Suresh Kumar Wadhwa vs State Of M.P .

Suresh Kumar Wadhwa ….Appellant(s)

VERSUS

State of M.P. & Ors. …Respondent(s)

JUDGMENT

Abhay Manohar Sapre, J.

1. This appeal is filed by the plaintiff against the

final judgment and order dated 21.11.2006 passed

by the High Court of Madhya Pradesh, Bench at

Jabalpur in First Appeal No.127 of 1998 whereby

the Division Bench of the High Court dismissed the

appeal filed by the appellant herein and affirmed the

judgment and decree dated 23.12.1997 passed by Signature Not Verified Digitally signed by ANITA MALHOTRA Date: 2017.10.25 the 9th Additional District Judge, Bhopal in C.S. 16:59:45 IST Reason: 1 No.2-A/97 by which the appellant's suit for

declaration and refund of security amount deposited

with the respondents was dismissed.

2. Facts of the case lie in a narrow compass.

They, however, need mention, in brief, to appreciate

the controversy involved in the appeal.

3. The appellant is the plaintiff whereas the

respondents (State of M.P. and its officials) are the

defendants in a civil suit out of which this appeal

arises.

4. Respondent No. 3 (defendant No. 3)-a Nazul

Officer, Bhopal issued an advertisement on

07.01.1996 in daily newspaper for and on behalf of

State of M.P wherein it was published that four

nazul plots of the State would be sold in public

auction on 11.01.1996 on the terms and conditions

set out therein. Anyone interested could participate

in the public auction by following the terms and

2 conditions mentioned in the public notice. It is

apposite to reproduce the public notice including its

terms/conditions hereinbelow:

“All are hereby informed that the public auction of Government nazul plots of situated at Mahavir Nagar, Arera Colony, Bhopal is to be carried out. The description of the nazul plots is as follows:

Place Plot No. Area Arera Colony, Bhopal E 5/5 2880 sq ft E 5/17 2880 sq ft E 2/12 13251.03 sq ft E 2/12 9600 sq ft

The public auction of the aforesaid plots will done on 11.01.1996 starting at 11 A.M. in the court of the nazul officer capital city scheme Bhopal and the conditions of the auction will be as follows:

1. Each plot shall be auctioned separately.

2. Bidder must be Income Tax Assessee and proof of Assessment for 1994-95 shall be necessary.

3. Before taking part in the bid, each bidder shall have to deposit a Bank draft of Rs. 3.00 lacs with Nuzul Officer as a security.

4. The highest bidder shall have to deposit 1/4th amount of his bid immediately after closure of auction for the plot in question.

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5. Within 7 days from the date of acceptance of his bid, the bidder shall have to deposit entire amount of his bid after adjustment of security deposit and one fourth amount already deposited.

6. After receipt of full payment, the possession of plot after demarcation shall be delivered to bidder on site and he shall be granted a permanent lease for 30 years.

7. Collector, Bhopal shall have power to cancel any auction/bid without assigning any reasons.”

5. The appellant was one of the participants in

the auction proceedings. The appellant, accordingly,

in terms of clauses 2 and 3 of the public notice

deposited his Income Tax Return for the year

1994-95 and also deposited a sum of Rs. 3 lakhs

vide Bank Draft No. 6858812 dated 10.01.1996 with

respondent No. 3 as security.

6. The auction was held on 11.01.1996. The

appellant quoted his bid at Rs.53,80,000/- for plot

No.E-5/5 situated in Mahavir Nagar, Arera Colony,

4 Bhopal. The appellant's bid was declared the

highest amongst those who participated. The

Respondent No. 3 accordingly accepted the

appellant’s bid for plot No. E-5/5.

7. The Respondent No. 3 then asked the

appellant to deposit 1/4th amount of the total

amount on the same day in terms of public notice.

The appellant accordingly deposited a sum of

Rs.10.45 lakhs by cheque No. 309991 dated

11.01.1996 drawn in favour of respondent No. 3.

8. On 25.01.1996, the appellant received a letter

dated 24.01.1996 from respondent No. 3 informing

him that his bid for plot No. E-5/5 is accepted

subject to "special terms and conditions". These

conditions, which are mentioned in the letter, read

as under:

“1.Annual lease rent @ 7.5% will be charged from the bidders on the accepted bid amount.

