Holding

The Supreme Court held that the agreements were terminated due to the respondent’s breach where time was of the essence, the forfeiture of earnest money was justified under Section 74, and the decree for recovery of earnest money was set aside.

Summary

The appellants, joint owners of a 23‑kanal property, entered into two sale agreements with the respondent, requiring the sale deed to be executed by 16‑08‑2004 and making earnest money forfeitable if the deadline was missed. The respondent paid part of the consideration as earnest money but failed to appear for execution on the prescribed date, despite notices extending the deadline. The respondent later sued for specific performance, but the land was acquired by the State during the pendency of the suit. Lower courts held the contract impossible to perform and ordered recovery of the earnest money; the appellate courts affirmed. The Supreme Court held that time was an essential condition, the breach by the respondent justified termination and forfeiture of earnest money under Section 74 of the Contract Act, and that the respondent had not claimed a refund of earnest money, so the decree for recovery was set aside. Consequently, the appeal was allowed and the suit dismissed.

Issues considered

The sale agreements stipulated time as an essential condition; does failure to perform by the deadline render the contract voidable under Section 55 of the Contract Act?
Was the respondent’s breach sufficient to justify termination of the agreements and forfeiture of earnest money?
Did the respondent have a right to recover the earnest money under the Specific Relief Act, given he did not claim such relief in his plaint?
Was the forfeiture of earnest money penal in nature, invoking Section 74 of the Contract Act?

Legislation cited

Code of Civil Procedure, 1908s. 100
Haryana Development and Regulation of Urban Areas Act, 1975s. 7A
Hindu Minority and Guardianship Act, 1956
Indian Contract Act, 1872s. 55, s. 74
Land Acquisition Act, 1894s. 4
Specific Relief Act, 1963s. 22

Subjects

specific performanceearnest moneyforfeituretime of essencecontract terminationSection 55Section 74Section 22land acquisitionNOCHUDA ActHindu Minority Guardianship Act

Judgment

[2022] 18 S.C.R. 65 65

DESH RAJ & ORS. A
v.
ROHTASH SINGH
(Civil Appeal No. 9217 of 2022)
DECEMBER 14, 2022 B
[SURYA KANT AND BELA M. TRIVEDI, JJ.]
Contract Act, 1872: s. 55, 74 – Specific Relief Act - s. 22 –
Specific performance of agreement - Effect of failure to perform at
fixed time, in contract in which time is essential – Refund of earnest
C
money – Appellants, joint owners of their respective share in the
property entered into separate sale agreement with the respondent
– As per the agreements, the earnest money could be confiscated by
the appellants if the sale deed was not executed on prescribed date
– Respondent made a part payment towards the sale as earnest
money – Respondent was liable to secure necessary No Objection D
Certificates and intimate the appellant before the date of execution
failing which the agreement was deemed to be cancelled – Appellant
was to obtain the permission under the HMGA and they obtained
the same and appeared before the sub-registrar on the date of
execution, however, the respondent failed to appear for execution
E
of the sale deed as also on the extended date – Appellant forfeited
the earnest money and treated the sale deed as cancelled –
Respondent then filed a suit for specific performance of the contract
– During pendency, the State Government initiated acquisition
proceedings and acquired the said property – Trial court holding
that both the parties were equally responsible for rendering sale F
agreements as unenforceable, and that the sale agreements were
either way rendered impossible to perform in view of the land
acquisition proceedings, granted a decree of recovery of earnest
money to the respondent, along with requisite interest – First
appellate court and High Court upheld the same – On appeal, held:
G
Sale Agreements clearly indicate the intention of the parties to treat
time-bound performance as an essential condition – There was an
undue delay on behalf of the respondent to institute the suit, the
relief of specific performance cannot be granted – Respondent led

H
65
66 SUPREME COURT REPORTS [2022] 18 S.C.R.

A no evidence to indicate that he took any proactive steps to obtain
the purported NOC necessary to execute the sale deed – Plea of
non-corporation against the appellants in respect of obtaining the
NOC not made out by the respondent – Furthermore, no such NOC
was required in the first place as the property was agricultural land
on the date of execution – Respondent failed to prove that the
B
appellants were willfully avoiding the performance of their contract
– Further, as respondent did not pray for refund of earnest money
in original plaint, the court cannot suo moto grant the refund of
earnest money – Forfeiture of earnest money by appellants was
justified and within the confines of reasonable compensation as
C per s. 74 of Contract Act since the nature of forfeiture was never
contested by the respondent and the respondent never prayed for
the refund of earnest money – Sale agreements should have been
rightly held to be terminated instead of being declared impossible
to perform – Thus, the judgments of courts below side aside and
suit is dismissed – Hindu Minority and Guardianship Act, 1956 –
D
Haryana Development and Regulation of Urban Areas Act, 1975.
Satish Batra v. Sudhir Rawal (2013) 1 SCC 345 :
[2012] 9 SCR 662; Fateh Chand v. Balkishan Dass
[1964] 1 SCR 515; Citadel Fine Pharmaceuticals v.
Ramaniyam Real Estates Private Ltd. (2011) 9 SCC
E 147 : [2011] 13 SCR 605; Saradamani Kandappan v.
S. Rajalakshmi (2011) 12 SCC 18 : [2011] 8 SCR 874;
Kailash Nath Associates v. DDA (2015) 4 SCC 136 :
[2015] 1 SCR 627; ONGC Ltd. v. Saw Pipes Ltd.
(2003) 5 SCC 705 : [2003] 3 SCR 691 - referred to.
F Case Law Reference
[2012] 9 SCR 662 referred to Para 17
[1964] 1 SCR 515 referred to Para 18
[2011] 13 SCR 605 referred to Para 23
G
[2011] 8 SCR 874 referred to Para 23
[2015] 1 SCR 627 referred to Para 35
[2003] 3 SCR 691 referred to Para 35

