/2022 INSC 1042/
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 921 OF 2022
[Arising out of Special Leave Petition (C) No. 22191 of 2019]
Desh Raj & Ors. … Appellant(s)
                                             VERSUS
Rohtash Singh … Respondent
JUDGMENT
Surya Kant, J.
1. Leave Granted.
2. The   present   appeal   is   directed   against   the   judgment   dated
15.05.2019 passed by the High Court of Punjab and Haryana whereby
a   second   appeal   preferred   by   the   Appellants   was   dismissed   and
judgment  and  decree  of  the   Trial  Court  as  well   as   the   First  Appellate
Court   were   affirmed.   The   decree   entitled   the   Respondent   for   the
recovery   of   earnest   money,   which   constituted   of   partly   paid   sale
consideration   in   lieu   of   the   concerned   agreements   to   sale   along   with
requisite   interest.   The   factual   matrix   is   succinctly   discussed   before
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delving   into   the   issue   of   law   regarding   breach   of   contractual   terms
which requires adjudication before us.
A.  F ACTS     
3. The subject matter of the original suit was a property measuring
23   Kanals   4   Marlas   bearing   Khewat   No.   226,   Khatoni   No.   225,   Rect.
No.   27,   Kila   No   3   min   (2­9),   4   min   (4­15),   7(8­0),   14(4­0)   situated   in
the   revenue   estate   of   Village   Tigra,   Tehsil   and   District   Gurgaon
(hereinafter, ‘Concerned Property’) which the Appellants jointly owned
to the extent of their respective shares.
4. Two   separate   agreements   to   sell   were   entered   between   the
present parties for the Concerned Property on 17.02.2004 (hereinafter,
‘Sale Agreements’). In the first agreement, Appellant Nos. 1 to 4 agreed
to   sell   their   share   to   the   extent   of   4/5 th
  of   the   Concerned   Property
while   in   the   second   agreement,   Appellant   No.   5   agreed   to   sell   the
remaining   1/5 th
  share   to   the   Respondent   which   accrued   to   her   and
her   minor   son.   It   must   be   noted   that   the   material   terms   of   both
agreements   are   identical   except   that   in   the   second   agreement,
Appellant   No.   5   was   contractually   bound   to   secure   the   permission
under   The   Hindu   Minority   and   Guardianship   Act,   1956   to   sell   the
share of the minor.
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5. Under the Sale Agreements, the sale consideration was set at the
rate of Rs 79,00,000/­ per acre. Accordingly, the Respondent is stated
to   have   paid   Rs   22,90,000/­   in   total   as   part   payment   of   the   sale
consideration   which   was   in   the   nature   of   earnest   money.   As   per
Clause 4 of Sale Agreements, the earnest money could be confiscated
by the Appellants if the sale deed was not executed on prescribed date,
i.e.  16.08.2004  (hereinafter, ‘Date  of  Execution’).  Furthermore, as  per
Clause   8   of   the   Sale   Agreements,   the   Respondent   was   also   liable   to
secure all the necessary No Objection Certificates (hereinafter, ‘NOC’).
Additionally,   he   had   to   also   intimate   the   Appellants   regarding   the
grant   of   NOCs   well   before   the   Date   of   Execution,   failing   which   the
agreement was deemed to be cancelled.
6. The   Appellants   state   that   as   per   the   Sale   Agreements,   requisite
permission   under   The   Hindu   Minority   and   Guardianship   Act,   1956
was   obtained   by   them   before   the   Date   of   Execution.   The   same   was
communicated   to   the   Respondent   via   notice   dated   10.07.2004.   Their
case   is   that   in   furtherance   of   the   agreements,   Appellants   appeared
before   the   Sub­Registrar,   Gurgaon   on   the   Date   of   Execution   but   the
Respondent  failed  to  appear  before  the   Sub­Registrar   for  the  purpose
of executing the sale deed and payment of balance sale consideration.
7. The   Appellants   served   legal   notices   dated   18.08.2004   on   the
Respondent   giving   an   additional   opportunity   to   him   to   appear   before
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the   Sub­Registrar   on   01.09.2004   to   execute   the   sale   deed   as   per   the
terms  of  the  Sale  Agreements.  It is  pertinent  to  note  that  in  the  legal
notices,   it   was   explicitly   mentioned   that   time   was   the   essence   of   the
contract.   It   was   also   clearly   stated   that   as   per   the   agreements,   the
Appellants   were   bound   to   forfeit   the   earnest   money   and   treat   the
agreements as cancelled. Still, they were extending last opportunity to
the Respondent to perform his contractual obligations. 
8. It   appears   that   01.09.2004   was   declared   a   holiday,   hence   the
Appellants   appeared   before   the   Sub­Registrar   on   31.08.2004   as   well
as   on   02.09.2004.   The   Respondent,   however,   failed   to   appear   for
execution   and   registration   of   the   sale   deed,   because   of   which   the
Appellants   forfeited   the   earnest   money   and   treated   the   Sale
Agreements as cancelled. All appearances of the Appellants before the
Sub­Registrar were marked by way of their respective affidavits.