5 2. If the lease rent for 10 years is deposited in lumpsum, then the remaining 20 years will be free from lease rent.

3. The lease shall have to be renewed as per rules after 30 years.

4. All the conditions of auction will be binding on the bidders.”

9. The appellant, on receipt of aforesaid letter,

replied to respondent No.3 on 29.01.1996 stating

that the “special terms and conditions" mentioned

in the letter were neither published nor informed to

him at any point of time earlier and nor was he ever

made aware of any such terms and conditions till he

received the letter dated 25.01.1996. The appellant,

therefore, declined to accept the “special terms and

conditions" and requested respondent No. 3 to

return the security amount of Rs.3 lakhs, which he

had deposited at the time of submission of the bid.

10. On 08.02.1996, respondent No. 2 issued a

show cause notice to the appellant stating therein

6 as to why the amount of Rs.3 lakhs be not

"forfeited" and the plot in question is re-auctioned.

The appellant, vide his reply dated 12.02.1996

replied that since he has not accepted the "special

terms and condition" offered by respondent No. 3 in

their acceptance letter, the appellant is entitled to

ask for refund of the security amount of Rs.3 lakhs

from respondent No. 3 and that respondent No. 2

has no right to forfeit such amount.

11. Respondent No. 2, by his letter dated

24.02.1996 informed to the appellant that a sum of

Rs. 3 lakhs deposited by him (appellant) towards

security has been forfeited.

12. The appellant, on 28.02.1996, then served a

legal notice to the respondents under Section 80 of

the Code of Civil Procedure, 1908 and demanded

refund of Rs. 3 Lakhs. The respondents, however,

did not refund the money. The appellant was,

7 therefore, constrained to file the civil suit against

the respondents for a declaration that the letter

dated 24.02.1996 forfeiting the security amount of

Rs 3 lakhs be declared as bad in law and further

prayed for refund of Rs. 3 lakhs along with interest

at the rate of Rs.18% p.a..

13. In substance, the appellant's suit was founded

on the allegations, inter alia, that firstly, the

appellant was within his right to refuse to accept

the "special terms and conditions" contained in the

acceptance letter dated 24.01.1996 of respondent

No.3 because according to the appellant these terms

and conditions were never part of the original public

auction notice pursuant to which he had submitted

his bid and nor such terms and conditions were

communicated to the appellant till his bid was

accepted and hence these conditions were not

binding on him; Secondly, in the absence of any

8 terms and conditions published in the public notice

empowering respondent No. 2 to forfeit the security

amount (Rs.3 lakhs), respondent No. 2 had no

right/authority to forfeit a sum of Rs. 3 lakhs

deposited by the appellant; and lastly, the appellant

had performed his part by ensuring compliance of

all necessary terms of the public notice whereas it

was the respondents, who committed breach of the

terms.

14. The respondents filed their written statement.

While denying the appellant's claim, the

respondents justified their action in forfeiting the

security amount of Rs. 3 lakhs. The respondents,

however, contended that firstly, the “special terms

and conditions” were orally told to the appellant at

the time of auction; secondly, these terms and

conditions were applicable to the auction

proceedings because they are part of the Revenue

9 Book Circular (RBC) which applies to all the plots in

question; and lastly, the appellant committed

breach of terms by withholding the payment of

1/4th amount, when he directed "stop payment" of

his cheque amount for being paid to respondent

No.3. These were essentially the grounds taken in

the written statement to justify the forfeiture as

being legal and proper.

15. The Trial Court framed issues. Parties led

evidence. By judgment/decree-dated 23.12.1997,

the Trial Court dismissed the suit. It was held that

the appellant failed to deposit the 1/4 th amount

immediately as per the terms of the public notice

inasmuch as the appellant deposited the amount by

cheque and later stopped its payment, which

constituted a breach on his part of the terms of the

public notice. It was also held that the demand of

certain money by way of "special terms and

10 conditions" mentioned in the acceptance letter

dated 24.01.1996 was in accordance with the Rules

of RBC and, therefore, such terms and conditions

were binding on the appellant for ensuring its

compliance and lastly, in the light of the two

breaches committed by the appellant, the

respondents were justified in forfeiting the security

amount deposited by the appellant.

