Contract Act, 1872
Section 55—Effect of failure to perform at fixed time, in contract in which time is essential—Agreement to sale—Suit for specific performance—Sale agreements clearly indicate the intention of the parties to treat time-bound performance as an essential condition—It was the clear intention of the parties to treat time as the essence of the contract and that there was an undue delay on behalf of the respondent to institute the suit, the relief of specific performance cannot be granted.
[Paras 22 & 24]
Section 74—Compensation for breach of contract where penalty stipulated for—Section 74 of the Contract Act primarily pertains to grant of compensation or damages when a contract has been broken and amount of such compensation or damages payable in the event of breach of contract, is stipulated in the contract itself—All pre-estimated amounts which are specified to be paid on account of breach by any party under a contract are covered by Section 74 of Contract Act—Where the contractual terms clearly provide the factum of pre-estimate amount being in the nature of ‘earnest money’, the onus to prove that the same was ‘penal’ in nature squarely lies on the party seeking refund of the same—Failure to discharge such burden would treat any pre-estimated amount stipulated in the contract as a ‘genuine pre-estimate of loss’.
[Para 35]
Specific Relief Act, 1963
Section 22—Refund of earnest money—Plaintiff in his suit for specific performance of a contract is not only entitled to seek specific performance of the contract for the transfer of immovable property but he can also seek alternative relief(s) including the refund of any earnest money, provided that such a relief has been specifically incorporated in the plaint—Court, however, has been vested with wide judicial discretion to permit the plaintiff to amend the plaint even at a later stage of the proceedings and seek the alternative relief of refund of the earnest money—Litmus test appears to be that unless a plaintiff specifically seeks the refund of the earnest money at the time of filing of the suit or by way of amendment, no such relief can be granted to him—Prayer clause is a sine qua non for grant of decree of refund of earnest money.
[Para 31]
Section 22—Decree entitling respondent for recovery of earnest money—Appeal—Where neither there is prayer for relief of refund of earnest money in original plaint nor any amendment sought at a subsequent stage, the court cannot suo moto grant the refund of earnest money—Decree granted by the courts below was hinged on a logical fallacy wherein the appellants were held to be unjustly enriched on the premise that the contract was rendered impossible to perform due to acquisition proceedings—Contract automatically stood terminated as per the stipulated contractual terms—Sale agreements should have been rightly held to be terminated instead of being declared impossible to perform—Forfeiture was justified and within the confines of reasonable compensation as per Section 74 of Contract Act in light of the fact that during the entirety of proceedings – firstly the nature of forfeiture was never contested by the respondent and secondly the respondent never prayed for the refund of earnest money—Judgments rendered by the courts below deserve to be set aside and suit is liable to be dismissed—Appeal allowed.
[Para 37 & 38]