When a person en-cashes the demand draft, being the refund of earnest money cum advance towards the price of property, under protest with the express words “without prejudice to his rights”, he is not debarred from pursuing his remedies against the seller for non-performance.

Getting clearances

In Rattan Lal (since deceased) vs S. N. Bhalla and Another, the Supreme Court was seized of a matter arising out of an agreement to sell a property made 34 years ago for Rs 5,90,000 to be paid after due clearances were obtained from the Delhi Development Authority (DDA) and the Income-Tax Department and sale deed executed.

The agreement also contemplated payment of Rs 50,000 as earnest money cum advance which was indeed paid by the prospective buyer-petitioner. In terms of the agreement, these clearances were to be obtained within six months by the seller failing which both the parties could walk out of the agreement.

The petitioner-buyer took it upon himself the task of obtaining the twin clearances but the DDA told him that one of the affidavits filed by the seller was defective and a fresh one needed to be filed. The seller used this as a god-sent opportunity to wriggle out of the agreement and upon the expiry of six months returned the earnest money with alacrity, apparently enthused by the fact that the property prices had skyrocketed in the meanwhile. The petitioner en-cashed the draft but under protest and went to court.

Monetary compensation

Both the Trial Court and the Delhi High Court dismissed the buyer’s plea for specific performance on the grounds that the buyer had taken upon himself the task of obtaining clearances. And, therefore, he had to bear the consequences arising out of the authorities not granting the clearance, that he had accepted the return of earnest money and that there was no question of specific performance where the contract was determinable by both the sides.

The apex court upturning the Delhi High Court judgment held that the buyer merely played the role of the facilitator in obtaining the clearances and that could not be held against him when the failure was that of the seller in submitting a proper affidavit.

It also held that encashment of demand draft under protest did not mean acquiescence. But it agreed with the High Court that specific performance could not be ordered. However, to do justice to the petitioner and compensate him for his untiring efforts, the apex court ordered a monetary compensation of Rs 25 lakh, the amount he had spent on litigating.

(The author is a New Delhi-based chartered accountant.)

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