Chandan Singh (Since Deceased) Thr Lrs & Ors v. Adhunik Datamatics Private Limited

JUDGMENT GITA MITTAL. ACTING CHIEF JUSTICE

¶1The appellantsbeforeus assail the order dated 29"' May, 2017 passed by the Id. Single .ludge granting l.A.No.14/2016 in CS(OS)JSo.4052/2014M/s Adhunik Datamatics Private Limited (respondentherein) vs. CItandanSingh & Ors. (appellantsherein representedby legalheirswho have filed the presentappeal) Page 1of24

¶2The facts givingrise to the appealare withina narrowcompass and to the extentnecessary,we setthe sameouthereunder

¶3The respondenthad enteredintoAgreementto Selldated 11'%f April 2013 for purchase of 1/5^ share each of the appellants/predecessorin interestofthe appellantsin agriculturalland ad measuring 45 bighas 12 biswas situated in Revenue Estate of Village Neelwal, Tehsil, Punjabi Bagh, District West, Delhi. The agreementwas for atotalsaleconsiderationofRs.28.50crore.

¶4As per clause2of the Agreementto Sell, the respondentswere requiredto pay atotal sale considerationof Rs. 28.50 crore. As per clause2.1.1,the respondentpaid amountofRs.2.85 crore as advance sale consideration. We extract hereunderthe payment mechanism postulatedin clause2ofthe Agreementto Sell dated 11"" April,2013 in extenso which reads thus: "2. finip Considerationand PaymentMechanism

2.1 Purchasers shall pay the sale considerationto the sellers in thefollovAng manner :

2.1.1 Advance Sale consideration : A sum equivalent to [10% approx, of the Sale Consideration amount to Rs.2,85,00,000/-(Rupees Two crore Eighty Five Lac only) ("Advance Sale Consideration") has been paid by the purchasersat the time ofexecutionofthis Agreementin the following manner: S.No. Cheque Dated Amount In favour Drawn of on No. 406387 11/04/2013 55,00,000/- Chandan Cash 2,00,000/- Singh Chandan loilA

2.

¶3406388 11/04/2013 55,00,000/- Cash 2,00,000/- 406389 11/04/2013 55,00,000/- Cash 2,00,000/- 406390 11/04/2013 55,00,000/- Cash 2,00,000/- 406391 11/04/2013 55,00,000/- Cash 2,00,000/- TOTAL AMOUNT Rs.2,85,00,000/- (Rupees Two crore Eighty Five Lac only) The Sellersconfirmandacknowledgethe receiptofthe above AdvanceSaks Considerationfrom the Purchaserand the sameshallbe adjustedagainstthe Saleconsideration.

2.1.2 Balance Sale Consideration : The balance Sale Consideration amounting to Rs.26,65,00,000/- (Rupees Twenty Five Crore Sixty Five Lac only) ( 'Balance Sale Consideration") shallbepaidby Purchasersto Sellerswithin Ninety(90) daysfrom the executionofthisAgreement,i.e., on orbefore9'^ July, 2013 in thefollowingmanner: Singh Raj Singh Raj Singh Dilbagh Singh Dilbagh Singh Kumar Azad Singh Azad Singh Mahipal Singh Mahipal Singh S.No. Amount In favour of I. 5,13,00,000/- Mr. Chandan Singh

¶25,13,00,000/- Mr. Raj Singh

¶35,13,00,000/- Mr. Dilbagh Singh

¶45,13,00,000/- Mr. Azad Singh

¶55,13,00,000/- Kr. Mahipal Singh" Total 25,65,00,000/- (Emphasis by us)

¶5In para 3ofthe agreement,the partieshad postulatedinteralia the foliowingseventsto takeplaceon or beforethe executiondated: "3. Transfer ofProperty

(a) XXX XXX XXX

(b) the BalanceSale Considerationshall be paid by the Purchasers to the Sellers simultaneously with the execution ofthe sale deed by sellersinfavouro^the purchaseron or beforeexecutionofthe saledeedi.e. 9^^ July, 2013.'

