In Regular Second Appeal No.1915 of 2016 (O&M)-PUNJ HC- For forfeiting amount of earnest money, defendant is not required to prove damages: Punjab & Haryana HC Justice Anil Kshetarpal [19-04-2022]

Read Order: Satnam Singh (since deceased) through his legal representative v. Paramjit Singh and Others

Monika Rahar

Chandigarh, April 27, 2022: While deciding a regular second appeal wherein concurrent findings of fact arrived at by Courts below was to the effect that the plaintiff-appellant was not ready and willing to perform his part of the contract as he did not arrange for payment of the balance sale consideration, the Punjab and Haryana High Court has held that for forfeiting the amount of earnest money, the defendant is not required to prove damages. 

The Bench of Justice Anil Kshetarpal has also held, while addressing one of the arguments of the appellant’s counsel,“(…) the plea of set off can be availed in a suit for recovery of money where the defendant claims that he has also to recover certain amount from the plaintiff and therefore, if any amount is payable by the defendant to the plaintiff, then he is entitled to set off that amount from the amount recoverable from him.”

While assailing the concurrent findings of fact, arrived at by both the Courts below, the plaintiff has filed the present regular second appeal. 

The facts which are required to be noticed for a correct understanding of the case are that the plaintiff, claiming to be the holder of an agreement which was executed by the defendants, filed a suit for possession by way of specific performance of the agreement to sell. It was asserted that the defendants have failed to perform their part of the contract. The property was agreed to sold  at the rate of Rs 12,00,000/- per acre on receipt of an amount of Rs 24,00,000/-. 

While the defendants claimed that the plaintiff did not perform his part of the contract (payment of sale consideration) despite being given two extensions. It was asserted that the plaintiff was called upon, via a notice, to come forward for execution of the sale deed but he failed to so. 

Both the Courts below, on appreciation of evidence, recorded the concurrent findings of fact that the plaintiff was not ready and willing to perform his part of the contract because he did not arrange for payment of the balance amount. Both the Courts below also found that the plaintiff also failed to prove that he paid additional payment of Rs 10,00,000/-. 

The counsel representing the appellant contended that the plaintiff asserted in his plaint that he was always ready and willing to perform his part of the contract. He submitted that in any case, in the absence of set off for counter-claim, the plaintiff was entitled to refund the earnest money i.e. Rs 24,00,000/-. 

At the outset the Court noted that the sale deed was to be executed and registered on June 9, 2006 but this date was extended on two occasions after which there were holidays for three days, following which the defendants visited the office of the Sub-Registrar in order to prove their readiness and willingness to perform their part of the contract. However, the plaintiff failed to turn up to the Sub-Registrar’s office for performing his part of contract. Thus, notices were sent to the plaintiff to appear, but the plaintiff further failed to prove his plea with regard to additional payment of 10,00,000/-. Thereafter, after a gap of merely 18 months, the plaintiff filed the suit. 

Also, the Court noted that the plaintiff failed to prove that he was having wherewithal to pay the balance sale consideration of Rs. 96,00,000/-, approximately. Hence, Court opined that there was no error in the findings of fact arrived at by both the Courts below while declining the relief of specific performance. 

Further, the Court addressed the plea of the appellant’s counsel on the absence of plea of set off for counter-claim by the defendants. Regarding this, it was noted at the the very outset that the plea of set off can be availed in a suit for recovery of money where the defendant claims that he has also to recover certain amount from the plaintiff and therefore, if any amount is payable by the defendant to the plaintiff, then he is entitled to set off that amount from the amount recoverable from him. 

In respect of the present case qua this plea, the Court opined that in the present case, the position was entirely different as here, by reason of a special contract between the parties, the amount of earnest money was forfeited. Thus, the Court observed that it is well settled that for forfeiting the amount of earnest money, the defendant is not required to prove damages. 

Further, on this point of law itself, the Court made reference to the Supreme Court in in Maula Bux v. Union of India (1969) 2 Supreme Court Cases 554, wherein it was held that forfeiture of the earnest money in a contract for sale of property does not fall within the scope of Section 74 of the Indian Contract Act, 1872 if the amount is reasonable. 

Against this backdrop, the Court opined that in the present case, the amount of earnest money of Rs 24,00,000/- could not be said to be unreasonable, particularly when the total sale consideration, agreed to between the parties, was more than Rs 1,00,00,000/-.

Thus, in view of the aforesaid discussion, the Court did not find any ground of interference. Hence, the present appeal was dismissed.