2021 Supreme(Guj) 705

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
J.B.PARDIWALA, VAIBHAVI D. NANAVATI, JJ.
JINMANGAL CORPORATION - Appellant
Versus
AHMEDABAD URBAN DEVELOPMENT AUTHORITY - Respondent
SPECIAL CIVIL APPLICATION NO. 6981 of 2021
Decided On : 25-08-2021

Point of law: doctrine of forfeiture in the case of earnest money is based on a principle completely independent of the consideration that are laid down in Section 74 of the Contract Act.

Headnote:

Constitution of India, 1950 - Article 226 - Central GST Act, 2017 - Section 97 - Gujarat SGST Act, 2017 - Contract Act, 1872 - Section 73 and 74 - Property - Breach Of Contract - Forfeiture Of Right To Money - Whether liquidated under Section 74 of Contract Act or unliquidated under Section 73 of Contract Act, existence of loss is a sine qua non - Whether it is for payment on breach of contract of money or delivery of property in future, or for forfeiture of right to money or other property already delivered - Whether or not actual damage or loss is proved to have been caused - Whether there is any breach until purchaser has wholly failed to pay and not merely failed to pay in one mode - Whether a person is a plaintiff or a defendant in a suit.

Finding of the Court:

If Court accept entire case put up on behalf of writ applicant, then it presupposes that money paid in advance, may it be by way of earnest money or may it be in nature of part satisfaction of total consideration, is, as a rule, refundable by Promisor unless it is proved and established that he is entitled to certain damages as contemplated under Section 73 of Contract Act or to liquidated damages as contemplated under Section 74 of Indian Contract Act or unless there is any specific stipulation between parties as to forfeiture of such money paid in advance - In other words, it assumes that as a rule any sum named in a contract as money paid in advance is penal and, therefore, hit by Section 74 of Contract Act on a principle completely independent of consideration that are laid down in Section 74 of Contract Act - In fact, an earnest money, belonging as it does to a class of its own, namely, that of deposit, is regulated and controlled by consideration which are peculiar to that class alone - Therefore, where agreement is unequivocal and it is specifically agreed upon thereunder that what has been paid in advance towards a contract is nothing but an earnest money, as understood in law, then it has to be dealt with in light of principles which apply to such deposits and not in light of those that generally apply to restitution, penalty or liquidated damages.

Result: Application rejected.