In Sh. K.G. Krishnamurthy v. Ms. Vijyeta Gupta, RFA 268/2021 (reserved 14 August 2026, pronounced 2 November 2026), the Delhi High Court dismissed a seller's first appeal against a decree directing refund of Rs 1.5 crore received under an Agreement to Sell dated 15 February 2016 for a Yojna Vihar property priced at Rs 12.8 crore. Justice Neena Bansal Krishna held that the sum, though labelled bayana, was in substance part payment of the sale price and not earnest money liable to forfeiture; that the seller's counter-claim of Rs 1 crore failed for want of proof of actual loss, on the principle in Fateh Chand; and that an attempt to introduce circle rates and sale deeds at the appellate stage under Order XLI Rule 27 CPC could not be permitted.
The transaction and its collapse
On 15 February 2016, the parties signed an Agreement to Sell for property at C-490, Yojna Vihar, Delhi — 336.87 square yards at Rs 12.8 crore. The buyer paid Rs 1.5 crore at signing, described in the document as bayana, with the balance due by 15 August 2016. The deal unravelled along familiar lines: the buyer said the seller never supplied the original lease deed needed for her housing loan; the seller pointed out that on 10 May 2016 — months before the deadline — the buyer had purchased another property in Shrestha Vihar for Rs 4.25 crore without a word to him. Legal notices followed, the buyer sued for refund, and the seller counter-claimed Rs 1 crore in damages. The trial court decreed the refund with 4 per cent interest on 4 March 2021 and dismissed the counter-claim.
Label versus substance
The appeal turned first on characterisation. The High Court examined the agreement as a whole — the magnitude of the payment against the total price, the structure of the balance payment schedule, and the loan clause — and concluded that the Rs 1.5 crore was part payment of the sale price, not a true earnest. The consequence is decisive: part payment is refundable on failure of the transaction, whatever the document calls it, while forfeiture operates, if at all, on genuine earnest money and within the discipline of Section 74.
The counter-claim and the burden of proving loss
- The principle: quoting Fateh Chand, the Court reiterated that Section 74 does not justify compensation where, in consequence of the breach, no legal injury has resulted.
- The evidence offered: the seller relied on the price of the buyer's substitute purchase elsewhere and on newspaper reports of a falling market.
- Why it failed: a cheaper purchase of a different property proves nothing about the subject property's value, and generalised press reports are not proof of specific loss.
- The Rule 27 application: circle rates of 2021, a 2016 sale deed and press clippings were all available at trial; none of the Order XLI Rule 27 gateways applied, so the application was dismissed.
Drafting and litigation consequences
For sellers, the judgment is a checklist in reverse. If forfeiture is intended, the agreement should designate a distinct, modest earnest component separate from price instalments, state the forfeiture consequence expressly, and keep the amount within the bounds of reasonableness that courts will enforce. After a breach, the seller who wishes to retain money must assemble proof of actual loss promptly — a documented resale of the same property, or contemporaneous valuation — because the courtroom will not accept market commentary in place of evidence. For buyers, the case confirms that large signing payments in failed transactions are recoverable where the sums are in truth price instalments, and that interest, though modest at 4 per cent here, follows the decree.
Practice note: First appeals are decided on the trial record. Parties who sense a valuation battle should prove circle rates, comparable sales and expert valuations before the trial court — Order XLI Rule 27 is a narrow gate, not a second innings.
Frequently Asked Questions
What distinguishes earnest money from part payment?
Earnest money is a security for performance, paid as a token binding the bargain, and may be forfeited on the buyer's default if the contract so provides and the amount is reasonable. Part payment is simply an instalment of the price. Courts look past labels to the agreement as a whole — the payment schedule, the proportion of the sum to the price, and clauses such as loan contingencies.
Can a seller forfeit money without proving loss?
Under Section 74 of the Contract Act, as explained in Fateh Chand v. Balkishan Dass, compensation is not awarded where no legal injury results from the breach. A forfeiture clause names a ceiling, not an entitlement; actual loss must still be shown, except for a reasonable true earnest amount.
How is loss from a failed property sale proved?
By concrete evidence of the property's diminished realisable value — a subsequent sale of the same property at a lower price, contemporaneous valuations, or comparable transactions properly proved. In this case, reliance on a cheaper purchase of a different property and on newspaper reports of falling prices was held insufficient.
When can additional evidence be led in a first appeal?
Only within Order XLI Rule 27 CPC — where the trial court wrongly refused the evidence, or it could not have been produced despite due diligence, or the appellate court itself requires it. Documents that were available during trial, like circle rates and registered sale deeds, do not qualify.