Delhi High Court
M/S Versatile Commotrade Pvt Ltd vs M/S Angad Developers Pvt Ltd on 20 July, 2018
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on : 9th July, 2018
Date of decision :20th July, 2018
+ CS(OS) 802/2014
M/S VERSATILE COMMOTRADE PVT LTD ..... Plaintiff
Through: Mr. Ratan K. Singh and Mr. Nikhlesh
Krishnan, Advocates.
versus
M/S ANGAD DEVELOPERS PVT LTD ..... Defendant
Through: Mr. Dharmesh Misra and Mr. Ankit
Kakkar, Advocates.
CORAM:
JUSTICE PRATHIBA M. SINGH
JUDGMENT
Prathiba M. Singh, J.
I.A. No.5203/2014
1. This is an application seeking exemption from filing original/certified
copies/legible copies of the documents. Exemption allowed, subject to just
exceptions.
I.A. No.8943/2014, I.A. No.14384/2014 & I.A. No.8896/2017 in CS(OS)
802/2014
2. The Plaintiff entered into an Agreement to Sell dated 21st April, 2013
for sale of a land admeasuring 14 bighas and 12 biswa out of Khasra Nos.
4/12, 7, 8/2, 22 & 23 situated in the revenue estate of Village Ujjwa, Tehsil
Nazafgarh, Delhi (hereinafter referred to as "subject land"). The sale
consideration agreed was Rs.3,41,00,000/-. (Rupees Three Crores Forty One
Lakhs only) per acre for total 292 biswa amounting to Rs.10,37,20,833/-
(Rupees Ten Crores Thirty Seven Lakhs Twenty Thousand Eight Hundred
Thirty Three Only). The terms and conditions of the Agreement to Sell are
as under: -
"1. Sale and Purchase
Subject to the provisions of this Agreement, the
INTENDING SELLERS subject to payment of the full
balance sale consideration by the INTENDING
PURCHASERS within the stipulated period as mentioned
below in this Agreement, agree to sell, convey, transfer
and assign to the INTENDING PURCHASERS and the
INTENDING PURCHASERS hereby agree to purchase
from the INTENDING SELLERS, all rights, title, interest,
easements, privileges, appurtenances thereto and
benefits in the „Said Lands‟ free from any -encumbrance,
lien, charge, mortgage, pledge of any nature whatsoever
for a total consideration of Rs.3,41,00,000/-(Rupees
Three Crore forty One Lac Only per Acre i.e. for 292
Biswa amounting Rs.10,37,20,833/- (Rupees Ten Crore
Thirty Seven lacs Twenty thousand and Eight Hundred
Thirty Three Rupees Only ("Sale Consideration")
2. Sale Consideration and Payment Mechanism
2.1 INTENDING PURCHASERS shall pay the
Sale Consideration to the INTENDING SELLERS in
the following manner:
2.1.1 EARNEST MONEY: A sum of
Rs.1,25,00,000/- (Rupees One Crore Twenty Five Lacs
Only) out of the Sale Consideration amounting to
Rs.10,37,20,833/- (Rupees Ten Crore Thirty Seven lacs
Twenty thousand and Eight Hundred Thirty Three
Rupees Only ("Earnest Sale Consideration") Has been
paid by the INTENDING PURCHASERS at the time of
execution of this Agreement in the following manner:-
S. Cheque Dated Amount In Drawn
No. No. favour on
of
1. 885608 21/4/13 1,25,00,000/- ADPL OBC
Bank
New
Delhi
The INTENDING SELLERS confirm and
acknowledge the receipt of the above earnest
money from the Purchaser and the same shall
be adjusted against the Sale Consideration
2.1.2 Balance Sale Consideration: The balance
Sale Consideration amounting to
Rs.9,12,20,833/- (Rupees Nine Crore Twelve
Lacs twenty thousand & eight hundred thirty
three Only) ("Balance Sale Consideration")
shall be paid by INTENDING PURCHASERS
to INTENDING SELLERS within 80 days
from the execution of this Agreement i.e. on or
before "Closing Date" and "time being the
Essence" of this Agreement.
10. Breach of Agreement
10.1 That the intending sellers has specifically
made it clear to the intending purchasers that
the intending sellers are in urgent need of
funds and only therefore, the intending sellers
has agreed to transfer her rights in the said
land to the second party and in case the
payment of the full balance consideration is
not made to the first party within 80 days from
the date hereof, huge financial losses and
other irreparable losses would be suffered by
the intending sellers and accordingly time is
the essence of this transaction.
