Holding

The Supreme Court held that the penalty of 10% and interest of 7% imposed under Rule 13 are valid and that the High Court was not justified in interfering with the contractual terms.

Summary

The respondent, Simla Rani, was allotted a booth under the Punjab Urban Estate (Sales of Sites) Rules, 1965 and paid only the initial quarter of the purchase price. The balance was to be paid in instalments with 7% interest, but she defaulted, prompting the State to invoke Rule 13 and impose a 10% penalty plus the contractual 7% interest, totaling 17% on the outstanding amount. The respondent challenged the notice in the Punjab & Haryana High Court, which reduced the amount due and ordered the State to accept a lower balance. The State appealed, arguing that the penalty and interest were authorized by Rule 13 and that Section 10 of the Punjab Urban Estates (Development and Regulation) Act, 1964, which deals with forfeiture, was not applicable. The Supreme Court held that Rule 13 validly permits a 10% penalty and the agreed 7% interest, and that the High Court was not justified in altering the contractual terms. Consequently, the appeal was allowed, the writ petition dismissed, and the respondent was given three months to pay the full amount.

Issues considered

Whether the penalty of 10% and interest of 7% imposed under Rule 13 of the Punjab Urban Estate (Sales of Sites) Rules, 1965 is permissible.
Whether Section 10 of the Punjab Urban Estates (Development and Regulation) Act, 1964, which provides for forfeiture, applies to the present default.
Whether the High Court was empowered to reduce the amount payable under the contract between the State and the allottee.

Legislation cited

Subjects

penaltyinterestdefaulturban estatecontractual relationsSection 10Rule 13Punjab Urban Estates Actforfeiturewrit petition

Judgment

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A -,...._·. STATE OF.PUNJAB AND ANR. >
' ... v. '.\' ..
· · SMT. SIMLA RANIW/0 SHRI BHAGWAN DASS

>' : MARCH 27, 1995 '·~
B
[K. RAMASWAMY AND B.L. HANSARIA, JJ.)

Punjab Urban Estate (Sales of Sites) Rules, 1965: Rule 13-Allotment
of bootlt-;4greement for-Payment of initial amount by a//otte~alance to
be paid in instalments with interest@7o/u-Default in instalme~ower of
· · C · Estate Officer to impose penalty-Levy of 10% penalty and 7% Interest-Held
/ valitl-Section 10 of the PUnjab Urban Estates (Development ,,;,d Regiilation)
Ac4· .1964 held inapplicable. '
·-·o~-•=------- ..

· · The nspondent was allotted a booth by the appellant· State. In term~
D or the agreement he.. paid I/4th amount; namely, Rs. 29,125, while the .
balance or.Rs. 87,373 was to be paid in instalments with interest @7% p.a.
As default was committed in payment or instalments, the Appellant-State
exercised the option provided In Rule 13 or the Punjab Urban Estate (Sales
· or Sites) Rules, 1965, Instead or proceeding under section 10 ofthe Punjab
Urban Estate (Development and Regulation) Act, 1964 and issued notice
.E calling upon the nspondent to pay Rs. 1,63,456 Inclusive or Interest and
penalty. The nspondent challenged the notice befon the High Court which
dincted the appellant to adjust the amount or Rs; 75,000 deposited from
time to time as per the orders or Court and to nceive the balance amount
or Rs. 26,000. .;.- '
F
In appeals to this. Court by the State it was contended that as a
matter or policy 10% penalty and 7% lntenst on delayed payments was ,.
' being imposed: and that the respondent-allottee having agned to this, .the
High Court was not justified In interfering wi_th the action take.L .
';·:-.

G For the nspondent It was contended that the Ie'Y}' or 17% lntenst by
'way ~r intere~t a.;,ounts to. penalty and thenfon sustainable becaiise
." ~nder the' _rules 'the appellant has discntion to I~ penalty upto a maxi· .
mumor10%.

.H Allowing the State's appeal, this Court
1150
I
STATE v. SMT. SIMLA RANI i151

HELD : 1. The High Court was not justified in interfering with the A
contractual relations entered by the purchasers with the appellant to
reduce the amounts payable in ttrms of the contact read with the Punjab
Urban Estates (Development and Regulation) Act, 1964 and Punjab Urban
Estate (Sales of Sites) Rules, 1965. [1153-E]

2. An exercise of power under section 10 of the 1964 Act, while B
resuming the property for the default committed, certain consequences
ensue. One of the consequences is forfeiture of the amount already
deposited. While exercising that power, rule prescribed forfeiture of 10%
r of the total amount deposited by the dafaulter. The said condition is
inapplicable to the factual situation as the appellants have not exercised C
the option given by section 10. Instead they exercised the option provided
in Rule 13 of the Rules which empowered the Estate Officer to impose
penalty for the default committed as stipulated thereunder. The respon-
dent misconstrued the scope of the action on the part of the appellant in .
this behalf. 17% is not the rate of interest. It is 10% penalty for non-pay·
ment of instalments and 7% interest on terms of the contract, which put D
together becomes 17%. [1153-B-D]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4272 of
1995.

