# M/S. KAILASH NATH ASSOCIATES v. DELHI DEVELOPMENT AUTHORITY & ANR

- **Citation:** [2015] 1 S.C.R. 627
- **Court:** Supreme Court of India
- **Decided:** 2015-01-09
- **Case number:** Civil Appeal No. 193 of 2015
- **Bench:** RANJAN GOGOi, R.F. Nariman
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-kailash-nath-associates-v-delhi-development-authority-anr-30408
- **Pages:** 40

## Headnote

Contract Act, 1872 - Public auction - Earnest money -
Forfeiture of - Appellant, highest bidder for plot deposited 25%
A
B
of the bid amount-earnest money (Rs 78 lakhs) with ODA -
C
Balance 75% was to be deposited within three months -
Extension of time for payment by DOA twice - Thereafter,
several letters written by the appellant to DOA but no response
- Subsequently, letter written by ODA to the appellant that his
case was referred to UOI for its approval for condoning the
D
delay, case being one of Nazul land, which was later declared
by the Central Government as non-Nazul land - On DDA's
request, appellant consented to making payment of the
balance amount with interest charged - After few years
cancellation of allotment of the plot by ODA and consequent E
forfeiture of the earnest money - Suit for specific performance
and damages and recovery of earnest amount by the'
appellant - Subsequently DOA re-auctioned the premises
fetching Rs. 11. 78 crores - Dismissal of suit by the Single
Judge of the High Court but ordered refund of the earnest
F
money forfeited with 9% interest p.a. - However, Division
Bench upheld forfeiture of the earnest money - On appeal,
held: It was arbitrary for the DOA to forfeit the earnest money
- In the absence of notice to deposit the balance 75% amount
within a certain stated time, there is no breach of contract on G
the part of the appellant and consequently earnest money
could not be forfeited - ODA not having been put to any loss,
even if ODA could insist on a contractual stipulation in its
favour, it would be arbitrary to allow DOA as a public authority
627
H
628
SUPREME COURT REPORTS
[2015] 1 S.C.R.,
A
to appropriate Rs. 78 lakhs without any loss being caused -
Article 14 would apply - In fact, DOA made huge profit on reauction of the plot - If damage or loss is not suffered, the law
does not provide for a windfall - Thus, the judgment of the
Single Judge of the High Court restored - Constitution of
B
India, 1950 - Article 14.
s. 7 4 - Compensation for breach of contract where
penalty stipulated for under -
General principles -
Enunciated.
C
Allowing the appeal, the Court
HELD: 1.1. The earnest money can be forfeited under
sub-clause (iv) of the conditions of auction, only in the
case of default, breach, or non-compliance of any of the
o terms
and conditions of the auction, or on
misrepresentation by the bidder. The balance 75% which
had to be paid within three months of the acceptance of
the bid, was not insisted upon by the DOA. On the
contrary, after setting up two High Powered Committees
E
which were instructed to look into the grievances of the
appellant, the DOA extended time at least twice. It is,
therefore, very difficult to say that there was a breach of
any terms and conditions of the auction, as the period of
three months which the DOA could have insisted upon
F
had specifically been waived. It is nobody's case that
there is any misrepresentation by the bidder. Therefore,
under sub-clause (iv), without more, earnest money could
not have been forfeited. [Para 15] [643-B-D]
1.2. Long after the Central Government informed
G ODA (on 1.3.1990) that the property involved "in the
instant case is not Nazul land, the ODA by its letter of
6.10.1993 cancelled the allotment of the plot because the
appellant had failed to deposit the balance 75%. DDA's
understanding, therefore, was that what was important
H
KAI LASH Nfo:TH ASSOCIATES v. DELHI DEVELOPMENT 629
AUTHORITY
was payment of the balance 75% which was insisted
upon by the letter and which was acceded to by the
respondent immediately on the same date. Further it
cannot be accepted that since the letter was "without
prejudice" and since no commitmenf had been made,
they were not bound by the terms of the letter. The letter
was without prejudice and no commitment could have
been given by the ODA because the Central Government
may well not relax the Nazul Rules. On the other hand, if
A
B
the Central Government had, later on, relaxed the Naz

## Text

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[2015] 1 S.C.R. 627
M/S. KAILASH NATH ASSOCIATES
v.
DELHI DEVELOPMENT AUTHORITY & ANR.
(Civil Appeal No. 193 of 2015)
JANUARY 09, 2015
[RANJAN GOGOi AND R.F. NARIMAN, JJ.]
