1. Legality and correctness of the judgment and decree passed by XXVI Addl. City Civil Judge, Bangalore dated 23.2.2004 in O.S.No.15290/2001 is called in question in this appeal by the appellants. Appellants were the defendants and respondent was the plaintiff before the trial court.
2. Facts leading to this case are as hereunder: Plaintiff is a registered firm carrying on its business as a developer developing properties in constructing apartments and carrying on allied real estate activities. According to the plaint averments, defendants are the owners of 1-12 acres and 2-20 acres of land, in all 3-32 acres in Sy.Nos.42 & 32/2 of rtayanappashetty Palya, Bannerghatta P.oad. Begur Kobli, Bangalore and the aforesaid land was offered by the defendants to the plaintiff to develop the same under the joint venture scheme. it was agreed that after the completion of the project plaintiff was entitled for 50% of the built up area and the defendants being the land owners were entitled to remaining 50% in the built up area. Accordingly, parties entered into an agreement on 16.3.1995.
On the date of the agreement both the lands were notified for acquisition for the formation of layout by the BDA and the defendants undertook to get the lands de-notified from acquisition and thereafter plaintiff was required co complete the project by getting the land converted from, agriculture to non-agricultural purpose and complete the project within; a period of sixty months from the date of sanctioning plan and obtaining license to construct the project. It was also agreed between the parties that plaintiff was required to pay Rs.1 crore as security deposit in a phased manner, which amount shall be refundable to the plaintiff by the defendants at the time of handing over possession of the defendants share in the project.
A sum of Rs.1 lac was paid as security depoisit on the date of entering into an agreement and the remaining amount of Rs. 99 lacs was required to pay in different stages. It is the case of the plaintiff that even before certain obligations were required to be performed by the defendants, a further sum of Rs.20 lacs by means of cheque bearing No.11992 6 dated 8.3 1996 and Rs.19 lacs by way of cheque bearing No. 119927 dated 15.3.1996 drawn on Vijaya Bank, Malleshwaram, Bangalore. Thus in all a sum of Rs.4 0 lacs was paid by the plaintiff to the defendants as security deposit out of Rs. 1 crore payable by it in terms of the agreement dated 16.3.1995. It is the case of the plaintiff that defendants were required to obtain an order of de-notification from the Government at an earliest point of time, defendants did not take necessary steps to obtain de-notification of the land from the acquisition proceedings and also did not co-operate with the plaintiff to complete the construction. It is the case of the plaintiff that plaintiff approached the defendants on several time, but they went on postponing to complete their part of obligation in terms of the agreement dated 16.3.1995. In the circumstances plaintiff got issued a legal notice calling upon the defendants to refund a sum of P.s.40 lacs which was paid by the plaintiff to the defendants as security deposit on account of the lapses committed by the defendants with interest at 18% p.a. from the date of payment till the date of suit and also for costs and future interest. Thus in all, suit was filed for recovery of Rs. 61,05,000/- with court fee and current interest on Rs.40 lacs at 18% p.a. from the date of suit till the date of payment. Defendants appeared before the court on service of summons. They contested the suit. It is the case of the defendants that plaintiff a approached the defendants to permit the plaintiff to develop the property and that the proposal to develop the land was put forth by the plaintiff and not by the defendants. However, they admit that in terms of the agreement dated 16.3.1995 they agreed to allow the plaintiff to develop and complete the project of construction of a residential apartments subject to the defendants obtaining order from the Government getting land de-notified. According to them, r.hey approached the Government and they were successful in getting the land ds-notified as per Gazette Notification dated 3.3 1998 and immediately thereafter copy of the Gazette Notification de-notifying the land was handed over to the plaintiff arid the plaintiff was requested by the defendants to complete the project in terms of the agreement dated 16.3.1995. They also admit receipt of Rs.40 lacs paid by the plaintiff as security deposit out of Rs.1 crore payable by the plaintiff. They also admit that on completion of the project defendants were required to refund security deposit payable/paid by the plaintiff. But it is their specific case that after getting the land de-notified by them, plaintiff did not pay the balance security deposit of Rs.60 lacs in terms of the agreement dated 16.3.1935 and the plaintiff did not evince any interest to take steps to get the land converted from agriculture to non-agricultural purpose and also did not obtain license and plan from the planning authority and even did not commence construction inspite of several requests made by them.
