Fateh Chand v. Balkishan Das - Key Case Summary

In Fateh Chand v. Balkishan Das, the Supreme Court of India dealt with earnest money and forfeiture under contract law. Fateh Chand agreed to sell land to Balkishan Das for ₹25,000. Part of this sum was meant as earnest money. The sale was not completed on time, leading to a dispute about whether the money could be forfeited.

The Court focused on Section 74 of the Indian Contract Act, 1872, which deals with liquidated damages. It clarified that a contract can specify a sum to be paid if breached, but this must reflect a genuine estimate of loss. Any amount that is excessive or punitive is considered a penalty and cannot be enforced.

The Supreme Court allowed Fateh Chand to keep ₹1,000, which was clearly earnest money. The remaining ₹24,000 was deemed a penalty and could not be retained.

This case emphasizes the need for fair liquidated damages clauses. It remains an important reference for lawyers and law students, showing how courts prevent arbitrary penalties and protect parties in contract disputes.