9. The   situation   remained   dormant   until   January   2006   when   the
Respondent,   the   original   plaintiff,   initiated   a   suit   seeking   relief   of
specific   performance   of   Sale   Agreements   and   other   consequential
reliefs.   However,   during   the   pendency   of   the   suit   before   the   Trial
Court,   State   of   Haryana   initiated   acquisition   proceedings   vide
notification   dated   12.12.2008   issued   under   Section   4   of   Land
Acquisition Act, 1894. Consequently, the subject land was acquired by
the State vide award dated 23.11.2011. Due to this subsequent event,
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the Respondent sought and was permitted by the trial court to amend
the plaint.
10.   In   the   amended   plaint,   the   Respondent   took   the   stand   that   he
was always ready and willing to execute the Sale Agreements and that
the   Appellants   were   the   ones   who   did   not   furnish   the   required
documents for the necessary sanction and grant of NOCs. Apart from
the relief of specific performance, he additionally prayed that a decree
of   permanent   injunction   be   passed   to   the   effect   that   the   Concerned
Property   cannot   be   sold   to   any   third   party,   possession   must   be
granted to him along with a declaration that the Sale Agreements were
still   binding.   In   the   alternative,   he   sought   that   a   money   decree   of   Rs
2,29,10,000/­   be   passed   in   his   favour   on   the   estimated   land   value
along with requisite interest and costs. 
11. In response, the defence set up by the Appellants was that it was
the   Respondent   who   was   at   fault   for   not   executing   the   sale   deed
within the agreed time period and that the suit must be dismissed for
his   willful   non­performance.   The   Appellants   specifically   took   the
stance that the suit was filed after inordinate delay and as a tactic to
grab   the   land   because   of   the   subsequent   increase   in   its   commercial
value.
12.    After perusal of both the documentary as well as oral evidence,
the   Trial   Court   concluded   that   both   the   parties   were   equally
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responsible for rendering the Sale Agreements as unenforceable. While
it   hesitantly   accepted   the   stance   of   both   the   parties   in   respect  to   the
contention   that   they   were   present   before   the   Sub­Registrar   on   the
Date   of   Execution,   it   held   that   the   same   was   meaningless   as   the
Appellants were at fault for not taking effective steps in procuring the
NOC   under   Section   7A   of   Haryana   Development   and   Regulation   of
Urban Areas Act of 1975 (hereinafter, ‘HUDA Act’). However, the Trial
Court then went on to hold that the Sale Agreements were either way
rendered   impossible   to   perform   in   view   of   the   land   acquisition
proceedings   and   proceeded   to   grant   decree   of   recovery   of   earnest
money on the priciple of unjust enrichment. The First Appellate Court
upheld the decree granted by Trial Court on entirely identical reasons.
13. The   High   Court   in   its   impugned   judgment   made   two
observations   which   are   pertinent   to   note   –   first   that   no   evidence   was
led by the  parties to prove whether they took requisite steps to obtain
the   NOC under Section 7A of HUDA Act and;   second   that presence of
Appellants   before   the   Sub­Registrar   on   31.08.2004   or   01.09.2004
when   last   opportunity   to   execute   the   sale   deed   was   granted   to
Respondent,   was   doubtful   as   the   evidence   of   marking   their   presence
was   not   proved   and   that   legal   notices   dated   18.08.2004   were   not
served   on   the   Respondent.   The   High   Court,   thus,   went   on   to   uphold
the   decree   passed   by   the   courts   below,   noting   that   in   view   of   the
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acquisition   proceedings,   the   alternate   relief   of   recovery   of   earnest
money was legally correct. 
14. The aggrieved Appellants are before this Court. 
B.  C ONTENTIONS     
15. We   have   heard   learned   counsel   for   parties   and   perused   the
documents produced on record.
16. Mr.   Siddharth   Mittal,   learned   counsel   for   the   Appellants,
contended   ­   Firstly ,   that   all   the   courts   below   have   failed   to   note   that
time   was   the   essence   of   contract   as   per   the   Sale   Agreements   under
Section   55   of   The   Indian   Contract   Act,   1872.   (hereinafter,   ‘Contract
Act’).   He   submitted   that   the   contractual   performance   of   Sale
Agreements   needed   to   be   mandatorily   effectuated   by   the   Respondent
on   or   before   the   Date   of   Execution.   He   stated   that   the   Appellants
reiterated   the   same   stance   in   their   legal   notices   dated   18.08.2004.