H
DESH RAJ & ORS. v. ROHTASH SINGH 67

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 921 of A
2022.
From the Judgment and Order dated 15.05.2019 of the High Court
of Punjab and Haryana at Chandigarh in RSA No.1847 of 2017 (O&M).
Siddharth Mittal, Prabhat Kumar, Kshitiz Chauhan, Sahil
Amarnath, Ms. Shilpa G. Mittal, Advs. for the Appellants. B

Ms. Sonali Joon, Gaurav Bhatt, Karunakar Mahalik, Advs. for
the Respondent.
The Judgment of the Court was delivered by
SURYA KANT, J. C
1. Leave Granted.
2. The present appeal is directed against the judgment dated
15.05.2019 passed by the High Court of Punjab and Haryana whereby
a second appeal preferred by the Appellants was dismissed and judgment
D
and decree of the Trial Court as well as the First Appellate Court were
affirmed. The decree entitled the Respondent for the recovery of earnest
money, which constituted of partly paid sale consideration in lieu of the
concerned agreements to sale along with requisite interest. The factual
matrix is succinctly discussed before delving into the issue of law
regarding breach of contractual terms which requires adjudication before E
us.
A. FACTS
3. The subject matter of the original suit was a property measuring
23 Kanals 4 Marlas bearing Khewat No. 226, Khatoni No. 225, Rect.
No. 27, Kila No 3 min (2-9), 4 min (4-15), 7(8-0), 14(4-0) situated in the F
revenue estate of Village Tigra, Tehsil and District Gurgaon (hereinafter,
‘Concerned Property’) which the Appellants jointly owned to the extent
of their respective shares.
4. Two separate agreements to sell were entered between the
present parties for the Concerned Property on 17.02.2004 (hereinafter, G
‘Sale Agreements’). In the first agreement, Appellant Nos. 1 to 4 agreed
to sell their share to the extent of 4/5th of the Concerned Property while
in the second agreement, Appellant No. 5 agreed to sell the remaining 1/
5th share to the Respondent which accrued to her and her minor son. It
H
68 SUPREME COURT REPORTS [2022] 18 S.C.R.

A must be noted that the material terms of both agreements are identical
except that in the second agreement, Appellant No. 5 was contractually
bound to secure the permission under The Hindu Minority and
Guardianship Act, 1956 to sell the share of the minor.
5. Under the Sale Agreements, the sale consideration was set at
B the rate of Rs 79,00,000/- per acre. Accordingly, the Respondent is stated
to have paid Rs 22,90,000/- in total as part payment of the sale
consideration which was in the nature of earnest money. As per Clause
4 of Sale Agreements, the earnest money could be confiscated by the
Appellants if the sale deed was not executed on prescribed date, i.e.
16.08.2004 (hereinafter, ‘Date of Execution’). Furthermore, as per Clause
C 8 of the Sale Agreements, the Respondent was also liable to secure all
the necessary No Objection Certificates (hereinafter, ‘NOC’).
Additionally, he had to also intimate the Appellants regarding the grant
of NOCs well before the Date of Execution, failing which the agreement
was deemed to be cancelled.
D 6. The Appellants state that as per the Sale Agreements, requisite
permission under The Hindu Minority and Guardianship Act, 1956 was
obtained by them before the Date of Execution. The same was
communicated to the Respondent via notice dated 10.07.2004. Their
case is that in furtherance of the agreements, Appellants appeared before
E the Sub-Registrar, Gurgaon on the Date of Execution but the Respondent
failed to appear before the Sub-Registrar for the purpose of executing
the sale deed and payment of balance sale consideration.
7. The Appellants served legal notices dated 18.08.2004 on the
Respondent giving an additional opportunity to him to appear before the
F Sub-Registrar on 01.09.2004 to execute the sale deed as per the terms
of the Sale Agreements. It is pertinent to note that in the legal notices, it
was explicitly mentioned that time was the essence of the contract. It
was also clearly stated that as per the agreements, the Appellants were
bound to forfeit the earnest money and treat the agreements as cancelled.
Still, they were extending last opportunity to the Respondent to perform
G his contractual obligations.
8. It appears that 01.09.2004 was declared a holiday, hence the
Appellants appeared before the Sub-Registrar on 31.08.2004 as well as
on 02.09.2004. The Respondent, however, failed to appear for execution
and registration of the sale deed, because of which the Appellants forfeited
H
DESH RAJ & ORS. v. ROHTASH SINGH 69
[SURYA KANT, J.]