16. The appellant, felt aggrieved, filed first appeal

before the High Court. The Division Bench, by

impugned order, dismissed the appeal and upheld

the judgment/decree of the Trial Court. The High

Court held that since the similar issue was the

subject matter of another appeal (F.A. No.

794/2000- M/s Priyanka Builders vs State of MP

decided on 11.11.2006) and the said appeal

having been dismissed, this appeal also deserves

dismissal in the light of judgment rendered in

11 Priyanka Builders' case. The impugned judgment,

however, neither recorded any reason given in the

Priyanka's case and nor mentioned the facts of

Priyanka's case with a view to show similarity

between both the cases and nor recorded any

independent reasoning for dismissal of the appeal.

17. The appellant (plaintiff), felt aggrieved, has

filed this appeal by way of special leave before this

Court.

18. Heard Mr. Prasenjit Keswani, learned counsel

for the appellant and Mr. Mishra Saurabh, learned

counsel for respondents 1 & 2.

19. Having heard learned counsel for the parties

and on perusal of the record of the case, we are

inclined to allow the appeal, set aside the impugned

judgment and the decree of the two Courts below

and decree the appellant's (plaintiff’s) suit against

the respondents as indicated infra.

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20. Three questions, basically, arise in this appeal.

First, whether the appellant (plaintiff) committed

any breach of the terms and conditions of the public

auction notice dated 07.01.1996; second, whether

the State was justified in forfeiting the security

money (Rs.3 lakhs) deposited by the appellant for

the alleged breach said to have been committed by

the appellant of any terms and conditions of public

notice dated 07.01.1996; and third, whether the

State had power to forfeit the security money in the

facts of this case?

21. These questions need to be answered keeping

in view the provisions of Section 74 of the Indian

Contract Act, 1872 (hereinafter referred to as "the

Act") and some settled legal principles relating to

law of contract.

22. Section 74 of the Act reads as under:

“74. Compensation for breach of contract where penalty stipulated for- When a contract

13 has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Explanation- A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

Exception- When any person enters into any bail-bond, recognizance or other instrument of the same nature or, under the provisions of any law, or under the orders of the Central Government or of any State Government gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.

Explanation- A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.”

23. Reading of Section 74 would go to show that in

order to forfeit the sum deposited by the contracting

party as "earnest money" or “security" for the due

14 performance of the contract, it is necessary that the

contract must contain a stipulation of forfeiture. In

other words, a right to forfeit being a contractual

right and penal in nature, the parties to a contract

must agree to stipulate a term in the contract in

that behalf. A fortiori, if there is no stipulation in the

contract of forfeiture, there is no such right

available to the party to forfeit the sum.

24. The learned author-Sir Kim Lewison in his

book "The Interpretation of Contracts" (6th edition)

while dealing with subject "Penalties, Termination

and Forfeiture clauses in the Contract" explained

the meaning of the expression "forfeiture" in these

words:

"A forfeiture clause is a clause which brings an interest to a premature end by reason of a breach of covenant or condition, and the Court will penetrate the disguise of a forfeiture clause dressed up to look like something else. A forfeiture clause is not to be construed strictly, but is to receive a fair construction.”(See page 838)

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25. The author then quoted the apt observations of

Lord Tenterden from an old case reported in (1828)

Moo. & M.189 Doe d Davis vs. Elsam wherein the

learned Lord while dealing with the case of forfeiture

held as under:

"I do not think provisoes of this sort are to be construed with the strictness of conditions at common law. These are matters of contract between the parties, and should, in my opinion, be construed as other contracts" (see pages 840).

26. Equally well settled principle of law relating to

contract is that a party to the contract can insist for

performance of only those terms/conditions, which

are part of the contract. Likewise, a party to the

contract has no right to unilaterally “alter" the

terms and conditions of the contract and nor they

have a right to “add" any additional

terms/conditions in the contract unless both the

parties agree to add/alter any such

terms/conditions in the contract.

