P L D 1961 (W (PLP)

FARUQUI, J.‑This is defendants' appeal against the judg ment and decree passed by the Sub‑Judge, First Class, Karachi in Suit No. 1036/56, whereby he decreed the plaintiff's suit for Rs. 10,486 with costs.

2. On 25th May 1952 the Karachi Port Trust (defendant appellants) held a public auction of leasehold right of plot No. 20 in Group `B' situated on Queens Road, Karachi, in which auction the bid of Ghulamali Habib Rawjee (plaintiff‑respondent) of Rs. 28 per sq. yard being the highetst was accepted on the terms and conditions contained in the document, Exh. D‑1, which was signed on the spot soon after the auction. Under condition No. 2 of Exh. D‑1 the purchaser had to deposit 25 % of the purchase money, which in this case amounted to Rs. 10,486 and the balance of the purchase money under clause 4 was payable within three months from the date of intimation of the sanction of the Port Trust Board and Government of the said auction. Clause 5 provided that if the purchaser failed to pay the balance of the purchase money within the prescribed 'period the deposit of 25 shall be forfeited to the K. P. T. Board. The respondent in pursuance of these conditions deposited Rs. 10,486 with the appellants which amounted to 25 % of the sale price. On 6‑10‑52 the Karachi Port Trust claims to have sent a letter to the respon dent informing him that the required sanction had been given and the balance should be paid within three months. It is the respondents' case that this letter was not received by him. By a registered letter dated 23rd January 1953, the appellants told the respondent that in spite of the intimation dated 6‑10‑52 he had not paid the balance of the purchase price and the 3 months' time expired on 6‑10‑52, but the Board had granted an extension up to the 10th of March 1953, and if the balance still was not paid within that period the deposit of 25% would be forfeited. Further correspondence followed between the parties and on 10th March 1953 the respondent wrote to the appellants that he had not been able to pay the balance of the sale price due to his money being blocked but he was however making arrangement to pay the sum as early as possible. On 26th March 1951, the appellants informed the respondent that if the balance of the purchase price was not paid within 48 hours of the receipt of this letter the deposit would be forfeited. No action was taken upon this letter by the respondent and the appellants by their letter dated 22‑6‑53 informed the respondent that as he had failed to pay the balance of the purchase price the Board had forfeited the deposit of Rs. 10,466 in accordance with . condition 5 of Exh. D‑1, and that the plot would be re‑auctioned in due course. On 24th November 1953, the respondent sent a cheque for Rs. 32,310 which was the balance of the price and asked for the possession of the land. He sent a reminder on 26th December 1953 to which he received a reply dated 5‑1‑54, in which he was told that the matter had been referred for the decision of the Chairman of the Karachi Port Trust and that his decision would be communicated when received. This was done by a letter dated 25th January 1954, and the respondent was informed that his request for the acceptance of the balance of the price had been reconsidered but had been turned down and his cheque for the said balance was accordingly returned. He was also informed that the 25% deposit stood forfeited and that the plot would be re‑auctioned. This re‑auction took place on 14‑2‑54, in which the highest bid of some other person at Rs. 27 per sq. yd. was provisionally accepted. The respondent then wrote to the appellants on' 20th February 1954, drawing their attention to the fact that at the re‑auction the Port Trust had not been able to get more price than the price resulting from the first auction and since he was willing to take the plot at the price of his bid he should be given its possession failing which he would be compelled to take legal action. This was followed by some further correspondence between the lawyers of the parties and since the appellants refused either to give the plot to the respondent or refund his deposit he instituted this suit on 15‑10‑54 for the recovery of the said sum.

