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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2458 OF 2014

[Arising out of SLP (C) No.23069 of 2012)

Maya Devi ..

Appellant

Versus

Lalta Prasad .. Respondent

J U D G M E N T

K. S. RADHAKRISHNAN, J.

1.Leave granted.

2.The appellant herein filed an Objection Petition

under Order 21 Rule 58 CPC, when the decree obtained

by the respondent in Civil Suit No.407 of 2007 was

sought to be executed. Suit was filed for the recovery

of an amount of Rs.3,40,000/- with interest, which was

Page 2 2

sought to be realized, on the property covered by an

agreement for sale dated 3.11.2003 between the

judgment debtor and decree holder. The appellant

claimed that she became the absolute owner of the suit

property by virtue of a registered General Power of

Attorney dated 12.5.2006 and that she has been in

actual physical possession of the suit property. The

Petition was contested by the decree holder/respondent

stating that the applicant/objector had no legal right,

title or interest and that the execution of the General

Power of Attorney and its registration would not confer

any ownership right in favour of the appellant/objector.

Reliance was also placed on the judgment of this Court

in Suraj Lamp and Industries Private Limited

Through Director v. State of Haryana & Anr.

(2009) 7 SCC 363. The Executing Court vide its order

dated 23.7.2010 dismissed the Objection Petition filed

by the appellant. Aggrieved by the same, the appellant

preferred Execution First Appeal No.23 of 2010 before

the High Court of Delhi at New Delhi. The High Court

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also placed reliance on the judgment of this Court in

Suraj Lamp and Industries Private Limited (supra)

and dismissed the appeal holding that the documents

relied upon by the appellant would not confer

ownership or possession over the property in her

favour. The High Court also vide its order dated

24.1.2011 upheld the order of the Executing Court.

Aggrieved by the same, this appeal has been preferred

by the appellant.

3.Shri Rajesh Kumar, learned counsel appearing for

the appellant submitted that the ratio laid down by this

Court in Suraj Lamp and Industries Private Limited

(supra) was wrongly applied by the Executing Court as

well as the High Court. Learned counsel submitted that

in the final judgment which is reported in Suraj Lamp

and Industries Private Limited (2) Through

Director v. State of Haryana & Anr. (2012) 1 SCC

656, this Court has clarified the position that the

judgment would not affect the validity of sale

Page 4 4

agreements and powers of attorney executed in

genuine transactions and that the judgment would

operate only prospectively. Learned counsel also

submitted that the alleged agreement executed

between the respondent and one Prem Chand Verma

on 3.11.2003 was a collusive one, subsequently

created, to get over the registered Power of Attorney

executed on 3.6.1982 between the appellant and wife

of Prem Chand Verma, viz. Nirmal Verma. Learned

counsel also pointed out that Civil Suit No.407 of 2007

was preferred by the respondent herein against Prem

Chand Verma based on the deed of agreement dated

3.11.2003 created for the said purpose. Referring to

the above-mentioned judgment, learned counsel further

pointed out that Prem Chand Verma did not contest the

Suit and he was declared ex-parte and a decree was

passed in favour of the respondent. Learned counsel

pointed out that the decree was obtained by collusion

and practicing fraud on the Court and the Executing

Court has committed an error in rejecting the Objection

Page 5 5

filed by the appellant herein, so also by the High Court

by not appreciating the facts in the correct perspective.

4.Shri K. Krishna Kumar, learned counsel for the

respondent, submitted that both the Executing Court

and High Court have correctly applied the principles

laid down in Suraj Lamp and Industries Private

Limited (supra). Learned counsel pointed out that any

process which interferes with regular transfers under

deeds of conveyance properly stamped, registered and

recorded in the registers of the Registration

Department, is to be discouraged and deprecated and

the Executing Court has rightly declined to give its seal

of approval to General Power of Attorney, Agreement

for Sale, etc. dated 12.5.2006.

5.I am of the view that the Executing Court as well

as High Court have committed a grave error in not

properly appreciating the objections filed by the

Appellant. We are in this case concerned with the

question whether we must give credibility to the

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registered General Power of Attorney executed on

12.5.2006 between Nirmal Verma and the appellant or

on the alleged Agreement for Sale executed on

3.11.2003 between the respondent and Prem Chand

Verma, husband of Nirmal Verma. Further, we have to

examine the manner in which Civil Suit No.407 of 2007

was decreed without contest by Prem Chand Verma,

husband of Nirmal Verma.

6.The registered Power of Attorney was executed by

none other than the wife of Prem Chand Verma and the

appellant herein on 12.5.2006 in respect of the

property in question for a sale consideration of

Rs.70,000/-, which was received by Nirmal Verma in

cash in advance and she acknowledged the same

before the Sub-Registrar, Delhi. On the same day,

Nirmal Verma, wife of Prem Chand Verma. handed over

physical vacant possession of the land and building

situated thereon and from 12

th

May, 2006 onwards, the

Page 7 7

appellant is in possession of the above-mentioned

property.

