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Crompton Greaves Limited, Mumbai, Rep. by Its Managing Director, Mumbai (Renamed) (Name of the 1st Appellant Is Renamed As 'CG Power & Industrial Solutions Limited & Others v/s Icon Integrated Industries And Software Ltd., Athani, Ernakulam & Others

    RFA. No. 203 of 2008 & CO. No. 71 of 2009

    Decided On, 09 April 2021

    At, High Court of Kerala

    By, THE HONOURABLE MR. JUSTICE A. MUHAMED MUSTAQUE & THE HONOURABLE DR. JUSTICE KAUSER EDAPPAGATH

    For the Appearing Parties: K. Ramakumar, S. Sreekumar, Sr. Advocates, Smitha George, T. Ramprasad Unni, A.S.P. Kurup, S.V.B. Iyer, P. Martin Jose, P. Prijith, Thomas P. Kuruvilla, Advocates.



Judgment Text

Dr. Kauser Edappagath, J.

1. This appeal and cross objection arise from the judgment and decree in OS No.137/2002 dated 30th October, 2007 on the file of the Principal Sub Judge, North Paravur.

2. The suit was one for return of the amount paid as advance pursuant to Exts. A1 to A6 and A9 sale agreements. The defendants before the Court below are the appellants. The plaintiff is the respondent. The parties are referred to as shown in the Original Suit unless otherwise stated.

3. The plaintiff, Icon Integrated Industries and Software Limited, is a public limited company registered under the Indian Companies Act having its registered office originally at Athani, Aluva, which is within the jurisdiction of the Court below. Originally, Icon Industries was a partnership firm registered under the Indian Partnership Act. The partnership was converted into a public limited company in the name and style ‘Icon Integrated Industries and Software Limited’ later on. The first defendant is a public limited company having its Head Office at Mumbai. It owns its division at Athani, Aluva known as ‘Kerala Electric Lamp Works Division’ (KELW Division), which is arrayed as the second defendant.

4. Icon Industries, the erstwhile partnership firm, and the first defendant entered into a sale agreement dated 17/07/1999 (Ext. A1) by which the first defendant agreed to sell its KELW Division (second defendant) situated at Athani including land, buildings and structure erected on the said land along with all the movable assets belonging to KELW Division more particularly described in the schedule of the plaint for a total consideration of Rs. 4 crores. As per Ext. A1 sale agreement, a sum of Rs. 10 lakhs was paid by way of advance. When the partnership firm was converted into limited company, the assets and liabilities of the firm were transferred to the plaintiff company and accepting the original sale agreement (Ext. A1), a supplemental agreement was entered into between the plaintiff and the first defendant on 14/04/2000 (Ext. A9). As per Ext. A9, the total consideration of Rs. 4 crores was fixed as the sale consideration and it was agreed to complete the sale within 120 days of Ext. A9. As per the supplemental agreement, a sum of Rs. 125 lakhs was given to the first defendant as advance amount. It was stipulated in Ext. A9 that if the transaction of sale was completed on or before 30/04/2000, the sale consideration would be revised to Rs. 500 lakhs and if the transaction of sale was completed between 01/5/2000 to 31/05/2000, the sale consideration would be Rs. 515 lakhs and the advance amount shall be increased by another Rs. 75 lakhs. The advance amount was stipulated to be paid by the plaintiff to the first defendant on or before 02/05/2000. Pursuant to that, an amount of Rs. 75 lakhs was paid by the plaintiff to the first defendant on 02/05/2000. Thus, total consideration of Rs. 522.50 lakhs was fixed as sale consideration on the terms and conditions mentioned in Exts. A1 and A9. Again, as per mutual consent, five more supplemental agreements were entered into between the parties which were marked as Exts. A2 to A6 and the date for performance was extended till 31/07/2001 retaining all other terms and conditions of the original agreement. Another sum of Rs. 55 lakhs was paid by the plaintiff to the first defendant on 07/11/2000 towards further advance sale consideration. Thus, a total sum of Rs. 255.25 lakhs was paid by the plaintiff to the first defendant towards part payment of sale consideration out of the total sale consideration of Rs. 522.50 lakhs.

5. According to the plaintiff, it was ready and willing to perform its part of the contract within the extended period of performance, but, the defendants were not ready and willing to perform their part of the contract. It is alleged that before the stipulated period mentioned in the last supplemental agreement, the first defendant did not perform various obligations cast on it. The plaintiff asserted that the first defendant committed breach of contract. It was in these circumstances the plaintiff instituted the suit for realisation of the advance amount paid to the first defendant pursuant to the sale agreements with interest. The total amount claimed including interest till the date of institution of the suit was Rs. 2,86,84,505/-.

6. The defendants in the written statement admitted the execution of Ext. A1 sale agreement and Exts. A2 to A6 and A9 supplemental agreements. They have also admitted that the total sale consideration agreed for the sale of the plaint-schedule property was Rs. 522.50 lakhs and the first defendant has received Rs. 255.25 lakhs towards part sale consideration. It is contended that even though the first defendant was always ready and willing to perform its obligations under Ext. A1 original agreement, the plaintiff could not obtain necessary Government approval connected with the transaction and also failed to mobilize necessary funds for discharge of the purchase consideration and consequently, the plaintiff failed to complete the sale within the stipulated time. It is further contended that supplemental agreements were entered into extending the time for performance at the request of the plaintiff. It is also contended that on account of the breach committed by the plaintiff, the defendants have incurred heavy financial expenditure in terms of payment of labour and standing charges to keep the undertaking operation and to facilitate the sale as a going concern and the plaintiff agreed to bear those charges from October, 2000. According to the defendants, they have incurred loss to the tune of Rs. 2,94,19,258/- due to the breach committed by the plaintiff and hence they are entitled to appropriate the said sum from the advance lying with them.

7. The defendants challenged the jurisdiction of the Court below to entertain and try the suit. It is contended that the Court below has no territorial jurisdiction to entertain the suit as there is a specific clause in the agreement that any dispute shall be settled only in the courts at Cochin. It is also contended that no cause of action ever accrued within the jurisdiction of the Court below. According to the defendants, Ext. A1 agreement was entered into at a hotel at Palarivattom, Ernakulam. Therefore, in view of the agreement between the parties, there is exclusion of jurisdiction of the courts at North Paravur. The defendants sought for the dismissal of the suit.

8. The Court below framed issues based on the contentions of the parties. PW1 was examined and Exts. A1 to A12 were marked on the side of the plaintiff. DW1s to 4 were examined and Exts. B1 to B21 were marked on the side of the defendants. After trial, Court below answered the issue regarding territorial jurisdiction in favour of the plaintiff. On merits, the court below entered into the conclusion that the plaintiff is entitled to get back the advance amount paid after deducting Rs. 72 lakhs, the loss and expenditure sustained by the defendants by the breach committed by the plaintiff. Accordingly, a decree for Rs. 1,83,25,000/- with interest @9% per annum from the date of the suit till realisation was granted to the plaintiff. Aggrieved by the said judgment and decree, the defendants preferred the appeal.

9. The plaintiff preferred the cross objection to the extent the judgment and decree went against them. The finding of the Court below that the defendants sustained loss to the tune of Rs. 72 lakhs by the breach committed by the plaintiff and the deduction of the same from the plaint claim has been challenged in the cross objection. Similarly, the finding of the Court below that the plaintiff committed breach of contract has also been challenged. The plaintiff is also aggrieved by the non awarding of interest prior to the institution of the suit and not allowing cost by the Court below.

10. We have heard Sri.K. Ramakumar, the learned Senior Counsel appearing for the appellants and Sri.S. Sreekumar, the learned Senior Counsel appearing for the respondent.

11. We have considered the pleadings, oral evidence on record and exhibits marked in trial quite in extenso. Two crucial points arise for consideration in this appeal and cross objection:

1) Whether court below lacked territorial jurisdiction to entertain and try the suit?

2) Whether the advance amount paid by the plaintiff towards sale consideration is liable to be forfeited on the mere allegation of breach of contract without proof of sufferance of actual loss or damage and in the absence of determination and quantification of the actual loss/damage alleged to have suffered by the defendants?

Point No.1:

In the written statement, the defendants have raised a specific plea that the Court below has no territorial jurisdiction to entertain the suit. It is contented that the parties have specifically agreed that any suit or proceedings arising pursuant to the agreement can only be instituted in the Courts of Cochin and as such, the Court below has no territorial jurisdiction to entertain the suit. It is further contended that the suit is one for realisation of money and no question of adjudicating any rights of the plaint-schedule property arises and as such, merely for the reason that the plaint-schedule property which is the subject matter of agreement is situated within the territorial limits of the jurisdiction of the Court below, it will not get jurisdiction. It is also contended that no cause of action has accrued within the jurisdiction of the Court below and since the agreement under which the money is claimed to be recovered from the defendants has been signed, executed and entered into within the municipal limits of Cochin which is outside the territorial jurisdiction of the Court below, the suit is not maintainable before the said court.

12. The Court below found the issue of jurisdiction in favour of the plaintiff holding that in terms of Section 16 (c) of the Code of Civil Procedure (for short 'the C.P.C') and Section 55 (6) (b) of the Transfer of Property Act (for short 'the T.P Act'), the suit is maintainable before the Court below as the charge is claimed. The Court below also observed that the stamp paper was purchased from Angamaly, the part payment was made at Athani and Ext. A1 was typed at Athani, all within the jurisdiction of the Court below and as such, part of the cause of action arose within the jurisdiction of the Court below. The said findings have been seriously assailed by the learned Senior Counsel for the appellants/defendants.

13. The plea of jurisdiction of courts is considered in accordance with Sections 15 to 20 of the C.P.C. Sections 15 to 20 of the C.P.C contain detailed provisions relating to jurisdiction of courts. They regulate forum for institution of suits. They deal with the matters of domestic concern and provide for the multitude of suits which can be brought in different courts. Section 15 requires the suitor to institute a suit in the court of the lowest grade competent to try it. Section 16 enacts that the suits for recovery of immovable property, or for partition of immovable property, or for foreclosure, sale of redemption of mortgage property, or for determination of any other right or interest in immovable property, or for compensation for wrong to immovable property shall be instituted in the court within the local limits of whose jurisdiction the property is situate. The proviso to Section 16 declares that where the relief sought can be obtained through the personal obedience of the defendant, the suit can be instituted either in the court within whose jurisdiction the property is situate or in the court where the defendant actually or voluntarily resides, or carries on business, or personally works for gain. Section 17 supplements Section 16 and is virtually another proviso to that section. It deals with those cases where immovable property is situate within the jurisdiction of different courts. Section 18 applies where local limits of jurisdiction of different courts are uncertain. Section 19 is a special provision and applies to suits for compensation for wrongs to a person or to movable property. Section 20 is a residuary section and covers all those cases not dealt with or covered by Sections 15 to 19.

14. Assailing the finding of the Court below that the suit would fall within S.16(c) of C.P.C. as charge was claimed, the learned Senior Counsel for the appellants/defendants submitted that the suit is one for simple recovery of the advance amount and not for specific performance and as such, the jurisdiction of such a suit cannot be decided on the basis of location of immovable property which is the subject matter of Ext. A1 agreement. Per contra, the learned Senior Counsel for the respondent/plaintiff submitted that since the suit is one for recovery of advance amount charged on the plaint-schedule property and the recovery of money is not severable from the charge created, the suit is covered by S.16(c) of C.P.C. Although relief prayed for by the plaintiff is for money decree, the essential, integral and germane facts without which the money decree cannot be passed by the Court is the determination of right to or interest of the defendants in the immovable property and hence, the suit would fall within S.16(d) of C.P.C. as well, submitted the counsel. The counsel also argued that where a case is governed by S.16(c) or (d) of C.P.C., S.20 cannot be called in aid and it is not permissible for the plaintiff to institute the suit in any other Court other than within which the property is situated.

15. S.16 of C.P.C recognizes a well established principle that action against the res or property should be brought in the forum where such res is situated. S.16(c) puts emphasise on the institution of the suit for foreclosure, sale or redemption of an immovable property mortgaged of or charged to be instituted in the Court within the local limits of whose jurisdiction the property is situate. Under S.55(6)(b) of the T.P Act, the buyer has a charge for price pre-paid, ie., for price that has been paid in anticipation of completion. It is a statutory charge. S.100 of T.P Act which deals with the charges says that where immovable property of one person is by the act of parties or by operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property and all the provisions apply to simple mortgage shall, so far as may be, apply to such charge. Thus, in order to attract S.16(c) of C.P.C., the suit should be one for foreclosure, sale or redemption of an immovable property mortgaged of or charged. Such a suit falls within Order XXXVI of C.P.C. The Court fee to be paid for such suits is u/s 33 of Kerala Court Fees and Suits Valuation Act, 1959 (for short 'Court Fees Act'). The prayer in the present suit is not one falling under Order XXXVI of C.P.C. No Court fee is paid u/s 33 of the Court Fees Act. The suit is not one for enforcement of charge. The suit is also not one for sale of charged property. The prayer in the suit is for realisation of advance amount paid by granting a charge on the plaint-schedule property and enabling the plaintiff to sell the same. The court fee is paid u/s 22 of the Court Fees Act which deals with simple suit for money. Hence, the prayer in the suit would not fall within the ambit of S.16(c) of C.P.C.

16. S.16(d) provides that suit for determination of any right or interest in immovable property must be instituted in the Court within the local limits of whose jurisdiction the property is situate. This clause refers to other suits of a like nature where the title to or some other interest in the property is in dispute and the Court has to determine the matter. In other words, clause (d) relates to such suits in which the determination of any right to or interest in, immovable property not covered by the clauses (a), (b) and (c) is involved. As already stated, the suit is not one for specific performance of contract. It is a simple suit for recovery of advance amount. For the simple reason that a statutory charge is created on the property u/s 55 (6) (d) of the T.P Act, it cannot be said that the suit is one for determination of 'any right or interest' in the immovable property. The determination of any right or interest in the immovable property does not arise at all in the case. Hence, the prayer in the suit will not fall within the ambit of S. 16(d) of C.P.C either. To sum up, we hold that a suit for recovery of unpaid purchase money under a contract of sale of land is not a suit for determination of right or interest in the immovable property falling under S.16(d) of C.P.C even though a charge is created over the property which is the subject matter for the contract of sale u/s 55(6)(d) of the TP Act. Nor is such suit one for enforcement of charge or for sale of a charged property falling u/s 16(c) of C.P.C.

17. Section 20 0f C.P.C is a residuary section and enacts the rule as to the forum in all cases not falling within the limitations of Sections 15 to 19. Since we have found that suit would not fall within the ambit of Section 16(c) or (d), provisions of Section 20 shall govern for determining the jurisdiction. The rules as to forum contemplated by Section 20 are alternative. Each of the clauses (a), (b) and (c) is disjunctive and makes provision for a distinct and different situation. It gives option to the plaintiff to sue the defendant either (a) where the cause of action has accrued; or (b) where the defendant resides, or carries on business, or personally works for gain. This is based on the general principle of law that where a suit can be instituted in more than one court, as arbiter litis, it is the plaintiff who has the right to choose and select his own forum. However, when two or more courts have jurisdiction to entertain a suit, an agreement by the parties to submit to the jurisdiction to one of them to the exclusion of others is legal, valid and enforceable at law.

18. The learned Senior Counsel for the appellants/defendants Sri.K.Ramakumar submitted that no cause of action has accrued within the jurisdiction of the court below in as much as Ext. A1 agreement has been signed, executed and entered into at Hotel Renaissance, Palarivattom, Ernakulam which is outside the jurisdiction of the Court below. The plaintiff contended that Ext A1 was executed at their office at Nedumbasserry which is within the jurisdiction of the court below. Ext. A1 is silent as to the place of its execution. Both sides gave oral evidence that it was executed at Nedumbasserry and Ernakulam respectively as per their case. The endorsement in Ext. A1 would show that stamp paper was purchased from Angamaly.

19. In a suit for return of advance amount or for damages for breach of contract, the place where the contract was executed is not the sole criterion for determining the territorial jurisdiction. The cause of action in respect of such a suit would accrue at the place where the contract was made, or at the place where it should have been performed or the breach committed or at a place where part of sale consideration was paid. Cause of action means every fact which, if traversed, would be necessary for the plaintiff to prove in order to support the right to judgment in his favour. In other words it is a bundle of facts which taken with law applicable to them gives the plaintiff a right to relief against the defendant. The Apex Court in A.B.C.Laminar Pvt. Ltd. and Another v. A.P. Agencies, Salem (AIR 1989 SC 711) has held that “In the matter of a contract there may arise causes of action of various kinds. In a suit for damages for breach of contract the cause of action consists of the making of the contract, and of its breach, so that the suit may be filed either at the place where the contract was made or at the place where it should have been performed and the breach occurred”. This Court in M/s. Shakti Cement Co (P) Ltd. v. M/s F.A.C.T. (1990 KHC 605) has held that the advance payment made by D.D. payable at a particular place determines the jurisdiction to entertain the suit. In that case, the agreement provided for the payment of the advance by D.D. payable in the bank of Cochin and therefore, on facts it was held that Cochin Court had the jurisdiction to try the suit. Thus, a suit for recovery of advance amount paid by the vendee in pursuance of a sale agreement and for damages for breach of contract can be instituted at the place where contract was made, or at the place where it should have been performed or the breach committed or at the place where part of sale consideration was paid.

20. Coming to the facts of the case, DW1 in evidence has admitted that part sale consideration of Rs. 55.25 lakhs was received by him for the first defendant Company at Athani in the month of November, 2000. The contract was for the sale of the second defendant division as a going concern. It is situated at Athani. Thus, the contract was to be performed at Athani. For these reasons, there cannot be any doubt that part of cause of action within the meaning of Section 20 (c) of CPC arose at Athani which is within the jurisdiction of the court below.

21. The suit will fall under Clause (a) of Section 20 as well. In so far as Clause (a) is concerned, the requirement is that the defendant or if there are more defendants than one, each of the defendants, at the time of commencement of the suit must be actually and voluntarily residing or carrying on business or personally working for gain within the local limits of the jurisdiction of the court before which the suit is laid. Reading Section 20 (a), in the light of the Explanation it is seen that a Corporation shall be deemed to carry on business at its sole or principal office in India or with reference to a cause of action arising at a place where it has a subordinate office. It shall be deemed to carry on business at such a place. The Explanation consists of two parts. By the first part, a Corporation shall be deemed to carry on business at its sole or principal office. Under the second part it shall be deemed to carry on business, in respect of any cause of action arising at any place, where it has also a subordinate office at such place. The two parts are intended to be disjunctive. Thus, a suit against a Corporation can be instituted where it has its sole or principal office in India or in respect of any cause of action or part of cause of action arising at any place where it has also a subordinate office. The word ‘Corporation’ in the Explanation includes not only statutory corporations but also companies registered under the Indian Companies Act. Order XXIX of C.P.C deals with suits by or against the Corporation and there is nothing in C.P.C that a corporation referred to under S.20 means only a statutory corporation and not a company registered under the Indian Companies Act. The definite case of the plaintiff in the plaint is that the first defendant company has its division office at Athani. It has not been denied in the written statement. Ext A1 agreement itself was to sell the division of the first defendant which has been shown as the second defendant. In Ext. A1 it is clearly recited that the second defendant is the division of the first defendant at Athani. We have already found that part of the cause of action took place at Athani. Thus, the court below shall also have territorial jurisdiction under clause (a) of Section 20 with the aid of Explanation to it.

22. Even if the case of the defendants that Ext A1 was signed and executed at Palarivattom, Ernakulam is accepted, the Courts in Ernakulam City as well as Courts at North Paravur will have concurrent jurisdiction to entertain and try the suit. Since the first defendant company has its head office and carries on its business at Mumbai, the competent courts at Mumbai will also have jurisdiction. The case of the defendants is that even if it is a case of accrual of cause of action in more than one courts, as Clause 21 of Ext A1 agreement specifically provided that the transaction would be subject to the exclusive jurisdiction of the Courts at Cochin, the Courts at the municipal limits of Cochin/Ernakulam city where Ext A1 was executed alone shall have jurisdiction.

23. The learned Senior Counsel for the appellants submitted that the court below misunderstood and misinterpreted Clause 21 in Ext. A1 as well as various judicial pronouncements. The learned Counsel relied on the following decisions of the Apex Court and this Court to contend that where there are more than one Courts having jurisdiction to entertain the suit, it is open to the parties to provide for and agree which of the two courts have jurisdiction, and when that be so, the Court which has been agreed upon by the parties alone shall have jurisdiction to entertain and try the suit: A.B.C.Laminart Pvt. Ltd and Another v. A.P.Agencies, Salem [(1989) 2 SCC 163]; Vijay Shekhar and Another v. Union of India and Others [(2004) 4 SCC 670]; Hanil Era Textiles Ltd v. Puromatic Filters (P) Ltd. [(2004) 4 SCC 671]; Balaji Coke Industry Pvt. Ltd. v. M/s Maa Bhagawati Coke (Guj) Pvt. Ltd. (2009 KHC 4971); M/s. Angile Insulations v. M/s Davy Ashmore India Ltd., (AIR 1995 SC 1766); Swastik Gases Private Limited v. Indian Oil Corporation Limited [(2013) 9 SCC 32]; Tatanagar Transport Corporation v. Bharat Trading Agency (1974 KLT 105); Jafko Engineers v. Kerala State S.S.I. Corporation (1979 KHC 97); Economic Transport Organisation v. United India Insurance Co. Ltd (1986 KLT 220); Kitex Ltd. v. Surekha (1992 KHC 158); Duroflex (P) Ltd v. Technology Information, Forecasting & Assessment Council (2007 (3) KHC 777); Asianet Satellite Communications Ltd v. D Net Malayalam Digital Pvt. Ltd and Another [2007 (4) KHC 9] and D Net Malayalam Digitals Pvt. Ltd., Kaloor and Another v. Asianet Satellite Communications Ltd., Tvm. [2016 (4) KHC 822 (DB)].

24. It is well settled that where the parties to an agreement have chosen to confer exclusive jurisdiction to particular place or Court, among two or more courts having concurrent jurisdiction, in case of dispute, it binds the parties and oust the other Courts having concurrent jurisdiction. Such an agreement is not opposed to public policy. Nor does it contravene Section 28 of the Contract Act. The apex Court in A.B.C. Laminart Pvt. Ltd. (supra) held that when the Court has to decide the question of jurisdiction pursuant to an ouster clause, it is necessary to construe ousting expression or clause properly.

25. Clause 21 of Ext A1 reads thus:-

“Each of the parties hereto agrees for the benefits of each of the parties to this agreement that the Courts of Cochin shall have the exclusive jurisdiction to hear and determine any suits, actions or proceedings and to settle any disputes which may arise out or in connection with the agreement, and for such purposes submit to the jurisdiction of such Courts”.

A close reading of the above clause along with the evidence on record and attended circumstances clearly indicate that parties to Ext. A1 wanted to opt between the Courts at Mumbai and Cochin and not between the Courts inter se at Cochin. Clause 21 gives option to approach any of the competent courts in Cochin. It does not confer jurisdiction to a particular Court in Cochin or Ernakulam. Nor does it confer jurisdiction to the Court in Cochin where Ext. A1 was executed as contended by the defendants. When specific questions were put to PW1 with reference to Clause 21, he answered that at the time of preparing Ext A1. there was discussion about the jurisdiction of the Courts in case dispute arises and it was decided to exclude the jurisdiction of the courts at Mumbai and to have jurisdiction at the Courts at Kerala where the plaint schedule property was situated. DW4 also deposed that there is no special meaning attached to the words ‘Courts in Cochin’ and the intention of both the plaintiff and the defendants was to confer jurisdiction only in Courts in Cochin.

26. According to the defendants. Ext. A1 was prepared at their advocate’s office, Menon & Pai, situated in Ernakulam city and it was executed at Hotel Renaissance, Palarivattom which is also situated in Ernakulam City. Strictly speaking, Cochin is a small town/place located within Ernakulam District. This place includes the suburbs of Fort Kochi, Mattancherry, Eda Kochi, Palluruthi and Thoppumpady. The Sub Court within this jurisdiction is situated at Thoppumpady. Ernakulam also is the name of the town – the administrative capital of the Ernakulam District. However, for all practical purposes, Ernakulam and Cochin generally refers to same place, especially by those outside the state. Even the defendants have no case that the parties intended to confer jurisdiction to the court situated in Cochin town, i.e., at Sub Court, Kochi. It is not possible to confer jurisdiction to the said court either, since no part of cause of action admittedly arose within the jurisdiction of the said court. Thus, it is manifest that the intention was to exclude the jurisdiction of the Courts at Mumbai and to confer jurisdiction to any of the competent courts at Cochin/Ernakulam District.

27. The expression “Courts of Cochin” used in Clause 21 can never be confined to Courts at municipal limits of Cochin or Ernakulam city/town. If the parties agree to exclude the jurisdiction over the Courts located at different places without referring to Courts, but with reference to the location, suit can be brought before any court having jurisdiction within the location. Thus, even going by the recitals in Ext. A1, the Court below is having jurisdiction to entertain and try the suit.

28. Even assuming that Court below had no jurisdiction to try the suit, it is still open under Section 21 of CPC to consider whether the objection as to place of suing has been taken in the trial Court and whether there has been a consequent failure of justice as a whole due to the reason that the said Court had no territorial jurisdiction to try the suit.

29. Section 21 forbids appellate or revisional court to allow objection as to the place of suing or pecuniary limits unless it was taken in the original court at the earliest and unless there was a consequent failure of justice. It is a curative provision to ensure that technicalities do not prevail when there is no failure of justice. It is a statutory recognition of the principle that there is difference between inherent lack of jurisdiction which goes to the root of the matter or competence of a court trying a case and a lack of territorial or pecuniary jurisdiction. The policy underlying Section 21 has been succinctly explained by the Apex Court in the leading case Kiran Singh v. Chaman Paswan (AIR 1954 SC 340) thus:

“The policy underlying Section 21 and 99 of CPC and Section 11 of the Suits Valuation Act is the same, namely, that when a case had been tried by a court on merits and judgment rendered, it should not be liable to be reversed purely on technical grounds, unless it had resulted in failure of justice, and the policy of the legislature has been to treat objections to jurisdiction both territorial and pecuniary as technical and not open to consideration by an appellate court, unless there has been a prejudice on the merits.”

30. The learned Senior Counsel appearing for the appellants submitted that failure of justice need be shown only in a case where the objection as to territorial jurisdiction was taken for the first time before the appellate or revisional Court. Since the defendants have taken the objection as to territorial jurisdiction before the Court below at the earliest opportunity, Section 21 is not attracted, argued the Counsel. We cannot subscribe to the said argument. A plain reading of Section 21 would show that all the three conditions stated therein must coexist and even if an objection was taken at the very first opportunity and before issues were settled, there has also to be a consequent failure of justice before the plea of jurisdiction can succeed before the appellate court. It is held by the Apex Court in Pathumma v. Kuntalan Kutty (AIR 1981 SC 1683) that even if the objection was taken in the Court of first instance and also such objection was taken at the earlier possible opportunity, yet the other third and important condition as prescribed under S.21 that there has been a consequent failure of justice has to be made out. The Apex Court again in R.S.D.V. Finance Company Pvt. Ltd. v. Shree Vallabha Glass Works Ltd (1993 KHC 891) has reiterated that where the first two conditions in Section 21 are satisfied but the third condition of failure of justice is not fulfilled, there was no justification in allowing objection to jurisdiction at the appellate stage. The decision in Pathumma (supra) was followed in Ranga Rao K.P. v. Venkatesham and Others (2015 KHC 4944) and held that an objection as to place of suing cannot be allowed at the appellate stage unless there has been a failure of justice. Thus, we hold that even though an objection as to the territorial jurisdiction of the court trying the suit has been raised at the earliest opportunity at the trial court and was wrongly disallowed, the challenge in that regard is to be entertained by the appellate court or revisional court, as the case may be, only when it is demonstrated that there has been a consequent failure of justice. The purport of the failure of justice in a given situation depends upon the facts and circumstances of each case

31. The burden is on the defendants to show that the court lacked jurisdiction and consequent to exercise of jurisdiction, failure of justice had taken place. The defendants have not shown how failure of justice resulted from the suit being instituted in the Court below. In the grounds of appeal, the appellants/defendants have not even raised a ground that there was a failure of justice consequent upon a wrong Court assuming jurisdiction. No argument was also advanced before us as to the so called failure of justice. Not only was no attention paid to this aspect of the matter but no material exists on the record from which such failure of justice may be inferred. In Kiran Singh (supra), it was held that the prejudice envisaged by Section 21 must be something other than the suit being heard in a different forum. The record would show that the defendants vehemently contested the suit on merits and suffered a decree. Thus, the defendants miserably failed to establish failure of justice.

32. For the reasons stated above, the plea of want of jurisdiction for the trial Court to try the suit raised by the defendants, deserves to be rejected.

Point No.2: The execution of Ext. A1 sale agreement as well as Exts. A2 to A6 and A9 supplemental agreements and the receipt of part sale consideration of Rs. 255.25 lakhs by the first defendant are not in dispute. The contract could not be performed and it was broken. The 1st defendant repudiated the contract by Ext. A7 notice dated 30/07/2001. Both the plaintiff and the defendants accuse each other for the breach. On an assessment of the evidence on record and the materials available, the court below entered into the finding that ‘the plaintiff could not complete the sale not on the fault of the defendant as contended’. Though not specifically worded, the court below concluded that the breach was committed by the plaintiff. Though the plaintiff challenged the said finding in the cross objection, no serious argument was advanced on it. On re appreciation of evidence, we see no reason to take a different view on the said finding of the court below regarding breach of contract.

33. The learned Senior Counsel for the appellants/defendants argued that the amount of Rs. 255.25 lakhs represents the earnest money and the first defendant is entitled to forfeit the same in terms of Ext. A1 agreement. The defendants have suffered loss to the tune of Rs. 2,94,19,258/- due to the breach committed by the plaintiff and, thus, the court below went wrong in granting a decree for return of advance amount, added the Counsel. Per contra, the learned Senior Counsel for the respondent/plaintiff submitted that amount of Rs. 255.25 lakhs was paid as advance for purchase of property, not earnest money and, thus, not liable to be forfeited. The learned Senior Counsel further submitted that there is absolutely no evidence for the alleged loss sustained by the defendants and that in the absence of plea for set off or counter claim by remitting requisite court fee, the said plea could not have been entertained by the court below.

34. The consequences of breach of contract are contained in Chapter VI of the Indian Contract Act, 1872 ('the Act' for short). The Chapter begins with Section 73 and ends with Section 75. It deals with every consequence in the case of breach of contract. Section 73 provides that when a contract has been broken, the party who suffers by such breach is entitled to receive from the party, who has broken the contract, compensation for any loss or damage caused to him. This provision makes it clear that such compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach. The underlying principle enshrined in this section is that whenever there is a breach of contract, the party who suffers by such a breach is entitled to recover the loss or damage caused to him from the other party. However, recovery of any such loss or damage cannot be made unless the party claiming has actually suffered the loss or damage and the same has been quantified. S.74 provides for award of compensation for breach of contract where a penalty is stipulated. It entitles a party to claim reasonable compensation from the party who has broken the contract which compensation can be pre-determined compensation stipulated at the time of entering into the contract itself. Thus, this section provides for pre-estimate of the damage or loss which a party is likely to suffer if the other party breaks the contract entered into between the two of them. S.75 relates to the right of the party to rescind a contract. It says that a person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfillment of the contract. In short, whether it be a contract which stipulates a sum of money as being payable on breach of contract or whether it contains any other penal clause, or whether it is a contract which does not contain any such clause, the party complaining of breach of contract cannot successfully claim compensation unless he makes out loss or damages referable to such breach.

35. The Constitution Bench of the Apex Court in Fateh Chand v. Balkishan Dass (AIR 1963 SC 1405) had an occasion to consider the impact of S.73 and S.74 of the Indian Contract Act and its effect on the forfeiture clause in an agreement for sale of immovable property. It was held that where a seller pleads that there is a breach of contract by the buyer and the seller seeks to forfeit an amount as paid by the buyer for being appropriated as designated liquidated loss amount of damages as per contractual clause, then the act of forfeiture is one which falls under Section 74 of the Contract Act. i.e before forfeiture can take place, it must be necessary that loss must be caused. It was made clear that a mere breach of contract by a buyer does not entitle the seller to forfeit the amount as received, unless, loss is proved to have been caused to the prospective sellers/defendants/respondents. The Supreme Court in Kailash Nath Associates v. Delhi Development and Another {(2015) 4 SCC 136} following Fateh Chand (supra) reiterated that there cannot be forfeiture of an amount paid under an agreement to sell once no loss is pleaded and proved by a proposed seller under an agreement to sell. Thus, if there is no loss which is suffered by a seller, then there cannot be forfeiture simply because a clause in a contract provides so.

36. Coming to the merits of the case, Ext. A1 contains a clause that in the event of the purchaser failing to comply with the terms and conditions of the agreement by making the payment of balance consideration before the stipulated time mentioned in the agreement or any extension thereof, the seller shall have the right to revoke the agreement by 15 days notice and upon such revocation, the amount paid as earnest money deposit shall be forfeited to the benefit of the seller (Clause 17). It is on the basis of this covenant in the agreement that the appellant says that the entire amount ought to have been allowed to be forfeited by him.

37. Earnest money is paid or given at the time when the contract is entered into and, as a pledge for its due performance. It is trite that part payment of purchase price cannot be forfeited unless it is a guarantee for the due performance of the contract. In other words, if the payment is made only towards part payment of consideration and not intended as earnest money, then the forfeiture clause will not apply. In Videocon Properties Ltd. v. Bhalchandra Laboratories {(2004) 3 SCC 711}, the Supreme Court examined the nature and character of the earnest money and took a view that the words used in the agreement alone would not be determinative of the character of the “earnest money” but really the intention of the parties and surrounding circumstances. It held that the earnest money serves two purposes of being part – payment of the purchase money and security for the performance of the contract by the party concerned. It is not the description by word used in the agreement only that would be determinative of the character of the sum but really the intention of the party have to be looked into and what may be called as an 'advance money' 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”. The Supreme Court in Satish Batra v. Sudhir Rawal {(2013) 1 SCC 345} has held that to justify the forfeiture of advance money being part of “earnest money”, the terms of the contract should be clear and explicit and that in agreement for purchase of immovable property, the forfeiture clause will not apply when the payment is made only towards part payment of consideration and not intended as earnest money. Applying the ratio in the above two decisions to the facts of the case at hand, it can be seen that there is no stipulation in Ext. A1 agreement that the amount is paid as a security for performance of the contract. No other evidence was also let in by the defendants in this regard. When the partnership was converted into a limited company, a supplemental agreement was entered into between the plaintiff and the 1st defendant on 14/04/2000 which has been marked as Ext. A9. Ext A1 agreement was amended, varied and modified by Ext A9. It was stipulated in Ext. A9 that if the transaction of sale was not completed on or before 07/08/2000, the agreement shall automatically lapse and neither party shall have any obligation under the agreement except the refund of the advance amount received by the seller to the purchaser within seven days from the lapse of the agreement. This clause in Ext. A9 supersedes clause 17 regarding forfeiture in Ext. A1. That apart, the total advance amount paid consists of almost half of the total sale consideration. It is trite that if the amount received as advance bear a sizeable proportion to the total sale consideration, it cannot by any stretch of imagination be stated as earnest money. The advance was, therefore, not paid by way of security for performance of contract and the same was made part of the sale consideration to be adjusted at the time of execution of the sale deed. The defendants were, thus, not entitled to forfeit the advance amount. They are entitled to appropriate the amount received as advance only on proof of legal injury, if any, suffered on account of breach.

38. As already stated, as against the claim of the plaintiff for return of the entire advance amount of Rs. 255.25 lakhs, the defendants raised a plea that they have sustained loss and damages to the tune of Rs. 2,94,19,258/- on account of the breach of contract committed by the plaintiff. It is contended that the defendants sustained heavy financial expenditure in terms of payment of labour and standing charges, loss of income and other incidental expenses. Relying on Ext. B11 letter issued by the plaintiff, the defendants contended that the plaintiff agreed to bear the labour and standing charges from October, 2000. According to the defendants, the plaintiff is not entitled for refund of the advance amount since they are entitled to adjust and set off the above mentioned loss and damages sustained by them. The Court below on assessment of evidence found that as per Ext. B11 letter, the plaintiff agreed to pay the labour and standing charges every month from October, 2000 onwards and agreed to bear 50% of charges for the month of October, 2000 and the full charges from 31st October, 2000 till the completion of the sale. The Court below observed that in Ext. B11, the plaintiff admitted that the monthly expenditure would come to around Rs. 8 lakhs and as such the defendants are entitled to realise Rs. 8 lakhs per month from 31/10/2000 to 30/7/2001 amounting to Rs. 72 lakhs. The relief for return of advance was granted to the plaintiff after deducting the said Rs. 72 lakhs. The cross objection has been preferred by the plaintiff challenging the impugned judgment/decree to the extent it has confined the decree for an amount of Rs. 1,83,25,000/- as against the amount of Rs. 255.25 lakhs paid by them to the first defendant by way of advance.

39. It is pertinent to note that the defendants did not raise any set off or counter claim for their plea that they sustained loss and damages on account of the breach of contract committed by the plaintiff, nor did they pay any Court fee. A vendee through whose default a contract for sale falls, is entitled to recover the amount of purchase money paid by him and the vendor can only resist the claim by seeking to set off against the said sum any damages which he might have incurred by a reason of the vendee's non performance of the contract. The only contention in the written statement is that the defendants have sustained damages due to the wilful breach committed by the plaintiff to the tune of Rs. 2,94,19,258/- and entitled to adjust and set off the same from the advance amount. The court below on evaluation of evidence found that no legal evidence had been adduced by the defendants to establish the loss and damages claimed by them. However, the Court below found that by virtue of Ext. B11 letter, the plaintiff is legally bound to pay an amount of Rs. 72 lakhs as expenditure incurred to the defendants by the act of the plaintiff. In the plaint, in paragraph 10, the plaintiff has adverted to Ext. B11 letter. The averments contained in Ext. B11 have been specifically denied. It is alleged that Ext. B11 letter has been misconstrued and the amount of Rs. 4,24,623/- and Rs. 8,703/- stated in Ext. B11 were paid on the basis of mutual understanding to cover the trial run expenses. It is specifically stated that there was no agreement in Ext. B11 to make payment towards labour and standing charges from October, 2000. According to the plaintiff, Ext. B11 was sent with specific stipulation to complete and conclude the conveyance before 15/11/2000 and it was under that circumstances it undertook to share 50% of the cost of labour, electric charges from 1/10/2000 to 30/10/2000 and from 31/10/2000 to 15/11/2000. The case of the defendants that plaintiff admitted in Ext. B11 that it shall pay labour and standing charges from October, 2000 to July, 2001 has been specifically denied by the plaintiff in the plaint. Thus, adjudication of the said claim is absolutely necessary to find whether the defendants are entitled to adjust the said amount towards the balance consideration. No pecuniary liability arises till the Court determine that the party complaining of the breach is entitled to damages. The Court in the first place must decide that the defendants are liable and then, it should proceed to assess what the liability is. Till that determination, there is no liability at all upon the plaintiff. Still, the defendants have not chosen to set up set off or counter claim in the written statement. Except using the word 'set off' in paragraphs 20 and 21 of the written statement, the defendants have not done anything to lay such a claim of set off or counter claim in accordance with the procedure.

40. Order VIII Rule 6, Rules 6A to 6G and 7 of the Code of C.P.C regulate both substantial and procedural rights of a person claiming set off or counter claim in a suit. In the first place, such a claim should be set up with the written statement by giving all the particulars and the cause of action. The Court fee also will have to be paid. A contention has been raised that the plea raised by the defendants is not one falling under set off or counter claim but only an adjustment and as such, the same can be adjudicated without raising set off or counter claim or paying court fee. One of the basic factors which has to be taken into consideration while determining whether a plea raised in a defence is a plea of set off or payment by adjustment, is to find out as to whether a separate action could be maintained by the defendant on the basis of claim made by him. If a separate claim could be maintained by him and put forward in a separate suit, then the plea would be a plea of set off and court fee will have to be made on the claim. On the other hand, if adjustment had been made prior to the filing of the suit, no court fee would be payable on the amount which stood adjusted prior to the institution of the suit, as the plea in that case would be plea of adjustment by payment. Under Schedule 1 Article 1 of the Court Fees Act, ad valorem fee is payable on the set off claimed but no Court fee need be paid on the plea of adjustment for the simple reason that the plea of adjustment is in the nature of informing the Court that prior to the institution of the suit, the amount or a part of it stood adjusted and the plaintiff was not entitled to claim that amount. Applying the above principles to the case on hand, it can be safely seen that all the claims made by the defendants in the written statement are really in the nature of a set off or counter claim and not any payment for adjustment. It is not at all the case of the defendants that they adjusted any amount of the plaintiff lying in their hands towards the amount allegedly due to them under various heads mentioned in the written statement. On the other hand, it is the case of the defendants that the plaintiff has to make such adjustment, but failed to do so and the defendants, therefore, now wants to set off those amounts against the amount claimed by the plaintiff in the suit. The case of the defendants is that on account of the breach committed by the plaintiff, they have suffered loss and damages to the tune of Rs. 2,94,19,255/- and entitled to adjust the same towards the advance amount. This claim for damages could have been filed as a separate suit also. Moreover, the plaintiff has clearly disputed in Ext. B11 in the plaint and contended that there was no agreement to pay the labour and standing charges from October, 2000 to July 2001. Therefore, the said issue requires adjudication. Hence, it can never be an adjustment. It can only be a claim for set off or counter claim. Thus, the Court below could not have entertained the plea of set off by the defendants. Even assuming that it could have been gone into by the Court below, there is no plea in the written statement that the defendants are entitled to the amount as stated in Ext. B11 letter. No issue has been raised as to whether the defendants are entitled to any amount as per Ext. B11 letter. Ext. B11 letter can never be termed as a contract between the parties nor does it spell out a supplemental agreement. After Ext. B11 letter, the parties executed Ext. A5 supplemental agreement dated 17/11/2000. In Ext. A5, there is no stipulation to pay any expenditure as provided in Ext. B11. As per clause 19 of Ext. A1, the agreement shall not be altered, amended or modified except by an instrument in writing. Ext. B11 is not an instrument in writing and not as contemplated under Clause 19 of Ext. A1. Hence, Ext. B1 does not incorporate any terms of conditions in Ext. A1. Ext. B11 letter has no consequence after execution of Ext. A5 supplemental agreement. For all these reasons, we hold that the Court below went wrong in deducting Rs. 72 lakhs, being the loss and expenditure sustained by the defendants on account of the breach committed by the plaintiff, from the advance amount.

41. The plaintiff has claimed Rs. 26,80,125/- towards interest prior to the institution of the suit till the date of filing. But the Court below did not award interest. Only interest pendete lite and future interest at the rate of 9% per annum were granted. The plaintiff in the cross objection challenged non awarding o

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f the interest prior to the institution of the suit. 42. The law with regard to the claim of interest is well settled. Section 34 of C.P.C applies to the award of interest from the date of suit to the date of decree and also from the date of decree till the date of payment. Section 34 has no application to interest for the period prior to the institution of the suit. The claim of interest prior to the institution of the suit may be sustained only in cases where there is an agreement for the payment of interest at fixed rate, or, if interest is payable by some law or custom or usage having the force of law, or under the provisions of any substantive law entitling the plaintiff to recover the interest. In the absence of any contract, express or implied, or any of the provisions of the law or any custom of usage, the Court cannot award interest by way of damages caused on account of wrongful detention of money. There is no stipulation in Ext. A1 or Exts. A2 to A6 and A9 agreements regarding the interest. Hence, the Court below was justified in not awarding interest till the date of the suit. No interference is called for on the said finding of the Court below. 43. The next question relates to grant of costs. The Court below did not allow costs of the proceedings to the plaintiff. The plaintiff challenges the same in the cross objection. Normally, costs should follow the event and the successful party is entitled to costs unless there are good grounds for depriving him of that right. Section 35(1) says that costs to be awarded under the said section shall be in the discretion of the Court. But, like all other discretions, discretion to award costs also should be exercised judicially, properly and on sound legal principles. If the trial Court exercises that discretion correctly, the appellate Court would be loath to interfere with the same. If, however, trial Court did not exercise the discretion at all or exercised discretion on a misrepresentation of fact or law, then, the appellate Court may interfere with the direction of the trial Court with regard to grant of costs. 44. Sub-sec.(2) of S.35 of C.P.C. indicates that the costs shall follow the event and where the Court directs that costs shall not follow, then the Court shall state its reasons in writing. The Apex Court in Sanjeev Kumar Jain v. Raghubir Siran Charitable Trust and Others (2011 KHC 4966) deprecated the practice followed in the Courts in the country in not following the mandate of sub-section (2) of S.35 and directed its strict enforcement. It was observed thus: “The mandate of sub-section (2) of S.35 of the Code that 'where the Court directs that any costs shall not follow the event, the Court shall state its reasons in writing' is seldom followed in practice by courts. Many courts either do not make any order as to costs or direct the parties to bear their respective costs without assigning or recording the reasons for giving such exemption from costs. Unless the Courts develop the practice of awarding costs in accordance with S.35 (that is, costs following the event) and also give reasons where costs are not awarded, the object of the provision for costs would be defeated. Prosecution and defence of cases is a time consuming and costly process. A plaintiff / petition / appellant who is driven to the court, by the illegal acts of the defendant / respondent, or denial of a right to which he is entitled, if he succeeds, to be reimbursed of his expenses in accordance with law. Similarly a defendant / respondent who is dragged to court unnecessarily or vexatiously, if he succeeds, should be reimbursed of his expenses in accordance with law. Further, it is also well recognised that levy of costs and compensatory costs is one of the effective ways of curbing false or vexatious litigations”. 45. The Court below did not exercise any discretion at all in refusing to award costs in the present case. No reason as contemplated under sub-section (2) of S.35 has been stated. When a plaintiff succeeds in a litigation, for which he was not responsible and he was not guilty of misconduct, he ought not to be deprived of his legitimate costs. The plaintiff made a demand through notice to return the advance amount prior to the institution of the suit, but the amount was not paid. Hence, the plaintiff had no other go but to file the suit. The plaintiff did not raise any false claim and its claim was allowed. The plaintiff was not guilty of any misconduct. In this view of the matter, we are of the opinion that the Court below committed an error in not awarding costs and in our view, the plaintiff is entitled to the costs of the suit. 46. The upshot of the above discussions is that the Court below was not justified in deducting Rs. 72 lakhs from the advance amount and as such the plaintiff is entitled to get back the entire advance amount of Rs. 255.25 lakhs paid by them with costs of the proceedings. The cross objection to that extent is to be allowed and the appeal is only to be dismissed. We see no reason to disallow costs of the proceedings in the cross objection. 47. In the result:- (i) The appeal is dismissed. (ii) The cross objection is allowed in part. (iii) The impugned decree and judgment to the extent deducting Rs. 72 lakhs from the advance amount and declining costs of the suit are set aside. (iv) The impugned decree is modified as follows: “The suit is decreed directing the defendants to pay Rs. 2,55,25,000/- (Rupees Two crores fifty five lakhs and twenty five thousand only) to the plaintiff with interest at the rate of 9% per annum from the date of the suit till realisation charged on the plaint schedule property with costs.” (v) The cross objector/plaintiff is entitled to the proportionate costs in the cross objection. (vi) The parties shall bear their respective costs in the appeal.
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