Courts Cannot Suo Motu Grant Refund Of Earnest Money If It Is Not Specifically Prayed For In Specific Performance Suit : Supreme Court

The Supreme Court observed that, in a specific performance suit, the Courts cannot suo motu grant relief of refund of earnest money if it is not specifically prayed for.

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, the bench of Justices Surya Kant and Bela M. Trivedi observed.

In this case, the Trial Court, in a specific performance suit, granted the plaintiff a decree of recovery of earnest money on the priciple of unjust enrichment. The first Appellate Court and the High Court upheld this decree. In appeal, the Apex Court bench noted that the plaintiff had neither prayed for the relief of refund of earnest money in the original plaint nor he sought any amendment at a subsequent stage. Referring to the Section 22 of the Specific Relief Act, the court observed:

"The plaintiff in his suit for specific performance of a contact 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. The 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. The 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. The prayer clause is a sine qua non for grant of decree of refund of earnest money.. In the absence of such a prayer, it is difficult to accept that the courts would suo­-moto grant the refund of earnest money irrespective of the fact as to whether Section 22(2) of SRA Act is to be construed directory or mandatory in nature."

Another contention raised by the respondent- plaintiff was that even if he is held responsible for breach of contract, the forfeited amount was 'penal' in nature and was hit by Section 74 of The Contract Act. The court, in this regard, observed:

"Section 74 of Contract Act primarily pertains to the grant of compensation or damages when a contract has been broken and the amount of such compensation or damages payable in the event of breach of contract, is stipulated in the contract itself. In other words, all pre­estimated 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.. In a scenario where the contractual terms clearly provide the factum of the 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 pre­estimated amount stipulated in the contract as a 'genuine pre­estimate of loss'.", the court said while allowing the appeal.

The bench therefore allowed the appeal.

Case details

Desh Raj vs Rohtash Singh | 2022 LiveLaw (SC) 1026 | CA 921 OF 2022 | 14 Dec 2022 | Justices Surya Kant and Bela M. Trivedi 

For Petitioner(s) Mr. Siddharth Mittal, AOR Mr. Prabhat Kumar, Adv. Mr. Kshitiz Chauhan, Adv. Mr. Sahil Amarnath, Adv. Ms. Shilpa G.Mittal, Adv.

For Respondent(s) Ms. Sonali Joon, Adv. Mr. Gaurav Bhatt, Adv. Mr. Karunakar Mahalik, AOR

Headnotes

Specific Relief Act, 1963 ; Section 22(2) - 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. The prayer clause is a sine qua non for grant of decree of refund of earnest money. (Para 31)

Indian Contract Act, 1872 ; Section 74 - All pre­estimated 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 - In a scenario where the contractual terms clearly provide the factum of the 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 pre­estimated amount stipulated in the contract as a 'genuine pre­estimate of loss' - Referred to Fateh Chand v Balkishan Das (1964) 1 SCR 515 , Kailash Nath Associates v DDA (2015) 4 SCC 136 , Satish Batra v Sudhir Rawal (2013) 1 SCC 345 and ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 (Para 35)

Specific Relief Act, 1963 - Indian Contract Act, 1872 ; Section 55 - Defense under Section 55 of Contract Act is valid against anyone who is seeking the relief of specific performance - Citadel Fine Pharmaceuticals v Ramaniyam Real Estates Private Ltd (2011) 9 SCC 147 and Saradamani Kandappan v S. Rajalakshmi (2011) 12 SCC 18.

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