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27. Similarly, it is also a settled law that if any

party adds any additional terms/conditions in the

contract without the consent of the other

contracting party then such addition is not binding

on the other party. Similarly, a party, who adds

any such term/condition, has no right to insist on

the other party to comply with such additional

terms/conditions and nor such party has a right to

cancel the contract on the ground that the other

party has failed to comply such additional

terms/conditions.

28. Keeping in view the aforementioned principle

of law, when we examine the facts of the case at

hand then we find that the public notice

(advertisement), extracted above, only stipulated a

term for deposit of the security amount of Rs.3

lakhs by the bidder (appellant) but it did not

publish any stipulation that the security amount

17 deposited by the bidder (appellant herein) is liable

for forfeiture by the State and, if so, in what

contingencies.

29. In our opinion, a stipulation for deposit of

security amount ought to have been qualified by a

specific stipulation providing therein a right of

forfeiture to the State. Similarly, it should have also

provided the contingencies in which such right of

forfeiture could be exercised by the State against

the bidder. It is only then the State would have got

a right to forfeit. It was, however, not so in this

case.

30. So far as the four special conditions are

concerned, these conditions were also not part of

the public notice and nor they were ever

communicated to the bidders before auction

proceedings. There is no whisper of such conditions

being ever considered as a part of the auction

18 proceedings enabling the bidders to make their

compliance, in case, their bid is accepted.

31. In our considered opinion, it was mandatory

on the part of the respondents(State) to have

published the four special conditions at the time of

inviting the bids itself because how much

money/rent the bidder would be required to pay to

the State on allotment of plot to him was a material

term and, therefore, the bidders were entitled to

know these material terms at the time of submitting

the bid itself. It was, however, not done in this case.

32. Since these four conditions were added

unilaterally and communicated to the appellant by

respondent No. 3 while accepting his bid, the

appellant had every right to refuse to accept such

conditions and wriggle out of the auction

proceedings and demand refund of his security

amount. The State, in such circumstances, had no

19 right to insist upon the appellant to accept such

conditions much less to comply and nor it had a

right to cancel the bid on the ground of

non-compliance of these conditions by the

appellant.

33. Learned counsel for the respondents (State),

however, argued that it was not necessary for the

State to specify the condition relating to forfeiture

and four additional terms/conditions in the public

notice because they were already part of RBC,

which is applicable to the nazul lands in question.

34. We find no merit in this submission for more

than one reason. First, the public notice inviting

bids did not even contain a term that all the

provisions of RBC will be applicable to the auction

proceedings and second, the relevant clauses of

RBC which, according to the State, were to govern

the auction proceedings ought to have been quoted

20 in verbatim in the public notice itself. It was,

however, not done.

35. In our considered opinion, the object behind

publishing all material term(s) is/are three fold.

First, such term(s) is/are made known to the

contracting parties/bidders; second,

parties/bidders become aware of their rights,

obligations, liabilities qua each other and also of

the consequences in the event of their

non-compliances; and third, it empowers the State

to enforce any such term against the bidder in the

event of any breach committed by the bidder and

lastly, when there are express terms in the

contract/pubic notice then parties are bound by

the terms and their rights are, accordingly,

determined in the light of such terms in accordance

with law.

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36. When we read the facts and law laid down by

this Court in the case of Maula Bux vs. Union of

India, 1969(2) SCC 354 and Shri Hanuman Cotton

Mills & Ors. Vs. Tata Air Craft Ltd., 1969(3) SCC

522, we find that there was a specific clause of

forfeiture in the contract in both the cases. Such

clause empowered one party to forfeit the earnest

money/security deposit in the event of

non-performance of the terms of the contract. It is

in the light of such facts, Their Lordships examined

the question of forfeiture in the context of Section

74 of the Contract Act. Such is not the case here.

37. Our reasoning is supported by a recent

decision of this Court in Union of India vs. Vertex

Broadcasting Company Private Limited & Ors.,

(2015) 16 SCC 198 wherein Their Lordships held

inter alia that in the absence of any power in the

contract to forfeit the license money deposited by

22 the licensee, the action of the Union to forfeit the

license fees is held illegal. This is what was held:

“10. Coming to the aforesaid question of availability of a power to order forfeiture, a reading of the relevant clauses i.e. Clauses 8(f), 10(d) and 12 extracted above would go to show that the Union had not protected/empowered itself to forfeit the licence fee. The forfeiture contemplated by the aforesaid clauses are altogether in different contexts and situations. In the absence of any such power, the forfeiture that has taken place in this case will have to be adjudged as null and void.”