the earnest money and treated the Sale Agreements as cancelled. All A
appearances of the Appellants before the Sub-Registrar were marked
by way of their respective affidavits.
9. The situation remained dormant until January 2006 when the
Respondent, the original plaintiff, initiated a suit seeking relief of specific
performance of Sale Agreements and other consequential reliefs. B
However, during the pendency of the suit before the Trial Court, State
of Haryana initiated acquisition proceedings vide notification dated
12.12.2008 issued under Section 4 of Land Acquisition Act, 1894.
Consequently, the subject land was acquired by the State vide award
dated 23.11.2011. Due to this subsequent event, the Respondent sought
and was permitted by the trial court to amend the plaint. C

10. In the amended plaint, the Respondent took the stand that he
was always ready and willing to execute the Sale Agreements and that
the Appellants were the ones who did not furnish the required documents
for the necessary sanction and grant of NOCs. Apart from the relief of
specific performance, he additionally prayed that a decree of permanent D
injunction be passed to the effect that the Concerned Property cannot
be sold to any third party, possession must be granted to him along with
a declaration that the Sale Agreements were still binding. In the alternative,
he sought that a money decree of Rs 2,29,10,000/- be passed in his
favour on the estimated land value along with requisite interest and costs. E
11. In response, the defence set up by the Appellants was that it
was the Respondent who was at fault for not executing the sale deed
within the agreed time period and that the suit must be dismissed for his
willful non-performance. The Appellants specifically took the stance that
the suit was filed after inordinate delay and as a tactic to grab the land F
because of the subsequent increase in its commercial value.
12. After perusal of both the documentary as well as oral evidence,
the Trial Court concluded that both the parties were equally responsible
for rendering the Sale Agreements as unenforceable. While it hesitantly
accepted the stance of both the parties in respect to the contention that G
they were present before the Sub-Registrar on the Date of Execution, it
held that the same was meaningless as the Appellants were at fault for
not taking effective steps in procuring the NOC under Section 7A of
Haryana Development and Regulation of Urban Areas Act of 1975
(hereinafter, ‘HUDA Act’). However, the Trial Court then went on to
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70 SUPREME COURT REPORTS [2022] 18 S.C.R.

A hold that the Sale Agreements were either way rendered impossible to
perform in view of the land acquisition proceedings and proceeded to
grant decree of recovery of earnest money on the priciple of unjust
enrichment. The First Appellate Court upheld the decree granted by
Trial Court on entirely identical reasons.
B 13. The High Court in its impugned judgment made two
observations which are pertinent to note – first that no evidence was led
by the parties to prove whether they took requisite steps to obtain the
NOC under Section 7A of HUDA Act and; second that presence of
Appellants before the Sub-Registrar on 31.08.2004 or 01.09.2004 when
last opportunity to execute the sale deed was granted to Respondent,
C was doubtful as the evidence of marking their presence was not proved
and that legal notices dated 18.08.2004 were not served on the
Respondent. The High Court, thus, went on to uphold the decree passed
by the courts below, noting that in view of the acquisition proceedings,
the alternate relief of recovery of earnest money was legally correct.
D 14. The aggrieved Appellants are before this Court.
B. CONTENTIONS
15. We have heard learned counsel for parties and perused the
documents produced on record.
E 16. Mr. Siddharth Mittal, learned counsel for the Appellants,
contended - Firstly, that all the courts below have failed to note that
time was the essence of contract as per the Sale Agreements under
Section 55 of The Indian Contract Act, 1872. (hereinafter, ‘Contract
Act’). He submitted that the contractual performance of Sale Agreements
F needed to be mandatorily effectuated by the Respondent on or before
the Date of Execution. He stated that the Appellants reiterated the same
stance in their legal notices dated 18.08.2004. Secondly, the High Court
has completely overlooked the fact that at the relevant period of time,
i.e. Date of Execution, there was no necessity to procure NOC under
Section 7A of HUDA Act. He submitted that the land was ‘agricultural
G land’ on the Date of Execution of Agreements and was first time included
within the limits of Municipal Corporation, Gurugram through notification
dated 02.06.2008. Thirdly, under Clause 8 of the Sale Agreements, it
was the Respondent and not the Appellants, responsible to procure
relevant NOCs. Hence, the onus to prove that steps were taken to obtain
H
DESH RAJ & ORS. v. ROHTASH SINGH 71
[SURYA KANT, J.]

