[2015] 1 S.C.R. 627 M/S. KAILASH NATH ASSOCIATES v. DELHI DEVELOPMENT AUTHORITY & ANR. (CivilAppeal No. 193 of 2015) JANUARY09, 2015 [RANJAN GOGOi AND R.F. NARIMAN, JJ.] ContractAct, 1872-Publicauction-Earnestmoney - Forfeiture of - Appellant,highest bidder for plotdeposited 25% A B of the bid amount-earnestmoney (Rs 78 lakhs) with ODA - C Balance75% was to bedepositedwithin three months- Extension of timefor payment by DOA twice-Thereafter, severalletters writtenby the appellant to DOA but no response - Subsequently,letter writtenby ODA to the appellantthat his casewas referred to UOI for its approvalfor condoningthe D delay, case beingone of Nazulland, whichwas laterdeclared by the CentralGovernmentas non-Nazulland - On DDA's request, appellant consentedto making payment of the balanceamount with interestcharged- After few years cancellation of allotment of the plotby ODA andconsequent E forfeiture of the earnestmoney - Suit for specificperformance and damages and recovery of earnest amount by the' appellant-Subsequently DOA re-auctionedthe premises fetching Rs. 11. 78 crores-Dismissal of suitby the Single Judge of theHighCourtbut orderedrefund of the earnest F moneyforfeitedwith 9% interest p.a. -However,Division Benchupheldforfeiture of the earnestmoney - On appeal, held:It wasarbitraryfor the DOA to forfeitthe earnestmoney - In theabsence of notice to depositthe balance 75% amount withina certainstated time, there is nobreach of contract on G the part of theappellantand consequentlyearnest money couldnot be forfeited- ODA not havingbeen put to anyloss, even if ODA couldinsist on a contractualstipulation in its favour,it wouldbe arbitrary to allow DOA as a publicauthority 627 H 628 SUPREME COURT REPORTS [2015] 1 S.C.R., A to appropriate Rs. 78 lakhs withoutany loss being caused- Article 14 wouldapply - In fact, DOA madehuge profit on re­ auction of theplot- If damage or loss is notsuffered,the law doesnot providefor a windfall- Thus, the judgment of the Single Judge of theHighCourtrestored-Constitution of B India,1950 -Article 14. s. 7 4 - Compensation for breach of contractwhere penalty stipulated for under - General principles - Enunciated. CAllowing the appeal,the Court HELD: 1.1. Theearnestmoney can be forfeitedunder sub-clause(iv) of the conditions of auction, only in the case of default,breach, or non-compliance of any of the o terms and conditions of the auction, or on misrepresentationby thebidder.The balance 75% which had to be paid within three months of the acceptance of the bid, was not insisted upon by the DOA.On the contrary,after settingup two High PoweredCommittees E which were instructed to look into thegrievances of the appellant, the DOA extended time at least twice. It is, therefore,very difficult to say that therewas a breach of anytermsand conditions of the auction,as theperiod of three months which the DOA could haveinsisted upon F had specifically been waived. It is nobody's case that thereis anymisrepresentationby thebidder.Therefore, under sub-clause(iv), without more, earnestmoney could not have beenforfeited.[Para 15] [643-B-D] 1.2. Long after the Central Government informed G ODA (on 1.3.1990) that the property involved "in the instant case is not Nazulland, the ODA by its letter of 6.10.1993 cancelled the allotment of the plot becausethe appellant had failed to deposit the balance75%. DDA's understanding, therefore, was that what was important H KAI LASH Nfo:TH ASSOCIATES v. DELHI DEVELOPMENT 629 AUTHORITY was payment of the balance 75% which was insisted upon by the letter and which was acceded to by the respondent immediately on the same date. Further it cannot be accepted that since the letter was "without prejudice" and since no commitmenf hadbeenmade, theywere not boundby theterms of the letter. The letter was without prejudice and no commitment could have beengivenbythe ODAbecausethe Central Government may well not relax the NazulRules.On the otherhand, if A B the Central Governmenthad, later on, relaxed the Nazul Rules, DOA could not beheardto say that despite this c havingbeen done,DOA would yet cancel the allotment of the plot.Thatthis could not havebeendoneis clear because of the construction of the letter and also because DOA is a public authority boundby Article 14 and cannot behave arbitrarily.[Para 17] [644-A-E] 1.3.The Single Judgewas correctin observing that D the letter of cancellation dated6.10.1993and consequent forfeiture of earnestmoney was made without puttingthe appellant on notice that it has to depositthe balance 75% premium of the plot within acertainstated time. In the E absence of suchnotice,there is no breach of contract on thepart of the appellant and :Onsequently earnestmoney could not be forfeited. It would bearbitrary for theDOA to forfeit the earnest money on two fundamental grounds.First, thereis no breach of contracton thepartF of the appellant. And second,ODA not having been put to any loss, even if DOA could insist on a contractual stipulation in itsfavour, it would bearbitrary to allow DOA as a public authority to appropriate Rs.78,00,000/­ (RupeesSeventy Eight Lakhs) without any loss being G caused.Therefore, Article 14 would apply in the field of contract in theinstantcase. [Para 21, 29][645-E-F;651- H; 652-A-B] 1.4.As earnest money is an amount to be paid in case of breach of contract andnamedin the contract as H 630 SUPREMECOURT REPORTS [2015) 1 S.C.R. Asuch, it would necessarily be coveredby Section 74. In cases wherea public auctionis held, forfeiture of earnest money may take place even before an agreement is reached,as ODAis to acceptthe bid only afterthe earnest moneyis paid. In theinstantcase, underthe termsand Bconditions of auction,the highestbid (along with which earnest money has to be paid) may well have been rejected. In such cases, Section 74 may not be attracted on its plainlanguage because it applies only "when a contracthas beenbroken". In the instantcase, forfeiture c of earnestmoney took place long after an agreementhad beenreached. It is obviousthat