Holding

Compensation for mental agony is not payable in ordinary commercial contracts and interest may be awarded on equitable grounds at a rate of 12% per annum, leading to the setting aside of the MRTP Commission’s award of Rs 50,000 and modification of the interest rate.

Summary

Ghaziabad Development Authority (GDA) advertised several schemes for allotment of developed plots, collected deposits from allottees, and then failed to deliver possession within a reasonable time. The aggrieved allottees obtained orders from the MRTP Commission, Consumer Forum and High Court directing refund of their monies with interest, and the MRTP Commission additionally awarded Rs 50,000 as compensation for mental agony. GDA appealed, raising three questions: (i) whether damages for mental agony are recoverable in an ordinary commercial contract; (ii) whether interest can be awarded despite the absence of an express contract; and (iii) the appropriate rate of interest. The Supreme Court held that, under the Contract Act, damages for mental agony are not payable in ordinary commercial contracts and set aside the MRTP Commission’s award of Rs 50,000. It further held that interest may be awarded on equitable grounds, but the brochure clause excluding interest applies only when the claimant is at fault; since the Authority was at fault, interest must be paid. The Court fixed the rate of interest at 12% per annum, modifying the earlier 18% rate, and dismissed the appeal.

Issues considered

Whether compensation can be awarded for mental agony suffered by claimants in breach of a development scheme contract.
Whether interest can be directed to be paid on the refunded amount in the absence of an express contract or promise.
If interest is payable, what rate of interest is appropriate?

Legislation cited

Subjects

contract lawdamagesmental agonyinterestequitable reliefdevelopment authority schemesconsumer protectionMRTP Commissionbreach of contractremoteness of damages

Judgment

GHAZIABAD DEVELOPMENT AUTHORITY ETC. ETC. A
v.
UNION OF INDIA AND ANR.

MAY 12, 2000

[S. RAJENDRA BABU AND R.C. LAHOTI, JJ.] B

Contract Act, 1872-Breach of contract-Development Authority
advertised various schemes for allotment of developed plots for construction
of apartments and/or flats for occupation by the allottees-Allottees Invested C
money for the scheme-Failure and unreasonable delay in handing over
possession of plots-Held, in such cases rules as to remoteness of damage
would apply-Damages for mental agony is not payable in cases of ordinary
commercial contract-Hence, MRTP Commission erred in awarding
compensation for mental agony-Remoteness of damages-Tort-Monopolies
and Restrictive Trade Practices Commission Act, 1969, Consumer Protection D
Act, 1986-Uttar Pradesh Urban Planning and Development Act, 1973.

Contract:

Breach of contract-Assessment of damages-Principles of-Held,
broadly the principle underlying assessment ofdamages is to put the aggrieved E
party monetarily in the same position, as far as possible, in which it would
have been if the contract had been performed-Types of damages-may be
liquidated or unliquidated.

Breach of contract-Relationship governing the performance and
consequencesflowingfrom such breac~Working of-Held, would be worked F
out under the provisions of the Contract Act or the Specific Relief Act except
to the extent governed by the law applicable to the Authority floating the
Scheme-Contract Act, 1872, Section 73-Specific Relief Act, 1949.

Breach of contract-Loss suffered by a party-Held, such loss may be
compensated as the parties could have contemplated at the time of entering G
into the contract, which directly flows, from its breach

lnte:-est:

Payment of-Where there is no express or implied contract for its H
447
448 SUPREME COURT REPORTS (2000) SUPP. I S.C.R.

A payment-Held, may be awarded on equitable grounds.
Payment oHcheme advertised by Authority had a stipulation in its
brochure that they were not liable to pay any interest in the event of an
occasion arising for return of the amount paid or deposited by the buyers
of the land-Held, such clause applicable to such cases in which the buyer
B is himself responsible for creating circumstances providing occasion for the
refund

