Supreme Court: Under which circumstances the court can allow amendment of plaint during execution of decree and at appellate stage?

 Before we proceed to answer the question formulated by us in para 27, we deem it necessary to examine Section 22 of the 1963 Act. It reads thus:

“22. Power to grant relief for possession, partition, refund of

earnest money, etc.— (1) Notwithstanding anything to the

contrary contained in the Code of Civil Procedure, 1908 (5 of

1908), any person suing for the specific performance of a

contract for the transfer of immovable property may, in an

appropriate case, ask for—

(a) possession, or partition and separate possession, of

the property, in addition to such performance; or

(b) any other relief to which he may be entitled, including

the refund of any earnest money or deposit paid or [made

by] him, in case his claim for specific performance is

refused.

(2) No relief under clause (a) or clause (b) of sub-section (1)

shall be granted by the court unless it has been specifically

claimed:

Provident that where the plaintiff has not claimed any such relief in the plaint, the court shall, at any stage of the proceeding, allow him to amend the plaint on such terms as may be just for including a claim for such relief.

 (3) The power of the court to grant relief under clause (b) of subsection (1) shall be without prejudice to its powers to award

compensation under section 21.” {Para 54}

The term “proceeding” is a very wide and

comprehensive term and it includes execution proceeding

also. The expression “at any stage of the proceeding”

gives widest permission to the Court to allow amendment

at any stage of the proceeding including execution of the

decree. The amendment can be allowed even in an appeal

arising out of the order passed by the executing Court

rejecting the prayer for permission. The proviso

recognises the well settled position that the Court passing

a decree for specific performance retains control over the

subject matter as long as anything remains to be done in

the case.” {Para 9}.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5822 OF 2025

@SPECIAL LEAVE PETITION (CIVIL) NO. 5630 OF 2023

K.R. SURESH Vs R. POORNIMA & ORS.

J.B. PARDIWALA, J.:

Citation: 2025 INSC 617.

Dated: May 02, 2025.

Read full judgment here: Click here.

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Supreme Court : The court should not grant refund of advance amount in suit for specific performance of contract if it is not prayed specifically during the continuance of proceeding

 In our considered opinion, the law contained under Section 22(2) of the 1963 Act is adequately broad and flexible to allow the appellant to seek an amendment of the plaint for the said relief, even at the appellate stage. However, no such application for an amendment of the plaint was moved either before the trial court or during the course of the first appeal before the High Court. That is to say, the appellant never prayed for the refund of the advance money. Here, it would be redundant to state that the law aids the vigilant, not those who sleep over their rights.

{Para 63}

 E. CONCLUSION

64. For all the foregoing reasons, we have reached the conclusion that theforfeiture of advance money by the respondent nos. 1-4 was justified. In  such circumstances, we are not inclined to grant the relief of refund of advance money to the appellant.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5822 OF 2025

@SPECIAL LEAVE PETITION (CIVIL) NO. 5630 OF 2023

K.R. SURESH Vs R. POORNIMA & ORS.

J.B. PARDIWALA, J.:

Citation: 2025 INSC 617.

Dated: May 02, 2025.

Read full judgment here: Click here.

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Supreme court: Forfeiture Of 'Earnest Money' Is Not Penal In Ordinary Sense So As To Apply Section 74 Contract Act

On a conspectus of the aforementioned authorities, it is evident that a clause for the forfeiture of earnest money is not penal in the ordinary sense, rendering Section 74 of the 1872 Act, inapplicable. In the present case, the stipulated amount under the ATS was in the nature of an earnest money deposit and thus, Section 74 of the 1872 Act cannot apply to the same. Further, the forfeiture clause was fair and equitable rather than one-sided and unconscionable, as it imposed liabilities on both the appellant purchaser and respondent-sellers, wherein the seller was obligated to pay twice the advance amount paid by the buyer in case of his default. {Para 51}

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5822 OF 2025

@SPECIAL LEAVE PETITION (CIVIL) NO. 5630 OF 2023

K.R. SURESH Vs R. POORNIMA & ORS.

J.B. PARDIWALA, J.:

Citation: 2025 INSC 617.

Dated: May 02, 2025.

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Supreme Court: S. 74 Contract Act | Forfeiture Of Earnest Money Permissible If It's Not Excessive Amounting To Penalty

 It can be seen that this Court has held that if the forfeiture of earnest money under a contract is reasonable, then it does not fall within Section 74 of the Indian Contract Act, 1872, inasmuch as, such a forfeiture does not amount to imposing a penalty. It has further been held that, however, if the forfeiture is of the nature of penalty, then Section 74 would be applicable. This Court has further held that under the terms of the contract, if the party in breach undertook to pay a sum of money or to forfeit a sum of money which he had already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty. {Para 38}

 IN THE SUPREME COURT OF INDIA

Civil Appeal No. 3334 of 2023

Decided On: 03.02.2025

Godrej Projects Development Limited Vs. Anil Karlekar and Ors.

Hon'ble Judges/Coram:

B.R. Gavai and S.V. Bhatti, JJ.

Author: B.R. Gavai, J.

Citation: 2025 INSC 143, MANU/SC/0138/2025.

