2012 (1) TMI 95 - HC - Indian Laws

Indian Contract Act 1872 - Breach of contract agreement to sale failure of appellant in not having obtained the permission from the Income Tax Authorities u/s 230A nad 269UC - forfeiture of earnest money Held that - In view of decision of Supreme Court in case of Fateh Chand vs Balkishan Dass, there is no merit in the appeal inasmuch as not only because the appellant was guilty of breach of contract but also because the appellant did not plead and prove the forfeiture of earnest money or any loss having been caused to him. The appellant was, therefore, liable to refund the amount which he received under the Agreement to Sell Decided against the appellant.

Summary

Issues:
Breach of contract due to failure to obtain income tax clearance certificate, refund of amount under Agreement to Sell, forfeiture of earnest money, application of Section 74 of the Indian Contract Act.

Analysis:
The judgment pertains to a case where the appellant/defendant failed to obtain an income tax clearance certificate, leading to a breach of contract. The impugned judgment favored the respondent/plaintiff, directing the refund of the amount paid under an Agreement to Sell. The Trial Court found that the appellant/defendant breached the terms of the agreement by not obtaining the necessary permission from the Income Tax Authorities. The agreement's performance was hindered due to the absence of the required permission, rendering it incapable of execution as per the Income Tax Act. The defendant's attempt to transfer the property deed in a deceptive manner to avoid mandatory permissions was noted by the Court.

The Court referred to the case law of Fateh Chand vs. Balkishan Dass, emphasizing that forfeiture of amounts under an Agreement to Sell requires proof of loss. Section 74 of the Indian Contract Act was invoked to determine reasonable compensation in cases of breach of contract or stipulations by way of penalty. The judgment highlighted that compensation should be reasonable and based on the circumstances existing at the time of the breach. It was noted that the plaintiff did not prove any loss resulting from the breach, and the forfeiture of earnest money was deemed sufficient compensation in the absence of evidence of additional damages.

Ultimately, the Court dismissed the appeal, stating that the appellant/defendant was liable to refund the amount received under the Agreement to Sell due to breach of contract and the absence of proven loss or forfeiture of earnest money. The judgment underscored the importance of pleading and proving loss for any forfeiture of amounts under contractual agreements. The parties were left to bear their own costs, and the appeal was deemed to lack merit based on the findings of breach of contract and absence of evidence supporting forfeiture or loss claims.