JUDGMENT
M.M. Kumar, J.
1. By this judgment, I propose to dispose of R. S. A. Nos. 245 and 246 of 2003 as both the appeals are directed against the common judgment of the Addl. District Judge, Patiala dated 24-10-2002 dismissing the appeal of the plaintiff-appellant and partially accepting the appeal of defendant-respondent No. 1, Hoshiar Singh.
2. The instant appeals have been filed by the plaintiff-appellant under Section 100 of the Code of Civil Procedure, 1908 (for brevity ‘the Code’) challenging concurrent findings of facts recorded by both the Courts below holding that he is not entitled to specific performance of the agreement dated 21-5-1993 executed between the plaintiff-appellant Sher Singh (now represented by his L. Rs. and for brevity to be referred as plain-tiff-appellant) and defendant-respondent No. 1 Hoshiar Singh. It has further been held that Teja Singh, defendant-respondent No. 2 is a bona fide purchaser of the suit land vide sale deed dated 3-5-1993 registered on 5-5-1994. However, in accordance with the stipulation made in the agreement to selldated 21-5-1993 the suit of the plaintiff-appellant has been decreed by the trial Court for recovery of Rs. 1,00,000/- from defendant-respondent No. 1 being double the amount of earnest money of Rs. 50,000/-along with interest @ 12 per cent. p.a. from the date of the agreement i.e. 21-5-1993 till its actual realisation.
3. Brief facts which have led to the filing of the instant appeals are that the predecessor-in-interest of plaintiff-appellants filed Civil Suit No. 26-T of 2000 dated 1-6-1994 seeking a declaration that the sale deed No. III dated 3-5-1994 registered on 5-5-1994 executed by defendant-respondent No. 1 in favour of defendant-respondent No. 2 is illegal, null and void and ineffective in respect of the rights of the plaintiff-appellants viz-a-viz defendant-respondent No. 1. It was alleged that the aforementioned sale deed is a fraudulent act and the same has been executed by defendant-respondent No. 1 to deprive the plaintiff-appellants of their rights under the agreement dated 21-5-1993 between plaintiff-appellants and defendant-respondent No. 1. Further prayer was made seeking specific performance of the agreement dated 21-5-1993 with a direction to defendant-respondent No. 1 to execute the sale deed in respect of the land covered by the agreement and in the alternative for recovery of Rs. 1,00,000/- being double the amount of earnest money of Rs. 50,000/-paid to defendant-respondent No. 1 along with interest @ 18 per cent. p.a. from the date of the agreement till the date of its payment. A further prayer was also made for relief of permanent injunction restraining defendant-respondent from dispossessing the plaintiff-appellants from the suit land and from alienating, mortgaging, selling or creating any charge on the same. According to the averments made the agreement to sell was executed on 21-5-1993 by defendant-respondent No. 1 in favour of the plaintiff-appellant. As stipulated the execution of the sale deed in respect of the suit land was stated on or before 21-5-1995. The rate of land fixed between the parties was Rs. 1,60.000/- per killa and a sum of Rs. 50,000/- as earnest money was paid by the plaintiff-appellant to defendant-respondent No. 1 and the balance sale consideration was to be paid before the Sub-Registrar. It was further claimed that the plaintiff-appellant is in possession of the land in dispute and has been cultivating the same despite the fact that khasragirdawari was in the name of brother of defendant-respondent No. 1. It has also been alleged that defendant-respondent No. 1 subsequently got it changed to his name at the back of the plaintiff-appellant for which he has filed an application for its correction.
4. It has further been averred in the plaint that defendant-respondent No. 1 during the currency of the agreement dated 21-5-1993 sold a part of the land to defendant-respondent No. 2 vide sale deed dated 3-5-1994 registered on 5-5-1994. The aforementioned transaction with defendant-respondent No. 1 and defendant-respondent No. 2 is alleged to be fraudulent and collusive with the oblique motive to deprive the plaintiff-appellant of their claim. It is further claimed that he has always been and was ready and willing to perform his part of the contract and had tendered adequate sum to defendant-respondent No. 1 to execute the sale deed in his favour but defendant-respondent No. 1 having alienated part of the suit land to defendant-respondent No. 2 has committed a breach of the contract.
