H.U.D.A. AND ANRversusKEWAL KRISHAN GOEL AND OTHER ETC.

                           H.U.D.A. AND ANR.                                      A
                                      v.
            KEWAL KRISHAN GOEL AND OTHER ETC.

                                MAY 9,.1996

            [K. RAMASWAMY AND G.B. PATTANAIK, JJ.]                                B

     Haryana Urban Development Authority Rules-Allotment of
lan~Withdrawal by allottee due to incapacity to pa:r-Refund of
mone:r-Held, competent authority can fo1feit eamest money.

      Words & Phrases-'Eamest'--Meaning of
                                                                                  c
       The Haryana Urban Development Authority offered certain residen·
tial plots of land for sale. As per the advertisement, 10% of the total price
should be sent along with the application as earnest money. On receipt of
letter allotment, each allottee was required to indicate whether he was           D
accepting the offer or refusing the same within 30 days from the date of
receipt. In case of acceptance, the allottee was further required to make
~n additional deposit which together with earnest money would constitute
~5% of the total tentative price. It was further indicated that if the allottee
falls to accept the allotment within 30 days from the date of receipt of the
letter then the authority was entitled to forfeit the earnest money. It was
                                                                                  E
also stipulated that the balance amount could be either paid in a lump
sum or in six annual installments, with 15% interest. The respondents were
\he allottees who made initial deposit and chose to accept the allotment
and paid the balance in instalments. After a few instalments they intimated
the Appellants that they will not be in a position to take the land and           F
requested for refund. In some cases the Appellant replied that the applica-
tion cannot be accepted and in some other cases even before any reply, the
allottees approached the High Court. The High Court directed the Appel-
~.nt to refund the balance after deducting 10% of the amount deposited by
each of the allottee.
                                                                                  G
      On Appeal before the Court it was contended by the Appellant that,
in view of the fact that the allottee was required to deposit 10% of the
purchase price as earnest money while the application for allotment was
made and having accepted the allotment in question with the terms and
conditions stipulated in the letter of allotment, when the transaction fails H
                                     587
    588                  SUPREME COURT RF.PORTS 11996] SUPP. 2 S.C.R.

A as a result of default or failure on the part of the allottec, the authority
    would be entitled to forfeit the entire earnest money and not the 10% of
    the amount deposited till then as directed by the High Court that "earnest"
    represents a guarantee that the contract will be fulfilled and is given to
    bind the contract and it is forfeited when the transaction falls through on
    account of failure on the part of the purchaser and that in view of the
B   specific clauses of the letter of allotment the High Court committed gross
    error in directing to forfeit only 10% of the amount deposited.

          The respondents contended that the forfeiture of earnest money in
    terms of the allotment letter can be made ifthe allo!tee does not communi-
C   cate his refusal by registered letter \\i!hin 30 days from the date of
    allotment but once the allotment is accepted and there after the allottee
    opts out due to inability there is no provision for forfeiture, and that in
    the absence of provisions in the allotment letter or in the Rules the High
    Court was entitled to decided the question on equitable consideration and
    there is no error of law then.
D
          Allowing the appeal, this Court

           HELD : 1. The Appellant would be entitled to forfeit the earnest
    money which had been deposited along with the application form and on
    deducting the said "Earnest" the balance amount may be refunded to
E   allottees who had made application for refund. [594-E-F]

         2. The allottees having accepted the allotment and having made some
    payment on instalment basis then made the request to surrender the land,
    has committed default on their part and therefore the competent authority
    would be fully justified in forfeiting the earnest money which had been
F
    deposited and not the 10% of the amount deposited. [594-B-C]

         Sh1i Hanuman Cotton Mills & Ors. v. Tata Air Craft Limited, [1969]
    3 SCC 522 and Delhi Development Authority v. Grishthapana Cooperative
    Group !lousing Society Ltd., [1995] Supp. 1 SCC 751, referred to.
G
         Fair Smith & Co. v. Messers Ltd., LR (1928) 1 KBD 397 and Summer
    and Leivesley v. John Brown & Co., 25, Times LR 745, referred to.

