Holding

A substantial variance between the advertised and actual forest produce allows the contractor to repudiate the contract and recover the first instalment, despite the sale notice condition limiting claims for incorrect quantities.

Summary

Syed Israr Masood, a forest contractor, won an auction for two forest coupes in August 1960, paying an earnest money and the first instalment. Upon inspecting the coupes he discovered that the quantity and quality of timber were far less than advertised, and a substantial portion of the marked trees had been later declared "reserved", prohibiting their felling. Masood refused to sign the boundary certificate and sought a refund of the first instalment and an injunction against further demands. The trial court granted the refund; the High Court set it aside, holding that Masood had not proved the shortfall. The Supreme Court held that, despite Condition No. 3 in the sale notice, a substantial variance between the advertised and actual timber defeats the contract’s foundation, allowing repudiation and a refund of the instalment. The appeal was allowed, restoring the trial court decree with the refund amount corrected to Rs 17,250.

Issues considered

Whether a contractor can repudiate a forest auction contract and claim a refund of the earnest money when the actual timber available is substantially less than represented at the auction, notwithstanding a contractual condition limiting claims for incorrect quantities.
Whether the State is liable for damages or only for refund of the first instalment under the contract.
Whether the reservation of part of the forest area after the auction constitutes a breach that justifies termination of the contract.
Whether the suppression of the forest department's inspection reports affects the contractor's right to repudiation.

Legislation cited

Code of Civil Procedures. 80
Madhya Pradesh Land Revenue Codes. 146

Subjects

contract repudiationforest auctionmisrepresentationcondition precedentrefund of earnest moneyreservation of forest areasuppression of evidencepublic auctioncivil procedurecontract breach

Judgment

A s94
SYED ISRAR MASOOD, FOREST CONTRACTOR.
RET GHAT, BHOPAL
v.
B STATE OF MADHYA PRADESH

October 1, 1981

[A;D. KOSHAL, V. BALAKRISHNA ERADI AND
R,B. MISRA, JJ.J •
c
Rlghl to repudiate a contract and for refund of earnest nwney in deposit
arise when variation in quantify nnd quality is found on actual count betweeii what
was held out at the auction as being availab!e-Nonwproduction of the verificatiolJ
ofrtport is hlt by th~ doctrine of 'suppressio veri'-Condition number 3 of the
Sale Notice, value· of.
D
Pursuant to the notice dated July 22, 1960, notifying that forest contracts
will be settled by public auction, the appel!ant~plaintiff attended the said auction
on August 17, 1960 after having deposi1ed the requisite earnest money of
Rs. 1,000 and furnished the solvency certificate for the sum of Rs. 1.5 lakh. At
the tirrie of auction, the details of the forest produce available in each coupe was
announced. In the said announcement the total number of trees of each species
available in each coupe as also their girth etc, were furnished and the bids were
invited on the basis of the said information given to the intended bidders. The
appellant was the highest bidder in respect of two coupes, namely, Searmau
Coupe Cf2 "A" and "B" with a bid of Rs. 69,000 for these two coupes. Pursuant
-r
thereto, the appellant deposited on August 22, 1960, Rs. 16,250 being the balance
of the first instalment of Rs. 17,250, after adjustment of the earnest money in
deposit. On executing the requisite security bonds, the appellant was directed,
F on October 27, 1960, to proceed to the site and sign the "coupe boundary cer1ifi-
cate'0, before the Range Officer for getting possession of the two coupes.

When the appellant visited the two coupes and conducted a detailed ins-
pection of the trees available for extraction, he found that the coupes did not con-
tain the forest produce as announced at the tin1e of the auction. Inasmuch as
the number of trees available for cuttiog in the two coupes were found to be
very much short of the quantity and quality of the forest produce given out at the
G time of auction as being available in the two coupes, the appellant refused to
sign the boundary certificate. The forest authorities, on January 19, 1961 served
a notice calling upon the appetlant to deposit the second and third instalments of
the bid amount and threatening that in the event of default, the amount would
be recovered as arrears of land revenue. Subsequently a distraint notice was also
issuen under section 146 of the Madhya Pradesh Land Revenue Code by the
H Tehsildar. On April 17, 1961, the forest authorities issued a notice calling upon
the appellant to show cause why the contract be not terminated and the two
S,i; cMASOOh v. M.P. STATE 895

coupes re-auctioned at his risk. Thereupon the appellant, after serving on the A
respondent a due notice under section 80 Civil Procedure Code, filed a suit for
recovery of the amount deposited by way of first instalment plus damages
arising out of the breach of contract. The appellant also prayed for a permanent
injunction restraining the State for taking coercive step to recover further instal·
ments. The Trial Court decreed the suit as prayed for. In appeal by the rcspon·
dent. State the High Court set aside the decree on the ground that the appellant
did not prove that the number of trees which were actually available for extrac- 8
tion in the two coupes, according to proper marking was less than the number
of trees which was covered by 'the assurance given to the contractor at the time
of the auction.

