Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
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% Reserved on: 24 May, 2017
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Pronounced on: 29 May, 2017
+ CS(OS) 4052/2014 & IA No.14/2016
M/S ADHUNIK DATAMATICS PVT LTD ..... Plaintiff
Through : Mr.Ratan K Singh, Mr.Nikhlesh
Krishnan, Mr.Aishwary Kumar
Tiwari and Ms.Somya Priadarshani,
Advocates.
versus
CHANDAN SINGH & ORS ..... Defendants
Through : Mr.L.B.Rai, Mr.Vijay Kumar, &
Mr.Gaurav Kumar Rai, Advocates.
CORAM:
HON'BLE MR. JUSTICE YOGESH KHANNA
YOGESH KHANNA, J.
IA No.14/2016
1. The plaintiff company had entered into an agreement to sell
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dated 11.04.2013 for purchase of 1/5 share each, of the defendants
in the agricultural land falling in Khasra Nos. 11(3-18), 12(4-16),
13(4-16), 19(4-16) of Rectangle No.20, Khasra Nos.13/2(0-5), 14(4-
0), 15(3-5), 17(1-15), 24(2-12), 25(4-16) of Rectangle No.25 &
Khasra No.4(6-4), 5(4-9) of Rectangle No.33 total measuring 45
bighas 12 biswas, situated in revenue estate of village Neelwal, Tehsil
CS(OS)No.4052/2014 Page 1 of 10
Punjabi Bagh, District West, Delhi for a total sale consideration of
` 28.50 Crore. An amount of ` 2.85 Crore was paid as an advance sale
consideration as stated in para No.2.1.1 of the sale agreement. The
balance sale consideration to the tune of ` 25.65 Crore was payable to
the defendants within 90 days from the execution of the agreement to
sell i.e. on or before 09.07.2013. Since, the said land was an
agricultural land, a No Objection Certificate under Section 5 (1) of
the Delhi Land (Restrictions on Transfer) Act 1972 from the
competent authority was required, per clause 4.2(a) of the agreement
to sell dated 11.04.2013. It was agreed between the parties that the
defendants would sign all necessary documents/forms for obtaining
the transfer/permission/NOC from the concerned government offices
necessary for execution of the sale deed in favour of the plaintiff. The
processing of the application for obtaining NOC was the duty of the
plaintiff. The plaintiff got all the necessary applications / forms
signed from the defendants and got issued the NOC on 29.06.2013
from the authorities and duly informed the defendants.
2. It is the case of the plaintiff that the defendants requested the
original NOC be handed over to them as they would bring it at the
time of the registration of sale deed on 09.07.2013. It was thus
handed over to the defendants but in the first week of July 2013 the
defendant informed the original NOC is misplaced by them. The
plaintiff insisted that the defendants should make efforts to trace the
original NOC failing which it would not be possible to get the sale
CS(OS)No.4052/2014 Page 2 of 10
deed registered on 09.07.2013. The original NOC could not be traced
and hence the sale deed could not be executed by 09.07.2013.
3. Now, in their application under Order 37 Rule 3 CPC for leave
to defend, the defendants have alleged that per clause 10.2 of the
agreement to sell, if the purchaser fail/default/ avoid or refuse to pay
the balance sale consideration in the manner as stipulated in the
agreement in that event the seller shall have the right to forfeit the
advance sale consideration paid by the purchaser under clause 2.1.1.
and the sale agreement shall stand cancelled.
4. The defendants got issued a legal notice dated 12.07.2013
stating inter alia that as the plaintiff had failed to appear in the office
of the Sub Registrar on 09.07.2013 to make payment of the balance
amount and as have failed to purchase the non-judicial stamp papers
required for sale deed so advance amount is forfeited and the
agreement stood cancelled. It is also alleged by the defendants that
they had applied for the NOC and with great efforts had obtained it on
01.08.2013 and yet again wrote a letter on 03.08.2013 to the plaintiff
to come forward and get the sale deed executed by 14.08.2013 but the
plaintiff failed. Hence, the defendant argues that as there was a failure
on the part of the plaintiff to get the sale deed executed in time – so
the forfeiture of its advance of ` 2.85 Crore and consequently
cancellation of the agreement to sell raises a tri-able issue and hence
they be granted unconditional leave to defend. Heard.
5. The facts are not so simple as pleaded by the defendant.
CS(OS)No.4052/2014 Page 3 of 10
6. If we look at the reply dated 22.07.2013 sent by the plaintiff to
the legal notice dated 12.07.2013 of the defendants, the plaintiff
company mentions about the NOC dated 29.06.2013 and its handing
it over to the defendants, per their request. It is alleged that the
original of NOC dated 29.06.2013 was lost by the defendants and it
only delayed the execution of sale deed by 09.07.2013. The plaintiff
rather called upon the defendants to withdraw their notice dated
12.07.2013 and to hand over the original NOC dated 29.06.2013 or
lest apply it afresh.
