[Judgment] Maula Bux v. Union of India (1970)

Supreme Court on the concept of ‘Earnest Money’ and Section 74 of Indian Contract Act.

The plaintiff commenced an action for amount of Rs 20000/- with interest, trial court held that government was not justified in forfeiting the contract, as they suffered no loss. The High Court held that even though the amount was stipulation by way of penalty, government is entitled to receive reasonable compensation irrespective of whether actual damage is caused or not. The High Court awarded the plaintiff 416.25 with interest. Aggrieved by the decision, plaintiff applied to the Supreme Court through special leave petition.