5. After the filing of the suit some compromise is alleged to have been arrived at between defendant-respondent No. 2 and plaintiff-appellant and accordingly defendant-respondent No. 2 lodged DDR No. 16 dated 8-1-1995 at PS Jhulkan. According to the agreement between plaintiff-appellant and defendant-respondent No. 2, defendant-respondent No. 2 was to transfer back 2 bighas of land out of the land purchased by him from defendant-respondent No. 1 for a consideration of Rs. 34,000/- and the amount of Rs. 50,000/- paid by the plaintiff-appellant to defendant-respondent No. 1 was to be adjusted towards the sale. The date of execution of the sale deed in favour of the plaintiff-appellant fixed was 19-1-1995 on the receipt of Rs. 34,000/-. The plaintiff-appellant Sher Singh claimed that he was present before the Sub-Registrar along with the requisite amount but defendant-respondent No. 2 did not come forward to comply with the aforesaid agreement and execute the sale deed.
6. In the written statement filed by defendant-respondent No. 1 the factum of execution of the agreement dated 21-5-1993 has been denied. It has also been denied that a sum of Rs. 50,000/- was ever paid by the plaintiff-appellant to him. Defendant-respondent No. 1 also controverted the averment that he ever delivered the possession of the suit land to the plaintiff-appellant but asserted that he had sold a portion of the suit land to defendant-respondent No. 2. Defendant-respondent No. 1 further averred that in fact he mortgaged his land for a sum of Rs. 5,000/- to the plaintiff-appellant who had fraudulently obtained his signatures on a blank paper and forged the aforesaid agreement to sell dated 21-5-1993. He further asserted that an agreement was entered into by him with defendant-respondent No. 2 on 2-1-1992 and the same was extended on 2-1-1993 to 10-6-1994. Accordingly he claims to have executed the sale deed on 3-5-1994 registered on 5-5-1994 and delivered the possession to defendant-respondent No. 2 on that very date. It has therefore been prayed that suit of the plaintiff-appellant be dismissed.
7. The stand taken by defendant-respondent No. 2 is that no agreement as alleged in DDR No. 16 dated 8-1-1995 has ever been entered into and the plaintiff-appellant has not been in actual physical possession of the suit land. It has further been asserted that defendant-respondent No. 1 could not have agreed to sell his land to the plaintiff-appellant vide agreement dated 21-5-1993 because he had already entered into an agreement with defendant-respondent No. 2 on 2-1-1992. He further alleged that agreement dated 21-5-1993 is a result of fraud and collusion between plaintiff-appellant and defendant-respondent No. 1. It is claimed that it would not in any way adversely affect the rights of the defendant-respondent No. 2. Defendant-respondent No. 2 also asserted his possession over the land covered by the sale deed dated 3-5-1994 registered on 5-5-1994 which has been executed in pursuance to the agreement dated 2-1-1992.
8. On the basis of the pleadings of the parties, the trial Court framed the following issues :
“1. Whether the plaintiff is entitled to declaration as prayed for? OPP.
