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Stamp Act and Registration Act -Or.21, rule 58 C.P.C. – Power of Attorney executed between family member claim petition filed by General Power of Attorney holder cum purchaser – from Nirmal Verma wife of vendor of respondent – against the execution petition filed by the decree holder against Prem Chand Verma, husband of Nirmal Verma by obtaining an exparte decree – Lower court and High court dismissed the claim petition basing on the judgement of Apex court in Suraj Lamp and Industries Private Limited “SA/GPA/will transactions” are not valid transactions as per stamp duty and registration act – Apex court held that both courts committed wrong in applying the judgment as it only bars the commercial transactions but it saved the transactions between the family members which were done bonafide and genuine and as such apex court set aside the orders of lower courts = Maya Devi .. Appellant Versus Lalta Prasad .. Respondent = 2014(Feb.Part) judis.nic.in/supremecourt/filename=41237

Stamp Act and Registration Act –  Or.21, rule 58 C.P.C. – claim petition filed by General Power of Attorney holder cum purchaser –  from Nirmal  Verma  wife  of vendor of respondent  – against the execution petition filed by the decree holder  against Prem  Chand  Verma,  husband  of Nirmal Verma   by obtaining an exparte decree – Lower court and High court dismissed the claim petition basing on the judgement of Apex court in Suraj  Lamp  and Industries Private Limited  “SA/GPA/will transactions”  are  not  valid transactions as per stamp duty and registration act – Apex court held that both courts committed wrong  in applying the judgment as it only bars the commercial transactions but it saved the transactions between the family members which were done bonafide and genuine and as  such apex court  set aside the orders of lower courts =

 

 I am of the view that the Executing Court as well as High  Court

      have  committed  a  grave  error  in  not  properly  appreciating  the

      objections filed by the Appellant. 

We are in this case concerned  with

      the question 

whether  we  must  give  credibility  to  the  registered

      General Power of Attorney executed on 12.5.2006 between  Nirmal  Verma

      and the appellant or on the alleged Agreement  for  Sale  executed  on

      3.11.2003 between the respondent and  Prem  Chand  Verma,  husband  of

      Nirmal Verma.  

Further, we have to examine the manner in  which  Civil

      Suit No.407 of 2007 was decreed without contest by Prem  Chand  Verma,

      husband of Nirmal Verma.



      6.    The registered Power of Attorney was executed by none other than

      the wife of Prem Chand Verma and the appellant herein on 12.5.2006  in

      respect of the property  in  question  for  a  sale  consideration  of

      Rs.70,000/-, which was received by Nirmal Verma in cash in advance and

      she acknowledged the same before the Sub-Registrar,  Delhi.    

On  the

      same day, Nirmal Verma, wife of Prem Chand Verma. handed over physical

      vacant possession of the land and building situated thereon  and  from

      12th May, 2006 onwards, the appellant is in possession of  the  above-

      mentioned property.



      7.    We are, in  this  case,  therefore,  concerned  with  

the  legal

      validity of a General Power of Attorney executed by  none  other  than

      the wife of Prem Chand Verma against whom a decree has  been  obtained

      by the respondent without any proper contest and the  court  proceeded

      against him ex-parte.   

These facts speak for itself.   

Evidently, the

      collusive decree was obtained  by  the  respondent  to  get  over  the

      registered Power of Attorney executed in favour of the appellant  and,

      it is in this perspective, we have to understand and apply  the  ratio

      laid down by this Court in Suraj Lamp and Industries  Private  Limited

      (2) (supra).



      8.    Paragraph 27 of the judgment of this Court  in  Suraj  Lamp  and

      Industries Private Limited (2) (supra) reads as follows :



           “27.  We make it clear that our observations are not intended to

           in any way affect the validity of sale agreements and powers  of

           attorney executed in genuine transactions. For example, a person

           may give a power of  attorney  to  his  spouse,  son,  daughter,

           brother, sister or a  relative  to  manage  his  affairs  or  to

           execute a  deed  of  conveyance.  A  person  may  enter  into  a

           development agreement with  a  land  developer  or  builder  for

           developing the land either by forming plots or  by  constructing

           apartment buildings and in that behalf execute an  agreement  of

           sale and grant a power of attorney empowering the  developer  to

           execute  agreements  of  sale  or  conveyances  in   regard   to

           individual plots  of  land  or  undivided  shares  in  the  land

           relating to apartments in favour of prospective  purchasers.  In

           several States, the execution of such development agreements and

           powers of attorney are already regulated by law and subjected to

           specific stamp duty.  Our  observations  regarding  “SA/GPA/will

           transactions”  are  not  intended  to   apply   to   such   bona

           fide/genuine transactions.”

         In the above judgment, it has been stated that the  observations

      made by the Court are not intended to in any way affect  the  validity

      of  sale  agreements  and  powers  of  attorney  executed  in  genuine

      transactions.  