Contract Act, 1872 - Public auction - Earnest money -
Forfeiture of - Appellant, highest bidder for plot deposited 25%
A
B
of the bid amount-earnest money (Rs 78 lakhs) with ODA -
C
Balance 75% was to be deposited within three months -
Extension of time for payment by DOA twice - Thereafter,
several letters written by the appellant to DOA but no response
- Subsequently, letter written by ODA to the appellant that his
case was referred to UOI for its approval for condoning the
D
delay, case being one of Nazul land, which was later declared
by the Central Government as non-Nazul land - On DDA's
request, appellant consented to making payment of the
balance amount with interest charged - After few years
cancellation of allotment of the plot by ODA and consequent E
forfeiture of the earnest money - Suit for specific performance
and damages and recovery of earnest amount by the'
appellant - Subsequently DOA re-auctioned the premises
fetching Rs. 11. 78 crores - Dismissal of suit by the Single
Judge of the High Court but ordered refund of the earnest
F
money forfeited with 9% interest p.a. - However, Division
Bench upheld forfeiture of the earnest money - On appeal,
held: It was arbitrary for the DOA to forfeit the earnest money
- In the absence of notice to deposit the balance 75% amount
within a certain stated time, there is no breach of contract on G
the part of the appellant and consequently earnest money
could not be forfeited - ODA not having been put to any loss,
even if ODA could insist on a contractual stipulation in its
favour, it would be arbitrary to allow DOA as a public authority
627
H
628
SUPREME COURT REPORTS
[2015] 1 S.C.R.,
A
to appropriate Rs. 78 lakhs without any loss being caused -
Article 14 would apply - In fact, DOA made huge profit on reauction of the plot - If damage or loss is not suffered, the law
does not provide for a windfall - Thus, the judgment of the
Single Judge of the High Court restored - Constitution of
B
India, 1950 - Article 14.
s. 7 4 - Compensation for breach of contract where
penalty stipulated for under -
General principles -
Enunciated.
C
Allowing the appeal, the Court
HELD: 1.1. The earnest money can be forfeited under
sub-clause (iv) of the conditions of auction, only in the
case of default, breach, or non-compliance of any of the
o terms
and conditions of the auction, or on
misrepresentation by the bidder. The balance 75% which
had to be paid within three months of the acceptance of
the bid, was not insisted upon by the DOA. On the
contrary, after setting up two High Powered Committees
E
which were instructed to look into the grievances of the
appellant, the DOA extended time at least twice. It is,
therefore, very difficult to say that there was a breach of
any terms and conditions of the auction, as the period of
three months which the DOA could have insisted upon
F
had specifically been waived. It is nobody's case that
there is any misrepresentation by the bidder. Therefore,
under sub-clause (iv), without more, earnest money could
not have been forfeited. [Para 15] [643-B-D]
1.2. Long after the Central Government informed
G ODA (on 1.3.1990) that the property involved "in the
instant case is not Nazul land, the ODA by its letter of
6.10.1993 cancelled the allotment of the plot because the
appellant had failed to deposit the balance 75%. DDA's
understanding, therefore, was that what was important
H
KAI LASH Nfo:TH ASSOCIATES v. DELHI DEVELOPMENT 629
AUTHORITY
was payment of the balance 75% which was insisted
upon by the letter and which was acceded to by the
respondent immediately on the same date. Further it
cannot be accepted that since the letter was "without
prejudice" and since no commitmenf had been made,
they were not bound by the terms of the letter. The letter
was without prejudice and no commitment could have
been given by the ODA because the Central Government
may well not relax the Nazul Rules. On the other hand, if
A
B
the Central Government had, later on, relaxed the Nazul
Rules, DOA could not be heard to say that despite this c
having been done, DOA would yet cancel the allotment
of the plot. That this could not have been done is clear
because of the construction of the letter and also
because DOA is a public authority bound by Article 14
and cannot behave arbitrarily. [Para 17] [644-A-E]
1.3. The Single Judge was correct in observing that
D
the letter of cancellation dated 6.10.1993 and consequent
forfeiture of earnest money was made without putting the
appellant on notice that it has to deposit the balance 75%
premium of the plot within a certain stated time. In the
E
absence of such notice, there is no breach of contract on
the part of the appellant and \:Onsequently earnest money
could not be forfeited. It would be arbitrary for the DOA
to forfeit the earnest money on two fundamental
grounds. First, there is no breach of contract on the part
F
of the appellant. And second, ODA not having been put
to any loss, even if DOA could insist on a contractual
stipulation in its favour, it would be arbitrary to allow DOA
as a public authority to appropriate Rs.78,00,000/-
(Rupees Seventy Eight Lakhs) without any loss being
G
caused. Therefore, Article 14 would apply in the field of
contract in the instant case. [Para 21, 29] [645-E-F; 651H; 652-A-B]
1.4. As earnest money is an amount to be paid in
case of breach of contract and named in the contract as
H
630
SUPREME COURT REPORTS
[2015) 1 S.C.R.
A such, it would necessarily be covered by Section 74. In
cases where a public auction is held, forfeiture of earnest
money may take place even before an agreement is
reached, as ODA is to accept the bid only after the earnest
money is paid. In the instant case, under the terms and
B conditions of auction, the highest bid (along with which
earnest money has to be paid) may well have been
rejected. In such cases, Section 74 may not be attracted
on its plain language because it applies only "when a
contract has been broken". In the instant case, forfeiture
c of earnest money took place long after an agreement had
been reached. It is obvious that the amount sought to be
forfeited on the facts of the instant case is sought to be
forfeited without any loss being shown. In fact it has
been shown that far from suffering any loss, DOA has
0 received a much higher amount on re-auction of the same
plot of land. [Para 40, 41, 42) [663-G-H; 664-A-D]
E
F
G
H
1.5. The law on compensation for breach of contract
under Section 74 can be stated to be as follows:-
1. Where a sum is named in a contract as a liquidated
amount payable by way of damages, the party
complaining of a breach can receive as reasonable
compensation such liquidated amount only if it is a
genuine pre-estimate of damages fixed by both
parties and found to be such by the Court. In other
cases, where a sum is named in a contract as a
liquidated amount payable by way of damages, only
reasonable compensation can be awarded not
exceeding the amount so stated. Similarly, in cases
where the amount fixed is in the nature of penalty,
only reasonable compensation can be awarded not
exceeding the penalty so stated. In both cases, the
liquidated amount or penalty is the upper limit
beyond which the Court cannot grant reasonable
compensation.
