A party claiming contractual damages must prove performance of its own essential obligations.

The appellants and the respondent entered into a loan agreement dated 14 April 2001 under which the respondent advanced ₹15 lakh interest-free to fund construction of an office complex of approximately 13,000 sq. ft., to be completed within ten months, with a maximum five-month extension.

The respondent was to lease the premises on agreed terms.

The appellants claimed the respondent breached the agreement by refusing to take the premises and sought damages; the respondent alleged that the appellants had not completed the agreed construction and sought repayment of the loan.

The Single Judge dismissed the appellants’ damages suit and partly decreed the respondent’s recovery suit, ordering payment of ₹13.5 lakh with interest.

The appellants appealed both rulings.

1. Whether the respondent breached the agreement dated 14 April 2001 and, if so, whether the appellants were entitled to damages

2. Whether the respondent was entitled to recover the interest-free loan advanced under the agreement.

A claimant seeking contractual damages must establish that the other party breached the contract and that the breach caused a pecuniary loss; a party that has not performed its essential contractual obligations cannot claim damages for losses arising from the other party’s alleged default.

The parties’ rights were also governed by the terms of their agreement, including Clause 8, which required a penalty for delay and permitted revocation of the agreement and presentation of the security cheques if construction was not completed within fifteen months.

The Court referred to Section 138 of the Negotiable Instruments Act in connection with the respondent’s notice following dishonour of the cheques.

It distinguished Food Corporation of India, Bhopal v. M/s. Babulal Agarwal, where the owner had performed its obligations within the agreed timeline.

The appellants did not establish that they had completed the agreed 13,000 sq. ft. within the contractual period.

Their evidence showed that the sanctioned plan covered only 4,646 sq. ft.; there was no completion certificate or other proof establishing the agreed construction and timely completion, and evidence indicated that third-party tenants had occupied parts of the premises.

The Court therefore found the respondent’s explanation—that it had moved to alternative premises because the agreed premises were not completed—more probable, and held that the appellants had not proved either the respondent’s breach or resulting loss.

As to the loan, the ₹15 lakh advance and the security cheques were admitted, and the appellants had repaid only ₹1.5 lakh.

Applying the agreement and considering the dishonoured cheques, the Court found no basis to disturb the order for recovery of the remaining ₹13.5 lakh.

It dismissed both appeals, confirmed the Single Judge’s judgment—including the direction to pay ₹13.5 lakh with interest at 12% per annum from filing to judgment and 6% thereafter until realization—and made no order as to costs.