Ghaziabad Development Authority promoted and advertised several
schemes for allotment of developed plots for construction of apartments and/
or flats for occupation by the allottees. Several persons who had subscribed
C to the schemes, approached different forums e.g. Monopolies and Restrictive
Trade Practices Commission, Consumer Forum and High Court, complaining
of failure or unreasonable delay in accomplishing the schemes. In all the cases
the Court or Commission or Forum had found the appellant-Authority guilty
of having unreasonably delayed the completion of the scheme or guilty of
D failure to perform the promise held out to the claimants and therefore directed
the amount paid or deposited by the respective claimants to be refunded along
with interest. MRTP Commission had also awarded an amount of Rs. 50,000
payable as compensation for 'mental agony' suffered by the claimants for
failure of the Authority to make available the plots as promised by it. Hence
this appeal.
E
Dismissing the appeal, this Court

HELD: I.I. When a Development Authority announces a scheme for
allotment of plots, the brochure issued by it for public information is an
invitation to offer. Several members of the public may make applications for
F availing benefit of the scheme. Such applications are offers. Some of the offers
having been accepted, subject to rules of priority or preference laid down by
the Authority, result in a contract between the applicant and the Authority.
The legal relationship governing the performance and consequences flowing
from breach would be worked out under the provisions of the Contract Act
G and the Specific Relief Act except to the extent governed by the law applicable
to the Authority floating the scheme. In case of breach of contract one party
may claim damages from the other party. The damages may be liquidated or
unliquidated. Broadly the principle underlying assessment of damages is to
put the aggrieved party monetarily in the same position, as far as possible, in
which it would have been if the contract had been performed. Here the rule as
H to remoteness of damages comes into play. Such loss may be compensated as
GHAZIABAD DEVELOPMENT AUTHORITY v. U.0.1. 449

the parties could have contemplated at the time of entering into the contract. A
The party held liable to compensate is obliged to compensate for such losses
as directly flow from its breach. [451-H; 452-A-D]

1.2. The ordinary heads of damages allowable in contract for sale of
land are settled. The vendor who breaks the contract by failing to convey the
land to the purchaser is liable to pay damages for the purchaser's loss of B
bargain by paying the market value of the property at *he time fixed for
completion less the contract price. The purchaser may claim the loss of profit
he intended to make from a particular use of the land if the vendor had actual
or imputed knowledge thereof. For delay in performance the normal nature
of damages is the value of the use of the land for the period of delay, viz. its C
rental value. It follows that compensation for mental agony could not have been
awarded as has been done by the Monopolies and Restrictive Trade Practices
Commission. [452-G-H; 453-A] ·

Chitty on Contracts, 27th Edn. Vol. 1 para 26.045, referred to.
D
Lucknow Development Authority v. M.K. Gupta, [1994] 1 SCC 243,
distinguished.

2. Interest on equitable grounds can be awarded in appropriate case.
The rate of interest awarded in equity should neither be too high or too low.
Awarding interest at the rate of 12 per cent per annum would be just and E
proper and would meet the ends of justice in the cases under consideration.
The provision contained in the brochure issued by the Development Authority
that it shall not be liable to pay any interest in the event of an occasion arising
for return of the amount paid or deposited by a claimant, should be held to be
applicable to such cases in which the claimant is himself responsible for F
creating circumstances providing occasion for the refund. In the instant case
the fault has been found with the Authority. The Authority does not, therefore,
have any justification for resisting refund of the claimants' amount with
interest. [454-F-H; 455-A[

3. The direction made by the MRTP Commission for payment of Rs. G
50,000 as compensation for mental agony suffered by the respondents/
cl11imants is set aside. In all the other cases the direction for payment of
interest at the rate of 18 per cent shall stand modified as 12 per cent per
annum. [455-BI

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5329of1996. H
450 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A From the Judgment and Order dated 29.12.95 of the Monopolies and
Restrictive Trade Practices, Commission, New Delhi in Compensation
Application No. 172 of 1994

WITH

B Con. P. 324/96, CA 8316/95, 794/97, 4794/97, 2758/98, 5748/98, 5749/98,
5812/98, 234/99, 375199, 2210/99, 187-188/2000, 6988/99, 2025/2000, 142212000,
5689199, C.P. 428/98, CA 620/98, 2370/2000, 8422/97, 4174-4175/99, 6239/1999
& C.A. No. 3404/2000.

