Sh. Thakur Dass (Since Deceased) ... vs Sh.Laxman Basandani
2011 Latest Caselaw 5356 Del

*                IN THE HIGH COURT OF DELHI AT NEW DELHI

+                            RFA No.467/2011
%                                                          4th November, 2011

SH. THAKUR DASS (SINCE DECEASED) THROUGH LR's ...... Appellants
                     Through: Mr. B.S.Maan, Adv.


                             VERSUS

Sh.LAXMAN BASANDANI                                               ...... Respondent

                             Through:           Mr. Sanjay Luthra, Adv.

CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA

1. Whether the Reporters of local papers may be allowed to see the judgment?

    2.   To be referred to the Reporter or not?                                Yes

    3.   Whether the judgment should be reported in the Digest?                Yes


VALMIKI J. MEHTA, J (ORAL)

1. The challenge by means of this Regular First Appeal under

Section 96 of the Code of Civil Procedure (CPC), 1908 is to the impugned

judgment of the Trial Court dated 31.5.2011. By the impugned judgment,

the Trial Court decreed the suit for specific performance and for the

alternative relief of damages. The suit has been decreed for double the

amount of earnest money, i.e. Rs.6,00,000/- inasmuch as the

respondent/plaintiff had paid an amount of Rs.3,00,000/- to the

appellants/defendants as earnest money.

2. The facts of the case are that with respect to the property

being LIG Flat No.253, Second Floor, Block-G, Secotr-B2, Narela, Delhi, the

respondent/plaintiff as buyer and the appellants/defendants as sellers

entered into an agreement to sell dated 22.4.2008. An amount of

Rs.3,00,000/- was paid as part of the total consideration under the

agreement to sell as earnest money. There were disputes and differences

between the parties wherein allegations were made against each other

that the other party was guilty of breach of contract. Ultimately, the

subject suit for specific performance or in the alternative for damages

came to be filed and which was decreed by the impugned judgment for

double the amount of earnest money by holding the

appellants/defendants/sellers guilty of breach of contract.

3. Learned counsel for the appellants/defendants has argued that

even if the appellants/defendants were guilty of breach of contract, yet, in

accordance with the Constitution Bench decision of the Supreme Court in

the case of Fateh Chand Vs Balkishan Dass, (1964) 1 SCR 515; AIR

1963 SC 1405, the respondent/plaintiff/buyer is not entitled to damages

of Rs.3,00,000/- (in addition to Rs.3,00,000/- paid as part-price) merely

because there is a clause in the contract entitling payment of double the

amount of price paid, inasmuch as such a clause is violative of Section 74

of the Contract Act, 1872. It is argued that unless damages are proved to

have been caused, and which in this case would be the increase in the

value of the property on the date of the stated breach, the

respondent/plaintiff will not be entitled to damages of Rs.3,00,000/-. The

relevant paragraphs of the judgment in the case of Fateh Chand Vs

Balkishan Dass, (1964) 1 SCR 515; AIR 1963 SC 1405 are paras

8,10,15 and 16, which read as under:-

"8. The claim made by the plaintiff to forfeit the amount of Rs 24,000 may be adjusted in the light of Section 74 of the Indian Contract Act, which in its material part provides:-

"When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or as the case may be, the penalty stipulated for."

The section is clearly an attempt to eliminate the sometime elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine pre- estimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties: a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it, awarding to the aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty.

10. Section 74 of the Indian Contract Act deals with the measure of damages in two classes of cases (i) where the contract names a sum to be paid in case of breach and (ii) where the contract contains any other stipulation by way of penalty. We are in the present case not concerned to decide whether a contract containing a covenant of forfeiture of deposit for due performance of a contract falls within the first class. The measure of damages in the case of breach of a stipulation by way of penalty is by Section 74 reasonable compensation not exceeding the penalty stipulated for. In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard

to all the circumstances of the case. Jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract, whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of "actual loss or damage"; it does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted, because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach.

15. Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of the parties pre-determined, or where there is a stipulation by way of penalty. But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party; it merely declares the law that notwithstanding any term in the contract predetermining damages or providing for forfeiture of any property by way of penalty, the court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated. The jurisdiction of the court is not determined by the accidental circumstance of the party in default being a plaintiff or a defendant in a suit. Use of the expression "to receive from the party who has broken the contract" does not predicate that the jurisdiction of the court to adjust amounts which have been paid by the party in default cannot be exercised in dealing with the claim of the party complaining of breach of contract. The court has to adjudge in every case reasonable compensation to which the plaintiff is entitled from the defendant on breach of the contract. Such compensation has to be ascertained having regard to the conditions existing on the date of the breach.

16. There is no evidence that any loss was suffered by the plaintiff in consequence of the default by the defendant, save as to the loss suffered by him by being kept out of possession of the property. There is no evidence that the property had depreciated in value since the date of the

contract provided; nor was there evidence that any other special damage had resulted. The contact provided for forfeiture of Rs 25,000 consisting of Rs, 1039 paid as earnest money and Rs 24,000 paid as part of the purchase price. The defendant has conceded that the plaintiff was entitled to forfeit the amount of Rs 1000 which was paid as earnest money. We cannot however agree with the High Court that 13 percent of the price may be regarded as reasonable compensation in relation to the value of the contract as a whole, as that in our opinion is assessed on an arbitrary assumption. The plaintiff failed to prove the loss suffered by him in consequence of the breach of the contract committed by the defendant and we are unable to find any principle on which compensation equal to ten percent of the agreed price could be awarded to the plaintiff. The plaintiff has been allowed Rs 1000 which was the earnest money as part of the damages. Besides he had use of the remaining sum of Rs 24,000, and we can rightly presume that he must have been deriving advantage from that amount throughout this period. In the absence therefore of any proof of damage arising from the breach of the contract, we are of opinion that the amount of Rs 1000 (earnest money) which has been forfeited, and the advantage that the plaintiff must have derived from the possession of the remaining sum of Rs 24,000 during all this period would be sufficient compensation to him. It may be added that the plaintiff has separately claimed mesne profits for being kept out possession for which he has got a decree and therefore the fact that the plaintiff was out of possession cannot be taken, into account in determining damages for this purpose. The decree passed by the High Court awarding Rs.11,250 as damages to the plaintiff must therefore be set aside." (Underlining added)

4. It was not disputed on behalf of the respondent/plaintiff during

the course of hearing that no evidence was led before the Trial Court with

respect to the loss having been caused to the respondent/plaintiff, and the

respondent/plaintiff was only relying upon the contractual clause 7 for

claiming double the amount of earnest money as damages.

5. In my opinion, the arguments as raised by counsel for the

appellants have merit in view of the judgment in the case of Fateh Chand

(supra) and therefore the appeal deserves to succeed. The aforesaid

paras of the Constitution Bench Judgment of the Supreme Court show that

unless loss is caused by breach of contract, and which loss is actually

proved, the aggrieved person cannot claim damages. In the present case

as already stated above, the respondent/plaintiff did not plead or prove

that any loss was caused to him, and, for the entitlement to the claim of

damages what was relied upon was only the contractual clause 7.

6. Accordingly, the appeal is allowed. The impugned judgment

and decree awarding Rs.6,00,000/- in favour of the respondent/plaintiff is

set aside. The respondent/plaintiff will be entitled to a decree of

Rs.3,00,000/- along with interest therein at the rate of 12% per annum

simple from 22.4.2008 till the date of payment. Parties are left to bear

their own costs. Decree sheet be prepared. Trial Court record be sent

back.

NOVEMBER 04, 2011                              VALMIKI J. MEHTA, J.
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