Holding

The forfeiture of the earnest money was unlawful because HFC breached its duty to disclose the lack of an independent passage under Section 55 of the Transfer of Property Act, and thus the deposit must be refunded with interest.

Summary

The Haryana Financial Corporation (HFC) advertised an auction of a defaulting unit’s land and accepted a Rs.2.5 lakh earnest deposit from Rajesh Gupta, the highest bidder. Gupta discovered that the plot lacked an independent access road and repeatedly requested clarification and plans, but HFC failed to respond and later threatened forfeiture of the deposit unless the balance was paid. After Gupta withheld further payment, HFC forfeited the earnest money, prompting Gupta to seek a refund. The Supreme Court held that HFC breached Section 55(1)(a) and (b) of the Transfer of Property Act by not disclosing the material defect and by failing to produce relevant documents, rendering the forfeiture arbitrary and unfair. The Court rejected HFC’s reliance on Clause 5 of the advertisement and on Section 29 of the State Financial Corporations Act, 1951, and ordered the refund of the earnest money with interest. The appeal was dismissed.

Issues considered

Whether the forfeiture of earnest money by HFC was valid despite the bidder’s claim of non‑existence of an independent passage.
Whether HFC was obligated to disclose the material defect of the property under Section 55 of the Transfer of Property Act, 1882.
Whether Clause 5 of the advertisement permitting forfeiture can be invoked when the seller failed to disclose a material defect.
Whether Section 29 of the State Financial Corporations Act, 1951 applies to an auction purchaser.
Whether the precedents cited by HFC (United Bank of India, U.T. Chandigarh Administration) are applicable to the facts of this case.

Legislation cited

Constitution of Indias. Article 12
State Financial Corporations Act, 1951s. 29
Transfer of Property Act, 1882s. 55(1)(a), s. 55(1)(b)

Subjects

auction saleearnest moneyforfeitureTransfer of Property Actmaterial defect disclosurestate financial corporationindependent passageunfair trade practicestatutory duty

Judgment

[2009) 16 (ADDL.) S.C.R. 456
"
A HARYANA FINANCIAL CORPORATION & ANR.
v.
RAJESH GUPTA
(Civil Appeal No. 829 of 2003)
DECEMBER 15, 2009
B
[J.M. PANCHAL AND SURINDER SINGH NIJJAR, JJ.J

Contract:

c Auction sale - Forfeiture of earnest money - Highest
bidder depositing earnest money for auctioned industrial plot
of defaulting unit - Later it transpired that the premises did
not have an independent passage - Issue of independent
•
passage having not been resolved bidder did not pay the
D further amount - Earnest money forfeited by State Financial
Corporation - HELD: The bidder has not failed to comply with
•
conditions of sale - It is the Corporation which, though being
the instrumentality of State, acted unfairly - It was incumbent
upon the Corporation to disclose to the buyer about non-
existence of independent passage to the premises -
E
Corporation acted in breach of ss.55(1)(a) and (b) of the
Transfer of Property Act - Buyer being an auction purchaser,
s.29 of State Financial Corporation Act has no application cc;
the case - High Court rightly concluded that action of
Corporation in forfeiting the earnest money of the buyer was
F wholly arbitrary and unfair - Forfeited amount would be
. ~

refunded to buyer with 12% interest - Tran sfer of Property Act,
1882- ss. 55(1}(a) and (b) - State Financial Corporation Ar:t,
1951 - s.29 - Constitution of India, 1950 - Article 12

G The respondent, pursuant to an advortisement
issued by the appellant- Haryana Fimmcial Corporation,
for sale of land of a defaulting company, made an offer
and he being the highest bidder deposited Rs. 2.5 lakhs
by way of earnest money. After a visit having been made
H 456
HARYANA FINANCIAL CORPORATION & ANR. v. 457
RAJESH GUPTA
' by the respondent to the factory premises, he wrote to A
the appellant-Corporation that the land in question did
not have an independent passage and requested for
supply of copy of the approved building plan of the
premises, but his request remained unanswered. lnspite
of this, the Corporation issued a letter dated 18.5.1998 to B
the respondent asking him to deposit balance amount of
25 per cent of the bid amount within fifteen days, failing
which the earnest money deposited by him would be
forfeited. Since the issue of independent passage was
not resolved, the respondent did not pay the balance c
amount and the Corporation by its order dated 30.9.1998
forfeited the earnest money deposited by him. The
respondent approached the High Court, which quashed.
the order dated 30.9.1998 and directed the Corporation
to refund the amount along with 12 % interest. Aggrieved, 0
the Corporation filed the appeal.