NOCs under Section 7A of HUDA Act was on the Respondent which A
he miserably failed to discharge.
17. The composite essence of all the above-mentioned arguments
by Mr. Mittal is that non-performance of contractual obligations on the
part of Respondent by the stipulated time resulted in lawful exercise of
right of termination by the Appellants and the consequent forfeiture of B
earnest money as stipulated under the Sale Agreements which was in
accordance with the settled law in Satish Batra v Sudhir Rawal.1
18. On the contrary, Ms. Sonali Karwasra Joon, learned counsel
for the Respondent, argued that – Firstly, the Appellants were unwilling
and they failed to perform their contractual obligations, especially regarding C
securing NOC under Section 7A of HUDA Act. She forcefully argued
that Clause 8 of the Sale Agreements ought to be interpreted to mean
that only such sanction or NOCs which the Respondent could obtain
unilaterally, was his contractual obligation. In other words, she argued
that securing NOC under Section 7A of HUDA Act was solely the
responsibility of the Appellants, irrespective of the onus fastened on the D
Respondent under Clause 8 of the Sale Agreements. She heavily relied
upon the observations of the High Court regarding the Appellant’s doubtful
appearance before the Sub-Registrar and non-effectuation of service of
legal notices dated 18.08.2004, to support the claim of willful non-
performance on behalf of the Appellants. Secondly, she argued, that E
the Sale Agreements had been rendered impossible as the State of
Haryana lawfully acquired the suit land. Hence, all the courts below
have rightly directed the refund of the earnest money with interest.
Additionally, she argued that the amount in question cannot be forfeited
contrary to the settled principles enunciated by the Constitution Bench
of this Court in Fateh Chand v Balkishan Dass2which bars forfeiture F
of earnest money when it is ‘penal’ in nature. Thirdly, she highlighted
that the second appeal, which confirmed the decree passed in favor of
Respondent, was heard ex-parte. Finally, she drew our attention to the
fact that during the acquisition proceedings, the Appellants were
successful in obtaining release of land measuring 8 Marlas out of the G
acquired land as noted in the award dated 23.11.2011. She stated that as
per the available revenue records, the said property was still in possession
of the Appellants who are guilty of suppression of material facts. It must
1
Satish Batra v Sudhir Rawal (2013) 1 SCC 345.
2
Fateh Chand v Balkishan Dass (1964) 1 SCR 515.
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72 SUPREME COURT REPORTS [2022] 18 S.C.R.

A be noted that the Respondent on coming to know about the factum of
release, had directly approached this Court against the First Appellate
Court’s decision via SLP (C) No 11901 of 2022 but the same was disposed
of with liberty to approach the High Court in the second appeal under
Section 100 of the Code of Civil Procedure, 1908. 3
B 19. We now examine these contentions of both sides.
C. ANALYSIS
C.1 WHETHER TIME WAS THE ESSENCE OF THE
CONTRACT?

C 20. Before venturing into the aforementioned issue, we must
highlight that throughout the entire dispute, Appellants have taken a
consistent stand of time-bound performance being an essence of the
contract. They have maintained that sale deed was needed to be executed
necessarily on the Date of Execution as agreed between the parties. It
is unfortunate that all the courts below have failed to render a finding on
D this aspect despite the fact that this was one of the key defenses taken
by the Appellants in respect of the prayer seeking specific performance.
21. In this respect, we must now take note of Section 55 of Contract
Act which stipulates the aftermath in case of failure to perform
contractual obligations at fixed time. The provision states –
E
55. Effect of failure to perform at fixed time, in
contract in which time is essential.
When a party to a contract promises to do a certain
thing at or before a specified time, or certain things
at or before specified times, and fails to do any such
F
thing at or before the specified time, the contract,
or so much of it as has not been performed,
becomes voidable at the option of the promisee, if
the intention of the parties was that time should
be of the essence of the contract.
G Effect of such failure when time is not
essential.—If it was not the intention of the parties
that time should be of the essence of the contract,
the contract does not become voidable by the
failure to do such thing at or before the specified
H 3
Rohatash Singh v Deshraj (SLP (Civil) No. 11901 of 2022, 11 July 2022).
DESH RAJ & ORS. v. ROHTASH SINGH 73
[SURYA KANT, J.]

