RFA No.576/2002 Page 1 of 14

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IN THE HIGH COURT OF DELHI AT NEW DELHI

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RFA No.576/2002

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16^th November, 2011

AIRPORTS AUTHORITY OF INDIA

...... Appellant

Through:

Mr.Sunil Ahuja, Adv.

VERSUS

SHRI R.K. SINGHAL

...... Respondent

Through:

Mr. S.K.Sharma with

Mr. Aashish Gambhir, Advs.

CORAM:

HON’BLE MR. JUSTICE VALMIKI J.MEHTA

1.

Whether the Reporters of local papers may be

allowed to see the judgment?

2.

To be referred to the Reporter or not?

Yes

3.

Whether the judgment should be reported in the Digest? Yes

VALMIKI J. MEHTA, J (ORAL)

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

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RFA No.576/2002 Page 2 of 14

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

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RFA No.576/2002 Page 3 of 14

cases of Fateh Chand Vs Balkishan Dass, (1964) 1 SCR 515;

AIR 1963 SC 1405, Maula BuxVs. 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 afores