. The Appellant replied to the said lette....
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....he Appellant under law to challenge forfeiture of earnest money, which had been done by a letter of 6.10.1993. This letter is also important for the correct determination of this appeal and is set out hereinbelow: REGD.A.D. DELHI DEVELOPMENT AUTHORITY VIKAS SADAN I.N.A. New Delhi-23, 6.10.1993 No. F. 32(2)/82/CL/3816 From: DY. DIRECTOR (C.L.). To, M/s. Kailash Nath & Associates, 1006, Kanchanjanga Building, 18, Bara Khamba Road, New Delhi-110001. Subject: Plot No. 2-A in Bhikaji Cama Place Distt. Centre. Sir, Consequent upon your failure to deposit the balance 75% premium of the aforesaid plot and dismissal of C.W.P. No. 2395 of 1990 by the Hon'ble High Court, Delhi, I am directed to inform you that the bid/allotment of the said plot in your favour has been cancelled and earnest money amounting to Rs. 78,00,000/- deposited by you at the time of auction has been forfeited. Yours faithfully, Sd/ (JAGDISH CHANDER) DEPUTY DIRECTOR (C.L.)" 10. The Appellant then filed a suit for specific performance on 17.2.1994 and in the alternative for recovery of damages and recovery of the earnest amount of Rs. 78,00,000/- (Rupees Seve....
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....clusion can draw strength from the observations in Halsbury Laws of England (supra) referred to aforesaid as also in Webb v. Hughes (supra). It is clearly a case where there has been waiver of the time being essence of the contract by conduct of the parties and, thus, Defendant No. 1 was required to give notice on the day appointed for completion of the contract failing which only termination could take place. 67. There were numerous communications exchanged between the parties. The recommendations of the two high-powered committees constituted by Defendant No. 1 made its recommendations which were accepted by Defendant No. 1 vide its resolution dated 14.5.1984 (Ex. DW2/P-4). Having accepted the recommendations, in the case of the Plaintiff Defendant No. 1 was required to do nothing further but mistakenly referred the case to UOI for its approval assuming the case to be one of Nazul land. Plaintiff sent repeated reminders vide letters dated 9-12-1985 (Ex. P-11), 20-10-1986 (Ex. P-12), 10-12-1986 (Ex. P-13), 10-02-1987 (Ex. P-14), 11-04-1987 (Ex. P-16), 10-08-1987 (Ex. P-17) and 10-10-1987 (Ex. P-18) calling upon Defendant No. 1 to give an offer of deposit of balance 25% of the p....
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....oney would not be in accordance with the agreement or in accordance with law. 14. Shri Amarendra Sharan, learned Senior Advocate appearing on behalf of the DDA, rebutted these contentions and added that the case was covered by the judgment in Shree Hanuman Cotton Mills and Anr. v. Tata Aircraft Ltd. 1970 (3) SCR 127. He argued further that since the letter of 1.12.1987 had been issued under a mistake of fact, it would be void Under Section 20 of the Contract Act and the said letter should, therefore, be ignored. If it is ignored, then the termination of the contract and the forfeiture of earnest money are completely in order as the Appellant was in breach. The fact that the DDA ultimately sold the plot for a much larger sum, according to learned Counsel, would be irrelevant inasmuch as the contractual term agreed upon between parties would entitle him to forfeit earnest money on breach without any necessity of proving actual loss. 15. Having heard learned Counsel for the parties, it is important at the very outset to notice that earnest money can be forfeited Under Sub-clause (iv) set out hereinabove, only in the case of default, breach, or non-compliance of any of the terms ....
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.... the letter also fails to impress us. The letter was without prejudice and no commitment could have been given by the DDA because the Central Government may well not relax the Nazul Rules. On the other hand, if the Central Government had, later on, relaxed the Nazul Rules, DDA could not be heard to say that despite this having been done, DDA would yet cancel the allotment of the plot. That this could not have been done is clear because of the aforesaid construction of the letter dated 1.12.1987 and also because DDA is a public authority bound by Article 14 and cannot behave arbitrarily. 18. It now remains to deal with the impugned judgment of the Division Bench. 19. The Division Bench followed the judgment of Tilley v. Thomas (1867 3 Ch. A 61) and distinguished the judgment in Webb v. Hughes V.C.M. 1870. It further went on to follow Anandram Mangturam v. Bholaram Tanumal ILR 1946 Bom 218 and held: The decision holds that the principle of law is that where, by agreement, time is made of the essence of the contract, it cannot be waived by a unilateral act of a party and unless there is consensus ad-idem between the parties and a new date is agreed to, merely because a party ....