time; but the promisee is entitled to compensation A
from the promisor for any loss occasioned to him
by such failure.
Effect of acceptance of performance at time
other than that agreed upon.—If, in case of a
contract voidable on account of the promisor’s B
failure to perform his promise at the time agreed,
the promisee accepts performance of such promise
at any time other than that agreed, the promisee
cannot claim compensation for any loss occasioned
by the non-performance of the promise at the time
agreed, unless, at the time of such acceptance, he C
gives notice to the promisor of his intention to do
so.
22. The Sale Agreements in the present case clearly indicate the
intention of the parties to treat time-bound performance as an essential
condition. They stipulate that in case the sale deed was not executed on D
the Date of Execution, the Sale Agreements were liable to be treated as
cancelled, and the earnest money was to be forfeited. Even in the legal
notices dated 18.08.2004, through which last opportunity was extended
to Respondent to execute the sale deed, the factum of time being an
essential condition for performance was reiterated. On the other hand, E
no evidence or communication has been brought on record by the
Respondent to contradict the defense of time-bound performance taken
by the Appellants.
23. At this juncture, we must note the decision of this Court in
Citadel Fine Pharmaceuticals v Ramaniyam Real Estates Private F
Ltd4 and Saradamani Kandappan v S. Rajalakshmi5 wherein it was
held that defense under Section 55 of Contract Act is valid against anyone
who is seeking the relief of specific performance. The facts of the instant
case make the observations in Saradamini Kandappan6even more
pertinent, which are to the following effect -
G
“36. The principle that time is not of the essence
of contracts relating to immovable properties took
4
Citadel Fine Pharmaceuticals v Ramaniyam Real Estates Private Ltd (2011) 9 SCC
147, para 53.
5
Saradamani Kandappan v S. Rajalakshmi (2011) 12 SCC 18.
6
ibid. H
74 SUPREME COURT REPORTS [2022] 18 S.C.R.

A shape in an era when market values of immovable
properties were stable and did not undergo any
marked change even over a few years (followed
mechanically, even when value ceased to be stable).
As a consequence, time for performance,
stipulated in the agreement was assumed to be not
B
material, or at all events considered as merely
indicating the reasonable period within which
contract should be performed. The assumption was
that grant of specific performance would not
prejudice the vendor defendant financially as there
C would not be much difference in the market value
of the property even if the contract was performed
after a few months. This principle made sense
during the first half of the twentieth century, when
there was comparatively very little inflation, in
India. The third quarter of the twentieth century
D
saw a very slow but steady increase in prices. But
a drastic change occurred from the beginning of
the last quarter of the twentieth century. There has
been a galloping inflation and prices of immovable
properties have increased steeply, by leaps and
E bounds. Market values of properties are no longer
stable or steady. We can take judicial notice of the
comparative purchase power of a rupee in the year
1975 and now, as also the steep increase in the
value of the immovable properties between then
and now. It is no exaggeration to say that properties
F
in cities, worth a lakh or so in or about 1975 to
1980, may cost a crore or more now.
x-x-x-x
43. Till the issue is considered in an appropriate
G case, we can only reiterate what has been
suggested in K.S. Vidyanadam [(1997) 3 SCC 1] :
(i) The courts, while exercising discretion
in suits for specific performance, should bear in
mind that when the parties prescribe a time/period,
H for taking certain steps or for completion of the
DESH RAJ & ORS. v. ROHTASH SINGH 75
[SURYA KANT, J.]

transaction, that must have some significance and A
therefore time/period prescribed cannot be
ignored.
(ii) The courts will apply greater scrutiny
and strictness when considering whether the
purchaser was “ready and willing” to perform his B
part of the contract.
(iii) Every suit for specific performance
need not be decreed merely because it is filed
within the period of limitation by ignoring the time-
limits stipulated in the agreement. The courts will C
also “frown” upon suits which are not filed
immediately after the breach/refusal. The fact that
limitation is three years does not mean that a
purchaser can wait for 1 or 2 years to file a suit and
obtain specific performance. The three-year period
is intended to assist the purchasers in special D
cases, as for example, where the major part of the
consideration has been paid to the vendor and
possession has been delivered in part-
performance, where equity shifts in favour of the
purchaser.” E
(Emphasis Applied)
24. Hence on the dual factual premise that it was the clear intention
of the parties to treat time as the essence of the contract and that there
was an undue delay on behalf of the Respondent to institute the suit, the
relief of specific performance cannot be granted. We must clarify that F
this finding also holds true for the land subsequently released in favor of
the Appellants.
C.2 WHETHER IT WAS PROVED THAT APPELLANTS
WERE WILLFULLY AVOIDING PERFORMANCE OF THEIR
CONTRACTUAL OBLIGATIONS? G
25. The courts below have harped on the inability of the Appellants
to procure the necessary NOC under Section 7A of HUDA Act, to hold
that they were non-cooperative and willfully avoiding the performance
of their contractual obligation. However, as the learned counsel for
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76 SUPREME COURT REPORTS [2022] 18 S.C.R.