7.We are, in this case, therefore, concerned with the

legal validity of a General Power of Attorney executed

by none other than the wife of Prem Chand Verma

against whom a decree has been obtained by the

respondent without any proper contest and the court

proceeded against him ex-parte. These facts speak for

itself. Evidently, the collusive decree was obtained by

the respondent to get over the registered Power of

Attorney executed in favour of the appellant and, it is in

this perspective, we have to understand and apply the

ratio laid down by this Court in Suraj Lamp and

Industries Private Limited (2) (supra).

8.Paragraph 27 of the judgment of this Court in

Suraj Lamp and Industries Private Limited (2)

(supra) reads as follows :

“27. We make it clear that our observations

are not intended to in any way affect the

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validity of sale agreements and powers of

attorney executed in genuine transactions.

For example, a person may give a power of

attorney to his spouse, son, daughter,

brother, sister or a relative to manage his

affairs or to execute a deed of conveyance. A

person may enter into a development

agreement with a land developer or builder

for developing the land either by forming

plots or by constructing apartment buildings

and in that behalf execute an agreement of

sale and grant a power of attorney

empowering the developer to execute

agreements of sale or conveyances in regard

to individual plots of land or undivided shares

in the land relating to apartments in favour of

prospective purchasers. In several States, the

execution of such development agreements

and powers of attorney are already regulated

by law and subjected to specific stamp duty.

Our observations regarding “SA/GPA/will

transactions” are not intended to apply to

such bona fide/genuine transactions.”

9.In the above judgment, it has been stated that the

observations made by the Court are not intended to in

any way affect the validity of sale agreements and

powers of attorney executed in genuine transactions. I

am of the view that the Power of Attorney executed on

12.5.2006 in favour of the Appellant by the wife of Prem

Chand Verma is a genuine transaction executed years

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before the judgment of this Court. Facts will clearly

indicate that the Agreement for Sale dated 3.11.2003

was created by none other than the husband of Nirmal

Verma, who had executed the General Power of

Attorney and possession was handed over to the

Appellant. That being the fact situation, in my view, the

Objection filed by the Appellant under Order 21 Rule 58

in execution has to be allowed. I, therefore, hold that

the Executing Court can execute the decree in Civil Suit

No.407 of 2007, but without proceeding against the

property referred to in registered Power of Attorney

dated 12.5.2006.

10.The appeal is allowed, as above, and the

impugned orders are set aside. There shall, however,

be no order as to costs.

……………………………..J.

(K. S. Radhakrishnan)

New Delhi,

February 19, 2014.

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IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 2458 OF 2014

[Arising out of SLP©No.23069 of 2012]

MAYA DEVI .…..APPELLANT

vs

LALTA PRASAD …..RESPONDENT

J U D G M E N T

VIKRAMAJIT SEN,J.

1 I have perused the judgment of my learned and

esteemed Brother Radhakrishnan, and I entirely and

respectfully agree with his conclusion that the appeal

deserves to be allowed. My learned Brother has

succinctly analysed the sterling judgment in Suraj Lamp

and Industries Private Limited vs State of Haryana (2009)

7 SCC 363, which has been rendered by a Three-Judge

Bench of this Court. I completely concur with the view

that since General Power of Attorney (GPA) in favour of

Page 11 11

the Appellant was executed and registered on

12.05.2006, it could not be impacted or affected by the

Suraj Lamp dicta. Furthermore, a reading of the order

of the Executing Court as well as of the High Court

makes it palpably clear that both the Courts had applied

the disqualification and illegality imposed upon GPAs by

Suraj Lamp, without keeping in mind that the operation

of that judgment was pointedly and poignantly

prospective. This question has been dealt with by my

esteemed Brother most comprehensively.

2 What strikes us as a perverse, certainly misplaced

or inconsistent approach, is that if the Appellant does

not possess any title to the property predicated on the

GPA executed in her favour by Smt. Nirmal Verma (the

wife of the Judgment Debtor Shri Prem Chand Verma),

this legal infirmity would inexorably invalidate the title

of Smt. Nirmal Verma herself, thereby denuding any

titular claim of her husband, the Judgment Debtor, and

rendering the property impervious to the subject

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execution proceedings. Additionally, there is not even a

semblance of a right in favour of the Judgment Debtor

whose wife was not even impleaded in the suit or in the

execution. The impugned judgment notes this

contention but fails to address it. The evidence of the

Decree Holder has not been filed and therefore the

judicial records were summoned from the High Court.

3 The Statement of the Respondent/Decree Holder

reads thus:-

“Ex. No. 224/2009

DHW-1: Sh.Lalta Prasad, S/o Sh. Naubat Ram,

aged 58 years, R/o 1908, Gali Mata Wali,

Chandni Chowk, Delhi-6.

ON S.A.

