Parsvnath Developers Limited v. Kiran Industries & Investment Company

(xi) Copy of Legal Notice dated 2.04.2010 along with dispatch receipt and

6. The Defendants have not led any evidence. Issue Nos. 1, 2 and 3

7. These three issues are interlinked and are being taken up together. In the written statement Defendant has admitted the execution of the MoU dated 1st December 2006 [Ex. PW 1/2]. It is also admitted that Defendant No. 1 has received a payment of Rs. 1.01 crores under the said MoU by way of Cheque No. 093731 dated 2nd December 2006 drawn in favour of Defendant No. 1. The MoU records the terms and conditions for the development of a piece of land measuring 11.67 acres, the subject matter of the MoU. The Plaintiff, as a Developer, was to construct several multistoried buildings/complexes on the said piece of land as per the building plans to be sanctioned by the statutory authorities. Defendant No.1 was responsible for obtaining the requisite approvals required for implementation of the project. The cost for such approvals was to be borne by the Developers. After the development, the sale proceeds were to be deposited in Escrow bank account named “Parsvanth Developers Ltd. (SILIGURI Project).”, to be opened jointly by the parties and payments credited in the said account were to be shared between the parties in the following proportion:- Owner: 25% Developer: 75%

8. In order to enable the Plaintiff to carry out the construction, it was necessary and essential that the land in question was free from any charge or encumbrances. The MoU was a precursor to the separate agreement for the development which the parties were to execute later, subject to fulfilment of obligations contained in the MoU. To safeguard Plaintiff’s interest, the MoU stipulated several obligations to be complied with by Defendant No. 1, foremost amongst them being that within 30 days of execution of the execution, Defendant was to provide copies of all documents of title or other documents as may be required by the solicitors of the Plaintiffs in order to facilitate them to carry out the due diligence in respect of the said property. Plaintiff’s witness, Mr. Pawan Gupta, has deposed that after repeated follow ups, sometime in March 2007, the Defendants intimated to the Plaintiff that all the original title documents related to the said land were lost and instead provided photocopies and a complaint in that regard lodged with Sadar Police Station, Gangtok on 9th April 2007 [Ex. PW 1/5] along with a copy of the publication carried out in the newspaper regarding the loss of the original title deeds [Ex. PW 1/6]. On the basis of the said documents the Plaintiff proceeded to carry out the due diligence of the property. The due diligence report dated 6th March 2007 has also been proved by the Plaintiff’s witness as [Ex. PW 1/3]. The said witness in the report has concluded as under:- “7. Conclusion a) M/s Kiran Industries & Investment Company Ltd. is the present owner of the said property. However, only land measuring 10.47 acres out of the total land of 12.67 acres is mutated in favour of M/s Kiran Industries Investment Company Ltd. b) In view of the above, we hereby suggest that the mutation status be clarifies and original title documents be physically verified before entering into any sale transaction with respect to the said property.”

9. Thereafter, on 31st August 2007, Plaintiff’s officer proceeded to carry out the demarcation of the land in question. Plaintiff’s witness has deposed that during such demarcation exercise, police officials from the Police station Bhakti Nagar arrived on the land and informed plaintiff’s officer Mr. Anil Kumar Srivastava that the Court of Civil Judge (Junior Division), Jalpaiguri had passed an order of temporary injunction dated 21st March 2005 in respect of portion of the land in question, whereby Defendant No. 2 and others had been restrained from entering into the land in question. The said Officer, then brought this fact to the notice of Mr. Pawan Gupta (CEO) of the Plaintiff Company. He also received a copy of communication issued by the Officer In-charge, Shakti Nagar Police Station to Defendant No. 2 informing him about the injunction order passed by the Court of Civil Judge (Junior Division), Jalpaiguri. The said letter is marked as Ex. PW 1/9 enclosing therewith a copy of the injunction order. The fact that there was an injunction order passed by the Court is also not a disputed fact. It is however contended that the injunction order was only in respect of a portion of the suit property and there is no impediment for the Plaintiff to carry out its obligations under the MoU in respect of the remaining portion. Defendants further argued that the termination of the MoU by the Plaintiff is also premised on the ground that the copies of the documents were not provided within the stipulated period. The plea that the interim injunction order repudiates the contract, was never raised therein and is an afterthought. It shows that the Plaintiff wanted to wriggle out of the contractual commitments under the MoU as it was not ready and willing to fulfill its obligations. On the contrary, Plaintiff argues that since there was an injunction order operating in respect of the portion of the property, the Plaintiff had no reason to make further investments in the said property.