3. The appellants denied the respondent's claim for the refund of the deposit and stated that the same had been rightly forfeited in terms of the conditions of sale. It was also averred that the suit was barred by limitation in view of the provisions; of section 67 of the K. P. T. Act having been filed more than 6 months after the accrued of the cause of action and also that the statutory requirements of notice had not been compiled with. The learned trial Judge found that the time was not of the essence of the contract and that the sum of Rs. 10,486 was part payment of the price as well as it was, a deposit of earnest money. He further found that the breach was on the part of the defendants (appellants) and that the deposit was not liable to forfeiture. ' He also found in favour of the plaintiff (respondent) upon the ques tion of the requirements of section 87 of the Karachi Port Trust Act. On these findings he decreed the plaintiff's suit. The defendants have come up in appeal.

4. The first question, which falls for consideration, is whether the appellants, were entitled to put an end to the contract, and it is in this connection that the point arises whether the time was of the essence of the contract in this case. The conditions of sale as contained in Exh. D‑1 do not lay down expressly that time is of the essence of the contract. It may further be noted that the acceptance of the respondent's bid was subject to the sanction of the Port Trust Board and the Government and this sanction, even according to the appellants, was not communicated until about 5 months after the auction. It is true that condition No. 4 provides that ~ the balance of the purchase money shall be paid within 3 months from the date of the intimation of the sanction and condition No. 5 lays down that on the purchaser's failure to do so the deposit of 25% shall be forfeited, but that, would not, of itself make time of the essence of the contract. In a contract of sale of immovable property even though time is specified for the completion of the sale the presumption is that the, parties really intended that this should be done within a,, reasonable time unless, a contrary intention appears from the circumstances of the case or from an express stipulation. It was held by their Lordships of the Privy Council in the case of Jamshed Khodaram Irani v. Burjorji Dhunjibhai (A I R 1915 P C 83) as follows:‑ "Section 55 does not lay down any principle which differs from those which obtain under the law of England as regards contracts to sell land. Under that law equity, which governs the rights of the parties in cases of specific performance of contracts to sell real estate, looks not at the letter but at the substance of the agreement in order to ascertain whether the parties, notwithstanding that they named a specific time within which completion was to take place, really and in substance intended more than that it should take place within a reason able time."

5. In the present case having regard to the fact that the sale itself was subject to, the sanction of the Board and the Govern ment, and that itself took five months and having regard to all other circumstances including the extension given by the appellants themselves we are in agreement with the finding of the learned trial Judge that time was not of the essence of the contract. In fact, Mr. Noor Muhammad, the learned counsel for the appellants, himself conceded that initially time was not of the essence of the contract in this case. The question next to be considered is whether the respondent was ready and willing to perform the contract within a reasonable time, because if he failed to do so ft must follow that the appellants were entitled to put an end to the contract.

6. No oral evidence was led in this case and the parties merely relied on the documentary evidence on record. It was the case of the appellants that the letter dated 6‑10‑52 intimating the sanction had been posted and it must be presumed to have been received by the respondent. This letter was exhibited by consent and the respondents' explanation for this is, that admittedly a copy of this letter was subsequently received by them. Unfor tunately no oral evidence was led by the appellants to prove the posting of. this letter when it was first written, and though it may be that this letter was posted and actually received by the respondent there is no evidence upon which such a finding can be given. But that does not advance the respondent's case very much, because admittedly he received another letter dated 15‑10‑52, Exh.

4. This letter is written with express reference to the earlier letter dated 6th October, 1952, and the respondent is informed that the stamp duty was payable on the purchase price plus the rent of the plot and that the registration charges as calculated by the Sub‑Registrar will be intimated to the respondent on presentation of the document. The respondent is described as a merchant and when he received this letter we have no doubt that he must have fully understood that the sanction of the Board and the Govern ment as required by the conditions of sale had been accorded. If he had been in doubt he would have certainly asked for a copy of the letter dated 6th October 1952, which was expressly mentioned in this subsequent letter of 15th of October. It appears to us to be a reasonable inference that the respondent was not anxious to complete the transaction promptly and that it suited his convenience that the time .for the payment of the balance of money might be extended, an inference which is borne out by the subsequent events. We, therefore, find that by about the 15th of October 1952, the respondent had received sufficient information to know that the requisite sanction had been given. No reply to this letter of 15th of October was sent by the respon dent and when the appellants by their registered letter dated 23rd January 1953, Exh. 5, extended the time till 10‑3‑53 and further by their letter dated 26‑3‑53 gave him time to pay within 48 hours and waited until the 22nd of June 1953 before forfeiting the deposit, we are clearly of the view that they had given reason B able notice to the respondent and had allowed sufficient time for payment of the balance, and the respondent having failed to so; the appellants were within their right to put an end to the contract, which they did by their letter Exh. 10 dated 22‑6‑