I, hereby, tender my affidavit in my

evidence. The same be read as part and

parcel of my statement. My affidavit is Ex.

DHW-1/A(running in 2 pages) which bears my

signatures at point A and B on page 1 & 2.

XXXXXX by Sh. Pradeep Chaudhary Adv. for

objector.

I have passed 11

th

standard. The affidavit

Ex. DHW-1/A was prepared in the office of my

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counsel. My counsel has explained me

contents of the same to me before I signed the

same. Whatever I stated to my counsel was

incorporated in Ex. DHW-1/A. The Agreement

with Prem Chand Verma was entered on

11.11.2003. I had seen original documents of

the property at that time in possession of Prem

Chand Verma. He also gave me some copies

of the same.

Remaining cross-examination of the

witness is deferred till 12.00 P.M.

RO&AC

BRIJESH KUMAR GARG

ADJ CENTRAL-18

DELHI/

29.01.10

DHW-1: Sh.Lalta Prasad, recalled for his further

cross-examination at 12.50 P.M.

ON S.A.

XXXXXX by Sh. Pradeep Chaudhary Adv. for

objector.

I have no knowledge that Smt. Maya

Devi had purchased the suit property from

Smt. Nirmal Verma. The documents filed by

the objectors are forged and fabricated

documents. I have no knowledge that Smt.

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Nirmal Verma purchased the suit property

from one Sh. Rajender Kumar.

Sh. Prem Chand Verma was my friend for

the last about 30 years. It is correct that Sh.

Prem Chand Verma had already expired on

7.10.2008. It is wrong to suggest that Sh.

Rajender Kumar was the owner of the property

and he sold the property to Nirmal Verma from

whom Smt. Maya Devi purchased the suit

property. It is wrong to suggest that Sh. Prem

Chand Verma was never the owner of the suit

property. It is wrong to suggest that I have

filed a false affidavit and I am deposing falsely

in the court today.

RO&AC

BRIJESH KUMAR GARG

ADJ CENTRAL-18

DELHI/ 29.01.10”

It discloses that the Decree Holder has failed altogether

to disprove the title of the Appellant, and he has

maintained that the Defendant/Judgment Debtor was

the owner, which is admittedly not the actual legal

position. If the Decree Holder has been defrauded by

the Defendant/Judgment Debtor, largely because of the

former’s careless disregard to conduct a title-search, he

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must face the legal consequences; they cannot be

transferred/imposed upon a third party to its detriment.

In the wake of the Decree Holder/Plaintiff denying the

title of Smt. Nirmal Verma, the Courts below erred in

proceeding against her property.

4 Both the Courts below have preferred the view that

the Appellant, who has been in possession from the date

of the execution of the registered GPA in her favour, has

been introduced into the scene in order to defeat the

interests of the Respondent, which is a perverse

approach for reasons that shall be presently explained.

The documents purportedly in favour of the

Respondent/Decree Holder are unregistered and the

alleged payment made by him to Shri Prem Chand

Verma is in cash. Therefore, there is no justification for

favouring the view that the alleged transaction between

Shri Prem Chand Verma and the Respondent/Decree

Holder was genuinely prior in time to the execution of

the registered Power of Attorney in favour of the

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Appellant Smt. Maya Devi by Smt. Nirmal Verma, and

the former simultaneously and contemporaneously was

put into possession of the property by the latter.

5 There can be no gainsaying that when the

probative value of documents is to be assessed,

specially those dealing with the creation of any interest

in property or its transfer, of a value exceeding Rs.100/-,

obviously documents which have been duly registered

regardless of whether or not that was legally mandatory,

would score over others. A perusal of the judgment

shows that whether the sum of Rs.1,70,000/- allegedly

paid by the Plaintiff in Suit No.407 of 2007, namely, Shri

Lalta Prasad to Shri Prem Chand Verma was in cash or

through a traceable Bank transaction or through a

registered acknowledgment has not been cogitated

upon. Proof of payment by the Plaintiff to the

Defendant/husband of the previous owner of the

property has not been adjudicated upon. It is not

controverted that the Appellant Smt. Maya Devi has

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been in possession of the property in question from May,

2006. A reading of the judgment by which the Suit was

decreed for a sum of Rs.3,40,000/- does not shed any

light on the circumstances which made the Plaintiff wait

to initiate legal action till after the property was sold and

its possession delivered to the Appellant. I, therefore,

disbelieve the genuineness of the so-called “Deed of

Agreement for Earnest Money” allegedly executed

almost three years earlier on 03.11.2003. And, I would

rather discount the veracity of the document dated

3.11.2003, then looking upon the Power of Attorney and

other documents executed in favour of the Appellant

Smt. Maya Devi by Smt. Nirmal Verma as mala fide.

