Case: Fateh Chand Vs. Balkishan Das

1. By a registered deed of lease dated May 19, 1927 which was renewed on January 30 1947 the Delhi Improvement Trust granted leasehold rights for 90 years to one Dr. M. M. Joshi in respect of a plot of land No.3,E Block, Qarol Bagh, Delhi, admeasuring 2433 sq. yards. Dr. Joshi constructed a building on the land demised to him. Chandrawati, widow of Dr. Joshi as guardian of her minor son Murli Manohar by sale-deed dated April 21, 1947 sold the leasehold rights in the land together with the building to Lala Balkrishan Das who will hereinafter be referred to as Plaintiff for Rs.63,000/-. By an agreement dated March 21, 1949 the Plaintiff contracted to sell his rights in the land, and the building to Seth Fateh Chand-hereinafter called the defendant. It was recited in the agreement that the plaintiff agreed to sell the building together with pattadari rights appertaining to the land admeasuring 2433 sq. yards for Rs.1,12,500/- and that Rs.1,000/- were paid to him as earnest money at the time of the execution of the agreement. The conditions of the agreement were:(1) I, the executant shall deliver the actual possession, i.e. complete vacant possession of Kothi (bungalow) to the vendee on the 30th March? 1949, and the vendee shall have to give another cheque for Rs. 24,000/- to me: out of the sale price(2) Then the vendee shall have to get the sale (deed) registered by the 1st of June, 1949. If, on account of any reason, the vendee fails to get the said sale-deed registered by the 1st June, 1949, then this sum of Rs. 25,000/- (twenty five thousand) mentioned above shall be deemed to be forfeited and the agreement cancelled. Moreover, the vendee shall have to deliver back the complete vacant possession of the kothi (Bungalow) to me, the executant. If due to certain reason, any delay takes place on my part in the registration of the sale-deed, by the 1st June, 1949, then I, the executant, shall be liable to pay a further sum of Rs. 25,000/- as damages, apart from the aforesaid sum of Rs. 25,000/- to the vendee, and the bargain shall be deemed to be cancelled. The southern boundary of the land was described in the agreement as Bungalow of Murli Manohar Joshi2. On March 25, 1949 the plaintiff received Rs.24,000/- and delivered possession of the building and the land in his occupation to the defendant, but the sale of the property was not completed before the expiry of the period stipulated in the agreement. Each party blamed the other for failing to complete the sale according to the terms of the agreement. Alleging that the agreement was rescinded be cause the defendant had committed default in performing the agreement and the sum of Rs.25,000/- paid by the defendant stood forfeited, the plaintiff in an action filed in the Court of the Subordinate Judge, Delhi, claimed a decree for possession of the land and building described in the plaint, and a decree for Rs.6,500/- as compensation for use and occupation of the building from March 25, 1949 to January 24,1950 and for an order directing enquiry as to compensation for use and occupation of the land and building from the date of the institution of the suit until delivery of possession to the plaintiff. The defendant resisted the claim contending inter alia that the plaintiff having committed breach of the contract could not forfeit the amount of Rs. 25,000/- received by him nor claim any compensation. The trial Judge held that the plaintiff had failed to put the defendant in possession of the land agreed to be sold and could not therefore retain Rs. 25,000/- received by him under the contract. He accordingly directed that on the plaintiff depositing Rs. 25,000/- less Rs. 1,400/- (being the amount of mesne profits prior to the date of the suit) the defendant do put the plaintiff in possession of the land and the building, and awarded to the plaintiff future mesne profits at the rate of Rs. 140/- per mensem from the date of the suit until delivery of possession or until expiration of three years from the date of the decree whichever event first occurred. In appeal the High Court of Punjab modified the decree passed by the trial Court and declared that the plaintiff was entitled to retain out of Rs. 25,000/paid by the defendant under the sale agreement, a sum of Rs. 11,250/ being compensation for loss suffered by him and directed that the plaintiff to get from the defendant compensation for use and occupation at the rate of Rs. 265/- per mensem. The defendant has appealed to this Court with certificate under Art. 133 (1) (a) of the Constitution.