         3. The High Court was in error in issuing the direction in question
    on the ground that the respondents were not in a position to deliver the
H   possession of the land to the allottee. In the facts and circumstances, it
                       HUDA v. K.K. GOEL(PATIANAIK,J.)                       589

    cannot be said that the rcasonability had lapsed particularly when the          A
•   allottees bad not paid up the entire instalment due and merely paid a part
    thereof. (594-C-D]

         CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7849 of
    1996 Etc.
                                                                                    B
         From the Judgment and Order <lated 28.7.95 of the Punjab &
    Haryana High Court in C.W.P. No. 4569 of 1995.

            P.N. Puri, for the Appellants.

            Arun Jaitley, Ms. lndu Malhotra and Ms. Kavita Wadia, for the State.    c
            Pardeep Gupta and N.S. Bisht, Mahabir Singh for Respondents.

            The Judgment of the Court was delivered by

            PATIANAIK, J. Leave granted.                                            D

         In these three appeals directed against the judgment of the Punjab
    and Haryana High Court the common question of law is involved and as
    such are heard together and are being disposed of by this common judg-
    ment.
                                                                                    E
           The short question that arises for consideration is, where a land is
    allotted and the allottee deposits some instalments but thereafter intimates
    the authority about his incapacity to pay up the balance instalments and
    requests for refund of the money paid, is the allotting authority entitled to
    forfeit the earnest money deposited by the allottee or could be only entitled   F
    to forfeit 10% of the total amount deposited by the allottee till the request
    is made as directed by the High Court?

           Haryana Urban Development Authority issued an advertisement
    inviting applications of allotment of residential plots at Karna!. The price
    of plots was differerit for different size. In accordance with the advertise- G
    ment 10% of the total price was required to be deposited along with the
    application form as earnest money and where the plot was a preferential
    one an extra price of 10% of the total price was required to be deposited.
    In the letter of allotment that had been issued by the Estate Officer of the
    Haryana Urban Development Authority to the allottee, it was indicated H
    5'!0                  SUPREME COURT REPORTS J l996] SUPP. 2 S.C.R.

A   that if the allottee refuses to accept the allotment then the same may be
    communicated within 30 daysfrom the date of allotment letter failing which
    the allotment would starn.l cancelled and the earnest money deposited shall
    be forfeited to the authority and the allottee can have no claim for
    damages. It was also stipulated in the letter of allotment that the balance
    amount of the tentative price indicated in the letter of allotment could be
B   deposited either in lump sum without any interest \\1thin 60 days from the
    date of issue of the allotment letter or on 6 annual instalments and each
    instalment would be recoverable together with interest at 15%. On receipt
    of the letter of allotments the allottees who are the respondents in these
    appeals accepted the allotment and made the initial deposits as required
C   and thereafter d10se to deposit the balance amount in instalment. Each of
    the alluttee - respondent did deposit some instalment and thereafter in-
    timated the authority that they will not be in a position to take the land
    allotted and requested for refund of the amount. In some cases the
    authority replied that their prayer for cancellation of allotment cannot be
D   acceded to and in some other cases even before any consideration made
    by the authority to the request of the allottees, the allottees approached
    the High Court. The High Court having directed the authority to refund
    the balance after deducting 10% of the amount deposited by each of the
    allottee, the Haryana Urban Development Authority as well as the State
    of Haryana have preferred these appeals.
E
         Mr. Arun Jaitley, the learned senior counsel appearing for the ap-
  pellants contended that in view of the fact that the allottce was required
  to deposit 10% of the purchase price as earnest money while the applica-
  tion for allotment was made and having accepted the allotment in question
F with the terms and conditions stipulated in the letter of allotment, when
  the transaction falls through by reasons of default or failure on the part of
  the allottee, the authority would be entitled to forfeit the entire earnest
  money deposited and not the 10% of the amount deposited till then as
  directed by the High Court. Mr. Jaitley contends 'earnest' represents a
  guarantee that the contract will be fulfilled and is given to bind the contract
G and therefore the same is forfeited when the transaction falls through on
  account of failure on the part of the purchaser. According to the learned
  counsel in view of the specific clauses of the letter of allotment the High
  Court committed gross error in directing forfeit of only 10% of the amount
  deposited. Mr. Mahabir Singh, learned counsel appearing for the respon-
H dent on the other hand contended that the forfeiture of earnest money in
                        HUDA v. K.K. GOEL [PATTANAIK, J.]                       591