the amount sought to be forfeitedon thefacts of theinstantcase is sought to be forfeited without any loss being shown. In fact it has been shown that far from suffering any loss, DOAhas 0 receiveda much higher amounton re-auction of thesame plot of land. [Para 40, 41, 42) [663-G-H;664-A-D] E F G H 1.5.The law on compensation for breach of contract under Section 74 canbe stated to be as follows:- 1. Wherea sumis namedin a contractas a liquidated amount payable by way of damages, the party complaining of a breachcan receiveas reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both partiesand found to be suchby theCourt. In other cases, where a sum isnamedin a contract as a liquidated amount payable byway of damages, only reasonable compensation can be awarded not exceedingthe amount so stated. Similarly, in cases wherethe amount fixed is inthenature of penalty, only reasonable compensationcan be awarded not exceedingthe penalty so stated. In both cases,the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation. KAILASH NATH ASSOCIATES v. DELH(DEVELOPMENT 631 AUTHORITY 2. Reasonable compensation would be fixedon well A known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act. 3. Since Section 74 awards reasonable 8 compensation for damage or loss caused by a breach of contract,damage or loss caused is a sine quanon for the applicability of theSection. 4. Section applies whether a personis a plaintiff or a defendantin a suit. C 5. The sum spoken of may already be paid or be payable infuture. 6. The expression "whether or not actual damage or 0 loss is proved to havebeencaused thereby" means that where it is possible to proveactualdamage or loss, such proof is not dispensed with. It is only in caseswheredamage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuinepre-estimate of damage or loss, E can be awarded. 7. Section 74 would apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture .. takes place under the terms and conditions F of a public auction before agreement is reached, Section 74 would have no application. [Para 43][664- D-H; 665-A-F] 1.6.TheDivisionBench has gone wrong in principle.G Therehas been no breach of contract by the appellant. Further,the view of the Division Bench that the fact that the ODA madea profit from re-auction is irrelevant, as that would fly in theface of the most basic principle on theaward of damages- namely, that compensation can only be given for damage or loss suffered cannot be H 632 SUPREME COURT REPORTS [2015] 1 S.C.R. A accepted. If damage or lossis not suffered,the law does not provide for a windfall.The judgment and order of the Single Judge is ~estored. [Para 44, 47][665-G-H;666-A, E] 8 Shree HanumanCotton Mills & Anr. v. Tata Aircraft Ltd. 1970 (3) SCR 127; Anandram Mangturam v. Bholaram Tanumal, ILR 1946 Born 218; Keshav/alLallubhai Patel and Ors. v. La/bhaiTrikumla/Mills Ltd 1959 SCR 213; Citi Bank N.A. v. StandardCharteredBank 2003 (4) Suppl. SCR 489: C (2004) 1 SCC Page 12; S. Brahmanand v. K.R. Muthugopal 2005 (4) Suppl. SCR 461 :(2005) 12 SCC 764; TP. Daver v. LodgeVictoria No. 363, S.C. Belgaum 1964 (1) SCR 1; ABL International Ltd. v. ExportCredit GuaranteeCorpn. of India Ltd. (2004) 3 SCC 553; Fateh Chand v. Balkishan Das 1964 SCR (1) 515; Mau/aBux v. Union of India (UOI) 1970 D (1) SCR 928; Shree HanumanCotton Mills and Anr. v. Tata AircraftLimited 1970 (3) SCR 127; ONGC Ltd. v. Saw Pipes Ltd 2003 (3) SCR 691: (2003) 5 SCC 705 - referredto. Tilley v. Thomas, (1867 3 Ch.A 61); Webb v. Hughes, E V.C.M. 1870 - referredto. Case Law Reference: 1970 (3) SCR 127 Referred to Para 14 F ILR 1946 Born 218 Referred to Para 19 1959 SCR 213 Referred to Para 24 2003 (4) Suppl.SCR 489 Referred to Para 25 2005 (4) Suppl. SCR 461 Referred to Para 26 G 1964 (1) SCR 1 Referred to Para 28 (2004) 3 sec 553 Referred to Para 28 1964 SCR (1) 515 Referred to Para 33 H 1970 (1) SCR 928 Referred to Para 35 KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 633 AUTHORITY 1970 (3) SCR 127 2003 (3) SCR 691 Referred to Referredto Para 36 Para 37 CIVIL APPELLATE JURISDICTION:Civil Appeal No. 193 of 2015. Fromthe Judgment & Order dated 28.05.2012 of theHigh Court of Delhi atNew Delhi in RFA (OS) No. 10 of 2008 in CS (OS) 396of 1994. A B ParasKuhad, Manmeet Arora,Kaveeta Wadia, Vipin Tyagi, Apporv Tripathi, Shashank Tripathi, Jatin for the C Appellant. Amarendra Sharan, DhruvTamta,Binu Tamta,Rekha Pandey, S. Ush,a Reddy, SushmaSuri for theRespondents. TheJudgment of the Courtwas delivered by R.F. NARIMAN, J. 1. Leavegranted. D 2. Thepresent appeal arises out of a public auction conductedby the DelhiDevelopment Authority ("ODA") whereinE the appellant madethe highestbid for Plot No.2-A,Bhikaji Cama Place, District Centre, New Delhi for 3.12 Crores (RupeesThree Crores Twelve Lakhs).As perthe termsand conditions of theauction,the appellant, being the highest bidder,depositeda sum of Rs.78,00,000/- (Rupees Seventy F EightLakhs),being 25% of the bid amount,with the ODA, this beingearnestmoney under the terms of theconditions of auction.The relevant provisions in the conditionsof auctionread as follows: "(ii) Thehighestbidder shall, at the fall ofthehammer,pay G tothe DelhiDevelopment Authoritythrough the officer conductingthe auction,25% of the bid amountas earnest moneyeither in cash or byBankDraft in favourof the Delhi Development Authority, or Cheque guaranteed bya Scheduled Bankas "good for paymentfor three months" H 634 SUPREME COURT REPORTS [2015] 1 S.C.R. A in favour of the Delhi Development Authority. If the earnest moneyis notpaid,the auction held in respect of that plot will be cancelled. B c D E F (iii)Thehighestbid shall be subjectto theacceptance of Vice-Chairman, DOA or suchotherofficer(s)as may be authorizedby himon his behalf. Thehighestbid may be rejectedwithout assigningany reason. (iv) In case of default, breachor non-compliance of any of the terms and conditions of the auction or mis - representationby thebidderand/or intendingpurchaser, theearnestmoney shall be forfeited. (v)The successful biddfr shall submit a dulyfilled-in application in theformattachedimmediatelyafter the close of the auction of plot in question. (vi)Whenthe bid is acceptedby the DOA, theintending purchaser shall beinformed of suchacceptance in writing and tbe intendingpurchaser shall, within 3 monthsthereof, pay to the DelhiDevelopment Authority,the balance 75% amount of thebid,in cashor byBankDraft in favour of the Delhi Development Authorityor byCheque guaranteed bya Scheduled Bankas "good for paymentfor three months" in favour of the Delhi Development Authority. If the bidis notaccepted,the earnestmoney will be refunded totheintendingpurchaserwithout any interest unless the earnestmoney is forfeitedunder para 2 (iv) above." 