10. The MoU clearly envisaged that the Defendants were to provide the documents to the Plaintiff. After the signing of the MoU, the plea of the Defendant that the original documents had been lost, clearly exhibits that the Defendant No. 1 has misled and misrepresented the facts to the Plaintiff. The Plaintiff is thus right in saying that it has been induced to enter into the MOU in question. The injunction order clearly establishes that the Defendant No. 1 has misrepresented to the Plaintiff that the property was free from encumbrances. The injunction order operating against Defendants is dated 21st March 2005 that is prior to the signing of the MoU. These are positive assertions of incorrect matters and active concealment of material facts. On this it would be apposite to refer to Section 17 and 18 of the Indian Contract Act, 1872 (for short, "the Act"). The said provisions read as under:- "17. 'Fraud' defined.-"Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agents, with intent to deceive another party thereto his agent, or to induce him to enter into the contract; (1) the suggestion as a fact, of that which is not true, by one who does not believe it to be true; (2) the active concealment of a fact by one having knowledge or belief of the fact; (3) a promise made without any intention of performing it; (4) any other act fitted to deceive; (5) any such act or omission as the law specially declares to be fraudulent. Explanation.--Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence, is, in itself, equivalent to speech."

18. “Misrepresentation” defined ---- “Misrepresentation” means and includes—" (1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; (2) any breach of duty which, without an intent to deceive, gains an advantage of the person committing it, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; (3) causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement. The consequence of fraud and misrepresentation is provided under section 19 of the Act, which reads as under:- "19. Voidability of agreements without free consent.- When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. A party to contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put on the position in which he would have been if the representations made had been true. Exception.- If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence. Explanation.- A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practised, or to whom such misrepresentation was made, does not render a contract voidable."

11. A plain reading of the aforesaid provisions shows that when an agreement is vitiated by coercion, fraud or misrepresentation, the said contract is voidable at the hands of the party whose consent was so obtained. The terms and conditions of the MoU clearly spell out that Defendant No. 1 was required to satisfy the Plaintiff regarding its ownership and a clear marketable title qua the subject land. The Defendants have failed to do so and are also guilty of fraud, as they concealed and misrepresented facts relating to their land in question. The consent of the Plaintiff obtained by such means was thus not a free consent. There is positive assertion/representations of falsehood and silence on the part of the Defendants that constitute fraud and Plaintiff had the right to repudiate the contract on coming to know about the vitiating factors that prevented it to carry on with the project. The Plaintiff’s witness was subjected to crossexamination at length on this aspect. In his cross-examination, he has resolutely maintained its stand that the Defendants have breached their obligations by not providing the documents and that they concealed the order of injunction. The Plaintiff has given cogent reasons for not going forward with the project. All such reasons are attributable to the Defendants. In fact, in the legal notice issued by the Plaintiffs dated 2nd April 2009 [Ex PW 1/10], the Plaintiff had categorically stated that the Defendants had given assurance during the meeting held on 8th January 2008 that the interim injunction operating against Defendant No. 2 would be vacated. There is no response to the said notice.

