Bachcha Lal v. State of Rajasthan — 1977 DIGILAW 160 (ALL)

JUDGMENT M.P. Mehrotra, J. - This second appeal arises out of a suit for the recovery of a sum of Rs. 3,190/-. The plaintiff claimed that he had deposited a sum of Rs. 2,775/-towards the one-fourth of the auction bid which he gave in an auction which was held on behalf of the defendant-respondent to auction certain properties situated at Katra, Allahabad. A sum of Rs. 415/- has been claimed as interest @ 6% per annum on account of failure of the defendant-respondent to deliver possession over a part of the property in respect of which the plaintiff's bid was accepted by the defendant-respondent. 2. The brief facts are these : The defendant owned building No. 996/1143 situated at Raja-Ki-Mandi, Katra, Allahabad. It was decided by the defendant to sell the said building in portions through public auctions. The building was accordingly divided into several portions and the auction sale for the same was held on 11th and 12th July. 1962. The plaintiff also offered bids for portion No. 2 and his bid for Rs. 11,100/- was the highest. The adjoining portion, namely, portion No. 3 was auctioned to Smt. Shanti Devi, wife of Shri Shyam Sunder, the Peshkar of the Property Officer of the defendant. It was alleged in the plaint that the plaintiff was induced to offer bids by the said Property Officer of the defendant with a view to increase the bids. Further, it has been alleged in the plaint that at the time of the auction of portion No. 2 it was announced by the Property Officer as well as by the said Shri Shyam Sunder that the eastern and the western walls were included in the said portion No. 2. The plaintiff averred that he had given his offers acting on the said representation. The necessary sanction was given to the aforesaid highest bid of the plaintiff and when the plaintiff was called upon to deposit the balance of the auction money, he found that the said Shyam Sunder had taken possession of the entire eastern wall of portion No. 2 and had removed the foundation fixed therein. He also closed the openings thereof with bricks. The plaintiff alleged that he brought the said matter to the notice of the authorities of the defendant but they took no steps in the matter. He also closed the openings thereof with bricks. The plaintiff alleged that he brought the said matter to the notice of the authorities of the defendant but they took no steps in the matter. Subsequently, it was alleged, Hira Lal, the purchaser of portion No. 1 took possession of the western wall. This fact was also brought to the notice of the authorities of the defendant but again to no effect. Under these circumstances, the plaintiff sought the refund of his one-fourth amount but instead of returning the money the defendant forfeited the same. It was contended that the defendant had committed the breach of contract and not the plaintiff who was always willing to perform his part of the contract. Hence the suit. The defendant resisted the same on various grounds. It was denied that any such representation was made at the time of the auction as was alleged by the plaintiff in respect of the eastern and the western walls. It was claimed that the auction sale was held in accordance with the separate plans which were prepared in respect of separate portions were on the table even at the time of the public auction. Apart from the said plans no other assurance was given nor representation made on behalf of the defendant. The plaintiff knew from the plans that the eastern wall was not included in the portion for which he was bidding. The western wall was undoubtedly included in the said portion and the defendant said that it was wrong that Hira Lal had taken possession of the same. The said wall could still be delivered along with the portion in case the plaintiff would have been entitled to get the sale-deed in his favour. But it was said that the plaintiff failed to deposit the three-fourth of the balance amount in accordance with the terms of the auction and, therefore, in accordance with those very terms the one-fourth sum which was earnest money, was liable to be forfeited. It was denied that the defendant had committed the breach of contract. The breach was alleged to have been committed by the plaintiff. The trial court framed the following four issues and tried the suit. 1. Whether portion No. 2 auctioned on 11/12-2-62 included the eastern and western walls as alleged? 2. Whether the defendant retracted later on to perform the conditions of auction? The breach was alleged to have been committed by the plaintiff. The trial court framed the following four issues and tried the suit. 1. Whether portion No. 2 auctioned on 11/12-2-62 included the eastern and western walls as alleged? 2. Whether the defendant retracted later on to perform the conditions of auction? If so, whether the plaintiff was entitled to refund? 3. Whether the plaintiff is entitled to interest as claimed? 4. To what relief, if any, is the plaintiff entitled? 