Dlf Ltd. v. Bhagwanti Narula

JUSTICE V.K. JAIN, PRESIDING MEMBER This revision petition is directed against the order of the State Commission dated 17.7.2014, whereby the appeal filed by the petitioner against the order of the District Forum dated 6.1.2010 was dismissed.

2. Brief facts of the case are that the complainant/respondent booked an apartment with the petitioner DLF Ltd. in Silver Oaks, Gurgaon by depositing the booking amount of Rs.63,469/- and an Apartment Buyers Agreement was executed between the parties on 14.7.1992. The complainant made a further payment of Rs.81,534/- as first instalment, thereby making a total payment of Rs.1,45,003/-. The case of the complainant is that after booking apartment with the petitioner, she shifted from the place where she was residing at the time of booking the apartment and started living at Ludhiana, from where she went to Germany. This was also her case that the changed address was also conveyed to the Petitioner Company. The complainant sent a legal notice to the petitioner on 11.12.2004, which the Petitioner Company duly replied. It was stated in the reply sent by the Petitioner Company that the entire amount paid by her had been forfeited in terms of the Agreement between the parties. Thereupon, the complainant approached the District Forum, seeking refund of a sum of Rs.2,16,177/- along with compensation, on the allegation that payment made by her was Rs.2,16,177/- and not Rs.1,45,003/-.

3. The District Forum held that the complainant had paid actually Rs.1,45,003/- to the petitioner and directed refund of the said amount along with compensation amounting to Rs.80,000/- and cost of litigation amounting to Rs.20,000/-.

4. Being aggrieved from the order of District Forum, the Petitioner Company approached the State Commission by way of an appeal. The State Commission having dismissed the appeal; the Petitioner Company is before us by way of this revision petition.

5. Clause 8, 9 and 40 of the Agreement, on which reliance is placed by the Petitioner Company read as under:

8. THAT the Company and the Apartment Allottee hereby agree that the amounts paid on registration to the extent of 20% of the sale price of the said premises, and on allotment or in instalments as the case may be, will collectively constitute the earnest money.

9. THAT the time of payment of instalments as stated in schedule of payment (Annexure II) is the essence of this contract. It shall be incumbent on the Apartment Allottee to comply with the terms of payment and other terms and conditions of sale, failing which he shall forfeit to the Company the entire amount of earnest money and the Agreement of sale shall stand cancelled and the Apartment Allottee shall be left with no lien on the said premises. The Company shall thereafter be free to deal with the said premises in any manner whatsoever, at its sole discretion. The amount(s), if any, paid over and above the earnest money shall be refunded to the Apartment Allottee by the Company without any interest.

40. THAT all notices to be served on the Apartment Allottees as contemplated by this Agreement shall be deemed to have been duly served if sent to the Apartment Allottee by pre-paid post under certificate of posting at his address specified below viz. Mrs. Bhagwanti Narula B-1/1585, Vasant Kunj New Delhi and it shall be responsibility of the Apartment Allottee to inform the Company by a registered (A.D.) letter about all subsequent changes, if any, in his address, failing which, all communications and letters posted at the first registered address will be deemed to have been received by him at the time when those would ordinarily reach at such address and the Apartment Allottee shall be fully liable for any default in payment and other consequences that may occur therefrom.

6. It is evident from a perusal of Clause 40 of the Agreement that all the notices sent to the complainant at the address B-1/1585, Vasant Kunj, New Delhi shall be deemed to have been duly served upon her, unless she is able to establish that the change of address was intimated by her to the Petitioner Company by way of a registered letter. There is no evidence of the complainant having intimated the change of her address to the Petitioner Company by way of a registered letter. Therefore, the demand notices dated 31.8.1992, 15.9.1992, 14.10.1992, 30.10.1992 and 5.11.1992 which the Petitioner Company sent at her Vasant Kunj address are deemed to have been served upon her.

