M/S VERSATILES COMMOTRADE PVT LTD v. KARAN SINGH

Delhi High Court · 24 Oct 2017 · 2017:DHC:6248

Yogesh Khanna

CS(COMM) 407/2016

2017:DHC:6248

civil appeal_allowed Significant

AI Summary

The Delhi High Court held that a seller cannot forfeit advance payments without proving loss and that the obligation to obtain NOC for agricultural land transfer lies with the seller, granting conditional leave to defend to the defendant.

Full Text

IA No.1130/2017 in CS(COMM) 407/2016 HIGH COURT OF DELHI

Reserved on: 12th October, 2017 Pronounced on: 24th October, 2017

CS(COMM) 407/2016
M/S VERSATILES COMMOTRADE PVT LTD..... Plaintiff
Through: Mr.Ratan K. Singh& Mr.Nikhilesh Krishnan, Advocates.

VERSUS

KARAN SINGH..... Defendant
Through: Mr.Inderjeet Yadav, Advocate.

CORAM:

HON'BLE MR. JUSTICE YOGESH KHANNA YOGESH KHANNA, J.
IA No.1130/2017

JUDGMENT

1. Before coming to this application under Order 37 Rule 3(5) CPC let me state the facts: a) The plaintiff filed this suit for recovery of `1,42,26,302 along with the interest @ 14% from 24.11.2014 till date, on the premise that it had entered into an agreement to sell with the defendant on 15.04.2013 whereby the defendant had agreed to sell his agricultural land viz. 2 acres, 4 bighas, 8 biswas and 10 biswanis in Khasra No.306 (5-15), 309 (4- 2017:DHC:6248 16), 310(4-116), 341 (4-16), 342 (4-16), 997 (3-02) situated at Jaffarpur Kalan, Najafgarh, New Delhi; b) the defendant represented that he is the lawful owner and the land is free from all attachment, defects etc. and there was no impediment in selling it; c) the defendant further represented that since the subject land was an agricultural land so in terms of section 5(1) of the Delhi Land (Registration and Transfer) Act 1972 the defendant would have to obtain NOC from the concerned Revenue authority for permitting to sell the subject land to the plaintiff and till the time the NOC was furnished, the plaintiff would not be required to pay the balance consideration; d) the sale consideration of the aforesaid land was fixed at `3,55,00,000/- per acre and at the time of execution of the agreement to sell, the plaintiff paid `92,26,302 partly by cheque and partly by cash. The payment was duly received and recorded by the defendant in the agreement to sell itself and even had executed a receipt acknowledging such payment. e) as per the clause 1 of the agreement to sell, the balance consideration was payable by 15.07.2013, i.e, at the time of execution of the sale deed of the plaintiff; f) the plaintiff alleges a typographical error crept in clause 8 of the agreement which says the stamp duty would be paid by the seller and the NOC is to be obtained by the purchaser, which obviously is against other terms of the contract as no seller would purchase stamp duty for selling his property. Per clause 11 of the agreement to sell the defendant is to inform the purchaser 15 days in advance to pay balance amount and at the time of the execution of the sale deed; g) it is alleged that till 15.07.2013 the NOC could not be obtained and the defendant sought more time; h) in the third week of November 2013 the defendant sought further advance of `25,00,000 which was paid by cheque on 25.09.2013; again on 08.01.2014 the defendant sought further amount of Rs.10,00,000/- and promised to obtain the NOC within two months and hence `10,00,000 was paid by cheque on 08.01.2014, encashed on 10.01.2014; i) in the second week of May 2014 the defendant yet again requested an advance of `15,00,000 which was also paid by plaintiff through RTGS on 21.05.2014 and it was made clear orally if the defendant would not furnish the NOC within three months, the defendant would have to refund the whole amount of `1,42,26,302 along with the interest @ 14%; j) the defendant could not obtain the NOC and since had no intention to execute the sale deed, a legal notice on 24.11.2014 was sent by the plaintiff calling upon the defendant to refund of the entire amount with interest but was ignored and hence this suit.