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....o simply say: "You know that we cannot effect delivery from our suppliers and until we do so we cannot deliver the goods to you". There was never in my judgment any consensus ad-idem, no agreement, express or implied, to extend the time either to any particular date or to the happening of some future event. Mere forbearance in my opinion to institute proceedings or to give notice of rescission cannot be an extension of the time for the performance of a contract within the meaning of Section 63 of the Contract Act. (at 226 & 227) Chagla, J. in a separate judgment held: Under Section 55 of the Indian Contract Act, the promisee is given the option to avoid the contract where the promisor fails to perform the contract at the time fixed in the contract. It is open to the promisee not to exercise the option or to exercise the option at any time, but it is clear to my mind that the promisee cannot by the mere fact of not exercising the option change or alter the date of performance fixed under the contract itself. Under Section 63 of the Indian Contract Act, the promisee may make certain concessions to the promisor which are advantageous to the promisor, and one of them is that he m....
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....rly in S. Brahmanand v. K.R. Muthugopal (2005) 12 SCC 764 the Supreme Court held: 34. Thus, this was a situation where the original agreement of 10-3-1989 had a "fixed date" for performance, but by the subsequent letter of 18-6-1992 the Defendants made a request for postponing the performance to a future date without fixing any further date for performance. This was accepted by the Plaintiffs by their act of forbearance and not insisting on performance forthwith. There is nothing strange in time for performance being extended, even though originally the agreement had a fixed date. Section 63 of the Contract Act, 1872 provides that every promisee may extend time for the performance of the contract. Such an agreement to extend time need not necessarily be reduced to writing, but may be proved by oral evidence or, in some cases, even by evidence of conduct including forbearance on the part of the other party. [See in this connection the observations of this Court in Keshavlal Lallubhai Patel v. Lalbhai Trikumlal Mills Ltd. 1959 SCR 213 : AIR 1958 SC 512, para 8. See also in this connection Saraswathamma v. H. Sharad Shrikhande AIR 2005 Kant 292 and K. Venkoji Rao v. M. Abdul Khuddu....
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.... in good faith and suffice would it be to state that anything done not in good faith would be unreasonably done. 28. It will be noticed at once that T.P. Daver v. Lodge Victoria No. 363, S.C. Belgaum 1964 (1) SCR 1, is not an authority on Article 14 at all. It deals with clubs and the fact that rules or bye-laws which bind members of such clubs have to be strictly adhered to. On the other hand in ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd (2004) 3 SCC 553 at paras 22 and 23, the Supreme Court held: 22. We do not think the above judgment in VST Industries Ltd. [(2001) 1 SCC 298 : 2001 SCC (L and S) 227] supports the argument of the learned Counsel on the question of maintainability of the present writ petition. It is to be noted that VST Industries Ltd. [(2001) 1 SCC 298 : 2001 SCC (L and S) 227] against whom the writ petition was filed was not a State or an instrumentality of a State as contemplated Under Article 12 of the Constitution, hence, in the normal course, no writ could have been issued against the said industry. But it was the contention of the writ Petitioner in that case that the said industry was obligated under the statute concern....
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.... to allow DDA as a public authority to appropriate Rs. 78,00,000/- (Rupees Seventy Eight Lakhs) without any loss being caused. It is clear, therefore, that Article 14 would apply in the field of contract in this case and the finding of the Division Bench on this aspect is hereby reversed. 30. We now come to the reasoning which involves Section 74 of the Contract Act. The Division Bench held: 38. The learned Single Judge has held that the property was ultimately auctioned in the year 1994 at a price which fetched DDA a handsome return of Rs. 11.78 crores and there being no damages suffered by DDA, it could not forfeit the earnest money. 39. The said view runs in the teeth of the decision of the Supreme Court reported as AIR 1970 SC 1986 Shree Hanuman Cotton Mills and Anr. v. Tata Aircraft Ltd. which holds that as against an amount tendered by way of security, amount tendered as earnest money could be forfeited as per terms of the contract. 40. We may additionally observe that original time to pay the balance bid consideration, as per Ex. P-I was May 18, 1982 and as extended by Ex. P-8 was October 28, 1982. That DDA could auction the plot in the year 1994 in the sum of Rs....