3. On 18.2.1982,the DOA acknowledged the receipt of Rs.78,00,000/- (Rupees Seventy EightLakhs),acceptedthe G appellant's bidand directed the appellant to deposit the remaining75% by 17.5.1982.However, as therewas a general recessionin theindustry,the appellant and persons similarly placed made ·representations sometime in May, 1982 for extendingthe timefor payment of theremainingamount. The DOA set up a HighPoweredCommitteeto look into these H KAILASH NATH ASSOCIATES v. DELHI DEVELOPMENT 635 AUTHORITY [R.F. NARIMAN, J.] representations. The HighPoweredCommittee on 21.7.1982A recommendedgranting the extension of timeto biddersfor depositingthe remainingamount of 75%. Based on the High PoweredCommittee'sreport, by a letterdated11.8.1982,the ODA extended tjme for paymentupto 28.10.1982with varying ratesof intereststartingfrom 18% and goingupto 36%.B 4. Another High PoweredCommitteewas also set up by theDOA in orderto findout whetherfurther time should be given tothe appellant andpersons similarly situateto the appellant. 5. ThesecondHigh PoweredCommitteerecommended C that the time for payment be extended and specifically mentioned the appellant's name as a personwho shouldbe givenmore time to paythe balanceamount.Despite the fact that on 14.5.1984the ODAacceptedthe recommendations of thesecondHigh PoweredCommittee,nothing happened till 0 1.12.1987. Several letters had beenwrittenby the appellant to ODAfrom1984to 1987but no answerwas forthcoming by the ODA. 6. Videa letterdated1.12.1987,which is animportant letteron thebasis of whichthe fate of thisappeallargelyE depends,the DOAstatedas follows: "WITHOUTPREJUDICE' DELHI DEVELOPMENT AUTHORITY VIKASSADAN l.N.A.F No. F.32(2)/82/lmpl.-l/4 From: DIRECTOR (C.L) New Delhi-23...... 198 ... DELHI DEVELOPMENT AUTHORITY To, M/s.KailashNath & Associates, 1006, KanchanjangaBuilding, 18,BaraKhambaRoad, New Delhi-110001. G Sub: Regardingpayment of balance premium in respectH A B c D E F G H 636 SUPREME COURT REPORTS[2015] 1 S.C.R. of Plot No.2-A situatedin BhikajiCama Place Distt. Centre. Sir, Withreferenceto theabovesubject, I am directedto inform youthatyourcasefor relaxing the provisions of Nazul Rules, 1981,to condonethe delay for thepayment of balancepremium in installmentswas referredto theGovt. of India,Min. of Urban Development.Before the caseis furtherexaminedby the Govt. of India,Min. of Urban Development,you are requestedto giveyourconsentfor making payment of balance amount of 75%premium withinthe periodas maybe fixedalongwith18% interest chargesp.a. on thebelatedpayment.Further the schedule of payment and conditions if any will beas per the directionsissued by theMinistry of Urban Development, Govt. of India. It is,however,made clear that this letter doesnot carryany commitment. Yourconsentshould reach to thisofficewithin3 daysfrom thedate of issue of thisletter. Dated1.12.87 Yours faithfully, Sd/ DIRECTOR(C.L)" 7. Theappellant replied to thesaidletteron thesame day. itself in thefollowingterms: "KAILASH NA TH & ASSOCIATES Tel.: 3312648,3314269 1006, KANCHENJUNGA, 18, BARAKHAMBA ROAD, NEW DELHl-110001 Regd.Ack. Due. ' KAI LASH !NATH ASSOCIATES v. DELHI DEVELOPMENT 637 AUTHORITY [R.F. NARIMAN, J.] December 1, 1987. The Director (C.L.), Delhi Development Authority, VikasSadan, l.N.A., New Delhi-I10023. Subject: Payment of balance premium in respect of plot No.2-ABhikaji Gama Place Distt. Centre, New Delhi. Dear Sir, A B c We are thankful to youfor your letter No. F.30(2)/82-lmpl.- l/4 dated nil receivedby us thisafternoon,on theabove subject. We hereby give our consent that we shall make the payment of the balance amount of 75%premiumwithin the D period as may befixedas per the schedule of payment and conditions, if any imposed, as per the directions issuedby theMinistry of Urban Development,Govt. of India, alongwith 18% interestcharges per annum on the belated payment.E We now request you to kindly convey us your formal approval to ourmakingthe saidpaymentin installments as requestedfor. Thankingyou, Yours faithfully For KAILASH NATH & ASSOCIATES, Sd/ Partner Advance copy sent through SpecialMessenger." 8. The Central Governmentinformed the DOA vide a letter dated 1.3.1990 that the land auctionedto the appellant was not Nazulland and, therefore,the Central Government would have nothing further to do withthe matter. Meanwhile, the appellant F G H 638 SUPREME COURT REPORTS[2015] 1 S.C.R. AfiledWrit PetitionNo.2395of 1990 in the Delhi High Court in whichit claimed that persons similar to theappellant, namely, Mis. Ansal Propertiesand Industries Private Limitedand M/s SkipperTower PrivateLimitedhad been allowed to paythe balance 75%premiumand were in fact allotted other plots. B PleadingArticle 14, the appellant stated that theywere entitled to thesametreatment. 