Secondly,   the   High   Court   has   completely   overlooked   the   fact   that   at
the   relevant   period   of   time,   i.e.   Date   of   Execution,   there   was   no
necessity   to   procure   NOC   under   Section   7A   of   HUDA   Act.   He
submitted   that   the   land   was   ‘agricultural   land’   on   the   Date   of
Execution of Agreements and was first time included within the limits
of   Municipal   Corporation,   Gurugram   through   notification   dated
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02.06.2008.   Thirdly ,   under   Clause   8   of   the   Sale   Agreements,   it   was
the   Respondent   and   not   the   Appellants,   responsible   to   procure
relevant   NOCs.   Hence,   the   onus   to   prove   that   steps   were   taken   to
obtain   NOCs   under   Section   7A   of   HUDA   Act   was   on   the   Respondent
which he miserably failed to discharge. 
17. The composite essence of all the above­mentioned arguments by
Mr.   Mittal   is   that   non­performance   of   contractual   obligations   on   the
part of Respondent by the stipulated time resulted in lawful exercise of
right of termination by the Appellants and the consequent forfeiture of
earnest money as stipulated under the Sale Agreements which was in
accordance with the settled law in  Satish Batra v Sudhir Rawal . 1
 
18. On the contrary, Ms. Sonali Karwasra Joon, learned counsel for
the   Respondent,   argued   that   –   Firstly ,   the   Appellants   were   unwilling
and   they   failed   to   perform   their   contractual   obligations,   especially
regarding securing NOC under Section 7A of HUDA Act. She forcefully
argued that Clause 8 of the Sale Agreements ought to be interpreted to
mean   that   only   such   sanction   or   NOCs   which   the   Respondent   could
obtain unilaterally, was his contractual obligation. In other words, she
argued   that   securing   NOC   under   Section   7A   of   HUDA   Act   was   solely
the   responsibility   of   the   Appellants,   irrespective   of   the   onus   fastened
on   the   Respondent   under   Clause   8   of   the   Sale   Agreements.   She
1   Satish Batra v Sudhir Rawal  (2013) 1 SCC 345.
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heavily   relied   upon   the   observations   of   the   High   Court   regarding   the
Appellant’s   doubtful   appearance   before   the   Sub­Registrar   and   non­
effectuation of service of legal notices dated 18.08.2004, to support the
claim of willful non­performance on behalf of the Appellants.  Secondly,
she   argued,   that   the   Sale   Agreements   had   been   rendered   impossible
as the State of Haryana lawfully acquired the suit land. Hence, all the
courts   below   have   rightly   directed   the   refund   of   the   earnest   money
with   interest.   Additionally,   she   argued   that   the   amount   in   question
cannot be forfeited contrary to the settled principles enunciated by the
Constitution   Bench  of  this   Court  in   Fateh   Chand   v   Balkishan   Dass 2
which   bars   forfeiture   of   earnest   money   when   it   is   ‘penal’   in   nature.
Thirdly,   she   highlighted   that   the   second   appeal,   which   confirmed   the
decree passed in favor of Respondent, was heard ex­parte.  Finally,  she
drew our attention to the fact that during the acquisition proceedings,
the Appellants were successful in obtaining release of land measuring
8   Marlas   out   of   the   acquired   land   as   noted   in   the   award   dated
23.11.2011. She stated that as per the available revenue records, the
said property was still in possession of the Appellants who are guilty of
suppression   of   material   facts.   It   must   be   noted   that   the   Respondent
on   coming   to   know   about   the   factum   of   release,   had   directly
approached this Court against the First Appellate Court’s decision via
SLP (C) No 11901 of 2022 but the same was disposed of with liberty to
2   Fateh Chand v Balkishan Dass  (1964) 1 SCR 515.
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approach   the   High   Court   in   the   second   appeal   under   Section   100   of
the Code of Civil Procedure, 1908. 3
19. We now examine these contentions of both sides.
C.  A NALYSIS      
C.1  W HETHER  T IME   WAS   THE  E SSENCE   OF   THE  C ONTRACT ?   
20. Before   venturing   into   the   aforementioned   issue,   we   must
highlight that throughout the entire dispute, Appellants have taken a
consistent   stand   of   time­bound   performance   being   an   essence   of   the
contract.   They   have   maintained   that   sale   deed   was   needed   to   be
executed  necessarily   on  the  Date  of  Execution  as  agreed  between  the
parties. It is unfortunate that all the courts below have failed to render
a   finding   on   this   aspect   despite   the   fact  that  this   was   one   of   the   key
defenses   taken   by   the   Appellants   in   respect   of   the   prayer   seeking
specific performance. 
21. In this respect, we must now take note of Section 55 of Contract
Act   which   stipulates   the   aftermath   in   case   of   failure   to   perform
contractual obligations at fixed time. The provision states –
55.   Effect   of   failure   to   perform   at   fixed   time,   in
contract in which time is essential.