2. The defendant in his application for leave to defend has raised the following pleas: i) per clause 2 of the agreement to sell the defendant has cleared all dues on land viz. `24,877 paid in the office of Tehsildar, Najafgarh, New Delhi on 26.06.2013, proof filed as annexure A-1; ii) the defendant inform the plaintiff and requested him to appear before the Sub-Registrar, Kapashera, New Delhi on 15.07.2013 for execution of the sale deed and waited for him but the plaintiff did not appear on the said date. A copy of the application for recording of his appearance before Sub-registrar is enclosed as annexure A-2; iii)as per agreement the plaintiff has no right to file the suit for the recovery of the aforesaid amount; iv)the obligation of obtaining the NOC was upon the plaintiff per clause 8 and there was no clause in the agreement that if the defendant failed to obtain the NOC the plaintiff shall have right to recover the earnest money. Further per section 5(1) of the The Delhi Land (Restrictions on Transfer) Act, 1972 the NOC of the premise for transfer of land is required only for such land in which the acquisition proceedings have been initiated and since the acquisition proceedings were never initiated in relation of the land in question so there was no impediment at any time for sale of the subject land; v) there is no typographical error in clause 8 and the defendant being an illiterate villager had no idea how to obtain the NOC and thus this duty was imposed upon the plaintiff.

3. On the pleas above the defendant has sought an unconditional leave to defend.

4. Firstly, I would like to refer to the various clauses of the agreement and of receipt to find if the amount of `92,26,302 and further amounts so paid by the plaintiff to the defendant at the time of entering into the agreement to sell were paid as earnest money or as an advance. Clause 7,9,10,11 of the agreement to sell dated 15.04.2013 notes as under: “7. That seller has received the advance amount and handed over the receipt and agreement after signature to the purchaser.

9. That seller has still not handed over the possession of the above land and only get the advance amount.

10. That in case the seller denies to sale the land after taking the advance amount, then in that event purchaser can get the registry in his name through court of law.

11. That seller shall give 15 days prior information to the purchaser for payment of the rest of the payment and if the purchaser failed to pay the rest amount to the seller then advance amount shall be forfeited and deal shall be treated as cancelled and seller shall not be liable for refund the same. If purchaser file court case for claiming the said amount then same shall not be admissible and purchaser shall not have any objection for the same.”

5. The receipt dated 15.04.2013 notes: “Receipt amount: `92,26,302/- This receipt is prepared today on 15.04.2013 whereby I/We have received advance amount of `92,26,302/- (Rupees Ninety Two Lacs Twenty Six Thousand), out of which `90,26,302/- has been received through cheque No. 885643, drawn on Oriental Bank of Commerce, New Mandi, Muzaffar Nagar, UP dated 17.04.2013 and rest amount of `2,00,000/- is received in cash. I have received the above amount towards sale price of my land measuring 2 Acre 4 Bigha, 8 Biswa and

10 Biswasi, bearing Khasra No.306 (5-15), 309 (4- 16), 310 (4-16), 341 (4-16), 342 (4-16), 997 (3-02) situated at Jafarpur Kalan. I am owner of the above part of land. Agreement is separately prepared. This receipt is prepared today on 15.04.2013.”

6. A perusal of both the documents would reveal the amount so paid by the plaintiff to the defendant was an advance and not earnest money as the defendant has alleged in his application for leave to defend.

7. The plaintiff has raised a contention that clause 8 of the agreement to sell was wrongly typed as it was never the duty of the purchaser to obtain the NOC since the purchaser was not an owner thereof. Clause 8 of the agreement notes: “That after the clearance of N.O.C. for the said land, seller shall purchase the stamp duty paper and purchaser shall have responsibility to get the NOC and entire expenses of the NOC shall be borne by the purchaser.”

8. Though in clause 8 it is mentioned that the seller shall purchase the stamp duty paper but clause 3 of the agreement is otherwise and it says the registration charges and the duty on the said land shall be borne by the purchaser. Certaining there appear to be typographical error in clause 8 of the agreement to sell so far as it places the burden for purchase of stamp duty upon the seller. No seller would pay for stamp duty and invariably it has to be purchased by the purchaser.

9. Now the dispute is only if the NOC was to be obtained by the plaintiff or by the defendant. Normally it has to be obtained by the seller/owner. It one peruse other clauses of the agreement which require 15 days prior intimation to be given by the seller to the purchaser for making the balance payment, would obviously mean that once the seller obtains the NOC then only would inform the purchaser that he is ready to execute the sale deed and the balance payment be made. However I am not on interpretation of clause 8 (supra) as the issue is irrespective of default made by either of the party, can the seller forfeit an advance?

10. The time was never an essence of the contract. Admittedly the entire payment was though not made by 15.07.2013 yet the contract was never cancelled by the defendant, and the defendant did not forfeit the advance amount of `92,26,302/- paid on 15.04.2013 but rather continued accepting further amounts of `25,00,000/- in November 2013; `10,00,000/- on 08.01.2014 and `15,00,000/- through RTGS on 21.05.2014. The receipt of the further payments certainly reveal the time was never an essence of the contract. What appears from the facts is as the NOC was not obtained the contract failed and the defendant forfeited entire amount paid by the plaintiff till 21.05.2014 though paid as an advance. The moot question now is if the defendant had a right to forfeit such amount. The answer is no as is well settled by catena of judgments referred to herein below.