53. There was no protest to this by the respondent and the next thing on record is that on 24‑11‑53 he sent his cheque for the balance of the price. We, therefore, do not agree with the learned trial Judge that the breach was on the part of the appellants.

7. That brings us to the most important and somewhat difficult question in the case, namely, whether the appellants were entitled .to forfeit the whole of the amount, which had been deposited by the respondent, whether the latter is entitled to the refund of it wholly or in part.

8. It was the contention of Mr. Ali Athar, the learned advocate for the respondent, that this amount of 25% was not an earnest money but it was really an amount fixed as a penalty in case of breach by the purchaser though if the contract had gone forward it would have constituted a part of the sale price. It was, therefore, contended that in the circumstances section 74 of the Contract Act applied and even if there was a default on the part of the respondent the appellants were entitled only to be port compensated to the extent of the loss which they actually suffered. The learned counsel contended that even if this sum was in 'deposit for guaranteeing performance by the purchaser it would still be in the nature of a penalty and the same considerations would arise and with the same result. On the other band, Mr. Noor Muhammad argued that the forfeiture of the earnest money was a peculiar notion and was permissible independently of the considerations which arise in the case of penalty and the provisions of section 74 of the Contract Act 'had no application to such a case, nor would this section or the principle of it, apply to a case of deposit which was taken to ensure due performance by the purchaser.

9. Now let us consider as to what is the import of the expression "earnest money" in relation to a transaction of sale of property and also whether in substance it is anything different from a deposit (described as a deposit) taken by the seller which would forma part of the sale price if the contract goes forward and which would also be in the. nature of a guarantee for the performance by the purchaser and liable to forfeiture in case of his default.

10. The expression "earnest money" was construed in a case of a contract of sale of immovable property by the Privy Council in the case of Chiranjit Singh v. Har Swarup (A I R 1916 P C 1), and this is what their Lordships said :‑ "Earnest money is part of the purchase price when the trans action goes forward : it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee." This definition of earnest money, in our opinion, is not different from that of a deposit as was given in the case of Howe v. Smith ((1884) 27 Ch. D 89), which is the leading case on the subject and has been almost invariably followed for about 50 years in this Sub Continent. This is what Cotton, L. J., says at page 95 of the report :‑ "What is the deposit ? The deposit, as I understand it, and using the words of Lord Justice James, is a guarantee that the contract shall be performed. If the sale goes on, of course, not only in accordance with the words of the contract, but in accordance with the intention of the parties in making the: contract, it goes in part payment of the purchase‑money for which it is deposited ; but if on the default of the purchaser the contract goes off, that is to say, if he repudiates the contract, then, according to Lord Justice James, he can have no right to recover the deposit."

11. There is no charm in the expression "earnest money," a term which has not been used in the contract in this case, and whether the amount is described as a deposit in the sense which we have mentioned earlier or as earnest money, the true import of both of them is that it is a part of the purchase price and is at the same time intended to be a guarantee for the performance by the purchaser and liable to forfeiture in case of breach by him. We must, however, make it clear that the position would be quite different where either a sum is named or is even deposited no to form part of the purchase price if the contract goes forward but to be treated as a penalty to be awarded against the party in default or against the purchaser only. Such sums are frequently named is contracts and there have been cases where a deposit of this nature has been taken by the seller over and above the earnest money. In such cases there should be no difficulty in applying section 74 of the Contract Act or the principle contained therein. The diffculty is experienced in the former kind of cases.