When   a   party   to   a   contract   promises   to   do   a   certain
thing   at   or   before   a   specified   time,   or   certain   things
at or  before  specified  times,   and  fails  to  do  any  such
thing at or before the specified time, the contract, or
3   Rohatash Singh v Deshraj  (SLP (Civil) No. 11901 of 2022, 11 July 2022).
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so   much   of   it   as   has   not   been   performed,   becomes
voidable   at   the   option   of   the   promisee,   if   the
intention   of   the   parties   was   that   time   should   be   of
the essence of the contract.
Effect of such failure when time is not essential .­­
If   it   was   not   the   intention   of   the   parties   that   time
should be of the essence of the contract, the contract
does   not   become   voidable   by   the   failure   to   do   such
thing   at   or   before   the   specified   time;   but   the
promisee   is   entitled   to   compensation   from   the
promisor   for   any   loss   occasioned   to   him   by   such
failure.
Effect of acceptance of performance at time other
than   that   agreed   upon .­­If,   in   case   of   a   contract
voidable   on   account   of   the   promisor’s   failure   to
perform his promise at the time agreed, the promisee
accepts   performance   of   such   promise   at   any   time
other   than   that   agreed,   the   promisee   cannot   claim
compensation   for   any   loss   occasioned   by   the   non­
performance   of   the   promise   at   the   time   agreed,
unless,   at   the   time   of   such   acceptance,   he   gives
notice to the promisor of his intention to do so.
22. The   Sale   Agreements   in   the   present   case   clearly   indicate   the
intention   of   the   parties   to   treat   time­bound   performance   as   an
essential condition. They stipulate that in case the sale deed was  not
executed on the Date of Execution, the Sale Agreements were liable to
be   treated   as   cancelled,   and   the   earnest   money   was   to   be   forfeited.
Even   in   the   legal   notices   dated   18.08.2004,   through   which   last
opportunity was extended to Respondent to execute the sale deed, the
factum   of   time   being   an   essential   condition   for   performance   was
reiterated.   On   the   other   hand,   no   evidence   or   communication   has
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been brought on record by the Respondent to contradict the defense of
time­bound performance taken by the Appellants. 
23. At   this   juncture,   we   must   note   the   decision   of   this   Court   in
Citadel Fine Pharmaceuticals v Ramaniyam Real Estates Private
Ltd 4
  and   Saradamani   Kandappan   v   S.   Rajalakshmi 5
  wherein   it
was held that defense under Section 55 of Contract Act is valid against
anyone   who   is   seeking   the   relief   of   specific   performance.   The   facts   of
the instant case make the observations in   Saradamini Kandappan 6
even more pertinent, which are to the following effect ­
“36.   The   principle   that   time   is   not   of   the   essence   of
contracts   relating   to   immovable   properties   took
shape   in   an   era   when   market   values   of   immovable
properties   were   stable   and   did   not   undergo   any
marked   change   even   over   a   few   years   (followed
mechanically,   even   when   value   ceased   to   be   stable).
As a consequence, time for performance, stipulated in
the agreement was assumed  to be  not  material, or  at
all   events   considered   as   merely   indicating   the
reasonable   period   within   which   contract   should   be
performed. The assumption was that grant of specific
performance   would   not   prejudice   the   vendor
defendant   financially   as   there   would   not   be   much
difference in the market value of the property even if
the   contract  was   performed   after   a   few  months.   This
principle   made   sense   during   the   first   half   of   the
twentieth   century,   when   there   was   comparatively
very little inflation, in India. The third quarter of the
twentieth century saw a very slow but steady increase
in   prices.   But   a   drastic   change   occurred   from   the
4   Citadel   Fine   Pharmaceuticals   v   Ramaniyam   Real   Estates   Private   Ltd   (2011)   9   SCC   147,
para 53.
5   Saradamani Kandappan v S. Rajalakshmi  (2011) 12 SCC 18.
6  ibid.
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beginning   of   the   last   quarter   of   the   twentieth
century.   There   has   been   a   galloping   inflation   and
prices   of   immovable   properties   have   increased
steeply,   by   leaps   and   bounds.   Market   values   of
properties are no longer stable or steady. We can take
judicial   notice   of   the   comparative   purchase   power   of
a   rupee   in   the   year   1975   and   now,   as   also   the   steep
increase   in   the   value   of   the   immovable   properties
between   then   and   now.   It   is   no   exaggeration   to   say
that   properties   in   cities,   worth   a   lakh   or   so   in   or
about 1975 to 1980, may cost a crore or more now.
x­x­x­x
43. Till the issue is considered in an appropriate case,
we can only reiterate what has been suggested in  K.S.
Vidyanadam [(1997) 3 SCC 1]  :
(i)   The   courts,   while   exercising   discretion   in
suits   for   specific   performance,   should   bear   in   mind
that   when   the   parties   prescribe   a   time/period,   for
taking   certain   steps   or   for   completion   of   the
transaction,   that   must   have   some   significance   and
therefore time/period prescribed cannot be ignored.
(ii)   The   courts   will   apply   greater   scrutiny   and
strictness   when   considering   whether   the   purchaser
was   “ready   and   willing”   to   perform   his   part   of   the
contract.
