Case: M/S. Kailash Nath Associates Vs. Delhi Development Authority

2. The present appeal arises out of a public auction conducted by the Delhi Development Authority ("DDA") wherein the appellant made the highest bid for Plot No.2-A, Bhikaji Cama Place, District Centre, New Delhi for 3.12 Crores (Rupees Three Crores Twelve Lakhs). As per the terms and conditions of the auction, the appellant, being the highest bidder, deposited a sum of Rs.78,00,000/- (Rupees Seventy Eight Lakhs), being 25% of the bid amount, with the DDA, this being earnest money under the terms of the conditions of auction. The relevant provisions in the conditions of auction read asThe highest bidder shall, at the fall of the hammer, pay to the Delhi Development Authority through the officer conducting the auction, 25% of the bid amount as earnest money either in cash or by Bank Draft in favour of the Delhi Development Authority, or Cheque guaranteed by a Scheduled Bank as "good for payment for three months" in favour of the Delhi Development Authority. If the earnest money is not paid, the auction held in respect of that plot will be cancelled.(iii) The highest bid shall be subject to the acceptance of Vice-Chairman, DDA or such other officer(s) as may be authorized by him on his behalf. The highest bid may be rejected without assigning any reason.(iv) In case of default, breach or non-compliance of any of the terms and conditions of the auction or mis -representation by the bidder and/or intending purchaser, the earnest money shall be forfeited.(v) The successful bidder shall submit a duly filled-in application in the form attached immediately after the close of the auction of plot in question.(vi) When the bid is accepted by the DDA, the intending purchaser shall be informed of such acceptance in writing and the intending purchaser shall, within 3 months thereof, pay to the Delhi Development Authority, the balance 75% amount of the bid, in cash or by Bank Draft in favour of the Delhi Development Authority or by Cheque guaranteed by a Scheduled Bank as "good for payment for three months" in favour of the Delhi Development Authority. If the bid is not accepted, the earnest money will be refunded to the intending purchaser without any interest unless the earnest money is forfeited under para 2 (iv) above.On 18.2.1982, the DDA acknowledged the receipt of Rs.78,00,000/- (Rupees Seventy Eight Lakhs), accepted the appellants bid and directed the appellant to deposit the remaining 75% by 17.5.1982. However, as there was a general recession in the industry, the appellant and persons similarly placed made representations sometime in May, 1982 for extending the time for payment of the remaining amount. The DDA set up a High Powered Committee to look into these representations. The High Powered Committee on 21.7.1982 recommended granting the extension of time to bidders for depositing the remaining amount of 75%. Based on the High Powered Committees report, by a letter dated 11.8.1982, the DDA extended time for payment upto 28.10.1982 with varying rates of interest starting from 18% and going upto 36%.4. Another High Powered Committee was also set up by the DDA in order to find out whether further time should be given to the appellant and persons similarly situate to the appellant.5. The second High Powered Committee recommended that the time for payment be extended and specifically mentioned the appellants name as a person who should be given more time to pay the balance amount. Despite the fact that on 14.5.1984 the DDA accepted the recommendations of the second High Powered Committee, nothing happened till 1.12.1987. Several letters had been written by the appellant to DDA from 1984 to 1987 but no answer was forthcoming by the DDA.6. Vide a letter dated 1.12.1987, which is an important letter on the basis of which the fate of this appeal largely depends, the DDA stated asPREJUDICEDELHI DEVELOPMENT AUTHORITYVIKAS SADANI.N.A.New Delhi-23......198... .No.F.32(2)/82/Impl.