2. Whether the plaintiff is entitled to specific performance of agreement dated 21-5-1993? OPP.
3. Whether the plaintiff is entitled to permanent injunction? OPP.
4. Whether the suit is not maintainable in the present form? OPD.
5. Whether the alleged DDR D/- 8-1-1995 was registered by undue influence? OPD.
6. Whether the suit is not properly valued for the purpose of Court fee and jurisdiction? OPD.
7. Whether the suit filed by the plaintiff is false and frivolous? OPD.
8. Relief.”
9. Both the Courts below have concurrently found that the agreement dated 21-5-1993 executed by defendant-respondent No. 1 in favour of plaintiff-appellant was validly executed. It has further been held that sale of part of the suit land by defendant-respondent No. 1 in favour of defendant-respondent No. 2 vide registered sale deed dated 5-5-1994 is also valid and defendant-respondent No. 2 is a bona fide purchaser. The plaintiff-appellant has been denied the relief of specific performance of agreement dated 21-5-1993 by both the Courts below but he has been held entitled to refund of his earnest money along with interest. The trial Court held the plaintiff-appellant entitled to double the amount of earnest money as per the stipulation of the agreement to sell dated 21-5-1993 along with interest @ 12 per cent. p.a. from the date of agreement till its actual realisation. However, the learned lower Appellate Court modified the aforementioned relief by holding that plaintiff-appellants were entitled only to refund of earnest money of Rs. 50,000/- along with interest @ 12 per cent. p.a. from the date of the agreement i.e. 21-5-1993 till its actual realisation. The basis for modification stated by the ld. Appellate Court is that the plaintiff-appellant has not been able to prove any special loss caused to him due to non-compliance of the agreement in question, which is requirement of Section 74 of the Indian Contract Act, 1872 (for brevity, ‘Contract Act’).
10. The execution of the agreement Ex. P. 1 has been accepted on the ground that defendant-respondent No. 1 has not been able to dispute his signatures on it. The theory of signatures on blank papers has been discarded by both the Courts below for the reason that if he had signed the blank paper alone then how his signatures have appeared in the register of Deed Writer which has been produced as Ex.P. 2. As no explanation with regard to appearance of his signatures in the register of deed writer was tendered by defendant-respondent No. 1, the statement made by PW 1 Tej Pal and PW 2 Surjit Singh and the plaintiff-appellant with regard to due execution of the agreement Ex. P. 1 were considered sufficient proof of the execution.
11. Similarly both the Courts below have held that the registered sale deed dated 5-5-1994 Ex. DW 5/C had been executed by defendant-respondent No. 1 in favour of defendant-respondent No. 2 and defendant-respondent No. 2 has acted in a bona fide manner after making due enquiries on the basis of the entries available in the revenue record in respect of the suit land. It is the admitted case of the parties that there was no entry with regard to the agreement to sell dated 21-5-1993 which would deter defendant-respondent No. 2 from purchasing the part of the suit land. Therefore, defendant-respondent No. 2 has been found to be a bona fide purchaser and for that reason the relief of specific performance has also been denied to plaintiff-appellant. It has further been found that plaintiff-appellant has not been able to establish the delivery of possession of the suit land either at the time of execution of the agreement to sell dated 21-5-1993 or subsequently by adducing any evidence. As a consequence the relief of permanent injunction has been declined. The theory of some compromise between the plaintiff-appellant and defendant-respondent No. 2 based on DDR No. 16 dated 8-1-1995 has also been rejected which is proved to have been lodged under undue influence and coercion.
12. On the basis of the aforementioned findings, the lower Appellate Court affirmed the findings of the trial Court by refusing to pass any decree with regard to specific performance of the contract. The Addl. District Judge, however, decreed the trial suit of the plaintiff-appellant for refund of Rs. 50,000/- alone by observing as under :
“In view of the aforesaid discussion, plaintiff is not entitled to specific performance of the agreement to sell Ex. P. 1. But, however, since due execution of the agreement to sell Ex. P. 1 is established and it is also established from the recital of the said agreement, that a sum of Rs. 50,000/- has been paid by the plaintiff to the defendant No. 1, the plaintiff is entitled to the refund of the said earnest money. Even though, there is recital of the payment of double amount of the earnest money in case of lapse on the part of defendant No. 1, but, however, plaintiff has failed to establish any special loss caused to him due to non-compliance of the agreement in question. Consequently, he is only entitled to refund of earnest money of Rs. 50,000/- along with interest @ 12% per annum, consequently, the appeal filed by Sher Singh bearing No. 202 dated 14-8-2001 is dismissed with costs whereas the appeal filed by the defendant Hoshiar Singh bearing No. 204 dated 27-2-2001 is partly allowed and the plaintiff is held entitled only to refund of earnest money of Rs. 50,000/-along with interest @ 12% per annum from the date of execution of the agreement i.e. 21-5-1993 till realization. …………”