3. It held that no assurances were given or representations made at the time of the auction as was alleged by the plaintiff. The plaintiff was said to have been in breach of the contract and the defendant was held not to be in such breach. The defendant, according to the terms and conditions of the contract between the parties, was held to be entitled to forfeit the amount in question and the plaintiff was, therefore, held not entitled to any refund. The suit was accordingly dismissed. The lower appellate court affirmed the trial court's decree. It emphasised that the alleged breaches on the part of the defendant were in the nature of an after-thought and in this connection referred to the statement of Bachcha Lal (P.W. 1) wherein he admitted in his cross-examination that the dispute about the walls arose after four months after the necessary sanction had been received from the Rajasthan Government. The lower appellate court emphasised that the stipulation between the parties was that within one month of the said sanction the balance amount of the auction money would be deposited by the plaintiff but he failed to do so. 4. The plaintiff has now come up in the instant second appeal and in support thereof I have heard Shri G. P. Bhargava, learned counsel for the appellant. Shri K.M.L. Hajela has made his submissions on behalf of the defendant-respondent. Shri Bhargava made these points : The facts and circumstances of the case attracted the applicability of S. 20 of the Contract Act read with S. 65 of the said Act. Learned counsel's point is that it is a case of mutual mistake in respect of the two walls in question and, therefore, the contract must be deemed to be void and the duty of restitution under S. 65 of the Contract Act, is therefore, on the defendant. Learned counsel's point is that it is a case of mutual mistake in respect of the two walls in question and, therefore, the contract must be deemed to be void and the duty of restitution under S. 65 of the Contract Act, is therefore, on the defendant. In my opinion, this contention cannot be accepted because in the pleadings there is no case of any mistake set out. The case is one of deliberate misrepresentation on the part of the defendant. Moreover, even if the plaintiff might be said to be under some mistake, it has not been shown that the defendant was also labouring under some mistake. The mistake must be mutual to attract S. 20. A case of deliberate misrepresentation on the part of the defendant, as has been set out in the plaint, is obviously inconsistent with a case of the defendant being under some mistake. In this view of the matter, it is not possible to reconcile a case of misrepresentation with a case of mutual mistake. In case of misrepresentation S. 19 will be attracted. In a case of mutual mistake S. 20. In the trial court no issue was framed on the said plea which has now been raised for the first time in this court and the parties did not go to trial with any forewarning that such a case would be raised on behalf of the plain-tiff. In this view of the matter, I do not think that the plaintiff-appellant can be allowed to raise the said controversy. Moreover, as I said, the specific case, which has been set out in the plaint, is one of deliberate misrepresentation on behalf of the defendant and not a case of any mistake on behalf of the said defendant. 5. The second contention, which has been raised on behalf of the appellant, is that in the instant case S. 74 of the Contract Act would be applicable and since no evidence was adduced on behalf of the defendant-respondent to show that it had suffered any damage on account of the plaintiff's failure to complete the transaction, therefore, the defendant would not be entitled to forfeit the entire sum in question. Learned counsel has emphasised that in a situation where prices were fast rising a second auction would have really meant not damage but some extra profit to the defendant. Learned counsel has emphasised that in a situation where prices were fast rising a second auction would have really meant not damage but some extra profit to the defendant. Reliance has been placed on : K. C. N. Gowda and Bros v. M. Tekchand and Sons (AIR 1958 Mys 10), Fateh Chand v. Balkishan Dass ( AIR 1963 SC 1405 ), Maula Bux v. Union of India ( AIR 1970 SC 1955 ) : (1970 All LJ 783), Union of India v. Raman Iron Foundry (1974-2 SCC 231): ( AIR 1974 SC 1265 ) in sup-port of the contention that S. 74 of the Contract Act is applicable to all categories whether they be described as earnest amount, liquidated damages or unliquidated damages. In AIR 1958 Mys 10 it was laid down that the nomenclature is not material and what has to be seen in deciding whether an amount had been paid by way of earnest money or part payment of price is the intention of the parties. It has to be emphasised, however, that in this very case it has been laid down that it is for the plaintiff to raise the said question in the pleadings. The