Sh. Nitin Jaiswal & Anr vs M/S Allied Motors Ltd. & Ors
2018 Latest Caselaw 7337 Del

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*     IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                            Date of decision: 13.12.2018

+     CS(COMM) 346/2017
      SH. NITIN JAISWAL & ANR                   ..... Plaintiffs
                     Through  Mr.Mukul Talwar, Sr.Adv. with
                              Mr.Sunil Kumar, Mr.Ankit Dixit and
                              Mr.Hansraj, Advs.
                     Versus

      M/S ALLIED MOTORS LTD. & ORS              ..... Defendants
                   Through   Ms.Divya Kapur and Ms.Sugandha
                             Batra, Advs. for D-1, 3, 4 and 5.
                             Ms.Manvi Gola, Proxy Counsel for
                             Mr.Sanjay Kr.Sharma, Adv. for D-2.

      CORAM:
      HON'BLE MR. JUSTICE JAYANT NATH

JAYANT NATH, J. (ORAL)

IA No.2927/2018

1. This application is filed by the plaintiff under Order 13A seeking pronouncement of Summary Judgment against the defendants. The plaintiff has filed the present suit for recovery of a sum of Rs.17,91,00,750/- apart from other reliefs. The case of the plaintiffs is that defendant No.2 claiming himself to be the Director of defendant No.1 company after negotiations and deliberations entered into a Money Receipt Agreement with the plaintiffs dated 5.5.2014 signed on 6.5.2014 for transfer of the entire shareholding in defendant No.1 company in favour of plaintiffs free from all encumberances for Rs.42,25,00,000/-. The plaintiff is also said to have paid Rs.9,00,00,000/-

to defendant No.2 at the same time. It is stated that by 11.5.2014 defendnt No.2 received total amount of Rs.12,00,00,000/- from the plaintiffs. Besides, defendant No.2 also received various cheques on 11.5.2014 in the name of defendants No.1,3,4 and 5 for Rs.1,50,00,000/-. One cheque of Rs.50,00,000/- issued in favour of defendant No.1 was never presented by the defendants. On 5.12.2014 it is pleaded that the defendants got a pre- printed M.O.U. executed from the plaintiff re-fixing the total consideration as Rs.40,12,50,000/-. On 14.2.2015 a third agreement was executed. The price was refixed by the defendants at Rs.36,00,00,000/- by giving a credit of Rs.6,25,000/- already paid. It is pleaded that by this time the plaintiff has already paid to the defendants a sum of Rs.17,91,00,750/-.

2. In August 2015 the defendant No.3 is said to have unilaterally and willfully decided to cancel the contract. On 2.9.2015 the plaintiff received a letter from defendant No.3 threatening to forfeit the amount already received. Hence, it is pleaded that from the aforesaid facts it is clear that defendant No.2 has for and on behalf of the other defendants received a sum of Rs.11,00,00,000/- whereas defendants No.3 to 5 have received an amount of Rs.6,91,00,750/- from the plaintiffs in collusion with each other.

3. In the written statement defendants No.1, 3, 4 and 5 have pleaded that defendant No.2 is not a party to the MOU dated 14.2.2015. It is further stated that any payments made to defendant No.2 are distinct and independent of the MOU and have nothing to do with the said defendants. Similar pleas are made regarding the Agreement dated 5.12.2014. It has been stated that payments received by defendant No.2 are not admitted and cannot be subject matter of claim against the answering defendants. It is further pleaded that an amount of Rs.4,91,00,000/- was received as earnest money by the said

defendant. MOU dated 5.12.2014 specifically provided that if the balance consideration was not paid by the plaintiffs on or before 26.12.2014 the same was liable to be forfeited. Further, as per that MOU dated 14.2.2015, the last date of payment of balance amount was mutually revised to 30.4.2015. As the plaintiff failed to make the payment within the said stipulated period the defendants claim to have forfeited the earnest money paid to the said defendants.