¶6We may also extractclause 10 ofthe agreement-whichrefersto breachofagreement. The samereadsas follows: "10. Breach ofAsreement

10.1 In case the sellers cause breach of this Agreement fails/defaults/avoidsor refusesto implementthe termsofthis Agreementin this manner as stipulatedherein then in that even the purchasers shall have the right to enforce the specificperformanceofthis Agreementat the cost and risk ofthe sellers.

10.2 In case the purchasersfail/default/avoidor refuse to pay the Balance Sale Consideration in the manner as stipulatedherein then in that event the sellershallhave the right toforfeitthe AdvanceSale Considerationpaid by the purchaserunder Clause 2.1.1 and the sale agreementshall stand cancelled." (Emphasisby us)

¶7We find that the agreementalso postulatedthat sincethe land in question was agricultural land, compliance with provisions of the Delhi Land (Restrictionson Transfer) Act, 1972 was required. In termsof Section(5)(1)ofthis enactmenta no objectioncertificatewas Page4of24 I required to be obtained from the competentauthority. The parties therefore,had agreed in clause4.2(a)of the Agreementto Sell dated April, 2013 that the sellers/defendantsin the suit would sign the necessaryapplicationsforms for approvals/permissionand application forms for issuanceof the no objectioncertificate('NOC hereafter) and that it would be the obligationof the purchaser/respondento obtain all necessary approvals, permissions and NOC from the concerned authorities for execution of the sale deed. The purchaser/respondentwas requiredto informthe sellerafterobtaining the NOC approvals/permissionat least 15 days prior to the date of execution of the sale deed.

¶8It was the case of the purchaser/plaintiff(respondentherein) that they got issued the requisiteNOC on 29^'^ June, 2013 and duly informedthe sellers/defendants(appellantsherein)who requestedthat the originalNOC be handedover to them, which they would bringat the timeofregistrationofthe saledeedon 9"^ July, 2013. The plaintiff has asserted that in the first week of July, 2013, the defendants informedthatthe originalNOC was misplacedby them. The plaintiff states that it had insistedthat the defendantsshould make efforts to trace out the originalNOC, failingwhich it would not be possibleto get the sale deed registeredon the scheduleddate of 9''' July, 2013. For the reasonthat the NOC couldnot be tracedout by the defendants the saledeedcouldnot be executedby the 9"" July, 2013

¶9It appearsthat defendantsalso got issuedlegalnoticedated 12"' July,2013 statinginteraliathatthe plaintiffhad failedto appearin the office of the Sub-Registraron 9"^ July, 2013 to make payment of FAO(OS)No.l99/2017 Page5ot 24 balance amount and have failed to purchase the non-judicialstamp papers required for the sale deed and so the advance amount stood forfeited and the agreement stood cancelled. It was inter alia specificallyassertedas follows: "2 That you, as a purchaser agreed in the aforesaid agreementthat in case ofpurchaser'sfail/default/avoidor refuse to pay the balancesale considerationin this manner stipulatedin the agreementthen in that eventthe sellershall have the righttoforfeitthe advancesale considerationmid by the purchaser and the sale agreement shall stand cancelled"

¶10In this communication,the appellantsinformedthe respondents as follows : "In the above givenfacts and circumstancesofthe case the advanceamountgiven byyou to my clientsin respectofthis abovesaidagreementto sellstandforfeitedandthe abovesaid agreementto sell stand cancelledin terms ofconditionsof this agreementto sell dated 11/4/2013and also because my client have even been ready to complete all and every obligationon theirpartbutyoufailedtofulfilyourobligation in this matter " Thus the appellantsnotifiedthe respondentsofthe forfeitureof the amountas well as the cancellationofthe Agreementto Sell dated ll'*^April,2013.

¶11In the plaint,the respondentstatesthat it sent a reply dated 22 July, 2013 pointingout that it was the defendants/appellantswho had lostthe NOC dated 29"" June, 2013, delayedexecutionofthe sale deed and who were in breach of the agreement. nd Page6of 24

¶12We are told that the appellant/defendantsagain issued a reply dated 28^^ July, 2013 disputingreceiptofthe originalNOC as well as the fact that it was lost by them.