-I/4From: DIRECTOR (C.L)DELHI DEVELOPMENT AUTHORITYTo,M/s. Kailash Nath & Associates,1006, Kanchanjanga Building,18, Bara Khamba Road,New Delhi-110001.Sub: Regarding payment of balance premium in respect of Plot No.2-A situated in Bhikaji Cama Place Distt. Centre.Sir,With reference to the above subject, I am directed to inform you that your case for relaxing the provisions of Nazul Rules, 1981, to condone the delay for the payment of balance premium in installments was referred to the Govt. of India, Min. of Urban Development. Before the case is further examined by the Govt. of India, Min. of Urban Development, you are requested to give your consent for making payment of balance amount of 75% premium within the period as may be fixed alongwith 18% interest charges p.a. on the belated payment. Further the schedule of payment and conditions if any will be as per the directions issued by the Ministry of Urban Development, Govt. of India. It is, however, made clear that this letter does not carry any commitment.Your consent should reach to this office within 3 days from the date of issue of this letter.Dated 1.12.87Yours faithfully,Sd/DIRECTOR (C.The appellant replied to the said letter on the same day itself in the followingNATH & ASSOCIATESTel.: 3312648, 33142691006, KANCHENJUNGA,18, BARAKHAMBA ROAD,NEW DELHI-II0001Regd. Ack. Due.December 1, 1987.The Director (C.L.),Delhi Development Authority,Vikas Sadan, I.N.A.,New Delhi-l 10023.Subject: Payment of balance premium in respect of plot No.2-A Bhikaji Cama Place Distt. Centre, New Delhi.Dear Sir,We are thankful to you for your letter No. F.30(2)/82-Impl.- I/4 dated nil received by us this afternoon, on the above subject.We hereby give our consent that we shall make the payment of the balance amount of 75% premium within the period as may be fixed as per the schedule of payment and conditions, if any imposed, as per the directions issued by the Ministry of Urban Development, Govt. of India, alongwith 18% interest charges per annum on the belated payment.We now request you to kindly convey us your formal approval to our making the said payment in installments as requested for.Thanking you,Yours faithfullyFor KAILASH NATH & ASSOCIATES,Sd/PartnerAdvance copy sent through Special Messenger.The Central Government informed the DDA vide a letter dated 1.3.1990 that the land auctioned to the appellant was not Nazul land and, therefore, the Central Government would have nothing further to do with the matter. Meanwhile, the appellant filed Writ Petition No.2395 of 1990 in the Delhi High Court in which it claimed that persons similar to the appellant, namely, M/s. Ansal Properties and Industries Private Limited and M/s Skipper Tower Private Limited had been allowed to pay the balance 75% premium and were in fact allotted other plots. Pleading Article 14, the appellant stated that they were entitled to the same treatment.9. By a judgment and order dated 2.9.1993, the Delhi High Court held that as the auction was held as per terms and conditions of the auction, a dispute regarding the same is a matter of contract and cannot be gone into in proceedings under Article 226 of the Constitution. It was further observed that on facts, the Court found no force in the contention raised on behalf of the appellant regarding discrimination. An SLP against this order was also dismissed on 16.12.1993 by the Supreme Court stating that the appellant is at liberty to take whatever steps are permitted to the appellant under law to challenge forfeiture of earnest money, which had been done by a letter of 6.10.1993. This letter is also important for the correct determination of this appeal and is set outDEVELOPMENT AUTHORITYVIKAS SADANI.N.A.New Delhi-23, 6.10.1993No.F.32(2)/82/CL/3816From: DY. DIRECTOR (CL).To,M/s. Kailash Nath & Associates,1006, Kanchanjanga Building,18, Bara Khamba Road,New Delhi-l10001.Subject: Plot No.2-A in Bhikaji Cama Place Distt. Centre.Sir,Consequent upon your failure to deposit the balance 75% premium of the aforesaid plot and dismissal of C.W.P. No. 2395 of 1990 by the Honble High Court, Delhi, I am directed to inform you that the bid/ allotment of the said plot in your favour has been cancelled and earnest money amounting to Rs.78,00,000/- deposited by you at the time of auction has been forfeited.Yours faithfully,Sd/(JAGDISH CHANDER)DEPUTY DIRECTORThe appellant then filed a suit for specific performance on 17.2.1994 and in the alternative for recovery of damages and recovery of the earnest amount of Rs.78,00,000/- (Rupees Seventy Eight Lakhs). Shortly after the suit was filed, on 23.2.1994, the DDA re-auctioned the premises which fetched a sum of Rs.11.78 Crores (Rupees Eleven Crores Seventy Eight Lakhs).11. The learned Single Judge by a judgment and order dated 10.9.2007 dismissed the appellants suit for specific performance and damages but ordered refund of the earnest money forfeited together with 9% per annum interest. The learned Single JudgeDefendant No.1 instead of following the aforesaid course, found merit in the representations received not only from the plaintiff but such similar situated parties. It is in view thereof that the matter went as