Case: Suresh Kumar Wadhwa Vs. State Of M.P

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. 36. When we read the facts and law laid down by this Court in the case of Maula Bux v. Union of India, 1969(2) SCC 554 and Shri Hanuman Cotton Mills & Ors. v. 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 v. 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 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 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 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 appellants 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 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 v. 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: .....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 appellants suit. The appellants suit should have been decreed against the respondents. We hereby do so.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]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 appellants (plaintiffs) suit against the respondents as indicated infra23. 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 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 sum28. 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 deposited by the bidder (appellant herein) is liable for forfeiture by the State and, if so, in what contingencies29. 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 case30. 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 proceedings enabling the bidders to make their compliance, in case, their bid is accepted31. 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 case32. 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 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 ofe of these conditions by the appellant34. 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 in verbatim in the public notice itself. It was, however, not done35. 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; 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 law39. 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 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 deposit40. 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 these circumstances, the State had no right to forfeit the security amount and instead it should have been returned when demanded by the appellantIn 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 forfeiting the security deposit of the appellant was wholly unjustified42. 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 recover44. We are in respectful agreement with the aforementioned observations as, in our considered opinion, they apply fully to the case in hand against the State45. 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 appellants suit. The appellants suit should have been decreed against the respondents. We hereby do so.