A Appellants rightfully pointed out, the evidence on record clearly indicates
that they gave duly signed blank proformas and relevant documents to
the Respondent in order to obtain any necessary sanction or NOCs.
This was done in order to fulfil the obligation under Clause 8 of the Sale
Agreements which stated –
B “8. That the Second Party will be liable to secure
all the necessary NOC and the said NOC will be
intimated to the First Party by way of Registered
Post before the date 16.08.2004 fixed for
registration of sale deed. If the Second Party fails
to secure the required NOC then this agreement
C to sell will be deemed to be cancelled. The cost
incurred for securing the NOC will be borne by
the Second Party.”7
(Emphasis Applied)
D 26. A bare reading of this clause, in our opinion, clearly spells out
the intention of the parties in respect of Respondent’s liability for obtaining
the required NOC. We are bound to interpret the contractual terms in
their literal sense and hence, we expressly reject the Respondent’s
contention that this clause should be interpreted to construe that his
obligation was limited to NOCs which he could obtain unilaterally.
E Additionally, since Respondent has led no evidence to indicate that he
took any proactive steps to obtain the purported NOC necessary to
execute the sale deed, we must hold that the plea of non-cooperation
against the Appellants in respect of obtaining the NOC are not made out
by the Respondent.
F 27. However, even assuming in arguendo, that Respondent had
fulfilled his contractual obligation under under Clause 8 of the Sale
Agreements by taking all necessary steps necessary to obtain NOC
under Section 7A of HUDA Act, we find merit in the Appellants’
contention that no such NOC was required in the first place as the
G Concerned Property was agricultural land on the Date of Execution. In
this respect, learned counsel for the Appellants correctly pointed out
that the Concerned Property was brought under the Municipal Corporation
of Gurugram vide notification dated 02.06.2008 only.
7
Under the Sale Agreements, ‘First Party’ refers to the present Appellants while
‘Second Party’ refers to the present Respondent.
H
DESH RAJ & ORS. v. ROHTASH SINGH 77
[SURYA KANT, J.]

28. The Respondent in his counter affidavit has taken a stance A
that the Concerned Property was an ‘urban area’ as per Section 2(o) of
the HUDA Act, which includes lands situated within five kilometres of a
notified municipal area. However, this stand cannot sustain for the reason
that neither he raised such plea before the courts below nor adduced
any evidence to suggest that on the Date of Execution, the Concerned
B
Property was within the five kilometre radius of Municipal Area as
specified under Section 2(o) of the HUDA Act.
29. Finally, we must shift our attention to the High Court’s
observation that the presence of Appellants before the Sub-Registrar
was doubtful on 31.08.2004 and 02.09.2004 as the affidavits of their
presence were not proved in the evidence. In contrast, the Trial Court C
has found that these affidavits were duly proved in the cross examination
of the Appellants and the said finding of fact was affirmed by the First
Appellate Court. The High Court, therefore, ought not to have made any
fact based observations especially when the records of the courts below
were not requisitioned to reach an independent conclusion to hold that D
the said finding of fact by the two courts was contrary to the record.
The re-appreciation of evidence is ordinarily impermissible and beyond
the scope of a second appeal. Even otherwise, the presence of Appellants
before the Sub-Registrar on the Date of Execution is not disputed. In
this backdrop where time was the essence of the contract, we conclude
that the Respondent has failed to prove that the Appellants were willfully E
avoiding the performance of their contractual obligations.
C.3 WHETHER RESPONDENT WAS ENTITLED TO
RECOVERY OF EARNEST MONEY?
30. The final aspect of this dispute is with respect to the relief F
granted by the courts below to the Respondent in the form of recovery
of earnest money with requisite interest. However, before inquesting
into this issue we must take note of the following relevant clauses of the
Sale Agreements -
“1. That it has been decided that date of execution G
of this agreement to sell is 16.08.2004 [Sixteen
August Two Thousand Four].
x-x-x-

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78 SUPREME COURT REPORTS [2022] 18 S.C.R.

A 4. That if the Second Party is not able to execute
the sale deed on the prescribed date then the First
Party will be entitled to confiscate the earnest
money”
[Emphasis Applied]
B 31. Firstly, we may refer to Section 22 of the Specific Relief Act
of 1963 (hereinafter, ‘SRA Act’) which provides that any person suing
for the specific performance of the contract for the transfer of property
may ask for - (a) possession or partition and separate possession of the
property in addition of such performance OR (b) such person may seek
C any other relief to which he is entitled to “including the refund of any
earnest money or deposit paid or made by him” in case his claim for
specific performance is refused. However, sub-Section (2) thereof puts
a caveat that the abovementioned reliefs shall not be granted by the
court unless “it has been specifically claimed”. The proviso to sub-Section
(2) further says that even if such relief was not specifically claimed in
D the plaint, it is the discretion of the Court to permit the plaintiff to amend
the plaint “at any stage of the proceedings” and allow him to include the
claim for refund of the earnest money or deposit paid. The relevant part
of the provision of SRA Act reads as follows -
22. Power to grant relief for possession, partition,
E refund of earnest money, etc.—
(1) Notwithstanding anything to the contrary
contained in the Code of Civil Procedure,1908 (5
of 1908), any person suing for the specific
performance of a contract for the transfer of
F immovable property may, in an appropriate case,
ask for—
(a) possession, or partition and separate
possession, of the property in addition to such
performance; or
G
(b) any other relief to which he may be entitled,
including the refund of any earnest money or
deposit paid or made by him, in case his claim for
specific performance is refused.

