Holding

Earnest money is forfeitable on the purchaser’s default unless the contract states otherwise, and the respondents were liable to forfeit the fixed Rs 5 lakh earnest money, not 10 % of the enhanced premium.

Summary

The Delhi Development Authority (DDA) offered land to cooperative housing societies at a price of Rs 975/950 per sq m and required a Rs 5 lakh earnest money deposit. Before possession, DDA raised the premium to Rs 1,650.65 per sq m, which the High Court upheld as reasonable. The societies failed to pay the enhanced premium within the time extended by the Supreme Court, and DDA forfeited the earnest money, treating it as 10 % of the premium, whereas the deposit was a fixed Rs 5 lakh. The Delhi High Court ordered a full refund of the earnest money, which DDA appealed. The Supreme Court held that earnest money is payable at the time of contract, is forfeitable on default unless the contract provides otherwise, and that the societies had accepted the enhanced premium, making them liable to forfeit the Rs 5 lakh deposit, not 10 % of the premium. Consequently, the High Court’s direction to refund the entire amount was modified, allowing DDA to retain the earnest money and refund the balance with interest. The appeals were allowed.

Issues considered

Whether earnest money is forfeitable on the purchaser’s default absent a contrary contractual term.
Whether the cooperative societies were bound to accept the enhanced premium of Rs 1,650.65 per sq m.
Whether the forfeiture should be calculated as 10 % of the enhanced premium or as the fixed sum stipulated in the original offer.
Whether the Delhi High Court was justified in directing a full refund of the earnest money.

Legislation cited

Delhi Development Authority (Disposal of Developed Nazul Land) Amendment Rules, 1981s. Rule 24(2)

Subjects

earnest moneyforfeitureland allotmentDelhi Development AuthorityNazul landcontract lawpremium enhancementco-operative housing societiesrefund

Judgment

DELHI DEVELOPMENT AUTHORITY A
v
GRIHASTHAPANA CO-OPERATIVE GROUP HOUSING
SOCIETY LTD.

FEBRUARY 20, 1995
B
[S.C.AGRAWAL, B.L. HANSARIA AND
SUJATA V. MANOHAR, JJ.]

Delhi Development Authority (Disposal of Developed Nazul land)
Amendment Rules. 1981-Rule 24(2)-Forfeiture of earnest money paid by C
the allottee who refused to accept the allotment of land at enhanced
I price-Validity of.

Words and phrases--!'Eamest money''-Meaning of.
D
The appellant authority proposed to allot land to co- operative group
housing societies at Dwarka, Phase-I and Narela @ Rs. 975 and Rs. 950
per sq. meter respectively. The interested societies were required to deposit
Rs. 5 Iakh as earnest money. However, before possession was delivered the
appellant authority enhanced the premium to Rs. 1650.65 per sq. meter, E
the value determined by the Government of India. Some societies ap-
proached the High Court Court but the enhancement of premium was
upheld.

On appeal, the Supreme Court, while upholding the enhancement,
extended the time for making payment. Upon the respondent not making F
payment as directed by the Supreme Court the appellant forfeited a sum
of money equivalent to 10% of what bad become payable @ Rs. 1650.65 as
·~rnest money" due number a clause of the allotment order.

This was challenged in the High Court which directed the appellant
not to make any deductions and to refund the entire amount deposited by G
the respondents. The appellants brought the present appeal contending
that the forfeiture ot'earnest money" in case of non-deposit of premium
was in accordance with law and that the High Court having found the
enhancement to be reasonable erred in its direction to refund the earnest
money. .H
115
116 SUPREME COURT REPORTS (1995) 2 S:C.R.

