M/S Versatile Commotrade Pvt Ltd vs M/S Angad Developers Pvt Ltd

S.

No.","Cheque

No.",Dated,Amount,"In favour

of","Drawn

on

Â

1.,885608,21/4/13,"1,25,00,000/-",ADPL,"OBC

Bank

New

Delhi

sum of Rs. 2 crores.Â,,,,,

The Plaintiff replied through his counsel on 25th September, 2013, challenged the said forfeiture and called upon the Defendant to furnish the No",,,,,

Objection Certificate so that the sale deed could be executed on a mutually agreed date. By a further legal notice dated 15th November, 2013, the",,,,,

Plaintiff called upon the Defendant to pay back a sum of Rs.2.18 crores however, the Plaintiff did not receive any reply. Accordingly, the Plaintiff",,,,,

filed the present suit under Order XXXVII seeking a decree for a sum of Rs.2 crores along with interest @ 16.25% per annum w.e.f. 15th,,,,,

November, 2013 till the date of actual payment.",,,,,

The Plaintiff filed I.A. No.8943/2014 seeking summons for judgment and the Defendant filed its leave to defend I.A. No.14384/2014.,,,,,

The case of the Defendant in its application for leave to defend is that a suit under Order XXXVII is not maintainable in respect of money paid,,,,,

under an Agreement to Sell. The Defendant’s further case was that despite repeatedly calling upon the Plaintiff to pay the remaining sale,,,,,

consideration after obtaining the No Objection Certificate, the Plaintiff failed to come forward with the sale consideration. The Defendant thus argues",,,,,

that time was the essence of the contract as per the Agreement to Sell and the Plaintiff having not performed its part of the contract, is not entitled to",,,,,

recovery. The Defendant relies upon the following judgments: -,,,,,

(i) CS(COMM) 925/2016 - Versatile Commotrade Private Limited vs. Kesar Devi,,,,,

(ii) CS(COMM) 925/2016 - Versatile Commotrade Private Limited vs. Kesar DeviÂ,,,,,

(iii) Delhi Power Supply Company Limited vs. Hindustan Vidyut Products Limited 2016 (2015) DLT 181,,,,,

(iv) M/s B.T.M. Exports Limited vs. M/s Adhunik Corporation Limited.,,,,,

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

(vi) Shree Hanuman Cotton Mills & Ors. vs. Tata Air Craft Ltd. (1970) 3 SCR 128,,,,,

(vii) Mechelec Engineers and Manufacturers vs. Basic Equipment Corporation (1977) 1 SCR 1060.,,,,,

The Plaintiff however submits that the No Objection Certificate having not been obtained, there was no question of the remaining sale consideration",,,,,

being paid.,,,,,

A perusal of the Agreement to Sell and the clauses thereof shows that the earnest money was to the tune of Rs.1.25 crores. The Defendant was,,,,,

entitled to forfeit the earnest money if the Plaintiff was in breach and did not pay the balance sale consideration.,,,,,

It is, however, clear that the remaining Rs.75 lakhs which was paid in May, 2013 after a month had passed from the execution of the Agreement",,,,,

to Sell was not the earnest money but was part of the balance sale consideration. As per clause 2.1.1 in the Agreement, only Rs.1.25 crores out of the",,,,,

total sale consideration formed the earnest sale consideration, hence the amount of Rs.75 lakhs could not have been forfeited by the Defendant. Thus",,,,,

the Plaintiff is entitled to a decree qua for a sum of Rs.75 lakhs. This also finds support in the judgment of the Supreme Court in Satish Batra vs.,,,,,

Sudhir Rawal (2013) 1 SCC 345 wherein in paragraph 15, the Supreme Court held as under: -",,,,,

“15. The 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 depositor. There can be converse situation also that if the seller fails to perform the,,,,,

contract the purchaser can also get 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.â€​,,,,,

The sum of Rs.75 lakhs being a part of the balance sale consideration and not the earnest sale consideration is not liable to be forfeited. A Ld.,,,,,

Single Judge of this Court in Palm Art Apparel Pvt. Ltd. v. Enkay Builders Pvt. Ltd. [C.R.P. 3/2017 decision dated 31st July, 2017], had adopted a",,,,,

similar approach. The Court observed as under:,,,,,

“20. Applying the aforesaid principles, I am unable to accept the contention of the counsel for the petitioner/plaintiff that the application of the",,,,,

respondent/defendant for leave to defend did not disclose any substantial defence for forfeiture of Rs. 15 lakhs described in the Agreement to Sell and,,,,,

Purchase as earnest money. The dispute with respect to Rs. 15 lakhs will be decided in the suit and in the counterclaim stated to have been preferred.,,,,,

At this stage, it cannot also be determined, whether it is by way of penalty. As noted above, the nomenclature given by the parties is not",,,,,

determinative.,,,,,

However, as far as Rs. 30 lakhs admittedly paid by the petitioner/plaintiff to the respondent/defendant over and above the sum of Rs. 15 lakhs",,,,,

described as earnest money is concerned, the same is only towards part sale consideration and to which the principle of forfeiture does not apply.",,,,,

Thus, even if the breach of Agreement to Sell and Purchase is by the petitioner/plaintiff and the respondent/defendant has suffered loss in excess of",,,,,

Rs. 15 lakhs described as earnest money therefrom and for which the respondent/defendant has already initiated proceedings, the",,,,,

respondent/defendant, unless establishes the said loss, cannot retain the said amount of Rs. 30 lakhs and the leave to defend application having not",,,,,

disclosed any substantial defence qua the same, the petitioner/plaintiff is immediately entitled theretoâ€​",,,,,

