2015 Supreme(SC) 22

SUPREME COURT OF INDIA
Ranjan Gogoi, R.F. Nariman, JJ.
M/s. Kailash Nath Associates – Appellant
Versus
Delhi Development Authority & Anr. – Respondents
CIVIL APPEAL NO. 193 OF 2015 [ARISING OUT OF SLP (CIVIL) NO. 32039 OF 2012]
Decided on: 09-01-2015

MAIN POINTS
A promisee can unilaterally extend the time for payment u/s 63 Contract Act.
When a contract is concluded and there is no breach of its terms cancellation thereof and forfeiture of earnest money would be violative of Article 14.
Earnest money can be forfeited after conclusion of contract u/s 74, Contract Act only if the contract is breached by the party alleged and the other party is put to loss thereby.

Headnote:(a) Government contract – Earnest money – Forfeiture – Under clause (iv) of contract only in case of default, breach, or non-compliance of any of the terms and conditions of the auction, or on misrepresentation by the bidder – Stipulated period of three months for payment of balance money not insisted by DDA – Rather the period was extended at least twice – No breach o terms of contract – No misrepresentation by bidder – Earnest money could not be forfeited by DDA. (Para 14)

       (b) Government contract – Letter dated 1.12.1987 – DDA specifically requesting appellant’s consent to make balance payable along with 18% interest on belated payment – In anticipation of relaxation of Nazul Rules of 1981 by Central Government – Letter marked “without prejudice” and not carrying any commitment, because Central Government might not relax Nazul Rules and DDA could do nothing – If the Central Government condoned the delay, DDA would be willing to take balance 75% amount along with 18% interest – DDA’s contention that letter dated 1.12.1987 issued by mistake of fact and hence void u/s 20 of Contract Act – Not accepted – Three years after communication of Central Government, DDA cancelling allotment of plot for appellant’s failure to deposit balance 75% – Thus in DDA’s understanding payment of the balance 75% was important, which was insisted upon by DDA and acceded to by the respondent immediately – The letter was not by mistake and not void. (Para 16, 17)

       (c) Administrative law – Letter issued ‘without prejudice’ and ‘without commitment’ – Because matter depended upon Central Government – DDA could not do anything if Central Government did not relax Nazul Rules – Secondly, in the event of Central Government relaxing the Rules, DDA could not cancel allotment – Doing so would be violative of Article 14. (Para 17)

       (d) Contract Act – Section 63 – DDA being promisee and appellant the promisor – DDA could certainly unilaterally extend the time for payment – Extension being for benefit of appellant. (Para 25)

       V.C.M. 1870; (2004) 1 SCC 12; (2005) 12 SCC 764 – Relied upon

       1959 SCR 213 – Referred

       1867 3 Ch.A 61; ILR 1946 Bom 218 – Distinguished

       (e) Constitution of India – Article 14 – Arbitrariness in State action – DDA extending time for payment of balance amount for its own benefit – Cancellation of allotment and consequent forfeiture of earnest money – Without notice to appellant for depositing balance 75% premium within a certain stated time – No breach of contract by appellant – Further, DDA not put to any loss by appellant not depositing balance amount – Article 14 applicable in the case – Forfeiture of earnest money not valid. (Para 21, 29)

       (2004) 3 SCC 553 – Relied upon

       (1964) 1 SCR 1 – Distinguished

       (f) Indian Contract Act, 1872 – Section 74 – Applicable only in case of breach of contract and loss due to that breach – Earnest money could be forfeited before agreement is reached – After agreement is reached , earnest money can be forfeited only on breach of contract – Instantly earnest money forfeited much after agreement was made – No breach of contract by appellant – Secondly DDA gaining huge profit by re-auction of plot – Forfeiture of earnest money not justified – Law on compensation for breach of contract culled out. (Para 41, 43, 44)

       (2003) 5 SCC 705 – Relied upon

       (1964) 1 SCR 515; (1970) 1 SCR 928; (1970) 3 SCR 127 – Distinguished

       (g) Administration of Justice – Judicial propriety – Interest on refund of earnest money – DDA pleading for 7% interest as paid to others instead of 9% – 7% interest was paid to others way back in 1989 without any hassle – Instantly DDA fighting the appellant tooth and nail even on refund of earnest money, when there was no breach of contract or loss caused to it – Appellant’s case stands on a different footing – Prayer not acceptable. (Para 46)

       Facts of the case:

       A public auction conducted by the Delhi Development Authority (“DDA”) wherein the appellant made the highest bid for Plot No.2-A, Bhikaji Cama Place, District Centre, New Delhi for 3.12 Crores (Rupees Three Crores Twelve Lakhs). As per the terms and conditions of the auction, the appellant, being the highest bidder, deposited a sum of Rs.78,00,000/-(Rupees Seventy Eight Lakhs), being 25% of the bid amount, with the DDA, this being earnest money under the terms of the conditions of auction.

       The DDA extended time for payment upto 28.10.1982 with varying rates of interest starting from 18% and going upto 36%.

       The appellant filed Writ Petition No.2395 of 1990 in the Delhi High Court in which it claimed that persons similar to the appellant, namely, M/s. Ansal Properties and Industries Private Limited and M/s Skipper Tower Private Limited had been allowed to pay the balance 75% premium and were in fact allotted other plots. Pleading Article 14, the appellant stated that they were entitled to the same treatment.

       The High Court held that as the auction was held as per terms and conditions of the auction, a dispute regarding the same is a matter of contract and cannot be gone into in proceedings under Article 226 of the Constitution. It was further observed that on facts, the Court found no force in the contention raised on behalf of the appellant regarding discrimination.

       An SLP against this order was also dismissed on 16.12.1993 by the Supreme Court stating that the appellant is at liberty to take whatever steps are permitted to the appellant under law to challenge forfeiture of earnest money, which had been done by a letter of 6.10.1993.

       The appellant then filed a suit for specific performance on 17.2.1994 and in the alternative for recovery of damages and recovery of the earnest amount of Rs.78,00,000/-(Rupees Seventy Eight Lakhs). Shortly after the suit was filed, on 23.2.1994, the DDA re-auctioned the premises which fetched a sum of Rs.11.78 Crores (Rupees Eleven Crores Seventy Eight Lakhs).

       The Single Judge dismissed the appellant’s suit for specific performance and damages but ordered refund of the earnest money forfeited together with 9% per annum interest.

       The Division Bench set aside the judgment of the Single Judge holding that the forfeiture of the earnest money by the DDA was in order.

       

       Finding of the Court:

       Forfeiture of earnest money of the appellant is not tenable.

       Result:

       Appeal allowed.