Supreme Court of India
SURESH KUMAR WADHWAversusSTATE OF M.P. & ORS.
- Citation
- 2017 INSC 1052
- Decided
- 25 October 2017
- Disposal
- Appeal(s) allowed
- Bench
- R K AGRAWAL
Holding
In the absence of an express forfeiture clause in the public notice, the State had no legal right to forfeit the appellant's security deposit.
Summary
The appellant participated in a public auction of four nazul plots and deposited a Rs.3 lakh security as required by the public notice. After his bid was accepted, the State officer sent a letter imposing four "special terms and conditions" which the appellant had not been informed of earlier, and he refused to accept them, demanding a refund of his security. The State forfeited the security amount, prompting the appellant to sue for its return. The Supreme Court held that Section 74 of the Indian Contract Act requires an explicit forfeiture clause in the contract, which was absent in the public notice, and that the State could not unilaterally add material terms after the bid was accepted. Consequently, the forfeiture was illegal, the lower courts' decisions were set aside, and the appellant was awarded a decree for the refund of Rs.3 lakh with interest.
Issues considered
- The appellant breached any term of the public auction notice.
- Whether the State was justified in forfeiting the security deposit under the terms of the public notice.
- Whether the contract (public notice) contained a valid forfeiture clause permitting the State to retain the security amount.
Legislation cited
Subjects
Contract lawForfeitureSecurity depositPublic auctionSection 74Unilateral amendmentBreach of contractRefund of security
Judgment
[2017] 14 S.C.R. 1
SURESH KUMAR WADHWA A
v.
STATE OF M.P. & ORS.
· (Civil Appeal No. 7665 of2009)
OCTOBER 25, 2017 B
[R. K.AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.]
Contract Act, 1872 - s.74 - Public auction - Forfeiture of
Security deposit - Legality of - Respondent No.3 islued an
advertisement inviting participation in public auction offour nazu/ C
plots of the State by following terms and conditions set out therein -
Appellant, one of the participants in the auction proceedings
deposited a sum of Rs. 3 /akhs with respondent No.3 as security in
terms of public notice - Appellant's bid was declared the highest
and accordingly accepted by the Respondent No.3 subject to
"special terms and conditions" - Appellant declined to accept the D
''special terms and conditions" and requested for rejimd of the
security amount of Rs.3 lakhs - Consequently, respondent No.2
informed appellant that a sum of Rs.3 lakhs deposited by him
(appellant) has been for:feited - Civil suit filed by the appellant for
refund of security amount - Trial Court and High Court held that E
respondents were justified in fodeiting the ·.5ecurity amount deposited
- On appeal, held: Forfeiture of security amount deposited by
appellant is illegal and bad in law - Public notice (advertisement)
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) is liable F
for forfeiture by the State - A stipulation for deposit of security
amount ought to have been qualified by a specific stipulation
providing therein a right offo1:feiture to the State - Similarly, it
should have also provided the contingencies in which such right of
f01:feiture could be exercised by the State against the bidder - It is
G
only then the State would have got a right to foi:feit- It was, howeve1;
not so in instant case - Furthe1; it was mandat01:v on the part of the
respondents (State) to have published the four ''special conditions"
at the time of inviting the bid~ itself - Bidders were entitled to know
these material terms at the time of submitting the hid itself- Since
H
2 SUPREME COURT REPORTS [2017] 14 S.C.R.
A these four conditions were added unilaterally and communicated
to the appellant by respondent No. 3 while accepting his bid, the
appellant had eve1y 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 lo
insist upon the appellant to accept such conditions much less lo
B
comply and nor it had a right to cancel the bid on the ground of
non-compliance of these conditions by the appellant - 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 - State Had no right to fo1j'eit security
c amount - Impugned Judgment and decree of High Court and trial
Court set aside.
Allowing the appeal, the Court
HELD: 1. Reading of Section 74 of the Indian Contract
Act, 1872 would go to show that in or_der to forfeit the sum
D ·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
E 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. [Para 23) (11-D-E)
2. Equally well settled principle of law relating to contract
ls that a party to the contract can insist for performance of only
F 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. [Para 26) [12-B-C)
G
3. 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
H such additional terms/conditions and nor such party has a right
. /
,
..
