Basic concepts: What is the difference between penalty and fine?

 Under Indian law, fines and penalties are distinct legal concepts with several key differences in their application, authority, and legal procedures.

Authority and Imposition

Fine is imposed exclusively by courts of law after completion of trial proceedings. A fine represents a monetary punishment ordered by a judge following conviction for a criminal offense.

Penalty, conversely, is imposed directly by appropriate regulatory authorities or administrative bodies without requiring court proceedings. Regulatory agencies can impose penalties immediately upon discovering non-compliance with statutory provisions.

Legal Process Required

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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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Whether the Municipal Corporation can impose a penalty for non-payment of toll or octroi without prosecution resulting in a conviction?

 The Division Bench of this Court, while dealing with the provisions of Section 398 of the Bombay Provincial Municipal Corporation Act, 1949 in the case of Dhoot Agencies Pvt. Ltd. v. Aurangabad Municipal Corporation and Ors. , held as under:

3. The point of law that is raised for the consideration of this Court in the instant petition is in very narrow compass and that is, whether the Municipal Corporation can impose penalty without prosecution resulting into a conviction.

4. The Corporation has filed its affidavit in reply and relied upon the provisions of Section 398 of the Bombay Provincial Municipal Corporation Act, 1949. It would be relevant to reproduce the provisions of Section 398 of the said Act.

398. Where any vehicle, animal or goods imported into the limits of the city are liable to the payment of toll or octroi any person, who, with the intention of defrauding the Corporation, causes or abets the introduction of or himself introduces or attempts to introduce within the limits of the city any such vehicle, animal or goods upon which payment of the toll or octroi due on such introduction has neither been made not entered, shall, on conviction, be punished with fine which may extend to ten times the amount of such toll or octroi or to two hundred and fifty rupees, whichever may be greater".

5. It is clear that though the Municipal Corporation has the power to impose penalty, the condition precedent for such penalty being imposed is conviction in a criminal prosecution and without there being a conviction there is no scope for levying the penalty for evading octroi. Admittedly, no criminal prosecution was initiated against the petitioner and the learned Counsel for the Corporation submitted that this was not done solely at the request of the petitioner's proprietor/partner. When a statute provides certain pre-condition for imposing penalty on account of evasion of octroi payment, it is mandatory that those conditions are followed before the penalty is levied and consequently if the Corporation failed to initiate criminal prosecution it had no authority in law to levy the penalty for evasion of octroi payment. There cannot be an agreement contrary to the provisions of law and it is high time that the Municipal Administration is awakened to follow the provisions of law meticulously.

6. From the affidavit in reply we have also noticed that the petitioner has been issued notice in Form No. V under Rule 24 of the Octroi Rules for recovery of octroi in respect of 29 vehicles. There is no denial to this demand till this date and, prima facie, it has to be accepted that there are some outstanding payments on account of octroi due to the Corporation from the petitioner. {Para 9}

10. Plain reading of the aforestated relevant provisions it is clear that the provisions of Sections 478 and 478-1A are definite in expression and unambiguous and do not refer to the Municipal Corporation any where. Furthermore, even for the sake of argument, it is assumed that the Municipal Corporation has any jurisdiction to impose fine/penalty in terms of Section 478-1A, even then the condition precedent of such person having been convicted has to be satisfied. Without this condition being satisfied the Corporation will have no jurisdiction to impose the penalty. The issuance of the notice nowhere states that the petitioner has been convicted by the Court or any other forum competent to do so and thus the Corporation wishes to impose the said penalty. In fact the impugned order is without jurisdiction and ex-facie without authority of law. Once the order does not conform to the statutory provisions then it would be liable to be quashed. The authorities have thus apparently exceeded their jurisdiction or may have exercised the jurisdiction not vested in them. The matter involves question of lack of jurisdiction for non-compliance of statutory provisions and as such the order cannot stand scrutiny of law.