 I am of the view that the Power of  Attorney  executed

      on 12.5.2006 in favour of the Appellant by  the  wife  of  Prem  Chand

      Verma is a genuine transaction executed years before the  judgment  of

      this Court.   Facts will clearly indicate that the Agreement for  Sale

      dated 3.11.2003 was created by none other than the husband  of  Nirmal

      Verma, who had executed the General Power of Attorney  and  possession

      was handed over to the Appellant. That being the fact situation, in my

      view, the Objection filed by the Appellant under Order 21 Rule  58  in

      execution has to be allowed.   I, therefore, hold that  the  Executing

      Court can execute the decree in Civil Suit No.407 of 2007, but without

      proceeding against the property referred to  in  registered  Power  of

      Attorney dated 12.5.2006.



      10.   The appeal is allowed, as above, and the impugned orders are set

      aside.  There shall, however, be no order as to costs.

 

2014(Feb.Part) judis.nic.in/supremecourt/filename=41237

K.S. RADHAKRISHNAN, VIKRAMAJIT SEN

 

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2458 OF 2014
[Arising out of SLP (C) No.23069 of 2012)
Maya Devi .. Appellant
Versus
Lalta Prasad .. Respondent
J U D G M E N T
K. S. RADHAKRISHNAN, J.
1. Leave granted.
2. The appellant herein filed an Objection Petition under Order 21
Rule 58 CPC, when the decree obtained by the respondent in Civil Suit
No.407 of 2007 was sought to be executed. Suit was filed for the
recovery of an amount of Rs.3,40,000/- with interest, which was sought
to be realized, on the property covered by an agreement for sale dated
3.11.2003 between the judgment debtor and decree holder. The
appellant claimed that she became the absolute owner of the suit
property by virtue of a registered General Power of Attorney dated
12.5.2006 and that she has been in actual physical possession of the
suit property. The Petition was contested by the decree
holder/respondent stating that the applicant/objector had no legal
right, title or interest and that the execution of the General Power
of Attorney and its registration would not confer any ownership right
in favour of the appellant/objector. Reliance was also placed on the
judgment of this Court in Suraj Lamp and Industries Private Limited
Through Director v. State of Haryana & Anr. (2009) 7 SCC 363. The
Executing Court vide its order dated 23.7.2010 dismissed the Objection
Petition filed by the appellant. Aggrieved by the same, the appellant
preferred Execution First Appeal No.23 of 2010 before the High Court
of Delhi at New Delhi. The High Court also placed reliance on the
judgment of this Court in Suraj Lamp and Industries Private Limited
(supra) and dismissed the appeal holding that the documents relied
upon by the appellant would not confer ownership or possession over
the property in her favour. The High Court also vide its order dated
24.1.2011 upheld the order of the Executing Court. Aggrieved by the
same, this appeal has been preferred by the appellant.
3. Shri Rajesh Kumar, learned counsel appearing for the appellant
submitted that the ratio laid down by this Court in Suraj Lamp and
Industries Private Limited (supra) was wrongly applied by the
Executing Court as well as the High Court. Learned counsel submitted
that in the final judgment which is reported in Suraj Lamp and
Industries Private Limited (2) Through Director v. State of Haryana &
Anr. (2012) 1 SCC 656, this Court has clarified the position that the
judgment would not affect the validity of sale agreements and powers
of attorney executed in genuine transactions and that the judgment
would operate only prospectively. Learned counsel also submitted
that the alleged agreement executed between the respondent and one
Prem Chand Verma on 3.11.2003 was a collusive one, subsequently
created, to get over the registered Power of Attorney executed on
3.6.1982 between the appellant and wife of Prem Chand Verma, viz.
Nirmal Verma. Learned counsel also pointed out that Civil Suit No.407
of 2007 was preferred by the respondent herein against Prem Chand
Verma based on the deed of agreement dated 3.11.2003 created for the
said purpose. Referring to the above-mentioned judgment, learned
counsel further pointed out that Prem Chand Verma did not contest the
Suit and he was declared ex-parte and a decree was passed in favour of
the respondent. Learned counsel pointed out that the decree was
obtained by collusion and practicing fraud on the Court and the
Executing Court has committed an error in rejecting the Objection
filed by the appellant herein, so also by the High Court by not
appreciating the facts in the correct perspective.
4. Shri K. Krishna Kumar, learned counsel for the respondent,
submitted that both the Executing Court and High Court have correctly
applied the principles laid down in Suraj Lamp and Industries Private
Limited (supra). Learned counsel pointed out that any process which
interferes with regular transfers under deeds of conveyance properly
stamped, registered and recorded in the registers of the Registration
Department, is to be discouraged and deprecated and the Executing
Court has rightly declined to give its seal of approval to General
Power of Attorney, Agreement for Sale, etc. dated 12.5.2006.
5. I am of the view that the Executing Court as well as High Court
have committed a grave error in not properly appreciating the
objections filed by the Appellant. We are in this case concerned with
the question whether we must give credibility to the registered
General Power of Attorney executed on 12.5.2006 between Nirmal Verma
and the appellant or on the alleged Agreement for Sale executed on
3.11.2003 between the respondent and Prem Chand Verma, husband of
Nirmal Verma. Further, we have to examine the manner in which Civil
Suit No.407 of 2007 was decreed without contest by Prem Chand Verma,
husband of Nirmal Verma.
6. The registered Power of Attorney was executed by none other than
the wife of Prem Chand Verma and the appellant herein on 12.5.2006 in
respect of the property in question for a sale consideration of
Rs.70,000/-, which was received by Nirmal Verma in cash in advance and
she acknowledged the same before the Sub-Registrar, Delhi. On the
same day, Nirmal Verma, wife of Prem Chand Verma. handed over physical
vacant possession of the land and building situated thereon and from
12th May, 2006 onwards, the appellant is in possession of the above-
mentioned property.
7. We are, in this case, therefore, concerned with the legal
validity of a General Power of Attorney executed by none other than
the wife of Prem Chand Verma against whom a decree has been obtained
by the respondent without any proper contest and the court proceeded
against him ex-parte. These facts speak for itself. Evidently, the
collusive decree was obtained by the respondent to get over the
registered Power of Attorney executed in favour of the appellant and,
it is in this perspective, we have to understand and apply the ratio
laid down by this Court in Suraj Lamp and Industries Private Limited
(2) (supra).
8. Paragraph 27 of the judgment of this Court in Suraj Lamp and
Industries Private Limited (2) (supra) reads as follows :
“27. We make it clear that our observations are not intended to
in any way affect the validity of sale agreements and powers of
attorney executed in genuine transactions. For example, a person
may give a power of attorney to his spouse, son, daughter,
brother, sister or a relative to manage his affairs or to
execute a deed of conveyance. A person may enter into a
development agreement with a land developer or builder for
developing the land either by forming plots or by constructing
apartment buildings and in that behalf execute an agreement of
sale and grant a power of attorney empowering the developer to
execute agreements of sale or conveyances in regard to
individual plots of land or undivided shares in the land
relating to apartments in favour of prospective purchasers. In
several States, the execution of such development agreements and
powers of attorney are already regulated by law and subjected to
specific stamp duty. Our observations regarding “SA/GPA/will
transactions” are not intended to apply to such bona
fide/genuine transactions.”
9. In the above judgment, it has been stated that the observations
made by the Court are not intended to in any way affect the validity
of sale agreements and powers of attorney executed in genuine
transactions. I am of the view that the Power of Attorney executed
on 12.5.2006 in favour of the Appellant by the wife of Prem Chand
Verma is a genuine transaction executed years before the judgment of
this Court. Facts will clearly indicate that the Agreement for Sale
dated 3.11.2003 was created by none other than the husband of Nirmal
Verma, who had executed the General Power of Attorney and possession
was handed over to the Appellant. That being the fact situation, in my
view, the Objection filed by the Appellant under Order 21 Rule 58 in
execution has to be allowed. I, therefore, hold that the Executing
Court can execute the decree in Civil Suit No.407 of 2007, but without
proceeding against the property referred to in registered Power of
Attorney dated 12.5.2006.
10. The appeal is allowed, as above, and the impugned orders are set
aside. There shall, however, be no order as to costs.
eard Hear……………………………..J.
(K. S. Radhakrishnan)
New Delhi,
February 19, 2014.
IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 2458 OF 2014