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Can the arbitrator allow forfeiture of the substantial amount of consideration without proof of actual loss, considering it to be Earnest Money?

As noted above, in the present case, the respondent has neither pleaded nor established that it had suffered any loss. The respondent’s case that it was entitled to forfeit the sum of ₹60,00,000/- paid by the petitioner rested solely on the ground that it was earnest money and therefore, it could be forfeited in terms of the Agreement. However, as noticed above, in Kailash Nath Associates (supra), the Supreme Court had in unambiguous terms held that Section 74 of the Indian Contract Act would apply in cases of forfeiture of earnest money under the contract. The Court had further held that where it is possible to prove actual damages of loss, such proof is not dispensed with. {Para 42}

43. In the given circumstances, without the respondent establishing that it had suffered any loss whatsoever on account of the petitioner failing to close the transaction for purchase of the Property would be impermissible for the respondent to forfeit the amount of ₹60,00,000/-, which admittedly is not a nominal amount, and constitutes substantial portion of the consideration.

44. In view of the above, the impugned award to the extent that it accepts that the respondent was entitled to forfeit the amount of ₹60,00,000/- is set aside.

IN THE HIGH COURT OF DELHI AT NEW DELHI

 O.M.P. (COMM) 121/2020

MR. RAJESH GUPTA  Vs SH. RAM AVTAR 

CORAM

HON’BLE MR JUSTICE VIBHU BAKHRU

Dated: 19.05.2022

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Whether seller can forfeit earnest amount on breach of contract without pleading and proving loss?

In view of the above and having regard to the fact that a huge amount has been paid under the Agreement to Sell, it cannot be treated as earnest money. Besides in Kailash Nath (supra), the Supreme Court has held that forfeiture of earnest money has to be in accordance with Section 74 of the Indian Contract Act. The Court has held that without any loss, forfeiture of a huge amount would be arbitrary. Under Section 74, forfeiture of entire earnest money can be upheld only if the damage or loss is difficult or impossible to prove. This is not the case here. Defendants claim that they are entitled to forfeit as the Plaintiff is in breach and the terms of the contract allow forfeiture. The earnest money cannot also be considered to a genuine pre-estimation of damages, as it cannot be said that damage or loss is incapable of being proved. Notably, damage or loss has not even been pleaded and therefore, even if the amount received by the Defendants is accepted to be earnest money, the forfeiture of the entire amount is impermissible. The Defendants contention that the question of damage and loss requires to be proved by leading evidence, cannot be accepted. It is settled law that evidence can be permitted only for the facts stated in the pleadings. Since, the Defendants have not pleaded any loss caused to them on account of breach of Contract by the Plaintiff; there is no ground for framing issues in the present case and affording an opportunity to the Defendants to lead evidence.

IN THE HIGH COURT OF DELHI

CS (OS) 143/2018

Decided On: 22.04.2019

 Versatile Commotrade Private Limited  Vs. Kesar Devi and Ors.

Hon'ble Judges/Coram:

Sanjeev Narula, J.

Citation: AIR 2019 Delhi 155

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Whether earnest money can be forfeited even if there is no forfeiture clause in contract?

 Reading of Section 74 would go to show that in order to forfeit the sum deposited by the contracting party as "earnest money" or "security" for the due performance of the contract, it is necessary that the contract must contain a stipulation of forfeiture. In other words, a right to forfeit being a contractual right and penal in nature, the parties to a contract must agree to stipulate a term in the contract in that behalf. A fortiori, if there is no stipulation in the contract of forfeiture, there is no such right available to the party to forfeit the sum.

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 7665 of 2009

Decided On: 25.10.2017

 Suresh Kumar Wadhwa Vs.  State of M.P. and Ors.

Hon'ble Judges/Coram:

R.K. Agrawal and Abhay Manohar Sapre, JJ.

Citation:(2017) 16 SCC757

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Whether one party can forfeit earnest amount even though no loss is suffered by it due to default of other party to contract?

Even otherwise, it is not case of the Bank that it has suffered damages on account of the non-deposit of the balance of the bid amount by the petitioner. As stated above, it had not taken vacant possession of the property from the borrower. On the other hand, it has settled the matter with the borrower and the borrower has continued with possession of the property. The Bank has not established that it has suffered any loss. In UNION OF INDIA VS. R.D. &. CO. - AIR 1973 SC 1098, the Supreme Court has held that a party to a contract taking security deposit from the other party to ensure due performance of the contract is not entitled to forfeit the deposit on the ground of default when no loss is caused to him in consequence of such default. When no loss is caused in consequence of the breach of contract, the other party is not entitled to forfeit the deposit for the breach.

Karnataka High Court

E Ali S/O Soopy, vs The Syndicate Bank, on 1 June, 2015

Author: S.Abdul Nazeer

Citation; AIR 2015 Karnataka122

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When earnest money can be forfeited?

   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.
  REPORTABLE
                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL NO. 7588 OF 2012
                [Arising out of SLP (Civil) No. 4605 of 2012]

Satish Batra            Vs  Sudhir Rawal                                      

                               J U D G M E N T

K. S. Radhakrishnan, J.
Citation;(2013) 1 SCC 345.

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