KAILASH NATH ASSOCIATES v. DELH(DEVELOPMENT 631
AUTHORITY
2. Reasonable compensation would be fixed on well A
known principles that are applicable to the law of
contract, which are to be found inter alia in Section
73 of the Contract Act.
3.
Since
Section
74
awards
reasonable 8
compensation for damage or loss caused by a
breach of contract, damage or loss caused is a sine
qua non for the applicability of the Section.
4. Section applies whether a person is a plaintiff or a
defendant in a suit.
C
5. The sum spoken of may already be paid or be
payable in future.
6. The expression "whether or not actual damage or 0
loss is proved to have been caused thereby" means
that where it is possible to prove actual damage or
loss, such proof is not dispensed with. It is only in
cases where damage or loss is difficult or impossible
to prove that the liquidated amount named in the
contract, if a genuine pre-estimate of damage or loss, E
can be awarded.
7. Section 74 would apply to cases of forfeiture of
earnest money under a contract. Where, however,
forfeiture .. takes place under the terms and conditions F
of a public auction before agreement is reached,
Section 74 would have no application. [Para 43] [664D-H; 665-A-F]
1.6. The Division Bench has gone wrong in principle. G
There has been no breach of contract by the appellant.
Further, the view of the Division Bench that the fact that
the ODA made a profit from re-auction is irrelevant, as
that would fly in the face of the most basic principle on
the award of damages - namely, that compensation can
only be given for damage or loss suffered cannot be H
632
SUPREME COURT REPORTS
[2015] 1 S.C.R.
A
accepted. If damage or loss is not suffered, the law does
not provide for a windfall. The judgment and order of the
Single Judge is ~estored. [Para 44, 47] [665-G-H; 666-A,
E]
8
Shree Hanuman Cotton Mills & Anr. v. Tata Aircraft Ltd.
1970 (3) SCR 127; Anandram Mangturam v. Bholaram
Tanumal, ILR 1946 Born 218; Keshav/al Lallubhai Patel and
Ors. v. La/bhai Trikumla/ Mills Ltd 1959 SCR 213; Citi Bank
N.A. v. Standard Chartered Bank 2003 (4) Suppl. SCR 489:
C (2004) 1 SCC Page 12; S. Brahmanand v. K.R. Muthugopal
2005 (4) Suppl. SCR 461 :(2005) 12 SCC 764; TP. Daver
v. Lodge Victoria No. 363, S.C. Belgaum 1964 (1) SCR 1;
ABL International Ltd. v. Export Credit Guarantee Corpn. of
India Ltd. (2004) 3 SCC 553; Fateh Chand v. Balkishan Das
1964 SCR (1) 515; Mau/a Bux v. Union of India (UOI) 1970
D (1) SCR 928; Shree Hanuman Cotton Mills and Anr. v. Tata
Aircraft Limited 1970 (3) SCR 127; ONGC Ltd. v. Saw Pipes
Ltd 2003 (3) SCR 691: (2003) 5 SCC 705 - referred to.
Tilley v. Thomas, (1867 3 Ch.A 61); Webb v. Hughes,
E
V.C.M. 1870 - referred to.
Case Law Reference:
1970 (3) SCR 127
Referred to
Para 14
F
ILR 1946 Born 218
Referred to
Para 19
1959 SCR 213
Referred to
Para 24
2003 (4) Suppl. SCR 489 Referred to
Para 25
2005 (4) Suppl. SCR 461 Referred to
Para 26
G
1964 (1) SCR 1
Referred to
Para 28
(2004) 3 sec 553
Referred to
Para 28
1964 SCR (1) 515
Referred to
Para 33
H
1970 (1) SCR 928
Referred to
Para 35
KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 633
AUTHORITY
1970 (3) SCR 127
2003 (3) SCR 691
Referred to
Referred to
Para 36
Para 37
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 193
of 2015.
From the Judgment & Order dated 28.05.2012 of the High
Court of Delhi at New Delhi in RFA (OS) No. 10 of 2008 in CS
(OS) 396 of 1994.
A
B
Paras Kuhad, Manmeet Arora, Kaveeta Wadia, Vipin
Tyagi, Apporv Tripathi, Shashank Tripathi, Jatin for the C
Appellant.
Amarendra Sharan, Dhruv Tamta, Binu Tamta, Rekha
Pandey, S. Ush,a Reddy, Sushma Suri for the Respondents.
The Judgment of the Court was delivered by
R.F. NARIMAN, J. 1. Leave granted.