¶13Vide another letter dated 3^" August, 2013, the defendants informedthe plaintiffthat they had obtainedaNOC dated T' August, 2013 from the Tehsildarand that the sale deed be executedby 14^^ August,2013. The purchaserrespondedby the letterdated August, 2013 inter alia callingupon the seller to furnish the copy ofthe no objection certificate. This was followed by the letter dated 2 September, 2013 addressed by the seller/plaintiffto the defendant again seekingcopy ofthe NOC so as to verifythe same and to prepare the draft sale deed.

¶14As nothing was received according to the respondent,in this background, on 15"" December, 2014, it filed a summary suit for recovery of the amount of Rs.2,85,00,000/- against the appellant/defendant/sellerunder Order 37 of the Code of Civil Procedure.

¶15Upon receiptofthe summonsin the suit, the appellantfiled an applicationunder Order 37 Rule 3 of the Code of Civil Procedure being I.A.No.14/2016contendinginteralia that as per clause 10.2 of the agreementto sell, ifthe purchaserfails or avoidsor refusesto pay the balancesale considerationinthe mannerasstipulatedtherein,then in that eventthe sellershall have theright to forfeitthe advancesale considerationpaid by the purchaserunder Clause 2.1.1 and the sale agreementshall standcancelled. FAO(OS)No. 199/2017

¶16This applicationofthe appellants/defendantsfor leaveto defend the suit was contestedby the plaintiffs/respondentsand consideredby the court. It came to be decided by the impugnedorder dated 29*^ May, 2017 wherebythe Id. SingleJudgehas grantedconditionalleave to defend and the appellant was directed to deposit a sum of Rs.2,56,50,000/- (after deducting 10% of the amount of Rs.2,85,00,000/-).For clarity, we extract the operative part of the order as follows : "12. Thus, the law is wellsettledthat who may be at default the advance money cannot be forfeited, unless the loss is pleaded. The plea of the defendants that the advance was infactthe earnestmoneythen also,per law, it couldnot have been forfeited in entirety and even if one may treat the advanceamountto be an earnestmoney, the law as itstands todaywouldonly allowthe defendantsto deduct5% to 10% ofsuch amount, given thefacts ofeach case. Hence making provisionfor 10% ofthe considerationviz Rs.28.50Lac to pleadandprove the loss, ifany, sufferedby the defendants, the leave to defend is hereby grantedto the defendantson their depositingan amountofRs.2,56,50,000/-(RupeesTwo Crore FiftySix Lacs &Fifty thousands)in the Courtor in the alternative on giving Bank Guaranteefor the said amount, with the RegistrarGeneralofthis Courtwithinfour weeksfrom today. In case the amountis depositedit shall be convertedinto afixeddepositwith a nationalisedbankfor a termofoneyearinitially,extendableperorderofthe Court. (Emphasisby us)

¶17This orderhas been challengedby the appellantbeforeus. It is submittedby Mr. Ravi Gupta, Id. Senior Counsel for the appellants that having regard to the size of the considerationwhich was to the tune of Rs.28.5 Crores, the purchaser/respondenthad paid an ^ V-N extremelyminisculeamountof Rs.2.85 Crores at the time of signing the agreementto sell dated 11^'^ April,2013 whichclearlyshowedthat same was in the nature of earnestmoney and could never have been treatedas paymentof advancesale consideration.It is submittedthat such token amount was paid only to establishthe sincerityand bona fide ofthe purchaserthat it was enteringinto agenuinetransactionof purchase. The submissionis that this amount, though referredto as ''Advancesale Consideration"in the agreementwas actuallyonly in the nature of earnest money.

