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DELHI HIGH COURT
Reva Khetrapal, Pratibha Rani, JJ.
NDMC - Appellant
Versus
Alpha Bhoj Pvt.Ltd. - Resopndent
RFA (OS) 123 of 2012
Decided On : 18-07-2013
Forfeiture - License Agreement - [Indian Contract Act, 1872, Section 74; Fateh Chand vs. Balkishan Dass AIR 1963 SC 1405] - The court held that the Appellant was entitled to forfeit only the earnest money and not the advance license fee, as the latter was hit by the bar of Section 74 of the Indian Contract Act. The court also emphasized that the clauses entitling forfeiture of part of the price in addition to earnest money cannot be given effect unless loss is proved by the defendant. The court further ruled that the clauses for forfeiture of advance license fee could only come into operation post the grant of the license.
Fact of the Case:
The case involved a dispute between the NDMC and Alpha Bhoj Pvt. Ltd. regarding the forfeiture of earnest money and advance license fee. The NDMC offered a restaurant space to the respondent, but the respondent failed to complete the formalities within the stipulated time. The NDMC forfeited the entire amount deposited by the respondent, leading to a lawsuit for recovery of the forfeited amount.
Finding of the Court:
The court found that the NDMC was entitled to forfeit only the earnest money and not the advance license fee. It held that the clauses entitling forfeiture of part of the price in addition to earnest money were hit by the bar of Section 74 of the Indian Contract Act. The court also emphasized that the clauses for forfeiture of advance license fee could only come into operation post the grant of the license.
Issues: The issues included the entitlement of the defendant to forfeit the earnest money and the security deposit amount, the plaintiff's entitlement to claim damages and interest, and the amount the plaintiff was entitled to recover from the defendant.
Ratio Decidendi: The court's decision was based on the legal principles laid down in the Indian Contract Act, 1872, particularly Section 74, and the interpretation of the clauses entitling forfeiture of advance license fee. The court emphasized the need for the defendant to plead and prove losses caused by the breach by the plaintiff before enforcing such clauses.
Final Decision: The appeal was dismissed, and the court held that the NDMC was not entitled to forfeit the advance license fee. The court ruled that the clauses for forfeiture of advance license fee could only come into operation post the grant of the license.
1. This appeal is directed against the judgment dated 09.07.2012 whereby the suit filed by Alpha Bhoj Pvt. Ltd. (Plaintiff in CS(OS) No.3129/1996) was decreed for a sum of Rs.20 lacs alongwith pendente lite and future interest (simple) @ 9% per annum till realisation.
2. The facts giving rise to filing of this appeal can be summarized as under :-
The Appellant NDMC issued advertisement in newspaper on 12.02.1996 inviting tenders for licence for running an air conditioned restaurant in underground Palika Parking Complex, Connaught Place, New Delhi. Since the highest bidder failed to complete the formalities, this resulted into forfeiture of the earnest money of Rs.50,000/- of the highest bidder. Appellant, thereafter, offered the restaurant on licence to the second highest bidder i.e. Respondent Alpha Bhoj Pvt. Ltd. (plaintiff in CS(OS) No.3129/1996). Appellant sent offer dated 30.07.1996 (Ex.PW1/4) calling upon to complete the formalities by 09.08.1996, failing which, the allotment will automatically stand withdrawn after the expiry of above mentioned date and the earnest money deposited by the Respondent with the tender stand forfeited. The Respondent did not comply with the conditions within the stipulated time and sought extension of time vide letter dated 08.08.1996 (Ex.D-8). Thereafter vide undated communication Ex.D-9, the Respondent enclosed a pay order dated 26.08.1996 for a sum of Rs.20 lacs towards advance licence fee with a request to the financial advisor of the Appellant to accept the same and also undertook to deposit the balance amount of security deposit by 15.09.1996. The Respondent failed to complete the formalities as on inspection by the Respondent on 27.09.1996, the premises was found not suitable to run the restaurant. The Appellant forfeited the entire amount deposited by the Respondent i.e. earnest money of Rs.50,000/- as well Rs. 20 lacs deposited towards two months advance licence fee. The Respondent filed a suit for recovery of Rs.30,90,000/- challenging the right of Appellant to forfeit the amount towards earnest money and advance licence fee pleading that Respondent was not able to complete the formalities for the reasons solely attributable to the Appellant.
3. The pleas taken by the Appellant in the written statement were that the premises at underground Palika Parking, Connaught Place was to be allotted on licence on ‘as is where is’ basis. In all eleven tenders were received and the Respondent quoted the second highest rate of lience fee at Rs.10 lacs per month. On failure of the highest tenderer to complete the formalities, offer was given to the Respondent/plaintiff vide communication dated 30.07.1996. It is further the case of the Appellant in the written statement that on failure of the Respondent to comply with the conditions, the offer made to the Respondent was cancelled and at the time of filing the written statement (filed in May, 1997), fresh tenders had been invited and were under the process of approval. The receipt of letter dated 26.08.1996 and deposit of Rs.20 lacs by the Respondent, though admitted, was pleaded to be accepted with a belief that the plaintiff will also complete all other requisite formalities. However, in the entire written statement, no communication addressed to the Respondent in response to his communication was pleaded. Despite the assurance given by the Respondent to complete the formalities, needful was not done thereby causing loss to Appellant. The licencor i.e. the Appellant had the right to forfeit the amount towards licence fee as well as the earnest money deposited alongwith the tender due to the default committed by the Respondent as Appellant suffered loss by keeping the premises unoccupied for two months.
4. On the pleadings of the parties, following issues were settled by the Court on 09.09.1997 :-
‘(i) Whether the plaintiff is a company duly incorporated under the Companies Act and Shri Harish Bhasin is competent to institute the pre
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