Judgments

KAILASH NATH ASSOCIATES VS DELHI DEVELOPMENT AUTHORITY : CASE SUMMARY

The Supreme Court in Kailash Nath Associates Vs Delhi Development Authority (2015) 1 SCR 627 has held only reasonable compensation can be awarded under Section 74 of the Contract Act, 1872 and such amount can not exceed the liquidated amount mentioned in the contract. Damage or loss is sine qua non for any compensation under Section 74.

FACTS OF THE CASE

DDA conducted an auction wherein Kailas Nath Associates made the highest bid for property bearing no Plot No. 2A, Bhikhaji Cama Place, District Centre, New Delhi for 3.12 Crore. Kailash Nath deposited  25% of  sum  i.e. Rs. 78,00,000/- as earnest money. Balance amount has to be paid within three months. Terms and Conditions of the auction provided that if any of the terms or conditions are not complied with, the earnest money could have been forfeited.

Balance payment was to be made till  17.05.1982. Due to recession in industry Kailash Nath and other similarly placed persons in Industry requested for extension of time, which was given till 28.10.1982  by DDA on recommendation of High Powered Committee. A request was again made to the DDA for extension of time. Second High Powered Committee again recommended for extension of time but no decision was taken by DDA till 1987. On 01.12.1987 DDA informed Kailash Nath that his case for relaxation of Nazul Rules, 1981 for payment of balance premium in installments  has been referred to Government of India. DDA requested  for consent of the Kailash Nath to pay the balance amount with applicable interest after approval of the Government of India. Kailash Nath consented for payment .

Earnest money was forfeited by the DDA vide letter dated 06.10.1993. Kailash Nath filed suit for specific performance and in the alternative recovery of damage and refund of earnest money. Suit of specific performance was dismissed by Ld. Single Judge but directions was issued for refund of earnest money. DDA appealed against order of the Single Judge, which reversed the finding of the Single Judge and held that forfeiture of earnest money was in order.

FINDINGS OF THE COURT

The Court noted that there was no breach of terms and conditions as DDA has not insisted on payment of balance amount. DDA had already extended time after recommendation of First High Powered Committee. DDA has even sought consent of  Kailash Nath for payment of balance amount. The Supreme Court observed that Kailash Nath has never been put to notice before cancellation of contract.

The Supreme Court held that time was not essence of the contract. The Supreme Court noted that  Webb vs Huges (V C M 1870 ) will apply as time as essence of contract has been waived by conduct of DDA.

The Supreme Court held that It will be arbitrary for DDA to forfeit earnest money on two grounds. Firstly there has not been breach of contract and secondly DDA has not incurred any losses. It will be arbitrary to allow DDA to forfeit earnest money and will be in violation of Article 14.

The Supreme Court relied on Fateh Chand Vs Bal Kishan Das (1964 ) SCR 1 515 wherein it has been held that all stipulations naming the amounts to be paid in case of breach will be covered under Section 74. Section 74 cuts across the rules of the English Common law enacting uniform principle for penalty or otherwise. Earnest amount was also covered under Section 74.

The Supreme Court observed that Section 74 provides for reasonable compensation in case of breach of contract. Damage of loss is sine qua non for awarding compensation. The Supreme Court noted that in the instant case DDA has not suffered any loss or damage as such it is not eligible for any compensation.

The Supreme Court reversed the judgment of the Division Bench of High Court and allowed the appeal.

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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

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