9. By a judgmentand orderdated2.9.1993,the Delhi High Court held that as theauctionwas held as per termsand Cconditionsof theauction,a disputeregardingthe same is a matterof contractand cannotbe goneinto in proceedings under Article 226 of theConstitution. It wasfurtherobserved that on facts,the Courtfound no force in the contentionraised on behalf of the appellant regardingdiscrimination.An SLP Dagainstthis orderwas also dismissed on 16.12.1993 by the SupremeCourt statingthat the appellant is at liberty totake whateversteps are permittedto the appellant under law to challenge forfeiture of earnestmoney, which had beendone by a letter of 6.10.1993.This letter is also important for thecorrect determination of this appeal andis setout hereinbelow:- E F G H "REGD.A.D. DELHI DEVELOPMENT AUTHORITY VIKAS SADAN 1.N.A. New Delhi-23, 6.10.1993 No.F.32(2)/82/CL/3816 From: DY. DIRECTOR (CL). To, M/s. Kailash Nath& Associates, 1006, Kanchanjanga Building, 18,BaraKhambaRoad, New Delhi-110001. Subject: Plot No.2-A in BhikajiCama Place Distt. Centre. Sir, KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 639 AUTHORITY [R.F. NARIMAN, J.] Consequent upon your failureto depositthe balance75% A premium of theaforesaidplot anddismissalof C.W.P. No. 2395 of 1990by theHon'bleHigh Court,Delhi, I am directedto inform you thatthe bid/allotmentof thesaidplot in yourfavourhas beencancelledand earnestmoney amountingto Rs.78,00,000/- deposited by you at thetimeB of auctionhas beenforfeited. Yours faithfully, Sd/ (JAGDISH CHANDER) c DEP.UTY DIRECTOR(CL)" 10. Theappellantthen filed a suitfor specificperformance on17.2.1994and in the alternativefor recovery of damages andrecovery of the earnestamountof Rs.78,00,000/- (Rupees SeventyEight Lakhs).Shortly after the suitwasfiled,on D 23.2.1994,the DOAre-auctionedthe premiseswhich fetched asum of Rs.11. 78 Crores(RupeesEleven Crores Seventy EightLakhs). 11.Thelearned Single Judge by a judgmentand orderE dated 10.9.2007 dismissedthe appellant's suit for specific performanceand damagesbut orderedrefund of theearnest moneyforfeitedtogetherwith 9% per annuminterest.The learned Single Judgeheld:- "65. Defendant No. 1 instead of followingthe aforesaid F course,found merit in the representationsreceived not onlyfromthe plaintiffbut suchsimilar situatedparties. It is in view thereofthat the matterwent as far as setting up of two committees to repeatedlyexamine the matterand to come to a conclusion. The case of defendant no. 1 was G thatthe material produced by the plaintiff andsuch similarpersonsgave rise to a cause to extend the time formakingthe paymentsubject to certain terms and conditions. However,in view of the perception of defendant no.1 that the consent of UOI, defendantno.2, H A B c D E F G H 640SUPREMECOURT REPORTS [2015) 1 S.C.R. would be required,the landbeing Nazul land, the file was forwarded to defendant no. 2. The matterdid notrestat thissincethereafter UOI did grantsuch consentbut sent backthe file of the plaintiffonly on account of the factthat theland in question was notNazul land. The neteffect of thisis thattherewas no permissionrequired from the UOI and the decisiontaken by defendant no. 1 to extend thetimeperiodfor makingthe payment, thus, stood as it is. -66. In my considered view, it is notopenfor defendant no. 1 to statethat whileit recommendedthe case of other similarlysituated parties in case of Nazul land to the Government and obtained permission for grant of extension of time, in case of non-Nazulland wheresuch permissionwas not required, a differentparameterwas · required to be followed. It maybe mentionedat thecost of repetition that the plaintiff wasa party which volunteeredto pay interest @18% per annum unlike some of theotherparties.There is merit in the contention of learnedCounselfor theplaintiffthat defendant no. 1 aftertreatingthe contract as subsistenthaving extended timefor makingthe paymentwas at leastrequired to give a notice to the plaintiff to performthe agreementprior to terminatingthe agreement ~:wd couldnot straightaway terminatethe same. This conclusioncan drawstrength fromthe observationsin HalsburyLaws of England (supra)referred to aforesaid as also in Webb v. Hughes (supra).It isclearly a case wherethere has beenwaiver of the timebeingessence of the contractby conduct of theparties and, thus,defendant no. 1 wasrequired to give notice on thedayappointedfor completion of thecontract failingwhich only terminationcould take place. 67. Therewere numerouscommunicationsexchanged betweenthe parties. The recommendations of thetwo high-poweredcommittees constituted by defendant no. 1 KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT641 AUTHORITY [R.F. NARIMAN, J.] madeits recommendationswhich were accepted by A defendant no. 1 videits resolutiondated 14. 5. 1984 (Ex. DW2/P-4). Having accepted the recommendations, in the case of the plaintiffdefendant no. 1 wasrequiredto do nothing further but mistakenly·referredthe case to UOI for its approvalassumingthe case to be one of Nazul B land.Plaintiffsent repeatedremindersvide lettersdated 9-12-1985 (Ex.P-11),20-10-1986 (Ex.P-12), 10-12- 1986(Ex.P-13),10-02-1987 (Ex.P-14), 11-04-1987(Ex.P- 16),10-08-1987(Ex.P-17)and 10-10-1987(Ex.P-18) calling upon defendant no. 1 to give an offer of deposit of c balance 25% of the premium so as to bringthe total paymentequivalent to 50% of the total premiumand for release of thepossession of the land to theplaintifffor purpose of construction.Defendant no. 1 videits letter receivedon 1.12.1987 by theplaintiff(Ex.P-19)sought D the consent of the plaintiff to abide by the recommendations of thehigh-poweredcommittee and theconsentwas dulygiven on the evendate (Ex.P-20). Thereafterno offerwas made to the plaintiffand without any notice of.compliance for payment,the letter of cancellationdated 6.10. 1993(Ex.P-26)was issued.It E appearsthat defendant no. 1 itselfwas not aware of the landbeingnon-Nazulland as the firstcommunication wasaddressed to the plaintiffonly on 1.3.1990. 68. The presentcase is one wheredefendant no. 1 has F not evensuffered a loss. The plot was to be purchased by theplaintiffat Rs. 3. 