38. Learned counsel for the respondents (State)

then argued that the appellant had committed the

breach of clause 4 of public notice inasmuch as he

failed to pay 1/4th amount and "stopped payment"

of the cheque amount to the respondents.

39. We do not agree to this argument. In the first

place, the appellant ensured compliance of the term

because he deposited 1/4th amount of Rs.

10,45,000/- on the same day, i.e.,11.01.1996 by

cheque. Secondly, the respondents also accepted

23 the cheque from the appellant because deposit of

money by cheque was one of the modes of payment.

Had it not been so, the respondents would not have

accepted the cheque from the appellant. Thirdly, the

stop payment was done when the appellant received

the acceptance letter containing four additional

conditions to which he was not agreeable. He had,

therefore, every right to wriggle out of the auction

proceedings and stop further payment towards the

transaction. Such action on the part of the

appellant (bidder) did not amount to a breach of

clause 4 so as to give right to the State to forfeit the

security deposit.

40. In the light of foregoing discussion, we are of

the considered opinion, that the appellant did not

commit any breach of the term(s) and condition(s) of

the notice inviting bids and on the other hand, it

was the respondents who committed breaches. In

24 these circumstances, the State had no right to

forfeit the security amount and instead it should

have been returned when demanded by the

appellant.

41. Learned counsel for the appellant, however,

brought to our notice that after cancellation of the

auction proceedings in question, the plot in

question was re-auctioned by the State and the

same fetched Rs.134.00 lakhs as against appellant’s

bid amount of Rs.53,50,000/-. Learned counsel for

the respondents did not dispute this fact. In such

circumstances, we find that the respondent did not

suffer any monetary loss in the transaction and on

the other hand earned more money as against what

they would have got from the appellant. It is for this

additional reason also, we are of the view that the

action on the part of the respondents(State) in

25 forfeiting the security deposit of the appellant was

wholly unjustified.

42. In this case, it was expected from the State

officials to have acted as an honest person while

dealing with the case of an individual citizen and in

all fairness should have returned the security

amount to the appellant without compelling him to

take recourse to the legal proceedings for recovery of

his legitimate amount which took almost 21 years to

recover.

43. Indeed, this reminds us of the apt observations

made by the Chief Justice M.C. Chagla in a case

reported in Firm Kaluram Sitaram vs. The

Dominion of India (AIR 1954 Bombay 50). The

learned Chief Justice in his distinctive style of

writing while deciding the case between an

individual citizen and the State made the following

pertinent observations in para 19:

26

“…..we have often had occasion to say that when the State deals with a citizen it should not ordinarily reply on technicalities, and if the State is satisfied that the case of the citizen is a just one, even though legal defences may be open to it, it must act, as has been said by eminent Judges, as an honest person.”

44. We are in respectful agreement with the

aforementioned observations as, in our considered

opinion, they apply fully to the case in hand against

the State.

45. We are, therefore, of the considered opinion

that both the Courts below were not justified in

their respective reasoning and the conclusion in

dismissing the appellant's suit. The appellant's suit

should have been decreed against the respondents.

We hereby do so.

46. The appeal thus succeeds and is allowed with

cost throughout. Impugned judgment and decree of

the High Court and the Trial Court are set aside and

the appellant’s (plaintiff) suit is decreed against the

27 respondents (defendants). It is declared that letter

dated 24.02.1996 of the respondents forfeiting the

security deposit of the appellant is illegal and bad in

law. A money decree for refund of Rs.3 lakhs is

accordingly passed in favour of the

appellant(plaintiff) and against the respondents

(defendants) along with interest payable on Rs.3

lakhs at the rate of 9% p.a. from 01.02.1996 till

realization.

47. Cost of the appeal Rs.10,000/- be payable by

the respondents to the appellant.

………...................................J. [R.K. AGRAWAL]

…...……..................................J. [ABHAY MANOHAR SAPRE] New Delhi;

October 25, 2017

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