far as setting up of two committees to repeatedly examine the matter and to come to a conclusion. The case of defendant no.1 was that the material produced by the plaintiff and such similar persons gave rise to a cause to extend the time for making the payment subject to certain terms and conditions. However, in view of the perception of defendant no.1 that the consent of UOI, defendant no.2, would be required, the land being Nazul land, the file was forwarded to defendant no.2. The matter did not rest at this since thereafter UOI did grant such consent but sent back the file of the plaintiff only on account of the fact that the land in question was not Nazul land. The net effect of this is that there was no permission required from the UOI and the decision taken by defendant no.1 to extend the time period for making the payment, thus, stood as it is.66. In my considered view, it is not open for defendant no.1 to state that while it recommended the case of other similarly situated parties in case of Nazul land to the Government and obtained permission for grant of extension of time, in case of non-Nazul land where such permission was not required, a different parameter was required to be followed. It may be mentioned at the cost of repetition that the plaintiff was a party which volunteered to pay interest @18% per annum unlike some of the other parties. There is merit in the contention of learned Counsel for the plaintiff that defendant no.1 after treating the contract as subsistent having extended time for making the payment was at least required to give a notice to the plaintiff to perform the agreement prior to terminating the agreement and could not straightaway terminate the same. This conclusion can draw strength from the observations in Halsbury Laws of England (supra) referred to aforesaid as also in Webb v. Hughes (supra). It is clearly a case where there has been waiver of the time being essence of the contract by conduct of the parties and, thus, defendant no.1 was required to give notice on the day appointed for completion of the contract failing which only termination could take place.67. There were numerous communications exchanged between the parties. The recommendations of the two high-powered committees constituted by defendant no.1 made its recommendations which were accepted by defendant no.1 vide its resolution dated 14.5.1984 (Ex. DW2/P-4). Having accepted the recommendations, in the case of the plaintiff defendant no.1 was required to do nothing further but mistakenly referred the case to UOI for its approval assuming the case to be one of Nazul land. Plaintiff sent repeated reminders vide letters dated 9-12-1985 (Ex.P-11), 20-10-1986 (Ex.P-12), 10-12-1986(Ex.P-13), 10-02-1987 (Ex.P-14), 11-04-1987(Ex.P-16), 10-08-1987(Ex.P-17) and 10-10-1987 (Ex.P-18) calling upon defendant no.1 to give an offer of deposit of balance 25% of the premium so as to bring the total payment equivalent to 50% of the total premium and for release of the possession of the land to the plaintiff for purpose of construction. Defendant no.1 vide its letter received on 1.12.1987 by the plaintiff (Ex.P-19) sought the consent of the plaintiff to abide by the recommendations of the high-powered committee and the consent was duly given on the even date (Ex.P-20). Thereafter no offer was made to the plaintiff and without any notice of compliance for payment, the letter of cancellation dated 6.10.1993 (Ex.P-26) was issued. It appears that defendant no.1 itself was not aware of the land being non-Nazul land as the first communication was addressed to the plaintiff only on 1.3.1990.68. The present case is one where defendant no.1 has not even suffered a loss. The plot was to be purchased by the plaintiff at Rs.3.12 crores and it was finally sold to a third party at Rs.11.78 crores, i.e. almost three and a half times the price. During this period defendant no.1 continued to enjoy the earnest money of the plaintiff of Rs.78.00 lacs.69. In view of the prolonged period, exchange of communications, the plaintiff making various offers but not complying with the initial terms, defendant no.1 taking its own time in the decision making process, I am of the considered view that the plaintiff is entitled to the refund of the earnest money of Rs.78.00 lacs but no further amount is liable to be paid to the plaintiff.DDA appealed against the Single Judges judgment to a Division Bench of the Delhi High Court. The Division Bench set aside the judgment of the Single Judge holding that the forfeiture of the earnest money by the DDA was in order.