H
DESH RAJ & ORS. v. ROHTASH SINGH 79
[SURYA KANT, J.]

(2) No relief under clause (a) or clause (b) of sub- A
section (1) shall be granted by the Court unless it
has been specifically claimed:
Provided that where the plaintiff has not
claimed any such relief in the plaint, the Court shall,
at any stage of the proceeding, allow him to amend B
the plaint on such terms as may be just for including
a claim for such relief.
(Emphasis Applied)
On a plain reading of the above reproduced provision, we have
no reason to doubt that the plaintiff in his suit for specific performance C
of a contact is not only entitled to seek specific performance of the
contract for the transfer of immovable property but he can also seek
alternative relief(s) including the refund of any earnest money, provided
that such a relief has been specifically incorporated in the plaint. The
court, however, has been vested with wide judicial discretion to permit D
the plaintiff to amend the plaint even at a later stage of the proceedings
and seek the alternative relief of refund of the earnest money. The litmus
test appears to be that unless a plaintiff specifically seeks the refund of
the earnest money at the time of filing of the suit or by way of amendment,
no such relief can be granted to him. The prayer clause is a sine qua non
for grant of decree of refund of earnest money. E

Applying these principles to the facts of the case in hand, we
find that the Respondent has neither prayed for the relief of refund of
earnest money in the original plaint nor he sought any amendment at a
subsequent stage. In the absence of such a prayer, it is difficult to accept
that the courts would suo-moto grant the refund of earnest money F
irrespective of the fact as to whether Section 22(2) of SRA Act is to be
construed directory or mandatory in nature.
32. We may now advert to the contention raised on behalf of the
Respondent that even if the respondent is held responsible for breach of
contract, the forfeited amount was ‘penal’ in nature and was hit by Section G
74 of The Contract Act as has been interpreted by the Constitution Bench
in Fateh Chand.8Section 74 of the Contract Act says that -

8
Fateh Chand (n 2).
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80 SUPREME COURT REPORTS [2022] 18 S.C.R.

A 74. Compensation for breach of contract where
penalty stipulated for—
When a contract has been broken, if a sum is
named in the contract as the amount to be paid in
case of such breach, or if the contract contains any
B other stipulation by way of penalty, the party
complaining of the breach is entitled, whether or
not actual damage or loss is proved to have been
caused thereby, to receive from the party who has
broken the contract reasonable compensation not
exceeding the amount so named or, as the case
C may be, the penalty stipulated for.
(Emphasis Applied)
33. Learned Counsel for the respondent submitted that merely
because an amount is stipulated as earnest money would not justify its
D forfeiture. Instead, reliance was placed on Fateh Chand9to state that
the courts were duty bound to ascertain reasonable compensation in
each case. In this respect, it would be prudent for our analysis to extract
the following paragraphs from Fateh Chand10 which are relied upon by
the respondent -

E “11. ….In all cases, therefore, where there is a
stipulation in the nature of penalty for forfeiture of
an amount deposited pursuant to the terms of
contract which expressly provides for forfeiture,
the court has jurisdiction to award such sum only
as it considers reasonable, but not exceeding the
F amount specified in the contract as liable to
forfeiture….
x-x-x-
15. Section 74 declares the law as to liability upon
breach of contract where compensation is by
G
agreement of the parties pre-determined, or where
there is a stipulation by way of penalty. But the
application of the enactment is not restricted to

9
Fateh Chand (n 2).
10
H Fateh Chand (n 2).
DESH RAJ & ORS. v. ROHTASH SINGH 81
[SURYA KANT, J.]

cases where the aggrieved party claims relief as a A
plaintiff. The section does not confer a special
benefit upon any party; it merely declares the law
that notwithstanding any term in the contract
predetermining damages or providing for forfeiture
of any property by way of penalty, the court will
B
award to the party aggrieved only reasonable
compensation not exceeding the amount named or
penalty stipulated. The jurisdiction of the court is
not determined by the accidental circumstance of
the party in default being a plaintiff or a defendant
in a suit. Use of the expression “to receive from C
the party who has broken the contract” does not
predicate that the jurisdiction of the court to adjust
amounts which have been paid by the party in
default cannot be exercised in dealing with the
claim of the party complaining of breach of contract.
D
The court has to adjudge in every case reasonable
compensation to which the plaintiff is entitled from
the defendant on breach of the contract. Such
compensation has to be ascertained having regard
to the conditions existing on the date of the
breach.” E
(Emphasis Applied)
34. Per contra, the Appellants have heavily relied on the following
passage of the decision of this Court in Satish Batra11 to justify the
forfeiture of earnest money -
F
“15. The law is, therefore, clear that to justify the
forfeiture of advance money being part of “earnest
money” the terms of the contract should be clear
and explicit. Earnest money is paid or given at the
time when the contract is entered into and, as a
pledge for its due performance by the depositor to G
be forfeited in case of non-performance by the
depositor. There can be converse situation also
that if the seller fails to perform the contract the
11
Satish Batra (n 1).
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82 SUPREME COURT REPORTS [2022] 18 S.C.R.