11. In this scheme under the statute one question required to be considered is whether the Corporation has any power to impose punishment or fine as contemplated under Section 478-1A of the Act. The provisions of Section 478 to 478-IB nowhere refers to the Corporation or any other authority of the Corporation. Section 478 specifically talks of a Court while the other two provisions require that on conviction the fine or punishment would follow. Normally under these provisions the Court would have power to hold a person guilty of the offence stated therein and convicted for such offence and then award requisite punishment as stated under these three provisions. The underlying feature of the provisions Section 478 is that whoever brings any article within the limits of Brihan Mumbai liable to octroi, without payment of such tax or octroi, is liable to action while under Section 478-1A such persons who evades payment of octroi or even attempts to introduce or causes or abets the introduction of any such articles and brings such articles into Brihan Mumbai, where payment of octroi has neither been paid nor tendered is liable for penalty. Despite such a fine distinguishing line between these provisions, it is necessary that a person has to be convicted as contemplated under these provisions before the penalty contemplated under Section 478-1A could be imposed. The concept of 'conviction' as known to the criminal jurisprudence, is conviction by a Court of competent jurisdiction and would hardly fall within the domain of the administrative authority, particularly when the provision itself refers to the discretion of the Court. The language of Section 478 or 478-1A is quite in contradistinction to the language of Section 398 of the Bombay Provincial Municipal Corporation Act, 1949, where the section dealing with the penalty for evasion of octroi or toll, does not refer to the Court but mentions the word 'Corporation'. Even there the person who evades or does not pay the octroi or defrauds the Corporation of such octroi which duty has neither been tendered nor paid, on conviction is liable to fine, which may extent 10 times the amount of such octroi. Even there the Courts have taken a view that the Corporation can impose such fine only when the person has been convicted. In other words conviction shall be a condition precedent to the imposition of fine under that provision.

Bombay High Court

Sushmita Sen vs Municipal Corporation Of Gr. ... on 11 October, 2007

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Whether Collector must impose ten times penalty for deficit stamp duty?

According to Section 40(1)(b) if the Collector is

of opinion that such instrument is chargeable with duty

and is not duly stamped, he shall require the payment

of the of the proper duty or the amount required to

make up the same, together with a penalty of the five

rupees; or, if he thinks fit, an amount not exceeding

ten times the amount of the proper duty or of the

deficient portion thereof. The statutory scheme of

Section 40(1)(b) as noticed above indicates that when

the Collector is satisfied that instrument is not duly

stamped, he shall require the payment of proper duty

together with a penalty of the five rupees. The

relevant part of Section 40(1)(b) which falls for

consideration in these appeals is: “or, if he thinks

fit, an amount not exceeding ten times the amount of

the proper duty or deficient portion thereof.”{Para 16 }

17. The amount of penalty thus can be an amount not

exceeding ten times. The expression “an amount not

exceeding ten times” is preceded by expression “if he

thinks fit”. The statutory scheme, thus, vest the

discretion to the Collector to impose the penalty

amount not exceeding ten times. Whenever statute

transfers discretion to an authority the discretion is

to be exercised in furtherance of objects of the

enactment. The discretion is to be exercised not on

whims or fancies rather the discretion is to be

exercised on rational basis in a fair manner. The

amount of penalty not exceeding ten times is not an

amount to be imposed as a matter of force. Neither

imposition of penalty of ten times under Section 40(1)

(b) is automatic nor can be mechanically imposed. 

21. The purpose of penalty generally is a deterrence

and not retribution. When a discretion is given to a

public authority, such public authority should exercise

such discretion reasonably and not in oppressive

manner. The responsibility to exercise the discretion

in reasonable manner lies more in cases where

discretion vested by the statute is unfettered.

Imposition of the extreme penalty i.e. ten times of the

duty or deficient portion thereof cannot be based on

the mere factum of evasion of duty. The reason such as

fraud or deceit in order to deprive the Revenue or

undue enrichment are relevant factors to arrive at a

decision as to what should be the extent of penalty

under Section 40(1)(b).

“6………The Collector has the power to

require the person concerned to pay the proper

duty together with a penalty amount which the

Collector has to fix in consideration of all

aspects involved. The restriction imposed on

the Collector in imposing the penalty amount is

that under no circumstances the penalty amount

shall go beyond ten times the duty or the

deficient portion thereof. That is the farthest

limit which meant only in very extreme

situations the penalty need be imposed up to

that limit. It is unnecessary for us to say

that the Collector is not required by law to

impose the maximum rate of penalty as a matter

of course whenever an impounded document is

sent to him. He has to take into account

various aspects including the financial

position of the person concerned.”