7. The defendants then gave a rejoinder dated 28.07.2013 to the
reply dated 22.07.2013 of the plaintiff wherein they raised a dispute
qua the alleged receipt of original NOC or it was lost by them. The
defendants wrote a letter dated 03.08.2013 wherein they informed the
plaintiff that they have obtained an NOC dated 01.08.2013 from the
Tehsildaar, effective for one month, so the sale deed be got executed
by 14.08.2013.
8. Now, the plaintiff by its letter dated 05.08.2013 reiterated that
as the NOC dated 29.06.2013 had expired so fresh NOC is to be
obtained and then by its letter dated 10.08.2013 requested the
defendants to furnish the copy of the NOC dated 01.08.2013,
allegedly obtained by the defendants so as to verify it and prepare the
draft sale deed for its approval by the defendants. The plaintiff yet
again wrote a letter dated 02.09.2013 to the defendants seeking copy
of the NOC dated 01.08.2013 and reiterated the delay in execution of
CS(OS)No.4052/2014 Page 4 of 10
sale deed was only on the part of the defendants and that the
defendants never supplied them the copy of NOC dated 01.08.2013.
9. Admittedly, per agreement to sell dated 11.04.2013 the balance
sale consideration was payable by 09.07.20103 on which date the sale
deed was to be executed. However, it did not happen. According to
the plaintiff the reason of delay was the mischievous loss of original
NOC dated 29.06.2013 by the defendants; though the defendants
allege that as the plaintiff did not come forward so they had to obtain
the NOC dated 01.08.2013 and afforded yet another opportunity to
the plaintiff to pay the balance sale consideration and to get the sale
deed executed by 14.08.2013 and that as the plaintiff even failed to
comply with their later offer, they forfeited the advance.
10. Thus, in nutshell, the time limit stipulated and agreed by the
parties per agreement to sell was not adhered to hence the defendant
forfeited the advance payment. Both the parties alleged that it was on
account of failure of the opposite side. Nonetheless, as the date of
completion of the agreement was extended beyond 09.07.2013 by the
defendants themselves, it is an evidence of the fact that time was
never an essence of the agreement, thus the question is if the
defendants were within their right to cancel the agreement unilaterally
and forfeit the advance of ` 2.85 Crore without even pleading the loss
or damage suffered by them on account of delay in execution of sale
deed and/or by cancellation of the agreement. It is settled law that
even the earnest money cannot be forfeited in entirety unless the loss
is pleaded – as settled by the catena of judgments including Kailash
CS(OS)No.4052/2014 Page 5 of 10
Nath Associates vs. Delhi Development Authority and Another (2015)
4 SCC 136 . In Manoj Tomar vs. Smt.Neena Khatter & Anr. 2015
SCC Online Del 12831 a Co-ordinate Bench of this Court has
observed as under:-
“5. The issue is that even if the plaintiff is guilty of
breach of contract, whether the defendants are
entitled to forfeit the advance money received by
the defendants under the agreement to sell. Para
14 of the written statement shows that defendants
have made an averment that the defendants have
forfeited the amount because the plaintiff did not
call upon the defendants to complete the sale
transaction, however there is no averment in the
written statement that defendants have forfeited the
amount on account of loss being caused to them by
the plaintiff on account of the breach of contract,
much less details of loss and how caused as
required by Order VI Rule 4 CPC is pleaded. In
law, once no loss is caused to the aggrieved party
as per Section 73 and 74 of the Indian Contract
Act, 1872, no cause of action arises for claiming
damages or forfeiture of advance money received
under the agreement to sell as damages. This is the
law as laid down in the Constitution Bench
judgment of the Supreme Court in the case of
Fateh Chand Vs. Balkishan Dass, AIR 1963 SC
1405 and which judgment has been recently
followed by the Supreme Court in the judgment in
the case of Kailash Nath Associates Vs. Delhi
Development Authority and Another, (2015) 4 SCC
136.
6. A reading of the ratio of Kailash Nath
Associates's case (supra) makes it more than clear
that the law with respect to entitlement of a
defendant/proposed seller to forfeit an amount
CS(OS)No.4052/2014 Page 6 of 10
received under the agreement to sell is subject to
loss being caused and appropriation is actually
pursuant to Section 74 of the Indian Contract Act
by taking the advance payment received as
liquidated damages, but once there is no plea of
loss being caused along with necessary details,
there does not arise issue of appropriation by the
defendants, of the advance price received under
the contract as liquidated damages.