SURESH KUMAR WADHWA v. STATE OF M.P. & ORS·; 3·
to cancel the contrac_t on the ground that the other party has A
failed to comply such additional terms/conditions: [Para 27] [12-DI ..
. .
4. The public notice (advertisement),-only stipulated a term
for deposit Of the security amount of Rs.3 lakhs by th.e bidder
(appellant) but it did not publish any-stipulation that the security .
amount deposited by the bidder (appellant) is liable for forfeiture B
by the State and, if so, in what contingencies. [Para 281 [12-E-FI.
5. A stipulatfon for deposit of security amount ought to have
been qualified by a specific stipulation providing therein a right
of forfeiture to the State. i;imilarly, it should have also provided
the contingencies in which such right oJ forfeiture could be c
exercised by, the State against the .bidder. It is only then the Stat_e .......
would have got_ a right to foffeit. It was, ho·wever, not so· in this
case. [Para 291 [12-F-GJ
• 6. So far as the four special conditions are concerned, these.
conditions were also not part of the public notice and nor they D
were ever communicated to. the bidders before auction
· proceedings. The~e 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 accepted.
, [Para 30] [12-G-H] · ·
•. • •t,
7. It was mandatory on the part of the respontlent~(State)
to have published the four special conditions at the time of inviti~g ·
the bids itself because how niuch money/rent the bidder would
be required to pay to the State on allotment of plot to him was a·
material tei:m and~ therefore, the bidders were entitled t~ km~)V
·these material. terms_ at the time of submitting the bid h&elf. It F
was, however, not done in.lliik"'clise. [Para 31] [i3-A-BI·
8 .. Sjnce these four conditions were added unilaterally an·d
communicated to the appellant' by resp_ondent No. 3 while
accepting his bid, the~ppellant had every tight to refuse to accept
.such conditions and Wriggle out of the auCtion·proceedings and a·.
demand refund: of his security amount. The State, in such
circumstances, had no right to insist upon the appellant to ~ccept -.
· such conditions. much l~ss to comply and nor it had a right to
cancel the bid on the.ground of non-compliance of these c6nditions ·
. by the llppellant. [Para 321 [13~B-CJ ··
H
4 SUPREME COURT REPORTS [2017] 14 S.C.R.
A 9. There is no merit in submission 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. First, the public notice inviting bids did not even
B contain a term that all the provisions ofRBC 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 done. (Paras 33, 34} (13·D-EJ
10. The object behind publishing all material term(s) is/are
c 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
D in the event of any breach committed by the bidder and fastly,
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.
(Para 35) (13-F-G]
E 11. It is incorrect to say that the appellant had committed
the breach of clause 4 of public notice inasmuch as he failed to
pay l/4th amount and "stopped payment" of the cheque amount
to the respondents. 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 by cheque. Secondly, the
F 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
G 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. [Paras 38, 39J[14-E-H; 15-A]
H
SURESH KUMAR WADHWA v. STATE OF M.P. & ORS. 5
12. The appellant did not commit any breach of the term(s) A
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. [Para 40] [15~B] B
Union of India v. Vertex Broadcasting Company Private
Limited & Ors. (2015) 16 SCC 198 : [2015] 7 SCALE
102; Firm Kaluram Sitaram v. The Dominion. of India
AIR 1954 Bombay 50 - relied on.
Mau/a Bux v. Union of India (1969) 2 SCC 554 : C
[1970] 1 SCR 928 ; Shri Hanuman Cotton Mills & Ors.
v. Tata Air Craft Ltd. (1969) 3 SCC 522 : [1970] 3 SCR
127 - referred to.
Case Law Reference
referred to Para36 D
[1970] 1 SCR 928
[1970] 3 SCR 127 referred to Para 36
[2015] 7 SCALE 102 relied on Para37
AIR 1954 Bombay 50 relied on Para 43
E
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7665
of 2009
From the Judgment and Order dated 21.11.2006 of the High Court
of Judicature at Jabalpur in First Appeal No. 127of1998.