12. The question whether section 74 of the Contract Act applies to deposits made for the due performance of a contract has been the subject of considerable judicial exposition and we shall now very briefly proceed to examine some of the decisions which are relevant for present purposes.

13. In a case in Abdul Ghani & Co. v. Trustees of the Port of Bombay (A I R 1952 Bom. 310) a Bench consisting of Chagla, C. J., and Tendolkar, J., after reviewing a large number of cases came to the conclusion that deposits made for the due performance of a contract do not fall within the ambit of section

74. The section; it was observed clearly contemplates that the party aggrieved has to receive from the party in default some amount or something in the nature of a penalty. It clearly rules out the case of the amount which had already been received or the penalty which had already been deposited, Such deposits cannot be considered to be amounts to be paid in case of a breach, nor can it be con sidered to be "any other stipulation by way of penalty." It was further observed that under section 74 only an aggrieved party could claim the benefit conferred under that section, but a party who is in default cannot claim relief against penalty or against the payment of liquidated damages as provided in that section.

14. In a Calcutta case in Naresh Chandra Guha v. Ram Chandra Samanta and others (A I R 1952 Cal. 93), it was held that section 74 by its very term is inapplicable to cases of earnest money which is an amount paid really under the `contract of security' ; that there could be no question of any breach of that contract or any amount payable on such breach at the time of the making of the contract of sale and at any rate it was not an amount named in the contract of sale to be paid as compensation on breach thereof, which is what is provided for by section 74.

15. In a recent judgment of the Patna High Court in Jagdishpur Metal Industries and others v. Vijoy Oil Industries Ltd. (A I R 1959 Pat. 176) after reviewing most of the case law; Justice Ahmad held that in the case of an earnest money the doctrine of forfeiture was not based either on the principle of penalty or on the principle of recompense, for the loss incurred by one party to a contract as a result of, any breach of it by the other ; that. the doctrine was based on a principle completely independent of the considerations that are laid down in sections 64, 65, 73 or 74 of the Contract Act ; and that an earnest money belonging as‑it does to a class of its own, namely, that of a deposit, is regulated and controlled by considera tions which are .peculiar to that class alone.

16. We are in respectful agreement with the view expressed in the above decisions. The purpose of the statement of section 74 of the Contract Act was to do away with the fine distinction that was frequently drawn, under the common law between a penalty and liquidated damages. This section boldly cuts that troublesome knot in the common law doctrine of damages and makes provision for giving relief to a party complaining of breach, of a reasonable compensation within the amount named regardless of the fact whether it was a penalty or liquidated damages. Having regard to the terms in which section 74 is couched, we are of the opinion that it cannot apply to a case of forfeiture of earnest money or of a deposit which is in the nature of earnest money.

17. Reliance was placed by the learned counsel for the respondent upon the observations of Muhammad Sharif, J. in a judgment Mool Chand Behari Lal v. S. D. Chand & Co. (A I R 1947 Lah. 112). His Lordship on a review of certain authorities observed as follows: "I think it is quite clear that whether some amount is paid by way of earnest money or kept in deposit for the due perfor mance of any obligation under the contract, it is always for the Court to determine what amount, if any, would be `reasonable compensation' under the circumstances of a particular case." His Lordship was applying section 74 of the Contract Act and has quoted the expression `reasonable compensation' from that section. It may however be noted that he was dealing with a case of a railway contract for the loading and unloading and street delivery of goods carried or to be carried by the railway in which a deposit had been taken as a security for the due performance of the duties by the contractor. Clearly this was not a case of earnest money in a case of sale of immovable property, and even though we have ourselves reached the conclusion, which we shall presently elaborate, that in a given case the seller of immovable property may not be allowed to retain the whole of the amount of earnest money or a deposit of the same nature, we are with great respect to the learned Judge, not prepared to go so far as to hold that in all cases where an earnest money has been paid or a deposit of that nature has been made, it is always for the Court to determine what amount, if any, would be a reasonable compensation and that for this purpose section 74 of the Contract Act can be pressed into action. His Lordship in the course of the discussion had referred to a Privy Council judgment in Bhai Panna Singh v. Arjan Singh Bhajan Singh (A I R 1929 P C 179). In that case dispute arose out of an agreement for the sale of a Sarai in Peshawar and the, question was whether the seller was entitled to the payment of Rs. 10.000 which had been fixed by the parties as 'Pashemana' (damages). The important distinguishing fact in this case is that this sum of Rs. 10,000, which was expressly described as Pashemana (damages), was over and above the sum of Rs. 500 which had been paid by the purchaser as earnest money and further this `Pashemana' was payable by the purchaser to the seller or vice versa depending upon which party had committed the breach of the contract. After dispute arose between the parties both of them instituted suits against each other claiming the said sum of Rs. 10,

