Puttu Lal Govind Dass vs Achchey Lal Nandu Lal

Jagat Narayan, J.C.

This is a plaintiff''s second appeal against an appellate decree of Shri Ram Krishna Sharma, Additional District Judge, Panna. I have heard the Learned Counsel for the parties and have perused the evidence on record.

The plaintiff entered into an agreement with the defendant on 21-2-52 for the purchase of the house of the letter for Rs. 2,000/-. A sum of Rs. 200/- was paid as earnest money on 8-2-52. A sum of Rs. 500/- was paid as part of the consideration in advance on 22-2-52. A sum of Rs. 13,00/- was to be paid on 29-2-52 and the balance of the consideration was to be paid within 15-days of the execution of the agreement. Nothing was paid to the defendant after the execution of the agreement.

The case of the plaintiff was that he took a. sum of Rs. 1300/- to the defendant on 26-6-52 but he declined to accept it. Neither of the two Courts below believed this allegation. Both of them held that it was the plaintiff who committed the breach of contract. The present suit was brought for the refund of the sum of Rs. 700/- together with interest amounting to Rs. 238/-.

The learned Munsiff held that the sum of Rs. 200/- paid on 8-2-52 was paid by way of earnest money and was forfeited on account of the default on the part of the plaintiff. He however decreed the suit for Rs. 500/- together with interest on the sum. On appeal the learned additional District Judge dismissed the suit in toto.

As for Rs. 500/- he held that there was a subsequent oral agreement between the parties under which the whole sum of Rs. 700/- was to be treated as earnest money. This case was not pleaded in the written statement and the learned Additional District Judge erred in setting aside the decree for the recovery of Rs. 500/-. As for the interest on the sum of Rs. 500/- by way of damages, the learned Additional District Judge rightly held that the plaintiff was not entitled to it.

In AIR 1938 67 (Privy Council) , it was held that illustration (n) to S. 73, Contract Act does not deal with the right of the creditor to recover damages from a debtor and does not confer upon him a right to recover interest upon a debt when he is not entitled to such an interest under a provision of the law. It was pointed out that interest for the period prior to the date of the smt may be awarded only if there is an agreement for the payment of the interest, or it is payable by the usage of trade, or under the provisions of any substantive law.

Under the Interest Act the Court may allow interest to the plaintiff if the amount claimed is a sum certain which is payable by virtue of a written instrument. The Interest Act contains a proviso that interest shall be payable in all cases in which it is payable by law. This proviso was held to apply to cases in which the Courts of Equity exercised jurisdiction to allow interest. It is not recoverable in cases like the present one.

So far as the forfeiture of the earnest money amounting to Rs. 200/- is concerned it was argued on behalf of the plaintiff that the amount was excessive and should be reduced under the provisions of S. 74, Contract Act. On behalf of the defendant it was contended that earnest money does not fall under S. 74, Contract Act and the whole of it was rightly forfeited. The following cases were cited: - ''Natesa Aiyar v. Appava Padayachi'', ILR 38 Mad 178: (AIR 1915 Mad 896) (FB) (B); - Dinanath Damodar Kale Vs. Malvi, Mody, Ranchhoddas and Co., - ''Chiranjit Singh v. Har Swarup'', AIR 1926 PC 1 (D); W.J. Younie and Others Vs. Tulsiram Jankiram and Others, - AIR 1933 223 (Nagpur)

Earnest money is the sum of money paid by the buyer of property under a contract for sale in order to bind the seller to the terms of the agreement for sale. In other words it is a guarantee for the performance of a contract. When the transaction goes forward the earnest money becomes part of the purchase money. It is forfeited if the transaction falls through by reason of the fault or failure on the part of the buyer and the buyer cannot get it back.

There may be cases where the Court may find that the amount of the deposit is so great in comparison with the amount payable under the contract, that the parties cannot have intended it as a mere guarantee for performance, but rather as a punishment or penalty for non-performance of the contract; in such cases the Court may refuse to allow the retention of the whole of deposit.

But where there is no dispropertion and nothing unreasonable in regarding the deposit as a guarantee, then the defaulter will not be allowed to recover back what he has paid on an express stipulation that it shall be forfeited in the event of default. In the cases reported in ILR 38 Mad 178: (AIR 1915 Mad 896) (FB) (B); and W.J. Younie and Others Vs. Tulsiram Jankiram and Others, the earnest money which was forfeited amounted to about 10 per cent of the consideration as in the present case.

I accordingly find that the whole of this amount was rightly held to have been forfeited.

I accordingly allow the appeal and set aside the decree of the lower appellate Court. I decree the suit of the plaintiff for the recovery of Rs. 500/-. Parties shall receive and pay costs in proportion to their success and failure through out.