13. Shri Puneet Ball, learned counsel for the plaintiff-appellant has argued that both the Courts below have committed a grave error in law by refusing to pass a decree in favour of the plaintiff-appellant for specific performance of the agreement dated 21-5-1993 because once the agreement to sell has been established then specific performance of even part of the contract could have been ordered under Section 12 of the Specific Relief Act, 1963 (for brevity ‘the 1963 Act’). Learned counsel has submitted that no reason has been assigned by either of the Courts below for refusing to decree the suit of the plaintiff-appellant in respect of part of the contract by excluding the land which has been sold by defendant-respondent No. 1 in favour of defendant-respondent No. 2 vide registered sale deed dated 5-5-1994. The learned counsel has also argued that plaintiff-appellant has always been ready and willing to perform his part of the contract and there was no difficulty in performing that part of the contract dated 21-5-1993 by excluding the land already sold to defendant-respondent No. 2 vide registered sale deed dated 5-5-1994. In support of his submission, the learned counsel has placed reliance on a judgment of the Supreme Court in the case of Surjit Kaur v. Naurata Singh (2000) 7 SCC 379 : (AIR 2000 SC 2927). The learned counsel then submitted that in any case the clause with regard to liquidated damages specifying the payment of double the amount of earnest money could not have been ignored by placing onus to prove on the plaintiff-appellant. According to the learned counsel once parties to the contract have agreed to pay liquidated damages they must be deemed to have excluded the right to claim unascertained sum as damages. Learned counsel has made reference to Section 74 of the Contract Act and contended that onus to prove the actual damages accruing from the breach of contract would be covered by Section 73 of the 1872 Act and in cases where a sum has been stipulated it is to be paid in accordance with the terms of the agreement under Section 74 of the 1872 Act. Learned counsel has placed reliance on a judgment of the Supreme Court rendered by a Constitution Bench in the case of Chunilal V. Mehta v. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314.
14. Shri Satinder Khanna, learned counsel for defendant-respondent No. 1 has argued that as a matter of fact no earnest money has been paid and the agreement of sale dated 21-5-1993 is a fraudulent transaction. According to the learned counsel once a part of the land has been sold to a bona fide purchaser like defendant-respondent No. 2 then no specific performance in favour of the plaintiff-appellants could be ordered especially when agreement to sell in favour of defendant-respondent No. 2 was entered into much earlier i.e. on 21-1-1992 which date was extended by mutual consent of the parties up to 10-6-1994. Learned counsel has further argued that once the version of the plaintiff-appellant has been found to be false that actual physical possession was delivered to him he must not be granted equitable relief of specific performance of agreement as has been provided by Sub-section (2) of Section 20 of the 1963 Act as the Courts would refuse to exercise discretion in favour of such plaintiff-appellant. He controverted the argument raised by the plaintiff-appellants regarding their claim of double the amount of compensation under Section 74 of the Act and argued that in liquidated damages maximum sum of damages is specified and the same has to be proved. In the absence of proof of actual loss by the party claiming compensation/ penalty on the basis of the stipulation alone made in the agreement of sale for payment of double the amount the compensation could not be paid. In support of his submission, the learned counsel has placed reliance on a judgment of the Supreme Court in the case of Maula Bux v. Union of India, AIR 1970 SC 1955 and a Full Bench judgment of the Kerala High Court in the case of Geo Pictures Ltd. v. Neelakandaru Gopalakrishnaru, AIR 1971 Ker 274. He has also placed reliance on a judgment of the Constitution Bench of the Supreme Court in the case of Fateh Chand v. Balkishan Dass, AIR 1963 SC 1405 to point out that the basic difference between the English law and the Indian law has been discussed by the Supreme Court by holding that no English Courts would reduce the liquidated damages specified in the liquidated damages clause whereas in India it is considered to be the maximum limit fixed and the party claiming damages must prove the extent of damages suffered.