D
2. The present appeal arises out of a public auction
conducted by the Delhi Development Authority ("ODA") wherein
E
the appellant made the highest bid for Plot No.2-A, Bhikaji
Cama Place, District Centre, New Delhi for 3.12 Crores
(Rupees Three Crores Twelve Lakhs). As per the terms and
conditions of the auction, the appellant, being the highest
bidder, deposited a sum of Rs.78,00,000/- (Rupees Seventy
F
Eight Lakhs), being 25% of the bid amount, with the ODA, this
being earnest money under the terms of the conditions of
auction. The relevant provisions in the conditions of auction read
as follows:
"(ii) The highest bidder shall, at the fall of the hammer, pay G
to the Delhi Development Authority through the officer
conducting the auction, 25% of the bid amount as earnest
money either in cash or by Bank Draft in favour of the Delhi
Development Authority, or Cheque guaranteed by a
Scheduled Bank as "good for payment for three months"
H
634
SUPREME COURT REPORTS
[2015] 1 S.C.R.
A
in favour of the Delhi Development Authority. If the earnest
money is not paid, the auction held in respect of that plot
will be cancelled.
B
c
D
E
F
(iii) The highest bid shall be subject to the acceptance of
Vice-Chairman, DOA or such other officer(s) as may be
authorized by him on his behalf. The highest bid may be
rejected without assigning any reason.
(iv) In case of default, breach or non-compliance of any of
the terms and conditions of the auction or mis -
representation by the bidder and/or intending purchaser,
the earnest money shall be forfeited.
(v) The successful biddfr shall submit a duly filled-in
application in the form attached immediately after the close
of the auction of plot in question.
(vi) When the bid is accepted by the DOA, the intending
purchaser shall be informed of such acceptance in writing
and tbe intending purchaser shall, within 3 months thereof,
pay to the Delhi Development Authority, the balance 75%
amount of the bid, in cash or by Bank Draft in favour of
the Delhi Development Authority or by Cheque guaranteed
by a Scheduled Bank as "good for payment for three
months" in favour of the Delhi Development Authority. If the
bid is not accepted, the earnest money will be refunded
to the intending purchaser without any interest unless the
earnest money is forfeited under para 2 (iv) above."
3. On 18.2.1982, the DOA acknowledged the receipt of
Rs.78,00,000/- (Rupees Seventy Eight Lakhs), accepted the
G
appellant's bid and directed the appellant to deposit the
remaining 75% by 17.5.1982. However, as there was a general
recession in the industry, the appellant and persons similarly
placed made ·representations sometime in May, 1982 for
extending the time for payment of the remaining amount. The
DOA set up a High Powered Committee to look into these
H
KAILASH NATH ASSOCIATES v. DELHI DEVELOPMENT 635
AUTHORITY [R.F. NARIMAN, J.]
representations. The High Powered Committee on 21.7.1982 A
recommended granting the extension of time to bidders for
depositing the remaining amount of 75%. Based on the High
Powered Committee's report, by a letter dated 11.8.1982, the
ODA extended tjme for payment upto 28.10.1982 with varying
rates of interest starting from 18% and going upto 36%.
B
4. Another High Powered Committee was also set up by
the DOA in order to find out whether further time should be given
to the appellant and persons similarly situate to the appellant.
5. The second High Powered Committee recommended C
that the time for payment be extended and specifically
mentioned the appellant's name as a person who should be
given more time to pay the balance amount. Despite the fact
that on 14.5.1984 the ODA accepted the recommendations of
the second High Powered Committee, nothing happened till 0
1.12.1987. Several letters had been written by the appellant to
ODA from 1984 to 1987 but no answer was forthcoming by the
ODA.
6. Vide a letter dated 1.12.1987, which is an important
letter on the basis of which the fate of this appeal largely E
depends, the DOA stated as follows:
"WITHOUT PREJUDICE'
DELHI DEVELOPMENT AUTHORITY
VIKAS SADAN
l.N.A.
F
No. F.32(2)/82/lmpl.-l/4
From: DIRECTOR (C.L)
New Delhi-23 ...... 198 ...
DELHI DEVELOPMENT AUTHORITY
To,
M/s. Kailash Nath & Associates,
1006, Kanchanjanga Building,
18, Bara Khamba Road,
New Delhi-110001.
G
Sub: Regarding payment of balance premium in respect H
A
B
c
D
E
F
G
H
636
SUPREME COURT REPORTS
[2015] 1 S.C.R.
of Plot No.2-A situated in Bhikaji Cama Place Distt.
Centre.
Sir,
With reference to the above subject, I am directed to inform
you that your case for relaxing the provisions of Nazul
Rules, 1981, to condone the delay for the payment of
balance premium in installments was referred to the Govt.
of India, Min. of Urban Development. Before the case is
further examined by the Govt. of India, Min. of Urban
Development, you are requested to give your consent for
making payment of balance amount of 75% premium
within the period as may be fixed alongwith 18% interest
charges p.a. on the belated payment. Further the schedule
of payment and conditions if any will be as per the
directions issued by the Ministry of Urban Development,
Govt. of India. It is, however, made clear that this letter
does not carry any commitment.
Your consent should reach to this office within 3 days from
the date of issue of this letter.