Defendants also contended that after getting the land de-notified, they got issued a legal notice on 30.10.1998 celling upon the plaintiff to complete the project in terms of the agreement dated 16.3.1995. It was also informed through legal notice that the amount of security deposit would be forfeited if the project is not completed by the plaintiffs. Though the said notice was received by the plaintiff, plaintiff did not evince any interest and as a last resort notice was got issued by the plaintiff making allegations against the defendants as if they were not ready and willing to perform their part of the contract and that the plaintiff was not informed about the de-notification order and called upon the defendants to refund the security deposit of Rs.40 lacs with interest as per legal notice dated 12.2.2001. It is the case f the defendants that a reply was sent to the legal notice dated 12.2.2001 calling upon the plaintiff to complete the project and it was categorically stated that security deposit has been forfeited since plaintiff did not perform its part of the contract and that the defendants were entitled to forfeit the security deposit on account of the loss sustained by them due to non-commencement of the project by the plaintiff right from 1998. It was also contended that the suit filed by the plaintiff was barred by limitation.
Based on the above pleadings, following issues were framed by the court below:
1. Whether plaintiff proves that the defendants have failed to hand over the land immediately after the land was denotified on 3.3.1998?
2. Whether plaintiff proves that an amount of Rs.40 lakhs was paid to the defendants as a refundable deposit under the agreement dated 16.3.1995?
3. Whether plaintiff proves that the defendants have willfully committed the default in not paying the plaintiff in possession of the said land and as such it is entitled to recover the refund of the said deposit amount of Rs.40 lakhs with interest at the rate of 18% p.a. from the date of such default?
4. Whether the defendant proves that it was a interest free security deposit repayable after the completion of the multistory building work?
5. Whether the defendants prove that it was understanding at the time of agreement that in the event of contract was performed the earnest deposit shall be returned and if the contract was not performed by payer, it shall remain on the property of the payee?
6. Whether the suit is barred by law of limitation?
7. Whether the defendants are entitled for equitable set-off to the full extent of the plaintiff's claim?
8. To what reliefs the parties are entitled to?
9. What decree or order?
In order to prove their respective contentions, on behalf of the plaintiff one of its partners by name N.K.Veeranna got examined himself as PW-1 and he relied upon Exs.P-1 to 19. On behalf of the defendants, 1st defendant Negappa was examined as DW-1 and one of the attestors to the agreement dated 16.3.1995 P.S.Madhava Krishna was examined as DW-2 and also relied upon Exs.D-1 to 6.
Trial court, after appreciating the evidence let in by the parties, held issues 1 to 3 as proved, issues 4 to 7 as not proved and ultimately suit came to be decreed on 23.2.2004 holding that plaintiff is entitled to recover a sum of Rs 61,05,000/- together with future interest at 12% p.a. on Rs.40 lacs. This judgment and decree are called in question in this appeal by the defendants.
3. We have heard Sri.Padmanabha Mahale, learned senior counsel for the appellants and Sri.Madhusudhana Rao for the respondent.
4. Though several grounds are urged in the appeal memo by the appellants, at the time of arguments Mr.Mahale has urged the following contentions only: According to him, trial court has committed a serious error in not considering the evidence let in by the parties. According to him, agreement was altered into on 16.3.1995 under which defendants were required to obtain an order of de-notification and thereafter plaintiff was required to complete the project in terms of the agreement. According to him, though the defendants proved that after obtaining an order of de-notification, copy of the Gazette Notification was handed over to the plaintiff, trial court did not consider the same. According to him, DW-2 Madhava Krishna is an attestor to the agreement dated 16.3.1995. It is the case of the defendants that copy of the Gazette Notification was handed over to the plaintiff in the presence of Mahava Krishna and that Gazette Notification is of the year 1998 as the request of the defendants were not fulfilled or complied with by the plaintiff, a notice was got issuad as per Ex.D-4 on 30.10.1998 and inspite of receipt of the same, plaintiff for the reasons best known to it did not even care to send a reply and did not comply with the demands made under Ex.D-4 legal notice dated 30.10.1998. According to him, under the legal notice defendants had contended that an amount of Rs.40 lacs paid by the plaintiff would be forfeited on account of the loss sustained by them and also an opportunity was given to the plaintiff to take up the project and complete the contract and that the same was servsd on the plaintiff as per Ex.D-1. No reply
was sent by the plaintiff and project was not taken up for the reason that by that time value of the property came down in and around Bangalore and that plaintiff did not venture to take up the project since it had no money.