¶18It is submittedthat in view of Clause 10 of the agreementand the law, the appellants/sellershad an absoluteright to forfeitthe full amount thereof upon a breach of the agreement by the purchaser/respondent,withouthavingto establishanythingmore. The submissionis that consequently,the appellants/sellerswere entitledto unconditional leave to defend in the suit. In support of this submission,Mr. Ravi Gupta, Id. SeniorCounselfor appellantsplaces relianceon thejudicialpronouncementsreportedat (2015)4SCC136, KailashNathAssociatesvs. DelhiDevelopmentAuthority; JT 2012

(11) SC 70 Satish Batra vs. SudhirRawal and the judgmentof this court reportedat (2015) SCC OnlineDelhi 12831 Manoj Tomar vs. Neena Khatter& Ors. We may brieflyadvertto the principleslaid down in these judgments.

¶19So far as pronouncementin Satish Batra is concerned, the question under considerationbefore the Supreme Court was as to whetherthe sellerwas entitledto forfeitthe earnest money deposited where the sale of immovable property falls through, by reasons of Page9of24 faultsor failureofthe purchaser. Clause(e), the relevantclauseofthe agreementto sell dated 29'^ November,2015, which was in question in Satish Batra's case has been extracted in the pronouncement, clearly states that ifthe prospectivepurchaserdefaults in paying the balance sale considerationof Rs.63 crore, the transactionshall stand cancelled and that the earnest money will be forfeited.

¶20In Satish Batra, the Supreme Court considered the earlier judicial pronouncementsreported at AIR 1926 P.C. 1 (Kunwar) ChiranjitSingh vs. Har Swarup;1969 (3) SCC522Shree Hanuman CottonMills &Ors. vs. TataAir CraftLimited;1995Supp (1) SCC 751 Delhi DevelopmentAuthority vs. Grihstrapana Cooperative Group Housing Society Limited; (1995) Supp. (2) SCC 33 V. Lakshmanan vs. B.R. Mangalgiri; (1996) 4 SCC 249 Housing Urban DevelopmentAuthority and Anr. vs. KewalKrishan Goel & Ors. and (2004) 3 SCC 711, Videocon Properties Ltd. Vs. Dr. Bhaichandra Laboratories & Ors. and held as follows: " 15.Law is, therefore,clearthat to justifytheforfeitureof advancemoney beinspart of "earnestmoney"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 pledse for its due performance by the depositor to he forfeited in case of non-performance by the depositor. There can be conversesituationalso that ifthe sellerfails to perform the contractthe purchasercan 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 y^ords, ifthe paymentis made only towardspart-pavmentof consideration and not intended as earnest money then the forfeiture clause will not apply. " FAO(OS)No,199/2017 Page 10 of24 (Emphasis by us)

¶21On a consideration of the factual matrix of Satish Batra, the Supreme Court concluded that the amount paid at the time of execution of the contract was represented as suarantee that the contract would be fulfilled that is to say ''earnest" was given to bind the contract, which, if the transaction is carried out, would form part of the purchase price and it would be forfeited when the transaction falls through by reasons of default or failure of the purchaser. The court observed that there was no other clause which militated against such an interpretation of the stipulation. The Supreme Court therefore, declared the legal position that upon breach of an agreement to sell by the purchaser, it is only earnest money given as a guarantee that the contract would be abided with, could be forfeited.

¶22In Kailash Nath Associates, the court considered the applicability of Section 73 and Section 74 of the Contract Act. The Court noted that Section 74 is placed between Section 73 and 75 which deals with compensation for loss or damage caused by breach of contract and compensation for damage which a party may sustain through non-flilfilment of a contract by the other party compelling such party to rightfully rescind such contract. It is important to note that like Section 73 and Section 75, compensation is payable for breach of contract under Section 74 only where damage or loss is caused by such breach.

¶23This appeal {Kailash Nath Associates) arose out of public auction conducted by the DDA wherein the appellant was the highest bidder for a commercial plot. As per the te^nns and condition of the auction, the appellant deposited an amount of Rs.78 lakhs being 25% of the bid amount with the DDA as earnest money, under the terms and conditions of the auction. The balance 75% amount of the bid was liable to be deposited after the three months of the communication of the acceptance of the bid. On request of the appellant, the DDA extended the time for payment of the balance amount upto 28"' October, 1982 with interest.