Dated 1.12.87
Yours faithfully,
Sd/
DIRECTOR (C.L)"
7. The appellant replied to the said letter on the same day.
itself in the following terms:
"KAILASH NA TH & ASSOCIATES
Tel.: 3312648, 3314269
1006, KANCHENJUNGA,
18, BARAKHAMBA ROAD,
NEW DELHl-110001
Regd. Ack. Due.
'
KAI LASH !NATH ASSOCIATES v. DELHI DEVELOPMENT 637
AUTHORITY [R.F. NARIMAN, J.]
December 1, 1987.
The Director (C.L.),
Delhi Development Authority,
Vikas Sadan, l.N.A.,
New Delhi-I 10023.
Subject:
Payment of balance premium in respect of
plot No.2-A Bhikaji Gama Place Distt. Centre, New
Delhi.
Dear Sir,
A
B
c
We are thankful to you for your letter No. F.30(2)/82-lmpl.-
l/4 dated nil received by us this afternoon, on the above
subject.
We hereby give our consent that we shall make the
payment of the balance amount of 75% premium within the
D
period as may be fixed as per the schedule of payment
and conditions, if any imposed, as per the directions
issued by the Ministry of Urban Development, Govt. of
India, alongwith 18% interest charges per annum on the
belated payment.
E
We now request you to kindly convey us your formal
approval to our making the said payment in installments
as requested for.
Thanking you,
Yours faithfully
For KAILASH NATH & ASSOCIATES,
Sd/
Partner
Advance copy sent through Special Messenger."
8. The Central Government informed the DOA vide a letter
dated 1.3.1990 that the land auctioned to the appellant was not
Nazul land and, therefore, the Central Government would have
nothing further to do with the matter. Meanwhile, the appellant
F
G
H
638
SUPREME COURT REPORTS
[2015] 1 S.C.R.
A filed Writ Petition No.2395 of 1990 in the Delhi High Court in
which it claimed that persons similar to the appellant, namely,
Mis. Ansal Properties and Industries Private Limited and M/s
Skipper Tower Private Limited had been allowed to pay the
balance 75% premium and were in fact allotted other plots.
B Pleading Article 14, the appellant stated that they were entitled
to the same treatment.
9. By a judgment and order dated 2.9.1993, the Delhi
High Court held that as the auction was held as per terms and
C conditions of the auction, a dispute regarding the same is a
matter of contract and cannot be gone into in proceedings
under Article 226 of the Constitution. It was further observed
that on facts, the Court found no force in the contention raised
on behalf of the appellant regarding discrimination. An SLP
D against this order was also dismissed on 16.12.1993 by the
Supreme Court stating that the appellant is at liberty to take
whatever steps are permitted to the appellant under law to
challenge forfeiture of earnest money, which had been done by
a letter of 6.10.1993. This letter is also important for the correct
determination of this appeal and is set out hereinbelow:-
E
F
G
H
"REGD.A.D.
DELHI DEVELOPMENT AUTHORITY
VIKAS SADAN
1.N.A.
New Delhi-23, 6.10.1993
No.F.32(2)/82/CL/3816
From: DY. DIRECTOR (CL).
To,
M/s. Kailash Nath & Associates,
1006, Kanchanjanga Building,
18, Bara Khamba Road,
New Delhi-110001.
Subject: Plot No.2-A in Bhikaji Cama Place Distt. Centre.
Sir,
KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 639
AUTHORITY [R.F. NARIMAN, J.]
Consequent upon your failure to deposit the balance 75%
A
premium of the aforesaid plot and dismissal of C.W.P. No.
2395 of 1990 by the Hon'ble High Court, Delhi, I am
directed to inform you that the bid/ allotment of the said plot
in your favour has been cancelled and earnest money
amounting to Rs.78,00,000/- deposited by you at the time
B
of auction has been forfeited.
Yours faithfully,
Sd/
(JAGDISH CHANDER) c
DEP.UTY DIRECTOR (CL)"
10. The appellant then filed a suit for specific performance
on 17.2.1994 and in the alternative for recovery of damages
and recovery of the earnest amount of Rs.78,00,000/- (Rupees
Seventy Eight Lakhs). Shortly after the suit was filed, on
D
23.2.1994, the DOA re-auctioned the premises which fetched
a sum of Rs.11. 78 Crores (Rupees Eleven Crores Seventy
Eight Lakhs).
11. The learned Single Judge by a judgment and order E
dated 10.9.2007 dismissed the appellant's suit for specific
performance and damages but ordered refund of the earnest
money forfeited together with 9% per annum interest. The
learned Single Judge held:-
"65. Defendant No. 1 instead of following the aforesaid F
course, found merit in the representations received not
only from the plaintiff but such similar situated parties. It
is in view thereof that the matter went as far as setting up
of two committees to repeatedly examine the matter and
to come to a conclusion. The case of defendant no. 1 was G
that the material produced by the plaintiff and such
similar persons gave rise to a cause to extend the time
for making the payment subject to certain terms and
conditions. However, in view of the perception of
defendant no.1 that the consent of UOI, defendant no.2,
H
A
B
c
D
E
F
G
H
640
SUPREME COURT REPORTS
[2015) 1 S.C.R.
would be required, the land being Nazul land, the file was
forwarded to defendant no. 2. The matter did not rest at
this since thereafter UOI did grant such consent but sent
back the file of the plaintiff only on account of the fact that
the land in question was not Nazul land. The net effect
of this is that there was no permission required from the
UOI and the decision taken by defendant no. 1 to extend
the time period for making the payment, thus, stood as
it is.