000. It was held that the breach was by the purchaser but their Lordships also found that, the property was subsequently resold for a sum which was only Rs. 1,(00 less than the consideration agreed between the parties to this litigation for the same property. Their Lordships upon these facts came to ' the conclusion that t to seller was only entitled to Rs. 1,000 which was the actual loss to him on resale and they further deducted from this a sum of Rs. 500 which the seller had received by way of earnest money. It may be useful to quote a small portion from that judgment:- "The effect of section 74, Contract Act of 1872, is to disentitle the plaintiffs to recover simpliciter the sum of Rs. 10,000 whether penalty or liquidated damages. The plaintiffs must prove the damages they have suffered. The only evidence of loss is that of the loss on re‑sale by Rs. 1,000." Clearly their. Lordships were considering the question of the applicability of section 74 of the Contract Act in relation to the claim of the sellers to the whole amount of Rs. 10,000 which had been expressly described as damages. This Rs. 10,000 was clearly in the nature of a penalty and there is no doubt that section 74 of the Contract Act‑ was attracted in this case. This case is therefore clearly distinguishable. In fact, in the Lahore case Din Muhammad, J., who was the other Judge constituting the Bench merely said that he agreed that a decree for Rs. 2,602 with no future interest be passed in favour of the plaintiff.

18. For the reasons given above we reject the contention of the learned counsel for the respondent that section 74 of the Contract Act applies to this case. But that does not conclude the matter and the further question, which still remains for consideration, is whether no relief in equity can be given to the respondent in this case against the forfeiture of, the whole of Rs. 10,486 which represented 25% of the purchase price. In the cases relating to the right of the seller to forfeit the earnest money, to which we have referred, as well as in other decisions there is often reference to the amount of the earnest money or deposit and its proportion to the entire purchase price, and except for one decision, to which we shall avert, we have not been able to find a categorical pronouncement that the amount of the earnest money or deposit must be allowed to be forfeited without any consideration as to its bulk and the surrounding circumstances of a given case. We shall now proceed to examine the case law on the point. In the leading case of Howe v. Smith, which has been noted earlier, and from which the observation of Cotton, L. J., has been reproduced, it was further observed by the learned Judge as follows :‑ "I do not say that in all cases where this Court would refuse specific performance, the vendor ought to be entitled to retain the deposit. It may well be that there may be circumstances which would justify ibis Court in declining, and which would require the Court, according to its ordinary rules, to refuse to order specific performance, in which it could not be said that the purchaser bad repudiated the contract or that he had entirely put an end to it so as to enable the vendor to retain the deposit. In order to enable the vendor so to act, in my opinion there must be acts on the part of the purchaser which not only amount to delay sufficient to deprive him of the equitable remedy of specific performance, but which would make his conduct amount to a repudiation on his part of the contract." These observations may be regarded to qualify the earlier dictum laid down by the learned Judge with regard to the forfeiture of the deposit. In a Full Bench judgment of the Madras High Court in Natesa Aiyar and another v. Appavu Padayachi and another (A I R 1915 Mad.896) where it was held by majority that the purchaser, if he fails to perform his part, cannot recover the deposit, ‑it was added as follows: "Where the deposit bears a small reasonable proportion to the price, it can be regarded as security which is liable to forfeiture if a stipulation as regards forfeiture exists." It was also held in this case that section 74 of the Contract Act did not apply. to such deposits. In the Calcutta case (A I R 1952 Cal. 93) where the purchaser was held not entitled to the return of the deposit, the question whether the amount of the earnest money in that case was reasonable or not was pointedly considered, and it was held that a sum of Rs. 501, which was paid by way of earnest money in a transaction of a property the purchase price of which was Rs. 6,000, was not unreasonable. In the Bombay case (A I R 1952 Bom. 310) which has been referred to above, the amount of the deposit was Rs. 3,000 in a contract which was for the supply of material of the value of Rs. 30,