Raju Ramachandran, Sudhir Kulshreshtha, Ms. Kamini Jaiswal, Prashant
C Bhushan, Arvind Singh, C.V. Subba Rao, B.K. Prasad, P. Parmeswaran, B.D.
Sharma, Girish Chandra, Sanjay Parikh, Pravir Choudhary, 8.K. Satija, S. Prasad,
Praveen Swarup, B.R. Sabharwal, R.D. Upadhay, R.N. Keshwani, K.B. Sounder
Rajan and Manjeet Chawla for the appearing parties.

The Judgment of the Court was delivered by
D
R.C. LAHOTI, J. Leave granted in SLP(C) No.18897/99.

In this batch of appeals, Ghaziabad Development Authority constituted
under Section 4 of the Uttar Pradesh Urban Planning and Development Act,
E 1973 is the appellant. The Authority has from time to time promoted and
advertised several schemes for allotment of developed plots for construction
of apartments and/or flats for occupation by the allottees. Several persons
who had subscribed to the schemes, approached different forums complaining
of failure or unreasonable delay in accomplishing the schemes. Some have
filed complaints before the Monopoly and Restrictive Trade Practices
F Commission and some have raised disputes before the Consumer Disputes
Redressal Forum. In two cases civil writ petitions under Article 226 of the
Constitution were filed before the High Court seeking refund of the amount
paid or deposited by the petitioners with the Authority. In all the cases under
appeal the Court or Commission or Forum concerned has found the appellant-
G Authority guilty of having unreasonably delayed the accomplishment of the
announced schemes or guilty of failure to perform the promise held out to the
claimants and, therefore, directed the amount paid or deposited by the
respective claimants to be returned along with interest. In the cases filed
before the High Court of Allahabad there was a term in the brochure issued
by the Authority that in the event of the applicant withdrawing its offer or
H surrendering the same no interest whatsoever would be payable to the claimants.
GHAZ!ABAD DEVELOPMENT AUTHORITY v. U.O.l. [R.C. LAHOT!, J.] 451

The High Court has held such tenn of the brochure to be unconscionable and A
arbitrary and hence violative of Article 14 of the Constitution. The High Court
has directed the amount due and payable to be refunded with interest
calculated at the rate of 12 per cent per annum from the date of deposit to
the date of refund. In all the other appeals before us the impugned order
passed by the Commission or the Forum directs payment of the amount due B
and payable to the respective claimants with interest at the rate of 18 per cent
per annum. In Civil Appeal No. 8316 of 1995, G.D.A. v. Brijesh Mehta, the
MRTP Commission has held the claimants entitled to an amount of Rs.50,000
payable as compensation for 'mental agony' suffered by the claimants for
failure of the Authority to make available the plot as promised by it.

As all these appeals raise the following common questions of law, they
c
have been heard together and are being disposed of by this common judgment.
The questions arising for decision are :

(0 Whether compensation can be awarded for 'mental agony'
suffered by the claimants? D
(ii) Whether in the absence of any contract or promise held out by
the Ghaziabad Development Authority any amount by way of
interest can be directed to be paid on the amount found due and
payable by the Authority to the claimants?
E
(iii) If so, the rate at which the interest can be ordered to be paid?

In C.A. No. 8316/1995, Ghaziabad Development Authority had
announced a scheme for allotment of developed plots which was known as
"lndirapuram Scheme''. The Authority infonned the claimants that a plot of
35 sq. metres was reserved for them, the estimated cost of which plot was Rs. F
4,20,000 payable in specified instalments. An allotment of plot was also
infonned. Then at one point of time the claimants were infonned that due to
some unavoidable reasons and the development work not having been
completed, there has been delay in handing over possession. Having waited
for an unreasonable length of time the claimants approached the MRTP G
Commission.