7. It is also evident from a perusal of Clause 9 of the Agreement that in the event of failure of the complainant to make payment in terms of the agreement between the parties, the Petitioner Company was entitled to forfeit the entire amount of the earnest money and the Agreement to Sell was to stand cancelled. In view of the aforesaid Clause, it cannot be disputed that since the complainant had failed to make payment as per her Agreement with the Petitioner Company, the Agreement between the parties could be cancelled and the Petitioner Company was entitled to forfeit the earnest money. However, the question which primarily arises for consideration in this case is as what would constitute the earnest money and to what extent the Petitioner Company is entitled to forfeit the same. The contention of the petitioner is that as agreed by the parties in terms of Clause 8 of the Agreement, 20% of the sale price, irrespective of the stage at which the payment was made constitutes earnest money whereas the case of the complainant as submitted during the course of arguments was that only the amount of Rs.63,469/- which was paid at the time of booking the apartment can be said to be the earnest money and only that amount could be forfeited.

8. In Vs. 1969 (2) SCC 554, the Honble Supreme Court quoted Maula Bux Union of India the following observations made by the Judicial Committee in Vs. Kunwar Chiranjit Singh Har AIR 1926 PC 1 Swarup Earnest money is part of the purchase price when the transaction goes forward; it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee.

9. In . Vs. . 1969 (3) SCC 522, Shree Hanuman Cotton Mills & Ors Tata Air Craft Ltd the Honble Supreme Court quoted the following characteristics of the earnest money

15. Borrows, in Words & Phrases, Vol. II, gives the characteristics of "earnest". According to the author, "An earnest must be a tangible thing. That thing must be given at the moment at which the contract is concluded, because it is something given to bind the contract, and, therefore, it must come into existence at the making or conclusion of the contract. The thing given in that way must be given by the contracting party who gives it, as an earnest or token of good faith, and as a guarantee that he will fulfil his contract, and subject to the terms that if, owing to his default, the contract goes off, it will be forfeited. If, on the other hand, the contract is fulfilled, an earnest may still serve a further purpose and operate by way of part payment." After considering several decisions on the subject, the following principles were laid down by the Honble Supreme Court regarding earnest: (1) It must be given at the moment at which the contract is concluded. (2) It represents a guarantee that the contract will be fulfilled or, in other words, 'earnest' is given to bind the contract. (3) It is part of the purchase price when the transaction is carried out. (4) It is forfeited when the transaction falls through by reason of the default or failure of the purchaser. (5) Unless there is anything to the contrary in the terms of the contract, on default committed by the buyer, the seller is entitled to forfeit the earnest. The above referred principles were reiterated in Vs. Satish Batra Sudhir Rawal (2013) 1 SCC 345. It would, thus, be seen that only that amount would constitute earnest money which is paid at the time of contract is concluded between the parties. Any payment made after the contract is concluded, cannot be said to be part of the earnest money. In the case before us, admittedly, only a sum of Rs.63,469/- was paid to the Petitioner Company at the time the deal was concluded between the parties. Therefore, in view of the above said referred authoritative pronouncements of the Honble Supreme Court, only the aforesaid forfeited amount can constitute earnest money.

10. In Maula Bux case (Supra), the Honble Supreme Court took the following view with respect to forfeiture of the earnest money -

5. Forfeiture of earnest money under a contract for sale of property-movable or immovable--if the amount is reasonable, does not fall within s. 74. That has been decided in several cases: Kunwar Chiranjit Singh v. Hat Swarup (t); Roshan Lal v. The Delhi Cloth and General Mills Company Ltd., Delhi (2); Muhammad Habibullah v. Muhammad Shafi (3); Bishan Chand v. Radha Kishan Das (4); These cases are easily explained, for forfeiture of a reasonable amount paid as earnest money does not amount to imposing a penalty. But if forfeiture is of the nature of penalty, s.