-66. In my considered view, it is not open for defendant
no. 1 to state that while it recommended the case of other
similarly situated parties in case of Nazul land to the
Government and obtained permission for grant of
extension of time, in case of non-Nazul land where such
permission was not required, a different parameter was ·
required to be followed. It may be mentioned at the cost
of repetition that the plaintiff was a party which
volunteered to pay interest @18% per annum unlike
some of the other parties. There is merit in the contention
of learned Counsel for the plaintiff that defendant no. 1
after treating the contract as subsistent having extended
time for making the payment was at least required to give
a notice to the plaintiff to perform the agreement prior to
terminating the agreement ~:wd could not straightaway
terminate the same. This conclusion can draw strength
from the observations in Halsbury Laws of England
(supra) referred to aforesaid as also in Webb v. Hughes
(supra). It is clearly a case where there has been waiver
of the time being essence of the contract by conduct of
the parties and, thus, defendant no. 1 was required to give
notice on the day appointed for completion of the contract
failing which only termination could take place.
67. There were numerous communications exchanged
between the parties. The recommendations of the two
high-powered committees constituted by defendant no. 1
KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 641
AUTHORITY [R.F. NARIMAN, J.]
made its recommendations which were accepted by A
defendant no. 1 vide its resolution dated 14. 5. 1984 (Ex.
DW2/P-4). Having accepted the recommendations, in the
case of the plaintiff defendant no. 1 was required to do
nothing further but mistakenly·referred the case to UOI
for its approval assuming the case to be one of Nazul B
land. Plaintiff sent repeated reminders vide letters dated
9-12-1985 (Ex.P-11), 20-10-1986 (Ex.P-12), 10-121986(Ex.P-13), 10-02-1987 (Ex.P-14), 11-04-1987(Ex.P16), 10-08-1987(Ex.P-17) and 10-10-1987 (Ex.P-18)
calling upon defendant no. 1 to give an offer of deposit of c
balance 25% of the premium so as to bring the total
payment equivalent to 50% of the total premium and for
release of the possession of the land to the plaintiff for
purpose of construction. Defendant no. 1 vide its letter
received on 1.12.1987 by the plaintiff (Ex.P-19) sought D
the consent of the plaintiff to abide by the
recommendations of the high-powered committee and
the consent was duly given on the even date (Ex.P-20).
Thereafter no offer was made to the plaintiff and without
any notice of.compliance for payment, the letter of
cancellation dated 6.10. 1993 (Ex.P-26) was issued. It E
appears that defendant no. 1 itself was not aware of the
land being non-Nazul land as the first communication
was addressed to the plaintiff only on 1.3.1990.
68. The present case is one where defendant no. 1 has
F
not even suffered a loss. The plot was to be purchased
by the plaintiff at Rs. 3. 12 crores and it was finally sold to
a third party at Rs. 11.78 crores, i.e. almost three and a
half times the price. During this period defendant no. 1
continued to enjoy the earnest money of the plaintiff of G
Rs. 78.00 lacs.
69. In view of the prolonged period, exchange of
communications, the plaintiff making various offers but
not complying with the initial terms, defendant no. 1 taking H
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its own time in the decision making process, I am of the
considered view that the plaintiff is entitled to the refund
of the earnest money of Rs. 78.00 lacs but no further
amount is liable to be paid to the plaintiff."
B
12. DOA appealed against the Single Judge's judgment
to a Division Bench of the Delhi High Court._The Division Bench
set aside the judgment of the Single Judge holding that the
forfeiture of the earnest money by the ODA was in order.
· 13. Shri Paras Kuhad, learned Senior Advocate appearing
C
on behalf of the appellant, urged that time may have be-en of
the essence under the original terms and conditions of the
auction. However, time had been extended on several
occasions and, therefore, ceased to be of the essence. In
answer to the letter dated 1.12.1987, the appellant promptly
D
replied and said it would be willing to pay the entire 75% with
18% interest and, therefore, there was no breach of contract
on the part of the appellant. Further, since the ODA sold the
plot for 11.78 Crores (Rupees Eleven Crores Seventy Eight
Lakhs), there was no loss caused to the DOA and, hence
E
forfeiture of earnest money would not be in accordance with the
agreement or in accordance with law.
F
14. Shri Amarendra Sharan, learned Senior Advocate
appearing on behalf of the ODA, rebutted these contentions
and added that the case was covered by the judgment in Shree
Hanuman Cotton Mills & Anr. v. Tata Aircraft Ltd., 1970 (3)
SCR 127. He argued further that since the letter of 1.12.1987
had been issued under a mistake of fact, it would be void under
Section 20 of the Contract Act and the said letter should,
therefore, be ignored. If it is ignored, then the termination of the
G contract and the forfeiture of earnest money are completely in
order as the appellant was in breach. The fact that the ODA
ultimately sold the plot for a much larger sum, according to
learned counsel, would be irrelevant inasmuch as the
contractual term agreed upon between parties would entitle him
H
KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 643
AUTHORITY [R.F. NARI MAN, J]
to forfeit earnest money on breach without any necessity of A
proving actual loss.