12 crores and it wasfinallysold to a third partyat Rs. 11.78crores, i.e. almostthree and a half timesthe price.Duringthis perioddefendant no. 1 continued to enjoythe earnestmoney of the plaintiff of G Rs. 78.00 lacs. 69.In view of the prolonged period, exchange of communications,the plaintiffmaking variousoffers but notcomplyingwith the initialterms,defendant no. 1 taking H 642 SUPREME COURT REPORTS [2015] 1 S.C.R. A its owntime in the decisionmaking process,I am of the consideredview that the plaintiffis entitled to therefund of theearnestmoney of Rs. 78.00 lacs but no further amountis liable to bepaid to the plaintiff." B 12. DOA appealed againstthe Single Judge'sjudgment to a DivisionBench of the Delhi High Court._The DivisionBench setasidethe judgmentof the Single Judge holding thatthe forfeitureof theearnestmoney by the ODA was in order. · 13. Shri ParasKuhad, learned SeniorAdvocateappearing C on behalf of the appellant, urgedthat timemay have be-en of theessenceunder the original termsand conditions of the auction.However,time had beenextended on several occasionsand, therefore,ceased to be of theessence. In answer to the letter dated1.12.1987,the appellant promptly D replied and said it would be willing to pay the entire 75% with 18%interestand, therefore,there was no breachof contract on thepartof the appellant. Further,since the ODA sold the plot for 11.78Crores(Rupees Eleven Crores SeventyEight Lakhs),there was no loss causedto the DOA and,hence Eforfeitureof earnestmoney would not be in accordancewith the agreement or in accordancewith law. F 14. Shri AmarendraSharan, learned Senior Advocate appearing on behalf ofthe ODA, rebuttedthese contentions and addedthat the case was covered by the judgment in Shree HanumanCotton Mills & Anr. v. Tata Aircraft Ltd., 1970 (3) SCR 127. He argued further that sincethe letter of 1.12.1987 had been issuedunder a mistakeof fact, it would be voidunder Section 20 oftheContractAct andthe said lettershould, therefore, be ignored. If it is ignored,then the terminationof the Gcontract and the forfeitureof earnestmoney are completely in order as the appellant was in breach.The fact thatthe ODA ultimatelysold the plot for a much larger sum,accordingto learned counsel,would be irrelevant inasmuchas the contractual term agreedupon betweenparties would entitle him H KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 643 AUTHORITY [R.F. NARI MAN, J] to forfeit earnestmoney on breach withoutany necessityof A proving actualloss. 15. Havingheard learnedcounsel for theparties,it is important at the veryoutsetto noticethat earnestmoney can be forfeitedunder sub-clause (iv) set outhereinabove, only in B thecaseof default, breach,or non-compliance of anyof the termsand conditionsof theauction,or on misrepresentation bythebidder. It may be notedthat the balance 75%which had to be paid withinthree monthsof theacceptanceof the bid, was notinsistedupon by the DOA. On the contrary,after setting up C two HighPoweredCommitteeswhich were instructedto look into the grievancesof theappellant,the DOA extended time at least twice. It is, therefore,very difficult to say thattherewas a breachof any terms and conditionsof theauction, as the period ofthreemonthswhich the ODA could have insistedupon had specificallybeen waived. It is nobody'scase that there is anyD misrepresentationhere by the bidder.Therefore,under sub­ clause (iv), withoutmore, earnestmoney could not havebeen forfeited. 16. The other noticeable featureof thiscase on facts is E that DOA specificallyrequested the appellant to givetheir consentto makethe balancepayable along with 18% interest charges on belatedpayment.This was on the footingthat the Nazul Rules of 1981 would be relaxedby the Central Government.The rea·son why the letter is marked "without F prejudice" andthe DOAmadeit clear that the letterdoesnot carryany commitment,is obviouslybecause the Central Governmentmay not relax the provisionof the NazulRules, in whichcase nothingfurther could be doneby the DOA.If, however, the Central Governmentwas willing to condonethe G delay, ODA would be willing to take 75% of theoutstanding amount along with18%interest. 17. Mr. Sharan arguedthat sincethe Central Government ultimately foundthat this wasnot a Nazulland, the letterwas obviously based on a mistakeof factand would be voidunderH 644 SUPREME COURT REPORTS [2015] 1 S.C.R. A Section 20 of the ContractAct. We are afraidwe arenot able to acceptthis plea. Long after the Central Governmentinformed ODA(on 1.3.1990)that the property involved in the present caseis not Nazulland, the ODAby its letter of 6.10.1993 cancelled the allotment of the plot becausethe appellant had B failed todepositthe balance 75%. DDA'sunderstanding, therefore,was that whatwas importantwas payment of the balance 75%whichwas insistedupon by the letter dated 1.12.1987and whichwas accededto bytherespondent immediately on the samedate. Further, Mr. Sharan'sargument c theai since the letterwas "withoutprejudice" and sinceno commitmenthad beenmade,they werenot bound by theterms oftheletteralso fails to impress us. Theletterwas without prejudiceand no commitmentcould have beengiven by the ODAbecausethe Central Governmentmay well not relaxthe 0Nazul Rules. On the otherhand,if the Central Governmenthad, lateron, relaxedthe NazulRules, DOA could not be heardto saythatdespitethis havingbeen done, ODA wouldyet cancel the allotment oftheplot.Thatthis couldnot havebeendone is clearbecauseof theaforesaidconstructionof theletterdated E F G H 1.12.1987and alsobecauseDOA is a publicauthoritybound byArticle 14 andcannotbehavearbitrarily. 18. It nowremainsto dealwith the impugnedjudgment of theDivisionBench. 19. The Division ·Benchfollowed the judgmentof Tilley v. Thomas, (1867 3 Ch.A 61) anddistinguishedthe judgment in Webb v. Hughes, V. C. M. 1870.It furtherwent on to follow AnandramMangturam v. Bholaram Tanumal, ILR 1946 Born 218andheld: "The decisionholds that the principle of law is that where, by agreement,time is made of the essence of the contract,it cannot be waivedby a unilateralact of a party andunlessthere is consensusad-idem betweenthe partiesand a newdate is agreed to, merelybecausea KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 645 AUTHORITY [R.F. NARIMAN, J.] party to a contractagrees to considertime beingextended A -for the opposite party to completethe contract, but ultimatelyrefuses to accord concurrencewould not mean thatthe partyhas by conductwaived the dateoriginally agreed as being of theessence of the contract." (At para 3~ B 20. In our judgment, Webb's casewoulddirectlyapply to thefactshere. In that case,it was held: "But if timebe madethe essence of thecontract, thatmay be waived by the conduct of the purchaser;and C if the timeis once allowed to pass, and the partiesgo on negotiatingfor completion of thepurchase,then time is nolonger of theessence of the contract. But, on the other - hand, it mustbe borne in mindthat a purchaseris not bound to waitan indefinitetime; and if he finds,while the D negotiationsare going on, thata long time;,Will elapse beforethe contractcan be _completed,he may in a reasonablemanner give notice to the vendor,and fix a periodat whichthe businessis to be terminated." 