Prasenjit Keswani, Raghvendra Pratap Singh, Praval Arora, F
Akshay Arora, Tushar Sharma, Gaurav Agrawal, Advs. for the Appellant.
. Mishra Saurabh, Ankit Kumar Lal, Sunny Choudhary, B. S.
Banthia, Advs. for the Respondents;
The Judgment of the Court was delivered by
ABBAY MANOHAR SAPRE, J. I. This appeal is filed by the G
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.127of1998 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 the 9th Additional District Judge, · H
6 SUPREME COURT REPORTS [2017] 14 S.C.R.
A Bhopal in C.S. 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 ~arrow compass. They, however,
need mention, in brief, to appreciate the controversy involved in the appeal.
.B 3. The appellant is the plaintiff whereas the respondents (State
ofM.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
c behalf of State ofM.P wherein it was published that four nazul plots of
. the State would be sold in public auction on 11.0 l .1996 on the terms and
conditions set out therein. Anyone interested could participate in the
public auction by following the terms and conditions mentioned in the
public notice. It is apposite to reproduce the public notice including its
D tenns/conditions hereinbelow:
"All are hereby informed that the public auction of
Gove"rmnent nazul plots of situated at Mahavir Nagar,
Arera Colony,. Bhopal is to be carried out. The description
of the nazul plots is as follows:
E 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
F 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:
G l. E_ach 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
H Officer as a security.
SURESH KUMAR WADHWA v. STATE OF M.P. & ORS. 7
[ABHAY MANOHAR SAPRE, J.]
4. The highest bidder shall have to deposit 114'" amount A
of his bid immediately after closure of auction for the
plot in question.
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 B
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 C
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 J0.'01.1996 with respondent No. 3 as security. . D
6. The auction was held on 11.01.199.6. The appellant quoted his
bid at Rs.53,80,000/- for plot No.E-5/5 situated in Mahavir Nagar, Arera
· Colony, 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. E-
7. The Respondent No. 3 then asked the appellant to deposit 1/4'h
amount of the total amount on the same day in terms of public notice.
The appellant accordingly deposited a sum ofRs. l 0.45 lakhs by cheque
No. 309991 dated 11.01.1996 drawn in favour ofrespondent No. 3. ·
8. On 25.01. i 996, the appellant received a letterdated-24.01.1996 r·
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:
"l. Annual lease rent @ 7.5% will be charged from the
bidders on the acc_epte4 bid_ amount.
G
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. ,_
8 SUPREME COURT REPORTS [2017] 14 S.C.R.
A 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
B 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.
c I0. On 08.02.1996, respondent No. 2 issued a show cause notice
to the appellant stating therein as to why the amount ofRs.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
D 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. J lakhs deposited by him (appellant)
towards security has been forfeited.
E
12. The appellant, on 28.02.1996, then served a legal notice to the
respondents under Section 80 of the Code JfCivil Procedure, 1908 and
demanded refund of Rs. 3 Lakhs. The respondents, however, did not
refund the money. The appellant was, therefore, constrained to file the
civil suit against the respondents for a declaration that the letter dated
F 24.02.1996 forfeiting the security amount of Rs 3 lakhs be declared as
bad in la.»' 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 a/ia, that firstly, the appellant was within his right to refuse to
G 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;
H
SURESH KUMAR WADHWA v. STATE OF M.P. & ORS. 9
[ABHAY MANOHAR SAPRE, J.]
Secondly, in the absence of any terms and conditions published in the A
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 B
the terms.
14. The respondents filed their writteri 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 C
appellant at the time of auction; secondly, these terms and conditions
were applicable to the auction proceedings because they are part of the
Revenue Book Circular (RBC) which applies to all the plots in question;
and lastly, the appellant committed breach of terms by withholding the
payment of l/4'h amount, when he directed "stop payment" of his cheque
amount for being paid to respondent No.3. These were essentially the D
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 If4'h amount immediately E
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
conditions" mentioned in the acceptance letter dated 24.01.1996 was in
accordance with the Rules of RBC and, therefore, such terms and F
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 G
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- Mis Priyanka Builders vs State of MP decided
on 11.11.2006) and the said appeal having been dismissed, this appeal H
10 SUPREME COURT REPORTS [2017] 14S.C.R.
A also deserves dismissal in the light of judgment rendered in 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.