What is important is that it is not disputed that the title

and possession of the property which has been brought

within the sweep of the execution proceedings, was

never held in any capacity by the Defendant/Shri Prem

Chand Verma, but by his wife, Smt. Nirmal Verma. To

give even a semblance of a case to the Plaintiff Lalta

Prasad, the Deed of Agreement for Earnest Money

Page 18 18

should have been between the Plaintiff/Decree

Holder/Respondent and Smt. Nirmal Verma.

6 The Trial Court had framed the following issues in

Suit No.407/2007, from which subject of proceedings

emanates:

“(1) Whether the plaintiff is

entitled for the suit amount? If so to

what sum? OPP

(2)Whether the plaintiff is entitled for

the interest? If so at what rate and

for which period? OPP

(3)Relief.”

The Trial Court having accepted the payment of

Rs.1,70,000/- without insisting on any proof, did not go

into the question whether a covenant stipulating that

double the amount of earnest money would be payable

in the event the contract was not performed, is legal in

terms of the Indian Contract Act. The imposition and

the recovery of penalty on breach of a contract is legally

impermissible under the Indian Contract Act. As

Page 19 19

regards liquidated damages, the Court would have to

scrutinize the pleadings as well as evidence in proof

thereof, in order to determine that they are not in the

nature of a penalty, but rather as a fair pre-estimate of

what the damages are likely to arise in case of breach of

the contract. No evidence whatsoever has been led by

the Plaintiff to prove that the claim for twice the amount

of earnest money was a fair measure or pre-estimate of

damages.

7 The pronouncements of the Constitution Bench in Sir

Chunilal V. Mehta & Sons Ltd. vs Century Spinning and

Manufacturing Co. Ltd. AIR 1962 SC 1314, and later in Fateh

Chand vs Balkishan Dass AIR 1963 SC 1405, hold the field,

making it unnecessary to refer to any other precedent for an

enunciation of the law, except to appreciate the manner in

which the opinion of the Constitution Benches have been

applied to the factual matrix in later cases. With the

number and volume of precedents increasing exponentially

each year, reference to all decisions make arguments

Page 20 20

excruciatingly lengthy and judgments avoidably prolix. The

first important judgment of this Court on the question of

Sections 73 and 74 of the Contract Act is that of the

Constitution Bench in Chunilal V. Mehta . The two

significant issues which arose were firstly, as to what would

constitute a substantial question of law requiring the grant

by the High Court of a Certificate to appeal to this Court, and

secondly, the quantum of damages that can be awarded in

that case owing to the breach of the subject contract. It is

the second question which is relevant for the present

purposes. The admitted position was that the contract had

been wrongfully breached by the Defendant. A clause in the

compact between the parties stipulated that in these

circumstances, the Plaintiff would be entitled to receive from

the Defendant “as compensation or liquidated damages for

the loss of such appointment a sum equal to the aggregate

amount of the monthly salary of not less than Rs.6000/-

which the Firm would have been entitled to receive from the

Company, for and during the whole of the then unexpired

portion of the said period of 21 years if the said Agency of

Page 21 21

the Firm had not been determined.” The Plaintiff had

initially claimed a sum of Rs.50 Lakhs which was

subsequently reduced by way of amendment of the plaint to

Rs.28,26,804/-. The Constitution Bench opined that “when

parties name a sum of money to be paid as liquidated

damages they must be deemed to exclude the right to claim

an unascertained sum of money as damages. …. Again the

right to claim liquidated damages is enforceable under S. 74

of the Contract Act and where such a right is found to exist

no question of ascertaining damages really arises. Where

the parties have deliberately specified the amount of

liquidated damages there can be no presumption that they,

at the same time, intended to allow the party who has

suffered by the breach to give a go-by to the sum specified

and claim instead a sum of money which was not

ascertained or ascertainable at the date of the breach”.

This precedent prescribes that if a liquidated sum has been

mentioned in a contract to be payable on its breach, then if

damages have actually been suffered, the said liquidated

Page 22 22

amount would be the maximum and upper limit of damages

awardable by the Trial Court.

8 The judgment of the Constitution Bench one year later,

in Fateh Chand concerns award of damages of the

‘liquidated’ sum even though actual damages may have

been less. In that respect it is the converse of the factual

matrix that existed before the earlier Constitution Bench in

Chunilal V. Mehta. J.C. Shah, J (who authored Fateh

Chand) along with Chief Justice B.P. Sinha were members of

both Constitution Benches. Whilst the aspect of the

liquidated damages being in the nature of a penalty or in

terrorem did not arise in Chunilal V. Mehta, It did so in

Fateh Chand where the complaint was that the Plaintiff,

namely, Fateh Chand had agreed to sell an immovable

property for Rs.1,12,500/- of which Rs.1000/- had been

received/paid as earnest money. The Agreement envisaged

payment of a further sum of Rs.24,000/- and it stipulated

that if the vendee failed to get the Sale Deed registered

thereafter, then the sum received i.e. Rs.25,000/- would

Page 23 23

stand forfeited. Fateh Chand alleging a breach of the

Agreement, sought to forfeit the sum of Rs.25,000/- which

was found to be impermissible in law. It was in those

circumstances that the Constitution Bench opined as follows:

“10. Section 74 of the Indian Contract Act deals

with the measure of damages in two classes of

cases (i) where the contract names a sum to be

paid in case of breach and (ii) where the contract

contains any other stipulation by way of penalty.