5. He further contends that plaintiff having received legal notice dated 30.10.1998, did not approach the defendants and on the contrary by issuing legal notice dated 12.2.2001 as if defendants have failed to perform their part of the contract demanded for refund of security deposit as per Ex.P-17. the farther contends that even after receipt of Ex.P-17, a reply was sent by the defendants requesting the plaintiff to take up the project and complete the same. Without doing so, plaintiff filed the suit for recovery of money, therefore he contends that appellants were entitled to forfeit the security deposit as it was paid to perform obligation on the part of the plaintiff since there is a failure on the part of the plaintiff in not completing the project which resulted in causing great loss to the defendants and defendants were entitled to forfeit the amount.
6. He further contends that trial court without considering the admissions made by PW-1 in his cross-examination in regard to recession in the real estate business after 1995 onwards and the plaintiff s knowledge about the order of de-notification of the year 1998, trial court has wrongly decreed the suit as if defendants did not perform their part of the contract. According to him, though the plaintiff did not prove Exs.P-7 to 15, trial court ought to have held that defendants were entitled to forfeit the earnest money deposit which was paid as security deposit for due performance of the contract by the plaintiff
7. He further contends that trial court did not consider the evidence of DW-1 wherein DW-1 has stated how and in what manner defendants have sustained loss on account of non-completion of the project by the plaintiff. According to him, when the agreement was entered into between the parties, value of the built up area was varied from 1200 to 1500 sft. and the cost of construction has gone up by many-fold and the demand for flat has come down and that as on the date of giving his evidence more than 5000 flats are vacant in and around B.T.M. Layout. Therefore he contends that they have suffered loss of more than Rs.4 to 5 crores by not fulfilling the obligation of the plaintiff. According to him, evidence of DW-1 has not been challenged by the plaintiff in order to hold that defendants cannot forfeit security deposit of Rs.4 0 lacs. According to him, when the defendants have sustained loss of Rs.4 to 5 crores on account of the default committed by the plaintiff, as the amount of Rs.40 lacs was paid as security deposit for due performance of terms and conditions of the contract by the plaintiff, defendants were entitled to forfeit the amount. He further contends that DW-2 Madhava Krishna has categorically stated that he and Nagappa were approaching the plaintiff's partner and requesting them to take up the project and complete the same and they did not do so on account of financial constraints. In the circumstances, he requests the court to allow the appeal by reversing the findings of the court below as the findings of the court below are not based on proper appreciation of evidence and pleadings of the parties and as the findings are perverse.
