2013 (2) TMI 168 - HC - Companies Law

Right to retain the money as forfeited - Limitation Act - Licence space for hosting exhibition - plaintiff, a registered society & the defendant ITPO a Central Government agency and custodian of a piece of land in New Delhi which houses trade fairs, i.e. the Pragati Maidan - plaintiff claimed refund of advance license fee as it was not interested in holding an exhibition in New Delhi - Held that - Payment of earnest money, as the expression itself shows, is intended to serve as a proof of bona fides of the vendee so that if the transaction falls through by reason of the fault or failure of the vendee, this amount is liable to forfeiture. On the other hand, in case the transaction goes forward, the earnest money becomes a part of the purchase price. Distinction between earnest money and money paid in advance as part of the purchase price is thus both real and well-recognised. In the facts of the present case, this Court is of the opinion that the money received by the ITPO cannot be described as what was for the plaintiff s use. It was pure and simple, a deposit, in anticipation of a contract. When given, it was not the intention of the plaintiff to take it back. That is the true test to determine whether Article 24, of the Indian Limitation Act, applies. In the absence of application of Article 24 as it would apply only if the money was recoverable immediately upon receipt by the defendant, and not on account of any facts which transpire subsequently, necessarily the governing provision was Article 113. There is no doubt that the suit was filed within the time prescribed by this latter provision. Thus the Single Judge s findings and conclusions do not call for interference as Clause 7 (iii) of the guidelines enabled forfeiture of advance payment made in the event the licensee cancelled the space which was booked. This pre-supposed a concluded contract followed by the act of cancellation by the licensee. Thus defendant had no right to retain Rs. 15 lakhs as forfeited amount - the defendant was also directed to pay interest - appeal dismissed.

Issues Involved:

1. Limitation period for filing the suit.
2. Authorization of the person signing the plaint.
3. Existence of a concluded contract between the parties.
4. Right to forfeit the amount deposited by the plaintiff.
5. Liability to pay interest and its rate.

Issue-wise Detailed Analysis:

1. Limitation Period for Filing the Suit:

The learned Single Judge decided that the suit was within the limitation period prescribed by Article 113 of the Limitation Act, which provides a three-year period from when the right to sue accrues. The defendant argued that Article 24, which also provides a three-year period but from the date the money is received, was applicable. The court analyzed precedents, including the Supreme Court's interpretation in Mahomed Wahib v. Mahomed Ameer, which clarified that Article 24 applies when money is received under circumstances that create an immediate obligation to return it. The court concluded that Article 24 was inapplicable as the money was not immediately recoverable upon receipt, thus validating the application of Article 113.

2. Authorization of the Person Signing the Plaint:

The court found that the plaint was signed and verified by a duly authorized person, based on the deposition of PW-1, Mr. Hubert D'Souza, the secretary of the plaintiff. This was substantiated by the evidence presented, including Ex. PW-1/1, confirming the authorization.

3. Existence of a Concluded Contract Between the Parties:

The court held that no concluded contract existed between the parties. The correspondence between the parties, including the letter dated 26.11.1990 and the telex message dated 11.3.1991, indicated ongoing negotiations without finalizing essential terms such as the exact space, duration of the license, and license fee. The absence of mutual agreement on these critical aspects meant that the parties remained at the negotiation stage, and no binding contract was formed.

4. Right to Forfeit the Amount Deposited by the Plaintiff:

The court ruled that the defendant had no right to forfeit the Rs. 15 lakhs deposited by the plaintiff. The Single Judge noted that Clause 7(iii) of the guidelines, which allowed forfeiture in case of cancellation, presupposed a concluded contract followed by cancellation. Since no concluded contract existed, the defendant could not retain the amount as forfeited.

5. Liability to Pay Interest and Its Rate:

The court decreed the suit in favor of the plaintiff, directing the defendant to refund the Rs. 15 lakhs along with interest. The interest rate and the period from which it was payable were determined based on the findings that the plaintiff was entitled to the refund due to the lack of a concluded contract.

Conclusion:

The appeal was dismissed, affirming the learned Single Judge's judgment that the suit was filed within the limitation period under Article 113, no concluded contract existed, and the defendant had no right to forfeit the deposited amount. The plaintiff was entitled to the refund with interest, and the authorization of the person signing the plaint was valid. The court's detailed analysis of the legal principles and factual circumstances led to the dismissal of the appeal without any order as to costs.

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