15. Shri R.K. Battas, learned counsel appearing for defendant-respondent No. 2 has pointed out that both the Courts below have held that defendant-respondent No. 2 is a bona fide purchaser for consideration without notice. Therefore, these findings of facts cannot be reversed by this Court under Section 100 of the Code. Learned counsel has also submitted that in no case specific performance in respect of the land covered by the sale deed dated 5-5-1994 executed by defendant-respondent No. 1 in favour of defendant-respondent No. 2 could be ordered because the conduct and stand of the plaintiff-appellant with regard to possession has been found to be false. He has further pointed out that the conduct of the plaintiff-appellant with regard to lodging of DDR No. 16 on 8-1-1995 is also not praiseworthy which should be considered enough to deprive him the equitable relief of specific performance of contract. According to the learned counsel the agreement in favour of defendant-respondent No. 2 was executed on 2-1-1992 which is much prior to the agreement between the plaintiff-appellant and defendant-respondent No. 1. He has further submitted that the plaintiff-appellant has unnecessarily dragged him in litigation to this Court and has therefore prayed for imposition of costs in favour of defendant-respondent No. 2.
16. Having heard the learned counsel for the parties at a considerable length and perusing the judgments of the Courts below. I am of the considered view that these appeals insofar as seeking a declaration that the registered sale deed dated 5-5-1994 in favour of defendant-respondent No. 2 is null and void and not binding on the plaintiff-appellants, are liable to be dismissed. It has been concurrently found by the Courts below that the agreement to sell executed in favour of defendant-respondent No. 2 is dated 2-1-1992 which was later on extended on 2-10-1994. It has also been found concurrently by both the Courts below that defendant-respondent No. 2 is a bona fide purchaser of a part of the suit land.
17. The claim of the plaintiff-appellant cannot be sustained that his agreement to sell is of earlier date than the one entered into between the defendant-respondent 1 and defendant-respondent No. 2 which is dated 21-2-1992. Therefore, the appeals against defendant-respondent No. 2 are liable to be dismissed.
18-19. Then claim of the plaintiff-appellant that he is entitled to specific performance of the agreement dated 21-5-1993 to the extent of it is enforceable by excluding the land covered by registered sale deed dated 5-5-1994 could also not be accepted because the conduct of the x x x x x x plaintiff-appellant is such that in enquiry relief of specific performance of contract cannot be granted. Under Section 20, the grant of such a relief is in the discretion of the Court and it should not be granted merely because it is lawful to do so. Section 20 of the 1963 Act reads as under :–
“Discretion as to decreeing specific performance.– (1) The jurisdiction to decree specific performance is discretionary, and the Court is not bound to grant such relief merely because it is lawful to do so; but the discretion of the court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a Court of appeal.”
20. A perusal of the above reproduced provision would show that the relief of specific performance is a discretion vested in the Court and it cannot be granted merely, because it is lawful to do so. The discretion of the Court has to base on sound principles guided by sound reasons. Sub-section (2) of Section 20 provides various illustrations where such a relief could be refused. For example specific performance could be refused in cases where the conduct of the parties at the time of entering into the conduct of the parties at the time of entering into the contact or other circumstances under which the agreement had been entered into are such that the contract gives the plaintiff an unfair advantage over the defendant or that the performance of the contract would result into some hardship to the defendant which he failed to foresee and its non-performance would involve no such hardship to the plaintiff. Explanations 1, 2 and 3 further explain that inadequacy of consideration or the onerous nature of the contract would not constitute an unfair advantage or hardship within the meaning of Sub-section (2)(a) and (b). In the instant case, the plaintiff-appellants have set-up a false plea that the possession of the suit land covered by agreement dated 21-5-1993 has been delivered. Both the Courts below have found it as a fact that possession had not been delivered. Similarly, the plaintiff-appellants made an unsuccessful attempt apparently by alleging an agreement dated 8-1-1995 alleged to have been executed on the basis of DDR No. 16 dated 8-1-1995 by defendant-respondent No. 2 in favour of the plaintiff-appellant. On account of this conduct, the plaintiff-appellant would not be entitled to specific performance of the contract dated 21-5-1993. Moreover, both the Courts below have exercised their discretion in a particular manner by refusing to pass a decree for performance of the contract in favour of the plaintiff-appellant and I see no valid reason to deviate from that view. It is well-settled that Section 20 of 1963 Act does not contain the list of all cases where such a relief is to be refused which in fact is merely illustrative. In Sardar Singh v. Krishna Devi, 1994 (4) SCC 18 : (AIR 1995 SC 491), it has been laid down that the conduct of the parties and their respective interests under the contract have to be taken into consideration. In para 14 of the judgment, their Lordships have observed as under :–
“The next question is whether these Courts below were justified in decreeing the suit for specific performance. Section 20(1) of the Specific Relief Act, 1963 provides that the jurisdiction to decree specific performance is discretionary, and the Court is not bound to grant such relief, merely because it is lawful to do so; but the discretion of the Court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a Court of appeal. The grant of relief of specific performance is discretionary. The circumstances specified in Section 20 are only illustrative and not exhaustive. The Court would take into consideration the circumstances in each case, the conduct of the parties and the respective interest under the contract.”
21. Even otherwise, under Section 12 of 1963 Act, the Court is exhorted not to direct specific performance of a part of contract except in specified cases. Sub-sections (2) and (3) of Section 12 further illustrates that in cases where a portion of the contract is left unperformed, and if the same could be quantified in compensation the Court may direct specific performance and award compensation for the deficient. It has also been postulated that the portion of the contract left unperformed if forms considerable part of the whole and if for that portion compensation could be determined in terms of money then also specific performance shall not be ordered. Section 12 of 1963 Act reads as under :–
“Specific performance of part of contract.– (1) Except as otherwise hereinafter provided in this section the Court shall not direct the specific performance of a part of a contract.
(2) Where a party to a contract is unable to perform the whole of his part of it, but the part which must be left unperformed by only a small proportion to the whole in value and admits of compensation in money, the Court may, at the suit of either party, direct the specific performance of so much of the contract as can be performed, and award compensation in money for the deficiency.
(3) Where a party to contract is unable to perform the whole of his part of it, and the part which must be left unperformed either —
(a) forms a considerable part of the whole, though admitting of compensation in money; or
(b) does not admit of compensation in money; he is not entitled to obtain a decree for specific performance; but the Court may, at the suit of the party, direct the party in default to perform specifically so much of his part of the contract as he can perform, if the other party–
(i) in a case failing under Clause (a), pays or had paid the agreed consideration for the whole of the contract reduced by the consideration for the part which must be left unperformed and a case falling under clause (b), (pays or has paid the consideration for the whole of the contract without any abatement; and
(ii) in either case, relinquishes all claims to the performance of the remaining part of the contract and all right to compensation, either for the deficiency or for the loss or damage sustained by him through the default of the defendant.”