We are in the present case not concerned to de-

cide whether a contract containing a covenant of

forfeiture of deposit for due performance of a

contract falls within the first class. The measure

of damages in the case of breach of a stipulation

by way of penalty is by S. 74 reasonable compen-

sation not exceeding the penalty stipulated for. In

assessing damages the Court has, subject to the

limit of the penalty stipulated, jurisdiction to

award such compensation as it deems reason -

able having regard to all the circumstances of tile

case. Jurisdiction of the Court to award compen-

sation in case of breach of contract is unqualified

except as to the maximum stipulated; but com -

pensation has to be reasonable, and that im -

poses upon the Court duty to award compensa -

tion according to settled principles. The section

undoubtedly says that the aggrieved party is en-

titled to receive compensation from the party

who has broken the contract whether or not ac -

tual damage or loss is proved to have been

Page 24 24

caused by the breach. Thereby it merely dis -

penses with proof of "actual loss or damage"; it

does not justify the award of compensation when

in consequence of the breach no legal injury at

all has resulted because compensation for breach

of contract can be awarded to make good loss or

damage which naturally arose in the usual course

of things, or which the parties knew when they

made the contract, to be likely to result from the

breach.

11.Before turning to the question about the

compensation which may be awarded to the

plaintiff, it is necessary to consider whether S. 74

applies to stipulations for forfeiture of amounts

deposited or paid under the contract. It was

urged that the section deals in terms with the

right to receive from the party who has broken

the contract reasonable compensation and not

the right to forfeit what has already been

received by the party aggrieved. There is

however no warrant for the assumption made by

some of the High Courts in India, that S. 74

applies only to cases where the aggrieved party

is seeking to receive some amount on breach of

contract and not to cases where upon breach of

contract an amount received under the contract

is sought to be forfeited. In our judgment the

expression "the contract contains any other

stipulation by way of penalty" comprehensively

applies to every covenant involving a penalty

whether it is for payment on breach of contract of

money or delivery of property in future, or for

forfeiture of right to money or other property

already delivered. Duty not to enforce the

Page 25 25

penalty clause but only to award reasonable

compensation is statutorily imposed upon Courts

by S. 74. 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.”

After reading the entire evidence that had been

recorded, the Constitution Bench found that the value of

the property had not depreciated and, therefore, no

damages could be awarded.

9 This is also the manner in which this facet of the

law has been enunciated in England, as is evident from

the following passage from Halsbury’s Laws of England

(4

th

edn Reissue, 1998) Vol 12(1), para 1065 which reads

as follows:-

“1065. Liquidated damages distinguished

from penalties.- The parties to a contract may

agree at the time of contracting that, in the

event of a breach, the party in default shall pay

a stipulated sum of money to the other. If this

Page 26 26

sum is a genuine pre-estimate of the loss which

is likely to flow from the breach, then it

represents the agreed damages, called

‘liquidated damages’, and it is recoverable

without the necessity of proving the actual loss

suffered. If, however, the stipulated sum is not

a genuine pre-estimate of the loss but is in the

nature of a penalty intended to secure

performance of the contract, then it is not

recoverable, and the plaintiff must prove what

damages he can. The operation of the rule

against penalties does not depend on the

discretion of the court, or on improper conduct,

or on circumstances of disadvantage or

ascendancy, or on the general character or

relationship of the parties. The rule is one of

public policy and appears to be sui generis. Its

absolute nature inclines the courts to invoke the

jurisdiction sparingly. The burden of proving

that a payment obligation is penal rests on the

party who is sued on the obligation”.

10The position that obtains in the United States,

obviously because of its Common Law origins and

adherence, is essentially identical as is evident from

these extracted paragraphs of Corpus Juris Secundum,

Volume 25A (2012):

Page 27 27

192-Liquidated damages are a specific sum stipulated to

and agreed upon by the parties in advance or when they

enter into a contract to be paid to compensate for injuries in

the event of a breach or nonperformance of the contract.

196-In examining whether a liquidated-damages provision is

enforceable, courts consider whether the damages

stemming from a breach are difficult or impossible to

estimate or calculate when the contract was entered and

whether the amount stipulated bears a reasonable relation

to the damages reasonably anticipated. 198-Liquidated

damages must bear a reasonable relationship to actual

damages, and a liquidated-damages clause is invalid when

the stipulated amount is out of all proportion to the actual

damages. 200- A penalty is in effect a security for

performance, while a provision for liquidated damages is for

a sum to be paid in lieu of performance. A term in a

contract calling for the imposition of a penalty for the breach

of the contract is contrary to public policy and invalid. This

position also finds elucidation in the following paragraph

from American Restatement (Second) of Contracts 1981:-

Page 28 28

“356. LIQUIDATED DAMAGE AND PENALTIES

(1)Damages for breach by either party

may be liquidated in the agreement but only

at an amount that is reasonable in the light of

the anticipated or actual loss caused by the

breach and the difficulties of proof or loss. A

term fixing unreasonably large liquidated

damages is unenforceable on grounds of

public policy as a penalty.”