8. Mr .MadhUi'udhana Rao, counsel appearing for the respondent contends that none of the grounds urged by the appellant are tenable. According to him, plaintiff was ready and willing to perform its part of the contract right from the date of agreement. On 16.3.1995 a sum of Rs. 1 lac was paid. In terms of the agreement, remaining Rs.99 lacs was required to be paid in a phased manner. According to him, Rs.39 lacs was required to he paid at the time of de-notifying of the land by the Government, further a sum of Rs. 30 lacs was required to pay within three months from the date of de-notifying the land by the Government, balance amount of Rs.30 lacs was required to the defendants within six months from the date of order of de-notificatxon According to him, order of denotification was not made known to the plaintiff by the defendants and Ex.D-4 legal notice was not served on the plaintiff and even though plaintiff was approaching the defendants, defendants did not even informed the order of de-notification and on account of the latches on the part of the defendants, though plaintiff was ready and willing to perform its part of the convract to complete the project, project could not be commenced. He further contends that it was for the defendants to give a power of attorney to the partner of the plaintiff to enable the plaintiff to get the land converted from agriculture to non-agricultural purpose and later on plaintiff as a developer was required to obtain the license and plan for construction of the project. Since power of attorney was not executed by the defendants inspice of repeated requests, plaintiff could not get the land converted from agriculture to non-agricultural purpose. He furtner contends that the amount paid by the plaintiff to the defendants is a refundable one and that there is no clause under the agreement to forfeit the amount of Rs.40 lacs paid by the plaintiff. He further contends that Rs.39 lacs was required to be paid at the time of de-notifying the land by the Government, same was paid in advance which would only evidence the conduct of the plaintiff. He further contends that defendants fail to prove the loss caused to them on account of non-commencement of the project by the plaintiff. Since there is no loss caused to the defendants, question of forfeiting the refundable security deposit by the defendants does not arise for consideration. Therefore he contends that trial court is justified in granting a decree in favour of the plaintiff. Therefore he requests the court to dismiss the appeal.
9. Learned counsel for both the parties have relied upon the following judgments in support of their arguments:
Mr.Mahale, learned senior counsel has relied upon the judgment of Hon'ble Supreme Court in SHREE HANUMAN COTTON MILLS AND ANOTHER v. TATA AIR CRAFT LTD. (A.I.R. 1970 S.C.-1986), DELHI DEVELOPMENT AUTHORITY v. GRIHSTHAPANA COOPERATIVE GROUP HOUSING SOCIETY LTD. (A.I.R. 1995 S.C.-1176) and H.U.D.A. AND ANOTHER v. KEWAL KRISHAN GOEL AND OTHERS (A.I.R. 1996 S.C.-1981).
Similarly, counsel for the respondent- plaintiff has relied upon the following judgments in support of his arguments: UNION OF INDIA v. RAMPUR DISTILLERY & CHEMICAL CO. LTD. (A.I.R. 1973 S.C.-1098), M/s JAI DURCA FINVEST PVT. LTD. v. STATE OF HARYANA AND OTHERS (A.I.R. 2004 S.C.-14 94) and P.K. ABDULLA v. STATE OF KERALA AND ANOTHER (A.I.R. 2002 FEPALA-108).
10. Having heard the counsel for the parties, this court has to consider the following points in this appeal:
1. Whether the plaintiff proves that the project could not be taken up by the plaintiff on account of the non performance of the obligation on the part of the defendants and therefore entitled for recovery of Rs.40 lacs paid as refundable security deposit?
2. Whether the defendants prove that on account of non-performance of the obligation of the plaintiff, defendants were entitled to forfeit the security deposit of Rs.40 lacs on account of the loss sustained by them?
3. Whether the judgment and decree of the trial court requires to be interfered with?
11. Since all these points are inter-linked with each other, we would like to consider them together.
12. After hearing the counsel for the parties and on perusal of the records, we have noticed the following un-disputed facts in this appeal:
There is no dispute in regard to the agreement entered into between the parties on 16.3.1955. It is also not in dispute that the defendants are the owners of 3-32 acres of land in a prime residential locality of Bangalore. It is also not in dispute that a sum of Rs. 1 crore was required to be paid as refundable security deposit by the plaintiff to the defendants in a phased manner as stated in agreement dated 16.3.1995. It is also not in dispute that a sum of Rs. 1 lac was paid in cash as advance out of Rs. 1 crore of security deposit. It is also not in dispute that a sum of Rs.39 lacs was paid in the year 1996 under two cheques for a sum of Rs.20 lacs and Rs.19 lacs respectively drawn on Vijaya Bank, Malleshwaram, Bangalore. It is also not in dispute that defendants have obtained an order of de-notification from the Gcvernment which has been gazetted cn 3.3.1993. It is also not in dispute that in terms of the agreement dated 16.3.1995 plaintiff was required to obtain conversion from agriculture to non-agricultural purpose in the name of the defendants on defendants executing power of attorney in favour of one of the partners of the plaintiff. It is also not in dispute that plaintiff has to complete the project within sixty months from the date of obtaining license and plan for construction of residential apartments in an area measuring 3-32 acres. It is also not in dispute that plaintiff was required to obtain license and plan as a builder as early as possible.
