Desh Raj & Ors. vs. Rohtash Singh
Background
The appellants (sellers) had agreed in 2004 to sell land to the respondent (buyer) for about Rs. 79 lakh per acre, with Rs. 22.9 lakh paid as earnest money. The sale agreement said time was of the essence, and if the sale deed was not executed by a fixed date the earnest money would be forfeited. The buyer failed to show up before the Sub-Registrar to execute the sale deed despite the sellers appearing and giving him a further chance; the sellers then forfeited the earnest money and treated the agreement as cancelled. Years later, after the State acquired the land, the buyer sued for specific performance and, when that became impossible, for return of the earnest money; the trial court, first appellate court and High Court all ordered the earnest money refunded on the theory that the agreement had become "impossible to perform" due to the acquisition.
Decision Breakdown
The Supreme Court held that this reasoning was flawed: the sale agreement was terminated in 2004 by the sellers' lawful forfeiture (because the buyer failed to complete the sale despite notice and extra opportunity), long before the land was ever acquired by the State years later; it did not "become impossible to perform" because of the later acquisition. Since the buyer never argued during the case that the forfeited amount was an excessive "penalty" under Section 74 of the Contract Act, and never actually sought a refund of earnest money as his primary relief, the forfeiture stood as valid, reasonable compensation for his own breach. The lower courts' decrees ordering refund were set aside and the buyer's suit was dismissed.
Lesson Learnt
If a sale agreement states time is of the essence and provides for forfeiture of earnest money on the buyer's failure to complete the deal, courts will enforce that forfeiture as agreed compensation for breach: a buyer cannot escape a valid forfeiture just because the property was later acquired by the government for an unrelated reason.