As seen from the records of this First Appeal, on 19.7.1996, the respondent/complainant was allotted a shop in DLF   Galleria, a commercial complex developed by the appellant/OPs (DLF Commercial Developers Ltd). For this, the Agreement of Sale was executed on 9.10.1997, under which the total consideration agreed was Rs.23,12,820/-. Shortly thereafter, on 7.1.1998, the Income Tax Department issued a notices to both sides—the OPs as the transferor and the complainant as the transferee—asking them to show cause why the Form 37-I filed by them on 17.10.1997 should not be rejected for belated filing. It was followed by the order of 29.1.1998, rejecting the Form 37-I. The OPs challenged the order of the Income Tax Department in a writ petition before the High Court of Delhi.  On 30.11.1998 the High Court allowed the writ petition and set aside the rejection order.

2.      In the meanwhile, within a few days of the notice from the Income Tax department, the respondent/complainant wrote to the appellant/OP on 9.1.1998 expressing his concern and asking for deferment of the instalment of Rs.1,37,445/- as well as for not charging penal interest till the problem of Form 37-I was solved.  In reply, he received a letter from the OPs, assuring that all necessary steps for filing of Form 37-I had been taken.  The OPs also asked for the outstanding amount of Rs.1,37,445/- at the earliest, on the ground that all the delayed payments were subject to recovery of interest at  24% per annum for the period of delay. Soon thereafter, reminders were sent by the OPs on 11.12.1998 and 8.2.1999.  This was followed by a letter of 17.2.1999 in which cancellation of allotment of shop was communicated by the appellant/OPs to the respondent/Complainant. As per this letter, a deduction of Rs.4,74,368/- was to be made and the remaining amount of Rs.14,75,973/- was offered to be refunded, leaving still an opportunity with the Complainant to pay the entire amount as per the demand notice to avoid cancellation. Eventually, on 26.4.2000 appellants/OPs sent him a cheque for Rs.14,75,973, informing that all original agreements and receipts between the parties in respect of the shop stood cancelled.

3.      In the complaint before the State Consumer Disputes Redressal Commission, Chandigarh, refund of the deducted amount of Rs.4,74,368/- was prayed for together with interest on the amount of Rs.19,50,341/- which had remained with the OPs since January, 1998 and appreciation in the value of the shop. The State Commission allowed the complaint directing OPs to refund the deducted amount with 12% interest and also pay interest at the same rate on the refunded amount from the respective dates of payment.  Cost of Rs.10,000/- was also awarded.       

4.      M/s. DLF Commercial Developers Ltd. has impugned the above order in the present appeal proceedings. We have perused the record and have heard Mr. Ravinder Narain, learned counsel for the appellants/OPs and Mr. B.K. Singh, learned counsel for the respondent/Complainant. The admitted position is that the respondent/Complainant had paid in all a sum of Rs.19,50,341/- for the shop and has received a refund of Rs.14,75,973/-. Therefore, the main issue involved in this dispute is whether the OPs were justified in making the following deductions:-

1. Towards interest for delayed payments Rs.2,02,009/-.
2.  Towards earnest deposit                         Rs.2,72,359/-

  Total:                                                         Rs.4,74,368/-         

Both deductions have been disallowed in the impugned order.

5.      In the appeal against the decision of the State Commission, OPs have sought to justify the demand notice and levy of interest at 24% on the ground of the provision in Clause 11 of the Agreement between the two parties, which reads as follows:-

  “11.   That it is clearly agreed and understood by the Allottee that it shall not be obligatory on the part of the Firm to send demand notices/reminders regarding the payments to be made by the Allottee as per Schedule of Payments (Annexure-II) and that without prejudice to what has been stated in the preceding clause, the Firm may at its sole discretion waive the breach of Agreement committed by the Allottee in not making the payments at specified time but on the condition that the Allottee shall pay interest at the rate of 24% per annum for the period of delay and such other penalties the Firm may impose.” 

The case of the appellants/OPs is that in terms of this provision the respondent/Complainant had an obligation to pay the demanded instalment, despite the notice issued by the income tax department.

6.      This has been strongly contested on behalf of the respondent/Complainant relying upon the provision in Clause 18 of the agreement, which reads as follows:-

  “18.  That if as a result of any law that may be passed by any legislature or Rule, Regulation or Order that may be made and/or issued by the Government or any other Authority including a Municipal Authority, the Firm is unable to complete the construction of the said Premises and deliver possession thereof to the Allottee, then the Firm may, if so advised, though not bound to do so at its sole discretion challenge the validity, applicability and/or efficacy of such Legislation.  Rule or Order by moving the appropriate Courts, Tribunal(s) and/or Authority.  In such a situation, the money(ies) paid by the Allottee in pursuance of this Agreement, shall continue to remain with the Firm and the Allottee shall not be entitled to move for or to obtain specific performance of the terms of this Agreement, it being specifically agreed that the Agreement shall remain in abeyance till final determination of the Court(s)/Tribunal(s)/Authority(ies). In the event of the Firm succeeding in its challenge to the impugned legislation or Rule, Regulation or Order, as the case may be, it is hereby agreed that this Agreement shall stand revived and the Allottee shall be entitled to the fulfilment of all rights and claims as provided in this Agreement.  It is further, agreed that in the event of the aforesaid challenge of the Firm to the impugned Legislation/Order/Rule /Regulation not succeeding and the said legislation /order/rule/regulation becoming final, absolute and binding, the Firm will subject to provisions of law pay to the Allottee, the amount attributable to the relevant Premises that may have been received from the Allottee by the Firm without any interest or compensation of whatsoever nature within such period and in such manner as may be decided by the Firm and the Allottee agrees to accept the Firm’s decision in this regard to be final and binding.  Save as otherwise provided herein, neither Party to this Agreement shall have any other right or claim of whatsoever nature against each other under or in relation to this Agreement.”   