13. But the actual dispute is in regard to whether defendants after obtaining an order of de-notification have informed the plaintiff .about the order of de-notification and whether plaintiff did not make balance security deposit of Rs. 60 lacs in terms of the agreement dated 16.3.1995 and whether plaintiff could not take up the project on account of non-informing the order of de-notification by the defendants and whether plaintiff has made any attempt to know whether such an order of de-notification has been passed and demanded the defendants to perform their part of the obligation. In addition to that, if the court comes to the conclusion that there is a failure on the part of the plaintiff in not performing its obligation and not commencement of the project in pursuance of the agreement dated 16.3.1995, whether the defendants could forfeit refundable security deposit of Rs.40 lacs and whether the defendants have sustained any loss on account of the plaintiff's conduct and obligation.
14. It is not in dispute that a sum of Rs.1 crore was required to pay to the defendants by the plaintiff as a refundable security deposit and the defendants were required to refund the said amount at the time of completion of the project which would only shows that the amount was required to be paid for due performance of contract by the plaintiff.
15. Mr.Veeranna, partner of the plaintiff, who has been examined as PW-1, in his examination-in-chief has stated:
"That the defendants have committed a breach of terms of their obligation under the Contract by not putting the plaintiffs in possession of the said lands for no valid reasons and for such an unreasonable period, despite de-notification of the land vide gazette notification dated 3.3.1998."
According to him, joint venture project of the parties was failed as the defendants did not get de-notification done at the earliest time and not putting the plaintiff in possession of the same. This piece of evidence can be seen at para-15 & 16 of examination-in-chief of Veeranna. In the entire evidence he does not say anything about the notice got issued by the defendants as per Ex.D-4 dated 30.10.1999. In para-21 of the examination-iu-chief he says that the defendants were under the obligation to put the plaintiff in possession on 3.3.1998 when the land was de-notified. In the entire examination-in-chief he does not say when actually the plaintiff's partner came to know about the de-notification oraer. According to him, he has approached the defendants on several times and he has also stated that he has addressed letters as per Ex.P-
16. In his cross-examination he admits that there is no stipulation under the agreement in regard to handing over possession of the land immediately after de-notification. According to him, during 1997-98 he came to Know about the orders passed by the Government de-notifying the lands. He cannot say who informed about the order of de-notification. He further says that one of his business colleagues informed about the order of de-notification. According to him, he contacted l defendant immediately and he had denied that Ex.P-I6 copy of the gazette notification was delivered to him by Madhavakri shna who was the attestor to the agreement who later has been examined as DW-2. In para-34 he admits the acknowledgement which has been marked as Ex.D-1. It bears his signature. According to the defendants, acknowledgement is in regard to legal notice caused by them to the plaintiff as per Ex.D-4 dated 30.10.1998. He denies the receipt of legal notice dated 30.10.1998 got issued by the defendants. In para-35 of the cross-examination he has deposed as hereunder:
"Even after I came to know the de-notification in 1998, I have not taken steps to get the land converted. Even after the de-notification we did not prepare the plan. It is true that conversion of the land was to be done in the name of the defendant. The plan has to be sanctioned in the name of the builders on the basis of the power of attorney executed by the owners."
He admits that though certain documents are referred in the plaint, he has not referred to the letters marked as EX3.P-7 to 15. He admits that there is no evidence to show that these Exs.P-7 to 15 were posted to defendants and that defendants have received the same. In para-39 he has admitted as hereunder:
"It is true that in between 1994 to 1996 the land value and the value of the plots had gone up. It is true that it was the peak period. It is true that after 1997 onwards the prices started receding and in the year 1999-2000 the prices became very low.