Court's reasoning:
we agree with the conclusion of the High Court that the defendant and not the plaintiff committed breach of the contractWe agree with the Attorney-General that the amount of Rs.24,000/- was not of the nature of earnest money. The agreement expressly provided for payment of Rs.1,000/- as earnest money, and that amount was paid by the defendant. The amount of Rs.24,000/- was to be paid when vacant possession of the land and building was delivered, and it was expressly referred to as out of the sale price. If this amount was also to be regarded as earnest money, there was no reason why the parties would not have so named it in the agreement of sale. We are unable to agree with the High Court that this amount was paid as security for due performance of the contract. No such case appears to have been made out in the plaint and the finding of the High Court on that point is based on no evidence. It cannot be assumed that because there is a stipulation for forfeiture the amount paid must bear the character of a deposit for due performance of the contractSection 74 of the Indian Contract Act deals with the measure of damages in two classes of cases (i) where the contract names a sum to be paid in case of breach and (ii) where the contract contains any other stipulation by way of penalty. We are in the present case not concerned to decide whether a contract containing a covenant of forfeiture of deposit for due performance of a contract falls within the first class. The measure of damages in the case of breach of a stipulation by way of penalty is by S. 74 reasonable compensation not exceeding the penalty stipulated for.In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances of the case. Jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated, but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of actual loss or damage; it does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breachThe expression if the contract contains any other stipulation by way of penalty widens the operation of the section so as to make it applicable to all stipulations by way of penalty, whether the stipulation is to pay an amount of money, or is of another character, as, for example, providing for forfeiture of money already paid. There is nothing in the expression which implies that the stipulation must be one for rendering something after the contract is broken. There is no ground for holding that the expression contract contains any other stipulation by way of penalty is limited to cases of stipulation in the nature of an agreement to pay money or deliver property on breach and does not comprehend covenants under which amounts paid or property delivered under the contract, which by the terms of the contract expressly or by clear implication are liable to be forfeitedThere is no evidence that any loss was suffered by the plaintiff in consequence of the default by the defendant, save as to the loss suffered by him by being kept out of possession of the property. There is no evidence that the property had depreciated in value since the date of the contract provided; nor was there evidence that any other special damage had resulted. The contract provided for forfeiture of Rs.25,000/consisting of Rs.1,000/- paid as earnest money and Rs.24,000/- paid as part of the purchase price. The defendant has conceded that the plaintiff was entitled to forfeit the amount of Rs.1,000/- which was paid as earnest money. We cannot however agree with the High Court 13 per cent of the price may be regarded as that reasonable compensation in relation to the value of the contract as a whole, as that in our opinion is assessed on an arbitrary assumption. The plaintiff failed to prove the loss suffered by him in consequence of the breach of the contract committed by the defendant and we are unable to find any principle on which compensation equal to ten percent of the agreed price could be awarded to the plaintiff. The plaintiff has been allowed Rs.1,000/- which was the earnest money as part of the damages. Besides he had use of the remaining sum of Rs.24,000/- and we can rightly presume that he must have been deriving advantage from that amount throughout this period. In the absence therefore of any proof of damage arising from the breach of the contract, we are of opinion that the amount of Rs.1,000/- (earnest money) which has been forfeited, and the advantage that the plaintiff must have derived from the possession of the remaining sum of Rs. 24,000/- during all this period would be sufficient compensation to him. It may be added that the Plaintiff has separately claimed mesne profits for being kept out of possession for which he has got a decree and therefore the fact that the plaintiff was out of possession cannot be taken into account in determining damages for this purpose. The decree passed by the High Court awarding Rs. 11,250/- as damages to the plaintiff must therefore be set asideIt is not necessary to consider in the present case whether mesne profits at a rate exceeding the rate of standard rent of the house may be awarded, for there is no evidence as to what the standard rent of the house was.From the evidence on the record it appears that a tenant was in occupation for a long time before 1947 of the house in dispute in this appeal and another house for an aggregate rent of Rs.180/- per mensem, and that after the house in dispute was sold, the plaintiff received rent from that tenant at the rate of Rs.80/- per mensem, and the vendor of the plaintiff at the rate of Rs.106/- per mensem. But this is not evidence of standard rent within the meaning of Delhi and Ajmer-Merwara Rent control Act, XIX of 1947The Subordinate Judge awarded mesne profits at the rate of Rs. 140/- per mensem and unless it is shown by the defendant that that was excessive we would not be justified in interfering with the amount awarded by the Subordinate Judge. A slight modification, however, needs to be made. The plaintiff is not only entitled to mesne profits at the monthly rate fixed by the Trial Court, but is also entitled to interest on such profits: vide S. 2 (12) of the Code of Civil Procedure. We, therefore, direct that the mesne profits be computed at the rate of Rs. 140/- per mensem from June 1, 1949 till the date on which possession was delivered to the plaintiff (such period not exceeding three years from the date of decree) together with interest at the rate of six per cent on the amount accruing due month after month.