[Arising out of SLP©No.23069 of 2012]
MAYA DEVI .…..APPELLANT

vs

LALTA PRASAD …..RESPONDENT
J U D G M E N T

VIKRAMAJIT SEN,J.
1 I have perused the judgment of my learned and esteemed Brother
Radhakrishnan, and I entirely and respectfully agree with his conclusion
that the appeal deserves to be allowed. My learned Brother has succinctly
analysed the sterling judgment in Suraj Lamp and Industries Private Limited
vs State of Haryana (2009) 7 SCC 363, which has been rendered by a Three-
Judge Bench of this Court. I completely concur with the view that since
General Power of Attorney (GPA) in favour of the Appellant was executed and
registered on 12.05.2006, it could not be impacted or affected by the Suraj
Lamp dicta. Furthermore, a reading of the order of the Executing Court as
well as of the High Court makes it palpably clear that both the Courts had
applied the disqualification and illegality imposed upon GPAs by Suraj
Lamp, without keeping in mind that the operation of that judgment was
pointedly and poignantly prospective. This question has been dealt with
by my esteemed Brother most comprehensively.

2 What strikes us as a perverse, certainly misplaced or inconsistent
approach, is that if the Appellant does not possess any title to the
property predicated on the GPA executed in her favour by Smt. Nirmal Verma
(the wife of the Judgment Debtor Shri Prem Chand Verma), this legal
infirmity would inexorably invalidate the title of Smt. Nirmal Verma
herself, thereby denuding any titular claim of her husband, the Judgment
Debtor, and rendering the property impervious to the subject execution
proceedings. Additionally, there is not even a semblance of a right in
favour of the Judgment Debtor whose wife was not even impleaded in the suit
or in the execution. The impugned judgment notes this contention but
fails to address it. The evidence of the Decree Holder has not been filed
and therefore the judicial records were summoned from the High Court.

3 The Statement of the Respondent/Decree Holder reads thus:-

“Ex. No. 224/2009

DHW-1: Sh.Lalta Prasad, S/o Sh. Naubat Ram, aged 58 years, R/o 1908,
Gali Mata Wali, Chandni Chowk, Delhi-6.

ON S.A.

I, hereby, tender my affidavit in my evidence. The same be
read as part and parcel of my statement. My affidavit is Ex. DHW-
1/A(running in 2 pages) which bears my signatures at point A and B on
page 1 & 2.