¶24We may usefully extract the consideration by the court in paras 31, 32, 33 and in para 40 of Kailash Nath Associates wherein the court noted the enunciation of law in Maula Bux vs. Union of India

(1969) 2 see 554 and Fateh Chandvs. Balkishan Das 1964 (1) SCR

¶515ITiese paras read as follows: "31. Section 74 as it originally stood read thus: 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, 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.

¶32By an amendment made in 1899, the Section was amended to read:

¶74Compensation for breach of contract where penalty stipulated for - V/hen a contract has been broken, if a sum is named in the contract as the Page 12of 24 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. Explanation.- A stipulation for increased interestfrom the date of default may be a stipulation by way of penalty. Exception.—When any person enters into any bailbond, recognizance or other instrument of the same nature, or, under the provisions of any law, or under the orders ofthe Central Government or ofany State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of any condition of any such instrument, to pay the whole sum mentioned therein. Explanation. - A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.

¶33Section 74 occurs in Chapter 6 ofthe Indian Contract Act, 1872 which reads "Of the consequences of breach of contract". It is infact sandwiched between Sections 73 and 75 which deal with compensationfor loss or damage caused by breach of contract and compensation for damage which a party may sustain through non-fulfdlment of a contract after such party rightfully rescinds such contract. It is important to note that like Sections 73 and 75. compensation is payable for breach of contract Under Section 74 only where damaee or loss is caused by such breach." FAO(OS)No.I99/2017 XXJC XXJC

¶40From the above, it is clear that this Court held that Maula Bux case [Maula Buxv. Union of India, (1969) 2 SCC 554 :

(1970) 1 SCR 928] was nol onfacts, a case that related to earnest money. Consequently, the observation in Maula Bux [Maula Bux v. UnionofIndia, (1969)2 SCC554 : (1970) 1 SCR 928] thatforfeiture of earnest money under a contract if reasonabledoes notfall within Section 74, and wouldfall 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 offive Judges in Fateh Chand case [Fateh Chand v. Balkishan Dass,

(1964) 1 SCR 515 : AIR 1963 SC 1405] 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 ofthe English commonlaw byenacting 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 thefacts in Fateh Chand case [Fateh Chand v. Balkishan Dass,

(1964) 1 SCR 515 : AIR 1963SC 1405] wasconceded.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" (Emphasis by us)

¶25Thereafter the law of compensation for breach of contract and Section74 of the ContractAct was summedup in para 43 of Kailash Nath in the following terms : "43. On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be asfollows: Page 14 of24

¶1Where 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 ofpenalty, 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.

¶2Reasonable compensation will be fixed on well-known principles that are applicable to the law of contract, which are to befound inter alia in Section 73 ofthe Contract Act,

¶3Since 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 ofthe section.

¶4The section applies whether a person is a plaintiff or a defendant in a suit.

¶5Thesum spoken ofmay already bepaid or bepayable infuture.

¶6The 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 Page 15of 24

9.\ genuine pre-estimate of damage or loss, can be awarded.

¶7Section 74 will apply to cases offorfeitureofearnest money under a contract. Where, however, forfeiture takesplace under the terms and conditionsof a public auction before agreement is reached. Section 74 would have no application." (Emphasis by us)

¶26We may also note the pronouncementof this court in Manoj Tomar on which reliance has been placed by Mr. Ravi Gupta, Id SeniorCounsel for the appellants. In this case, the Id. Single Judge was consideringthe issuesas to whether,even if, the plaintiffis guilty of breachof contract,the defendantsare entitledto forfeitthe advance money received by the defendantsunder the agreementto sell? In para3 ofthisjudgment,the Id. SingleJudgenotedthus : " 5. The issue is that even if the plaintiffis guilty of breach of contract, whether the defendantsare entitledto forfeit the advance money receivedby the defendantsunder the agreementtosell Para 14of the writtenstatementshows that defendantshave made an avermentthat the defendants haveforfeitedthe amount because the plaintiffdid not call upon thedefendantstocompletethesale transaction,however there is no avermentin the writtenstatementthat defendants haveforfeitedthe amounton accountofloss beingcausedto them by the plaintiffon accountof the breach of contract, much less details of loss and how caused as required by Order VI Rule 4 CPC is pleaded. In law, once no loss is causedtothe aggrievedpartyasperSection 73 and 74 ofthe Indian ContractAct, 1872, no cause of action arisesfor claimingdamagesorforfeitureof advancemoney received undertheagreementtosellas damages...." (Emphasis by us) FAO(OS)No.l99/20I7 Page 16 of24 •3

