Haryana Financial Corporation & Anr vs Rajesh Gupta

Rs.25,00,000/-, which was subsequently during

negotiations enhanced to Rs.50,00,000/-. On that very

day the respondent deposited an amount of Rs.2.5 lakhs

by way of earnest money. On 29.1.1998 the respondent

wrote a letter to the Managing Director of the

appellants/Corporation as follows:

"RAJESH GUPTA 578, AUTO MOBILE MARKET HISAR Phone: 28221 - 3 Lines Fax No.01662 - 31084

January 29, 1998

The Managing Director Haryana Financial Corporation 17, 18, 19 Sector 17-A Chandigarh 160017 3

Kind Attention: Sh.Raj Kumar Ji, M.D.

Sub: Offer to purchase assets of Unique Oxygen Private Limited Jind.

Dear Sir,

With reference to your advertisement in `ECONOMIC TIMES' dated 08.01.98, we are inclined to submit our bid for purchase of assets of the above mentioned company. With this purpose we visited the factory premises on 21.01.1998. On our visit, it was noticed that the premises do not have an independent appropriate passage from the road. On further inquiry from the concerned Branch office, the copy of site plan/ building plans were not available and we were told that the same are available at Head office only. Therefore you are requested to kindly apprise us in this matter so that we do not face any problems, if we acquire the unit as per your offer.

We hope to hear soon in this regard.

Thanking you,

Yours faithfully Sd/-

Rajesh Gupta"

No response was given by the appellants/Corporation to the

respondent. However by letter dated 19.2.1998 the

appellants/Corporation called the respondent for negotiations.

These negotiations resulted in enhancement of the bid from

Rs.25 lakhs to Rs.50 lakhs. Again in the letter dated

7.3.1998, the respondent stated as follows:

4 "FAX NO.1072-70266 578, AUTO MOBILE MARKET HISAR Phone: 28221 (3 Lines)

Fax No.01662 - 31084

07-03-1998

The Managing Director Haryana Financial Corporation Chandigarh.

Sub: Offer to purchase unit of Unique Oxygen Private Limited Jind

Dear Sir,

With reference to the negotiation held on 6.3.98 at your Head Office for the sale of assets of said concern. We are the highest bidder and understand that our bid will be accepted. However, the matter regarding approved/authorised passage for smooth functioning of the factory was discussed in the meeting and the unit holder, who was also present in the meeting confirmed that such passage exist, at the factory.

In this regard, it is submitted that we have come to know that there is no approved/authorised passage to factory sufficient to pass a truck through it. The gate/passage presently being used is unauthorized.

In the light of above you are requested to kindly apprise us in this matter and supply us the copy of approved building plan, site plan for the building mortgaged by H.F.C. so that we may not face any problem in future in running the unit.

Kindly treat it as most urgent.

Thanking you,

Yours faithfully Sd/- Rajesh Gupta"

5 5. It would appear that by letter dated 3.4.1998, the Branch

manager brought the objection of the respondent to the notice

of the head office of the appellants/Corporation. In response

to this communication the Branch Manager was informed by

the head office of the appellants/Corporation, by letter dated

7.4.1998 that clear cut passage/rasta has been provided to

the unit as per documents submitted by the defaulting unit at

the time of availing loan. Reference in this letter was also

made to the Sale Deed, dated 8.9.1994, Mutation No.5172,

Mutation No.9896, Search Report and sale deed, Rasta,

wherein it is mentioned that there is an approach road to the

factory site. The Branch Manager was directed to satisfy the

respondent with the aforesaid documents. On 13.4.1998, the

Branch Manager addressed a letter to the head office of the

appellants/Corporation clearly informing as follows:

"However, the actual Rasta which is of 3 Karams and appeared in the papers particularly shown in the sale deed is not connected directly with the unit and to connect the Rasta with the Rasta of the revenue record party purchased some land where the movement of the vehicles is not possible at all."

6 6. In fact the letter further pointed out as follows:

"It is further stated that the area mentioned in the map approved by the M.C. is 1130 sq. yd. whereas the total area in the sale deed and is mortgaged to the Corporation is 1210 sq. yd. It is also not out of place to mention that the land on which the office building is constructed is also not mortgaged to the Corporation and if that area is excluded the main gate of the factory will go behind from the existing place and then the unit will be stripped of independent Rasta."