XXXXXX by Sh. Pradeep Chaudhary Adv. for objector.

I have passed 11th standard. The affidavit Ex. DHW-1/A was
prepared in the office of my counsel. My counsel has explained me
contents of the same to me before I signed the same. Whatever I
stated to my counsel was incorporated in Ex. DHW-1/A. The Agreement
with Prem Chand Verma was entered on 11.11.2003. I had seen original
documents of the property at that time in possession of Prem Chand
Verma. He also gave me some copies of the same.

Remaining cross-examination of the witness is deferred till
12.00 P.M.

RO&AC

BRIJESH KUMAR GARG

ADJ CENTRAL-18

DELHI/ 29.01.10
DHW-1: Sh.Lalta Prasad, recalled for his further cross-examination at
12.50 P.M.

ON S.A.
XXXXXX by Sh. Pradeep Chaudhary Adv. for objector.

I have no knowledge that Smt. Maya Devi had purchased the suit
property from Smt. Nirmal Verma. The documents filed by the
objectors are forged and fabricated documents. I have no knowledge
that Smt. Nirmal Verma purchased the suit property from one Sh.
Rajender Kumar.

Sh. Prem Chand Verma was my friend for the last about 30 years.
It is correct that Sh. Prem Chand Verma had already expired on
7.10.2008. It is wrong to suggest that Sh. Rajender Kumar was the
owner of the property and he sold the property to Nirmal Verma from
whom Smt. Maya Devi purchased the suit property. It is wrong to
suggest that Sh. Prem Chand Verma was never the owner of the suit
property. It is wrong to suggest that I have filed a false affidavit
and I am deposing falsely in the court today.

RO&AC

BRIJESH KUMAR GARG

ADJ CENTRAL-18

DELHI/ 29.01.10”
It discloses that the Decree Holder has failed altogether to disprove the
title of the Appellant, and he has maintained that the Defendant/Judgment
Debtor was the owner, which is admittedly not the actual legal position.
If the Decree Holder has been defrauded by the Defendant/Judgment Debtor,
largely because of the former’s careless disregard to conduct a title-
search, he must face the legal consequences; they cannot be
transferred/imposed upon a third party to its detriment. In the wake of
the Decree Holder/Plaintiff denying the title of Smt. Nirmal Verma, the
Courts below erred in proceeding against her property.

4 Both the Courts below have preferred the view that the Appellant, who
has been in possession from the date of the execution of the registered GPA
in her favour, has been introduced into the scene in order to defeat the
interests of the Respondent, which is a perverse approach for reasons that
shall be presently explained. The documents purportedly in favour of the
Respondent/Decree Holder are unregistered and the alleged payment made by
him to Shri Prem Chand Verma is in cash. Therefore, there is no
justification for favouring the view that the alleged transaction between
Shri Prem Chand Verma and the Respondent/Decree Holder was genuinely prior
in time to the execution of the registered Power of Attorney in favour of
the Appellant Smt. Maya Devi by Smt. Nirmal Verma, and the former
simultaneously and contemporaneously was put into possession of the
property by the latter.

5 There can be no gainsaying that when the probative value of documents
is to be assessed, specially those dealing with the creation of any
interest in property or its transfer, of a value exceeding Rs.100/-,
obviously documents which have been duly registered regardless of whether
or not that was legally mandatory, would score over others. A perusal
of the judgment shows that whether the sum of Rs.1,70,000/- allegedly paid
by the Plaintiff in Suit No.407 of 2007, namely, Shri Lalta Prasad to Shri
Prem Chand Verma was in cash or through a traceable Bank transaction or
through a registered acknowledgment has not been cogitated upon. Proof of
payment by the Plaintiff to the Defendant/husband of the previous owner of
the property has not been adjudicated upon. It is not controverted that
the Appellant Smt. Maya Devi has been in possession of the property in
question from May, 2006. A reading of the judgment by which the Suit was
decreed for a sum of Rs.3,40,000/- does not shed any light on the
circumstances which made the Plaintiff wait to initiate legal action till
after the property was sold and its possession delivered to the Appellant.
I, therefore, disbelieve the genuineness of the so-called “Deed of
Agreement for Earnest Money” allegedly executed almost three years earlier
on 03.11.2003. And, I would rather discount the veracity of the document
dated 3.11.2003, then looking upon the Power of Attorney and other
documents executed in favour of the Appellant Smt. Maya Devi by Smt. Nirmal
Verma as mala fide. What is important is that it is not disputed that the
title and possession of the property which has been brought within the
sweep of the execution proceedings, was never held in any capacity by the
Defendant/Shri Prem Chand Verma, but by his wife, Smt. Nirmal Verma. To
give even a semblance of a case to the Plaintiff Lalta Prasad, the Deed of
Agreement for Earnest Money should have been between the Plaintiff/Decree
Holder/Respondent and Smt. Nirmal Verma.