      terms of clause 4 of the allotment letter can be r.iade if the allottee does A
·.>
      not communicate his refusal by registered letter within 30 days from the
      date of allotment but once the allotment is accepted and thereafter the
      allottee makes deposits on instalments and opts out a contract by express-
      ing his inability to lake the land, there is no provision in the allotment letter
      or under the rules entitling the authority to forfeit the earnest money. Since
                                                                                        B
      the power of forfeiture of the earnest money has lo he found out specifi-
      cally either from the letter of allotment or from the rules, if any, governing
      the allotment and since there is no such provision, the High Court was
      entitled to decide the question on equitable consideration and has rightly
      directed that the authority could deduct 10% of the amount deposited and
      there is no error of law therein requiring interference by this Court.           c
            In view of the rival stand of the parties, the iirst question that arises
      for consideration is whether under the terms of allotment the allottees were
      required to deposit any amount as earnest money and if so when that
      earnest money could be forfeited by the authority? From the material on
                                                                                      D
      record there is no dispute that an application for allotment, pursuant to
      the advertisement made by the authority, has to be made with a deposit of
      10% of the tentative price as the earnest money. After consideration of the
      application when letter of allotment is issued clause ( 4) thereof stipulates
      that an allottee if refuses to accept the allotment shall communicate the
      same by registered letter within 30 days from the date of allotment letter. E
      If no such refusal is communicated within 30 days then it would not be
      open for the allottee to refuse it later and further the earnest money
      deposited by the allottee would be forfeited lo the authority and an allottee
      can claim no damages. The allotment letter further stipulated that in case
      the allottee accepts allotment then letter of acceptance should reach the
                                                                                      F
      authorities by registered post together with an additional amount as indi-
      cated in the letter, which deposit along with the earnest money deposited
      already would constitute 25% of the total tentative price. Clause (6) of the
      allotment letter also indicates that the balance amount of the tentative price
      of the plot could be paid either in lump-sum without interest within 60 days
      from the date of issue of the allotment letter or in six annual instalment, G
      the first instalment would fall due after expiry of one year of the date of
      issue of the letter. Clauses 4, 5 and 6 of the letter of allotment are extracted
      hereinbelow in extenso for better appreciation of the point in issue:


               "(4) In case you refuse to accept this allotment, you shall communi- H
    592                   SUPREME COURT REPORTS [1996] SUPP. 2 S.C.R.

A            cate your refusal by a registered letter within 30 days from the date
             of allotment letter, failing which this allotment shall stand cancelled
             and the earnest money deposited by you shall be forfeited to the
             authority & you shall have no claim for damages.

             (5) In case you accept this allotment, please send your acceptance
B            by registered post alongwith an amount of Rs. 34,505 within 30
             days from the date of issue of this allotment letter, which together
             with an amount of Rs. 23020 paid by you alongwith your application
             form as earnest money, will constitute 25 percent of the total
             tentative price.
c
            (6) The balance amount i.e. Rs. 1,72,575 of the above tentative
            price of the plot can be paid in lump-sum without interest within
            60 days from the date of issue of the allotment letter or in six
            annual instalment. The first instalment will fall due after the expiry
            of one year of the dale of issue of this letter. Each instalments
D
            would be recoverable together with interest on the balance price
            of 10% interest on the reaming amount. The interest shall however,
            accrue from the date of offer of possession. Interest @ 18% will
            be charged on the delayed payment."