7. In my opinion, an amount of Rs. 1,35,00,000/-
cannot be taken as earnest money inasmuch as,
earnest money is only a nominal amount . In
similar circumstances I have recently in the case of
Sh. Sunil Sehgal Vs. Shri Chander Batra & Ors.
CS(OS) No. 1250/2006 decided on 23.9.2015 held
that what is to be seen is the substance and not the
label and merely because a huge amount is called
as earnest money, the same will not become an
earnest money but would be an advance price paid
under the agreement to sell. The relevant paras of
this judgment are paras 8 and 9, and which read
as under:-
"8. In the present case, the nature of
contract is such that losses could have been
proved by the defendants by proving the
falling of prices of the subject property, and
only if the prices of the property had fallen
and breach was committed by the
plaintiff/buyer, the defendants could have
only then been entitled to forfeit the amount
paid by the plaintiff as damages on account
of loss caused. Para 43.4 of the judgment of
the Supreme Court in the case of Kailash
Nath Associates (supra) reproduced above
shows that the provisions of Sections
73 and 74 of the Indian Contract Act applies
whether a person is plaintiff or a defendant
CS(OS)No.4052/2014 Page 7 of 10
in the suit i.e. a defendant who is a seller
cannot forfeit any moneys unless loss is
proved to be caused by fall in the price of
the property.
9. In the present case, defendants have led
no evidence of any loss caused to them, and
therefore, assuming that plaintiff is guilty of
breach of contract, yet, the defendants
cannot forfeit the amount of Rs.15 lacs lying
with them. A huge amount of Rs.15 lacs out
of the total sale consideration of
Rs.79,50,000/- cannot in law be called
earnest money. By giving a stamp of 'earnest
money' to advance price, the latter cannot
become the former. What is to be seen is the
substance and not the label. Only a nominal
amount can be said to be earnest money and
not an amount of Rs.15 lacs out of Rs.79.50
lacs, by noting that if suppose an amount of
Rs. 30 lacs or 40 lacs would be called as
earnest money by the parties, that would not
take away the fact that such amount cannot
be earnest money but would in fact be part
of the price to be paid for sale."
(underlining added)”
11. Further the Supreme Court in Satish Batra vs. Sudhir Rawal
Civil Appeal No.7588/2012 decided on 18.10.2012 has observed as
under:-
“17. Law is, therefore, clear that to justify the
forfeiture of advance money being part of „earnest
money‟ the terms of the contract should be clear
and explicit. Earnest money is paid or given at the
time when the contract is entered into and, as a
pledge for its due performance by the depositor to
be forfeited in case of non-performance, by the
CS(OS)No.4052/2014 Page 8 of 10
depositor. There can be converse situation also
that if the seller fails to perform the contract the
purchaser can also get the double the amount, if it
is so stipulated. It is also the law that part payment
of purchase price cannot be forfeited unless it is a
guarantee for the due performance of the contract.
In other words, if the payment is made only
towards part payment of consideration and not
intended as earnest money then the forfeiture
clause will not apply.”
12. Thus, the law is well settled that who may be at default the
advance money cannot be forfeited, unless the loss is pleaded. The
plea of the defendants that the advance was infact the earnest money
then also, per law, it could not have been forfeited in entirety and
even if one may treat the advance amount to be an earnest money, the
law as it stands today would only allow the defendants to deduct 5%
to 10% of such amount, given the facts of each case. Hence making
provision for 10% of the consideration viz ` 28.50 Lac to plead and
prove the loss, if any, suffered by the defendants, the leave to defend
is hereby granted to the defendants on their depositing an amount of
` 2,56,50,000/-(Rupees Two Crore Fifty Six Lacs & Fifty Thousands)
in the Court or in the alternative on giving Bank Guarantee for the
said amount, with the Registrar General of this Court within four
weeks from today. In case the amount is deposited it shall be
converted into a fixed deposit with a nationalised bank for a term of
one year initially, extendable per order of the Court.
13. The application stands disposed of in above terms.
CS(OS)No.4052/2014 Page 9 of 10
CS(OS) 4052/2014
14. Upon complying with above directions, written statement be
filed by the defendants within four weeks thereafter. Replication
thereto, if any, be also filed by the plaintiff within two weeks of filing
the written statement.
15. List for compliance and completion of pleadings before the
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Joint Registrar (Judicial) on 10 August, 2017.
16. Be listed in the Court upon completion of pleadings.
YOGESH KHANNA, J
MAY 29, 2017
M/ VLD
CS(OS)No.4052/2014 Page 10 of 10