plaintiffs in the said case had sued for the recovery of a sum of Rs. 3,900/- being the advance paid and damages due in a contract of sale of 19 bales of yarn to the plaintiff by the defendant. The Court laid down as under (at p. 11) : "This point was not raised in either of the Courts below and, in my opinion, the appellant should not be allowed to raise the same for the first time in support of this appeal. It appears to me that although in the plaint filed in this suit the plaintiffs said that the defendant had deliberately broken the contract and are r liable to repay the advance amount of Rs. 1,900/- together with Rs. 2,000/- being the damages suffered by the plaintiffs in this behalf, it was not stated that even if it be held that the plaintiffs had broken the contract, they were liable to get refund of the sum of Rs. 1,900/- which was paid by way of advance. No issue appears to have been raised before the trial court on this point and the learned Judges of the courts below have not considered this case from this point of view. 1,900/- which was paid by way of advance. No issue appears to have been raised before the trial court on this point and the learned Judges of the courts below have not considered this case from this point of view. That being so. I am of the opinion that the learned Advocate for the Appellants should not be allowed to raise this point for the first time in this appeal. In any event, having regard to the fact that this appeal is disposed of on the other ground mentioned, I do not think it is necessary for Mr. Krishnamurthi either, to rely on this ground in the appeal." In the instant case, the plaintiff never stated in the plaint that the amount in question, which had been forfeited, was not in the nature of earnest money but really a part payment of the price. 6. In AIR 1963 SC 1405 it has been laid down as under (at p. 1410): "Section 74 of the Indian Contract Act 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. Where a covenant in a contract for sale of certain land and building standing thereon provided that if for any reason the vendee failed to get the sale deed registered by the date stipulated, the amount of Rupees 25,000/- (Rs. 1,000/- paid as earnest money and Rs. 24,000/- paid out of the price on delivery of possession) shall stand forfeited and the agreement shall be deemed cancelled, the covenant for forfeiture of Rs. 24,000/- if manifestly a stipulation by way of penalty. If the amount of Rs. 1,000/- paid as earnest money and Rs. 24,000/- paid out of the price on delivery of possession) shall stand forfeited and the agreement shall be deemed cancelled, the covenant for forfeiture of Rs. 24,000/- if manifestly a stipulation by way of penalty. If the amount of Rs. 24,000/- to be paid when vacant possession of the land and building was delivered, was expressly referred to in the agreement as "out of the sale price" the amount of Rs. 24,000/- cannot be regarded as earnest money or a deposit for due performance of the contract. It cannot be assumed that because there is a stipulation for forfeiture the amount paid must bear the character of a deposit for due performance of the contract. The measure of damages in the case of breach of a stipulation by way of penalty is by S. 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 deemed 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, of which the parties knew when they made the contract, to be likely to result from the breach where the contract for sale of the immovable property for a consideration of Rs. 1,12,500 provided for forfeiture of Rs. 25,000 consisting of Rs. 1,000/- paid as earnest money and Rs. 1,12,500 provided for forfeiture of Rs. 25,000 consisting of Rs. 1,000/- paid as earnest money and Rs. 24,000 paid as part of the purchase price in consequence of the default by the vendee, in a suit for damages upon breach of contract committed by the defendant (vendee); Held that in the absence of any proof of damage arising from the breach of the contract, the amount of Rs. 1,000 (earnest money) which the plaintiff was entitled to forfeit, and the advantage that the plaintiff must have derived from the possession of the remaining sum of Rupees 24,000/- during all the period the plaintiff was kept out of possession, would be sufficient compensation to him (the plaintiff). Further, as the plaintiff had separately claimed mesne profits for being kept out of possession, the fact that the plaintiff was out of possession could not be taken into account in determining damages for the purpose. There is no principle on which compensation equal to 10% of the agreed price could be awarded to the plaintiff even where he has failed to prove any loss suffered by him." In this connection it should be seen that in the contract the covenant was that the amount of Rs. 25,000, which comprised two items, was liable to be forfeited. The two items were Rs. 1,000 paid as earnest money and Rs. 24,000 paid out of price on delivery of