22. The aforementioned provision has been subject matter of interpretation by the Supreme Court in the cases of Manzoor Ahmed Magray v. Ghulam Hassan Aram, (1999) 7 SCC 703 : (AIR 2000 SC 191) and Rachakonda Narayana v. Ponthala Parvathamma, (2001) 8 SCC 173 : (AIR 2001 SC 3353) and Sardar Singh’s case (supra). All these judgments recognised the right of obtaining a decree in specific circumstances and subject to fulfilling certain conditions. However, in the present case, performance of the agreement dated 21-5-1993 would cover transfer of land without covering 5 bighas 10 biswas whereas substantial portion of the land i.e. 5 bighas and 1 biswa have already been transferred by defendant-respondent No. 1 to defendant-respondent No. 2 vide registered sale deed dated 5-5-1994 pursuant to an agreement executed between defendant-respondent No. 1 and defendant-respondent No. 2 much earlier to the agreement executed in favour of the plaintiff-appellants. It is pertinent to mention here that the earlier agreement is dated 21-1-1992 and the later agreement is dated 21-5-1993. Therefore, passing a decree for a part performance of 9 biswas when substantial portion of the land has already been sold, would not be possible. This type of part performance has not been encouraged by Section 12. Sub-section (3) of Section 12 of 1963 Act in fact prohibits passing of a decree of such a nature unless the plaintiff has shown willingness to pay the agreed consideration for the whole of the contract reduced by the consideration for part which must be left unperformed and in cases where the unperformed portion does not permit assessment of compensation in terms of money he has paid or is ready to pay the consideration for the whole of the contract without any abatement. The plaintiff is also under an obligation to relinquish his claim with regard to the performance of the remaining part of the contract and all rights to compensation either for the deficient or for the loss or damages sustained by him on account of the default of the defendant. In the instant case, none of the aforementioned conditions have been fulfilled. On the contrary, the plaintiff-appellants have insisted in refund of earnest money along with equal amount of compensation as liquidated damages. Therefore, no decree for part performance of the agreement dated 21-5-1993 could be passed.
23. The judgment of the Supreme Court in Surjit Kaur’s case (AIR 2000 SC 2927) (supra), on which reliance has been placed, does not advance the case of the plaintiff-appellants because the Supreme Court has recognised the right of the plaintiff to elect part performance even at the appellate stage. However, in the instant case, there is no dispute with regard to accepting the right of the plaintiff-appellant to elect for part performance. The aforesaid right has been defeated for the reason that it is not available under Section 12 of 1963 Act. Part performance is not available under Section 12 of 1963 Act, therefore, reliance on the judgment of Surjit Kaur’s case (supra) is misplaced.
24. The only other contention which survives for consideration is the entitlement of the plaintiff-appellants to recover double the amount of earnest money paid by their predecessor-in-interest rather than the actual amount paid. The trial Court has decreed the suit for double the amount of earnest money whereas the first Appellate Court has confined the payment of earnest money alone by holding that no evidence has been adduced to show the actual damages suffered. It is true that under Section 74 of the Contract Act despite naming liquidated damages in an agreement, the party claiming breach of contract may have to show the actual damages but in cases where the parties knew when they entered into the contract the damages which are likely to arise from the breach no proof of actual loss or damages is required to be furnished. The judgment of the Supreme Court in Fateh Chand’s case (AIR 1963 SC 1405) (supra) has to be examined in the light of the aforementioned observations. In that case, Section 74 has been interpreted as under :–
“10. Section 74 of the Indian Contract Act deals with the measure of damages in two classes of cases (i) where the contract names a sum to be paid in case of breach and (ii) where the contract contains any other stipulation by way of penalty. We are in the present case not concerned to decide whether a contract containing a covenant of forfeiture of deposit for due performance of a contract falls within the first class. The measure of damages in the case of breach of a stipulation by way of penalty is Section 74 reasonable compensation not exceeding the penalty stipulated for. In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all circumstances of the case. Jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according to settled principles. The section undoubtedly says that the aggrieved party entitled to receive compensation from the party who has broken the contract whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of actual loss of damage”; it does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things, or which the party knew, when they made the contract, to be likely to result from the breach.
(11) Before turning to the question about the compensation which may be awarded to the plaintiff, it is necessary to consider whether Section 74 applies to stipulations for forfeiture of amounts deposited or paid under the contract. It was urged that the sections deals in terms with the right to receive from the party who has broken the contract reasonable compensation and not the right to forfeit what has already been received by the party aggrieved. There is however, no warrant for the assumption made by some of the High Courts that Section 74 applies only to cases where the aggrieved party is seeking to receive some amount on breach of contract and not to cases where upon breach of contract on amount received under the contract is sought to be forfeited. In our judgment the expression “the contract contains any other stipulation by way of penalty” comprehensively applies to every covenant involving a penalty whether it is for payment on breach of contract of money or delivery of property in future, or for forfeiture of right to money or other property already delivered. Duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon Courts by Section 74. In all cases, therefore, where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms of contract which expressly provides for forfeiture, the Court has jurisdiction to award such sum only as it considers reasonable, but not exceeding the amount specified in the contract as liable to forfeiture.”