Dismissing the appeal, the Court

HELD: 1. Factually the appellants have accepted that
on 28.1.1998 the respondent had in no uncertain terms E
informed the appellants/Corporation about the non-
existence of the independent passage. There is a
categorical asse,rtion that premises do not have an
independent appropriate passage from the road. The
~ • appellants were merely relying on the documents F
submitted by the defaulting unit. No independent
inquiries were made by the appellants 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 issue seems G
to be concluded against the appellants/Corproation by
letter dated 30.4.1998 whereby its Branch Manager has
' informed the head office in unequivocal language that the
independent passage shown in the sale deed is not
H
458 SUPREME COURT REPORTS [2009) 16 (ADDL.) S.C.R.

A connected directly with the defaulting unit. [Para 14 and
16) (466-C-D; 467-G-H; 468-A-B]

1.2. Taking into consideration the facts, the Division
Bench of the High Court rightly concluded that the action
B of the Corporation in forfeiting the amount deposited by
the respondent was wholly arbitrary and unfair. The High
Court was justified in further concluding that In law the
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
c Bench, however, observed that the respondent was
dealing with an instrumentality of State, which would act
fairly. He deposited the sum of Rs.2.5 lakhs on the clear
understanding that there would be an independent
approach road to the Unit. Without any Independent
D passage the plot of land would be not more than an
agricultural plot, not suitable for development as a
manufacturing unit. [Para 16 and 17] (468-E-H; 469-A-C]

1.3. Clause 5 of the advertisement, undoubtedly,
E 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. The respondent has
not failed to comply with the conditions of sale. Rather,

F
it is the Corporation which has acted unfairly. The
appellants, cannot be given the benefit of Clause 5 .of the
advertisernent;and cannot be permitted to take advantage
..
of their own wrong. [Para 18] (469-0-E]

1.4. In terms of ss.55(1)(a) and (b) of the Transfer of
Property Act, 1882 it was incumbent upon the appellants/
G Corporation to disclose to the respondent about the non-
existence of the independent passage to the Unit, and
that the passage mentioned in the revenue record was
not fit for movement of vehicles. The appellants failed to
disclose to the respondent the material defect about the
H
HARYANA FINANCIAL CORPORATION & ANR. v. 458
RAJESH GUPTA
• non-existence of the independent 3 'Karam' passage to A
the property. The appellant also failed to produce to the
buyer the entire documentation as required by s.55(1)(b)
of the Transfer of Property Act. The~efore, the appellants
clearly acted in breach of ss.55(1 )(a) and (b) of the
Transfer of Property Act. In any event, the facts of. the B
instant case clearly indicate that the respondent had
made all necessary inquiries. It was the Corporation that
failed to perform its obligations in giving a fair description
of the property offered for sale. [Para 19-20 and 23) [469-
E-G; 470-C-E; 471-F] C

U. T. Chandigarh Administration and Anr. Vs. Amarjeet
Singh and Ors. 2009 (4) SCR 541=(2009) 4 SCC 660, held
inapplicable.

1.5. Section 29 of the State Financial Corporations D
Act, 1951 is not applicable in the instant case, as the said
section pertains to action which the Corporation can take
against the defaulting Unit. The respondent is an auction
purchaser and therefore cannot be confused with the
defaulting unit [Para 21) [470-F-G] E
United Bank of India vs. Official Liquidator and Ors. 1993
(3) Suppl. SCR 1 = (1994) 1 SCC 575, held inapplicable.