23. This Court in the above case categorically held

that it is only in the very extreme situation that

penalty needs to be imposed to the extent of ten times.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 3195-319 6 OF 2020

TRUSTEES OF H.C. DHANDA TRUST Vs  STATE OF MADHYA PRADESH 

Author: ASHOK BHUSHAN,J.

Dated: SEPTEMBER 17, 2020.

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Kerala HC: Passport Authorities have no power to impose penalties or fine for violation of passport Act

1) The poignant question raised is whether an authority under the Passports Act, 1967, has any power to impose penalty/fine invoking the powers under Section 12 of the Act 1967. It is submitted by the petitioners that as per relevant provisions of the Passports Act, 1967, a passport authority

defined under Section 2(c) of the Act has only delegated powers to issue

passport under Section 5(2)(a) or reject an incomplete passport

application under Section 5(2)(c) or refuse a passport under Section 6(2)

or restrict the validity under Section 7(b) or impound/revoke a passport

under Section 10(3) of the said Act, and not to impose any penalty.

2) Taking into account the rival submissions made across the Bar,

our endeavour is to find out the legal purport of Section 12 of the Act

1967 extracted above. On a reading of Section 12(1), it is clear that

offences and penalties are prescribed for contravention of the provisions of Section 3 or for the reasons enumerated thereunder, which shall be punishable with imprisonment for a term prescribed thereunder or with fine prescribed thereunder or with both. Therefore, it is evident from the

provisions that in the event of any person found guilty, he is liable to be

punished with an imprisonment for a term prescribed thereunder or in

the alternative to impose fine prescribed thereunder or with both.

Therefore, on a deeper analysis of the provision, it is amply clear that the

passport issuing authority or any of the authorities under the Act, 1967

are given powers under the Passports Act, 1967 or Rules framed

thereunder, to initiate prosecution for the contravention of the provisions

of the Passports Act, 1967. A reading of the provision further shows

that, the power to punish with imprisonment is conferred only to the

Magistrates as provided under the Code of Criminal Procedure. Fine as

an alternative to imprisonment on finding guilty, can only be imposed by

the competent Magistrate who adjudicates the issue on the basis of any

complaint filed by the passport authority. Therefore, it is unequivocal that the passport authority is not vested with

any powers under Section 12 to impose any fine on any person who

commits any offence in contemplation of Section 12 of the Act 1967.

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT

 THE CHIEF JUSTICE MR.S.MANIKUMAR

&

 MR. JUSTICE SHAJI P.CHALY

WP(C).No.7945 OF 2018(S)

 CITIZENS LEGAL RIGHT ASSOCIATION Vs  UNION OF INDIA

Dated this the 2nd day of June, 2020

S.Manikumar, CJ.

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Whether plaintiff can get title on government land by adverse possession if he pays penalty in encroachment case?

The court further observed that plea of adverse possession is not a pure question of law but a blended one of fact and law. Therefore, a person who claims adverse possession should show: (a) on what date he came into possession, (b) what was the nature of his possession, (c) whether the factum of possession was known to the other party, (d) how long his possession has continued, and (e) his possession was open and undisturbed. A person pleading adverse possession has no equities in his favour. Since he is trying to defeat the rights of the true owner, it is for him to clearly plead and establish all facts necessary to establish his adverse possession."

(Emphasis laid)

11. Ext. 3, rent receipt, shows that the father of the plaintiffs paid penalty in Encroachment Case No. 1/82. This Court in the case of Abu Bakkar Habib (MANU/OR/0020/2017 : AIR 2017 Ori 36) held that when penalty is paid, the plaintiff admits the title of the State. The possession is not hostile to the real owner and amount to a denial of title to the property claimed.

12. The plaintiffs have failed to prove the date of entry into the suit land. Their father paid the penalty. The element of hostile animus is absent. The findings of the courts below with regard to acquisition of title by the plaintiffs are perverse. The substantial question of law has been answered accordingly.

IN THE HIGH COURT OF ORISSA

S.A. No. 7 of 1997

Decided On: 25.01.2019

State of Orissa  Vs.  Jaladhar Sha and Ors.

Hon'ble Judges/Coram:

Dr. Akshaya Kumar Rath, J.

