2025 Supreme(SC) 763

SUPREME COURT OF INDIA
J.B. PARDIWALA, R. MAHADEVAN, JJ.
K.R. Suresh – Appellant
Versus
R. Poornima & Ors. – Respondents
Civil Appellate Jurisdiction Civil Appeal No. 5822 of 2025 @Special Leave Petition (Civil) No. 5630 of 2023
Decided On : 02-05-2025

IMPORTANT POINTS
(1) Agreement to Sell – Suit for Specific Performance – Plaint may be amended at any stage of proceedings to enable plaintiff to seek alternative relief, including that of refund of earnest money and courts have been vested with wide judicial discretion to permit such amendments.
(2) Advance Money and Earnest Money – “Earnest” differs from “advance money”, though former can be treated as part-payment of sale consideration if contractual terms are duly honoured.
(3) Breach of contract – Compensation must be reasonable and it cannot, in any circumstance, exceed amount stipulated in contract.

Headnote:

(A) Specific Relief Act, 1963 – Sections 16(c) and 22 – Civil Procedure Code, 1908 – Order VI Rule 17 – Agreement to Sell – Suit for Specific Performance – Refund of earnest money as alternate relief – Defendant no. 1 acquired absolute title over suit property by way of unregistered Will executed by her late mother – Expression “at any stage of the proceeding” has been judicially interpreted to include appellate stage as well – Plaint may be amended at any stage of proceedings to enable plaintiff to seek alternative relief, including that of refund of earnest money and courts have been vested with wide judicial discretion to permit such amendments – However, under Section 22 of 1963 Act, courts cannot grant such relief suo moto, since inclusion of prayer clause remains a sine qua non for grant of such a relief – When “appropriate case” exists for seeking said relief under this provision, it must be specifically sought either in original plaint or by way of an amendment – Law contained under Section 22(2) of 1963 Act is adequately broad and flexible to allow appellant to seek amendment of plaint for said relief, even at appellate stage – However, appellant never prayed for refund of advance money – Forfeiture of advance money by respondents was justified. (Paras 56, 58, 63, 64 and 65)

(B) Words and Phrases – Advance Money and Earnest Money – Word “advance” means money in whole or in part, forming consideration of an agreement paid before same is completely payable – On other hand, word “earnest” stands for a sum of money given for the purpose of binding a contract, which is forfeited if contract does not go off and adjusted in price if contract goes through – “Earnest” differs from “advance money”, though former can be treated as part-payment of sale consideration if contractual terms are duly honoured – Earnest money is adjusted against total sale consideration if contract goes through. (Paras 31 and 36)

(C) Contract Act, 1872 – Section 74 – Breach of contract – Compensation must be reasonable and it cannot, in any circumstance, exceed amount stipulated in contract – Section 74 of 1872 Act will apply to every covenant involving a penalty, whether it is for a future payment on breach of contract or forfeiture of a sum already paid – Forfeiture of earnest money is not deemed as penal and Section 74 of 1872 Act will only apply where forfeiture is in nature of a penalty – Proof of actual damage or loss is a sine qua non for invoking Section 74 and thereby, only a reasonable amount will be permissible for forfeiture upon breach of contract. (Paras 43, 44, 46, 47 and 48)

Facts of the case:

Present appeal arises from judgment and order passed by High Court of Karnataka at Bengaluru dated 05.08.2021 in R.F.A. No. 386/2013 (SP) by which High Court dismissed appeal preferred by appellant (original plaintiff) and thereby affirmed the judgment and order dated 24.11.2012 passed by the Court of V Additional City Civil and Sessions Judge at Bengaluru City, dismissing O.S. No. 3559/2008 instituted by appellant herein for specific performance of contract.

Findings of Court:

Forfeiture of advance money by respondent nos. 1-4 was justified. In such circumstances, Court not inclined to grant relief of refund of advance money to the appellant.

Result : Appeal dismissed.