7.      A plain reading of this clause would shows that the situation arising from receipt of the notice from the Income Tax authorities fell within its purview.  Accordingly, the provision on which charge of penal interest at 24% is sought to be justified would itself have remained in abeyance from 7.1.1998 when the notice was issued by the Income Tax department until 23.9.1999 when the matter was resolved with the decision of the same department. Therefore, in our view the State Commission was right in disallowing penal interest on the outstanding instalment.                

8.      Coming next to the deduction towards earnest money, it is claimed in para 10 of the Written Statement filed by the OPs before the State Commission that the forfeiture of the earnest money was in terms of the agreement and on account of default in payment. In this context, Mr Narain, learned arguing counsel for the appellants/OPs drew our attention to the provision in clause 10 of the Agreement which reads as follows—

  “10. That it shall be incumbent on the Allottee to comply with the terms of payment and/or other terms and conditions of this Agreement failing which the Firm shall be at liberty to forfeit the entire amount of earnest money and whereupon this Agreement shall stand cancelled and the Allottee shall be left with no lien, right, title, interest or claim of whatsoever nature in the aid Premises.  The Firm shall thereafter be free to resell and/or deal with the said Premises in any manner, whatsoever, at its sole discretion.  The amount(s), if any, paid over and above the earnest money shall be refunded to the Allottee by the Firm only after realising the amounts on resale, without any interest or any compensation of whatsoever nature.  The Firm shall have first lien and charge on the said Premises for all its dues and other sums payable by the Allottee to the Firm under this Agreement.”        

Clearly, forfeiture of earnest money under this clause would be justifiable in the event of failure of the complainant to comply ‘with the terms of payment and/or other terms and conditions of this Agreement’. In this context, it needs to be noted that in his rejoinder to the reply of the OPs before the State Commission, the complainant refers to the rejection of the application (Form 37-I) by the Income Tax department under Section 296-UC of the Income Tax Act, 1961and states that—

  “The aforesaid fact was deliberately suppressed by the respondents.  The contention of the respondents that the agreement enter between the parties does not talks of Form 37-I as such they were not bound to inform the complainants.  With respect to this the complainants state that the said statement in reply is without any basis.  When there is prohibition under the Statute, the agreement between the parties cannot over ride the same.  Therefore, once the said Statutory Authority under an Act informed the complainants that the permission for transfer of said property cannot be granted, any agreement inter-se the parties specifically the terms between the parties contrary to the Statute is void and cannot be acted upon.  Therefore, the permission having been refused under Section 269-UC of the Income-Tax Act, it was incumbent upon the respondents to have refund the entire amount paid to the respondents towards the price of the said property.”      

9.      Thus, before the State Commission, the stand of the complainant was that once the Form 37-I was rejected, the Agreement had become non-est and no deductions could have been made under its clauses. However, before us it is argued that he had made his request for deferment of further payments within two days of the notice from the Income tax department but the appellant/OP had failed to inform him about resolution of the matter by the Income Tax department on 23.9.1999.  It is further argued that even the letter of 24.2.2000, in which he was given one more opportunity to pay the outstanding instalment, did not make any mention of it. But significantly, neither the arguing counsel for the respondent/complainant nor even the pleadings of the complainant before the State Commission, have made any attempt to explain what action was taken by the complainant himself towards resolution of the Form 37-I  problem, in  the period  between the cancellation letter of 17.2.1999 and the final letter of 26.4.2000, received from the OPs, closing the case with the refund cheque.

10.    From the above it is clear that the Complainant was already aware that the problem of Form 37-I had been resolved.  Therefore, the subsequent offer of 24.2.2000 from the OPs would have made no difference to his decision to treat the entire Agreement as non-est.  We therefore hold that the forfeiture of the Earnest Money by the OPs was justified under the Agreement between the parties. To this extent we do not agree with the view of the State Commission that deduction towards earnest money was unjustified.

11.    For the reasons detailed above, FA 611 of 2011 is partially allowed.  Forfeiture of Rs.2,72,359/- by the Appellants/OPs towards the earnest money is allowed.  All other directions contained in the impugned order are confirmed.  Payment of the award amount in terms of this order shall be subject to release of deposits, if any, made during the pendency of this appeal.  However, the statutory deposit of Rs.35,000/- by the Appellants shall stand transferred to the Consumer Welfare Fund of the Central Government in terms of the provision in Rule 10 A of the Consumer Protection Rules, 1987.