11Returning to the facts of the present case, the so called

Deed of Agreement for Earnest Money inasmuch as it

postulates the payment of twice the sum received ought not

to have been decreed as firstly, the contract itself could not

have been specifically enforced since the Defendant was

devoid of title; and secondly, the Plaintiff had not proved

that he had suffered any damages and facially the stipulated

sum was in the nature of a penalty.

12 In Phulchand Exports Limited Vs O.O.O. Patriot

2011(10)SCC 300, the Appellant (Seller) entered into a

contract with the Respondent (Buyer) relating to the

sale/purchase of 1000 MT of Indian polished rice for a total

consideration of INR 12,450,000/-. The Seller loaded the

Page 29 29

rice 16 days late and the Vessel freighted by the Sellers left

port (Kandla) 38 days later than the contractually stipulated

time of departure. The specified destination, the port of

Novorossiysk, Russia, was to be the first port of discharge,

and even in this regard there is a finding that the Vessel on

which the shipment had been consigned was not sailing

directly to the said port, leave aside Novorossiysk being its

first port of call. The ship suffered an engine failure which

resulted in its requiring salvage operations near Turkey, and

the entire cargo on board, including the subject consignment

of rice was sold pursuant to Admiralty proceedings to

compensate the cost of the rescue of the Vessel. The

Insurance Company maintained that the lien of the cargo to

compensate the costs of the rescue of the Vessel was not

covered in the policy. Arbitration proceedings under the

aegis of the International Court of Commercial Arbitration at

the Chamber of Commerce and Industry of the Russian

Federation culminated in the passing of an Award which

directed the sharing of the price of the rice consignment

equally between the parties. In the Award it has been opined

Page 30 30

that the Buyer had failed to forward the shipping documents

and the Insurance Certificate to the Seller and thus was

equally blameworthy. The defence of the Seller was that

the goods had passed to the Buyer, who had already paid

the entire sale price on negotiation of documents by the

Seller with the concerned Bank. This Court held that despite

the fact that it was a CIF contract, the consignment having

been belatedly boarded on the Vessel, which Vessel

thereafter sailed later than the time agreed upon by the

parties, and which Vessel did not have the contracted

destination Novorossiysk as the first port of call, could not

have been in conformity with the contract, and hence the

goods could not be viewed as having passed to the Buyer

thereby shifting to it the liability of the lost shipment. The

other question that was raised was whether the stipulation in

the contract envisaging the reimbursement of the

consideration received by the Seller in the event of non-

performance of the contract was in the nature of a penalty.

It was in this context that Sections 73 and 74 of the Contract

Act came to be considered. This Court held that the clause

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requiring the refund of the price of the Rice consignment

could not be viewed as a penalty which is not legally

recoverable in India and therefore the Award was impervious

to jural interference as it was not against the public policy of

India even in terms of the interpretation given in ONGC Ltd.

vs Saw Pipes Ltd. (2003) 5 SCC 705.

13After recording that the opinion of the two Constitution

Benches still hold the field, I have nevertheless mentioned

Phulchand Exports only for adverting/clarifying that views

of this Court have remained constant till now. I must

immediately clarify that it would require a Bench larger than

a Five-Judge Bench to alter the legal position from what has

been enunciated in Chunilal V. Mehta and Fateh Chand.

The decisions of smaller Benches are relevant only for the

purpose of analysing the verdict in a particular case on the

predication of the elucidation of the law laid down by the

Constitution Benches. This would include an oft-quoted

decision in Maula Bux vs Union of India, 1969(2)SCC 554, as

well as UOI vs Raman Iron Foundry, 1974(2)SCC 231, and

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BSNL vs Reliance Communication Ltd., 2011(1) SCC 394,

etc.

14Now I come to the next aspect of the case. The

Execution proceedings were initiated by the

Respondent/Decree holder on 27.10.2007 under Order XXI

Rule 11 of the Code of Civil Procedure (‘CPC’ hereinafter). It

transpired that Attachment Orders came to be passed. The

application dated 3.7.2008, being Objections under Order

XXI Rule 58 read with Section 151 CPC was preferred by the

Appellant Smt. Maya Devi pleading, inter alia, that the

Decree Holder had wrongly scheduled her property in the

Execution Application; that she was the absolute and real

owner thereof having purchased it on 12.05.2006 from Smt.