1.6. The forfeited amount be refunded to the
respondent with 12 per cent interest w.e.f. 1.2.1998 till F
payment. In the event the amount is not paid within the
stipulated period, the respondent shall be entitled to
interest at the rate of 18 per cent per annum till payment.
[Para 24) [472-B-C]
G
Case Law Reference :
1993 (3) Suppl. SCR 1 held inapplicable para 21
2009 (4) SCR 541 held inapplicable para 23
H
460 SUPREME COURT REPORTS (2009) 16 (ADDL.) S.C.R.

A CIVIL APPELLATE JURISDICTION: Civil Appeal No. 829
of 2003.
From the Judgment & Order dated 26.11.2001 of the High
Court of Punjab & Haryana in Civil Writ Petition No. 5752 of
2001.
B
Amit Dayal for the Appellants.
Vimal Chandra S. Dave for the Respondent.
The Judgment of the Court was delivered by
c SURINDER SINGH NIJJAR, J. 1. This appeal is directed
against the Judgment and Order dated 26.11.2001 in
C.W.P.5725/2001 of the High Court of Punjab and Haryana at
Chandigarh.
2. The respondent had approached the High Court with a
D
prayer that the order dated September 30, 1998 by which the
Haryana Financial Corporation (hereinafter referred to as the
appellants/Corporation), had forfeited, amount of Rs.2.5 lakhs,
deposited by the respondent by way of earnest money, be
quashed. The respondent had also prayed that the appellants
E /Corporation be directed to refund the amount illegally forfeited
along with interest.
3. Shorn of unnecessary details, we may notice here only
the relevant facts.
F 4. On 8.1.1998, the appellants/Corporation issued an • ",
advertisement for sale of various units, including the land of Ml
s. Unique Oxygen Private Limited(hereinafter referred to as the
defaulting unit), Old Hansi Road, Jind. On 28.1.1998
respondent initially made an offer of Rs.25,00,000/-, which was
G 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:
H
HARYANA FINANCIAL CORPORATION & ANR. v. 461
RAJESH GUPTA [SURINDER SINGH NIJJAR, J.]

"RAJESH GUPTA 578, AUTO MOBILE A
MARKET HISAR
Phone: 28221 - 3 Lines
Fax No.01662 - 31084
January 29, 1998
The Managing Director B
Haryana Financial Corporation
17, 18, 19 Sector 17-A
Chandigarh 160017
Kind Attention: Sh.Raj Kumar Ji, M.D.
c
Sub: Offer to purchase assets of Unique Oxygen Private
Limited Jind.

Dear Sir,

With reference to your advertisement in D
'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 E
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 F
not face any problems, if we acquire the unit as per your
.:iffer.

We hope to hear soon in this regard.
G
Thanking you,
Yours faithfully
Sd/-
Rajesh Gupta"
No response was given by the appellants/Corporation to the H
462 SUPREME COURT REPORTS [2009] 16 (ADDL.) S.C.R.

A 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:
B

"FAX N0.1072-70266 578, AUTO MOBILE
MARKET HISAR
Phone: 28221 (3 Lines)
c Fax No.01662 - 31084
07-03-1998
The Managing Director
Haryana Financial Corporation
Chandigarh.
D Sub: Offer to purchase unit of Unique Oxygen Private
Limited Jind
Dear Sir,
With reference to the negotiation held on 6.3.98 at
E 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 qt the factory
was discussed in the meeting and the unit holder, who was
F 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
G 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
H
HARYANA FINANCIAL CORPORATION & ANR. v. 463
RAJESH GUPTA [SURINDER SINGH NIJJAR; J.]
by H.F.C. so that we may not face any problem in future in A
running the unit.

Kindly treat it as most urgent.

Thanking you,
B
Yours faithfully
Sd/- Rajesh Gupta"
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 c
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 0
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 E
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 F
Rasta with the Rasta of the revenue record party
purchased some land where the movement of the vehicles
is not possible at all."

6. In fact the letter further pointed out as follows: G
"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 H
464 SUPREME COURT REPORTS [2009] 16 (ADDL.) S.C.R.