21.Basedon thefacts of thiscase, the_ Single Judge was correct in observing that the letter of cancellation dated 6.10.1993 andconsequentforfeiture of earnest money was made without putting the appellant on notice that it hasto depositthe balance75% premium of the plotwithina certain statedtime. In the absence of suchnotice,there is nobreach ofcontract on thepart of the appellant andconsequentlyearnest money cannot be forfeited. 22. Tilley v. Thomas, (18673 Ch.A61) would not apply E F for thereason thatthe expression "without prejudice"was only G usedas statedabovebecausethe CentralGovernmentmay not relax the NazulRules. 23. In AnandramMangturam v. Bholaram Tanumal, ILR 1946 Born 218, two separatejudgmentswere delivered, one H A B c D E F G H 646 SUPREME COURT REPORTS[2015] 1 S.C.R. by Chief Justice Stone and the other by Chagla,J. as he then was. Stone C.J.held:- "In my judgment,reading the correspondenceas awhole,it atnostagepassedfrom the meltingpot of negotiations to crystallizeas an agreement to extend the timefor theperformance of the contract. The attitude of the purchaser throughoutthe correspondencewas: "Satisfy us thatyouare doingyour best to obtainthe goodsfrom yoursuppliersand we will thenconsider fixinga newdatefor delivery of the goods to us". On the otherhand the attitude of thevendorsthroughoutthe correspondencewas to avoid the purchaser'sdemand and to simply say: "You knowthat we c;mnot effectdelivery fromour suppliersand until we do so we cannotdeliver thegoodsto you". There was never in my judgment any consensusad-idem, no agreement,express or implied, to extend the timeeither to any particulardate or to the happening of some future event.Mere forbearance in myopinion to instituteproceedings or to give notice of rescissioncannot be an extension ·or the timefor the performance of a contractwithin the meaning of s. 63 of the Contract Act." (at 226 & 227) Chagla, J. in a separatejudgmentheld:- " Under s. 55 of the Indian Contract Act,the promisee is given the option to avoid the contractwhere thepromisorfails to perform the contractat thetimefixed in the contract.It is open to the promiseenot to exercise theoption or to exercisethe optionat any time, butit is clear to mymindthat the promiseecannot by the mere fact of notexercising the optionchange or alter the date of performancefixed under the contractitself Under s. 63 of the IndianContractAct, the promiseemay make certain concessions to the promisor which are advantageous to thepromisor,and one of themis that hemayextendthe timefor suchperformance.But it is KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 64 7 AUTHORITY [R.F. NARIMAN, J.] clearagainthat suchan extension of timecannotbe a A unilateralextensionon the part of the promisee.It isonly at therequest of thepromisorthat the promiseemay agreeto extendthe time of performanceand thereby bringabout an agreementfor extension of time. Therefore itisonly as a result of theoperation of s. 63 of the Indian B Contract Act thatthe timefor theperformance of the contractcan be extendedand thattimecan onlybe extended by an agreement arrived at betweenthe promisorand the promisee." (at 229) 24.Theaforesaid judgment would apply in a situation wherea promiseeaccedes to therequest of thepromiserto extendtime that is fixedfor hisownbenefit.Thus, in Keshavlal Lallubhai Patel and Ors. v. LalbhaiTrikumlal Mills Ltd 1959 SCR 213, this Court held:- "The truelegalposition in regard to the extension of time fortheperformance of a contractis quite clear under s. 63 of theIndianContractAct. Everypromisee, as the sectionprovides, may extend time for theperformance c D of the contract. The question as to howextension of time E may be agreedupon by thepartieshas been the subject­ matter of someargument at the Bar in the present appeal.There can be no doubt, we think,that boththe buyerand the sellermust agree to extendtime for the delivery of goods.It wouldnot be open to thepromisee F by hisunilateralact to extend the timefor performance of his ownaccordfor hisown benefit." 25.However,such is notthepositionhere. In the present case,the appellant is thepromiserand ODA is thepromisee. In sucha situation, ODA can certainlyunilaterally extend the timeG forpaymentunder Section63 of the Contract Act as thetime forpaymentis notfor DDA'sown benefitbut for thebenefit of the appellant. Thepresentcase would be coveredby two judgments of theSupremeCourt. In Citi Bank N.A. v. Standard CharteredBank, (2004) 1 SCC Page 12, thisCourt held: H 648 SUPREME COURT REPORTS [2015] 1 S.C.R. A "50. Under Section 63, unlike Section 62, a B c D E F G H promiseecan act unilaterally af!d may (i) dispensewith wholly or in part, or (ii) remitwholly or in part, the performance of the promisemade to him, or (iii) mayextendthe timefor suchperformance, or (iv) mayacceptinstead of it anysatisfactionwhich he thinks fit." 26. Similarly in S. Brahmanand v. K.R. Muthugopa/, (2005) 12 SCC 764the Supreme Court held: "34. Thus, this was a situationwhere the original agreement of 10-3-1989 had a "fixed date" for performance,but by thesubsequentletter of 18-6-1992 the defendants madea request for postponing the performance to afuturedate withoutfixing any furtherdate forperformance. This was acceptedby theplaintiffsby theiract of forbearanceand not insisting