The forfeiture of earnest money is justified if it is a genuine pre-estimate of the loss flowing from breach of contract and if the amount forfeited is reasonable.

( 1 ) THE facts leading to the filing of the present writ petition are:the Delhi Development Authority (for short "dda") put up anadvertisement on 7/06/1989 in the newspapers announcing the auctionof a plot for 2/3 star hotel at Pitam Pura, New Delhi. The plot was to be. auctioned as per certain terms and conditions. There is no dispute betweenthe parties about the terms and conditions of the auction including the factthat the auction was on the basis of perpetual leasehold rights and theprovisions of the Delhi Development Authority (Disposal of Developednazul Lands) Rules, 1981 would be applicable. The material terms of auctionfor purposes of the present petition are :

" (IV) The officer conducting the auction shall normally accept thebids subject to confirmation by the Competent Authority. Thei highest bid offered at the fall of hammer at the auction and theperson whose bid has been accepted shall pay earnest money,a sum equivalent to 25% of his bid either in cash or by bank draftin favour of the DDA. The amount of earnest money is to bedeposited in Central Bank of India, Vikas Sadan, INA Colony,new Delhi. If the earnest money is not paid, the auction alreadyheld in respect of that plot shall be cancelled by the Officer conducting the auction. (v ). . . . . (vi) The highest bidder is required to collect the allotment-cumdemand letter on the very next working day of the date ofauction from the special counter. Main Reception, Groundfloor, Vikas Sadan, INA Colony, New Delhi between 4. 00 p. m. to 5. 00 p. m. The highest bidder is required to make thepayment of the balance 75% amount, demanded vide saiddemand letter referred to above, within 90 days from the dateof issue of the demand letter by Bank Draft/pay orders only inthe Branches of Central Bank of India/state Bank of India,vikas Sadan, INA Colony, New Delhi. In case the bidder failsto collect the demand letter on the next working day the dateof issue of the demand letter will be treated the same. If the bidis not accepted, the earnest money will be refunded to thebidder without any interest unless it may have been forfeitedunder para (vii) below. Four copies of perpetual lease deed alongwith the copy of thesite plan indicating the amount of stamp duty/transfer dutywill be supplied to the highest bidder at the time of issuedemand letter to get the lease deed papers stamped from thecollector of Stamps. Thereafter the lease deed will be executedand registered after receipt of full payment and handing overof possession. Provided that the Vice-Chairman, DDA may extend the lastdate of payment, where he is satisfied that sufficient reasonsexist for doing so, upto a maximum of 90 days subject topayment of interest the balance amount @ 18% per annumwhere the delay is 30 days or less and 25% per annum for aperiod exceeding 30 days. "

(VII) In case the payment is not received within the stipulated periodindicated in the demand letter the auction bid shallautomatically stand cancelled and the 25% earnest money shallstand forfeited. "

( 2 ) THE petitioner was the highest bidder for the said plot. Against its bidfor Rs. 3. 30 crores the petitioner deposited Rs. 85 lacs with the respondenttowards 25% of the bid amount as earnest money on 5/07/1989, i. e. thedate of auction. On 6/07/1989 the respondent issued a demand notice tothe petitioner for payment of the balance amount of Rs. 2 crores 45 lacswithin three months, i. e. by 4/10/1989.

( 3 ) ACCORDING to the petitioner the site of the hotel plot was found to betotally undeveloped and not fit for carrying out the construction of the hotel. The DDA had committed a breach of contract inasmuch as a totallyundeveloped plot had been auctioned and sold to the petitioner. Thepetitioner filed a suit in this Court on 29/09/1989. The petitionerprayed that in view of the fact that the plot was undeveloped and there wasbreach of contract on the part of the DDA he was not liable to pay the balanceamount of the auction price. The prayers