In para-42 he has admitted that possession of the land has to be handed over only for the purpose of putting up construction and he further admits that construction has to be commenced only after getting the plan sanctioned. In para-43 he admits that at the time of entering into an agreement plaintiff had only Rs.1 lac and nothing more at the time of agreement and a year later a sum of Rs.20 les and ks.19 lacs was paid by means of post-dated cheques. He admits that it is a project of Rs.30 ciorss and plaintiff has to pay 12% of the area to the BDA and the remaining 38% to the defendants. It is also suggested to him that on account of non-commencement of the project defendants have suffered a loss of Rs. 3 to 4 crores. In para-43 of the cross-examination f PW-1 has admitted as hereunder:
"As per CI. 1 of the agreement the defendants have to pay back the security deposit amount after the completion of the multistoried building. There is no provision in the agreement that in case the building is not constructed the defendants have to repay the security deposit. It is true that at the time of negotiating the terms and finalising the contract we estimated the loss suffered by defendants will be to the extent of P.s. 1 crore. It is not true to suggest that, the defendants have suffered more loss several times more than Rs.1 crore."
As against the aforesaid evidence, on behalf of the defendants we have the evidence of 1"? defendant Nagappa who has been examined as DW-1. In para-9 of the examination-in-chief he has stated what was the value of the flats on the date of the agreement and how the value has come down subsequent to the agreement. He has also stated in detail that copy of the gazette notification was handed over to PW-1 and the plaintiff did not take up construction since they had no money. DW-1 has been cross-examined at length. In para-23 of the cross-examination he admitted that he has not executed General Power of Attorney in favour of the plaintiff since plaintiff did not come forward to commence the work, he has denied that he has violated condition No. 2 of the agreement. According to him, he approached the plaintiff along with Madhavakrishna and requested them to take possession and plaintiff did not approach the defendants to pay the balance .money and take possession of the same. It is also suggested in his cross-examination by the plaintiff's counsel that the prevailing market rate of the land as on the date of his cross-examination at Rs.1800/- to
Rs.2000/- per sft. and that the value of the land during 1995 was Rs.400/-- to Rs.500/- per sft. He has also admitted that the amount of Rs.40 lacs received by him from the plaintiff has been utilized and spent to get the order of de-notification. He has not been cross-examined in regard to the plaintiff approaching DW-1 and DW-1 not executing power of attorney. In other words, evidence of DW-1 has not been seriously challenged. DW-2 is Madhavakrishna, attestor to the agreement. He has also supported the case of the defendants. Nothing has been elicited in his cross-examination. In order to show that immediately after obtaining the order cf de- notification, defendants have informed the plaintiff by issuing legal notice dated 30.10.1998 as per Ex.D-4. Ex.D-1 is the acknowledgement for having received the legal notice got issued by the defendants. In Ex.D-4 defendants' counsel has narrated in detail the terms and conditions of the agreement, failure on the part of the plaintiff in not complying the terms and conditions of Ex.P-2 and lastly he called upon the plaintiff to take up the project failing which the amount would be forfeited. Though notice has been served upon the plaintiff as per Ex.D-1, no reply has been sent by the plaintiff. No other correspondences are also produced by the plaintiff to show that plaintiff is approaching the defendants and that they were ready and willing to perform their part of the contract. Even though Ex.P-7 to 15 are relied upon by the plaintiff, there is nothing to show that such letters were addressed by the plaintiff to the defendants and the same has been received by the defendants. In the absence of any acknowledgement or proof for having served such letters, this court cannot accept the said contention. It is curious to note that even after the receipt of Ex.D-4 2 ega notice got issued by the defendants, plaintiff has relied upon Ex.P-12 to 15 as if defendants did not inform the plaintiff about the order of de-notification and that the defendants were requesting time to complete their part of obligation. Thus, Ex.P-7 to i5 are to be disbelieved only on account of Ex.P-12 to 15, because when the plaintiff has
.-eceived a legal notice dated 30.10.1998 as per Ex.D-4, still the plaintiff has ventured to produce Ex.P-12 to 15 as if there is no order of de-notification. In addition to that, in the cross-examination of PW-1, PW-1 has categorically admitted that he came to know of the order of de-notification in the year 1998 itself. If the plaintiff was aware of the order of de-notification in the year 1998, how the plaintiif-firm could address letters as per Ex.P-12 to 15 stating that there is no de-notification. This would only show the conduct of the plaintiff and plaintiff has got up this Ex.P-7 to 15 to overcome their emissions and commissions. In other words, this court can say that plaintiff has not approached with clean hands. In addition to that, Ex.P-7 to 15 are not even referred to in the plaint and they have been produced only at the time of evidence. Therefore, we are of the opinion that plaintiff has failed to prove that they ware ready and willing to perform their part of the contract and similarly contention of the plaintiff that defendants did not inform the order of de-notification and that they did not perform their part of the contract cannot be believed under any stretch of imagination. Conduct of the plaintiff cannot be approved even by a man of ordinary prudence.