7. In spite of the aforesaid factual position, the appellants/

Corporation issued the letter dated 18.5.1998 to the

respondent advising him to deposit balance amount of 25 per

cent of the bid amount within 15 days from the date of issue of

the letter failing which the amount of the earnest money

deposited would be forfeited without further notice. The

respondent, however, again raised the issue regarding the

passage at the open house held by the appellants/Corporation

at Hissar on 12.6.1998. According to the appellants/

Corporation, as per the revenue record and the demarcation

report of the revenue officials dated 27.6.1998, therein 16.5 ft.

rasta is provided in the west of the Unit. However, not 7

satisfied, the respondent did not pay the balance amount.

Therefore the appellants/Corporation invited fresh tenders for

sale of land. On 30.9.1998 the appellants/Corporation

forfeited the sum of Rs.2.5 lakhs which had been deposited by

the respondent as earnest money.

8. It was this action of the appellants/Corporation that was

challenged by the respondent by way of a Writ Petition in the

Punjab and Haryana High Court.

9. The aforesaid writ petition has been allowed by the

Division Bench. The order dated 30.9.1998 by which the

earnest money had been forfeited has been quashed and set

aside. A further direction has been issued to the

appellants/Corporation to refund the amount along with

interest at the rate of 12 per cent per annum w.e.f. 1.2.1998 to

the date of payment. The High Court also imposed costs on

the appellants/Corporation assessed as Rs.5,000/-. Further

directions were issued to release the amount to the respondent

within two months from the receipt of a copy of the order of

the High Court. It is this order which is challenged in the

present appeal.

8

10. We have heard the learned counsel for the parties at

length.

11. Mr. Amit Dayal, learned counsel for the appellants

/Corporation submits that the respondent accepted the plots

on "as is where is basis". Therefore, the appellants/

Corporation cannot now permit the respondent to wriggle out

of a confirmed bid, on the ground that there is no independent

approach road to the Unit. Learned Counsel further

submitted that it was for the respondent to make necessary

enquiry with regard to the existence of the 3 Karams rasta,

with the Revenue and other authorities. According to the

learned counsel the entire documentation which had been

provided at the time when the loan was sanctioned clearly

indicated that there is a 3 Karams rasta leading from the road

to the Unit. Learned counsel further pointed out that the

respondent had visited the site on 21.1.1998. Therefore he

would have known the exact situation of the "rasta". The

respondent was aware of the exact nature of the land being

purchased by him. In support of his submission learned

counsel relies on Section 55 of The Transfer of Property Act, 9

1882. Learned counsel further submitted that the appellants

/Corporation are entitled to forfeit the security amount in view

of Clause 5 of the terms and conditions for the sale of property

as contained in the advertisement dated 8.1.1998. Learned

counsel also sought to justify the action of the

appellants/Corporation by placing reliance on Section 29 of

The State Financial Corporation Act, 1951.

12. On the other hand, Mr. Vimal Chandra S. Dave, learned

counsel for the respondent, submits that the judgment of the

High Court is self-speaking and is not open to challenge on

any of the grounds pleaded by the appellants. He submitted

that the appellants cannot be permitted to take advantage of

their own wrong. They have misled the respondent into

making a huge deposit for a plot of land which was not

suitable. Without an independent passage the land could not

have been used as a manufacturing unit. The appellants

/Corporation ignored all the objections raised by the

respondent with regard to the non-existence of the

independent approach road.

10

13. We have considered the submissions made by the

learned counsel. We have also perused the judgment of the

Division Bench of the High Court.

14. Factually the appellants have accepted that on 28.1.1998

the respondent had in no uncertain terms informed the

appellants/Corporation about the non-existence of the

independent passage. No denial could possibly be made in the

face of the letter dated 29.1.1998 which makes a reference to

the visit of the respondent to the factory premises on

21.1.1998. There is a categorical assertion that premises do

not have an independent appropriate passage from the road.

When enquiries were made from the branch office, the

respondent, was simply informed that copy of the site plan

and building plan were not available, and would be available

at the Head Office only. Thereafter, there is a studious silence

from the appellants/Corporation with regard to the aforesaid

grievance made by the respondent. Again, on 7.3.1998 the

respondent informed the appellants/Corporation as follows:

"In this regard, it is submitted that we have come to know that there is no approved/authorised passage to factory sufficient to pass a truck through it. The 11

gate/passage presently being used is unauthorized.

In the light of above you are requested to kindly apprise us in this matter and supply us the copy of approved building plan, site plan for the building mortgaged by H.F.C. so that we may not face any problem in future in running the unit."

