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PETITIONER:

H.U.D.A. & ANR.

Vs.

RESPONDENT:

KEWAL KRISHAN GOEL & ORS.

DATE OF JUDGMENT: 09/05/1996

BENCH:

G.B. PATTANAIK (J)

BENCH:

G.B. PATTANAIK (J)

RAMASWAMY, K.

CITATION:

1996 AIR 1981 1996 SCC (4) 249

JT 1996 (6) 62 1996 SCALE (4)327

ACT:

HEADNOTE:

JUDGMENT:

WITH

CIVIL APPEAL NO. 7850 OF 1996

(Arising out of SLP(C) Nos. 28081/95)

IN THE MATTER OF:-

----------------

H.U.D.A. & Anr.

V.

Ravinder Nath Sharma

AND

CIVIL APPEAL NO. 7851 OF 1996

(Arising out of SLP (C) Nos. 3360/96)

IN THE MATTER OF:-

----------------

State of Haryana & Ors.

V.

Shamsher Singh

J U D G M E N T

PATTANAIK, J.

Leave granted.

In these three appeals directed against the judgment of

the Punjab and Haryana High Court the common question of law

is involved and as such are heard together and are being

disposed of by this common judgment.

The short question that arises for consideration is,

where a land is allotted and the allotee deposits some

instalments but thereafter intimates the authority about his

incapacity to pay up the balance instalments and requests

for refund of the money paid, is the allotting authority

entitled to forfeit the earnest money deposited by the

allotee or could be only entitled to forfeit 10% of the

total amount deposited by the allotee till the request is

made as directed by the High Court?

Haryana Urban Development Authority issued an

advertisement inviting applications for allotment of

residential plots at Karnal. The price of plots was

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different for different size. In accordance with the

advertisement 10% of the total price was required to be

deposited along with the application form as earnest money

and where the plot was a preferential one an extra price of

10% of the total price was required to be deposited. In the

letter of allotment that had been issued by the Estate

Officer of the Haryana Urban Development Authority to the

allotee. it was indicated that if the allotee refuses to

accept the allotment then the same may be communicated

within 30 days from the date of allotment letter failing

which the allotment would stand cancelled and the earnest

money deposited shall be forfeited to the authority and the

allotee can have no claim for damages. It was also

stipulated in the letter of allotment that the balance

amount of the tentative price indicated in the letter of

allotment could be deposited either in lump sum without any

interest within 60 days from the date of issue of the

allotment letter or on 6 annual instalments and each

instalment would be recoverable together with interest at

15% On receipt of the letter of allotments the allotees who

are the respondents in these appeals accepted the allotment

and made the initial deposits as required and thereafter

chose to deposit the balance amount in instalment. Each of

the allotee - respondent did deposit some instalment and

thereafter intimated the authority that they will not be in

a position to take the land allotted and requested for

refund of the amount. In some cases the authority replied

that their prayer for cancellation of allotment cannot be

acceded to and in some other cases even before any

consideration made by the authority to the request of the

allotees, the allotees approached the High Court. The High

Court having directed the authority to refund the balance

after deducting 10% of the amount deposited by each of the

allotee, the Haryana Urban Development Authority as well as

the State of Haryana have preferred these appeals.

Mr. Arun Jaitley, the learned senior counsel appearing

for the appellants contended that in view of the fact that

the allotee was required to deposit 10% of the purchase

price as earnest money while tile application for allotment

was made and having accepted the allotment in question with

the terms and conditions stipulated in the letter of

allotment, when the transaction falls through by reasons of

default or failure on the part of the allotee, the authority

would be entitled to forfeit the entire earnest money

deposited and not the 10% of the amount deposited till then

as directed by authority could deduct 10% of the amount

deposited till then as directed by the High Court. Mr.

Jaitley contends 'earnest' represents a guarantee that the

contract will be fulfilled and is given to bind the contract

and therefore the same is forfeited when the transaction

falls through on account of failure on the part of the

purchaser. According to the learned counsel in view of the

specific clauses of the letter of allotment the High Court

committed gross error in directing forfeit of only 10% of

the amount deposited. Mr. Mahabir Singh, learned counsel

appearing for the respondent on the other hand contended

that the forfeiture of earnest money in terms of clause 4 of

the allotment letter can be made if the allotee does not

communicate his refusal by registered letter within 30 days

from the date of allotment but once the allotment is

accepted and thereafter the allotee makes deposits on

instalments and opts out a contract by expressing his

inability to take the land, there is no provision in the

allotment letter or under the rules entitling the authority

to forfeit the earnest money. Since the power of forfeiture

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of the earnest money has to be found out specifically either

from the letter of allotment or from the rules, if any,

governing the allotment and since there is no such

provision, the High Court was entitled to decide the

question on equitable consideration and has rightly directed

that the authority could deduct 10% of the amount deposited

and there is no error of law therein requiring interference

by this Court.