17. Having come to the conclusion that plaintiff has not approached the court with clean hands, this court is also of the opinion that plaintiff did not commence the project since plaintiff was not ready to take up the project worth Rs. 30 crores. Plaintiff has not placed any material to show that it had capacity to take up the project worth of Rs.3C crores. Since PW-1 has admitted that on the date of the agreement it had only cash of Rs.1 lac xn the account and the remaining RS.3.9 lacs was paid by issuing post-dated cheques
to the defendants. Defendants' counsel has also cross-examined that plaintiff had taken up another- project at Gandhi Bazar and could not complete the same, later the same was entrusted to a man from Andhra Pradesh by taking as a partner. This would only shows that plaintiff had no means to take up the project. lis the circumstances, we are of the opinion that defendants have performed their part of the contract and there is failure on the part of the plaintiff in not obtaining an order of conversion and not demanding for execution of power of attorney from the defendants. This court would have appreciated the arguments of Kr.Madhusudhana Rao provided plaintiff had demanded the defendants to execute the power of attorney to enable the plaintiff to get the land converted from agriculture to non-agricultural purpose. On the contrary, evidence of PW-1 and the documents relied upon by him would prove contrary to the arguments advanced by Mr.Madhusudhana Rao.
18. When we see the cross-examination of PW-1, it is clear that refundable security deposit of Rs. 1 crore was estimated on the ground that if the project is not completed, there would be loss of Rs. 1 crore to the defendants. In other words, parties had understood that if the project is not completed at the instance of the plaintiff, defendants are going to suffer a loss of Rs. 1 crore. Therefore, security deposit of Rs.1 crcre was agreed to be paid by the plaintiff to the defendants which has to be refunded to the plaintiff on completion of the project as a performance guarantee. In the instant case, though the plaintiff has paid a sum of Rs.40 lacs, thereafter plaintiff did not evince interest to take up tne project. Even the plaintiff went to the extent of suppressing the receipt of Ex.D-4 inspite of PW-1 admitting the postal acknowledgement as per Ex.D-1. Without disclosing the issuance of notice by the defendants, suppressing the facts legal noice was got u.ssued as per Ex.P-17 plaintiff went to the extent of creating and concocting Ex.P-7 to 15 making allegations against the defendants as if they did not perform their part of the contract.
19. When we have seen the evidence of DW-1 as well as PW-1 that on account of non-taking of the project since there is a recession in the real estate business in Bangalore from 1995 onwards up to 2000, we have to hold that defendants have suffered a loss. When PW-1 has admitted that a sum of Rs. 1 crore was estimated as a loss which may be caused to the defendants on account of non-completion of the project would shows as a prudent man the loss that would be caused to the defendant was estimated by the plaintiff. If the plaintiff was required to pay a sum of Rs.1 crore as security deposit refundable on completion of the project, court would only mean that plaintiff agreed to pay the amount to perform its obligation. If the plaintiff has failed to perform his obligation, if the defendants on account of the latches on the part of the plaintiff could not develop very valuable property measuring 3-32 acres in posh residential locality of Bangalore (B.T.M. Layout) this court cannot close its eyes holding that there is no loss caused to the defendants that too when the plaintiff has estimated the probable loss at the time of entering into an agreement. Therefore, we are of the opinion that even though there is no stipulated condition to Sx.P-3 to forfeit security deposit of Rs. 1 crore, defendant is entitled to forfeit the same on account of the loss sustained by it.