(iii)  Every suit for specific performance need not
be decreed merely because it is filed within the period
of limitation by ignoring the time­limits stipulated in
the   agreement.   The   courts   will   also   “frown”   upon
suits   which   are   not   filed   immediately   after   the
breach/refusal. The fact that limitation is three years
does   not   mean   that   a   purchaser   can   wait   for   1   or   2
years   to   file   a   suit   and   obtain   specific   performance.
The   three­year   period   is   intended   to   assist   the
purchasers in special cases, as for example, where the
major   part   of   the   consideration   has   been   paid   to   the
vendor   and   possession   has   been   delivered   in   part­
performance,   where   equity   shifts   in   favour   of   the
purchaser. ”
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(Emphasis Applied)
24. Hence on the dual factual premise that it was the clear intention
of   the   parties   to   treat   time   as   the   essence   of   the   contract   and   that
there was an undue delay on behalf of the Respondent to institute the
suit,   the   relief   of   specific   performance   cannot   be   granted.   We   must
clarify   that   this   finding   also   holds   true   for   the   land   subsequently
released in favor of the Appellants. 
C.2  W HETHER   IT   WAS   P ROVED   THAT   A PPELLANTS   WERE   W ILLFULLY     
A VOIDING  P ERFORMANCE   OF  T HEIR  C ONTRACTUAL  O BLIGATIONS ?   
25. The courts below have harped on the inability  of the Appellants
to procure the necessary NOC under Section 7A of HUDA Act, to hold
that they were non­cooperative and willfully avoiding the performance
of   their   contractual   obligation.   However,   as   the   learned   counsel   for
Appellants   rightfully   pointed   out,   the   evidence   on   record   clearly
indicates   that   they   gave   duly   signed   blank   proformas   and   relevant
documents   to   the   Respondent   in   order   to   obtain   any   necessary
sanction or NOCs. This was done in order to fulfil the obligation under
Clause 8 of the Sale Agreements which stated –
“8.   That   the   Second   Party   will   be   liable   to   secure   all
the necessary NOC  and the said NOC will be intimated
to   the   First   Party   by   way   of   Registered   Post   before
the   date   16.08.2004   fixed   for   registration   of   sale
deed.   If the Second Party fails to secure the required
NOC then this agreement to sell will be deemed to be
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cancelled.  The cost incurred for securing the NOC will
be borne by the Second Party.” 7
(Emphasis Applied)
26. A   bare   reading   of   this   clause,   in   our   opinion,   clearly   spells   out
the   intention   of   the   parties   in   respect   of   Respondent’s   liability   for
obtaining the required NOC. We are bound to interpret the contractual
terms   in   their   literal   sense   and   hence,   we   expressly   reject   the
Respondent’s   contention   that   this   clause   should   be   interpreted   to
construe   that   his   obligation   was   limited   to   NOCs   which   he   could
obtain unilaterally. Additionally, since Respondent has led no evidence
to   indicate   that   he   took   any   proactive   steps   to   obtain   the   purported
NOC necessary to execute the sale deed, we must hold that the plea of
non­cooperation   against   the   Appellants   in   respect   of   obtaining   the
NOC are not made out by the Respondent.
27. However,   even   assuming   in   arguendo,   that   Respondent   had
fulfilled   his   contractual   obligation   under   under   Clause   8   of   the   Sale
Agreements   by   taking   all   necessary   steps   necessary   to   obtain   NOC
under   Section   7A   of   HUDA   Act,   we   find   merit   in   the   Appellants’
contention   that   no   such   NOC   was   required   in   the   first   place   as   the
Concerned Property was agricultural land on the Date of Execution. In
this   respect,   learned   counsel   for   the   Appellants   correctly   pointed   out
7  Under the Sale Agreements, ‘First Party’ refers to the present Appellants while ‘Second 
Party’ refers to the present Respondent.
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that   the   Concerned   Property   was   brought   under   the   Municipal
Corporation of Gurugram vide notification dated 02.06.2008 only. 
28. The Respondent in his counter affidavit has taken a stance that
the Concerned Property was an ‘urban area’ as per Section 2(o) of the
HUDA   Act,   which   includes   lands   situated   within   five   kilometres   of   a
notified   municipal   area.   However,   this   stand   cannot   sustain   for   the
reason   that   neither   he   raised   such   plea   before   the   courts   below   nor
adduced   any   evidence   to   suggest   that   on   the   Date   of   Execution,   the
Concerned Property was within the five kilometre radius of Municipal
Area as specified under Section 2(o) of the HUDA Act.