on performance forthwith. There is nothingstrange in time for performance beingextended,even thoughoriginallythe agreement hada fixeddate.Section 63 of the ContractAct, 1872 providesthat everypromiseemay extendtime for the performance of thecontract. Such an agreementto extendtime neednot necessarilybe reduced to writing, butmay be provedby oralevidence or, in somecases, even by evidence of conductincludingforbearance on the part of theotherparty. [See in this connectionthe observations of this Court in Keshavlal Lal/ubhai Patel v. La/bhai TrikumlalMills Ltd.,1959 SCR 213: AIR 1958 SC 512, para 8. See a/so in this connectionSaraswathamma v. H. Sharad Shrikhande, AIR 2005 Kant 292 and K. VenkojiRao v. M. Abdul Khuddur Kureshi, AIR 1991 Kant 119, followingthe KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 649 AUTHORITY [R.F. NARIMAN, J.] judgment in KeshavlalLallubhai Patel (supra).] Thus, in A this case there was a variationin thedate of performance byexpressrepresentationby thedefendants,agreed to by theact of forbearanceon thepart of the plaintiffs. What was originallycovered by thefirstpart of Article 54, nowfell withinthe purview of thesecqndpart of the article.PazhaniappaChettiyar v. South Indian Planting andIndustrial Co. Ltd. [AIR1953Trav Co 161] was a similarinstancewhere the contractwhen initiallymade hada datefixedfor theperformance of the contractbut B the Court was of the view that "in the eventsthat c happened in this case, the agreement in questionthough started with fixation of aperiodfor thecompletion of the transactionbecame one withoutsuch period on account of the peculiar facts and circumstances already explainedand the co~tract, therefore,became one in D which no time was fixedfor its performance" andheldthat what was originallycovered bythe firstpart of Article113 of the Limitation Act, 1908 would fall under the second part of the saidarticlebecause of the supervening circumstances of the case. "(at Page 777) 27.Coming to the application of Article 14, theDivision Bench in paragraph37 stated:- E "37. Now, in India,reasonableness in State action is a facet of Article 14 of theConstitution of Indiaand in the field of contractwould have a considerableplay at the precontractstage. Once parties have enteredinto a contractualobligation, they would be bound by the contractand the onlyreasonablenesswould be of the kindenvisagedby the Supreme Courtin thedecision G reported as AIR1963 SC 1144 T.P. Oaver v. Lodge Vict6riaNo.363 SC Belgaum & Ors. On the subject of a member of aclubbeingexpelled,and the relationship being a contract as per therulesand regulations of the club,adherencewhereto was agreed to byhewho F H 650 SUPREME COURT REPORTS[2015] 1 S.C.R. A became a member of the cluband the management of the club,the SupremeCourt observedthat in such private affairs,it wouldbe goodfaith in taking an actionwhich is rootedin theminds of modernmen and women i.e. in a moderndemocraticsociety and no more.The decision B guidesthat where a privateaffair i.e. a contractis so pervertedby a party that it offendsthe concept of a fair­ play in a modernsociety,alone then can the action l)e questioned as not in goodfaith and sufficewould it be to statethat anythingdone not in goodfaith wouldbe c unreasonably done." 28. It will benoticedat oncethat T.P. Daver v. Lodge Victoria No.363, S.C.Belgaum, 1964(1) SCR 1, is notan authority on Article 14 at all. It deals with clubs andthe factthat rules or bye-laws whichbind members of such clubs haveto Dbe strictlyadheredto. On the otherhand in ABL International Ltd. v. ExportCredit Guarantee Corpn. of India Ltd., (2004) 3 SCC 553 at paras22 and23, the Supreme Court held: E F GH "22. Wedo not think the above judgment in Y.ST Industries Ltd. {(2001) 1 sec 298: 2001 sec (L&S)227] supportsthe argument of the learnedcounselon the question of maintainability of thepresentwrit petition.It is to be notedthat VST IndustriesLtd.{(2001)1 SCC 298 : 2001 sec (L&S)227] againstwhom the writpetitionwas filedwasnot a State or an instrumentality of a State as contemplatedunder Article 12 of the Constitution,hence, in the normalcourse,no writcouldhave beenissued againstthe saidindustry.But it wasthe contention of the writpetitionerin thatcasethat the saidindustrywas obligatedunder the statuteconcerned to performcertain publicfunctions;failure to do sowouldgive rise to a complaintunder Article226 against a privatebody. While cpnsideringsuch argument,this Courtheld that when an authorityhas to perform a public function or a publicduty, if there is a failurea writpetitionunder Article226 of the KAILASH NATH ASSOCIATES v. DELHI DEVELOPMENT 651 AUTHORITY [R.F. NARIMAN,J.] Constitutionis maintainable. In theinstantcase, as to the A fact thatthe respondentis an instrumentality of a State, there is nodispute but thequestionis: wasthe first respondentdischarging a public duty or a publicfunction whilerepudiatingthe claim of theappellantsarising out of a contract?Answer to this question, in our opinion,is B found in the judgment of this Court in the case of Kumari ShrilekhaVidyarthi v. State of U. P. [(1991) 1 SCC 212 : 1991 SCC (L&S) 742]whereinthis Courtheld: (SCC pp. 236-37, paras 22 & 24) "The impact of every State actionis also on public C interest.. .. It is really the nature of its personality as State whichis significantand mustcharacterize allitsactions, in whateverfield, and not the nature of function,contractual or otherwise,which is decisive of thenature of scrutinypermittedfor D examining the validity of its act. The requirement of Article 14 being the duty to act fairly,justlyand reasonably,there is nothing which militates againstthe concept of requiringthe State always to so act, even in contractual matters." E 23. It is clear from the aboveobservations of this Court, once the State or an instrumentality of the State is a party of the contract,it hasan obligation in law to actfairly, justlyand reasonablywhich is therequirement of Article F 14 of theConstitution of India.Therefore, if by the impugnedrepudiation