12. Furthermore, the Defendants, at time of the signing of the MoU, did not mention anything about the loss of the original documents. It is pleaded that Plaintiff was aware of the order, but there is no evidence to establish this contention. After receiving part payment under the MoU, when Defendants were called upon to provide the original documents, it was stated that the same have been lost. Nevertheless the Plaintiff proceeded further and then the injunction order surfaced. A builder would ordinarily not make investments in a disputed land. It cannot be expected that it would carry on construction on a land that is unencumbered and where there is doubt about the title of the property. Though, the due diligence report does state that the Defendant No. 1 is the owner of the property, however, the Plaintiff has demonstrated good and genuine reasons to say that it has lost confidence in Defendant No. 1, in absence of the original documents, which are fundamental to establish title to a property. In absence of the original documents, and the concealment of the injunction order, the doubt regarding the encumbrances over the land in question becomes real and the Plaintiff was justified in repudiating the MoU.

13. In order to determine whether the Defendants were ready and willing to perform the contract, conduct of the Defendants has to be properly scrutinized and has to be adjudged with reference to the conduct of the party and the attending circumstances. Plaintiff has lead evidence to show that Defendant No.1 did not have the legal capacity to fulfill its obligations under the contract, clearly exhibiting complete lack of willingness to complete the transaction thereby breaching the agreement. The Defendants on the other hand have not led any evidence to show that the Plaintiff was in breach of the MoU in question. It is therefore established that the Defendants have acted fraudulently and concealed material facts from the Plaintiff at the time of the signing of the MoU dated 1st December 2006. Defendant No. 1’s conduct also exhibits that it was not ready and willing to perform its obligations under the said MoU. All the three issues are thus decided in favour of the Plaintiff and against the Defendants. Issue No. 4

14. The onus of proof of this issue was on the Defendants. Defendants have not led any evidence and have therefore failed to discharge the same. Nevertheless, the issue being based on a mixed question of fact and law, the Court has examined the pleadings and the evidence led by the parties on this issue. The MoU [Ex. PW 1/2] was executed on 1st December 2006. In terms of Clause 10 (b) of the MoU, within 30 days of its signing, the Plaintiff was to carry out due diligence. Under Clause 6 (b), Defendants were to provide documents of title and other documents required by the solicitor of the Plaintiff to facilitate the due diligence. These documents were not provided within time. In May 2007, Defendant No. 2 informed that the title deeds were not traceable. However Plaintiff was called upon to proceed for demarcation of the land so that the possession could be handed over to enable the Plaintiff to carry out the construction. Plaintiff’s witness deposed that the process for demarcation of the land was carried out on 31st August 2007, and during the visit to the land, the Plaintiff became aware of the injunction order dated 21st March 2005 passed by the Court of Civil Judge (Junior Division) Jalpaiguri in respect of the portion of the land in question. Thereafter the parties had a meeting on 8th January 2009, where Defendants assured the Plaintiff that the injunction would be vacated on or before 30th January 2009 or alternatively, the Defendant shall refund the amount of Rs. 10,100,000/- along with interest. Admittedly, the amount has not been refunded till date. The cause of action occurred on all the dates mentioned above. The suit was filed on 31st August 2010 within three years from the date of cause of action and is thus within time. This issue is decided against the Defendants and in favour of the Plaintiff. Issue Nos. 5, 6 and 7

15. The advance payment under the MoU paid by the Plaintiff to the Defendant No. 1, has been duly acknowledged. In view of the findings in Issue Nos. 1, 2 and 3 holding that Defendant No. 1 was guilty of breach of the terms of MoU and was not ready and willing to perform its obligations, the Plaintiff is thus entitled to recover the amount so paid to Defendant NO. 1. Mr Pawan Gupta [PW-1] has deposed that the Plaintiff has spent Rs. 35 lacs on architect’s fees and Rs. 15 lacs towards other expenses in the proposed project and that Defendant No. 1 is liable to reimburse the said expenses. However, there is no evidence brought on record, which would show that the Plaintiff had incurred the said expenses. There are no invoices on record to substantiate the Plaintiff’s claim for reimbursement of the aforesaid expenses. In absence of any documentary evidence to prove the expenses alleged to have been incurred by the Plaintiff, there is no basis for the Court to allow the Plaintiff to recover the same from the Defendants. In order to seek reimbursement, it was necessary to produce documentary evidence supporting the claim of expenses. In view of the above discussion, Issue No. 5 is decided against the Defendants and in favour of the Plaintiff. Issue Nos. 6 and 7 are decided against the Plaintiff and in favour of the Defendants. Issue No. 8