6 The Trial Court had framed the following issues in Suit No.407/2007,
from which subject of proceedings emanates:

“(1) Whether the plaintiff is entitled for the suit amount? If
so to what sum? OPP

(2) Whether the plaintiff is entitled for the interest? If
so at what rate and for which period? OPP

(3) Relief.”
The Trial Court having accepted the payment of Rs.1,70,000/- without
insisting on any proof, did not go into the question whether a covenant
stipulating that double the amount of earnest money would be payable in the
event the contract was not performed, is legal in terms of the Indian
Contract Act. The imposition and the recovery of penalty on breach of a
contract is legally impermissible under the Indian Contract Act. As
regards liquidated damages, the Court would have to scrutinize the
pleadings as well as evidence in proof thereof, in order to determine that
they are not in the nature of a penalty, but rather as a fair pre-estimate
of what the damages are likely to arise in case of breach of the contract.
No evidence whatsoever has been led by the Plaintiff to prove that the
claim for twice the amount of earnest money was a fair measure or pre-
estimate of damages.

7 The pronouncements of the Constitution Bench in Sir Chunilal V. Mehta
& Sons Ltd. vs Century Spinning and Manufacturing Co. Ltd. AIR 1962 SC
1314, and later in Fateh Chand vs Balkishan Dass AIR 1963 SC 1405, hold
the field, making it unnecessary to refer to any other precedent for an
enunciation of the law, except to appreciate the manner in which the
opinion of the Constitution Benches have been applied to the factual matrix
in later cases. With the number and volume of precedents increasing
exponentially each year, reference to all decisions make arguments
excruciatingly lengthy and judgments avoidably prolix. The first
important judgment of this Court on the question of Sections 73 and 74 of
the Contract Act is that of the Constitution Bench in Chunilal V. Mehta.
The two significant issues which arose were firstly, as to what would
constitute a substantial question of law requiring the grant by the High
Court of a Certificate to appeal to this Court, and secondly, the quantum
of damages that can be awarded in that case owing to the breach of the
subject contract. It is the second question which is relevant for the
present purposes. The admitted position was that the contract had been
wrongfully breached by the Defendant. A clause in the compact between the
parties stipulated that in these circumstances, the Plaintiff would be
entitled to receive from the Defendant “as compensation or liquidated
damages for the loss of such appointment a sum equal to the aggregate
amount of the monthly salary of not less than Rs.6000/- which the Firm
would have been entitled to receive from the Company, for and during the
whole of the then unexpired portion of the said period of 21 years if the
said Agency of the Firm had not been determined.” The Plaintiff had
initially claimed a sum of Rs.50 Lakhs which was subsequently reduced by
way of amendment of the plaint to Rs.28,26,804/-. The Constitution Bench
opined that “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. …. Again the right to claim liquidated damages
is enforceable under S. 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 date of the breach”. This precedent prescribes that
if a liquidated sum has been mentioned in a contract to be payable on its
breach, then if damages have actually been suffered, the said liquidated
amount would be the maximum and upper limit of damages awardable by the
Trial Court.

8 The judgment of the Constitution Bench one year later, in Fateh Chand
concerns award of damages of the ‘liquidated’ sum even though actual
damages may have been less. In that respect it is the converse of the
factual matrix that existed before the earlier Constitution Bench in
Chunilal V. Mehta. J.C. Shah, J (who authored Fateh Chand) along with
Chief Justice B.P. Sinha were members of both Constitution Benches.
Whilst the aspect of the liquidated damages being in the nature of a
penalty or in terrorem did not arise in Chunilal V. Mehta, It did so in
Fateh Chand where the complaint was that the Plaintiff, namely, Fateh
Chand had agreed to sell an immovable property for Rs.1,12,500/- of which
Rs.1000/- had been received/paid as earnest money. The Agreement
envisaged payment of a further sum of Rs.24,000/- and it stipulated that
if the vendee failed to get the Sale Deed registered thereafter, then the
sum received i.e. Rs.25,000/- would stand forfeited. Fateh Chand
alleging a breach of the Agreement, sought to forfeit the sum of Rs.25,000/-
which was found to be impermissible in law. It was in those
circumstances that the Constitution Bench opined as follows:

“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 by S. 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 the circumstances of tile 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 is 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 or
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 parties 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 S.
74 applies to stipulations for forfeiture of amounts deposited or
paid under the contract. It was urged that the section 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 in
India, that S. 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 an 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 S. 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.”
After reading the entire evidence that had been recorded, the Constitution
Bench found that the value of the property had not depreciated and,
therefore, no damages could be awarded.

9 This is also the manner in which this facet of the law has been
enunciated in England, as is evident from the following passage from
Halsbury’s Laws of England (4th edn Reissue, 1998) Vol 12(1), para 1065
which reads as follows:-

“1065. Liquidated damages distinguished from penalties.- The
parties to a contract may agree at the time of contracting that, in
the event of a breach, the party in default shall pay a stipulated
sum of money to the other. If this sum is a genuine pre-estimate
of the loss which is likely to flow from the breach, then it
represents the agreed damages, called ‘liquidated damages’, and it
is recoverable without the necessity of proving the actual loss
suffered. If, however, the stipulated sum is not a genuine pre-
estimate of the loss but is in the nature of a penalty intended to
secure performance of the contract, then it is not recoverable, and
the plaintiff must prove what damages he can. The operation of the
rule against penalties does not depend on the discretion of the
court, or on improper conduct, or on circumstances of disadvantage
or ascendancy, or on the general character or relationship of the
parties. The rule is one of public policy and appears to be sui
generis. Its absolute nature inclines the courts to invoke the
jurisdiction sparingly. The burden of proving that a payment
obligation is penal rests on the party who is sued on the
obligation”.
10 The position that obtains in the United States, obviously because of
its Common Law origins and adherence, is essentially identical as is
evident from these extracted paragraphs of Corpus Juris Secundum, Volume
25A (2012):