15. It appears that the aforesaid request of the respondent

was also never specifically answered by the appellants/

Corporation. In view of the protests of the respondent, the

issue was raised by the Branch Manager of the appellants

/Corporation through letter dated 3.4.1998 addressed to the

Head Office. The Branch Manager was informed by the Head

Office, through letter dated 7.4.1998 that as per the

documents submitted by the defaulting unit at the time of

availing loan, clear cut passage/rasta has been provided to the

concerned Unit. The letter dated 7.4.1998 reads as follows:

"Please refer to your letter No. HFC\BO\JD\98\7 dated 3.4.98 on the subject cited above.

In this connection, you are advised that clear cut Passage / Rasta has been provided to the concern as per documents submitted by the concern at the time of availing loan.

12 Enclosed herewith please find photocopy of the Sale Deed No.1494 dated 8.9.94 and photocopy of the Mutation No.5172, another Mutation No.9896 and Search Report and Sale Deed, Rasta, wherein it is clear cut mentioned that there is an approach road the factory site. So, you may please satisfy the Auction Purchaser with these documents and inform us the latest position of the case. It is also added here that you may make clear to the auction purchaser that the unit has been sold by the Corporation as and where basis."

16. A perusal of the aforesaid letter makes it apparent that

the appellants/Corporation were merely relying on the

documents submitted by M/s. Unique Oxygen Private Limited,

Old Hansi Road, Jind i.e., the defaulting unit. The

appellants/Corporation had been informed by the

management of the defaulting unit at the time of availing of

the loan facility that the Unit had the necessary independent

approach road. The letter however does not indicate, that any

independent inquiries were made by the appellants/

Corporation to verify the authenticity of the statements made

by the management of the defaulting unit which had availed of

the loan, by mortgaging the assets of the unit. The entire 13

issue seems to be concluded against the appellants/

Corporation by letter dated 30.4.1998, the relevant parts of

which have already been reproduced in the earlier part of this

judgment. A perusal of the extracts, reproduced earlier, would

clearly show that the Branch Manager has informed the head

office in unequivocal language that the independent passage

shown in the sale deed is not connected directly with the

defaulting unit. It also indicates that the defaulting unit had

merely purchased some land to connect the rasta with the

revenue record on which movement of the vehicle is not

possible at all. This land was not even mortgaged with the

appellants/Corporation. The letter also clearly states that by

exclusion of the aforesaid land the size of the plot would be

reduced from 1210 sq. yards to 1130 sq. yards. That would

mean that the main gate of the factory would be out side the

land offered for sale. Taking into consideration the aforesaid

facts the Division Bench concluded as follows:

"Taking the totality of circumstances into consideration, we are satisfied that the petitioner was not at fault. He was entitled to withhold the money as the respondents had failed to provide a proper passage. Still further, the factual 14

position having been admitted in the letter dated April 30, 1998, a copy of which is at Annexure P6, and nothing to the contrary having been produced on the file, we find that the action of the respondent/Corporation in forfeiting the amount deposited by the petitioner was wholly arbitrary and unfair."

17. We see no reason to take any different view. We are also

of the opinion that the Division Bench was justified in further

concluding that in law the appellants/Corporation

undoubtedly has the power to forfeit the earnest money

provided there was a failure on the part of the respondent to

make the deposit. The Division Bench, however, observed that

the respondent was dealing with an instrumentality of state.

He was entitled to legitimately proceed on the assumption that

the appellants, a Statutory Corporation, an instrumentality of

the State, shall act fairly. The respondent could not have

suspected that he would be called upon to pay the amount of

Rs.50 lakhs without being given even a proper passage to the

Unit that he was buying. We are of considered opinion that

the respondent had deposited the sum of Rs.2.5 lakhs on the

clear understanding that there would be an independent 15

approach road to the Unit. This is understandable. Without

any independent passage the plot of land would be not more

than an agricultural plot, not suitable for development as a

manufacturing unit. We therefore don't find any substance in

the submission made by the learned counsel for the

appellants/Corporation.

18. In our opinion, the appellants cannot be given the

benefit of Clause 5 of the advertisement. The appellants

/Corporation cannot be permitted to take advantage of their

own wrong. Clause 5 undoubtedly permits the forfeiture of the

earnest money deposited. But this can only be, if the auction

purchaser fails to comply with the conditions of sale. In our

opinion the respondent has not failed to comply with the

conditions of sale. Rather, it is the appellants/Corporation

which has acted unfairly, and is trying to take advantage of its

own wrong.

