VALMIKI J. MEHTA, J.

1. The challenge by means of this Regular First Appeal under Section 96 of the Code of the Civil Procedure (CPC), 1908 is to the impugned judgment of the Trial court dated 30.5.2002. By the impugned judgment and decree, the Trial Court decreed the suit of the respondent/plaintiff for recovery of the advance price paid of Rs.1,35,000/- which was given pursuant to an auction held by the appellant/defendant on 19.12.1998 for a Konica Nice Print System. The Trial Court held that the advance price paid cannot be forfeited even though the respondent/plaintiff was guilty of breach of contract because mere breach of contract does not entitle the aggrieved person viz. appellant/defendant for damages, unless losses have been pleaded and proved and which admittedly was not done.

2. The facts of the case are that the respondent/plaintiff participated in an auction held on 19.12.1998 conducted by the appellant/defendant. The respondent/plaintiff gave a bid for Rs.4,00,000/- for a Konica Nice Print System Machine and deposited an amount of Rs.1,35,000/- on the same day. Since the balance amount was not deposited by the respondent/plaintiff, the transaction fell through and the appellant forfeited the amount of Rs.1,35,000/- on the ground that this payment which was made was an earnest money deposit, and by its very nature, earnest money deposited can be forfeited once breach of contract is established.

3. The only issue therefore which is required for determination by this Court is whether taking as correct that the respondent/plaintiff was guilty of breach of contract can the amount paid of Rs.1,35,000/- be forfeited by the appellant/defendant on the ground that the same was an earnest money deposit without pleading and proving that any loss was caused to the appellant/defendant.

4. The law in this regard is well settled and three premier judgments of the Hon’ble Supreme Court are the judgments in the cases of Fateh Chand Vs Balkishan Dass, (1964) 1 SCR 515; AIR 1963 SC 1405, Maula Bux Vs. UOI, 1969 (2) SCC 554 and Union of India Vs. Raman Iron Foundry (1974) 2 SCC 231. It has been held in these judgments that clauses of forfeiture of liquidated damages by their very nature are hit by Section 74 of the Contract Act, 1872 inasmuch as such clauses are in the nature of penalty and at best only provide for the upper limit for claim of damages, and which if capable of being proved, have to be proved before the amount paid as earnest money can be forfeited. It is the ratio of these Supreme Court judgments that mere breach of contract eo instanti does not entitle the aggrieved party to forfeit the amount. The Constitution Bench in the case of Fateh Chand (supra) has specifically referred to the fact that the fine distinctions drawn in English law have been obliterated by Section 74 of the Contract Act, and as per which all clauses of liquidated damages are to be treated as bad, once losses otherwise can be established, and only on establishing of which forfeiture can take place. The relevant observations of the Supreme Court in the aforesaid judgment of Fateh Chand (supra) are as under:-

8. The claim made by the plaintiff to forfeit the amount of Rs 24,000 may be adjusted in the light of Section 74 of the Indian Contract Act, which in its material part provides:-

“When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or as the case may be, the penalty stipulated for.” The section is clearly an attempt to eliminate the sometime elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated