VIDEOCON PROPERTIES LTD. versus DR. BHALCHANDRA LABORATORIES AND ORS.

Citation: [2003] SUPP. 6 S.C.R. 1197 · Decided: 19-12-2003 · Supreme Court of India · Bench: DORAISWAMY RAJU · Disposal: Appeal(s) allowed

Judgment (excerpt)

VIDEOCON PROPERTIES LTD. 
A 
v. 
DR. BHALCHANDRA LABORATORIES AND ORS. 
DECEMBER 19, 2003 
(DORAISWAMY RAru AND ARIJIT PASAYAT, JJ.] 
B 
Transfer of Property Act, 1882-Section 55(6)(b)-Charge over 
property-Applicability in cases of earnest money-Earnest money-
Meaning of-Charge under Scope of- 'A 'paid earnest money to purchase 
land of 'R '-Agreement stipulated payment of consideration at various C 
stages- 'R' unable to perform his part- 'A 'seeking charge over the land-
Held, earnest money paid was in fact a part payment of purchase price-
Charge held justified. 
The appellant entered into an agreement for purchase of a land 
from the respondents. The appellant paid Rs. 38 lakhs to the respond- D 
ents as "deposit or earnest money". Clause 1 of the agreement specified 
more than one categories of payment to be made by the purchaser at 
different stages as consideration for the sale of the property. Clause 
2.3 of the agreement provided that if the sellers failed to fulfill their 
obligation, the purchaser may either fulfill such obligations at the cost E 
or expense of the sellers or terminate the agreement. In the event of 
termination, the sellers were to return to the purchaser the earnest 
money with interest at 21 % per annum. 
As the respondents failed to perform their part of the agreement, F 
the appellant issued notice to the respondents calling upon them to 
fulfill their obligation. In reply, respondents requested the appellant to 
fulfill the obligations by itself in accordance with Clause 2.3 of the 
agreement. However, the appellant chose to terminate the contract 
under Clause 2.3 and required the respondents to return Rs. 38 lakhs ·G 
along with interest at 21 % per annum. The respondents sent a cheque 
of Rs. 38 lakhs to the appellant without any interest. 
Being aggrieved, the appellant filed a suit against the respondents 
claiming Rs. 80,15,903 with interest. In the said suit the appellant 
prayed that its daim should be secured by creating a statutory charge H 
1197 
1198 
SUPREME COURT REPORTS [2003] SUf'P. 6 S.C.R. 
A on the suit land. An application for interim relief was also filed by the 
appellant praying that the reSJJOndents should be restrained from 
selling or disposing of the suit land. 
Single Judge of the High Court granted a temporary injunction 
B in favour of the appellant restraining the respondents from disposing 
of the suit land during the pendency of the suit holding that the 
appellant was entitled to a charge over the suit land in view of 
provisions of Section 55(6)(b) of the Transfer of Property Act. On 
appeal, Division Bench, setting aside the order of the Single Judge, held 
that as the money given by the appellant was only earnest money, and 
C not purchase money, the provisions of Section 55(6)(b) of the Transfer 
of Property Act would not apply. Hence the appeal. 
Allowing the appeal, the Court 
HELD : 1. Earnest money is a part of the pur.:hase price of a 
D property when the transaction goes forward and is forfeited when the 
transaction falls through, by reasons of the fault or failure of the 
purchaser. It is not the description by words used in the agreement only 
that would be determinative of the character of the sum but really the 
intention of parties and surrounding circumstances as well, that have 
E to be looked into and what may be called an advance may really be 
a deposit or earnest money and what is termed as a deposit or earnest 
money may ultimately turn out to be really an advance or part of 
purchase price. Earnest money or deposit also, thus, serves two 
purposes of being part payment of the purchase money and security 
F for the performances of the. contract by the party concerned, who paid 
it. (1209-C-E] 
(Kunwar) Chiranjit Singh v. Har Swarup, AIR (1926) PC 1 and 
Mau/a Bux v. Union of India, AIR (1970) SC 1955, referred to. 
G 
2. The principle underlying Section 55(6)(b) of the Transfer of 
Property Act, 1882 is a trite principle of justice, equity and good 
conscience. The charge created under Section 55(6)(b) of the Transfer 
of Property Act, 1882 would last until the conveyance is executed by 
the seller and possession is also given to the purchaser and ceases only 
H thereafter. The charge will not be lost by merely accepting delivery of 
VIDEOCON PROPERTIES LTD. v. BHALCHANDRA LABO RA TORIES 1199 
f 
possession alone. This charge is statutory charge in favour of a buyer A 
and is different from contractual charge which the buyer m

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