When a Development Authority announces a scheme for allotment of
plots, the brochure issued by it for public infonnation is an invitation to offer.
Several members of public may make applications for availing benefit of the
scheme. Such applications are offers. Some of the offers having been accepted H
452 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A subject to rules of priority or preference laid down by the Authority result
into a contract between the applicant and the Authority. The legal relationship
governing the performance and consequences flowing from breach would be
worked out under the provisions of the Contract Act and the Specific Relief
Act except to the extent governed by the Jaw applicable to the Authority
floating the scheme. In case of breach of contract damages may be claimed
B by one party from the other who has broken its contractual obligation in some
way or the other. The damages may be liquidated or unliquidated. Liquidated
damages are such damages as have been agreed upon and fixed by the parties
in anticipation of the breach. Un liquidated damages are such damages as are
required to be assessed. Broadly the principle underlying assessment of
C damages is to put the aggrieved party monetarily in the same position as far
as possible in which it would have been if the contract would have been
performed. Here the rule as to remoteness of damages comes into play. Such
loss may be compensated as the parties could have contemplated at the time
of entering into the contract. The party held liable to compensation shall be
obliged to compensate for such losses as directly flow from its breach. Chitty
D on Contracts (27th Edition, Vol.I, para 26.041) states : "Normally, no damages
in contract will be awarded for injury to the plaintiffs feelings, or for his
mental distress, anguish, annoyance, Joss of reputation or social discredit
caused by the breach of contract; .............. The exception is limited to contract
whose performance is "to provide piece of mind or freedom from
E distress" ............. Damages may also be awarded for nervous shock or an
anxiety state (an actual breakdown in health) suffered by the plaintiff, if that
was, at the time the contract was made, within the contemplation of the parties
as a not unlikely consequence of the breach of contract. Despite these
developments, however, the Court of Appeal has refused to award damages
for injured feelings to a wrongfully dismissed employee, and collfirmed that
F damages for anguish and vexation caused by breach of contract cannot be
awarded in an ordinary commercial contract."

The ordinary heads of damages allowable in contracts for sale of land
are settled. A vendor who breaks the contract by failing to convey the land
G to the purchaser, is liable to damages for the purchaser's loss of bargain by
paying the market value of the property at the fixed time for completion less
the contract price. The purchaser may claim the loss of profit he intended to
make from a particular use of the land if the vendor had actual or imputed
knowledge thereof. For delay in performance the normal nature of damages
is the value of the use of the land for the period of delay, viz. usually its rental
H value (See Chitty on Contracts, ibid, para 26.045).
.~
GHAZIABAD DEVELOPMENT AUTHORITY v. U.0.1. [R.C. LAHOTL J.) 453

In our opinion, compensation for mental agony could not have been A
awarded as has been done by the MRTP Commission.

However, the learned counsel for the respondents has invited our
attention to Lucknow Development Authority v. MK. Gupta, [1994] I SCC
243 wherein this Court has upheld the award by the Commission of a
compensation of Rs. I 0,000 for mental harassment. The basis for such award B
is to be found in paras I 0 and I I wherein this Court has stated inter alia -
"Where it is found that exercise of discretion was ma/a fide and the complainant
is entitled to compensation for mental and physical harassment, then the
officer can no more claim to be under protective cover. When the citizen seeks
to recover compensation from a public authority in respect of injuries suffered C
by him for capricious exercise of power and the National Commission finds
it duly proved, then it has a statutory obligation to award 11e same." The
Court has further directed the responsibility for the wrong done to the citizens
to be fixed on the officers who were responsible for causing harassment and
agony to the claimants and then recover the amount of compensation from
the salary of officers found responsible. The judgment clearly shows the D
liability having been fixed not within the realm of the law of contracts but
under the principles of adminstrative law. We do not find any such case
having been pleaded much less made out before the Commission. Indeed, no
such finding has been arrived at by the Commission as was reached by this
Court in the case of Lucknow Development Authority (Supra). The award of E
compensation of Rs. 50,000 for mental agony suffered by the claimants is held
liable to be set aside.

The next question is the award of interest and the rate thereof. It is true
that the terms of the brochure issued by the Authority relevant to any of the
cases under appeal and the correspondence between the parties do not make F
out an express or implied contract for payment of interest by the Authority
to the claimants. Any provision contained in the Consumer Protection Act,
1986, the Monopolies and Restrictive Trade Practices Act, 1969 and U.P.
Urban Planning and Development Act, 1973 enabling the award of such
interest has not been brought to our notice. The learned counsel for the G
claimants have placed reliance on a recent decision of this Court in Sovintorg
(India) Ltd. v. State Bank of India, New Delhi, [I 999] 6 SCC 406 wherein in
similar circumstances the National Consumer Disputes Redressal Commission
directed the amount deposited by the claimants to be returned with interest
at the rate of 12 per cent per annum. This Court enhanced the rate of interest
.... to 15 per cent per annum. To sustain the direction for payment of interest H
454 SUPREME COURT REPORTS [2000] SUPP. I S.C.R.