¶27The Id. Single Judge has summed up the appUcable principles in paras 6 and 7 in the following terms : "6. A reading of the ratio of Kailash Nath Associates's case (supra) makes it more than clear that the law with respect to entitlement ofa defendant/proposed seller toforfeit an amount received under the agreement to sell is subject to loss being caused and appropriation is actually pursuant to Section 74 of the Indian Contract Act by taking the advance payment received as liquidated damages, but once there is no plea of loss being caused alongwith necessary details, there does not arise issue ofappropriation by the defendants, of the advance price received under the contract as liquidated damages.

¶7In my opinion, an amount of Rs.1,35,00,000/- cannot be taken as earnest money inasmuch as, earnest money is only a nominal amount. In similar circumstances I have recently in the case ofSh. Sunil Sehgal Vs. Shri Chander Batra &. Ors. CS(OS) No. 1250/2006 decided on 23.9.2015 held that what is to be seen is the substance and not the label and merely because a huge amount is called as earnest money, the same will not become an earnest money but would be an advance price paid under the agreement to sell. The relevant paras of this judgment are paras 8 and 9, and which read as under:

¶8In the present case, the nature of contract is such that losses could have been proved by the defendants by proving the falling ofprices of the subject property, and only if the prices of the property had fallen and breach was committed by the plaintiff/buyer, the defendants could have only then been entitled to forfeit the amount paid by the plaintiff as damages on account of loss caused. Para

43.4 of the judgment of the Supreme Court in the case of Kailash Nath Associates (supra) reproduced above shows that the provisions of Sections 73 and 74 of the Indian Contract Act applies whether a person is plaintiff or a defendant in the suit ie a defendant who is a seller cannot forfeit any moneys FAO(OS)No.l99/2017 Page17or24 unless loss is proved to be caused byfall in the price of the property.

¶9In the present case, defendants have led no evidence ofany loss caused to them, and therefore, assuming that plaintiff is guilty of breach ofcontract, yet, the defendants cannot forfeit the amount of Rs.15 lacs lying with them. A huge amount of Rs.l5 lacs out ofthe total sale consideration ofRs. 79,50,000/- cannot in law be called earnest money. By giving a stamp of 'earnest money' to advance price, the latter cannot become the former. What is to be seen is the substance and not the label. Only a nominal amount can be said to be earnest money and not an amount of Rs.l5 lacs out of Rs.79.50 lacs, by noting that ifsuppose an amount of Rs. 30 lacs or 40 lacs would be called as earnest money by the parties, that would not take away the fact that such amount cannot be earnest money but would in fact be part of the price to be paid for sale." (Emphasis by us)

¶28In para 40 of Kailash Nath, it has been clearly stated that it would be correct to say that ""as earnest money is the amount to be paid in case of breach and named in the contract as such it would be necessarily covered by Section 74".

¶29From the above, the clear principle that emerges is that reasonableness of compensation under Section 74 would apply to all amounts to be paid in cases of breach whether they are in the nature of penalty or otherwise. So far as forfeiture of the earnest money is concerned, reliance on Fateh Chand's case may not be appropriate inasmuch as, on the facts of that case, the same was conceded.

¶30There can be no dispute with the foregoing well settled principles. Let us examine the same as against the factual matrix placed by the parties before us.

¶31We find that even the Id. Single Judge has rightly observedin para 10 of the impugnedjudgment that it was settled law that even earnest money cannot be forfeited in the entirety unless the loss is pleaded. ^ Whether the amount in the instant case was earnest money or advance?

