MAULA BUX vs UNION OF INDIA

The Supreme Court ruled that under Section 74 of the Indian Contract Act, 1872, the forfeiture of a deposit made as earnest money does not require proof of actual loss if the amount forfeited is reasonable. The Court held that the High Court erred in modifying the trial court's decree, which had justified the rescission of the contract but denied forfeiture due to lack of proven loss. The Court emphasized that the nature of earnest money is to indicate the purchaser's intention to complete the contract, and if the forfeiture is reasonable, it does not fall under Section 74's purview.