Citation: AIR 2019 Orissa 48

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Whether compensation under right to information Act can be granted even if no loss is suffered by applicant?

I find sufficient force in the submissions made by the learned Government Pleader on the side of the petitioners. Exhibit P2 order has recorded clearly that eight relevant pages in the file were not presently available. However, there is nothing to show that these eight pages were available earlier and that it was withheld to the information of the first respondent. The Commission has not considered this aspect in that angle at all. The commission only says that the pages are presently unavailable but does not investigate or conclude whether these pages were available earlier or whether they have been kept deliberately out of the information of the first respondent.

9. In such view of the matter, I am not sure if the order, namely Exhibit P2, mulcting the State of Kerala with liability to pay compensation, to be recovered from its officers, would stand the test of law. I say this because under the provisions of Section 19(8)(b) of the Right to Information Act, 2005, the Commission would obtain jurisdiction to make such orders to compensate the complainant or to impose penalties only if loss or detriment has been suffered by the applicant. The operational survey of Section 19(8)(b) is unambiguous and concedes to no doubt. A reading of this Section would make the position limpid and for this purpose, I deem it apposite to extract it as below:

“19. Appeal.-(1) Any person who does not receive a decision within the time specified in sub-section(1) or clause (a) of sub-section(3) of section 7, or is aggrieved by a decision of the Central Public Information officer or the State Public Information Officer, as the case may be, may within thirty days from the expirty of such period or from the receipt of such a decision prefer an appeal to such officer who is senior in rank to the Central Public Information Officer or the State Public Information Officer, as the case may be, in each public authority:

(8) In its decision, the Central Information commission or State Information Commission, as the case may be, has the power to,—

(b) require the public authority to compensate the complainant for any loss or other detriment suffered.”

10. In the case at hand, even though the first respondent says that he has suffered a loss of Rs. 3,50,000/-, the Commission has granted an amount of Rs. 25,000/- without any adjudication as to the actual loss suffered by him and also without assessing whether the information said to be not given to him was deliberately withheld by the authorities. In the absence of such an enquiry the order of the Commission certainly would not hold legal sustenance and I am, therefore, left without any option but to set aside the same. I do so.

In the High Court of Kerala at Ernakulam

(Before Devan Ramachandran, J.)

The State Public Information Officer 

v.

Sri. Rajendran Pillai 

W.P. (C) No. 31672 of 2011 H

Decided on August 4, 2017

Citation:2017 SCC OnLine Ker 15958 : (2017) 4 KLJ 468

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Whether court can extend time for payment of consideration amount in execution of consent decree?

 In the present case, there was a decree for a sum of Rs.1,04,50,000/-. On the judgment debtor's application, by consent of parties, a concession was granted to the judgment debtor to pay an amount of Rs.90,00,000/- in two instalments of Rs.45,00,000/- each in full and final settlement of the Plaintiff's claim. On failure of such payment, the order provided for the entire decretal amount becoming due and the decree being liable to be executed on that basis. The case clearly comes within the dicta of the Full Bench judgment of our court in the case of Waman Vishwanath. A clause providing for execution of the decree for the entire decretal amount on failure of payment of a concessional amount within a stipulated time is not in the nature of penalty or forfeiture and there is no question of this court relieving the judgment debtor of its consequences. Mr.Cama tries to distinguish the consent order in the present case as an order providing for payment of a larger amount in default of payment of the decretal sum in instalments. The submission is that the original decree was set aside and substituted by a decree for payment of a smaller sum and in default, for payment of the larger sum, i.e. the original decretal sum. The suggestion seems to be that to come within the principle of Waman Vishwanath, the original decree had to be retained and its satisfaction had to be provided in terms of payment in instalments of a lesser sum (i.e. the concessional sum). This is nothing but a matter of semantics. In substance, the original decree is given a go by only on the basis of a concessional payment, failure of such payment resulting into an entitlement to execution of the decree already passed, and that cannot be termed as a penalty or a forfeiture. The application for extension of time is, accordingly, rejected.

Bombay High Court

Sonal Deepak Shah vs Rachna Developers And Marketing ... on 30 August, 2016

Bench: S.C. Gupte

Citation:2016(6) ALLMR 222

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What amount is to be deposited while filing municipal appeal under S 406 of BPMC Act?