In view of the rival stand of the parties, the first

question that arises for consideration is whether under the

terms of allotment the allotees were required to deposit any

amount as earnest money and if so when that earnest money

could be forfeited by the authority? From the material on

record there is no dispute that an application for

allotment, pursuant to the advertisement made by the

authority, has to be made with a deposit of 10%, of the

tentative price as the earnest money. After consideration of

the application when letter of allotment is issued clause

(4) thereof stipulates that an allotee if refuses to accept

the allotment shall communicate the same by registered

letter within 30 days from the date of allotment letter. If

no such refusal is communicated within 30 days then it would

not be open for the allotee to refuse it later and further

the earnest money deposited by the allotee would be

forfeited to the authority and an allotee can claim no

damages. The allotment letter further stipulated that in

case the allotee accepts allotment then letter of acceptance

should reach the authorities by registered post together

with an additional amount as indicated in the letter, which

deposit along with the earnest money deposited already

should constitute 25% of the total tentative price. Clause

(6) of the allotment letter also indicates that the balance

amount of the tentative price of the plot could be paid

either in lump-sum without interest within 50 days from the

date of issue of the allotment letter or in six annual

instalments the first instalment would fall due after expiry

of one year of the date of issue of the letter. Clauses 4, 5

and 6 of the letter of allotment are extracted hereinbelow

in extenso for better appreciation of the point in issue:

''(4) In case you refuse to accept

this allotment, you shall

communicate your refusal by a

registered letter within 30 days

from the date of allotment letter,

failing which this allotment shall

stand cancelled and the earnest

money deposited by you shall be

forfeited to The authority & you

shall have no clang for damages.

(5) In case you accept this

allotment, please send your

acceptance by registered post

alongwith an amount of Rs. 34,505/-

within 30 days from the date of

issue of this allotment letter.

which together with an amount of

Rs. 23020/- paid by you alongwith

your application form as earnest

money, will constitute 25 percent

of the total tentative price.

(6) The balance amount i.e. Rs.

1,72,575/- of the above tentative

price of the plot can be paid in

lump-sum without interest within 60

days from the date of issue of the

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allotment letter or in six annual

instalment. The first instalment

will fall due after the expiry of

one year of the date of issue of

this letter. Each instalments

should be recoverable together with

interest on the balance price of

10% interest on the remaining

amount. The interest shall however,

accrue from the date of offer of

possession. Interest @ 18% will be

charged on the delayed payment."

A combined reading of the aforesaid three clauses of

letter of allotment together with the advertisement issued

indicates that the scheme of allotment was that an applicant

could make an application along with 10% of the tentative

price of the land as earnest deposit. On receipt of the

letter of allotment he is required to indicate either his

letter of acceptance or letter of refusal within 30 days

from the date of the receipt of the allotment letter. In

case of acceptance he would be further required to make an

additional deposit which deposit together with the earnest

money already deposited would constitute 25% of the total

tentative price. If he fails to accept the allotment within

30 days from the date of receipt of the letter then the

authority was entitled to forfeit the earnest money. Further

the balance amount could be deposited in instalment. Thus

under the allotment in question an allotee was required to

deposit 10% of the tentative price of the land as earnest

money which is given to bind the contract and the said

earnest money could be forfeited by - the authority in case

the allotee does not communicate the letter of refusal

within 30 days from the date of receipt of the allotment

order.

The next question that arises for consideration is

that, where the allotee accepts the allotment and indicates

the same within the stipulated period and makes additional

deposits on instalment basis and thereafter intimates the

authority that he will not be in a position to pay up the

balance amount and makes a request for refund of the money

deposited, would the authority be justified in forfeiting

the earnest money which had been deposited along with the

application form?. The answer to this question depends upon

the basic concept of 'earnest'. In the case of Shri Hanuman

Cotton Mills and Others vs. Tata Air Craft Limited, 1969 (3)

SCC 522, this Court laid down the following 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."

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The earnest money is a part of the purchase price when

the transaction gets through and the same is forfeited when

the transaction falls through by reason of the default or

failure on the part of the vendee.

Wright, J. in the case of Farr, Smith & Co. vs. Messrs.

Ltd. LR (1928) 1 KBD 397 quotted the observations of

Hamilton, J., in Summer and Leivesley vs. John Brown & Co.

25 Times LR 745 with regard to the meaning of 'earnest' as

thus:

" 'Earnest'...... meant something

given for the purpose of binding a

contract, something to be used to

put pressure on the defaulter if he

failed to carry out his part. If

the contract went through the thing

given in earnest was returned to

the given, or, if money, was

deducted from the price. If the

contract went off through the

giver's fault the thing given in

earnest was forfeited."

The law on the subject has been discussed fully in a

recent case of Delhi Development Authority vs. Grishthapana

Cooperative Group Housing Society Ltd., 1995 Supp(1) SCC

751.

This being the legal position and the allotee hating

accepted the allotment and having made some payment on

instalment basis then made the request to surrender the

land, has committed default on his part and therefore the

competent authority would be fully justified in forfeiting

the earnest money which had been deposited and not the 10%

of the amount deposited as held by the High Court. The High

Court was totally in error in issuing the direction in

question on the ground that the respondents were not in a

position to deliver the possession of the land to the

allotee. lt may be stated that in the letter of allotment no

period was stipulated within which the possession of the

land was to be delivered. The land in question was required

to be developed and then to be delivered and in absence of

any period in the letter of allotment, it was required to be

delivered', within a reasonable period. In the facts and

circumstances. It cannot be said that the reasonability had

lapsed particularly when the allotees had not paid up the

entire instalment due and merely paid a par thereof.

In the premises as aforesaid the impugned judgment and

direction of the High Court in each of the appeal are set

aside and it is held that the appellant would be entitled to

forfeit the earnest money which had been deposited along

with the application form and on deducting the said

'earnest' the balance amount may be refunded to allotees -

respondents who had made application for refund in question.

The appeals are allowed to the extent indicated above but in

the circumstances there will be no order as to costs .