74 applies. It would thus be seen that only a reasonable amount can be forfeited as earnest money in the event of default on the part of the purchaser and it is not permissible in law to forfeit any amount beyond a reasonable amount, unless it is shown that the person forfeiting the said amount had actually suffered loss to the extent of the amount forfeited by him. In our opinion, 20% of the sale price cannot be said to be a reasonable amount which the Petitioner Company could have forfeited on account of default on the part of the complainant unless it can show it had only suffered loss to the extent the amount was forfeited by it. In our opinion, in absence of evidence of actual loss, forfeiture of any amount exceeding 10% of the sale price cannot be said to be a reasonable amount.

11. It was contended by the learned Counsel for the Petitioner Company that since the complainant had specifically agreed to deliver 20% of the sale price as earnest money, the forfeiture to the extent of 20% of the sale price cannot be said to be unreasonable, the same being inconsonance with the terms agreed between the parties. This was also his contention that so long as the Petitioner Company was acting as per the terms and conditions agreed between the parties, it cannot be said to be deficient in rendering services to the complainant. We, however, find ourselves unable to accept the aforesaid contention, since, in our view, forfeiture of the amount which cannot be shown to be a reasonable amount would be contrary to the very concept of forfeiture of the earnest money. If we accept the aforesaid contention, an unreasonable person, in a given case may insert a clause in Buyers Agreement whereby say 50% or even 75% of the sale price is to be treated as earnest money and in the event of default on the part of the Buyer; he may seek to forfeit 50% of the sale price as earnest money. An Agreement for forfeiting more than 10% of the sale price, in our view, would be invalid since it would be contrary to the established legal principle that only a reasonable amount can be forfeited in the event of default on the part of the Buyer. In Vs. Bharathi Knitting Company DHL Worldwide Express Courier Division of .- (1996) 4 SCC 704, the Honble Supreme Court accepted the contention that in Airfreight Ltd an appropriate case, the Consumer Forum without trenching upon acute disputed question of facts may decide the validity of the terms of the contract based upon the fact situation and may grant relief, though, each case depends upon its own facts.

12. Learned Counsel for the Petitioner Company has referred to the decisions of the Honble Supreme Court in Vs. . (2007) 1 SCC 228 and Saurabh Prakash DLF Universal Ltd Shiv Vs. (2007) 8 SCC 600. In Saurabh Prakash (Supra), the Kumar Sharma Santosh Kumari agreement between the parties, one of which was none other than DLF Universal Ltd., stipulated forfeiture of earnest money which was 10% of the sale price, as would be noted from paragraphs 4 and 14 of the judgment. Therefore, the decision is of no help to the Petitioner Company. The decision in Shiv Kumar Shama (Supra), does not contain any legal proposition contrary to the view being taken by us with respect to forfeiture of reasonable earnest money. The learned Counsel for the petitioner also referred to the decisions of this Commission in Sahara India . Vs. II (2011) CPJ 3 (NC), Commercial Corporation Ltd. & Anr C. Madhu Babu Sahara . Vs. III (2010) CPJ 190 (NC) and India Commercial Corporation Ltd P. Gajendra Chary . Vs. . in Appeal No. 611 of M/s. DLF Commercial Developers Ltd. & Anr S.C. Jain & Anr 2007 decided on 12.9.2014. However, none of these decisions contain any legal proposition contrary to the view taken by us and in none of them the earnest money was to the extent of 20% of the sale price.

13. For the reasons stated herein above, we hold that (i) an amount exceeding 10% of the total price cannot be forfeited by the seller, since forfeiture beyond 10% of the sale price would be unreasonable and (ii) only the amount, which is paid at the time of concluding the contract can be said to be the earnest money. The Petitioner Company, therefore, was entitled to forfeit only the sum of Rs.63,469/-, which the complainant had deposited with them at the time of booking of the apartment. We, therefore, direct the Petitioner Company to pay the balance amount of Rs.81,534/- to the complainant within 4 weeks from today, failing which, the said amount shall carry interest @ 12% p.a. from the date of this order till payment. However, in the facts and circumstances of the case, we find no justification for grant of any compensation or cost of litigation to the complainant. The orders passed by District Forum and State Commission stand modified accordingly. ......................J

V.K. JAIN PRESIDING MEMBER ...................... DR. B.C. GUPTA MEMBER