20. In this background we have to consider the judgments relied upon by both the parties in order to come to the conclusion whether defendants can forfeit the security deposit or not. In SHREE HANUMAN COTTON MILLS AND ANOTHER v. TATA AIR CRAFT LTD. (A.I.R. 1970 S.C.-1986) three Hon'ble Judges have ruled by considering various judgments:
"24. From a review of the decisions cited above, the following principles emerge regarding 1 earnest':
(1) It must be given at the moment at which the contract is concluded.
(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 purchase price when the transaction is carried out.
(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 to for fait the earnest."
The same principle is also followed in other two judgments relied upon by the counsel for the appellants. Respondent's counsel has relied upon the judgment of the Hon'ble Apex Court in UNION OF INDIA v. RAMPUR DISTILLERY & CHEMICAL CO. LTD. (A.I.R. 1973 S.C.-1098), wherein it is held:
"4. It is important that the breach of contract caused no loss to the appellants.
The stipulated quantity of rum was subsequently supplied to the appellants by the respondents themselves at the sane rate. The appellants, in fact, made no attempt to establish that they had suffered any loss or damage on account of the breach committed by the respondents.
5. Following the decision in Maula Bix's case (1970) si SCR 928 (A.I.R. 1970 SC 1955) we hold that the High Court was right in rejecting the appellant's claim that they are entitled to forfeit the security deposit, Civil Appeal 1346 of 1967 is accordingly dismissed with costs."
From reading the aforesaid judgment, it is clear that deposit cannot be forfeited if there is no loss caused to a party. But in the instant case, parties have estimated the loss that would be caused to the defendants on account of the non-performance of contract by the plaintiff. Admittedly, contract has not been fulfilled by the plaintiff and on account of the same defendants who are owners of 3-32 acres of land in Bangalore City could not develop the same or could not get any yield out of such a valuable property, therefore considering the evidence of PW-1 and considering the evidence of DW-1, we are of the opinion that on facts of the present case judgment relied upon by the counsel for the respondent has no application. FINVEST PVT. LTD. v. STATE OF HARYANA AND OTHERS
21. In view of our reasoning, we do not see it is necessary for us to consider the judgments relied upon by the counsel for the respondent P.K. ABDULLA v. STATE OF KERALA AND ANOTHER (A.I.R. 2002 KERALA-103) . Since the said judgment has been delivered by the Division Bench of Kerala High Court following the decision of the Hon'ble Supreme xn UNION OF INDIA v. RAMPUR DISTILLERY AND CHEMICAL CO. LTD. (A.I.R. 1973 S.C.-1098). Counsel for the respondent has also relied upon the judgment of the Apex Court in M/s JAI DURGA (A.I.R. 2004 S.C.-1484). Considering the facts of that case and considering the facts of this case, we are of the view that the aforesaid judgment has no application in this case.
22. In this background, we are of the view that trial court did not consider the evidence let in by the parties and did not consider the documents relied upon by the parties and on account of non-appreciation of evidence properly, trial court has passed judgment and decree in favour of the plaintiff. In view of our finding and discussion and re-appreciation of evidence, we have to reverse the findings of the trial court by allowing this appeal.
23. In the result, the appeal is allowed. Judgment and decree passed by XXVI Addl. City Civil Judge. Bangalore dated 23.2.2004 in O.S.No.15290/2001 are hereby set aside. Suit filed by the respondent is hereby dismissed. Parties to bear their costs.
At this stage, counsel for the appellant has brought to our notice that at the time of granting interim order appellant was directed to deposit certain sum and the same has been deposited by the appellant and the amount so deposited has also been invested in fixed deposit by the Registry. If it is so, appellants are entitled for refund of the amount deposited by them along with interest accrued thereon. At the request of the counsel for the appellants, cheque shall be issued in the name of the 1st appellant Nagappa.