¶32The question which has to be answered in the present case therefore is as to whether the amount paid by the plaintiffto the respondentwas in the natureofearnestmoney orpaymentofadvance consideration?

¶33Mr. Ravi Gupta, Id. Senior Counsel for the appellants has strongly pressed that in the instant case, the amount paid by the purchaserat the time of executionof the agreementhad to be treated as the earnest money given the percentagethat it formed of the full ^ consideration. In this regard,it is necessaryto advertto the terms of the agreement as extracted above.

¶34Clause 2.1.1 of the Agreementto Sell dated 11*'' April, 2013 (extracted by us heretofore)stipulatedpayment of sum of Rs.2.85 crore as ''Advance Sale Consideration''' and notes the manner in which the same is paid. The agreement records the confirmation and acknowledgement of the receipt of the said amount as advance consideration.Clause2.1.2 refersto the paymentof the "balancesale consideration" of Rs.25,65,00,000/-. Pagel9of24

9.^

¶35Furthermore,there is reference to payment of ''balancesale consideration'''in clause3ofthe agreement. Again in Clause 10.2 of the Agreementto Sell dated 11'" April, 2013, there is referenceto the rightsofthe sellerto forfeitthe ''advancesale considerationpaidby the purchaser under clause 2.1.7".

¶36We may note that the seller/defendanthas also not treated the payment of the amount of Rs.2,85,00,000/-as earnest money and addressedthe legal notice dated 12"^ July, 2013 noted above which clearlyrefers to the amount as "advancesale consideration".By this very communication,the appellantalso notifiedthe respondentsthat the "advanceamount"given by it to the appellantsstandsforfeitedin termsofthe agreementdated 11April, 2013. ^"7-In I.A.No.14/2016,also the appellant/sellerhas referredto the receiptofthe amountas advancepayment. Paymentwas addressedas advance payment.

¶38We may note that in the impugnedorderdated 29'^ May, 2017, the Id. SingleJudgehas notedthe argumentsofthe defendantsin para 4 when it has argued that as there was failure on the part of the plaintiffto get the sale deed executedin time, so the forfeitureof its advance of Rs.2.85 crore and consequently cancellation of the agreement to sell raises a triable issue and hence they be granted unconditional leave to defend. FAO(OS)No.l99/2017 Page 20 of24 Clearly,the sellerhas not treatedthe paymentas paymentof a token/earnestmoney but has treatedthe same as paymentof advance sale consideration.

¶39There can be no dispute with the submission that it is not the label ofthe amountassignedto the paymentwhich is ofconsequence but the substance thereof which is relevant and material has not been held that it is paymentof only a nominalamount can be said to be in the natureof earnestmoney. Paymentof the sum of Rs.2,85,00,000/- by no stretchof imaginationcouldbe treatedas paymentofa tokenor notional amount.

¶40On this aspect, in the impugnedjudgment,the Id. SingleJudge has rightlyobservedthat underthe agreementto sell dated 11"' April, 2013, the balance sale considerationwas payable by 9"* July, 2013 when the sale deed was to be executed. However, this event did not happen. The plaintiff has contended that this was for reason of the mischievousloss of the originalNo ObjectionCertificatedated 29"" June, 2013, though the defendantsallege that as the plaintiffdid not come forward, so they had obtained the another No Objection Certificate dated 1^' August, 2013 and afforded yet another opportunity to the plaintiff to pay the balance sale consideration and get the sale deed executedby 14"" August,2013. In thesefacts, the Id. Single Judge has held that the stipulatedtime limit as agreed by the partiesin the agreementto sell dated 11"" April, 2013 was not adhered too andthat time was notof the essenceof the agreement. Page 21 of24 Whether the seller had an absolute risht to forfeit the advance payment made by the purchaser to it.