11. The Co-ordinate Bench of this Court in Manoj Tomar vs. Smt.Neena Khatter & Anr. 2015 SCC Online Del 12831, while following the case in Kailash Nath Associates vs. Delhi Development Authority and Another (2015) 4 SCC 136 of the Supreme Court has observed as under:-

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“5. The issue is that even if the plaintiff is guilty of breach of contract, whether the defendants are entitled to forfeit the advance money received by the defendants under the agreement to sell. Para 14 of the written statement shows that defendants have made an averment that the defendants have forfeited the amount because the plaintiff did not call upon the defendants to complete the sale transaction, however there is no averment in the written statement that defendants have forfeited the amount on account of loss being caused to them by the plaintiff on account of 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 caused to the aggrieved party as per Section 73 and 74 of the Indian Contract Act, 1872, no cause of action arises for claiming damages or forfeiture of advance money received under the agreement to sell as damages. This is the law as laid down in the Constitution Bench judgment of the Supreme Court in the case of Fateh Chand Vs. Balkishan Dass, AIR 1963 SC 1405 and which judgment has been recently followed by the Supreme Court in the judgment in the case of Kailash Nath Associates Vs. Delhi Development Authority and Another, (2015) 4 SCC 136.

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 of a defendant/proposed seller to forfeit 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 along with necessary details, there does not arise issue of appropriation by the defendants, of the advance price received under the contract as liquidated damages.

7. In 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 of Sh. 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:-

"8. In the present case, the nature of contract is such that losses could have been proved by the defendants by proving the falling of prices 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 i.e. a defendant who is a seller cannot forfeit any moneys unless loss is proved to be caused by fall in the price of the property. 9. In the present case, defendants have led no evidence of any loss caused to them, and therefore, assuming that plaintiff is guilty of breach of contract, yet, the defendants cannot forfeit the amount of Rs.15 lacs lying with them. A huge amount of Rs.15 lacs out of the total sale consideration of Rs.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.15 lacs out of Rs.79.50 lacs, by noting that if suppose 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." (underlining added)”

12. Further the Supreme Court in Satish Batra vs. Sudhir Rawal Civil Appeal No.7588/2012 decided on 18.10.2012 has observed as under:-

“17. Law is, therefore, clear that to justify the forfeiture of advance money being part of „earnest money‟ the terms of the contract should be clear and explicit. Earnest money is paid or given at the time when the contract is entered into and, as a pledge for its due performance by the depositor to be forfeited in case of non- performance, by the depositor. There can be converse situation also that if the seller fails to perform the contract the purchaser can also get the double the amount, if it is so stipulated. It is also the law that part payment of purchase price cannot be forfeited unless it is a guarantee for the due performance of the contract. In other words, if the payment is made only towards part payment of consideration and not intended as earnest money then the forfeiture clause will not apply.”

13. Thus, the law is settled that who may be at default the advance money cannot be forfeited, unless the loss is pleaded. The plea of the defendants that advance was infact the earnest money then also, per law, it could not have been forfeited in entirety. Even if one may treat the advance amount to be an earnest money, 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. Hence making provision for 10% of the consideration viz `14,22,630/- to plead and prove the loss, if any, suffered by the defendants, the leave to defend is hereby granted on deposit of an amount of `1,28,03,672/-(Rupees One Crore Twenty Eight Lacs & Three Thousands Six Hundred Seventy Two) by the defendant in the Court or in the alternative on giving a Bank Guarantee for the said amount, with the Registrar General of this Court within four weeks from today. In case the amount is deposited it shall be converted into a fixed deposit with a nationalised bank for a term of one year initially, extendable per order of the Court.

14. The application stands disposed of in above terms. CS(COMM) 407/2016

15. Upon complying with above directions, written statement be filed by the defendants within four weeks thereafter. Replication thereto, if any, be also filed by the plaintiff within two weeks of filing the written statement.

16. List for compliance and completion of pleadings before the Joint Registrar (Judicial) on 29th January, 2018.

17. Be listed in the Court upon completion of pleadings.

YOGESH KHANNA, J OCTOBER 24, 2017 DU

M/S VERSATILES COMMOTRADE PVT LTD v. KARAN SINGH

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