IMPORTANT POINT
The court established that a forfeiture clause in a contract can be deemed penal and unenforceable if it lacks a basis in actual damages, emphasizing the need for reasonable compensation under the Indian Contract Act.

JUDGMENT :

R. Subramanian, J.

[PRAYER: Original Side Appeal filed under Order XXXVI, Rule (1) of the Original Side Rules, r/w. Clause 15 of Letters Patent, against the judgment and decree dated 28.02.2020 passed in C.S.No.374 of 2016.]

[PRAYER:- Cross Objection filed under Order XXXVI, Rule 2 of the Original Side Rules, r/w. Clause 15 of Letters Patent, against the decree in counter claim dated 28.02.2020 passed in C.S.No.374 of 2016.]

The plaintiffs in C.S.No.374 of 2016, a suit for refund of advance paid and for damages are on appeal, since the Commercial Division dismissed the suit on the conclusion that the agreement provided for forfeiture of the advance amount in the event of failure on the part of the plaintiffs in complying with the terms of the contract.

2. The plaint averments are as follows:-

The plaintiffs are real estate promoters operating from Villupuram and Cuddalore. They were introduced to the 3rd defendant by the brother of the 2nd plaintiff, one J. Ravi. The defendants were looking for development of their property situate in Kariamanikkam village of Puducherry Union Territory measuring about 6 acres and 78 cents. After negotiations, the parties entered into an agreement on 24.05.2014, in and by which, the plaintiffs agreed to lay out the entire land, which was partly agricultural and partly industrial, into a residential cum commercial lay out. It is agreed that the plaintiffs should pay a total sale consideration of Rs.6,15,00,000/- to the defendants as per the schedule of payments set out in the agreement. The agreement also set out the respective rights and obligations of the parties. Pursuant to the said agreement, the plaintiffs had paid a sum of Rs.1,00,00,000/- on various dates.

3. As per the agreement, the plaintiffs were required to pay these total sum of Rs.6,15,00,000/- as follows:-

(a) amount paid on the date of the agreement i.e., 24.05.2014 - Rs.60,00,000/-.

(b) amount to be paid on or before 07.06.2014 - Rs.40,00,000/-.

(c) amount to be paid on or before 01.08.2014 - Rs.1,28,75,000/-.

(d) remaining sum of Rs.5,15,00,000/- shall be paid in four instalments on or before 01.08.2014, 01.11.2014, 31.01.2015 and 15.03.2015.

4. The plaintiffs were also obliged to carry out all official transactions required for obtaining approval of the lay out and for selling the plots. Agreement also provided that the owners namely, the defendants would execute powers of attorney in favour of the developers only on payment of the entire sum of Rs.6,15,00,000/- to enable the plaintiffs to sell the plots. There was also a term in the contract, which provided for execution of sale deeds by the owners namely, defendants for transfer of shares of the 3rd defendant Company. The agreement provided that it will stand cancelled automatically on 31.03.2015. Claiming that they were unable to perform their part of the contract due to the failure on the part of the defendants to co-operate with the plaintiffs in obtaining the statutory approvals that are required to be done by the owners of the land only, the plaintiffs claim that the agreement became incapable of being performed. It was the further contention of the plaintiffs that there were also protests by the workers who were employees of the 2nd and 3rd defendants.

5. Citing the above incidents as reasons for the failure of the contract, the plaintiffs sought for refund of advance paid with interest at 18% per annum. The plaintiffs also claimed that they had spent huge sums of money on improving the land in question and also safeguarding the land by appointing security guards. The total claim on that head was Rs.43,49,000/. With interest at 18% per annum it worked out to Rs.56,53,700/- on the date of the suit. On the whole, the plaintiffs claim a sum of Rs.1,91,03,700/- with interest at 18% per annum on Rs.1,00,00,000/- and on Rs.43,49,000/-.

6. The plaintiffs would further contend that though the agreement provided for forfeiture of the advance, since there was failure on the part o