2003 (12) TMI 592 - SC - Companies Law

Whether the plaintiff is entitled to claim an amount of interest on the amount of earnest money that was refunded by the defendant? Held that - In substance it is therefore really a deposit or payment of advance as well and for that matter actually part payment of purchase price only. In the teeth of the further fact situation that the sale could not be completed by execution of the sale deed in this case only due to lapses and inabilities on the part of the respondents irrespective of bonafides or otherwise involved in such delay and lapses the amount of rupees 38 lakhs becomes refundable by the Vendors to the purchasers as of the prepaid purchase price deposited with the Vendors. Consequently the sum of rupees 38 lakhs to be refunded would attract the first limb or part of Section 55(6)(b) of the Transfer of Property Act itself and therefore necessarily as held by the learned Single Judge the defendants prima facie became liable to refund the same with interest due thereon in terms of Clause 2.3 of the agreement. Therefore the statutory charge envisaged therein would get attracted to and encompass the whole of the sum of rupees 38 lakhs and the interest due thereon. In the light of the above in our view the learned Single Judge on the original side was right in passing the order dated 23.10.2001 and the order of the Division Bench taking a contrary view in the order under challenge is contrary to law and the reasons assigned therefor cannot be countenanced. Hence the same is hereby set aside and the order of the learned Single Judge shall stand restored who entitled to a temporary injunction restraining the defendants from disposing of the land during the pendency of the suit.

Summary

Issues Involved:
1. Entitlement to interest on earnest money.
2. Statutory charge under Section 55(6)(b) of the Transfer of Property Act.
3. Temporary injunction against the defendants.
4. Appropriation of refunded amount.

Detailed Analysis:

1. Entitlement to Interest on Earnest Money:
The appellants (plaintiffs) entered into an agreement with the respondents (defendants) to purchase land, paying Rs. 38 lakhs as earnest money. The agreement stipulated that if the vendors failed to fulfill their obligations, the purchasers could terminate the agreement and the vendors would return the earnest money with 21% interest per annum. The appellants terminated the agreement due to the respondents' failure to perform and sought the return of Rs. 38 lakhs with interest. The respondents refunded only the principal amount, disputing the interest claim. The court held that the appellants had a prima facie case for claiming interest based on the agreement's terms.

2. Statutory Charge under Section 55(6)(b) of the Transfer of Property Act:
The Single Judge held that under Section 55(6)(b) of the Transfer of Property Act, the appellants were entitled to a charge on the property for the earnest money and interest. However, the Division Bench disagreed, stating that the statute distinguishes between purchase money and earnest money, and does not explicitly provide for interest on earnest money. The Supreme Court clarified that the earnest money in this case was part of the purchase price, thus falling within the scope of Section 55(6)(b), which entitles the buyer to a charge on the property for the purchase money and interest. The court restored the Single Judge's order, affirming the statutory charge for the entire sum and interest.

3. Temporary Injunction Against the Defendants:
The Single Judge granted a temporary injunction restraining the defendants from disposing of the property during the suit's pendency. The Division Bench set aside this injunction, but the Supreme Court reinstated it, emphasizing the statutory charge's protection under Section 55(6)(b). The court allowed the defendants to approach the trial court for permission to sell the property, provided they secure the plaintiffs' interests by depositing the sale consideration in court.

4. Appropriation of Refunded Amount:
The appellants appropriated the refunded Rs. 38 lakhs differently than the respondents intended. The court noted that the manner of appropriation is a matter to be adjudicated in the main suit and did not express an opinion on it.

Conclusion:
The Supreme Court allowed the appeal, reinstating the Single Judge's order, and directed that the statutory charge under Section 55(6)(b) includes the earnest money and interest. The temporary injunction was restored, with the provision for the defendants to seek court permission for property sale, ensuring the plaintiffs' claims are secured. The issue of appropriation of the refunded amount was left for the trial court to decide.