Insofar as the sum of Rs.1.25 crores is concerned, the case of the Defendant is that the Defendant repeatedly sent emails to the Plaintiff",,,,,

informing the Plaintiff that the No Objection Certificate had been obtained from the competent authority. The No Objection Certificate was claimed,,,,,

to have been obtained on 6th June, 2013 and forwarded via email on 13th June, 2013. A perusal of the documents filed by the Defendant shows that",,,,,

an email was sent to Mr. Devendra Dahiya at email devender_dahiya77@yahoo.co.in and Mr. Rajesh Gullah at rgullah@yahoo.com, attaching the No",,,,,

Objection Certificate.,,,,,

Almost a month later, on 11th July, 2013, a reply was sent by Mr. Rajesh Gullah that the last date for execution of the sale deed was 11th July,",,,,,

2013, however, the No Objection Certificate had expired on 5th July, 2013. Thus, the Plaintiff called upon the Defendant to get the No Objection",,,,,

Certificate extended. The Defendant claims to have obtained a fresh No Objection Certificate on 16th August, 2013, which was valid for another",,,,,

month and the same was again sent on 25th August, 2013. However, the Plaintiff did not come forward with the balance sale consideration.Â",,,,,

The first and foremost feature is that the Agreement to Sell does not make any mention of the No Objection Certificate to be obtained by the,,,,,

Defendant. In any event, from the documents placed on record, it is clear that the Defendant did obtain the No Objection Certificate within the time",,,,,

period. The emails sent are challenged by the Plaintiff on the ground that Mr. Rajesh Gullah was not authorized to receive the emails and the emails,,,,,

are not proved as per Section 65B of the Indian Evidence Act, 1872. This Court has perused the emails placed on record along with the Plaintiff’s",,,,,

stand in the reply to the leave to defend application. Collusion is alleged in the said reply between the Defendant and Mr. Rajesh Gullah. At this,,,,,

stage, without trial, the question as to whether the No Objection Certificates were sent or whether Mr. Rajesh Gullah was duly authorized to receive",,,,,

the No Objection Certificate/emails on behalf of the Plaintiff cannot be determined by this Court. Moreover, the question as to whether there was a",,,,,

breach would also require oral evidence and the same cannot be decided in an Order XXXVII suit. The conflicting claims of the parties require,,,,,

adjudication after trial. The question, however, is as to whether leave to defend ought to be granted unconditionally.",,,,,

A perusal of the Agreement shows that nowhere in the Agreement, is Mr. Rajesh Gullah’s name mentioned. It is further alleged that the",,,,,

forfeiture notice itself was sent to Mr. Rajesh Gullah who shares the same office as that of the Plaintiff. Thus, it was alleged that Mr. Rajesh Gullah",,,,,

was representing the Plaintiff with the Defendant. There is no clarity as to why no response was given by the Plaintiff to the email dated 13th June,,,,,

2013, till 11th July, 2013 though the No Objection Certificate was sent on 13th June, 2013 to Mr. Devendra Dahiya and Mr. Rajesh Gullah. The",,,,,

silence on behalf of the Plaintiff, for almost a month, thereby allowing the No Objection Certificate to expire appears to suggest that there was some",,,,,

hesitation or lack of preparedness or willingness to pay the balance sale consideration. Though 11th July, 2013 was the last date, there was no need",,,,,

for the Plaintiff to wait till the last date for payment of balance sale consideration to reply to the Defendant or in expressing readiness and willingness,",,,,,

especially when the No Objection Certificate was sent a month back, i.e., on 13th June, 2013 itself. There is no serious dispute to these emails",,,,,

except saying that Mr. Devendra Dahiya and Mr. Rajesh Gullah were not duly authorized. Prima facie, at this stage, it appears that the Defendant",,,,,

had performed its part of the Agreement.,,,,,

However, the legal position is that forfeiture of earnest money cannot happen automatically. As per Kailash Nath Associates Vs. DDA (2015)",,,,,

4 SCC 136, the party has to establish that it actually suffered a loss and there can be no windfall in the absence of establishing actual loss. The",,,,,

Supreme Court observed as under:,,,,,

“68. From the aforesaid discussions, it can be held that:",,,,,

(1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is entitled,,,,,

to the same.,,,,,

(2) If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate,,,,,

of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that",,,,,

is what 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.,,,,,

44.................. Further, we cannot accept the view of the Division Bench that the fact that the DDA made a profit from re-auction is irrelevant, as",,,,,

that would fly in the face of the most basic principle on the award of damages - namely, that compensation can only be given for damage or loss",,,,,

suffered. If damage or loss is not suffered, the law does not provide for a windfall.â€​",,,,,

Thus, actual loss can be established only in trial. The test as to whether the forfeiture is valid or not is to be determined as per Section 73 and 74",,,,,

of the Indian Contract Act, 1872. Thus insofar as the sum of Rs.1.25 crores is concerned, the Order XXXVII suit is converted into an ordinary suit.",,,,,

The suit shall proceed for trial.,,,,,

The leave to defend is granted to the Defendant subject to furnishing of some security in the form of immovable property or a bank guarantee to,,,,,

the satisfaction of this Court in respect of the sum of Rs.1.25 crores. The leave to defend is, thus, partly allowed.Â",,,,,

The suit is, however, decreed for a sum of Rs.75 lakhs which is not liable to be forfeited as it was part of the balance sale consideration, as per",,,,,

Satish Batra (Supra). A decree for a sum of Rs.75 lakhs along with interest @9% per annum from 13th March, 2014 till date of payment is passed in",,,,,

favour of the Plaintiff against the Defendant.,,,,,

All the three applications are disposed of in the above terms.,,,,,