High Court rules seller cannot retain full earnest money without proving loss

It matters to citizens as it clarifies that under Section 74 of the Indian Contract Act, a seller cannot retain the full earnest money unless they specifically plead and prove actual loss suffered due to the breach.

Who it concerns: The judgment concerns Sudhir Rawal (Appellant/Proposed Buyer), Satish Batra (Respondent/Proposed Seller), and the High Court of Delhi. It applies to parties involved in property sale agreements where earnest money or advance payments are made and subsequently disputed due to breach of contract.

What the document says

• The High Court set aside the trial court's judgment which had dismissed the buyer's suit for recovery of Rs. 7 lacs.
• The Court held that the seller is entitled to forfeit only a nominal amount, not the full advance, because the seller failed to plead and prove that they suffered a specific loss due to the buyer's breach.
• The Court directed the respondent/seller to refund Rs. 6,50,000 to the appellant/buyer, allowing the seller to retain only Rs. 50,000 as forfeiture.
• The Court awarded the appellant interest at 12% per annum (simple) from 29.11.2005 until the date of payment.
• The Court cited the Supreme Court decision in Fateh Chand Vs. Balkishan Dass (1964) to establish that Section 74 of the Indian Contract Act limits compensation to reasonable amounts and requires proof of loss for forfeiture beyond nominal sums.

Also in the document

• The Court noted that the respondent's counsel admitted that the seller neither pleaded nor proved that they suffered a loss on account of the breach.
• The Court emphasized that evidence cannot be considered for a claim (such as loss) if it was not properly pleaded and framed as an issue by the party seeking the benefit.
• The original agreement to sell was dated 29.11.2005 for a property in Punjabi Bagh, New Delhi, with a total consideration of Rs. 70 lacs.