10.2 That as stated above and as also specifically
agreed between the parties, TIME IS THE
ESSENCE OF THIS CONTRACT, and in
case the INTENDING PURCHASERS fails to
make the payment of balance sale
consideration to the Seller, within the
stipulated period as mentioned hereinabove,
then the earnest money so received by the
Seller from the INTENDING PURCHASERS
shall stand forfeited and this Agreement shall
automatically be deemed to be cancelled, null
and void ab-inito, without any further
reference to the INTENDING PURCHASERS
and further the Seller shall be fully entitled to
sell the said land, without any objection,
claim, demand and lien, by the INTENDING
PURCHASERS. The INTENDING
PURCHASERS hereby un-conditionally agree
that the INTENDING PURCHASERS shall
not resort to any legal action against the said
land and/or against the Seller in case the
INTENDING PURCHASERS fails to pay the
full sale consideration to the Seller within the
stipulated period as mentioned above and the
INTENDING PURCHASERS hereby expressly
waives such rights, if any, in favour of the
Seller.
10.3 In case despite receiving the balance sale
consideration from the INTENDING
PURCHASERS, the INTENDING SELLERS
fail to execute and present themselves for
registration of the sale deed then in that event
the INTENDING PURCHASERS shall have
the right to enforce the specific performance
of this Agreement at the cost and risk of the
INTENDING SELLERS.
13. Validity
This Agreement to Sell is valid for 80 days
from the date of execution subject to
realization of payments."
3. Pursuant to the execution of the Agreement to Sell, the Plaintiff paid a
sum of Rs.1,25,00,000/- as the earnest sale consideration. The balance sale
consideration was to be paid within 80 days from the execution of the
Agreement i.e. the closing date. Thereafter, the Defendant requested for
further payment which was acceded to by the Plaintiff. A payment of
Rs.50,00,000/- was made on 11th May, 2013 and another payment was also
made of Rs.25,00,000/-. However, the date of receipt of the said sum is not
clear.
4. It is the case of the Plaintiff that it repeatedly requested the Defendant
to furnish the No Objection Certificate for enabling the transfer but the
Defendant did not furnish the same. On 16th September, 2013, the Defendant
issued a notice to the Plaintiff stating that the earnest money stood forfeited
as the balance sale consideration was not paid and that the Agreement was,
accordingly discharged. Thus, the Defendant forfeited the entire sum of Rs.
2 crores.
5. The Plaintiff replied through his counsel on 25th September, 2013,
challenged the said forfeiture and called upon the Defendant to furnish the
No Objection Certificate so that the sale deed could be executed on a
mutually agreed date. By a further legal notice dated 15th November, 2013,
the Plaintiff called upon the Defendant to pay back a sum of Rs.2.18 crores
however, the Plaintiff did not receive any reply. Accordingly, the Plaintiff
filed the present suit under Order XXXVII seeking a decree for a sum of
Rs.2 crores along with interest @ 16.25% per annum w.e.f. 15 th November,
2013 till the date of actual payment.
6. The Plaintiff filed I.A. No.8943/2014 seeking summons for judgment
and the Defendant filed its leave to defend I.A. No.14384/2014.
7. The case of the Defendant in its application for leave to defend is that
a suit under Order XXXVII is not maintainable in respect of money paid
under an Agreement to Sell. The Defendant's further case was that despite
repeatedly calling upon the Plaintiff to pay the remaining sale consideration
after obtaining the No Objection Certificate, the Plaintiff failed to come
forward with the sale consideration. The Defendant thus argues that time
was the essence of the contract as per the Agreement to Sell and the Plaintiff
having not performed its part of the contract, is not entitled to recovery. The
Defendant relies upon the following judgments: -
(i) CS(COMM) 925/2016 - Versatile Commotrade Private
Limited vs. Kesar Devi
(ii) CS(COMM) 925/2016 - Versatile Commotrade Private
Limited vs. Kesar Devi
(iii) Delhi Power Supply Company Limited vs. Hindustan Vidyut
Products Limited 2016 (2015) DLT 181
(iv) M/s B.T.M. Exports Limited vs. M/s Adhunik Corporation
Limited.
(v) Satish Batra vs. Sudhir Rawal (2013) 1 SCC 345.
(vi) Shree Hanuman Cotton Mills & Ors. vs. Tata Air Craft Ltd.
(1970) 3 SCR 128
(vii) Mechelec Engineers and Manufacturers vs. Basic Equipment
Corporation (1977) 1 SCR 1060.