29. Finally,   we   must   shift   our   attention   to   the   High   Court’s
observation   that   the   presence   of   Appellants   before   the   Sub­Registrar
was doubtful on 31.08.2004 and 02.09.2004 as the affidavits of their
presence were not proved in the evidence. In contrast, the Trial Court
has   found   that   these   affidavits   were   duly   proved   in   the   cross
examination of the Appellants and the said finding of fact was affirmed
by   the   First   Appellate   Court.   The   High   Court,   therefore,   ought   not   to
have made any fact based observations especially when the records of
the   courts   below   were   not   requisitioned   to   reach   an   independent
conclusion to hold that the said finding of fact by the two courts was
contrary   to   the   record.   The   re­appreciation   of   evidence   is   ordinarily
impermissible   and   beyond   the   scope   of   a   second   appeal.   Even
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otherwise, the presence of Appellants before the Sub­Registrar on the
Date   of   Execution   is   not   disputed.   In   this   backdrop   where   time   was
the   essence   of   the   contract,   we   conclude   that   the   Respondent   has
failed   to   prove   that   the   Appellants   were   willfully   avoiding   the
performance of their contractual obligations.
C.3  W HETHER   R ESPONDENT   WAS   E NTITLED   TO   RECOVERY   OF   EARNEST     
MONEY ?   
30. The   final   aspect   of   this   dispute   is   with   respect   to   the   relief
granted by the courts below to the Respondent in the form of recovery
of   earnest   money   with   requisite   interest.   However,   before   inquesting
into   this   issue   we   must   take   note   of   the   following   relevant  clauses   of
the Sale Agreements ­
“1. That it has been decided that date of execution of
this   agreement   to   sell   is   16.08.2004   [Sixteen   August
Two Thousand Four].
x­x­x­
4.   That if the Second Party is not able to execute the
sale deed on the prescribed date then the First Party
will be entitled to confiscate the earnest money ”
    [Emphasis Applied]
31. Firstly,   we   may   refer   to   Section   22   of   the   Specific   Relief   Act   of
1963   (hereinafter, ‘SRA Act’)   which provides that any person suing for
the   specific   performance   of   the   contract   for   the   transfer   of   property
may   ask   for   ­   (a)   possession   or   partition   and   separate   possession   of
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the property in addition of such performance OR   (b)   such person may
seek any other relief to which he is entitled to “including the refund of
any earnest money or deposit paid or made by him” in case his claim
for   specific   performance   is   refused.   However,   sub­Section   (2)   thereof
puts a caveat that the abovementioned reliefs shall not be granted by
the court unless “it has been specifically claimed”. The proviso to sub­
Section   (2)   further   says   that   even   if   such   relief   was   not   specifically
claimed   in   the   plaint,   it   is   the   discretion   of   the   Court   to   permit   the
plaintiff   to   amend   the   plaint   “at   any   stage   of   the   proceedings”   and
allow   him   to   include   the   claim   for   refund   of   the   earnest   money   or
deposit   paid.   The   relevant   part   of   the   provision   of   SRA   Act   reads   as
follows ­
22.   Power   to   grant   relief   for   possession,   partition,
refund of earnest money, etc.—
(1)   Notwithstanding   anything   to   the   contrary
contained   in   the   Code   of   Civil   Procedure,1908   (5   of
1908),   any  person   suing   for  the   specific   performance
of   a   contract   for   the   transfer   of   immovable   property
may, in an appropriate case, ask for­­
(a)   possession,   or   partition   and   separate   possession,
of the property in addition to such performance; or
(b)   any   other   relief   to   which   he   may   be   entitled,
including the refund of any earnest money or deposit
paid   or   made   by   him,   in   case   his   claim   for   specific
performance is refused.
(2)   No   relief   under   clause   (a)   or   clause   (b)   of   sub­
section (1) shall be granted by the Court unless it has
been specifically claimed:
Provided   that  where   the   plaintiff   has   not  claimed
any   such   relief   in   the   plaint,   the   Court   shall,   at   any
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stage   of   the   proceeding,   allow   him   to   amend   the
plaint   on   such   terms   as   may   be   just   for   including   a
claim for such relief.
 (Emphasis Applied)
On   a   plain   reading   of   the   above   reproduced   provision,   we   have
no   reason   to   doubt   that   the   plaintiff   in   his   suit   for   specific
performance   of   a   contact   is   not   only   entitled   to   seek   specific
performance of the contract for the transfer of immovable property but
he   can   also   seek   alternative   relief(s)   including   the   refund   of   any
earnest   money,   provided   that   such   a   relief   has   been   specifically
incorporated   in   the   plaint.   The   court,   however,   has   been   vested   with
wide judicial discretion to permit the plaintiff to amend the plaint even
at   a   later   stage   of   the   proceedings   and   seek   the   alternative   relief   of
refund of the earnest money. The litmus test appears to be that unless
a   plaintiff   specifically   seeks   the   refund   of   the   earnest   money   at   the
time of filing of the suit or by way of amendment, no such relief can be
granted to him. The prayer clause is a sine qua non for grant of decree
of refund of earnest money.
