In  Comm. Summary Suit No.815 of 2018- BOM HC- In event of breach of contract u/s 73 of Contract Act, party suffering damage on account of such breach is entitled to receive compensation for any loss or damage caused to him which parties knew while entering into contract: Bombay HC Justice N.J. Jamadar [28-09-2022]

Read Order: Parag Jyotindra Gandhi v. Jayant Narendra Mehta and Others 

Mansimran Kaur

Mumbai, October 10, 2022:  In the event of a breach of contract under section 73 of the Indian Contract Act, 1872, the party who suffers damage on account of the breach of contract is entitled to receive compensation for any loss or damage caused to him which the parties knew when they entered into the contract to be likely to result from the breach thereof, the Bombay High Court has opined.

A Single bench of Justice N.J. Jamadar   disposed of the  present commercial division summary suit instituted to recover a sum of Rs1 Crore along with further interest based on a negotiable instrument.  The Single Judge bench  granted the  leave  to defend  to the defendants subject to them depositing a sum of Rs 50 lakh. 

It was the case of the first defendant that the plaintiff desired to invest amounts in the projects which were developed by the defendants. Initially a sum of Rs.1, 25, 00,000 was invested for purchasing Flat No.104, Vardayani Apartment (Samaj Darshan).

 A further sum of Rs.46, 00,000 was paid by the plaintiff as an advance towards investment in a future project. By way of security, to cover the said investment, the plaintiff made defendants deliver an undated cheque drawn for Rs.1 Crore. 

Eventually, in terms of the agreement between the parties, the defendants executed an Agreement for Sale of Flat for a consideration of Rs.1,44,00.000/- against which, the plaintiff had deposited a sum of Rs.1,24,00,000/-. However, in the month of June 2017, a dispute arose between the defendants and the trust which owned the land on which the Vardayani Apartment building was being constructed, leading to arbitration proceedings. 

Taking undue advantage of the situation, the first defendant contended that the plaintiff instituted this suit with an ulterior motive.  Since the defendant raised bona fide, fair and triable issues, the defendants were entitled to an unconditional leave to defend the suit.

After considering the submissions from both the sides, the Court noted that the controversy between the parties essentially revolves around the property which was allegedly initially agreed to be conveyed by the defendants to the plaintiff. 

It was the case of the plaintiff that he had parted with the said sum of Rs. 1.70 Crore on the representation of the defendant No. 1 that he would convey and transfer Flat No. 901, Kamala Vihar. In contrast, the defendant No. 1 contended  that out of the aforesaid amount of Rs. 1.70 Crore, a sum of Rs. 1.24 Crore was paid by the plaintiff towards purchase of Flat No. 104, and the sum of Rs. 46 lakhs was paid as an advance towards future project to be developed by the defendants.

To deal with the same, the Court took into account the letter dated August 23, 2016. In pursuance of the same, the Court noted that a bare perusal of the aforesaid letter indicated that the defendants purportedly acknowledged receipt of Rs. 1.70 Crore towards transaction in respect of Flat No. 901, Kamla Vihar. 

The real issue which thus was posed for consideration was whether the sum of Rs. 1 Crore which was agreed to be paid by the defendants to the plaintiff as and by way of compensation in addition to execution of agreement for sale of Flat No. 104, Vardayani Apartment for default in conveying Flat No. 901, Kamala Vihar constitutes a liquidated amount of money for the purported breach of contract, the Court stated. 

In view of the same the Court noted that in the event of a breach of contract under section 73 of the Indian Contract Act, 1872, the party who suffers damage on account of the breach of contract is entitled to receive compensation for any loss or damage caused to him which the parties knew when they entered into the contract to be likely to result from the breach thereof.

 Section 73 is required to be read in conjunction with section 74 of the Contract Act which deals with a situation where a sum is named in the contract as the amount to be paid in case of such breach or any other stipulation by way of penalty. The party complaining of the breach is entitled to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or the penalty stipulated.

“It is imperative to note that section 74 emphasizes that, in case of breach of contract, the party complaining of breach is entitled to receive reasonable compensation whether or not any loss is proved to have been caused by such breach. The entitlement for reasonable compensation is thus underscored”, the Court held. At this stage reliance was placed on the case of Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Limited .

Eventually, the Court was inclined to hold that the defence raised by the defendants cannot be said to be such that the defendants did not deserve leave to defend the suit. The Court was persuaded to grant a conditional leave to defend the suit subject to deposit of Rs. 50 lakhs to account for the aforesaid balance amount and the interest which would accrue thereon at a reasonable rate.

Thus, in light of the reasons stated above, the Court granted the  leave  to defend  to the defendants subject to deposit of a sum of Rs 50 lakh  within a period of six weeks.