A reliance was placed on behalf of the claimants on Section 34 of the CPC and
payment of interest at the rate at which moneys are lent or advanced by
national banks in relation to commercial transactions, was demanded. This
Court did not agree. However, it was observed :

"There was no contract between the parties regarding payment of
B interest on delayed deposit or on account of delay on the part of the
opposite party to render the services. Interest cannot be claimed
under Section 34 of the Civil Procedure Code as its provisions have
not been specifically made applicable to the proceedings under the
Act. We, however, find that the general provision of Section 34 being
based upon justice, equity and good conscience would authorise the
c Redressal Forums and Commissions to also grant interest appropriately
under the circumstances of each case. Interest may also be awarded
in lieu of compensation or damages inappropriate cases. The interest
can also be awarded on ~quitable grounds."

"The State Commission as well as the National Commission were,
D
therefore, justified in awarding the interest to the appellant but in the
circumstances of the case we feel that grant of interest at the rate of
12% was inadequate as admittedly the appellant was deprived of the
user of a sum of Rs. one lakh for over a period of seven years. During
the aforesaid period, the appellant had to suffer the winding-up
E proceedings under the Companies Act, allegedly on the ground of
financial crunch. We are of the opinion that awarding interest at the
rate of 15 per cent per annum would have served the ends of justice."

We are, therefore, of the opinion that interest on equitable grounds can
be awarded in appropriate cases. In Sovlntorg (India) Ltd. 's case the rate of
F IS per cent per annum was considered adequate to serve the ends of justice.
The Court was apparently influenced by the fact that the claimant had to
suffer winding-up proceedings under the Companies Act and the defendant
must be made to share part of the blame. However, in the cases before us,
the parties have not tendered any evidence enabling formation of opinion on
G the rate of interest which can be considered ideal to be adopted. The rate of
interest awarded in equity should neither be too high nor too low. In our
opinion awarding interest at the rate of 12 per cent per annum would be just
and proper and meet the ends of justice in the cases under consideration. The
provision contained in the brochure issued by the Development Authority
that it shall not be liable to pay any interest in the event of an occasion
H arising for return of the amount should be held to be applicable only to such
GHAZIABAD DEVELOPMENT AUTHORITY v. U.0.1. [R.C. LAHOTI, J.) 455

• cases in whic~ the claimant is itself responsible for creating circumstances A
providing occasion for the refund. In the cases under appeal the fault has
been found with the Authority. The Authority does not, therefore, have any
justification for resisting refund of the claimants' amount with interest.

For the foregoing reasons, the direction made by the MRTP Commission
for payment of Rs. 50,000 as compensation for mental agony suffered by the B
claimants-respondents in Civil Appeal No. 8316/1995 is set aside. In all the
other cases the direction for payment of interest at the rate of 18 per cent shall
stand modified to pay interest at the rate of 12 per cent per annum.

Civil Appeal No.848211997
c
This case relates to allotment of a flat. The MRTP Commissi ''1 has held
the claimant entitled to allotment of a flat. An option has been given to the
claimant. If the claimant may refuse to take the flat in terms of the direction
made by the Commission, he will be entitled to the refund of the amounts
deposited by him with interest at the rate of 18 per cent per annum from the D
• dates of deposit of the various amounts by the claimant. During the course
of hearing before this court the possibility of the claim being satisfied by
allotment of an alternative flat was explored but that could not materialise as
the claimant was not agreeable to accept the flat offered by the Authority,
submitting that it was located in a deserted area and was heavily priced. That
being the position the direction of the Commission for refund of the amount E
shall stand though the rate of interest shall be 12 per cent and not 18 per cent.

All the appeals and contempt petitions stand disposed of accordingly.
No order as to the costs.

R.K.S. Appeals/Contempt petitions dismissed. F