16. The Plaintiff has sought a decree for an amount of Rs. 1 crore by way of damages owing to the loss of business on account of the breach of the MoU. The burden of proving entitlement for loss of profits, was on the Plaintiff. Plaintiff has claimed loss of business occasioned on account of breach of MoU by the Defendants. The award of damages requires precise pleading and proof. Plaintiff can recover damages to the extent of the claim being reasonable compensation for the injury sustained by him. This means that Plaintiff must ensure that it has a strong case and strong evidence to show the loss of earnings. In order to claim unliquidated damages under section 73 of the Contract Act, existence of loss is a sine qua non. The Plaintiff is required to prove that as a consequence of breach of contract, it has suffered loss/damages and should have produced evidence on the measure of such loss. It is imperative for the claiming party to submit proof of injury suffered in order to successfully claim damages. However there is no evidence placed before the court in support of this claim. Plaintiff’s sole witness in its examination-in-chief, has not proved any loss and has merely deposed that the Plaintiff is entitled to decree of damages without giving any details or the basis for making such a claim. Plaintiff should have laid the foundation for the same by raising appropriate pleas and also should have led proper evidence and in absence thereof, the court is not inclined to award damages to the Plaintiff. There is no evidence to show that the Plaintiff has suffered any loss. Plaintiff has failed to discharge the onus of proof. The issue is decided against the Plaintiff and in favour of the Defendants. Issue no. 9

17. Although the payment of Rs. Rs 6.01 Crores (Rupees Six Crores One Lakh only) was envisaged to be refundable security deposit, but the same was liable to be adjusted, as provided in the agreement. Since the Defendants failed to fulfil their obligations, they are now liable to pay interest on the aforesaid amount. The Defendants by misrepresentation and concealment of material facts, induced the Plaintiff to make the payment under the MoU, on the assurance that the land in question was free from encumbrances. The aforesaid payment was made on 1st December 2006. The transaction is a commercial transaction, and Defendant No. 1 has enjoyed the aforesaid monies for last 9 years and would have also earned interest thereon. Thus in the facts of the present case, in my opinion, Plaintiff is entitled to interest. Accordingly, this issue is also decided in favour of the Plaintiff and against the Defendants. Though the Plaintiff has claimed interest at the rate of 18% per annum, however, keeping in view the present bank rates of interest, it is held that interest at the rate of 12% per annum simple would meet the ends of justice and also compensate the Plaintiff for the loss suffered by it. Issue No. 10

18. Though the Plaintiff has claimed a joint and several money decree against the Defendants, however it is not disputed that the MoU in question was executed between the Plaintiff and Defendant No. 1. The payment was thus made to Defendant No. 1 only. The breach of the agreement is also by Defendant No. 1. The liability to refund the payment under the MoU is that of Defendant No. 1. Defendant No. 2 is only the Director of Defendant NO. 1 and does not have any personal liability for the dues of Defendant No. 1 as held by this Court in Tristar Consultants v Vcustomer Services India Pvt. Ltd.(2007) 139 DLT 688, Mukesh Hans v Smt. Uma Bhasin, 2010 SCC Online Del 2776. Plaintiff has also not led any evidence to show that Defendant No. 2 is personally liable for the breach of the MoU and for refund of the amount. In absence of any evidence on record justifying Plaintiff’s claim of joint liability, it is held that Plaintiff is entitled to decree for an amount of Rs. 1.01 crore against Defendant No. 1 only. Plaintiff shall also be entitled to interest at the rate of 12% p.a. simple from the date of the payment i.e. 2nd December 2006 till the date of realization. Plaintiff shall also be entitled to costs as per schedule.

19. Decree sheet be drawn up.

SANJEEV NARULA, J MAY 06, 2019 ss/nk