Nirmal Verma, wife of Prem Chand Verma (Judgment

Debtor); that she has no other connection or concern with

the Judgment Debtor or with his wife in any manner

whatsoever. The Appellant, therefore, respectfully prayed

that her aforesaid property may kindly be released from the

Schedule. Plaintiff/Decree Holder Shri Lalta Prasad,

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Respondent before us, countered by pleading that the

Objections had been filed at the behest of the Judgment

Debtor to avoid the satisfaction of the decree; that the

Appellant/Objector was not the absolute and real owner of

the suit property; that the duly registered General Power of

Attorney executed by Smt. Nirmal Verma was forged and

fabricated; that Smt. Nirmal Verma was none else than the

wife of the Judgment Debtor. The Appellant has supported

her stance by filing her own affidavit. In the Execution

proceedings, the Plaintiff/Decree Holder/Respondent in

cross-examination of the Appellant has only suggested that

the documents were fabricated in collusion with Smt. Nirmal

Verma. How this was possible, since they are duly

registered documents, is difficult to comprehend. The other

question put in cross-examination was that Smt. Nirmal

Verma was never the owner of the property; and that Smt.

Maya Devi’s Objections were filed at the behest of Smt.

Nirmal Verma. All these suggestions had been denied. If

Smt. Nirmal Verma had no title, the consequence would be

that the property would revert to her predecessor-in- title,

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thereby placing the property beyond the pale of the

Execution proceedings.

15The following issues were framed in the Execution

proceedings:-

(i)Whether the objector/applicant Smt. Maya

Devi is the absolute owner of the disputed

property No.X-20, Gali No.5, Brahampuri,

Delhi? If so its effect?

OP Applicant.

(ii) Whether the judgment and decree

dated 6.10.2007

are executable against the objector Smt.

Maya Devi?

OP DH.”

Smt. Nirmal Verma had also participated in the Execution

proceedings and had filed her affidavit dated 22.10.2008 by

way of evidence, asseverating therein that she had sold the

property to Smt. Maya Devi by executing a registered

General Power of Attorney, Agreement to Sell, Affidavit,

Receipt, Possession Letter, Will Deed, which were duly

notorised on 12.05.2006. She further stated that she had

Page 35 35

purchased the property from Shri Rajinder Parshad by means

of similar documentation all of which were handed over by

her to Smt. Maya Devi at the time of selling of the said

property. Very significantly, she stated that her husband

Prem Chand Verma/Judgment Debtor had expired on

8.10.2008.

16In this backdrop, it needs to be kept in prospective that

Order XXI Rule 97 to Rule 101 of CPC envisage the

determination of all questions in Execution proceedings and

not by way of an independent suit. The Executing Court,

therefore, was duty bound to consider and decide the

Objections filed by the Appellant with complete care and

circumspection. I regret to record that this has not been

done. The Objections came to be dismissed on 23.7.2010

with brevity bordering on dereliction of duty, in the following

manner:-

“…. It has been submitted by the counsel for

the objector that the applicant is the absolute

owner of the suit property by virtue of General

Power of Attorney which was registered on

12.5.2006 and she is in actual physical

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possession of the suit property but the counsel

for the DH has stated that the objector has no

legal right, title or interest as the execution of

the General Power of Attorney and its

registration does not confer any ownership right

in favour of the applicant/objector. The counsel

for DH has also relied upon the judgment of the

Hon’ble Supreme Court in case titled as Suraj

Lamp and Industries Private Limited Vs State of

Haryana and Another reported as (2009) 7

Supreme Court Cases 363.”

17A perusal of the above will show that the Executing

Court ignored and overlooked the important submission of

the Appellant stating that she was the absolute owner of the

suit property and that she had no truck whatsoever either

with the Judgment Debtor Shri Prem Chand Verma or his wife

Smt. Nirmal Verma beyond purchasing the subject property

from the latter. What has also escaped the attention of the

Court is that Suraj Lamp has prospective operation, thereby

rendering it inapplicable to the subject 2006 transaction.

Secondly, if the General Power of Attorney in favour of the

Appellant Smt. Maya Devi was bereft of legal efficacy, the

ownership of Smt. Nirmal Verma would also be invalid, and

Page 37 37

sequentially the property would have no connection

whatsoever with the Judgment Debtor since he had

purportedly derived title only through a Will. Unfortunately,

this is also the approach which has been preferred by the

High Court in terms of the impugned order. The High Court

has also wrongly applied Suraj Lamp and has also

neglected to reflect upon the Appellant’s plea that she is (i)

the actual owner of the suit property having purchased it for

valuable consideration, and (ii) being a third party not

connected in any mala fide manner with the Judgment

Debtor, and (iii) not having received prior notice of any

action of late Shri Prem Chand Verma, was imperious to

Execution proceedings. A miscarriage of justice, of

monumental proportions, has taken place on an un-

substantiated presumption that one of the assets of the

Judgment Debtor had been illegally transferred to defeat the

decree. The Appellant before us had no other recourse

than to file Objections under Order XXI Rule 58 CPC.