A Allowing the appeals, thi~ Court ,.....
HELD : 1. Earnest money is given at the moment of contract con-
clusion, to bind the contract, as part of the purchase price and is forfeited
on purchase's default or failure if nothing to the contrary is stated in the
contract. (118-F-G]
B
Shri Hanuman Cotton Mills v. Tata Aircraft Ltd., (1970) 3 SCR 127,
relied on.
_)·
Chiranjit Singh v. Harswarup AIR (1926) PC I, referred to.

c 2.1. The respondents having accepted the offer contained in the
communication of 3.11.92 were bound to pay premium at the enhanced rate
of Rs. 1650.65 held to be reasonable by the High Court. As there was no ~
compliance with the condition mentioned in the Supreme Court's order
dated 10.05.93, the respondents had make themselves liable to forfeiture
of the earnest .money. (119-F]
D
2.2. The earnest inoney which was deposited was not 10% of the 4..
premium as required by the amended Nazul Rules.but a fixed sum of Rs.
5 lakh mentioned in the offer of 1.10.90. The earnest money which had
become liable to be forfeited was a sum of Rs. 5 lakh and not 10% of the
E total premium calculated the rate of Rs. 1650.65. (119-G-H]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 931 of
/
· 1995 Etc. Etc. ·

From the Judgment and Order dated 3.8.94 of the Delhi High Court ).-
F in C.W.P. No. 4607 of 1993.

Arun Jaitley, V.B. Saharaya and Ms. Suparea for the Appellant.

Bishwajit Bhattarya, Sanjay Ghosh and A Bhattacharjee for the
Respondents.
G
Y.P. Mahajan and Ms. Sushma Suri for the Union of India.

The Judgment of the Court was delivered by
1
HANSARIA, J. The short point which needs to be decided in these
H appeals is whether the High Court of Delhi was justified in directing the
D.D.A v. CO-OP. GROUP HSG. SOCY. LTD. (HANSARIA, J.) 117

appellant to refund the earnest money deposited by the respondents fol- A
lowing allotments of land to them at the cost of Rs. 975 per sq. mtr., which
cost subsequently came to be enhanced to Rs. 1650.65, because of which
the respondents· refllsed to finally accept the allotment.

2. The aforesaid question arises on these facts. The appellant
proposed to allot land to about 260 Co-operative Group Housing Societies B
in Dwarka Phase-I, so also to about 60 such Societies in Narela. When the
proposal was first made on 1.10.90, the cost was fixed at Rs. 975 per sq.
mtr. for Dwarka land and Rs. 950 for Narela land. The Societies interested
in the allotment land ~e required to deposit Rs. 5 lakhs as earnest money
and to formally apply for allotment. On the interested Societies accepting C
the offer, formal allotment was made by communication of the appellant
dated 25.1.91. Before possession of the land came to be delivered, the
/ appellant by its communication dated 3.11.92 stated that the premium of
the land shall be payable at Rs. 1650.65 per sq. mtr. which was the value
determined by the Government of India, vide its notification dated D
21123.10.92. Some of the Societies approached the Delhi H~ Court being
aggrieved at the enhancement of the premium. The High Court ultimately
upheld the enhancement, which decision has since been reported in 26
Delhi Reported Judgment 156. On ·this Court being approached against the
Judgment of the High' Court by way of special leave petitions, the same E
came to be disposed of by extending the time of paying the first instalment
up to 31st May, 1993 which date had been fixed by the High Court as 30th
April, 1993. '.fllis
Court made _it clear in its order that the facility to pay
first instalment with interest will be available only upto 31st July, 1993; and
no. extension of time beyond this date would be granted.

3. On the respondents herein not paying the amount as ordered by
this Court, the appellant forfeited sum of money equivalent to 10% of what
had become payable @ 1650.65, taking the same as earnest money due as
per clause 4 II of the allotment order dated 3.11.1992. This action of the
appellant \Va& challenged before the Delhi High Court, who by impugned G
. order has directed the appellant not to make any deduction and to refund
the entire amount deposited by the respondents. The validity of this
direction has been challenged in these appeals.

4. Shri Jaitley, appearing for the appellant, has co~ed his submis- H
J
118 SUPREME COURT REPORTS (1995) 2 S.C.R.
"· High Court which is relatabre to the
A sion to the part of the direction of the
refund of earnest money. Learned counsel contends that the respondents
having had accepted the allotment on the conditions mentioned in the
communication dated 25.1.91 w&ich had visualised enhancement of the
rate, and the enhancement having been regarded as reasonable by the High
B Court, the direction to refund the earnest money is not in accordance with I

the law for two reasons. First, the very conception of earnest money is that
in case the contract goes off, the same can be forfeited. Secondly, the Delhi
Development Authority (Disposal of Developed Nazul Land) Amendment
Rules, 1981, which were notified on 11.11.91, having provided for forfeiture
of earnest money in case of non-deposit of promium as mentioned in
C amendment Rule 24(2), action of the appellant in forfeiting the earnest
money was in accordance with the law.