A purchaser can also get double the amount, if it is
so stipulated. It is also the law that part-payment
of purchase price cannot be forfeited unless it is a
guarantee for the due performance of the contract.
In other words, if the payment is made only towards
part-payment of consideration and not intended as
B
earnest money then the forfeiture clause will not
apply.”
In sum and substance, the Appellants contend that forfeiture of
sum is justified when it is - (a) clearly stipulated as earnest money; (b)
forms part of sale consideration and (c) intended to be in the nature of
C ‘guarantee for the due performance of the contract’, and (d) the binding
agreement between the parties provides its forfeiture in the event of
breach of contract.
35. In our considered opinion, Section 74 of Contract Act primarily
pertains to the grant of compensation or damages when a contract has
D been broken and the amount of such compensation or damages payable
in the event of breach of contract, is stipulated in the contract itself. In
other words, all pre-estimated amounts which are specified to be paid
on account of breach by any party under a contract are covered by
Section 74 of Contract Act as noted by this court inKailash Nath
E Associates v DDA12. In Fateh Chand13, the Constitution Bench ruled
that Section 74 dispenses with proof of “actual loss or damage” and
attracts intervention by Courts where the pre-estimated amount is ‘penal’
in nature. We may at this juncture also note the following observations
made by this court in ONGC Ltd. v. Saw Pipes Ltd.14 -

F “64. …. Section 74 emphasizes that in case of
breach of contract, the party complaining of the
breach is entitled to receive reasonable
compensation whether or not actual loss is proved
to have been caused by such breach. Therefore,
the emphasis is on reasonable compensation. If the
G compensation named in the contract is by way of
penalty, consideration would be different and the

12
Kailash Nath Associates v DDA (2015) 4 SCC 136, para 43.7.
13
Fateh Chand (n 2).
14
H ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705.
DESH RAJ & ORS. v. ROHTASH SINGH 83
[SURYA KANT, J.]

party is only entitled to reasonable compensation A
for the loss suffered. But if the compensation
named in the contract for such breach is genuine
pre-estimate of loss which the parties knew when
they made the contract to be likely to result from
the breach of it, there is no question of proving
B
such loss or such party is not required to lead
evidence to prove actual loss suffered by him.
Burden is on the other party to lead evidence for
proving that no loss is likely to occur by such
breach….”
(Emphasis Applied) C

Hence, in a scenario where the contractual terms clearly provide
the factum of the pre estimate amount being in the nature of ‘earnest
money’, the onus to prove that the same was ‘penal’ in nature squarely
lies on the party seeking refund of the same. Failure to discharge such
burden would treat any pre-estimated amount stipulated in the contract D
as a ‘genuine pre-estimate of loss’.
36. The Respondent in the instant case has neither pleaded for
refund of the earnest money nor has he claimed any damages or penalty
from the Appellants. From the perusal of the records, it is conspicuous
that Respondent never raised any concern that the pre estimated amount E
was ‘penal’ in nature and instead his sole objective was to gain titular
rights over the Concerned Property on the strength of Sale Agreements.
D. CONCLUSION
37. In light of the above discussion, we must conclude that the F
decree granted by the courts below was hinged on a logical fallacy wherein
the Appellants were held to be unjustly enriched on the premise that the
contract was rendered impossible to perform due to acquisition
proceedings. On the contrary, the contract automatically stood terminated
as per the stipulated contractual terms. The Sale Agreements should
have been rightly held to be terminated instead of being declared G
impossible to perform.
38. Furthermore, we deem it appropriate to hold that the forfeiture
was justified and within the confines of reasonable compensation as per
Section 74 of Contract Act in light of the fact that during the entirety of
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84 SUPREME COURT REPORTS [2022] 18 S.C.R.

A proceedings – firstly the nature of forfeiture was never contested by
the Respondent and secondly the Respondent never prayed for the refund
of earnest money. Consequently, the judgments rendered by the Courts
below deserve to be set aside and the suit is liable to be dismissed.
Ordered accordingly.
B 39. The appeal stands allowed along with any pending applications
in the above terms. No order as to costs.

Nidhi Jain and Anurag Bhaksar Appeal allowed.
(Assisted by : Priyanshu Agarwal, LCRA)
C

D

E

F

G

H