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.... 73 and 75, compensation is payable for breach of contract Under Section 74 only where damage or loss is caused by such breach. 34. In Fateh Chand v. Balkishan Das 1964 (1) SCR 515, this Court held: The section is clearly an attempt to eliminate the somewhat elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine pre-estimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties: a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it, awarding to the aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty. Section 74 of the Indian Contract Act deals with the measure of damages in two classes of cases (i) where the contract names a sum to be paid in case of breach and (ii) where the ....
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....the jurisdiction of the court to adjust amounts which have been paid by the party in default cannot be exercised in dealing with the claim of the party complaining of breach of contract. The court has to adjudge in every case reasonable compensation to which the Plaintiff is entitled from the Defendant on breach of the contract. Such compensation has to be ascertained having regard to the conditions existing on the date of the breach.(At page 530) 35. Similarly, in Maula Bux v. Union of India (UOI) 1970 (1) SCR 928, it was held: Forfeiture of earnest money under a contract for sale of property-movable or immovable-if the amount is reasonable, does not fall within Section 74. That has been decided in several cases: Kunwar Chiranjit Singh v. Har Swarup A.I.R. 1926 P.C. 1; Roshan Lal v. The Delhi Cloth and General Mills Co. Ltd. Delhi I.L.R. All. 166; Muhammad Habibullah v. Muhammad Shafi I.L.R. All. 324; Bishan Chand v. Radha Kishan Das I.D. 19 All. 49. These cases are easily explained, for forfeiture of a reasonable amount paid as earnest money does not amount to imposing a penalty. But if forfeiture is of the nature of penalty, Section 74 applies. Where under the terms of the....
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.... other incidental charges incurred by them in procuring the goods contracted for. But no such attempt was made. (At page 933,934) 36. In Shree Hanuman Cotton Mills and Anr. v. Tata Aircraft Limited 1970 (3) SCR 127 it was held: 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. (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 falls through by reason of the default or failure of the purchaser. (5) Unless there is anything to the contrary in the terms of the contract, on default committed by the buyer, the seller is entitled to forfeit the earnest (At page 139) The learned Attorney General very strongly urged that the pleas covered by the second contention of the Appellant had never been raised in the pleadings nor in the contentions urged before the High Court. The question of the quantum of earnest deposit which was ....
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....h of contract is unqualified except as to the maximum stipulated; and compensation has to be reasonable. Under Section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which the parties knew when they made the contract to be likely to result from the breach of it. This section is to be read with Section 74, which deals with penalty stipulated in the contract, inter alia (relevant for the present case) provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of breach is entitled, whether or not actual loss is proved to have been caused, thereby to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named. Section 74 emphasizes that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. Therefore, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would ....
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....at is provided in Section 73 of the Contract Act. (3) Section 74 is to be read along with Section 73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of a contract. (4) In some contracts, it would be impossible for the court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, the court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation. 38. It will be seen that when it comes to forfeiture of earnest money, in Fateh Chand's case, counsel for the Appellant conceded on facts that Rs. 1,000/- deposited as earnest money could be forfeited. (See: 1964 (1) SCR Page 515 at 525 and 531). 39. Shree Hanuman Cotton Mills and Anr. which was so heavily relied by the Division Bench again was a case where the Appellants conceded that they commit....
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....f earnest money on the facts in Fateh Chand's case was conceded. In the circumstances, it would therefore be correct to say that as earnest money is an amount to be paid in case of breach of contract and named in the contract as such, it would necessarily be covered by Section 74. 41. It must, however, be pointed out that in cases where a public auction is held, forfeiture of earnest money may take place even before an agreement is reached, as DDA is to accept the bid only after the earnest money is paid. In the present case, under the terms and conditions of auction, the highest bid (along with which earnest money has to be paid) may well have been rejected. In such cases, Section 74 may not be attracted on its plain language because it applies only "when a contract has been broken". 42. In the present case, forfeiture of earnest money took place long after an agreement had been reached. It is obvious that the amount sought to be forfeited on the facts of the present case is sought to be forfeited without any loss being shown. In fact it has been shown that far from suffering any loss, DDA has received a much higher amount on re-auction of the same plot of land. 43. O....