000. The learned Chief Justice while relying upon the Full Bench decision in the case of Natesa Aijar v. Appavu Padayachi stated that it was rather important to note that one of the considerations that weighed with the Full Bench was that the deposit which was forfeited was 10 per cent. of the consideration, and the Court took the view that 10 per cent under the circumstances, of the case was neither unreasonable nor extraordinary from which must follow that if the forfeiture was of an unreasonable deposit, the Court of equity would not countenance it in spite of the default of the purchaser. Having said this the learned Judge went onto observe that fortunately the question did not arise in the case before them, because the deposit in that case also was 10 per cent of the amount of the articles which had been contracted to be supplied. But it was observed that the question whether a deposit was reasonable or otherwise has got to be judged from the nature .of the contract which bad got to be performed and from the nature of the obligation undertaken by the parties to the contract.

21. In the Privy Council case (A I R 1926 P C 1) to which reference has been made, the total amount of the sale consideration was Rs. 4,76,000 and the earnest money which had been paid and the forfeiture of which had been upheld was only Rs. 20,000 and the question of unreasonableness of the amount in relation to the total sale price was not even raised and in fact could not have been raised. Referring to the observation in this case where it defines earnest money and which we have reproduced earlier, Macnair, J. in a case Kanhai Lal and another v. Lakshmi chand Oswal and another (A I R 1933 Nag. 223) observed as follows :‑ "This remark however must be considered with reference to the facts of the case which their Lordships were considering. In that case the sum plaid as earnest money was less than 5 per cent. of the total sum to be paid. Their, Lordships were not considering a case in which a large proportion of the total sum due was paid." Having thus distinguished the Privy Council judgment the learned Judge held that in the case before him where a sum of Rs. 530 which was stated to be earnest money in a case in which the total consideration was Rs. 720 the stipulation for its forfeiture on default was in the nature of a penalty. Reli4nce was placed on a passage in Sedwick on Damages. 22. ‑In another case in N. V. Jagannadhatta v. Ramanatha (A I R 1955 Orissa 11), it was observed as follows :‑‑ "It is doubtless true that Courts have intervened to relieve a party against a forfeiture clause by way of penalty, but every clause providing for forfeiture is not . necessarily penal in character. Unless the seller seeks to exact payment of an extravagant sum for default in payment by the buyer of a nominal sum, a clause providing forfeiture does not become a penalty. The stipulation must appear unconscionable on a consideration of all the circumstances. The principle is that while this equity is available to a defaulting purchaser the vendor cannot forestall this equity by demanding an extravagant sum as deposit, any more than he can recover a penalty by claiming liquidated damages."

23. We shall now turn to the case in Bhalchandra Pandurang Rajandckar v. Mahadeo Laxminarayan Shraogi and others (A I R 1947 Flag. 193) in which a contrary view has been forcefully expressed. In that case a, sum of Rs. 4,000 was deposited by the vendee under a note called `tsar Chithi' (earnest money receipt) in a transaction of an agree ment. to sell a property for Rs. 9,OU

0. It was held by their Lordhips that neither section 73 nor section 74 of the Contract Act applied in the case and the proportion that the earnest money bears to the sum contracted for was irrelevant and that the advance could not be regarded as a penalty merely because its proportion was large. The earlier decision reported in A I R 1932 Nag. 223 by Sir Robert Macnair was dissented from.

