M/S S.P. Virmani & Sons Pvt. Ltd. vs M/S Otc Exchange Of India
2018 Latest Caselaw 1601 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+          REVIEW PETITION No. 105/2018 in RFA No. 576/2005

%                                                      9th March, 2018
M/S S.P. VIRMANI & SONS PVT. LTD.            ..... Appellant
                    Through: Mr. K.R. Chawla, Advocate.

                            versus

M/S OTC EXCHANGE OF INDIA                               ..... Respondent

Through: Mr. Hasan, Advocate.

CORAM:

HON'BLE MR. JUSTICE VALMIKI J.MEHTA

To be referred to the Reporter or not?

VALMIKI J. MEHTA, J (ORAL)

C.M. Appl. No. 9110/2018 (for delay)

1. For the reasons stated in this application, the delay of 70 days in filing the review petition is condoned, subject to just exceptions.

C.M. stands disposed of.

REVIEW PETITION No. 105/2018 in RFA No. 576/2005

2. By this review petition respondent seeks review of the

judgment passed by this Court on 30.10.2017 by which the appeal of

the appellant/plaintiff was allowed by setting aside the impugned

judgment thereby decreeing the suit for a sum of Rs.6,23,000/- along

with interest at 7½% per annum simple.

3. Counsel for the respondent/review petitioner argues for

no fault of the respondent/review petitioner as the respondent/review

petitioner was not represented by its Advocate when the RFA was

heard and allowed, and it is argued that there are various grounds

which ought to have been argued but have not been argued, and which

could have resulted in the impugned judgment dated 30.10.2017 not

being passed, and therefore the review petition be allowed.

4. I have gone through the grounds/arguments urged on

behalf of the respondent/review petitioner and each of the

grounds/arguments relied upon by the respondent are already

exhaustively dealt with in paras 6(i) to 6(iii) and paras 7 and 8 of the

impugned judgment by holding that the entitlement of the respondent

was to forfeit the application amount only after grant of dealership and

admittedly no dealership was granted to the appellant/plaintiff because

appellant/plaintiff had failed to fulfill the necessary formalities

including of giving of an undertaking and which was not given. Also,

in paras 7 and 8 of the impugned judgment passed by this Court on

30.10.2017 it is recorded that no loss has been caused to the

respondent/review petitioner and therefore even assuming there was a

contract but since no loss is pleaded and proved therefore the

application money of the appellant/plaintiff could not have been

forfeited. I also note that even as per the admitted terms and

conditions on account of the applicant not completing formalities only

an appropriate amount could be forfeited and not entire application

amount and this aspect has been dealt with in paras 6(i) to 6(iii) of the

impugned judgment. The relevant paras 6(i) to 6(iii), 7 and 8 read as

under:-

"6.(i) In my opinion, appellant/plaintiff is entitled to succeed and the impugned judgment has to be set aside because it is seen that on the record of this case, there is no Clause 16 of Annexure-1 to the application form and all that is there on record of the trial court is Clause 11(A) of the procedure of selection which specifies that the onetime non-refundable dealership fee would be of Rs.6 lacs and dealership is non-transferable. Once therefore there is no clause providing for forfeiture for non- compliance of formalities, the respondent/defendant could not have forfeited the amount received by it for prospective dealership. Even assuming for the sake of arguments that there is a Clause 16 of Annexure- 1 to the letter dated 24.8.1995, and which in addition to what is stated in Clause 11(A) of the procedure for selection provides that if the dealership is terminated the fee of Rs.6 lacs is non-refundable by the respondent/defendant, even then this clause will come into operation only if dealership is granted. Admittedly, no dealership was granted to the appellant/plaintiff or its sister concern. The issue therefore of forfeiture of dealership fee could only be if the dealership is granted and thereafter cancelled.

(ii) Most importantly I may note that in terms of the same application form containing procedure for selection, in Clause 11(B) and (C) thereof, it is specifically provided that processing fee is only Rs.2,000/- and in case a person is not selected as a dealer, then, after deducting the

processing fee of Rs.2,000/-, the remaining amount of Rs.98,000/- would be refunded.

(iii) Also the undertaking Ex.D2 dated 21.2.1995 given by the appellant/plaintiff only provides that in case of any non-compliance of the undertaking dealership will lapse and decision of the respondent/defendant will be accepted but this undertaking nowhere provides that even before dealership is granted, then, the amount of Rs.6,25,000/- lacs which is given by an applicant, who is a prospective dealer, would stand forfeited for non- compliance of formalities. As already stated above, in terms of Clause 11(B) and (C) of the procedure for selection, in case of non-appointment as a dealer there would only be a processing fee charge of Rs.2,000/- and that no other amount would be deducted by the respondent/defendant. In my opinion therefore the appellant/plaintiff is entitled to succeed by respondent/defendant being directed to refund a sum of Rs.6,23,000/- instead of a sum of Rs.6,25,000/-, along with interest from the date of service of the legal notice dated 21.3.1997 (Ex.PW1/6).

7. In my opinion there is also a legal issue on the basis of which this appeal has to be allowed and the suit for recovery filed by the appellant/plaintiff has to be decreed. This is because of the provisions of Sections 73 and 74 of the Indian Contract Act, 1872. In law merely because there is a breach of contract such breach is not actionable unless because of the breach loss is caused to the aggrieved party. There can be forfeiture of an amount paid under a contract only when the aggrieved party is caused loss. Two relevant judgments in this regard are the judgments of the Constitution Bench of the Supreme Court in the case of Fateh Chand Vs. Balkishan Dass AIR 1963 SC 1405 and the recent judgment of the Supreme Court in the case of Kailash Nath Associates Vs. Delhi Development Authority and Another, (2015) 4 SCC 136. The relevant paras in the judgment in the case of Kailash Nath Associates (supra) are paras 34, 43 and 43.1 to 43.7 and these paras read as under:-

"34. In Fateh Chand v. Balkishan Das, this Court held: "The section is clearly an attempt to eliminate the somewhat 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.....

* * *

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 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 damages"; 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.(At page 526, 527) * * * 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."

xxxxx xxxxx xxxxx

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.

43.3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section. 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." (underlining added)

8. In the present case as is seen from the admitted facts on record that the respondent/defendant neither as per its written statement nor as per its evidence led, ever pleaded and proved that any loss has been caused to the respondent/defendant on account of the failure by the appellant/plaintiff to take dealership of the respondent/defendant. Therefore even assuming that there is some breach of contract on the part of the appellant/plaintiff, yet since no loss has been caused to the respondent/defendant which is pleaded and proved, therefore in accordance with the ratio of the judgments of the Supreme Court in the cases of Fateh Chand (supra) and

Kailash Nath Associates (supra), the respondent/defendant could not have forfeited the total amount of Rs.6,25,000/- deposited by the appellant/plaintiff with the respondent/defendant."

5. In view of the aforesaid reasons, since all aspects have

been duly considered, therefore even hearing the respondent/review

petitioner on merits, there are no valid grounds for recall of the

judgment dated 30.10.2017 allowing the Regular First Appeal.

6. Dismissed.

MARCH 09, 2018/AK                                VALMIKI J. MEHTA, J