25. Another Constitution Bench in Chunilal V. Mehta’s case (AIR 1962 SC 1314) (supra), the Supreme Court has also taken the same view (Para 11) :–
“A perusal of Clause 4 clearly shows that the parties have themselves provided for precise amount of damages that would be payable by the Company to the Managing Agents if the Managing Agency agreement was terminated before the expiry of the period for which it was made. The clause clearly states that the Managing Agents shall receive from the Company as compensation or liquidated damages for the loss of appointment a sum equal to the aggregate amount of the monthly salary of not less than Rs. 6,000 for and during the whole of the unexpired portion of the term of the agency. Now, when parties name a sum of money to be paid as liquidated damages they must be deemed to exclude the right to claim an unascertained sum of money as damages. The contention of the learned counsel is that the words “not less than” appearing before “Rs. 6,000 in Clause 14 clearly bring in Clause 10 and, therefore entitle the appellant to claim 10 per cent of the estimated profits for the unexpired period by way of damages. But if we accept the interpretation, it would mean that the parties intended to confer on the Managing Agents what is in fact a right conferred by Section 73 of the Contract Act and the entire clause would be rendered otiose. Again the right to claim liquidated damages is enforceable under Section 74 of the Contract Act and where such a right is found to exist, no question of ascertaining damages really arises. Where the parties have deliberately specified the amount of liquidated damages there can be no presumption that they, at the same time, intended to allow the party who has suffered by the breach to give a go-by to the sum specified and claim instead a sum of money which was not ascertained or ascertainable at the time of the breach. Learned counsel contends that upon this view the words “not less than” would be rendered otiose. In our opinion, these words, as rightly pointed out by the High Court, were intended only to emphasise the fact that compensation will be computable at an amount not less than Rs. 6,000 p.m. Apparently, they thought it desirable to emphasise the point that the amount of Rs. 6,000 p.m. was regarded by them as reasonable and intended that it should not be reduced by the Court in its discretion.”
26. Moreover under Sections 21, 22 and 23 of the Act there is ample power with the Court to grant compensation on account of non-performance of the contract. Defendant-respondent No. 1 is certainly guilty of extracting a some of Rs. 50,000/- from the plaintiff-appellant as there was already an agreement to sell in existence between him and defendant-respondent No. 2 dated 21-1-92 which had been extended on 21-1-1993. In pursuance of the aforementioned agreement the registered sale-deed has come into existence on 5-5-1994. But despite the existence of the agreement dated 21-1-1992 the defendant-respondent entered into another agreement to sell in respect of the same land on 21-5-1993. The defendant-respondent himself has agreed for payment of double the amount of earnest money along with interest at the rate of 12% per annum to the plaintiff-appellants in case he fails to perform his part of the contract.
27. In view of the above, I am of the considered opinion that the Civil Judge had rightly decreed the suit and the modification made by the learned First Appellate Court is not justified. The plaintiff-appellant has lost the right of specific performance and his right to receive double the amount of compensation has to be upheld because it must be presumed that the parties at time of entering into agreement very well knew the loss the plaintiff-appellant was to suffer in case of breach of the contract. It is also worthwhile to mention that the plaintiff-appellant has been kept in dark with regard to the agreement dated 21-1-1992 for which he has to suffer by refusal of relief of specific performance. The appeal is partly allowed to the effect that plaintiff-appellants are entitled for recovery of a sum of Rs. One lac being double the amount of earnest money along with interest at the rate of 12 per cent per annum from the date of agreement dated 21-5-1993 till its actual realisation from defendant-respondent No. 1. However, the suit of the plaintiff-appellant against defendant-respondent No. 2 fails and the prayer for specific performance of the agreement dated 21-5-1993 is also rejected. The appeal is partly allowed in terms of the observations made above.