of the claim of theappellants the firstrespondentas aninstrumentality of the State has acted in contravention of theabovesaidrequirement of Article 14, then we have no hesitation in holdingthat a G writ courtcan issuesuitabledirections to set rightthe arbitraryactions of the first respondent" 29.Basedon thefactsof thiscase,it would be arbitrary forthe DOA to forfeitthe earnestmoney on twofundamental grounds.First, thereis no breachof contracton thepartof theH 652 SUPREME COURT REPORTS (2015] 1 S.C.R. A appellC_nt as has been held above.And second, ODA not having "been put to any loss, even if ODAcould insiston a contractualstipulation in its favour,it would be arbitraryto allow DOA as a publiq authority to appropriate Rs.78,00,000/­ (RupeesSeventy Eight Lakhs)withoutany loss being caused. B It is clear, therefore,that Article 14 would apply in the field of contract in this caseand the finding oqhe DivisionBench on c D E F Gthis aspectis herebyreversed. ,. 30. We now cometo thereasoningwhich involves Section 74 of theContractAct. TheDivisionBench held: "38. The learned Single Judgehas heldthat the property was ultimatelyauctioned in the year 1994 at a pricewhich fetched DOA ahandsomereturn of Rupees 11. 78 crores andtherebeingno damagessuffered by ODA, it could notforfeitthe earnestmoney. 39. The said viewruns in the teeth of thedecision of the Supreme Courtreportedas AIR 1970 SC 1986 Shree · HanumanCotton Mills. & Anr. V. Tata Aircraft Ltd. which holdsthat as againstan amounttendered by way of security,amount tenderedas earnestmoney could be forfeitedas perterms of the contract. 40. We mayadditionallyobserve that originaltime to pay the balancebid consideration,as per Ex.P-1 was May 18, 1982 and as extended by Ex. P-8 wasOctober 28, 1982. That DOA couldauctionthe plot in theyear 1994 in the sum of Rupees 11.78 crorewas immaterial and not relevantevidencefor thereasondamageswith respect tothe price of property haveto be computed with reference to thedate of thebreach of the contract." 31.Section74 as it originally. stoodread thus: "When a contracthas beenbroken, if a sumis named in thecontractas theamount to be paid in case of such H breach,the partycomplaining of the breachis entitled, KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 653 AUTHORITY [R.F. NARIMAN, J.] whether or not actualdamage or loss is proved to have A beencausedthereby, to receivefrom the partywho has broken the contract reasona~ble compensation not exceedingthe amountso named." 32. By an amendment made in .1899,the Section was 8 amendedto read: "74. Compensationfor breach of contractwhere penalty stipulated for. - When a contracthas beenbroken, if a sum is named in the contractas theamount to be paid in case of suchbreach,or if the contractcontainsany C other stipulationby way of penalty,the partycomplaining of the breach is entitled,whether or not actualdamage or loss is proved to ilave been caused thereby,to receivefrom the party who has brokenthe contract reasonablecompensationnot exceedingthe amountso D named or, as thecasemay be, the penaltystipulated for. Explanation.-A stipulationfor increasedinterest from thedate of defaultmay be a stipulationby way of penalty. Exception.-When anypersonenters into any bail-bond, recognizance or otherinstrument of the samenature, or, underthe provisions of any law, or underthe orders of theCentralGovernment or of any State Government, givesany bondfor theperformance of anypublicduty or act in whichthe publicare interested,he shallbe liable, upon breach of any condition of any such instrument, to pay thewholesum mentionedtherein. E F Explanation.-A person who entersinto a contractwith Governmentdoes not necessarilythereby undertakeany G public duty, or promise to do an actin whichthe public are interested." 33.Section 74 occurs in Chapter6 of the Indian Contract Act,1872whichreads "Of the consequences of breach of contract".It is in fact sandwichedbetween Sections73 and75 H 654 SUPREME COURT REPORTS [2015] 1 S.C.R. A which deal with compensationfor loss or damage caused by breach of contractand compensationfor damagewhich a party maysustainthrough non-fulfillment of a contractafter suchparty rightfullyrescinds such contract. It is importantto notethat like Sections73 and75, compensationis payable for breach of B contractunder Section74 only where damageor loss is caused bysuchbreach. · 34. In FatehChand v. Balkishan Oas, 1964 SCR (1) 515, thisCourt held: C "The section is clearly an attempt to eliminate the somewhatelaborate refinementsmade underthe English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in thenature of penalty. Under thecommon D /awa genuine pre-estimate of damages by mutual agreement is regarded as a stipulationnaming liquidated damagesand bindingbetweenthe parties:a stipulation ina contractin terrorem is a penalty andthe Court refuses to enforce it, awarding to theaggrievedparty only E reasonablecompensation. The Indian Legislaturehas sought to cutacrossthe web of rulesand presumptions underthe Englishcommon law, by enactinga uniform principleapplicable to all stipulationsnaming amounts to be paid in case of breach,and stipulationsby way of F penalty. Section 7 4 of the IndianContractAct dealswith the measure of damages in twoclasses of cases (i) where G the contractnames a sum to be paid in case of breach and (ii) wherethe contractcontainsany otherstipulation by way of penalty. We are in the present case not concerned to decidewhethera covenant of forfeiture of depositfor dueperformance of a contractfalls withinthe H first class.The measure of damagesin the case of KAI LASH NATH ASSOCIATES v. DELHI DEVELOPMENT 655 AUTHORITY [R.F. NARIMAN, J.] breach of a stipulation by way of penalty is by A Section 74 reasonablecompensationnot exceedingthe penaltystipulated for. In assessingdamages the Court has, subject tothe limit of the penalty stipulated, jurisdiction to awardsuch compensation as it deems reasonablehaving regard to all thecircumstances of the case.Jurisdiction of the Court to awardcompensationin case