15. Having heard learned counsel for the parties, it is
important at the very outset to notice that earnest money can
be forfeited under sub-clause (iv) set out hereinabove, only in
B
the case of default, breach, or non-compliance of any of the
terms and conditions of the auction, or on misrepresentation
by the bidder. It may be noted that the balance 75% which had
to be paid within three months of the acceptance of the bid, was
not insisted upon by the DOA. On the contrary, after setting up C
two High Powered Committees which were instructed to look
into the grievances of the appellant, the DOA extended time at
least twice. It is, therefore, very difficult to say that there was a
breach of any terms and conditions of the auction, as the period
of three months which the ODA could have insisted upon had
specifically been waived. It is nobody's case that there is any D
misrepresentation here by the bidder. Therefore, under subclause (iv), without more, earnest money could not have been
forfeited.
16. The other noticeable feature of this case on facts is
E
that DOA specifically requested the appellant to give their
consent to make the balance payable along with 18% interest
charges on belated payment. This was on the footing that the
Nazul Rules of 1981 would be relaxed by the Central
Government. The rea·son why the letter is marked "without
F
prejudice" and the DOA made it clear that the letter does not
carry any commitment, is obviously because the Central
Government may not relax the provision of the Nazul Rules, in
which case nothing further could be done by the DOA. If,
however, the Central Government was willing to condone the G
delay, ODA would be willing to take 75% of the outstanding
amount along with 18% interest.
17. Mr. Sharan argued that since the Central Government
ultimately found that this was not a Nazul land, the letter was
obviously based on a mistake of fact and would be void under H
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[2015] 1 S.C.R.
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Section 20 of the Contract Act. We are afraid we are not able
to accept this plea. Long after the Central Government informed
ODA (on 1.3.1990) that the property involved in the present
case is not Nazul land, the ODA by its letter of 6.10.1993
cancelled the allotment of the plot because the appellant had
B
failed to deposit the balance 75%. DDA's understanding,
therefore, was that what was important was payment of the
balance 75% which was insisted upon by the letter dated
1.12.1987 and which was acceded to by the respondent
immediately on the same date. Further, Mr. Sharan's argument
c
theai since the letter was "without prejudice" and since no
commitment had been made, they were not bound by the terms
of the letter also fails to impress us. The letter was without
prejudice and no commitment could have been given by the
ODA because the Central Government may well not relax the
0
Nazul Rules. On the other hand, if the Central Government had,
later on, relaxed the Nazul Rules, DOA could not be heard to
say that despite this having been done, ODA would yet cancel
the allotment of the plot. That this could not have been done is
clear because of the aforesaid construction of the letter dated
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1.12.1987 and also because DOA is a public authority bound
by Article 14 and cannot behave arbitrarily.
18. It now remains to deal with the impugned judgment of
the Division Bench.
19. The Division ·Bench followed the judgment of Tilley v.
Thomas, (1867 3 Ch.A 61) and distinguished the judgment in
Webb v. Hughes, V. C. M. 1870. It further went on to follow
Anandram Mangturam v. Bholaram Tanumal, ILR 1946 Born
218 and held:
"The decision holds that the principle of law is that where,
by agreement, time is made of the essence of the
contract, it cannot be waived by a unilateral act of a party
and unless there is consensus ad-idem between the
parties and a new date is agreed to, merely because a
KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 645
AUTHORITY [R.F. NARIMAN, J.]
party to a contract agrees to consider time being extended
A
-for the opposite party to complete the contract, but
ultimately refuses to accord concurrence would not mean
that the party has by conduct waived the date originally
agreed as being of the essence of the contract." (At para
3~
B
20. In our judgment, Webb's case would directly apply to
the facts here. In that case, it was held:
"But if time be made the essence of the contract,
that may be waived by the conduct of the purchaser; and C
if the time is once allowed to pass, and the parties go on
negotiating for completion of the purchase, then time is
no longer of the essence of the contract. But, on the other
-hand, it must be borne in mind that a purchaser is not
bound to wait an indefinite time; and if he finds, while the
D
negotiations are going on, that a long time;,Will elapse
before the contract can be _completed, he may in a
reasonable manner give notice to the vendor, and fix a
period at which the business is to be terminated."
21. Based on the facts of this case, the_ Single Judge was
correct in observing that the letter of cancellation dated
6.10.1993 and consequent forfeiture of earnest money was
made without putting the appellant on notice that it has to
deposit the balance 75% premium of the plot within a certain
stated time. In the absence of such notice, there is no breach
of contract on the part of the appellant and consequently earnest
money cannot be forfeited.
22. Tilley v. Thomas, (1867 3 Ch.A 61) would not apply
E
F
for the reason that the expression "without prejudice" was only
G
used as stated above because the Central Government may
not relax the Nazul Rules.
