Filing of FIR After Settlement Constitutes Breach of Contract, ₹3 Crore Liquidated Damages Awarded: Delhi High Court

Delhi High Court ruled in favor of Bharat Kumar Chaudhary, awarding him ₹3 crore in liquidated damages in a suit against Navin Malhotra (CS(OS) 28/2015). Justice Navin Chawla held that Malhotra’s filing of a criminal complaint despite receiving settlement payments constituted a breach of the Compromise Agreement. The Court found the stipulated sum in the agreement to be a genuine pre-estimate of damages under Section 74 of the Indian Contract Act, 1872.

The dispute arose from an agreement between the plaintiff and defendant, wherein the defendant received ₹3 crore as part of a settlement to resolve prior disputes and agreed not to initiate any legal action. However, the defendant violated the agreement by filing a criminal complaint against the plaintiff, resulting in a First Information Report (FIR). The plaintiff sought liquidated damages for the breach, based on a clause in the settlement agreement.

I. Breach of Compromise Agreement and Consequences

Justice Navin Chawla ruled that Navin Malhotra breached the Compromise Agreement by filing a police complaint after accepting ₹3 crore from the plaintiff. The Compromise Agreement, signed on June 14, 2014, contained a clause that explicitly prohibited either party from initiating any legal actions after receiving the agreed sum: "Clause 4 of the agreement clearly stipulated that if the defendant initiates any action against the plaintiff, he shall return the ₹3 crore received under the settlement."

Despite this, the defendant filed an FIR accusing the plaintiff of forgery and cheating, leading to an investigation. The court found that the filing of the FIR was in direct violation of the terms of the agreement and ordered the return of ₹3 crore as liquidated damages.

II. Liquidated Damages Under Section 74 of Indian Contract Act

The Court referred to Section 74 of the Indian Contract Act, 1872, which governs compensation for breach of contract. Under this provision, liquidated damages are enforceable if they represent a genuine pre-estimate of the loss or damage caused by the breach. Justice Chawla cited the Supreme Court’s judgment in Kailash Nath Associates v. DDA & Anr. (2015), emphasizing that: "Where a sum is named in a contract as liquidated damages, the party complaining of breach can recover such amount if it is a genuine pre-estimate of damages fixed by the parties."

The Court held that the sum of ₹3 crore specified in the Compromise Agreement was a reasonable and genuine pre-estimate of the damages caused by the defendant’s breach. The plaintiff, having faced mental agony, inconvenience, and humiliation, was entitled to this compensation.

III. Court's Rejection of Additional ₹50 Lakh Claim

The plaintiff had also sought an additional ₹50 lakh, claiming it was part of the total settlement. However, the Court rejected this claim, noting that there was no mention of the ₹50 lakh in the June 14, 2014 Agreement. As such, the Court held: "The plaintiff's claim for ₹50 lakhs is rejected as it was not part of the terms of the agreement."

While the plaintiff sought interest at the rate of 12%, the Court awarded interest at 4% per annum, considering the nature of the case and the agreement between the parties. Additionally, the Court granted the plaintiff the costs of the suit, concluding that he had suffered significant inconvenience due to the defendant’s actions.

The Delhi High Court decreed that Navin Malhotra must return ₹3 crore to the plaintiff as liquidated damages for breaching the compromise agreement, along with interest at 4% per annum from the date of filing the suit until full recovery. The court rejected the additional claim of ₹50 lakh and dismissed the claims against defendant no. 2.

Date of Decision: October 15, 2024

Bharat Kumar Chaudhary v. Navin Malhotra