Court's reasoning:
15. Having heard learned counsel for the parties, it is important at the very outset to notice that earnest money can be forfeited under sub-clause (iv) set out hereinabove, only in the case of default, breach, or non-compliance of any of the terms and conditions of the auction, or on misrepresentation by the bidder. It may be noted that the balance 75% which had to be paid within three months of the acceptance of the bid, was not insisted upon by the DDA. On the contrary, after setting up two High Powered Committees which were instructed to look into the grievances of the appellant, the DDA extended time at least twice. It is, therefore, very difficult to say that there was a breach of any terms and conditions of the auction, as the period of three months which the DDA could have insisted upon had specifically been waived. It is nobodys case that there is any misrepresentation here by the bidder. Therefore, under sub-clause (iv), without more, earnest money could not have been forfeited.16. The other noticeable feature of this case on facts is that DDA specifically requested the appellant to give their consent to make the balance payable along with 18% interest charges on belated payment. This was on the footing that the Nazul Rules of 1981 would be relaxed by the Central Government. The reason why the letter is marked "without prejudice" and the DDA made it clear that the letter does not carry any commitment, is obviously because the Central Government may not relax the provision of the Nazul Rules, in which case nothing further could be done by the DDA. If, however, the Central Government was willing to condone the delay, DDA would be willing to take 75% of the outstanding amount along with 18% interest.17. Mr. Sharan argued that since the Central Government ultimately found that this was not a Nazul land, the letter was obviously based on a mistake of fact and would be void under Section 20 of the Contract Act. We are afraid we are not able to accept this plea. Long after the Central Government informed DDA (on 1.3.1990) that the property involved in the present case is not Nazul land, the DDA by its letter of 6.10.1993 cancelled the allotment of the plot because the appellant had failed to deposit the balance 75%. DDAs understanding, therefore, was that what was important was payment of the balance 75% which was insisted upon by the letter dated 1.12.1987 and which was acceded to by the respondent immediately on the same date. Further, Mr. Sharans argument that since the letter was "without prejudice" and since no commitment had been made, they were not bound by the terms of the letter also fails to impress us. The letter was without prejudice and no commitment could have been given by the DDA because the Central Government may well not relax the Nazul Rules. On the other hand, if the Central Government had, later on, relaxed the Nazul Rules, DDA could not be heard to say that despite this having been done, DDA would yet cancel the allotment of the plot. That this could not have been done is clear because of the aforesaid construction of the letter dated 1.12.1987 and also because DDA is a public authority bound by Article 14 and cannot behave arbitrarily.Based on the facts of this case, it would be arbitrary for the DDA to forfeit the earnest money on two fundamental grounds. First, there is no breach of contract on the part of the appellant as has been held above. And second, DDA not having been put to any loss, even if DDA could insist on a contractual stipulation in its favour, it would be arbitrary to allow DDA as a public authority to appropriate Rs.78,00,000/- (Rupees Seventy Eight Lakhs) without any loss being caused. It is clear, therefore, that Article 14 would apply in the field of contract in this case and the finding of the Division Bench on this aspect is hereby reversed.From the above, it is clear that this Court held that Maula Buxs case was not, on facts, a case that related to earnest money. Consequently, the observation in Maula Bux that forfeiture of earnest money under a contract if reasonable does not fall within Section 74, and would fall within Section 74 only if earnest money is considered a penalty is not on a matter that directly arose for decision in that case. The law laid down by a Bench of 5 Judges in Fateh Chands case is that all stipulations naming amounts to be paid in case of breach would be covered by Section 74. This is because Section 74 cuts across the rules of the English Common Law by enacting a uniform principle that would apply to all amounts to be paid in case of breach, whether they are in the nature of penalty or otherwise. It must not be forgotten that as has been stated above, forfeiture of earnest money on the facts in Fateh Chands case was conceded. In the circumstances, it would therefore be correct to say that as earnest money is an amount to be paid in case of breach of contract and named in the contract as such, it would necessarily be covered by Section 74.The Division Bench has gone wrong in principle. As has been pointed out above, there has been no breach of contract by the appellant. Further, we cannot accept the view of the Division Bench that the fact that the DDA made a profit from re-auction is irrelevant, as that would fly in the face of the most basic principle on the award of damages - namely, that compensation can only be given for damage or loss suffered. If damage or loss is not suffered, the law does not provide for a windfall.45. A great deal of the argument before us turned on notings in files that were produced during cross-examination of various witnesses. We have not referred to any of these notings and, consequently, to any case law cited by both parties as we find it unnecessary for the decision of this case.46. Mr. Sharan submitted that in case we were against him, the earnest money that should be refunded should only be refunded with 7% per annum and not 9% per annum interest as was done in other cases. We are afraid we are not able to agree as others were offered the refund of earnest money way back in 1989 with 7% per annum interest which they accepted. The DDA having chosen to fight the present appellant tooth and nail even on refund of earnest money, when there was no breach of contract or loss caused to it, stands on a different footing. We, therefore, turn down this plea as well.