8. The Plaintiff however submits that the No Objection Certificate
having not been obtained, there was no question of the remaining sale
consideration being paid.
9. A perusal of the Agreement to Sell and the clauses thereof shows that
the earnest money was to the tune of Rs.1.25 crores. The Defendant was
entitled to forfeit the earnest money if the Plaintiff was in breach and did not
pay the balance sale consideration.
10. It is, however, clear that the remaining Rs.75 lakhs which was paid in
May, 2013 after a month had passed from the execution of the Agreement to
Sell was not the earnest money but was part of the balance sale
consideration. As per clause 2.1.1 in the Agreement, only Rs.1.25 crores out
of the total sale consideration formed the earnest sale consideration, hence
the amount of Rs.75 lakhs could not have been forfeited by the Defendant.
Thus the Plaintiff is entitled to a decree qua for a sum of Rs.75 lakhs. This
also finds support in the judgment of the Supreme Court in Satish Batra vs.
Sudhir Rawal (2013) 1 SCC 345 wherein in paragraph 15, the Supreme
Court held as under: -
"15. The 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 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."
11. The sum of Rs.75 lakhs being a part of the balance sale consideration
and not the earnest sale consideration is not liable to be forfeited. A Ld.
Single Judge of this Court in Palm Art Apparel Pvt. Ltd. v. Enkay Builders
Pvt. Ltd. [C.R.P. 3/2017 decision dated 31st July, 2017], had adopted a
similar approach. The Court observed as under:
"20. Applying the aforesaid principles, I am unable to
accept the contention of the counsel for the
petitioner/plaintiff that the application of the
respondent/defendant for leave to defend did not
disclose any substantial defence for forfeiture of Rs. 15
lakhs described in the Agreement to Sell and Purchase
as earnest money. The dispute with respect to Rs. 15
lakhs will be decided in the suit and in the counter-
claim stated to have been preferred. At this stage, it
cannot also be determined, whether it is by way of
penalty. As noted above, the nomenclature given by the
parties is not determinative.
21. However, as far as Rs. 30 lakhs admittedly paid by
the petitioner/plaintiff to the respondent/defendant over
and above the sum of Rs. 15 lakhs described as earnest
money is concerned, the same is only towards part sale
consideration and to which the principle of forfeiture
does not apply. Thus, even if the breach of Agreement
to Sell and Purchase is by the petitioner/plaintiff and
the respondent/defendant has suffered loss in excess of
Rs. 15 lakhs described as earnest money therefrom and
for which the respondent/defendant has already
initiated proceedings, the respondent/defendant, unless
establishes the said loss, cannot retain the said amount
of Rs. 30 lakhs and the leave to defend application
having not disclosed any substantial defence qua the
same, the petitioner/plaintiff is immediately entitled
thereto"
12. Insofar as the sum of Rs.1.25 crores is concerned, the case of the
Defendant is that the Defendant repeatedly sent emails to the Plaintiff
informing the Plaintiff that the No Objection Certificate had been obtained
from the competent authority. The No Objection Certificate was claimed to
have been obtained on 6th June, 2013 and forwarded via email on 13th June,
2013. A perusal of the documents filed by the Defendant shows that an
email was sent to Mr. Devendra Dahiya at email
[email protected] and Mr. Rajesh Gullah at
[email protected], attaching the No Objection Certificate.
13. Almost a month later, on 11th July, 2013, a reply was sent by Mr.
Rajesh Gullah that the last date for execution of the sale deed was 11th July,
2013, however, the No Objection Certificate had expired on 5 th July, 2013.
Thus, the Plaintiff called upon the Defendant to get the No Objection
Certificate extended. The Defendant claims to have obtained a fresh No
Objection Certificate on 16th August, 2013, which was valid for another
month and the same was again sent on 25 th August, 2013. However, the
Plaintiff did not come forward with the balance sale consideration.
14. The first and foremost feature is that the Agreement to Sell does not
make any mention of the No Objection Certificate to be obtained by the
Defendant. In any event, from the documents placed on record, it is clear
that the Defendant did obtain the No Objection Certificate within the time
period. The emails sent are challenged by the Plaintiff on the ground that
Mr. Rajesh Gullah was not authorized to receive the emails and the emails
are not proved as per Section 65B of the Indian Evidence Act, 1872. This
Court has perused the emails placed on record along with the Plaintiff's
stand in the reply to the leave to defend application. Collusion is alleged in
the said reply between the Defendant and Mr. Rajesh Gullah. At this stage,
without trial, the question as to whether the No Objection Certificates were
sent or whether Mr. Rajesh Gullah was duly authorized to receive the No
Objection Certificate/emails on behalf of the Plaintiff cannot be determined
by this Court. Moreover, the question as to whether there was a breach
would also require oral evidence and the same cannot be decided in an Order
XXXVII suit. The conflicting claims of the parties require adjudication after
trial. The question, however, is as to whether leave to defend ought to be
granted unconditionally.