A 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/
B
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,
c again raised the issue regarding the passage at the open
house held by the appellants/Corporation ?.~ Hi::::.z.1 on
12.6.1998. According to the appellantsi Corporation, as per the
revenue record and the demarcation report of the revenue
officials dated 27.6.1998, therein 16.5 ft. rast.J is provided in
D the west of the Unit. However. not 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
E 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.
..
F 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
G 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.
H
HARYANA FINANCIAL CORPORATION & ANR. v. 465
RAJESH GUPTA [SURINDER SINGH NIJJAR, J.)
It is this order which is challenged In the present appeal. A

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

11. Mr. Amit Dayal, learned counsel for the appellants I
8
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 C
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 D
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 E
Transfer of Property Act, 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 F
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 G
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
H
466 SUPREME COJRT REPORTS (2009) 16 (ADDL.) S.C.R.

A 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.
B
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
c 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.
D 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 b~ilding plan
were not available, and would be available at the Head Otfice
E only. Thereafter, there is a studious silence from the appe"ants/
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 I ...
F 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
G 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
H
HARYANA FINANCIAL CORPORATION & ANR. v. 467
RAJESH GUPTA [SURINDER SINGH NIJJAR, J.]
• was also never specifically answered by the appellants/ A
Corporation. In view of the protests of the respondent, the issue
was raised by the Branch Manager of the appellants I
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 B
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.
c
In this connection, you are advised that clear cut
Passage I Rasta has been provided to the concern as per
documents submitted by the concern at the time of availing
loan. D
'.
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 E
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."
F

.. 16. A perusal of the aforesaid letter makes it apparent that
the appellants/Corporation were merely relying on the
documents submitted by Mis. Unique Oxygen Private Limited,
Old Hansi Road, Jind i.e., the def<1ulting unit. The appellants/ G
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 H
468 SUPREME COURT REPORTS [2009] 16 (ADDL.) S.C.R.

A 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 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
B 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
c 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
0
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
E 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 position having been admitted in the
letter dated April 30, 1998, a copy of which is at Annexure
F P6, and nothing to the contrary having been produced on
~he file, we find that the action of the respondent/
Corporation in forfeiting the amount deposited by the
petitioner was wholly arbitrary and unfair."

G 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
H
HARYANA FINANCIAL CORPORATION & ANR. v. 469
RAJESH GUPTA [SURINDER s·INGH NIJJAR, J.]
respondent was dealinfj with an instrumentality of state. He was A
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.SO lakhs
without being given even a proper passage to the Unit that he B
was buying. We are of considered opinion that the respondent
had deposited the sum of Rs.2.5 lakhs on the clear
1
understanding that there would be an independent approach
road to the Unit. This is understandable. Without any
independent passage the plot of land would be not more than c
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 D
1 benefit of Clause 5 of the advertisement. The appellants I
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 E
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.
F
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
material defect about the-non-existence of the independent 3 G
'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:
H
470 SUPREME COURT REPORTS [2009) 16 (ADDL.) S.C.R.

A (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;
8
(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;
c
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/
D 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 (1) (b) of the
aforesaid Section. We are therefore satisfied that the
appellants/Corporation cannot seek to rely on the aforesaid
E
provision of The Transfer of Property Act, 1882.

21. In our opinion, the reliance on Section 29 of the Sc&te
Financial Corporations Act, 1951 is wholly misplaced. The
aforesaid Section pertains to action which the Corporation can
F 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 purch2ser and
therefore cannot be confused with the defaulting Lir.it. We are
G also of the considered opinion that the reliance placed on the
judgment of this Court by the counsel tor 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
H company in liquidation by the official liquidator under the orders
HARYANA FINANCIAL CORPORATION & ANR. v. 471
RAJESH GUPTA [SURINDER SINGH NIJJAR, J.]
of the Court. Therefore it is observed that the official liquidator A
cannot and does not hold any guarantee or warranty in respect
of the property sold. That is because the 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 B
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 c
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." D

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. E

23. In any event, the facts of this case as narrated above
would clearly indicate that the respondent had made all
necessary inquiries. It was the appellants/Corporation that failed
to perform its obligations in giving a fair description of the F
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 G
development of land and invites application for allo!ment 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. H
472 SUPREME COURT REPORTS [2009) 16 (ADDL.) S.C.R.

A 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
B of two months of producing the certificate copy of this order.
We also direct that in the event the aforesaid amount is 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
c assessed as Rs.50,000/-.
R.P. Appeal dismissed.