JUDGMENT :

G. Jayachandran, J.

1. The appellant before this Court is a public limited company engaged in the business of manufacture and sale of plant and machineries for manufacturing Oxygen and other industrial gases.

2. The respondent herein an intending purchaser of oxygen manufacturing plant, after negotiation with the appellant agreed to pay (a) Rs. 28,25,000/- for the plant and machinery; (b) Rs. 1,75,000/- for erection and commission and (c) Rs. 25,000/- for the Package and Forwarding. Totally, Rs. 30,25,000/- Through this letter of intent dated 02/08/1984, the respondent also agreed to pay 10% of the value of the plant and machinery at the time of placement of firm order and paid Rs. 1,00,000/- towards part advance along with its letter of intent.

3. The respondent was not able to mobilize the required money within the time expected. Hence, requested the appellant for extension of time. The appellant acceded to the request on condition that the balance amount of advance has to reach them by 31/01/1985 otherwise, they will not be able to retain the Japanese compressor for them. In alternate, they will supply the plant with Khosla compressor for the price prevailing at the time of receipt of the order. In response to this communication, the respondent on 28/01/1985 wrote back to the appellant that their financial arrangements are at advance stage and they are sure to get the sanction before the end of February at any cost. Soon they get the loan, they will start the payment during the course of February itself.

4. Again on 22/02/1985, the respondent wrote to the appellant expressing their difficulty in getting financial sanction from the State Financial Institution and sought further time till March end. In reply, the appellant has informed the respondent that, as a special case, they will hold back the Japanese Compressor on the clear understanding that the respondent place firm order along with balance amount (Rs. 2,85,000/- - Rs. 1,00,000/-) towards initial advances reaches them by 29/03/1985. However, by the end of March 1985, the respondent could raise only Rs. 25,000/- from their own sources. So, in their letter dated 28/02/1985, they enclosed demand draft for Rs. 25,000/- and promised to make further payment as soon as they receive the financial sanction from the institution.

5. The appellant through their letter dated 03/04/1985 with regret informed the respondent that they did not receive the total advance amount by 29/03/1985 so it is not possible for them to hold the Japanese compressor any more. They will supply the plant with Khosla compressor at the prices prevailing at the time of payment of total advance amount. It was also informed to the respondent that the current price of the plant with Khosal compressor will be Rs. 32,00,000/- so they will keep the draft for Rs. 25,000/-, till 12th April 1985 and shall credit it if the balance amount of Rs. 1,60,000/- paid to make advance equivalent of 10% of the value of the order for the plant and equipment.

6. The respondent paid the balance amount of Rs. 1,60,000/- on 30/04/1985. After this, the respondent started insisting on the old price agreed in the month of August 1984 and for supply of Japanese compressor. Correspondence between the parties was going on till 27/06/1987. Meanwhile, the respondent shifted its proposed plant site from Manamadurai to Chennai. At last, the respondent through letter and telegram, informed the appellant that they have dropped the proposal due to financial difficulties and requested to return Rs. 2,85,000/- paid as advance. The appellant refused to return the advance money. They claimed that, they are not liable to refund the initial down payment money. Also they are entitled to recover all the costs and expenses actually incurred in respect of the above order. However, as special case, they are not insisting on the additional expenses incurred.

7. The refusal to refund the money advanced to the appellant has brought the respondent to th