B 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 I & 2.
19. Having heard learned counsel for the parties and on perusal
C 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.
20. Three questions, basically, arise in this appeal. First, whether
D 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 da~ed 07.01.1996;
E and third, whether the State had power to forfeit the security money in
the fact$ 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 princi pies relating to law
of contract.
F
22. Section 74 of the Act reads as under:
"74. Compensation for breach of contract where penalty
stipulated for- When a contract 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
G
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
H the case may be, the penalty stipulated for.
SURESH KUMAR WADHWA v. STATE OF M.P. & ORS. 11
[ABHAY MANOHAR SAPRE, J.)
Explanation- A stipulation for increased interest from the A
_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 B
.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 C
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 D
"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, ifthere is no stipulation in the contract of forfeiture, there is no
such right available to the party to forfeit the sum. E
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:
F
"A fodeiture 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) G
25. The author then quoted the apt observatiOns of Lord Teriterden
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:
H
12 SUPREME COURT REPORTS [2017] 14 S.C.R.
A "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).
B 26. Equally well settled principle oflaw 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/
c conditions in the contract.
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
pruiy. Similarly, a party, who adds any such term/condition, has no right
D 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
thf: 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
E notice (advertisement), extracted above, only stipulated a term for deposit
of the security amount ofRs.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 contingencies.
29. In our opinion, a stipulation for deposit of security amount ought
F
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.
G 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
whisperof such conditions being ever considered as a part of the auction
proceedings enabling the bidders to make their compliance, in case, their
H bid is accepted.
SURESH KUMAR WADHWA v. STATE OF M.P. & ORS. 13
[ABHAY MANOHAR SAPRE, J.]
31. In our considered opinion, it was mandatory on the part of the A
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 right to insist upon the c
appellant to accept such conditions much less to comply and nor it had a
right to cancel the bid on the ground ofnon-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 D
forfeiture and four additional terms/conditions in the public notice because
they were already part ofRBC, 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 E
the provisions ofRBC will be applicable to the auction proceedings and
second, the relevant clauses ofRBC 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 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 F
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 G
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 ofMaula.Bux vs. Union oflndia, 1969(2) SCC 354 and Shri
H
14 SUPREME COURT REPORTS [2017] 14 S.C.R.
A Hanuman Cotton Mills & Ors. Vs. Tata Air Craft Ltd., 1969(3)
sec 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
B 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
c 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( cl) and 12 extracted above would go
D 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 h.as taken place in this case will have to be·
E 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 114 11' amount and "stopped payment" of
the cheque amount to the respondents.
F 39. We do not agree to this argument. In the first place, the appellant
ensured compliance of the term because he deposited 114"' 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
G 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
H
SURESH KUMAR WADHWA v. STATE OF M.P. & ORS. 15
[ABHAY MANOHAR SAPRE, J.]
amount to a breach of clause 4 so as to give right to the State to forfeit · A
.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 B
had no right to forfeit the security amount and instead it should ~ave
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 · c
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 aie of the view that the action on the part of D
the respondents( State) in forfeiting the security deposit of the appellant
was wholly unjustified.
42. In this case, it was expect.~d from the State officials to have
acted as an honest person while dea'ling with the case of an individual
citizen and in all fairness should have returned the security amount to E
' 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 Sitarain . F
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:
" ..... we have often had occasion to say that when G
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."
H
16 SUPREME COURT REPORTS [2017] 14 S.C.R.
A 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
B 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
c 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 ofRs.3 lakhs is accordingly
passed in favour of the appellant(plaintift) 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.
D
47. Cost of the appeal Rs. I 0,000/- be payable by the respondents
to the appellant.
Ankit Gyan Appeal allowed.
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