With the aforesaid factual backdrop, in the teeth of the above statutory provisions, one cannot dispute that tax, interest and penalty are three different concepts. Tax becomes payable by an assessee by virtue of the charging provision in a taxing statute. Penalty ordinarily become payable when it is found that an assessee  has willfully violated any of the provisions of the taxing statute. Interest is ordinarily claimed from an assessee who has withheld payment of any tax payable by him and it is always calculated at the prescribed rate on the basis of the actual amount of tax withheld and the extent of delay caused in paying it. It is, therefore, clear that interest is compensatory in character and not penal. [ACC Cement Co.Ltd. v. Commercial Tax Officer (supra) Para-23]

18. Having found three different concepts referred to above, if one turns to clause (e) of sub-section (2) of section 406 of the Act, what is required to be deposited is the amount of disputed tax or the amount of tax chargeable on the basis of the disputed ratable value upto the date of filing of appeal. If that be so, the submission advanced by the petitioners that the said sub-section does not require the appellant to pre- deposit interest and penalty amount needs to be accepted.

Bombay High Court

M/S.C.G.International Pvt.Ltd vs The State Of Maharashtra And ... on 22 January, 2010

Bench: V.C. Daga

                                       
      WRIT PETITION NO. 4176 OF 2008

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Whether collector should always impose maximum penalty in every case on deficit stamp duty?

The last issue which we must take notice of is the levy of penalty. While it is true that sub section (4) of section 47-A empowers the Collector to impose penalty not exceeding four time the proper stamp duty, the same stands attracted in a case where it is found that the market value of the property was not truly set forth. There must therefore necessarily be an intention to evade payment of duty, which entails the levy of penalty. Secondly the words "not exceeding..." confer on the Collector a discretion to levy penalty dependent upon the facts of each individual case. The mere prescription of a maximum does not necessarily mean that in each case a penalty equivalent to four times the proper duty is liable to be paid. In any view of the matter, the imposition of penalty has serious civil consequences and therefore must be preceded by due application of mind and a consideration of all relevant factors including whether there was an intention to evade payment of duty. We find that the Collector has failed to advert to this aspect also while passing the impugned orders. 
HIGH COURT OF JUDICATURE AT ALLAHABAD 
The Chief Justice's Court
Case :- SPECIAL APPEAL DEFECTIVE No. - 598 of 2015
 Smt. Vijaya Jain V State Of U.P. And 2 Others

Hon'ble Dr. Dhananjaya Yeshwant Chandrachud,Chief Justice
Hon'ble Yashwant Varma,J. 
Citation:AIR 2016 (NOC)449 ALL
Order Date :- 1.9.2015 

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Whether unregistered partition deed can be used for collateral purpose if it is not properly stamped?

Then the next question that falls for consideration is whether

these can be used for any collateral purpose. The larger Bench of

Andhra Pradesh High Court in Chinnappa Reddy Gari Muthyala

Reddy Vs. Chinnappa Reddy Gari Vankat Reddy , AIR 1969 A.P.

(242) has held that the whole process of partition contemplates

three phases i.e. severancy of status, division of joint property by

metes and bounds and nature of possession of various shares. In a

suit for partition, an unregistered document can be relied upon for

collateral purpose i.e. severancy of title, nature of possession of

various shares but not for the primary purpose i.e. division of joint

properties by metes and bounds. An unstamped instrument is not

admissible in evidence even for collateral purpose, until the same is

impounded. Hence, if the appellants/defendants want to mark these

documents for collateral purpose it is open for them to pay the

stamp duty together with penalty and get the document impounded

and the Trial Court is at liberty to mark Exhibits B-21 and B- 22 for

collateral purpose subject to proof and relevance.

Accordingly, Civil Appeal is partly allowed holding that Exhibits

B-21 and B-22 are admissible in evidence for collateral purpose

subject to payment of stamp duty, penalty, proof and relevancy.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8441 OF 2015

ARISING OUT OF

SPECIAL LEAVE PETITION (CIVIL) NO. 12788 OF 2014

YELLAPU UMA MAHESWARI  V BUDDHA JAGADHEESWARARAO & ORS.

Dated: October 08, 2015

Author: N.V. RAMANA, J.

Citation:(2015) 16SCC787

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Whether loss to govt can be presumed when there is delay in completion of public project?