4. Defendant No.2 has in his written statement denied the entirety of the submissions of the plaintiff stating that nobody would pay Rs.42,25,00,000/- to buy a petrol pump which is only a dealership with Bharat Petroleum. The land on which the petrol pump is built is also a tenanted property. It is also denied that a sum of Rs.9,00,00,000/- was paid in cash to defendant No.2. Defendant No.2, however, does not deny his signatures on the said agreement. However, he states that the purpose and intent to sign these documents was to help the plaintiff get a loan from a bank. No money was received by the said defendant No.2.

5. I have heard learned counsel for the parties.

6. Learned senior counsel for the plaintiffs has vehemently argued that defendant No.2 all along represented himself to be the shareholder/Director of the respondent company. He has signed the agreement dated 5.12.2014 alongwith Ravi Talwar and Associates indicating that he has received cheques for defendants No.2 to 4 acting for and on their behalf. It was always held out that he is a Director/shareholder of defendant No.1 company which fact was never denied by any of the other defendants. Hence, it is pleaded that the defendants are liable to refund to the plaitniff the entire amount received by them, namely, of Rs.17,91,00,750/-. It is further pleaded

that the only defence raised by the defendants is that they have suffered damages and are entitled to forfeit the amount received. It is peladed that no proof of any damages other than vague averments have been placed on record. Hence, this court may pass directions to the defendants to refund to the plaintiff the entire amount received, namely, Rs.17,91,00,750/-.

7. Learned counsel appearing for defendants No.1,3,4 and 5 have strongly denied any relation with defendant No.2 Mr.Ajay Gupta. It is pleaded that he was acting in connivance with the plaintiffs to deceive and cheat the answering defendants. She further submits that as far as the payments received by defendant Nos.1, 3 to 5 are concerned the same have been forfeited on account of damages suffered by the said defendants. It is pleaded that plaintiff failed to abide by the terms and conditions of the MOU and hence the contract was cancelled. On account of the acts of the plaintiff the said defendants have not been able to sell the petrol pump in question. Their businesses have suffered damages. Hence, they are entitled to forfeit the said amounts received on account of damages suffered.

8. Order XIII A Rule 3 CPC reads as follows:-

"3. Grounds for summary judgment.--

The Court may give a summary judgment against a plaintiff or defendant on a claim if it considers that--

(a) the plaintiff has no real prospect of succeeding on the claim or the defendant has no real prospect of successfully defending the claim, as the case may be; and

(b) there is no other compelling reason why the claim should not be disposed of before recording of oral evidence."

9. The facts above show that as far as defendant No.2 is concerned, merely because he has signed the Agreement dated 5.12.2014 alongwith Mr.Ravi Talwar and Associates cannot lead to a conclusion that he is a

Director or shareholder of defendant No.1 or was held out to be so by the other defendant. It also cannot lead to a conclusion that he was authorized by the other defendants to accept money on their behalf. Payments received by defendant No.2, if any, cannot, at this stage, while adjudicating this application be held to be the liability of the other defendants. That apart, it is the contention that defendant No.2 has been allegedly paid a sum of Rs.11 crores by cash. The plaintiff would have to lead evidence before any such conclusion can be pressed.

10. As far as the other defendants are concerned they admittedly have received a sum of Rs.6,91,00,750/- from the plaintiffs de hors payment allegedly made to defendant No.2. Reference may be had to the MOU dated 5.12.2014. Clause 4 of the said MOU states as follows:-

"(4) That if the balance of Rs.35.195 crores has not been received from NJ & SJ and AGA on or before 26th December, 2014 the said MOU would be considered as cancelled and Rs.4.93 crores as received from NJ & SJ to RTA would be considered as forfeited by RTA"

11. Thereafter an MOU dated 14.2.2015 was executed which extended the time period to pay upto 30.4.2015 and also stated that in case balance payment is not received the MOU would be considered as cancelled and Rs.4,93,73,225/- received would be considered as forfeited. Clearly, in view of the above two MOUs prima facie the earnest deposit of Rs.4,93,73,225/- was liable to be forfeited as earnest deposit if the payments are not made within the stipulated period. I may note as stated above that the defendants have, however, received more than the earnest amount i.e. they have received Rs.6,91,00,750/-.

