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 seller is bound to deliver possession of property to purchaser in absence of recital in that regard in agreement of sale?

 On the other hand, the reliance placed on behalf of the respondent on the judgment of the Madras High Court in the case of Sundara Ramanujam Naidu v. Sivalingam Pillai and another (supra) is appropriate. It has been held by the Madras High Court in the said judgment as follows :-

"I am quite clear that the suit falls within section 7, clause (1)(a) of the Court Fees Act. The words used are "specific performance of a contract of sale." Specific performance does not exist merely of the execution of a sale-deed. A suit to obtain a sale-deed is not what is referred to in the said section; but it is a suit for specific performance of a contract of sale. The execution of a conveyance is only a part of the specific performance. If the vendor agrees to execute a conveyance as well as to deliver possession, it cannot be said that specific performance of the contract does not comprise both the execution of the sale-deed and delivery of possession. In every contract of sale, unless the contrary appears, the vendor must be deemed to impliedly agree to give possession of the property to the purchaser. In a suit for specific performance, the purchaser seeks to enforce the terms of his contract. The seller as much agrees to put the purchaser in possession, as he agrees to execute a conveyance in his favour."

16. It has been observed in the judgment of the Special Bench of the Calcutta High Court in the case of Sm. Dhiraj Bala Karia v. Jethia Estate Pvt. Ltd. (supra), as follows :-

"Mr. Bhabra himself did not seriously dispute that prior to the repeal of the Specific Relief Act, 1877, although there was some divergence of judicial views, there was preponderance of judicial authority that obligation to deliver possession was an integral part of a contract to sell or lease an immovable property. Such obligation of the vendor to put the vendee in possession flowed from the agreement to sell or to grant lease. Even in the absence of any express provision in the agreement, the vendor had such obligation under Section 55(1) (f) and under Section 108(b) of the Transfer of Property Act, 1882."

17. I agree with the said exposition of law by the Madras High Court and Calcutta High Court. It is evident that the above quoted provisions of Transfer of Property Act, 1882, demonstrate that once parties entered into an agreement to sale of the kind which is subject matter of the present appeal, unless the contrary is demonstrated, it must be deemed that the seller has impliedly agreed to deliver the possession of the property to the purchaser, upon execution of sale deed.

IN THE HIGH COURT OF BOMBAY (NAGPUR BENCH)

Second Appeal (SA) No. 363 of 2017

Decided On: 19.04.2018

 Maroti   Vs.  Dada

Hon'ble Judges/Coram:

Manish Pitale, J.

Citation: 2018(6) MHLJ 642

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Whether purchaser can compel seller to redeem the mortgage and to obtain a valid discharge?

 Another important aspect of this case that has slipped the eyes of the courts below is the question of the mortgage of the suit property, as pleaded by the defendant Nos. 4 and 5. They placed the confirmation of mutation in favour of the Bank, Ex. D-1 and the Mortgage deed, Ex. D-2 as evidence. The plaintiffs have referred to the same in para 2 of their pleadings and the defendants, in reply have admitted this in para 2 of their written statement wherein they have stated that it is a matter of record that they have mortgaged their portion of the land in favour of defendant Nos. 4 and 5. More importantly, the plaintiffs have admitted the same in para 2 of their plaint, therefore it was in their knowledge that the land in question was already mortgaged with defendant Nos. 4 and 5. There has been no finding recorded on the same by either the appellate courts or the Trial Court and as per Section 13(c) of the Act, when the vendor (the defendants herein) professes to sell unencumbered property but the same is mortgaged, then the vendor has only a right to redeem it and the purchaser may compel him to redeem the mortgage and to obtain a valid discharge. This aspect of the matter, too, has not been dealt with by the Trial Court or the appellate courts.

Supreme Court of India

Shamsher Singh & Ors vs Rajinder Kumar & Ors on 16 April, 2014

Bench: Sudhansu Jyoti Mukhopadhaya, V. Gopala Gowda

Citation;(2015)5 SCC531

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Whether right of examination of goods and right of rejection of goods are two statutory rights of buyer?

In fact, it may be seen that the right of examination of the
goods and the consequent right of rejection of the goods which are two
statutory rights of the respondent as the buyer would be defeated because
the respondent would not have reasonable opportunity of examining the
goods and a reasonable time to reject the goods outside the period of 30
days specified in Clause 4.2(b) of the Contract. Such an agreement would
be void under Section 23 of the Contract Act because if permitted it would
defeat the provisions contained in Sections 41 & 42 of the Sale of Goods
Act.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 398 OF 2014
JSW Steel Ltd. .. Petitioner
Vs.
AI Ghuriar Iron & Steel LLC .. Respondent

CORAM : MRS. ROSHAN DALVI, J.

Date of pronouncing the Judgment : 20 th AUGUST, 2014 .
Citation;2015(2) ALLMR60,AIR 2015(NOC)448 BOM
Read original judgment; click here

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Whether earnest amount can be forfeited when there is no loss or damage to seller?

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

 On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be as follows:- Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation.

Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.

Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section.

The Section applies whether a person is a plaintiff or a defendant in a suit.

The sum spoken of may already be paid or be payable in future.

The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.

Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application.

Supreme Court of India

M/S. Kailash Nath Associates vs Delhi Development Authority & Anr on 9 January, 2015

Bench: Ranjan Gogoi, Rohinton Fali Nariman

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