possession. Before the court it was not disputed on behalf of the appellant that the sum of Rs. 1,000 paid as earnest money was liable to be forfeited. The only dispute between the parties was whether the sum of Rs. 24,000 paid out of the price on delivery of possession was liable to be forfeited or not and the court held that to the said item the provisions of S. 74 of the Indian Contract Act were attracted. In AIR 1970 SC 1955 : (1970 All LJ 783) it has been laid down as under (at pp. 786-787 of 1970 All LJ): "Amount deposited by contractor as security for guaranteeing due performance of contract is not earnest money. Forfeiture of earnest money under a contract for sale of property, movable or immovable, if the amount is reasonable, does not fall within S. 74. But if forfeiture is of the nature of penalty, S. 74 applies. 786-787 of 1970 All LJ): "Amount deposited by contractor as security for guaranteeing due performance of contract is not earnest money. Forfeiture of earnest money under a contract for sale of property, movable or immovable, if the amount is reasonable, does not fall within S. 74. But if forfeiture is of the nature of penalty, S. 74 applies. Where under the terms of the contract the party in breach had undertaken to pay a sum of money or to forfeit a sum of money which he has already paid as security, for guaranteeing due performance of the contract to the party complaining of the breach of the contract, the undertaking is of the nature of a penalty." It was further emphasised : "In the present case the deposit was made not of a sum of money by the purchaser to be applied towards part payment of the price when the contract was completed and till then as evidencing an intention on the part of the purchaser to buy property or goods. Here the plaintiff had deposited the amounts claimed as security for guaranteeing due performance of the contracts. Such deposits cannot be regarded as earnest-money." Before the Supreme Court the case was one of a contract for the supply of potatoes at the Military Headquarters and the supplier had deposited a certain amount as security for the due performance of the contract of supply. The facts of the instant case are different. 7. The last case on which reliance has been placed is (1974) 2 SCC 231 : ( AIR 1974 SC 1265 ). The law has been laid down in the following words (at pp. 1272-1273 of AIR 1974 SC): "Having discussed the proper interpretation of Clause 18, we may now turn to consider what is the real nature of the claim for recovery of which the appellant is seeking to appropriate the sums due to the respondent under other contracts. The claim is admittedly one for damages for breach of the contract between the parties. Now, it is true that the damages which are claimed are liquidated damages under Cl. 14, but so far as the law in India is concerned, there is no qualitative difference in the nature of the claim whether it be for liquidated damages or for unliquidated damages. Now, it is true that the damages which are claimed are liquidated damages under Cl. 14, but so far as the law in India is concerned, there is no qualitative difference in the nature of the claim whether it be for liquidated damages or for unliquidated damages. Section 74 of the Indian Contract Act eliminates 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, and according to this principle, even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit. It, therefore, makes no difference in the present case that the claim of the appellant is for liquidated damages. It stands on the same footing as a claim for unliquidated damages." In the Supreme Court case the question was whether a claim for liquidated damages gave rise to a debt or not. The Court emphasised whether it was in the nature of liquidated damages or unliquidated damages till the adjudication was done by the court no debt came into existence. 8. The learned counsel for the defendant-respondent placed reliance on H. C. Mills v. Tata Air Craft ( AIR 1970 SC 1986 ). He also relied on Kunwar Chiranjit Singh v. Har Swarup ( AIR 1926 PC 1 ). In AIR 1970 SC 1986 the Court's attention was drawn to its earlier pronouncement reported in AIR 1970 SC 1955 : (1970 All LJ 783). The Court distinguished the earlier case by pointing out that the sum of Rs. He also relied on Kunwar Chiranjit Singh v. Har Swarup ( AIR 1926 PC 1 ). In AIR 1970 SC 1986 the Court's attention was drawn to its earlier pronouncement reported in AIR 1970 SC 1955 : (1970 All LJ 783). The Court distinguished the earlier case by pointing out that the sum of Rs. 24,000/- about which there was dispute between the parties was not in the nature of earnest amount but was towards part payment of the price. It was held that where the amount was in the nature of earnest sum then the same was liable to be forfeited and the earlier Supreme Court case could not be applicable to such a situation. In AIR 1926 PC 1 : (24 All LJ 248) it has been laid down as under : "Earnest money is part of the