192- Liquidated damages are a specific sum stipulated to and agreed upon
by the parties in advance or when they enter into a contract to be paid to
compensate for injuries in the event of a breach or nonperformance of the
contract. 196-In examining whether a liquidated-damages provision is
enforceable, courts consider whether the damages stemming from a breach are
difficult or impossible to estimate or calculate when the contract was
entered and whether the amount stipulated bears a reasonable relation to
the damages reasonably anticipated. 198-Liquidated damages must bear a
reasonable relationship to actual damages, and a liquidated-damages clause
is invalid when the stipulated amount is out of all proportion to the
actual damages. 200- A penalty is in effect a security for performance,
while a provision for liquidated damages is for a sum to be paid in lieu of
performance. A term in a contract calling for the imposition of a penalty
for the breach of the contract is contrary to public policy and invalid.
This position also finds elucidation in the following paragraph from
American Restatement (Second) of Contracts 1981:-

“356. LIQUIDATED DAMAGE AND PENALTIES

(1) Damages for breach by either party may be liquidated in
the agreement but only at an amount that is reasonable in the light
of the anticipated or actual loss caused by the breach and the
difficulties of proof or loss. A term fixing unreasonably large
liquidated damages is unenforceable on grounds of public policy as
a penalty.”
11 Returning to the facts of the present case, the so called Deed of
Agreement for Earnest Money inasmuch as it postulates the payment of twice
the sum received ought not to have been decreed as firstly, the contract
itself could not have been specifically enforced since the Defendant was
devoid of title; and secondly, the Plaintiff had not proved that he had
suffered any damages and facially the stipulated sum was in the nature of a
penalty.

12 In Phulchand Exports Limited Vs O.O.O. Patriot 2011(10)SCC 300, the
Appellant (Seller) entered into a contract with the Respondent (Buyer)
relating to the sale/purchase of 1000 MT of Indian polished rice for a
total consideration of INR 12,450,000/-. The Seller loaded the rice 16
days late and the Vessel freighted by the Sellers left port (Kandla) 38
days later than the contractually stipulated time of departure. The
specified destination, the port of Novorossiysk, Russia, was to be the
first port of discharge, and even in this regard there is a finding that
the Vessel on which the shipment had been consigned was not sailing
directly to the said port, leave aside Novorossiysk being its first port of
call. The ship suffered an engine failure which resulted in its
requiring salvage operations near Turkey, and the entire cargo on board,
including the subject consignment of rice was sold pursuant to Admiralty
proceedings to compensate the cost of the rescue of the Vessel. The
Insurance Company maintained that the lien of the cargo to compensate the
costs of the rescue of the Vessel was not covered in the policy.
Arbitration proceedings under the aegis of the International Court of
Commercial Arbitration at the Chamber of Commerce and Industry of the
Russian Federation culminated in the passing of an Award which directed the
sharing of the price of the rice consignment equally between the parties.
In the Award it has been opined that the Buyer had failed to forward the
shipping documents and the Insurance Certificate to the Seller and thus was
equally blameworthy. The defence of the Seller was that the goods had
passed to the Buyer, who had already paid the entire sale price on
negotiation of documents by the Seller with the concerned Bank. This Court
held that despite the fact that it was a CIF contract, the consignment
having been belatedly boarded on the Vessel, which Vessel thereafter sailed
later than the time agreed upon by the parties, and which Vessel did not
have the contracted destination Novorossiysk as the first port of call,
could not have been in conformity with the contract, and hence the goods
could not be viewed as having passed to the Buyer thereby shifting to it
the liability of the lost shipment. The other question that was raised
was whether the stipulation in the contract envisaging the reimbursement of
the consideration received by the Seller in the event of non-performance of
the contract was in the nature of a penalty. It was in this context that
Sections 73 and 74 of the Contract Act came to be considered. This
Court held that the clause requiring the refund of the price of the Rice
consignment could not be viewed as a penalty which is not legally
recoverable in India and therefore the Award was impervious to jural
interference as it was not against the public policy of India even in terms
of the interpretation given in ONGC Ltd. vs Saw Pipes Ltd. (2003) 5 SCC
705.

13 After recording that the opinion of the two Constitution Benches
still hold the field, I have nevertheless mentioned Phulchand Exports only
for adverting/clarifying that views of this Court have remained constant
till now. I must immediately clarify that it would require a Bench larger
than a Five-Judge Bench to alter the legal position from what has been
enunciated in Chunilal V. Mehta and Fateh Chand. The decisions of smaller
Benches are relevant only for the purpose of analysing the verdict in a
particular case on the predication of the elucidation of the law laid down
by the Constitution Benches. This would include an oft-quoted decision in
Maula Bux vs Union of India, 1969(2)SCC 554, as well as UOI vs Raman Iron
Foundry, 1974(2)SCC 231, and BSNL vs Reliance Communication Ltd., 2011(1)
SCC 394, etc.