15. A perusal of the Agreement shows that nowhere in the Agreement, is
Mr. Rajesh Gullah's name mentioned. It is further alleged that the forfeiture
notice itself was sent to Mr. Rajesh Gullah who shares the same office as
that of the Plaintiff. Thus, it was alleged that Mr. Rajesh Gullah was
representing the Plaintiff with the Defendant. There is no clarity as to why
no response was given by the Plaintiff to the email dated 13th June 2013, till
11th July, 2013 though the No Objection Certificate was sent on 13th June,
2013 to Mr. Devendra Dahiya and Mr. Rajesh Gullah. The silence on behalf
of the Plaintiff, for almost a month, thereby allowing the No Objection
Certificate to expire appears to suggest that there was some hesitation or
lack of preparedness or willingness to pay the balance sale consideration.
Though 11th July, 2013 was the last date, there was no need for the Plaintiff
to wait till the last date for payment of balance sale consideration to reply to
the Defendant or in expressing readiness and willingness, especially when
the No Objection Certificate was sent a month back, i.e., on 13th June, 2013
itself. There is no serious dispute to these emails except saying that Mr.
Devendra Dahiya and Mr. Rajesh Gullah were not duly authorized. Prima
facie, at this stage, it appears that the Defendant had performed its part of
the Agreement.
16. However, the legal position is that forfeiture of earnest money cannot
happen automatically. As per Kailash Nath Associates Vs. DDA (2015) 4
SCC 136, the party has to establish that it actually suffered a loss and there
can be no windfall in the absence of establishing actual loss. The Supreme
Court observed as under:
"68. From the aforesaid discussions, it can be held
that:
(1) Terms of the contract are required to be taken
into consideration before arriving at the conclusion
whether the party claiming damages is entitled to
the same.
(2) If the terms are clear and unambiguous
stipulating the liquidated damages in case of the
breach of the contract unless it is held that such
estimate of damages/compensation is unreasonable
or is by way of penalty, party who has committed the
breach is required to pay such compensation and
that is what is provided in Section 73 of the Contract
Act.
(3) Section 74 is to be read along with Section 73
and, therefore, in every case of breach of contract,
the person aggrieved by the breach is not required
to prove actual loss or damage suffered by him
before he can claim a decree. The court is
competent to award reasonable compensation in
case of breach even if no actual damage is proved to
have been suffered in consequence of the breach of
a contract.
(4) In some contracts, it would be impossible for the
court to assess the compensation arising from breach
and if the compensation contemplated is not by way of
penalty or unreasonable, the court can award the
same if it is genuine pre-estimate by the parties as the
measure of reasonable compensation.
44.................. Further, we cannot accept the view of
the Division Bench that the fact that the DDA made a
profit from re-auction is irrelevant, as that would fly
in the face of the most basic principle on the award of
damages - namely, that compensation can only be
given for damage or loss suffered. If damage or loss is
not suffered, the law does not provide for a windfall."
17. Thus, actual loss can be established only in trial. The test as to
whether the forfeiture is valid or not is to be determined as per Section 73
and 74 of the Indian Contract Act, 1872. Thus insofar as the sum of Rs.1.25
crores is concerned, the Order XXXVII suit is converted into an ordinary
suit. The suit shall proceed for trial.
18. The leave to defend is granted to the Defendant subject to furnishing
of some security in the form of immovable property or a bank guarantee to
the satisfaction of this Court in respect of the sum of Rs.1.25 crores. The
leave to defend is, thus, partly allowed.
19. The suit is, however, decreed for a sum of Rs.75 lakhs which is not
liable to be forfeited as it was part of the balance sale consideration, as per
Satish Batra (Supra). A decree for a sum of Rs.75 lakhs along with interest
@9% per annum from 13th March, 2014 till date of payment is passed in
favour of the Plaintiff against the Defendant.
20. All the three applications are disposed of in the above terms.
PRATHIBA M. SINGH, J.
Judge
JULY 20, 2018/Rekha