12. The Supreme Court in Kailash Nath Associates vs. Delhi Development Authority and Another, (2015) 4 SCC 136 stated the legal position regarding forfeiture of deposit as follows:-

"40. From the above, it is clear that this Court held that Maula Bux case [Maula Bux vs. Union of India, (1969) 2 SCC 554: was not, on facts, a case that related to earnest money. Consequently, the observation in Maula Bux that forfeiture of earnest money under a contract if reasonable does not fall within Section 74, and would fall within Section 74 only if earnest money is considered a penalty is not on a matter that directly arose for decision in that case. The law laid down by a Bench of 5 Judges in Fateh Chand case [Fateh Chand vs. Balkishan Dass, (1964) 1 SCR 515; is that all stipulations naming amounts to be paid in case of breach would be covered by Section 74. This is because Section 74 cuts across the rules of the English Common Law by enacting a 'uniform principle' that would apply to all amounts to be paid in case of breach, whether they are in the nature of penalty or otherwise. It must not be forgotten that as has been stated above, forfeiture of earnest money on the facts in Fateh Chand's case was conceded. In the circumstances, it would therefore be correct to say that as earnest money is an amount to be paid in case of breach of contract and named in the contract as such, it would necessarily be covered by Section 74.

......

42. In the present case, forfeiture of earnest money took place long after an agreement had been reached. It is obvious that the amount sought to be forfeited on the facts of the present case is sought to be forfeited without any loss being shown. In fact it has been shown that far from suffering any loss, DDA has received a much higher amount on re-auction of the same plot of land.

43. 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:

43.1. 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.

43.2 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. 43.4. The Section applies whether a person is a Plaintiff or a Defendant in a suit.

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

43.6. 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.

43.7. 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."

13. Learned counsel appearing for the defendants had relied upon the judgment of the Supreme court in Satish Batra vs. Sudhir Rawal, 2012

(132) DRJ 705, where the Supreme Court while dealing with the issue of earnest deposit has summed up the legal position as follows:-

"17. Law is, therefore, clear that to justify the forfeiture of advance money being part of 'earnest money' the terms of the contract should be clear and explicit. Earnest money is paid or given at the time when the contract is entered into and, as a pledge for its due performance by the depositor to be forfeited in case of non-performance, by the depositor. There can be converse situation also that if the seller fails to perform the contract the purchaser can also get the double the amount, if it is so stipulated. It is also the law that part payment of purchase price cannot be forfeited unless it is a guarantee for the due performance of the contract. In other words, if the payment is made only towards part payment of consideration and not intended as earnest money then the forfeiture clause will not apply."

14. The facts above show that the defendants No.1,3,4 and 5 seek to forfeit a sum of Rs.4,93,73,225/- on account of forfeiture of earnest money as it is pleaded that the plaintiff did not fulfil the terms of the Agreement and did not make necessary payment of the consideration within the stipulated period. The balance sum received, namely, Rs.1,97,27,525/- is sought to be forfeited on the ground that the defendants have suffered damages on account of breach of contract by the plaintiff.

15. Above is the sum and substance of claim for loss and damages which the said defendants seek to prove.

16. Regarding forfeiture of the earnest deposit is concerned the defendants would have to show that they are entitled to forfeit the earnest deposit as per legal position stated in the above two judgments of the Supreme Court. An

opportunity has to be given to the defendants to establish their rights to forfeit the earnest deposit.

17. As far as the balance sum is concerned, namely, the amount received over and above the earnest deposit i.e. a sum of Rs.1,97,27,525/- the only ground for withholding the said amount is the contention of the defendants No.1,2,4 and 5 that they have suffered damages on account of breach of contract by the plaintiff.