24. In yet another case in Khuda‑i‑Tala through K. B. Kazi Muhammad Zafar Ahmad Khan v. Mst. Hamida Khatoon (A I R 1945 All. 70), the principle regarding earnest money as enunciated in A I R 1926 P C 1, was relied upon and it was held that the application of this principle did not depend merely upon the proportion of the earnest money deposited by the vendee with the vendor to the total sale price. But from the use of the expression `merely' an inference may follow that if there were

25. In the Commentary by Pallock and Mulla on the Indian Contract Act, 8th Edition, under the beading `Deposit on agreement for purchase' the learned commentators of this edition have referred to certain cases on the subject and while they have approved of the cases where an earnest money which constituted a large part of the price, was held to be in the nature of penalty, they expressly noted that the decision in A I R 1947 Nag. 193 to the contrary was erroneous.

26. In a recent case of the Court of Appeal Stockloser v. Johnson ((1954) All E R 630) which related to an action to recover certain instal ments already paid in respect of a lease of a quarry and in which the plaintiff had alleged that the retention of those instalments by the defendant amounted to the exaction of a penalty from which the plaintiff was entitled to be relieved, Halett, J., who tried the cage, gave judgment for the defendant on the ground that the plaintiff had failed to show that it was unconscionable for the defendant to retain the money in respect of the agreement of June 24, 1950. This was upheld by the appeal Court. It was also observed by Somervell, L. J. as follows :‑ "There is only one other point, on which I should like to express my agreement with the learned Judge (trial Judge). As the basis of the plaintiff's right, if he has one, is the uncons cionability of the defendant's retaining sums which have been paid to him as instalments, I agree that the circums tances of the particular case should be looked, at and the question is not one to be decided by looking only at the contract." Certain observations of Denning, L. J., in this case which appear at page 637 of the report may be usefully reproduced :‑ "But when there is a forfeiture clause or the money is expressly paid as a deposit (which is equivalent to a forfeiture clause), then the buyer who is in default cannot recover the money at law at all. He may, however, have a remedy in equity, for, despite the express stipulation in the contract, equity can relieve the buyer from forfeiture of the money and order the seller to repay it on such terms as the ‑Court thinks fit. That is, I think, shown clearly by the decision of the Privy Council in Steedmen v. Drinkle, where the Board consisted of a strong three, Viscount Haldane, Lord Parker of Waddington and Lord Sumner. The difficulty is to know what are the circumstances which give rise to this equity, but I must say that I agree with all that Somervell, L. J., has said about it, differing herein from the view of Romer, L. J. Two things are necessary : first, the forfeiture clause must be of a penal nature, in the sense that the sum forfeited must be out of all proportion to the damage ; and, secondly it must be unconscion able for the seller to retain the money."

27. Having carefully considered the question in the light of the authorities and the recognized principles of equity the marry is, upon a breach by the purchaser entitled to forfeit the earnestly money or a deposit of the same character. But in cases which from the consideration of all the relevant circumstances the forfeiture and the retention of the amount by the seller would be unconscionable, the Court would upon equitable principles intervene and grant relief to the defaulting purchaser. In order that this may be done it is not enough that the amount of the deposit appears to be unreasonable having regard to its proportion to the sale price, because what is reasonable must normally be determined by the parties at the time of the contract. Therefore, it must be found that the retention of the amount by the seller would be unconscionable having regard to all the circumstances of the case. It may be that in certain case the amount described as a deposit may itself be so exorbitant that the inference may become irresistible that it is really in the nature of a penalty in the event of default, for equity looks to the substance and not to the form. In determined whether the forfeiture is unconscionable the Court will take into consideration the nature of the contract, the conduct of the parties and the proportion of the amount of deposit to the sale price. Where the purchaser has not merely defaulted but ha, repudiated the contract and his conduct suffers from impropriety the Court will refuse to come to his aid, because one who seeks equity must come with clean hands. On the other hand, the fact that the seller has sharply exercised his right or has obtained an unfair advantage though acting within his right under lave would be taken into consideration in favour of granting relief to the purchaser.