Applying these principles to the facts of the case in hand, we find
that   the   Respondent   has   neither   prayed   for   the   relief   of   refund   of
earnest money in the original plaint nor he sought any amendment at
a   subsequent  stage.   In   the   absence   of   such   a   prayer,   it  is   difficult   to
accept   that   the   courts   would   suo­moto   grant   the   refund   of   earnest
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money irrespective of the fact as to whether Section 22(2) of SRA Act is
to be construed directory or mandatory in nature.
32. We   may   now   advert   to   the   contention   raised   on   behalf   of   the
Respondent   that even if the respondent is held responsible for breach
of contract, the forfeited amount was ‘penal’ in nature and was hit by
Section   74   of   The   Contract   Act   as   has   been   interpreted   by   the
Constitution  Bench  in   Fateh   Chand . 8
  Section  74  of  the  Contract  Act
says that ­
74.   Compensation   for   breach   of   contract   where
penalty stipulated for—
When   a   contract  has  been   broken,   if   a  sum  is  named
in   the   contract   as   the   amount   to   be   paid   in   case   of
such   breach,   or   if   the   contract   contains   any   other
stipulation   by   way   of   penalty,   the   party   complaining
of   the   breach   is   entitled,   whether   or   not   actual
damage   or   loss   is   proved   to   have   been   caused
thereby, to receive from the party who has broken the
contract   reasonable   compensation   not   exceeding   the
amount so named or, as the case may be, the penalty
stipulated for.
(Emphasis Applied)
33. Learned   Counsel   for   the   respondent   submitted   that   merely
because   an   amount   is   stipulated   as   earnest   money   would   not   justify
its   forfeiture.   Instead,   reliance   was   placed   on   Fateh   Chand 9
  to   state
that   the   courts   were   duty   bound   to   ascertain   reasonable
compensation   in   each   case.   In   this   respect,   it   would   be   prudent   for
8   Fateh Chand  (n 2).
9   Fateh Chand  (n 2).
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our  analysis to extract the following  paragraphs from   Fateh Chand 10
which are relied upon by the respondent ­
“11.   ….   In   all   cases,   therefore,   where   there   is   a
stipulation   in   the   nature   of   penalty   for   forfeiture   of
an   amount   deposited   pursuant   to   the   terms   of
contract   which   expressly   provides   for   forfeiture,   the
court   has   jurisdiction   to   award   such   sum   only   as   it
considers   reasonable,   but   not   exceeding   the   amount
specified in the contract as liable to forfeiture….
x­x­x­
15.   Section   74   declares   the   law   as   to   liability   upon
breach   of   contract   where   compensation   is   by
agreement   of   the   parties   pre­determined,   or   where
there   is   a   stipulation   by   way   of   penalty.   But   the
application   of   the   enactment   is   not   restricted   to
cases   where   the   aggrieved   party   claims   relief   as   a
plaintiff. The section does not confer a special benefit
upon   any   party;   it   merely   declares   the   law   that
notwithstanding   any   term   in   the   contract
predetermining damages or providing for forfeiture of
any   property   by   way   of   penalty,   the   court   will   award
to   the   party   aggrieved   only   reasonable   compensation
not   exceeding   the   amount   named   or   penalty
stipulated.   The   jurisdiction   of   the   court   is   not
determined   by   the   accidental   circumstance   of   the
party   in   default   being   a   plaintiff   or   a   defendant   in   a
suit. Use of the expression “to receive from the party
who has broken the contract” does not predicate that
the jurisdiction of the court to adjust amounts which
have   been   paid   by   the   party   in   default   cannot   be
exercised   in   dealing   with   the   claim   of   the   party
complaining   of   breach   of   contract.   The   court   has   to
adjudge   in   every   case   reasonable   compensation   to
which   the   plaintiff   is   entitled   from   the   defendant   on
breach  of the  contract.   Such  compensation  has  to be
10   Fateh Chand  (n 2).
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ascertained   having   regard   to   the   conditions   existing
on the date of the breach.”
(Emphasis Applied)
34. Per   contra,   the   Appellants   have   heavily   relied   on   the   following
passage  of  the  decision  of  this  Court  in   Satish   Batra 11
  to  justify  the
forfeiture of earnest money ­
“15.   The   law   is,   therefore,   clear   that   to   justify   the
forfeiture   of   advance   money   being   part   of   “earnest
money” the terms of the contract should be clear and
explicit.   Earnest   money   is   paid   or   given   at   the   time
when the contract is entered into and, as a pledge for
its   due   performance   by   the   depositor   to   be   forfeited
in   case   of   non­performance   by   the   depositor.   There
can   be   converse   situation   also   that   if   the   seller   fails
to   perform   the   contract   the   purchaser   can   also   get
double the amount, if it is so stipulated. It is also the
law   that   part­payment   of   purchase   price   cannot   be
forfeited   unless   it   is   a   guarantee   for   the   due
performance   of   the   contract.   In   other   words,   if   the
payment   is   made   only   towards   part­payment   of
consideration   and   not   intended   as   earnest   money
then the forfeiture clause will not apply.”