18. A perusal of the plaint shows that the loss suffered by the plaintiffs has been described as follows:-

"It is further submitted that the answering Defendants have suffered losses due to the repeated delay by the Plaintiffs to pay the balance amount as per the MoU. The answering Defendants were approached by various third parties regarding the sale of Defendant No.l Company but turned down such offers as the Plaintiffs had represented their ability and willingness to purchase the Defendant No.l Company within the agreed time period. However, despite repeated extensions, the Plaintiffs failed to make the payments and the answering Defendants were unable to sell the Defendant No. 1 Company due to rise in property prices and other mitigating factors. The answering Defendants have therefore, suffered direct losses due to the failure of the Plaintiffs to fulfill their contractual obligations within the agreed period. The answering Defendants also suffered loss of business opportunity as the amounts to be received by the Plaintiffs were to be utilized to expand and enable their other businesses but the same could not be done solely due to the inaction of the Plaintiffs.The answering Defendants also lost out on interest on the agreed amounts as the same was not paid by the Plaintiffs within the mutually agreed time period. The Defendants reserve their right to claim such damages and penalties at a later stage of the proceedings."

The only grounds stated for loss suffered in the written statement are as stated above. A perusal of the said grounds would show that the same are sketchy and bereft of details.

19. Reference in this context may also be had to the above noted judgement of the Supreme Court in the case of Satish Putra vs. Sudhir Rawal (Supra). The court had clearly enunciated that where payment is made towards part payment of consideration and not intended as earnest money then the fore featured clause would not apply. Prima facie the defendants are not entitled to forfeit the amount of Rs.1,97,27,525/-.

20. The question arises is as to what direction this court should make regarding the said sum paid by the plaintiffs to defendants No.1, 3, 4 and 5 over and above the earnest deposit.

21. Order XIIIA(6) and (7) CPC reads as follows:-

"6. Orders that may be made by Court.--

(1) On an application made under this Order, the Court may make such orders that it may deem fit in its discretion including the following:--

(a) judgment on the claim;

(b) conditional order in accordance with Rule 7 mentioned hereunder;

(c) dismissing the application;

(d) dismissing part of the claim and a judgment on part of the claim that is not dismissed;

(e) striking out the pleadings (whether in whole or in part); or

(f) further directions to proceed for case management under Order XV-A.

(2) Where the Court makes any of the orders as set forth in sub- rule (1) (a) to (f), the Court shall record its reasons for making such order.

7. Conditional order.--

(1) Where it appears to the Court that it is possible that a claim or defence may succeed but it is improbable that it shall do so,

the Court may make a conditional order as set forth in Rule 6 (1) (b).

(2) Where the Court makes a conditional order, it may:--

(a) make it subject to all or any of the following conditions:--

(i) require a party to deposit a sum of money in the Court;

(ii) require a party to take a specified step in relation to the claim or defence, as the case may be;

(iii) require a party, as the case may be, to give such security or provide such surety for restitution of costs as the Court deems fit and proper;

(iv) impose such other conditions, including providing security for restitution of losses that any party is likely to suffer during the pendency of the suit, as the Court may deem fit in its discretion; and

(b) specify the consequences of the failure to comply with the conditional order, including passing a judgment against the party that have not complied with the conditional order."

22. Hence, where it appears to the court that defendants may succeed but it is improbable it may make such orders including an order requiring the party to deposit the same in court.

23. At this stage, in my opinion, it is manifest that the possibility of the defendants No.1, 3, 4 and 5 succeeding in their said defence regarding payment received over and above the earnest deposit is improbable. It is a fit case for this court to direct the said defendants to deposit in court the amount received in excess of the earnest deposit. I, accordingly, direct defendants No.1,3,4, and 5 to deposit in court the aforesaid amount of Rs.1,97,27,525/- within six weeks from today.

24. Application stands disposed of.

JAYANT NATH, J.

DECEMBER 13, 2018/n corrected and released on 08.01.2019