There is no dispute that the appellant failed to execute the work
of construction of sewerage pumping station within the stipulated or
extended time.
The said pumping station certainly was of public
utility to maintain and preserve clean environment, absence of which
could result in environmental degradation by stagnation of water in
low lying areas.
Delay also resulted in loss of interest on blocked
capital as rightly observed in para 7 of the impugned judgment of the
High Court.
In these circumstances, loss could be assumed, even
without proof and burden was on the appellant who committed
breach to show that no loss was caused by delay or that the amount
stipulated as damages for breach of contract was in the nature of
penalty. Even if technically the time was not of essence, it could not
be presumed that delay was of no consequence.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS...1440-1441 OF 2015
(ARISING OUT OF SLP (C) NOS.35365-35366 OF 2012)
M/S. CONSTRUCTION & DESIGN SERVICES
...APPELLANT
VERSUS
DELHI DEVELOPMENT AUTHORITY
Dated;FEBRUARY 4, 2015

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Whether govt can impose penalty upon contractor without following principles of natural justice?

Defendant no. 3 passed the order of rescinding the contract, without issuing any show cause notice or holding an enquiry, as required under clause 3(d) of the contract and therefore the learned trial judge has rightly recorded the findings on the aforesaid contentious issues in favour of the plaintiff and rightly held that the rescinding of the contract was not justified. The unilateral rescission of the contract of the plaintiff by defendant No. 3 is arbitrary and unreasonable. The action of defendant no.3 in rescinding the contract has resulted in serious civil consequences of imposition of penalty and forfeiture of the earnest money deposit amount, security deposit and withholding the bill amount in relation to the execution of the work by the plaintiff.

Therefore, defendant no. 3 before rescinding the contract, by invoking his power under clause 3(d) of the agreement, should have complied with the conditions mentioned in the said clause as the same is mandatory.

Ramachandra Narayan Nayak Vs. Karnataka Neeravari Nigam Ltd. & Ors.

[Civil Appeal Nos. 77-84 of 2004]

Dated;27 august 2013

Citation;2013 AIR(SCW)5913

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Whether earnest money can be forfeited even in absence of proof of damage?

Mr. Palaniswami strenuously contended that as the amount is in the nature of earnest money, it could be forfeited notwithstanding the absence of proof of damage. Reliance was placed upon a decision of our High Court in Natesa Aiyar v. Appavu Padayachi (ILR 38 Mad 78): (AIR1915 Mad 896) (FB). Apart from the fact that we have our own doubts whether, in the light of the later pronouncements of the Supreme Court, the ratio of the above decision would still be applicable to the facts of this stage that the parties expressly stipulated that what was paid under Ex.B-2 was not earnest money but advance. It is reasonable also to characterise this amount as advance since it bears a very great proportion to the totality of the consideration as well. Generally earnest money forms a small proportion or ratio to the consideration which is agreed to be the consideration to be passed by one to the other under a contract of sale. Having regard to the fact that the amount of Rs. 10,000/- was paid, treated and nomenclatures as advance under Ex.B-2, we are unable to agree with Mr. Palaniswami that the amount paid should be treated automatically as earnest money. Again in the absence of pleading that the defendants have suffered damage to the tune of Rs. 10,000/- the plea that the entire amount paid by the plaintiff cannot be demanded and the defendants are not under an obligation to refund it is an extreme contention. We searched in vain for proof of any such sufferance of damage and in fact Mr. Palaniswami was called upon to refer to such a plea or a statement in the witness box by the witnesses examined on the side of the defendants. He was unable to refer to any specific statement by the defendants or by the witness examined on their side. It was in those circumstances that Sethuraman. J., said that without reference to any actual damage, the amount referred to in the agreement cannot be forfeited, because it would be in the nature of penalty. Proof of actual damage is a sine qua non to seek damage. The Supreme Court noticed the inequity in a case where an automatic forfeiture is sought for by a defendant and their conclusion is based upon the principle that nobody can unjustly enrich himself.

Madras High Court

Marimuthu Gounder vs Ramaswamy Gounder And Ors. on 11 September, 1978

Equivalent citations: AIR 1979 Mad 189, (1979) 1 MLJ 343

Bench: T R Rao, Ramanujam

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