Page 38 38

18 Finally another aspect which has come to the fore, is

the approach of the Trial Court in the adjudication of the suit.

The plaint contains an averment that the suit property had

already been sold. The Defendant Shri Prem Chand Verma,

(his wife Smt. Nirmal Verma was not impleaded) had

appeared in the Trial Court and filed his Written Statement in

which, whilst admitting the documentation executed

between the parties, he had denied that he had been served

with any legal notice and set up the defence that he was

entitled to forfeit the amount received by him because the

Plaintiff/Decree Holder had failed to pay the balance sale

consideration as envisaged in the Deed of Agreement for

Earnest Money. After filing his Written Statement he

stopped appearing, and the suit proceeded ex-parte.

Significantly, the Deed of Agreement for Earnest Money as

well as the Written Statement predicate Defendant’s title on

a Will, and in this context there is no evidence on record that

it had taken effect because of the death of the Testator. In

the event, as is to be expected, no appeal against the

judgment and decree came to be filed, and, therefore, the

Page 39 39

decision was not tested before or scrutinized by the

Appellate Court. The absence of the Defendant does not

absolve the Trial Court from fully satisfying itself of the

factual and legal veracity of the Plaintiff’s claim; nay, this

feature of the litigation casts a greater responsibility and

onerous obligation on the Trial Court as well as the

Executing Court to be fully satisfied that the claim has been

proved and substantiated to the hilt by the Plaintiff.

Reference to Shantilal Gulabchand Mutha vs Tata

Engineering and Locomotive Company Limited, (2013) 4 SCC

396, will be sufficient. The failure to file a Written

Statement, thereby bringing Order VIII Rule 10 of the CPC

into operation, or the factum of Defendant having been set

ex parte, does not invite a punishment in the form of an

automatic decree. Both under Order VIII Rule 10 CPC and on

the invocation of Order IX of the CPC, the Court is

nevertheless duty-bound to diligently ensure that the plaint

stands proved and the prayers therein are worthy of being

granted. .

Page 40 40

19I am fully mindful of the fact that the Appellant has not

taken any steps for setting aside the ex parte decree against

late Shri Prem Chand Verma. This is only to be expected

since the Appellant/Objector has no reason to evince or

harbour any interest in the inter se dispute between the

Decree Holder and the Judgment Debtor. Indeed, if the

Appellant had made any endeavour to assail or nullify the

decree, it would be fair to conclude that she had been put up

by the Judgment Debtor in an endeavour to defeat the

decree. In these circumstances, my in-depth analysis of

the law pertaining to decreeing what is essentially a penalty

clause may, on a perfunctory or superficial reading, be

viewed as non essential to the context. This, however, is

not so. On a conjoint reading of Order XXI Rule 58 CPC and

the fasciculus of Order XXI comprising Rules 97 to 104, it

becomes clear that all questions raised by the Objector have

to be comprehensively considered on their merits. In the

case in hand, the decree from which the Execution

proceedings emanate is not one for delivery of possession,

but is a simple money decree. Order XXI proscribes the

Page 41 41

filing of a separate suit and prescribes that all relevant

questions shall be determined by the Court. Objection under

Order XXI should be meaningfully heard so as to avoid the

possibility of any miscarriage of justice. It is significant in

this regard that Rule 103 ordains that where any application

has been adjudicated upon under rule 98 or rule 100, the

order made thereon shall have the same force and be

subject to the same conditions as to an appeal or otherwise,

as if it were a decree. I shall only advert to the decisions of

this Court in Brahmdeo Chaudhary vs Rishikesh Prasad

Jaiswal, (1997) 3 SCC 694, Shreenath vs Rajesh, (1998) 4

SCC 543, and Tanzeem-e-sufia vs Bibi Haliman, (2002) 7 SCC

50, where proceedings were under the aforesaid fasciculus

of Order XXI comprising Rules 97 to 104, in which the

Objectors had set up a title distinct or different from that of

the Judgment Debtor and the Court had protected their

interest. The Appellant before us is a third party and has

been brought into the lis by a side wind in that her property

is sought to be attached with the intention of satisfying a

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decree in which she was not directly or intrinsically

concerned.

The Appellant/Objector who has approached the Court under

Order XXI Rule 58 is more advantageously or favourably

placed inasmuch as she is a third party so far as the decree

is concerned, and her property is not the subject-matter of

the decree. It is thus clear to me that the Courts below

have in a hurried, if not prejudiced manner, rejected the

Objections merely because of some sympathy towards the

Decree Holder. The Objections deserved to be allowed

without disturbing the decree, leaving all other remedies

open to the Decree Holder/Respondent, including

proceedings against the Estate of the Judgment Debtor.

20I respectfully agree with my learned Brother that the

Appeal deserves to be allowed and the impugned orders

require to be set aside.

............................................J.

[VIKRAMAJIT SEN]

New Delhi

Page 43 43

February 19, 2014.