BY- Shatakshi Vats Amity Law School, Noida

INTRODUCTION

The present civil appeal arose from a Special Leave Petition (SLP) [(Civil) No. 32039 of 2012]. The case presents a question of law that arose by the circumstances in the present case, where the Delhi Development Authority (hereinafter, DDA) enters into a contract with a corporation for the auction of a plot of land for a large sum of money.

As the facts and evidences are presented before the courts, various questions and contentions appear, which pose a substantial question of law on certain provisions of the Indian Contract Act, 1872 (hereinafter, Act, 1872).

FACTS OF THE CASE

In a public auction for a plot of land, by the DDA, the appellant, Kailash Nath Associates made the highest bid for a sum of rupees 3.12 crores. The plot of land was referred to as “Plot 2-A’ situated in New Delhi. The appellant was asked to deposit earnest money, amounting to 25 percent of the amount of the bid, with DDA. Such money was to be paid either in cash or by demand draft according to the terms and conditions of the auction. The receipt of such money was acknowledged by DDA on 18th February,1982, and the bid was hereby accepted. The appellant was directed to pay the residue of the amount, i.e. 75 percent by 17th May,1992.

However, a general recession had taken over the industry due to which the appellant made representations to DDA in May 1992, seeking extension of such period. To enquire into the matter, DDA set up a high-powered commission to explore the possibility of such an extension to the appellant. In a letter by the commission, it gave its recommendation of extending such a period for payment up to October 1992, along with a rate of interest of 18 percent per annum, which could reach up to 36 percent per annum.

Further, the DDA referred the matter of extension to the Ministry of Urban Affairs (hereinafter, Ministry) for further examination. This information was conveyed to the appellant using a letter, wherein it was asked to furnish consent for making the balance payment with interest within 3 days of receipt of the letter. The appellant provided its consent to do so and asked for the schedule of the installments to be made in this behalf. Meanwhile, the Ministry informed DDA that it had no say over the matter since the given plot of land was not Nazul land as per prevailing rules and regulations.

The appellant filed a writ petition in the Delhi High Court, under Articles 226 and 227 of the Constitution of India requesting that new plots of lands be allotted to it, as done in case of bidders in a similar situation. Article 14, seeking equal treatment by DDA being a public authority was pleaded. During this time, DDA had auctioned the Plot 2-A for an amount almost three and a half times more than the amount agreed originally between DDA and the appellant.

ISSUES IN THE CASE

Adjudicating the writ petition, High Court maintained that since the matter was of the nature of a contract entered into by two parties, in their respective capacities, there lay no jurisdiction of this court in the matter. There was no force in the appellant’s contention to invoke Article 14 in the said matter. The court further dismissed the SLP to induce action for the forfeiture of earnest money deposited by the appellant. However, the appellant was entitled to file a suit for specific performance of the contract, seeking no additional damages. Such suit was also dismissed by the Learned Single Judge, but a refund of the earnest money was ordered with an interest rate of 9 percent.

The following issues emanate from the above proceedings:

  • Whether Article 14 of the Constitution applies to a body like the DDA, since it represents itself as a party to the contract in the present case?
  • Whether Section 74 of the Act, 1872 can be applied to contract(s) demanding forfeiture of earnest money upon breach of the terms of the contract?
  • Whether time is an essence of contract between parties in the said case, and does it remain so throughout the performance of the terms? Or when extension is sought for performance?

JUDGMENT

The Apex Court referred to several precedents to conclude whether time was an essence of a contract seeking payment of a sum within previously stipulated time, as consideration for the contract. It referred to the judgment in Anandram Mangturam v. Bholaram Tanumal[1], The court had pronounced that if time was the essence of a contract, then it must not be waived by a unilateral act of one of the parties. It can be waived only when both parties consent to such waiver, reaching consensus ad idem. Time shall no longer remain essence if negotiations go on while time passes in tranquillity without coming into question. However, it is imperative to note that a purchase contract must be materialised at some point, it cannot go on till eternity.

In the present case, there was no breach on part of the appellant since the letter of cancellation of the bid and subsequent forfeiture was made at the behest of DDA, without notice to the appellant to deposit the remainder of the purchase amount, i.e. 75 percent. Therefore, earnest money was not to be forfeited as no breach arose.

As per the judgment in Keshavbhai Lallubhai Patel and Ors. v. Lalbhai Trikumlal Mills Ltd.[2], time could not be extended to make payment for the purchase without both the parties, namely the buyer and seller agreeing to such extension. However, this would apply only if the benefit of the extension accrues to the promisee. In the present case, DDA was the promisee and the appellant was the promisor, in such circumstances, DDA had the liberty to unilaterally extend the period for payment since the benefit accrued to the promisor directly in the given circumstances of general recession as claimed by the appellant in his correspondences. As per the judgment delivered in Citibank N.A v. Standard Chartered Bank[3],  unilateral acts by parties are valid, under Section 63 of the Act, 1872.

As to the applicability of Article 14, the court observed that the provision intends to eliminate any kind of arbitrariness from administration, and provide equal, just, and fair treatment. Therefore, the provision shall be applicable upon DDA, and writs under Articles 226 and 227 shall be allowed.

With respect to the applicability of Section 74 of the Act, 1872, the court observed that it shall be applicable in cases of forfeiture of earnest money. There exists no breach on the appellant’s part and the fact that DDA suffered no loss but made a whopping profit out of the transaction is irrelevant. The law does not provide for a windfall in case of breach when no damages are suffered by one of the parties to the contract.

CITATION

[1] ILR 1946 Bom 218.

[2] (1959) SCR 213

[3] (2004) 1 SCC Page 12.

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

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