purchase price when the transaction goes forward : it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee." 9. I have given my anxious consideration to the rival contentions, which have been raised by the parties, and, in my opinion, this appeal falls within the law laid down in the Supreme Court case reported in AIR 1970 SC 1986 . In this connection it is necessary that a reference should be made to Cl. 3 of Ex. A-2 which clearly lays down that one-fourth of the bid amount shall be deposited by way of earnest money. In Condition No. 4 it is laid down that in case the balance amount was not deposited within the stipulated period then the one-fourth amount deposited by the bidder was liable to be forfeited. It seems to me that there is a clear stipulation that the one-fourth sum was deposited as an earnest money and not as advance payment of price. Learned counsel for the appellant contended that irrespective of the nomenclature the sum was really in the nature of advance payment towards the price. In my opinion, this contention is not sustainable from the contract itself. It has repeatedly been emphasised that the earnest money, if the transaction goes through, becomes a part of the purchase price. In other words, credit is given to the purchaser for the sum which he deposits by way of earnest money. In my opinion, this contention is not sustainable from the contract itself. It has repeatedly been emphasised that the earnest money, if the transaction goes through, becomes a part of the purchase price. In other words, credit is given to the purchaser for the sum which he deposits by way of earnest money. But the fact that it ultimately forms part of the sale consideration is no ground for holding that it is an advance payment of price simpliciter. When it has the additional aspect of serving as an earnest then it is not treated as a mere part payment of the price. In the facts of the present case it has been clearly laid down that one-fourth amount was being deposited as an earnest. Moreover, as was emphasised in the aforesaid Mysore case no foundation was laid in the pleadings by the plaintiff that he contended this amount to be in the nature of advance payment of price and not as an earnest sum. According to the said case itself, the plaintiff was bound to put in pleadings to that effect. The Supreme Court also in the aforesaid case reported in AIR 1970 SC 1986 emphasised the plaintiff's duty to set out pleadings to the said effect. It was observed (at p. 1996): "..............But as we have already mentioned, we do not propose to go into those aspects in the case on hand. As mentioned earlier the appellants never raised any contention that the forfeiture of the amount amounted to a penalty or that the amount forfeited is so large that the forfeiture is bad in law. Nor have they raised any contention that the amount of deposit is so unreasonable and therefore forfeiture of the entire amount is not justified." In the facts of the present case also, the plaintiff did not aver in the plaint that the amount in dispute was in the nature of a penalty or that it was advance payment towards the price and not an earnest sum or that looking to the entire sale consideration the amount as unreasonably large to be forfeited. Indeed, all the ingredients of S. 74, which should have been set out, are conspicuous by their absence in the plaint. In my view, therefore, the plaintiff cannot be allowed to raise these questions for the first time in this court. Indeed, all the ingredients of S. 74, which should have been set out, are conspicuous by their absence in the plaint. In my view, therefore, the plaintiff cannot be allowed to raise these questions for the first time in this court. Moreover, even on merit as I have held, it seems to me that going by the terms contained in Ex. A-2 it is clear that the one-fourth amount was deposited by way of earnest sum. It should be emphasised that in the Supreme Court case reported in AIR 1970 SC 1986 the earnest amount was 25% of the purchase price. The sum involved Rs. 2,50,000 and the Court held that the said amount, despite its largeness, was liable to be confiscated. 10. Learned counsel lastly contended that the equities are in favour of his client and relief should be granted. I do not think that this contention can be accepted. The matter will have to be decided with reference to the contract between the parties and when the plaintiff with eyes open entered into such a contract and deliberately chose not to deposit the balance amount within one month as he was required to do and even failed to point out any such breach, as has been subsequently sought to be alleged against the defendant, I do not think that the plaintiff can be said to be entitled to any equitable consideration. I do not suggest that it is open to me to fall back on such supposed equities on the face of the law bearing on the subject. 11. This appeal accordingly fails but in the circumstances I shall make no order as to costs.