28. In the light of the principles, which we have attempted to elucidate above, let us now consider the facts of the present case. Here we find that the respondent had frankly informed the appellants that his money was blocked and obviously he was wanting more time for performance. At no time did he repudiate the contract and we do not find any impropriety in. his conduct which might disentitle him to an equitable relief. Tat he was in fact willing ‑ and anxious to pay the balance of the price is borne out by the fact that he eventually did send a cheque for the whole amount‑though belatedly and after the appellants had put an end to the contract. That the respondent's request for the com pletion, of the transaction coupled as it was with the tender of the balance of the price, was not such an unreasonable one, would appear ‑from the fact that the appellants took two months to turn down his request which they did by their letter dated 25‑1‑54 Exh.

14. In the circumstances of the case, we are further of the view that the appellants exercised their right rather sharp particularly in view of the fact that the plot in question had not till then been re‑auctioned, a piece 'of conduct which was aggravated by subsequent events. Though the appellants a, the re‑auction, which took place on 14‑2‑54, were able to get the highest bid of only Rs. 27 per square yard. they turned the request of the respondent conveyed by his Port letter dated 20th February, 1954 in which he had asked for the completion of the transaction upon the basis of the price of his bid which was higher by Re. 1 per square yard. Considering, that the bid of Rs. 27 had only been provisionally accepted and was subject to the approval of the Board we are unable to sec reasonableness of the action of the appellants in hanging on t4 their advantage, whereby they hoped to retain the 25 % of the deposit made by the respondent and recover from the subsequent sale at the rate of Rs. 27 per square yard. If we may say so, this attitude of the appellants, who are a public body, appears to us to be somewhat unusual. In view of all these circumstances and also considering the amount of the depositly which in this case was as much as 1/4th of. the purchase money we are clearly of the opinion that this is a fit case where relater should be granted to the purchaser on grounds of equity. As; to the form of the relief we are of the view that the appellants; should out of the deposit of Rs. 10,486 be allowed to retain the difference between the price agreed between them and the respondent and the price fetched at the subsequent auction ant; further that they should also be allowed interest at 6 per cent. upon the unpaid balance of the price by the respondent from the date of forfeiture, that is, 22‑6‑53 up to the date of the resale. that is, 14‑2‑

54. These two items put together amount to' Rs. 2,772, that is, Rs. 1,528 being the difference of the prices and Rs. 1,244 on account of interest. Deducting sum from the amount paid by the respondent the balance left would be Rs. 7,

714. This amount must be refunded to the, respondent.

29. The only other question. relates to the defence raised by the Karachi Port Trust under section 87 of the Karachi Port Trust Act. The finding of the. learned trial Judge with regard to the notice as required by the said section was not challenged before us in view of Exh. 23 and Exh.

16. On the question of limitation a Bench decision of this Court by Kaikaus and Abdul Hamid, JJ. in Abdullah and others v. The Municipal Corporation of Karachi (P L D 1959 Kar. 99), in which a similar question with regard to section 255 City of Karachi Municipal Act, was considered, is directly in point' It was held in that case that section 255 will only apply to a case where there is some act being done in pursuance of the Municipal Act and it therefore did not reduce the period of limitation in a suit for declaration of a title of land by the Karachi Municipal Corporation. In the present case also we find that the forfeiture of the deposit in respect of the sale, of the land of the Karachi Port Trust was not an act in pursuance of the Karachi Port Trust Act, and as such the period of limitation provided in section 87 of that Act does not apply to the present suit. We, therefore, hold that the respondent's will was not barred by time.

30. We accordingly modify, the decree of the Court below and decree the plaintiff‑respondent's claim for Rs. 7,714 only with proportionate costs throughout. A. H. Order accordingly.