¶41We have agreed with the Id. SingleJudge that the amountpaid by the respondent was in the nature of advance sale consideration and not earnest money. Even if the same could be treated as earnest money, the above extract shows that entitlement of the seller to forfeit the amount received under the agreement to sell is subject to loss being occasioned and such appropriationcan be effected only in accordance with Section 74 of the Indian Contract Act, 1872. Therefore, even upholding of the forfeiture of any amount necessarilyrequires considerationof the pleadings of loss on behalfof the seller as well as evidence on the issue,

¶42We have extractedabove, the noticedated 12"" July, 2013 sent by the seller/appellant to the respondentsherein. The same makes no reference to any loss at all but places reliance on clause 10 of the agreementto sell dated 1April, 2013 and asserts an absolutepower premisedwhereon it claimsto haveforfeitedthe advanceamountpaid by the purchaserto the seller. There is not the remotestsuggestionof any loss having been occasionedto the appellant. Even the letter dated 28"^ July, 2013 (atpage 159)sent by the appellantsthroughits counsel makes reference to only payment of the 'advance' and payment of 'balancesaleconsideration'on or before9"^ July, 2013 and 'forfeiture of advance amounf. There is not a single reference of any loss as having occasioned therefrom. Page22 of 24

¶43Even in the 1.A.No.14/2013,the leave to defend application filed bythe appellant,there is not a whisperof a pleadingto the effect that any loss had occasionedto the appellant.

¶44Even if the plea of the defendantthat the advancepaymentwas in fact the earnestmoney was accepted,asper the settledlaw, it could not have been forfeited in its entiret)'. There can be no forfeiture without pleadings of loss. In the present case, the defendants have miserably failed to plead any loss having been caused.

¶45In para 12 ofthe impugnedjudgmentdated 29"" May, 2017, the Id. Single Judge has further held that in any case, the entire amount paid by the plaintiff/respondent could not have been forfeited in its entirety. We have extractedthe direction by the Id. Single Judge hereinbeforewhere it has been held that even if one may treat the advanceamountto be in the natureof an earnestmoney, the law as it stands today would only allow the defendants to deduct 5% to 10% of such amount given the facts of each case.

¶46It is well settled that a party can lead evidence only on its pleadings. In thepresentcase, the appellantshave failedto evenplead any loss suffered by it.

¶47In our view therefore, the Id. Single Judge has exercised its discretiongenerouslywhile enablingthe appellantsto make provision for 10% of the considerationwhich is Rs.28.5 lac to plead and prove loss, if any, suffered by them and granted leave to defend conditionally on their depositing the sum of Rs.2,56,50,000/- in the Page23 of 24 4^7 court or in the alternative by furnishing security in the nature of bank guarantee for the said amount.

¶48The respondent/plaintiffhas not assailedthe libertygrantedby the Id. Single Judge to withhold the amount of 10% of the sale consideration of the amount of advance payment.

¶49In view thereof, we t'lnd no merit in this appeal and pending application,which are herebydismissed.

¶50The respondentsshall be entitledto costs of the appeal which are quantified at Rs.25,000/-.

¶51We make it clear tha: we have not expressed any opinion on the merits of the case of the parties which has to abide by fmal adjudication after evidence has been led. Nothing herein contained shall be so construed. . _ ^ ACTIN CHIEF tJUSflCE C.HARl S SEPTEMBER/^2017 mk KAR, J FAO(OS)No.199/201/ Page 24of 24

*IN THE HIGH COURT OF DELHI AT NEW DELHI + % FAO(OS) 199/2017 & CM No.24256/2017 Reserved on ; September, 2017 Date"^decision ; /j^^eotemben 2017 CHANDANSINGH(SINCEDECEASED) THR LRS & ORS. Appellants Through: Mr. Ravi Gupta, Sr. Adv. With Mr. L.B. Rai, Mr. Sumit Nagpal, Mr. Sachin Jain and Ms. Mallika Bhatia, Advs. versus ADHUNIKDATAMATICSPVT. LTD Respondent Through: Mr. Ratan Kumar Singh, Mr. Nikhilesh Krishnan, Mr. A.K. Tiwari, Mr. Gaurav and Ms. Sushila, Advs. CORAM: HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE C.HARI SHANKAR