Delhi High Court
Mithlesh Rai vs Amarnath Rai on 20 August, 2014
Author: A. K. Pathak
$~16
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ RFA 470/2013
Decided on 20th August, 2014
MITHLESH RAI ..... Appellant
Through :Mr. Atul T. N. And Mr. Harsh
Raghuvanshi, Advs.
versus
AMARNATH RAI ..... Respondent
Through :Mr. Kedar Yadav and Mr. G.S.
Upadhyaya, Advs.
CORAM:
HON'BLE MR. JUSTICE A.K. PATHAK
A.K.PATHAK, J.(ORAL)
1. Respondent filed a suit against the appellant for specific performance
of Agreement to Sell dated 29th December, 2007 and in the alternative
money decree for `4,00,000/-, that is, double the amount of earnest money
of `2,00,000/-. Vide judgment and decree impugned in the appeal trial court
has passed a decree in the sum of `2,00,000/- in favour of the respondent
with interest @ 6% p.a. Relief of specific performance has been declined.
RFA 470/2013 Page 1 of 6
2. Agreement to Sell Ex. PW1/1 was not disputed, inasmuch as was
duly proved on record. A total sale consideration, as per the Agreement,
was fixed at `6,00,000/-. It was admitted by the appellant that `2,00,000/-
was paid by the respondent at the time of execution of Agreement Ex.
PW1/1. The balance amount of `4,00,000/- was payable at the time of
execution of sale documents on or before 28th March, 2008. The trial court
has returned a categorical finding that respondent was himself not ready and
willing to perform his part of obligation as contained in the agreement and
failed to tender balance sale consideration of `4,00,000/-, inasmuch as was
not having arrangement of this amount.
3. In para 5 of the judgment, trial court has held that appellant was not to
do any further act of taking permission from any authority and the parties
were to simply perform their part of obligation as contained in the
Agreement simultaneously on or before 28th March, 2008. Respondent was
to pay the balance amount of `4,00,000/- and appellant was to execute the
documents of sale in favour of the respondent. Respondent did not have any
arrangement with the financial institution for balance amount. In his cross-
examination, respondent admitted that he used to earn `6,000/- per month.
He further deposed that he was to arrange `4,00,000/- from his family
RFA 470/2013 Page 2 of 6
members. He claimed that he had arranged the amount in February, 2008
but no documentary evidence in this regard could be placed on record by
him, inasmuch as he did not disclose the names of such family members,
who provided him financial help. Trial court has relied on the statement of
respondent in his cross-examination dated 30th November, 2010 that he
could have arranged the money from his family sources. Trial court has
concluded that respondent was not having the balance sale consideration of
`4,00,000/- with him on or before 28th March, 2008 and was not, in fact,
ready and willing to perform his part of Agreement.
4. The findings returned by the trial court to the above effect, have
remained unchallenged as respondent has not filed any appeal or cross-
appeal.
5. After having returned the above finding, trial court, in my view, was
not right in passing a decree in favour of respondent in the sum of
`2,00,000/- together with interest @ 6% per annum, that is, for return of
earnest money with interest
6. Clause 6 of the Agreement Ex. PW1/1 reads as under:-
RFA 470/2013 Page 3 of 6
"6. If the first party fails/denies to execute the
related documents in favour of second party then
he will have to refund a double amount of
bayana/initial money, or if the second party will
not pay all the remaining amount to the first party
within the stipulated period, then his bayana
amount will be forfeited by first party."
(Emphasis laid)
7. In the Agreement, appellant has been referred as "first party" and
respondent as "second party". In view of Clause 6 of the agreement, in my
view appellant was justified in forfeiting the earnest money, on failure of the
respondent to tender the balance sale consideration within the stipulated
period.
8. Similar clause was involved in Satish Batra vs. Sudhir Rawal, (2013)
1 Supreme Court Cases 345. A question was posed for consideration as to
whether the seller is entitled to forfeit the earnest money deposit where the
sale of an immovable property falls through by reason of the fault or failure
of the purchaser? The Apex Court held that the seller was justified in
forfeiting the earnest money, as per the relevant clause, since the earnest
money was primarily a security for the due performance of the agreement
and, consequently, the seller is entitled to forfeit the entire deposit.
RFA 470/2013 Page 4 of 6
9. In the Satish Batra (supra), the relevant Clause reads as under:-
"(e) If the prospective purchaser fails to fulfil the
above condition, the transaction shall stand
cancelled and earnest money will be forfeited. In
case I fail to complete the transaction as stipulated
above, the purchaser will get DOUBLE the amount
of the earnest money. In both conditions, the
DEALER will get 4% commission from the
faulting party."
10. In the context of aforesaid Clause Apex Court in paras 16 and 17 has
held as under:
"16. When we examine the clauses in the instant case,
it is amply clear that the clause extracted hereinabove
was included in the contract at the moment at which
the contract was entered into. It represents the
guarantee that the contract would be fulfilled. In other
words, 'earnest' is given to bind the contract, which is a
part of the purchase price when the transaction is
carried out and it will be forfeited when the transaction
falls through by reason of the default or failure of the
purchaser. There is no other clause militates against the
clauses extracted in the agreement dated 29.11.2011.
17. We are, therefore, of the view that the seller was
justified in forfeiting the amount of Rs. 7,00,000/- as
per the relevant clause, since the earnest money was
primarily a security for the due performance of the
agreement and, consequently, the seller is entitled to
RFA 470/2013 Page 5 of 6
forfeit the entire deposit. The High Court has,
therefore, committed an error in reversing the judgment
of the trial court."
11. In the present case, trial court has returned a categorical finding that it
is the defendant who was not ready and willing to perform his part of
obligation, that is, tendering the balance sale consideration of `4,00,000/- on
or before 28th March, 2008. Having arrived at the said finding, trial court
ought not have passed a decree for refund of the earnest money together
with interest, since appellant was well within his rights to forfeit the earnest
money in terms of Clause 6 of the agreement.
12. For the foregoing reasons, impugned judgment and decree are set
aside. Parties are left to bear their own costs. The amount lying deposited
in this Court together with interest accrued thereon, if any, be released to the
appellant. Appeal is disposed of in the above terms.
A.K. PATHAK, J.
AUGUST 20, 2014
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