5. In support of the first legal propositio~ Shri Jaitley referred us.
principally to a three-judgment Bench decision of this Court in Shree
D Hanuman Cotton Mills v. Tata Aircraft Ltd., [1970] 3 SCR 127, in which
there is a detail discussion of what is meant by earnest money and what is
tlie ·consequences of deposit of such ·money and when can the same be
forfeited. The Bench after reviewing various decisions noted in the judg-
ment which includes that of the Privy Council rendered in Chiranjit Singh
E v. Har Swamp, AIR (1926) PC ·1, culled out the following principles
regarding the "earnest" at page 139 : ·

"( 1) It must · be given at the moment at which the contract is
concluded.

F ·-·
(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 putchase price when the transaction is carried
out.
G (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
H to forfeit the earnest." ·
D,.D.A v. CO-OP. GROUP HSG. SOCY. LID. [HANSARIA, J.] 119

6. In view of the aforesaid legal position, the contention advanced by A
Shri Bishwajit Bhattarcharya for the respondents is tlJtt there was no
acceptance of the offer given on 3.11.92 in which mentioned was made
about the rate of premium being Rs. 1650.65. The appellant is, therefore,
not entitled according to the learned counsel, to forfeit the earnest money,
as no such money had been deposited after this date in token of acceptance B
of the proposal.

7. Shri Jaitley counters this statement by urging that the proposal to
allot land as contained in the communication of 3.11.92 cannot -be read
dehors what had been mentioned in the allotment offer dated 25.1.91 or C
for that matter the offer contained in the communication dated 1.10.90.
This brought home by drawing our attention to what has been stated in
para 3 of the offer dated 3.11.92 in which, while calculatmS the entire
amount payable by the allottee, the deposit made earlier pursuant to the
offer of 1.10.90 was adjusted. Further, in sub-para II of para 4 of the lateJ D
communication, the fact of deposit ~arnest money earlier has been taken
note of. We also find from Application Form dated 24.12.1992 submitted

- by the respondent in CA No. 93lJ85 that the earnest money deposited on
22.10.90 as well as part of the premium deposited on 25.1.91, have been
mentioned under item 8 dealing with the "Challan Number and date
whereby 25% of the total premium and 10% of earnest money has been E
deposited."

8. The aforesaid facts leave no manner of doubt in our mind that
what stated in the communication of 3.11.92 was in continuation of the
earlier offer dated 1.10.90/25.1.91. We therefore, hold that the respondents F
had accepted the offer contained in the communication of 3.11.92 and, as
such, they were bound to pay premium at the enhanced rate of Rs. 1650.65,
held as reasonable by the High 'court. As they did not comply with the
condition mentioned in the Court's aforesaid order dated 10.5.93, the
respondents had made themselves liable to forfeiture of the earnest money. G
As, however, the earnest money which has deposited. was not 10% of the
premium as required by the amended Nazul Rules, but was a fixed sum of
Rs. 5 lakhs in C.A. No. 93lJ85 mentioned in the offer of 1.10.90, the earnest
money which had become liable to be forfeited was a sum of Rs. S lakhs,
and not 10% of the total premium calcultted at the rate of Rs. 1650.65. · · H
120 SUPREME COURT REPORTS (1995] 2 S.C.R.
/
I
A 9. The appeals, therefore, stand allowed by modifying the High
Court's order by stating that the amount to be refunded to the respondents
woulc,i not include earnest money which had been deposited by them. The -j--
remaining amount would be refunded by the appellant within a period of
4 weeks from today, falling which the respondents would be entitled for
B interest @ 18% per annum from today till payment. In the facts and
circumstances of the case, we make no order to costs.

A.G. Appeals allowed.