23. In Anandram Mangturam v. Bholaram Tanumal, ILR
1946 Born 218, two separate judgments were delivered, one
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SUPREME COURT REPORTS
[2015] 1 S.C.R.
by Chief Justice Stone and the other by Chagla,J. as he then
was. Stone C.J. held:-
"In my judgment, reading the correspondence as
a whole, it at no stage passed from the melting pot of
negotiations to crystallize as an agreement to extend the
time for the performance of the contract. The attitude of
the purchaser throughout the correspondence was:
"Satisfy us that you are doing your best to obtain the
goods from your suppliers and we will then consider
fixing a new date for delivery of the goods to us". On the
other hand the attitude of the vendors throughout the
correspondence was to avoid the purchaser's demand
and to simply say: "You know that we c;mnot effect delivery
from our suppliers and until we do so we cannot deliver
the goods to you". There was never in my judgment
any consensus ad-idem, no agreement, express or
implied, to extend the time either to any particular date
or to the happening of some future event. Mere
forbearance in my opinion to institute proceedings or to
give notice of rescission cannot be an extension ·or the
time for the performance of a contract within the meaning
of s. 63 of the Contract Act." (at 226 & 227)
Chagla, J. in a separate judgment held:-
" Under s. 55 of the Indian Contract Act, the
promisee is given the option to avoid the contract where
the promisor fails to perform the contract at the time fixed
in the contract. It is open to the promisee not to exercise
the option or to exercise the option at any time, but it is
clear to my mind that the promisee cannot by the mere
fact of not exercising the option change or alter the date
of performance fixed under the contract itself Under s.
63 of the Indian Contract Act, the promisee may make
certain concessions to the promisor which are
advantageous to the promisor, and one of them is that
he may extend the time for such performance. But it is
KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 64 7
AUTHORITY [R.F. NARIMAN, J.]
clear again that such an extension of time cannot be a
A
unilateral extension on the part of the promisee. It is only
at the request of the promisor that the promisee may
agree to extend the time of performance and thereby
bring about an agreement for extension of time. Therefore
it is only as a result of the operation of s. 63 of the Indian
B
Contract Act that the time for the performance of the
contract can be extended and that time can only be
extended by an agreement arrived at between the
promisor and the promisee." (at 229)
24. The aforesaid judgment would apply in a situation
where a promisee accedes to the request of the promiser to
extend time that is fixed for his own benefit. Thus, in Keshavlal
Lallubhai Patel and Ors. v. Lalbhai Trikumlal Mills Ltd 1959
SCR 213, this Court held:-
"The true legal position in regard to the extension of time
for the performance of a contract is quite clear under
s. 63 of the Indian Contract Act. Every promisee, as the
section provides, may extend time for the performance
c
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of the contract. The question as to how extension of time E
may be agreed upon by the parties has been the subjectmatter of some argument at the Bar in the present
appeal. There can be no doubt, we think, that both the
buyer and the seller must agree to extend time for the
delivery of goods. It would not be open to the promisee
F
by his unilateral act to extend the time for performance
of his own accord for his own benefit."
25. However, such is not the position here. In the present
case, the appellant is the promiser and ODA is the promisee.
In such a situation, ODA can certainly unilaterally extend the time G
for payment under Section 63 of the Contract Act as the time
for payment is not for DDA's own benefit but for the benefit of
the appellant. The present case would be covered by two
judgments of the Supreme Court. In Citi Bank N.A. v. Standard
Chartered Bank, (2004) 1 SCC Page 12, this Court held:
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[2015] 1 S.C.R.
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"50. Under Section 63, unlike Section 62, a
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promisee can act unilaterally af!d may
(i) dispense with wholly or in part, or
(ii) remit wholly or in part,
the performance of the promise made to him, or
(iii) may extend the time for such performance, or
(iv) may accept instead of it any satisfaction which he
thinks fit."
26. Similarly in S. Brahmanand v. K.R. Muthugopa/,
(2005) 12 SCC 764 the Supreme Court held:
"34. Thus, this was a situation where the original
agreement of 10-3-1989 had a "fixed date" for
performance, but by the subsequent letter of 18-6-1992
the defendants made a request for postponing the
performance to a future date without fixing any further date
for performance. This was accepted by the plaintiffs by
their act of forbearance and not insisting on performance
forthwith. There is nothing strange in time for performance
being extended, even though originally the agreement
had a fixed date. Section 63 of the Contract Act, 1872
provides that every promisee may extend time for the
performance of the contract. Such an agreement to
extend time need not necessarily be reduced to writing,
but may be proved by oral evidence or, in some cases,
even by evidence of conduct including forbearance on
the part of the other party. [See in this connection the
observations of this Court in Keshavlal Lal/ubhai
Patel v. La/bhai Trikumlal Mills Ltd., 1959 SCR 213: AIR
1958
SC
512,
para
8.
See
a/so
in
this
connection Saraswathamma v. H. Sharad Shrikhande,
AIR 2005 Kant 292 and K. Venkoji Rao v. M. Abdul
Khuddur Kureshi, AIR 1991 Kant 119, following the
KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 649
AUTHORITY [R.F. NARIMAN, J.]
judgment in Keshavlal Lallubhai Patel (supra).] Thus, in
A
this case there was a variation in the date of performance
by express representation by the defendants, agreed to
by the act of forbearance on the part of the plaintiffs.
What was originally covered by the first part of Article 54,
now fell within the purview of the secqnd part of the
article. Pazhaniappa Chettiyar v. South Indian Planting
and Industrial Co. Ltd.