14 Now I come to the next aspect of the case. The Execution
proceedings were initiated by the Respondent/Decree holder on 27.10.2007
under Order XXI Rule 11 of the Code of Civil Procedure (‘CPC’ hereinafter).
It transpired that Attachment Orders came to be passed. The application
dated 3.7.2008, being Objections under Order XXI Rule 58 read with Section
151 CPC was preferred by the Appellant Smt. Maya Devi pleading, inter alia,
that the Decree Holder had wrongly scheduled her property in the Execution
Application; that she was the absolute and real owner thereof having
purchased it on 12.05.2006 from Smt. Nirmal Verma, wife of Prem Chand Verma
(Judgment Debtor); that she has no other connection or concern with the
Judgment Debtor or with his wife in any manner whatsoever. The Appellant,
therefore, respectfully prayed that her aforesaid property may kindly be
released from the Schedule. Plaintiff/Decree Holder Shri Lalta Prasad,
Respondent before us, countered by pleading that the Objections had been
filed at the behest of the Judgment Debtor to avoid the satisfaction of the
decree; that the Appellant/Objector was not the absolute and real owner of
the suit property; that the duly registered General Power of Attorney
executed by Smt. Nirmal Verma was forged and fabricated; that Smt. Nirmal
Verma was none else than the wife of the Judgment Debtor. The Appellant
has supported her stance by filing her own affidavit. In the Execution
proceedings, the Plaintiff/Decree Holder/Respondent in cross-examination of
the Appellant has only suggested that the documents were fabricated in
collusion with Smt. Nirmal Verma. How this was possible, since they are
duly registered documents, is difficult to comprehend. The other question
put in cross-examination was that Smt. Nirmal Verma was never the owner of
the property; and that Smt. Maya Devi’s Objections were filed at the behest
of Smt. Nirmal Verma. All these suggestions had been denied. If Smt.
Nirmal Verma had no title, the consequence would be that the property would
revert to her predecessor-in- title, thereby placing the property beyond
the pale of the Execution proceedings.

15 The following issues were framed in the Execution proceedings:-

(i) Whether the objector/applicant Smt. Maya Devi is the
absolute owner of the disputed property No.X-20, Gali No.5,
Brahampuri, Delhi? If so its effect?
OP Applicant.

(ii) Whether the judgment and decree dated 6.10.2007

are executable against the objector Smt. Maya Devi?

OP DH.”
Smt. Nirmal Verma had also participated in the Execution proceedings and
had filed her affidavit dated 22.10.2008 by way of evidence, asseverating
therein that she had sold the property to Smt. Maya Devi by executing a
registered General Power of Attorney, Agreement to Sell, Affidavit,
Receipt, Possession Letter, Will Deed, which were duly notorised on
12.05.2006. She further stated that she had purchased the property from
Shri Rajinder Parshad by means of similar documentation all of which were
handed over by her to Smt. Maya Devi at the time of selling of the said
property. Very significantly, she stated that her husband Prem Chand
Verma/Judgment Debtor had expired on 8.10.2008.

16 In this backdrop, it needs to be kept in prospective that Order XXI
Rule 97 to Rule 101 of CPC envisage the determination of all questions in
Execution proceedings and not by way of an independent suit. The
Executing Court, therefore, was duty bound to consider and decide the
Objections filed by the Appellant with complete care and circumspection.
I regret to record that this has not been done. The Objections came to be
dismissed on 23.7.2010 with brevity bordering on dereliction of duty, in
the following manner:-

“…. It has been submitted by the counsel for the objector that
the applicant is the absolute owner of the suit property by virtue
of General Power of Attorney which was registered on 12.5.2006 and
she is in actual physical possession of the suit property but the
counsel for the DH has stated that the objector has no legal right,
title or interest as the execution of the General Power of
Attorney and its registration does not confer any ownership right
in favour of the applicant/objector. The counsel for DH has also
relied upon the judgment of the Hon’ble Supreme Court in case
titled as Suraj Lamp and Industries Private Limited Vs State of
Haryana and Another reported as (2009) 7 Supreme Court Cases 363.”
17 A perusal of the above will show that the Executing Court ignored and
overlooked the important submission of the Appellant stating that she was
the absolute owner of the suit property and that she had no truck
whatsoever either with the Judgment Debtor Shri Prem Chand Verma or his
wife Smt. Nirmal Verma beyond purchasing the subject property from the
latter. What has also escaped the attention of the Court is that Suraj
Lamp has prospective operation, thereby rendering it inapplicable to the
subject 2006 transaction. Secondly, if the General Power of Attorney in
favour of the Appellant Smt. Maya Devi was bereft of legal efficacy, the
ownership of Smt. Nirmal Verma would also be invalid, and sequentially the
property would have no connection whatsoever with the Judgment Debtor since
he had purportedly derived title only through a Will. Unfortunately, this
is also the approach which has been preferred by the High Court in terms of
the impugned order. The High Court has also wrongly applied Suraj Lamp
and has also neglected to reflect upon the Appellant’s plea that she is (i)
the actual owner of the suit property having purchased it for valuable
consideration, and (ii) being a third party not connected in any mala fide
manner with the Judgment Debtor, and (iii) not having received prior
notice of any action of late Shri Prem Chand Verma, was imperious to
Execution proceedings. A miscarriage of justice, of monumental
proportions, has taken place on an un-substantiated presumption that one of
the assets of the Judgment Debtor had been illegally transferred to defeat
the decree. The Appellant before us had no other recourse than to file
Objections under Order XXI Rule 58 CPC.

