Whether court should grant refund of advance amount in suit for specific performance of contract if it is not specifically claimed?

Learned counsel for the plaintiff alternatively contended that in case this Court holds that the plaintiff is not entitled to the relief of specific performance, the plaintiff may be granted a decree for refund of the advance amount of ` 10,000/- with interest from the date of payment, that is, 05.08.1994. However, while fairly conceding that only a relief of specific performance of suit contract of sale was sought in the plaint and that no relief alternatively is claimed for refund of the advance amount, he placed reliance on the decision of the Supreme Court in Satish Kumar v. Karan Singh and another [MANU/SC/0072/2016 : 2016(2) ALD 188 (SC)] and further contended that this Court is empowered to grant refund of the advance amount even in the absence of a relief in that regard in the plaint. I have gone through the decision. In the cited decision, the Supreme Court having found that the suit contract of sale is invalid and unenforceable, consequently directed the appellant to refund the amount paid by the respondents together with interest @ 6% per annum; but, no binding proposition as canvassed by the learned counsel for the plaintiff was laid down in the cited decision. Further, under Section 22 of the Specific Relief Act, 1963, in case of refusal of claim for specific performance, no relief including the refund of any earnest money or deposit paid or made by the vendee under the agreement shall be granted by the Court unless it has been specifically claimed. Hence, the plaintiff is not entitled to the refund of the advance amount.

IN THE HIGH COURT OF JUDICATURE AT HYDERABAD 

Appeal Suit No. 1284 of 1998

Decided On: 02.02.2018

 Kayala Ramanaiah Vs. Sugavasi Vasanthamma

Hon'ble Judges/Coram:

M. Seetharama Murti, J.

Citation: AIR 2019 Hyder 50

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What is difference between advance amount and earnest amount?

 Difference between 'advance amount' and the 'earnest money' has been considered by the Supreme Court in number of cases. In Shree Hanuman Cotton Mills v. Tata Air-Craft Ltd. MANU/SC/0086/1969 : (1969) 3 SCC 522 : (AIR 1970 SC 1986) the Supreme Court laid down certain principles to determine as to when the amount paid as 'advance' be treated as 'earnest money' and the seller is entitled to forfeit the same. Para 21 of the judgment is reproduced hereunder. "21. 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.

10. In the matter of DDA v. Grihsthapana Coop. Group Housing Society Ltd., MANU/SC/0247/1995 : 1995 Supplementary (1) SCC 751 : (AIR 1995 SC 1176) the Supreme Court, following privy council's decision in the matter of Chiranjit Singh v. Har Swamp, MANU/PR/0083/1925 : ATR 1926 PC 1, held that for the question whether the respondents are entitled to forfeit the entire amount, it is to be seen that a specific covenant under the contract was that the respondents are entitled to forfeit the money paid under the contract. So when the contract fell through by the default committed by the appellant, as part of the contract, they are entitled to forfeit the entire amount.

11. In Videocon Properties Ltd. v. Bhalchandra Laboratories MANU/SC/1097/2003 : (2004) 3 SCC 711 : AIR 2004 SC 1787) the Supreme Court examined the nature and character of the earnest money and took a view that the words used in the agreement alone would not be determinative of the character of the "earnest money" but really the intention of the parties and surrounding circumstances. It held that the earnest money serves two purposes of being part-payment of the purchase money and security for the performance of the contract by the party concerned.

12. It is not the description by word used in the agreement only that would be determinative of the character of the sum but really the intention of the party have to be looked into and what may be called as an 'advance money' may really be a deposit or 'earnest money' and what is termed as a deposit or earnest money "may ultimately turn out to be really an advance or part of purchase

13. In Satish Batra (MANU/SC/0887/2012 : 2012 AIR SCW 5869, paras 17 and 18) (supra), the Supreme Court considered the issue and held thus in paragraphs 15 and 16.

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 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.

IN THE HIGH COURT OF CHHATTISGARH

First Appeal No. 316 of 2017

Decided On: 14.09.2018

 Sunil Jain Vs Vishal Ram Sahu

Hon'ble Judges/Coram:

Prashant Kumar Mishra and Vimla Singh Kapoor, JJ.

Citation: AIR 2019 Chhat 37

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Whether Drawer of cheque will be liable for dishonour of cheque if cheque was issued as an advance payment for purchase of the goods?

The Explanation appended to Section 138 of the Negotiable Instruments Act, 1881 explains the meaning of the expression “debt or other liability” for the purpose of Section 138. This expression means a legally enforceable debt or other liability. Section 138 treats dishonoured cheque as an offence, if the cheque has been issued in discharge of any debt or other liability. The Explanation leaves no manner of doubt that to attract an offence under Section 138, there should be a legally enforceable debt or other liability subsisting on the date of the drawal of the cheque. In other words, drawal of the cheque in discharge of an existing or past adjudicated liability is sine qua non for bringing an offence under Section 138. If a cheque is issued as an advance payment for purchase of the goods and for any reason purchase order is not carried to its logical conclusion either because of its cancellation or otherwise, and material or goods for which purchase order was placed is not supplied, the cheque cannot be held to have been drawn for an existing debt or liability. The payment by cheque cannot be held to have been drawn for an existing debt or liability. The payment by cheque in the nature of advance payment indicates that at the time of drawal of cheque, there was no existing liability.
In Swastik Coaters (P) Ltd. v. Deepak Brothers, 1997 Cri LJ 1942 it was held as under:
“Explanation to Section 138 of the Negotiable Instruments Act clearly makes it clear that the cheque shall be relatable to an enforceable debt or liability and as on the date of the issuing of the cheque there was no existing liability in the sense that the title in the property had not passed on to the accused since the goods were not delivered.”
In Balaji Seafoods Exports (India) Ltd. v. Mac Industries Ltd., (1999) 1 CTC 6, it was held:
“Section 138 of the Negotiable Instruments Act makes it clear that where the cheque drawn by a person on account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an arrangement made with that bank, such person shall be deemed to have committed an offence under section 138 of the Act. The Explanation reads that for the purposes of this section, ‘debt or other liability’ means a legally enforceable debt or liability.”
In Magnum Avaition (P) Ltd. v. State, (2010) 172 DLT 91, it was held:
“The purpose of making or enabling Section 138 of the Negotiable Instruments Act was to enhance the acceptability of cheque in settlement of commercial transactions, to infuse trust into commercial transactions and to make a cheque as a reliable negotiable instrument and to see that the cheques of business transactions are not dishonoured. The purpose of Negotiable Instruments Act is to make an orderly statement of rules of law relating to negotiable instruments and to ensure that mercantile instruments should be equated with goods passing from one hand to other. The sole purpose of the Act would stand defeated if after placing order and giving advance payments, the stop payments are issued and orders are cancelled on the ground of pricing.
But, if a cheque is issued as an advance payment for purchase of the goods and for any reason whatsoever purchase order is not carried to its logical conclusion either because of its cancellation or otherwise and material or goods for which purchase order was placed is not supplied by the supplier, the cheque cannot be said to have been drawn for an existing debt or liability.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 830 OF 2014
(Arising out of SLP (Crl.) No.9752 of 2010)
M/s. Indus Airways Pvt. Ltd. & Ors. V M/s. Magnum Aviation Pvt. Ltd. & Anr.
Dated;April 7, 2014.
Citation;(2014) 12 SCC 539.
R.M. LODHA, J.

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