1963 (1) TMI 46 - SC - Companies Law

Whether the plaintiff was entitled to forfeit the amount of 1, 000/- which was paid as earnest money? Held that - In the absence of any proof of damage arising from the breach of the contract we are of opinion that the amount of 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 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 11, 250/- as damages to the plaintiff must therefore be set aside. We direct that the mesne profits be computed at the rate of 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 percent on the amount accruing due month after month. The decree passed by the High Court will therefore be modified. It is ordered that the plaintiff is entitled to retain out of 25, 000/- only 1, 000/received by him as earnest money and that he is entitled to compensation at the rate of 140/- per mensem and interest on that sum at the rate of six percent as it accrues due month after month from June 1 1949 till the date of delivery of possession subject to the restriction prescribed by O, 20 r. 12 (i) (c) of the Code of Civil Procedure. Subject to these this appeal will be dismissed.

Issues Involved:
1. Breach of Contract
2. Forfeiture of Rs. 25,000/-
3. Mesne Profits

Detailed Analysis:

1. Breach of Contract:
The core issue was determining which party breached the contract. The plaintiff claimed that he had fulfilled his obligations by delivering possession and was ready to execute the sale deed, but the defendant failed to pay the remaining balance and complete the sale. The defendant argued that the plaintiff did not provide possession of the entire area as per the agreement and failed to demarcate the southern boundary and build a boundary wall. The court, after reviewing the evidence, agreed with the High Court's conclusion that the defendant breached the contract. The defendant's claims about additional covenants regarding the boundary and possession were not supported by the written agreement or any contemporaneous documents. The court found the defendant's narrative implausible and noted that he did not raise timely objections about possession discrepancies.

2. Forfeiture of Rs. 25,000/-:
The plaintiff sought to forfeit Rs. 25,000/- received from the defendant, which included Rs. 1,000/- as earnest money and Rs. 24,000/- paid as part of the sale price. The court agreed with the defendant's counsel that Rs. 24,000/- was not earnest money but part of the sale price, and its forfeiture was a penalty. Under Section 74 of the Indian Contract Act, the court can award reasonable compensation not exceeding the amount stipulated as a penalty. The court emphasized that compensation must be reasonable and should be based on actual loss or damage caused by the breach. The plaintiff failed to prove any specific loss due to the breach, and the court found that the forfeiture of Rs. 1,000/- as earnest money and the benefit derived from Rs. 24,000/- was sufficient compensation. Thus, the High Court's award of Rs. 11,250/- as damages was set aside.

3. Mesne Profits:
The plaintiff was entitled to mesne profits for being kept out of possession of the property from June 1, 1949, until possession was delivered, not exceeding three years from the date of the decree. The trial court awarded mesne profits at Rs. 140/- per month, while the High Court increased it to Rs. 265/- per month, based on an arbitrary assumption. The Supreme Court found the High Court's method of calculating mesne profits based on the property's value rather than the actual user value to be unsustainable. The court upheld the trial court's rate of Rs. 140/- per month, noting the absence of evidence showing it was excessive. Additionally, the plaintiff was entitled to interest on mesne profits at 6% per annum from June 1, 1949, until the date of possession delivery.

Conclusion:
The Supreme Court modified the High Court's decree, allowing the plaintiff to retain only Rs. 1,000/- as earnest money and awarding mesne profits at Rs. 140/- per month with 6% interest until possession was delivered. The appeal was dismissed, with each party bearing their own costs.

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