18 Finally another aspect which has come to the fore, is the approach
of the Trial Court in the adjudication of the suit. The plaint contains
an averment that the suit property had already been sold. The Defendant
Shri Prem Chand Verma, (his wife Smt. Nirmal Verma was not impleaded) had
appeared in the Trial Court and filed his Written Statement in which,
whilst admitting the documentation executed between the parties, he had
denied that he had been served with any legal notice and set up the
defence that he was entitled to forfeit the amount received by him because
the Plaintiff/Decree Holder had failed to pay the balance sale
consideration as envisaged in the Deed of Agreement for Earnest Money.
After filing his Written Statement he stopped appearing, and the suit
proceeded ex-parte. Significantly, the Deed of Agreement for Earnest
Money as well as the Written Statement predicate Defendant’s title on a
Will, and in this context there is no evidence on record that it had taken
effect because of the death of the Testator. In the event, as is to be
expected, no appeal against the judgment and decree came to be filed, and,
therefore, the decision was not tested before or scrutinized by the
Appellate Court. The absence of the Defendant does not absolve the Trial
Court from fully satisfying itself of the factual and legal veracity of the
Plaintiff’s claim; nay, this feature of the litigation casts a greater
responsibility and onerous obligation on the Trial Court as well as the
Executing Court to be fully satisfied that the claim has been proved and
substantiated to the hilt by the Plaintiff. Reference to Shantilal
Gulabchand Mutha vs Tata Engineering and Locomotive Company Limited, (2013)
4 SCC 396, will be sufficient. The failure to file a Written Statement,
thereby bringing Order VIII Rule 10 of the CPC into operation, or the
factum of Defendant having been set ex parte, does not invite a punishment
in the form of an automatic decree. Both under Order VIII Rule 10 CPC and
on the invocation of Order IX of the CPC, the Court is nevertheless duty-
bound to diligently ensure that the plaint stands proved and the prayers
therein are worthy of being granted. .

19 I am fully mindful of the fact that the Appellant has not taken any
steps for setting aside the ex parte decree against late Shri Prem Chand
Verma. This is only to be expected since the Appellant/Objector has no
reason to evince or harbour any interest in the inter se dispute between
the Decree Holder and the Judgment Debtor. Indeed, if the Appellant had
made any endeavour to assail or nullify the decree, it would be fair to
conclude that she had been put up by the Judgment Debtor in an endeavour to
defeat the decree. In these circumstances, my in-depth analysis of the
law pertaining to decreeing what is essentially a penalty clause may, on a
perfunctory or superficial reading, be viewed as non essential to the
context. This, however, is not so. On a conjoint reading of Order XXI
Rule 58 CPC and the fasciculus of Order XXI comprising Rules 97 to 104, it
becomes clear that all questions raised by the Objector have to be
comprehensively considered on their merits. In the case in hand, the
decree from which the Execution proceedings emanate is not one for delivery
of possession, but is a simple money decree. Order XXI proscribes the
filing of a separate suit and prescribes that all relevant questions shall
be determined by the Court. Objection under Order XXI should be
meaningfully heard so as to avoid the possibility of any miscarriage of
justice. It is significant in this regard that Rule 103 ordains that
where any application has been adjudicated upon under rule 98 or rule 100,
the order made thereon shall have the same force and be subject to the same
conditions as to an appeal or otherwise, as if it were a decree. I shall
only advert to the decisions of this Court in Brahmdeo Chaudhary vs
Rishikesh Prasad Jaiswal, (1997) 3 SCC 694, Shreenath vs Rajesh, (1998) 4
SCC 543, and Tanzeem-e-sufia vs Bibi Haliman, (2002) 7 SCC 50, where
proceedings were under the aforesaid fasciculus of Order XXI comprising
Rules 97 to 104, in which the Objectors had set up a title distinct or
different from that of the Judgment Debtor and the Court had protected
their interest. The Appellant before us is a third party and has been
brought into the lis by a side wind in that her property is sought to be
attached with the intention of satisfying a decree in which she was not
directly or intrinsically concerned.

The Appellant/Objector who has approached the Court under Order XXI Rule 58
is more advantageously or favourably placed inasmuch as she is a third
party so far as the decree is concerned, and her property is not the
subject-matter of the decree. It is thus clear to me that the Courts
below have in a hurried, if not prejudiced manner, rejected the Objections
merely because of some sympathy towards the Decree Holder. The Objections
deserved to be allowed without disturbing the decree, leaving all other
remedies open to the Decree Holder/Respondent, including proceedings
against the Estate of the Judgment Debtor.

20 I respectfully agree with my learned Brother that the Appeal deserves
to be allowed and the impugned orders require to be set aside.
……………………………………..J.

[VIKRAMAJIT SEN]

New Delhi

February 19, 2014.

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