In sum and substance, the Appellants contend that forfeiture of
sum is justified when it is ­  (a)  clearly stipulated as earnest money;  (b)
forms part of sale consideration and  (c)  intended to be in the nature of
‘guarantee   for   the   due   performance   of   the   contract’,   and   (d)   the
binding   agreement   between   the   parties   provides   its   forfeiture   in   the
event of breach of contract. 
11  Satish Batra (n 1).
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35. In   our   considered   opinion,   Section   74   of   Contract   Act   primarily
pertains to the grant of compensation or damages when a contract has
been   broken   and   the   amount   of   such   compensation   or   damages
payable in the event of breach of contract, is stipulated in the contract
itself. In other words, all pre­estimated amounts which are specified to
be   paid   on   account   of   breach   by   any   party   under   a   contract   are
covered   by   Section   74   of   Contract   Act   as   noted   by   this   court   in
Kailash   Nath   Associates   v   DDA 12
.   In   Fateh   Chand 13
,   the
Constitution   Bench   ruled   that   Section   74   dispenses   with   proof   of
“actual loss or damage” and attracts intervention by Courts where the
pre­estimated   amount   is   ‘penal’   in   nature.   We   may   at   this   juncture
also note the following observations made by this court in   ONGC Ltd.
v. Saw Pipes Ltd. 14
 ­
“64. …. Section 74 emphasizes that in case of breach
of   contract,   the   party   complaining   of   the   breach   is
entitled   to   receive   reasonable   compensation   whether
or   not   actual   loss   is   proved   to   have   been   caused   by
such breach. Therefore, the emphasis is on reasonable
compensation.   If   the   compensation   named   in   the
contract is by way of penalty, consideration would be
different   and   the   party   is   only   entitled   to   reasonable
compensation   for   the   loss   suffered.   But   if   the
compensation named in the  contract for  such  breach
is   genuine   pre­estimate   of   loss   which   the   parties
knew   when   they   made   the   contract   to   be   likely   to
result   from   the   breach   of   it,   there   is   no   question   of
proving such loss or such party is not required to lead
12   Kailash Nath Associates v DDA  (2015) 4 SCC 136, para 43.7.
13   Fateh Chand  (n 2).
14   ONGC Ltd. v. Saw Pipes Ltd.  (2003) 5 SCC 705.
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evidence to prove actual loss suffered by him. Burden
is on the other party to lead evidence for proving that
no loss is likely to occur by such breach ….”
(Emphasis Applied)
Hence,   in   a   scenario   where   the   contractual   terms   clearly   provide   the
factum   of   the   pre   estimate   amount   being   in   the   nature   of   ‘earnest
money’, the onus to prove that the same was ‘penal’ in nature squarely
lies on the party seeking refund of the same. Failure to discharge such
burden   would   treat   any   pre­estimated   amount   stipulated   in   the
contract as a ‘genuine pre­estimate of loss’.
36. The   Respondent   in   the   instant   case   has   neither   pleaded   for
refund   of   the   earnest   money   nor   has   he   claimed   any   damages   or
penalty   from   the   Appellants.   From   the   perusal   of   the   records,   it   is
conspicuous   that   Respondent   never   raised   any   concern   that   the   pre
estimated amount was ‘penal’ in nature and instead his sole objective
was to gain titular rights over the Concerned Property on the strength
of Sale Agreements.
D. C ONCLUSION       
37. In   light   of   the   above   discussion,   we   must   conclude   that   the
decree   granted   by   the   courts   below   was   hinged   on   a   logical   fallacy
wherein   the   Appellants   were   held   to   be   unjustly   enriched   on   the
premise   that  the   contract  was  rendered  impossible   to  perform  due  to
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acquisition   proceedings.   On   the   contrary,   the   contract   automatically
stood   terminated   as   per   the   stipulated   contractual   terms.   The   Sale
Agreements should have been rightly held to be terminated instead of
being declared  impossible to perform. 
38. Furthermore,   we   deem   it   appropriate   to   hold   that   the   forfeiture
was   justified   and   within   the   confines   of   reasonable   compensation   as
per   Section   74   of   Contract   Act   in   light   of   the   fact   that   during   the
entirety   of   proceedings   –   firstly   the   nature   of   forfeiture   was   never
contested   by   the   Respondent   and   secondly   the   Respondent   never
prayed for the refund of earnest money. Consequently, the judgments
rendered   by   the   Courts   below   deserve   to   be   set   aside   and   the   suit   is
liable to be dismissed. Ordered accordingly.
39. The   appeal   stands   allowed   along   with   any   pending   applications
in the above terms. No order as to costs.
………..………………… J.
(SURYA KANT)
…………………………...J.
(BELA M. TRIVEDI)
NEW DELHI
DATED: 14.12.2022
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