19. In view of the aforesaid, we are of the considered opinion

that the appellants/Corporation cannot be permitted to rely

upon Section 55 of The Transfer of Property Act, 1882. The

appellants/Corporation failed to disclose to the respondent the 16

material defect about the non-existence of the independent

3 `Karam' passage to the property. Therefore, the appellants/

Corporation clearly acted in breach of Section 55 (1) (a) and (b)

of The Transfer of Property Act, 1882. The aforesaid Section

provides as under:

(1) The seller is bound-

(a) to disclose to the buyer any material defect in the property [or in the seller's title thereto] of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover;

(b) to produce to the buyer on his request for examination all documents of title relating to the property which are in the seller's possession or power;

20. A mere perusal of the aforesaid provision will show that it

was incumbent upon the appellants/Corporation to disclose to

the respondent about the non-existence of the independent

passage to the Unit. It was also the duty of the

appellants/Corporation to inform the respondent that the

passage mentioned in the revenue record was not fit for

movement of vehicles. The appellant also failed to produce to

the buyer the entire documentation as required by Section 51 17

(1) (b) of the aforesaid Section. We are therefore satisfied that

the appellants/Corporation cannot seek to rely on the

aforesaid provision of The Transfer of Property Act, 1882.

21. In our opinion, the reliance on Section 29 of the State

Financial Corporations Act, 1951 is wholly misplaced. The

aforesaid Section pertains to action which the Corporation can

take against the Unit which had defaulted in payment of loan.

In such circumstances the Corporation has the power to sell

the property that has been hypothecated or mortgaged with

the Corporation. Respondent herein is an auction purchaser

and therefore cannot be confused with the defaulting unit. We

are also of the considered opinion that the reliance placed on

the judgment of this Court by the counsel for the appellants in

the case of Union Bank of India vs. Official Liquidator and

Ors. (1994) 1 SCC 575 is wholly misconceived. The aforesaid

judgment relates to sale of the property and assets of a

company in liquidation by the official liquidator under the

orders of the Court. Therefore it is observed that the official

liquidator cannot and does not hold any guarantee or

warranty in respect of the property sold. That is because the 18

official liquidator proceeds on the basis of what the records of

the company in liquidation show. Therefore it is for the

intending purchaser to satisfy himself in all respects as to the

title and encumbrances and so forth of the immovable

property that he proposes to purchase. In those

circumstances it is held that the purchaser cannot after

having purchased the property on such terms then claim

diminution in the price on the ground of defect in the title or

description of the property. The judgment clearly goes on to

further hold as follows:

"The case of the Official Liquidator selling the property of a company in liquidation under the orders of the Court is altogether different from the case of an individual selling immovable property belonging to himself."

22. The aforesaid observation would be clearly applicable to

the Corporation as it is exercising the rights of an owner in

selling the property. The appellants/Corporation is not selling

the property as an official liquidator.

23. In any event, the facts of this case as narrated above

would clearly indicate that the respondent had made all 19

necessary inquiries. It was the appellants/Corporation that

failed to perform its obligations in giving a fair description of

the property offered for sale. Learned counsel had also relied

on another judgment in the case of U.T. Chandigarh

Administration and Anr. vs. Amarjeet Singh and Ors.

(2009) 4 SCC 660. In our opinion, the aforesaid judgment is

wholly inapplicable to the facts and circumstances of this case

as it relates to the duties of a developer who carries on

activities of development of land and invites application for

allotment of sites in a developed layout. In our opinion the

aforesaid judgment is not applicable to the facts of this case.

We see no merit in any of the submissions, or the grounds of

appeal. The appeal is accordingly dismissed.

24. It appears that the judgment of the High Court had been

stayed by this Court on 2.9.2002. In view of the dismissal of

the appeal, we direct that the forfeited amount be refunded to

the respondent with 12 per cent interest w.e.f. 1.2.1998 till

payment. The amount be paid to the respondent within a

period of two months of producing the certificate copy of this

order. We also direct that in the event the aforesaid amount is 20

not paid within the stipulated period the respondent shall be

entitled to interest at the rate of 18 per cent per annum till

payment. We also direct the respondent shall be entitled to

costs which are assessed as Rs.50,000/-.

........................................J (J.M. PANCHAL)

......................................

...J (SURINDER SINGH NIJJAR)

NEW DELHI DECEMBER 15, 2009