From the Judgment and Order dated 26.4.94 of the Punjab & E
Haryana High Court in C.W.P. No. 2950 of 1994.

Sarup Singh and Satish Vig for the Appellants.

Hardeep Singh, N.M. Popli and R.C. Kaushik for the Respondents.
F
The following Order of the Court was delivered :

_...,...--· Leave granted.
I

This appeal by special leave arises from the order of the High Court
of Punjab & Haryana dated 26.4.1994 made in C.W.P. No. 2950/94. At an G
open auction conducted by the appellant the respondents; admittedly,
became higher bidder for a sum of Rs. 1,16,000. He entered into an
agreement on November 24, 1981 and got allotment of booth No. 28
situated in Phase I, Urban Estate, Sahibjada, A_jit Singh ·Nagar (Mohali).
He paid ...... the initial 1/4th amount, namely, Rs. 29,125 and he had ~o·pay H
1152 SUPREME COURT REPORTS (1995] 2 S.C.R.

A balance of Rs. 87,373 in instalments with interest at 1% p.a. Admiltedly,
he committed default in payment of instalments till notice was issued on
November 25, 1993. Therein it was specifically stated that the balance due
with interesl and penalty was Rs. 1,63,456. By his letter dated December
1, 1993 the respondent admitted the liability and asked 20 days time for
B .payment and also sought for reduction of rate of interest and ·penalty. Yet
he did not pay even the principal amount. Instead he went to the High
Court and filed the Writ Petition challenging the notice. The High Court
in the impugned order while holding that appellant has discretion, directed
to adjust the amount of Rs. 75,000 deposited from time to time as per the r
orders of the Court and the balance of Rs. 26,000 was directed to be 1
C received. Feeling aggrieved, against that order this appeal has been filed.
It is contended by the learned counsel for the appellant that under
rule 13 of the Punjab Urban Estate (Sales of Sites) Rules, 1965 made
pursuant to the Punjab Urban Estates (Development and Regulation) Act,
1964, for short the Act, the Estate officer has been given discretion. It reads
D thus:

"13. Procedure in the case of default

(Section 23(3) (a) and 3(2). In case an instalment is not paid by
the transferee by the 10th of the month following the month in
E. which it falls due, a notice shall be served on the transferee calling
upon him to pay the instalment within a month together ~th a
sum not exceeding such amount as may be determined by the
Estate Officer, by way of penalty. If the payment is not made within
the ·said period or such extended period as may be allowed by the
F Estate Officer, not exceeding three months in all from the date on ,
which the instalment was originally due, the Estate Officer may ~~"" "'-
proceed to have the same recovered as an arrear of land revenue
or to take action under section 10." \'

As a matter of policy the appellants have been imposing 10% penalty
G and 7% interest on delayed payments. This being the rule position and
having agreed with the rule position, the High Court case not justified in
interfering with the action taken by the appellants. We find force in his
contention.
;

H It is contended for the respondent that under the rules the appellant
!
STA TE v. SMT. SIMLA RANI 1151

have discretion only upto the maximum of 10% penalty. They have no right A
to impose more than 10% and that imposition of 17% by way of interest
is a penalty and it cannot be sustained. We find no force in the contention.

Exercising the power under section 10 of the Act, while resuming the
property for the default committed, certain consequences were to ensue.
One of the consequence is forfeiture of the amount already deposited. B
While exercising that power, rule prescribed forfeiture of 10% of the total
amount deposited. by the defaulter. The said condition is inapplicable to
the factual situation. In this case, admittedly, the appellant have not exer-
cised the option given by s.10. Instead they had exercised and offer option
provided in Rule 13 of the Rules. As seen, Rule 13 gives power to the c
Estate Officer to impose penalty for the default committed as stipulated
thereunder. It is now stated and not disputed by the other side that as a
matter of policy, the appellant adopted that 10% would be levied as penalty
and 7% as interest on delayed payments in terms of the contract. In other
words, the total liability is 17%. The respondent misconstrued the scope
of the action on the part of the respondent in this behalf. 17% is not the D
rate of interest. It is 10% penalty for non-payment of instalments and 7%
interest on terms of the contract which put together becomes 17%.

Under these circumstances, we find that the High Court was not
justified in interfering with the contractual relations entered by the pur- E
chasers with the appellant to reduce the amounts payable in terms of the
contract read with the Act and the Rules.

The appeal is accordingly allowed. No costs.

Three months' time is sought for and is granted for payment of the F
entire amount either in lump-sum or in instalments. In case of default, it
is open to the appellant to take such appropriate action as is available
under law which will not be again challengeable. The Writ Petition stands
dismissed.

T.N.A. Petition dismissed. G