In Re: R.K. Staple Spinning Mills ... vs Unknown
1971 Latest Caselaw 371 Del

JUDGMENT

S. Rangarajan, J.

1. This is an application praying that a sum of Rs. 10,000, which was deposited by the petitioner by means of bank draft with the official liquidator in connection with the offer made by the petitioner regarding the advertised sale of staple yarn factory (in liquidation) may be directed to be refunded to him. The advertisement made by the official liquidator was in the following terms :

"Under the command of the Hon'ble High Court of Delhi the spinning mill land and buildings, plant and machinery of M/s R.K. Staple Spinning Mill Pvt Ltd. (in liqn.) situated at 185/1, G.T. Road, Ludhiana, are to be inspected on Wednesday the 6th January, 1971, between 11 A.M. and 4 P.M. Offers in sealed covers in triplicate, accompanied with a bank draft of Rs. 10,000 as earnest money drawn in favor of official liquidator attached to the High Court, Delhi, should reach the undersigned on or before 18th January, 1971. For the offers not accepted, earnest money would be refunded within a month. All registration charges and other expenses connected with this sale are to be borne by the successful buyer."

2. In pursuance of the sale the petitioner submitted an offer on the 16th January, 1971, and sent a bank draft for Rs. 10,000 bearing

No. 691799, payable at the Punjab National Bank, Parliament Street, New Delhi.

3. It is stated in the present petition that the offer of the petitioner had not been accepted and that more than a month had expired from January 18, 1971. Hence it is requested that the above said sum of Rs. 10,000 must be refunded.

4. It is stated in the reply filed by the official liquidator that he had applied to the court on March 10, 1971, for consideration of the offer and according to the instructions given on the administrative side addressed a letter on March 11, 1971, which was handed over to the petitioner personally when he visited the office. The fact of the interview of the petitioner with the official liquidator was confirmed by the petitioner's letter dated March 16, 1971 (copy of which is annexure ' B '), wherein the petitioner had stated that he, required inspection of the premises. The 18th of March, 1971, was arranged for the inspection at the expense of the petitioner.

5. The official liquidator informed the petitioner that the High Court had accepted the offer of the petitioner (of Rs. 13,01,001) and that after adjusting the above amount of Rs. 10,000 the balance of Rs. 12,91,001 may be paid by bank draft in the name of the official liquidator on or before April 16, 1971 (copy of the said letter is annexure ' C '). The petitioner neither paid the balance amount nor replied to the official liquidator. Since the petitioner went back on his offer the property was advertised for sale. The official liquidator stated that he would have to take steps against the petitioner for recovery of any loss which may be sustained as a result of re-sale.

6. We are now not concerned with the extent to which the petitioner may have to make good the loss, if any, sustained by ultimately selling the property once again. The only question now for consideration is whether the petitioner having defaulted to complete the sale and pay the balance of the purchase offer is the petitioner entitled to refund of Rs. 10,000. It is stated in the said advertisement that the above-said sum of Rs. 10,000 was " earnest money ". The advertisement only stated that if the offer was not accepted the earnest money should be refunded within a month. There is no doubt no express term in the advertisement that if the offer was accepted and there was default by the offerer the above-said money would be forfeited, but this is just an ordinary legal incident which flows from the use of the expression " earnest money " in this context. The distinction between earnest money and a deposit by way of advance is well-known ; in the case of the former the said amount has to be forfeited if there is default by the offerer. The English cases on this question were considered by a Division Bench of the Madras High Court in Desu Ratlamma v. Krishna Murthi, A.I..R. 1928 Mad. 326, which held that " advances made by purchasers to vendors in respect

of a sale are recoverable even if the transaction falls through owing to purchaser's default, unless the vendor proves that there is an implied contract between the parties that the money paid in advance should be treated as security for the purchaser's fulfillment of the bargain, and as such liable to be forfeited on his default. " It was pointed out that there could be such forfeiture when there was proof that the advance was by way of earnest money. The very advertisement, in this case, on foot of which the petitioner made the offer, having described the amount as " earnest money " it follows for that very reason that the said amount could be forfeited when the offer or defaulted. Forfeiture of the earnest money is no doubt without prejudice to the promises to recover any loss resulting from re-sale, after adjusting the said amount of earnest money. The money is liable to be forfeited without proof of loss if the said amount was paid as earnest money. The difficulty of proof will arise only in cases where it is not possible to spell out whether the amount was paid merely by way of advance or as earnest money. In Howe v. Smith, (1884] 27 Ch. D. 89, Lord Bowen explained that " a deposit in the ordinary parlance is a security for the completion of the purchase." Jackson J., in the above Madras decision, explained that a mercantile contract in England does not lead to the inference that money paid in advance is in the absence of words to that effect a deposit by way of security and that the mere description of a sum as advance would not carry with it all the implications which that expression had acquired in the West through the course of European civilisation. Hence Jackson J. insisted on proof that the advance was paid by way of earnest money. Reference was also made to the decision in Roshan Lal v. Delhi Cloth and General Mill Co. Ltd [1910] I.L.R. 33 All. 166.., where the deposit was described as earnest money. When, in this case, the advertisement had specifically described the deposit of Rs. 10,000 to be made as " earnest money " and the petitioner had made the deposit in pursuance of that advertisement he cannot claim that the said sum should not be forfeited.

7. The Supreme Court has also dealt with this question recently in Maula Bux v. Union of India, . It is sufficient to set out the headnote (A) ;

" Earnest money is part of the purchase price when the transaction goes forward ; it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee."

8. The decision of the Judicial Committee in Chiranjit Singh v. ar Swarup A.I.R. 1926 P.C. 1. was followed by the Supreme Court. The Supreme Court further pointed out that if the forfeiture was in the nature of a penalty Section 74 of the Contract Act would apply. But it has not been suggested for the

petitioner that the above said forfeiture in this case was in the nature of a penalty.

9. While the above is the true position no question of jurisdiction had been expressly pleaded in the above petition. The petitioner had asked for an issue concerning jurisdiction also to be framed. The following issues were framed accordingly on August 9, 1971, by Prakash Narain J.:

(1) Whether the company court has jurisdiction to decide the question about the claim of the official liquidator to forfeit what was deposited by Nagar Mal Jaipuria along with his offer ?

(2) If issue No. 1 is decided in favor of the official liquidator, whether a concluded agreement of sale came into existence with Nagar Mal Jaipuria ?

(3) Whether the offer of the applicant stood revoked and the sum of Rs. 10,000 became refundable to him on the expiry of one month from January 18, 1971 ?

10. Issue No. 1 : I do not see how the question of jurisdiction arises. The petitioner is now seeking from this court a direction that the sum of Rs. 10,000 should be directed to be refunded to the petitioner. In fact it is he who wants the assistance of this court to direct the official liquidator to repay the said sum.

11. Issue No. 2 : This has not been argued.

12. Issue No. 3 : In view of my above finding, since the sum of Rs. 10,000 was paid as earnest money by the petitioner and the petitioner had not paid the balance as agreed but defaulted to complete the contract, the said amount is not refundable to him as claimed. In the circumstances, the petition is dismissed with costs. Counsel's fee Rs. 150.