E          A combined reading of the aforesaid three clauses of letter of
    allotment together with the advertisement issued indicates that the scheme
    of allotment was that an applicant could make an application along with
    10% of the tentative price of the land as earnest deposit. On receipt of the
    letter of allotment he is required to indicate either his letter of acceptance
p   or letter of refusal within 30 days from the date of the receipt of the
    allotment letter. In case of acceptance he would be fut ther required to
    make an additional deposit which deposit together with the earnest money
    already deposited would constitute 25% of the total tentative price. If he
    fails to accept the allotment within 30 days from the date of receipt of the
    letter then the authority was entitled lo forfeit the earnest money. Further
G   I he balance amount could be deposited in instalment. Thus under the
    allotment in question an allotlee was required to deposit 10% of the
    tentative price of the land as earnest money which is given to bind the
    contract and the said earnest money could be forfeited by the authority in
    case the allottee does not communicate the letter of refusal within 30 days
H   from the date of receipt of the allotment order.
                   HUDA v. K.K.GOEL[PATTANAIK,J.)                         593

       The next question that arises for consideration is that, where the A
alloltee accepts the allotment and indicates the same within the stipulated
period and makes additional deposits on instalment basis and thereafter
intimates the authority that he will not be in a position to pay up the
balance amount and makes a request for refund of the money deposited,
would the authority be justified in forfeiting the earnest money which had
                                                                            B
been deposited along with the application form? The answe.r to this ques-
tion depends upon the basic concept of 'earnest'. In the case of Shri
Hanwnan Cotton Mills and Othe'" v. Tata Air Craft Limited, [1969] 3 SCC
522, this Court laid down the following regarding 'earnest':

         "(1) It must be given at the moment at which the contract is            C
         concluded.

         (2) It represents a guarantee that the contract will be fulfilled or,
         in other \Vords, 11 earnest 11 is given to bind the contract.

         (3) It is part of the purchase price when the transaction is carried    D
         out.

         (4) It is forfeited when the transaction falls through by reason of
         the default or failure of the purchaser.

         (5) Unless there is anything lo the contrary in the terms of the        E
         contract, on default committed by the buyer, the seller is entitled
         to forfeit the earnest."

      The earnest money is a part of the purchase price when the transac-
tion gets through and the same is forfeited when the transaction falls
through by reason of the default or failure on the part of the vendee.           F

      Wright, J. in the ease of FalT, Smith & Co. v. Mesm~ Ltd. LR (1928)
1 KBD 397 quotted the observations of Hamilton, J., in Summer and
Leivesley v. John Brown & Co. 25 Times LR 745 with regard to the meaning
of 'earnest' as thus :
                                                                                 G
         '"Earnest' .............. meant something given for the purpose of bind-
         ing a contract, something to be used to put pressure on the
         defaulter if he failed to carry out his part. If the contract went
         through, the thing given in earnest \Vas returned to the giver, or,
         if money, was deducted from the price. If the contrad went off H
    594                   SUPREME COURT REPORTS [19961SUPP.2 S.C.R.

A            through the giver's fault the thing given in earnest was forfeited."

           The law on the subject has been discussed fully in a recent case of
    Delhi Devclopmelll Authority v. Grishthapana Cuuperative Group Housing
    Society Ltd., [19951 Supp 1 sec 751.

B          This being the legal position and the allottee having accepted the
    allotment and having made some payment on in_>talment basis then made
    the request to surrender the land, has committed default on his part and
    therefore the competent authority would be fully justified in forfeiting the
    earnest money which had been deposited and not the 10% of the amount
    deposited as held by the High Court. The High Court was totally in error
C   in is~uing the direction in question on the ground that the respondents were
    not in a position to deliver the possession of the land to the allottee. It may
    be stated that in the letter of allotment no period was stipulated within
    which the possession of the land was to be delivered. The land in question
    was required to he developed and then to be delivered and in absence of
D   any period in the letter of allotment, it was required to be delivered within
    a reasonable period. ln the fat,;lS and circu1nstances, it cannot be said that
    the reasonability had lapsed particularly when the allottees had not paid
    up the entire instalment due and merely paid a part thereof.

          In the premises as aforesaid the impugned judgment and direction
E   of the High Court in each of the appeal are set aside and it is held that
    the appellant would be entitled to forfeit the earnest money which had been
    deposited along with the application form and on deducting the said
    'earnest' the balance amount may be refunded to allottees - respondents
    who had made application for refund in question. The appeals are allowed
p   lo the extent indicated above but in the circumstances there will be no
    order as to costs.

    V.M.                                                        Appeals allowed.