• Allowing the appeal by certificate under Article 133 (I) (aj of the Constitu-
tion, the Court,

HELD: I. While condition number 3 in the Sale Notice (Ex. D/D) will
c
operate to prevent the Contractor from claiming any damages or compensation
from the State Government on the ground that the details of the quantity of the
forest produce were ·subsequently found to be-incorrect, it will not predude him
from repudiating [be contract on its being found that there was substantial vari-
ance between the particulars furnished at the time of the auction regarding the
quantity and quality of timber that will be available for extraction·in the concer- D
ned coupes and the quantity etc. of tree growth actually found to be available on
the site. [902 D-F]

2 : 1. It has been clCarly established by the evidence in this case that a
very substantial quantity of timber standing on the bank of NaUa had been
marked for extraction and numbered and the auction sale had beeil held on the
basis that the highest bidder would be entitled to fell and remove all those- trees. E
But by the time the coupes were allowed to be inspected by the auction
purchaser, that area was declared to be "reserved", with the result that
there was a complete prohibition against the feUing of any timber therefrom.
This has substantially altered the very foundation of the contract an'd hence it
was perfectly open to the Plaintiff to repudiate the contract and claim a refund
of the amount deposited by him as a part payment of the purchase price. [902 F-H]

2: 2. The subject-matter of the auction sale was the totality of the trees
F
which were marked for cutting in the two coupes. Since a substantial number of
the 1narked trees was contained in the area which was subsequently declared as
"reserved", it is inevitable that there was a corresponding diminution in the total
quantity of timber which was announced as available for cutting at· the tini.e of
the auction sale. [903 A-CJ

2 : 3. The appellant has fully proved his claim for the refund of the
G
amount paid by him by way of tbe first instalment of the sale price by examin-
ing himself as P.W. 2 and also through P.Ws. 3 to 6, all of whom had inspected
the coupes subsequent to the auction sale. The oral testimony given by them is
further corroborated by the statements contained in Ex. P-1, P-3, P-5, P~6 and
.,, . P-8. Further the sworn evidence of respondent's own witnesses (D.W. 2 and
D.W. 3) and the suppression of their two inspection reports from the court con-
H
firmed the right to repudiate the contract and ask for a refund. [899 H, 900 A-E]
896 SUPREME COURT REPORTS [1982) i s.c.il.

A 2: 4. That the criticism made by the High Court that the argument by the
appe11a~t-Plaintiff waS the result of an after-thought is wholly unjustified and
erroJ,leOus is clear from a mere reference to Ex. P-1. The correct factual position
is that the plaintiff had categorically complained to the department that a sub-
stantial 'area containing the forest produce. which had all b~en originally marked
for ~al.e, ·had been subsequently "reserved" with the result that the quantity of
timber available for extraction had become substantiallyreduced.(9010 E,H,902A]

CIVIL APPELLATE JuRISDICTION : Civil Appeal No. 2060 of
1970.

' From the judgment and order dated the 26th August, 1969 of •
the Madhya Pradesh High Court in First Appeal No. 100 of 1965
c Harbans Singh. for the Appellant.

Gopal Subramaniam, D.P. Mohanty and R.A. Shroff for the
Respondent.

The Judgment of the Court was delivered by
D
BALAKRISHNA ERADI, J. This appeal hy certificate granted
by the High Court of Madhya Pradesh under Article 133 (I) (a)
arises out of a suit-Regular Civil Suit No. 7-A of 1963-on the file
of the First Additional District Judge, Bhopal instituted by the
appellant herein against the State of Madhya Pradesh, for recovery
E of a sum of Rs. 29,500 from the defendant by way of refund of the
first instalment of the sale price deposited by the plaintiff with the
Forest Department of the defendant-State pursuant to an auction of
two forest coupes held on August 17, 1960, together with damages
alleged to have been sustained by the plaintiff on account of alleged
F
breach of contract by the defendant. The plaint contained a further ..
prayer that the defendant should he restrained by a permanent
injunction from taking any steps to recover from the plaintiff the
second and third instalments of the sale price for which the two
coupes had been knocked down in favour of the plaintiff at the j'
auction sale.
G The tJ ial court held that the plaintiff is entitled to recover from
the defendant Rs. 17, 500 by way of refund of the first instalment of
the sale price of the two coupes, but rejected the plaintiff's claim for
recovery of damages. Accordingly, a decree was passed in the
plaintiff's favour for recovery of Rs. 17,500 with proportionate costs.
H The plaintiff's prayer for the relief of permanent injunction was also
~ ...
granted by the trial court.
S.I. MASOOD v. M.P. STATE (Balakrishna Eradi, J.) 891

The State (defendant) carried the matter in appeal before the A
High Court of Madhya Pradesh. The High Court took the view
that the plaintiff's claim for refund of the first instalment of the sale
price was unsustainable inasmuch as he had not proved that the
number of trees which were actually available for extraction in the
two coupes, according to the proper markings, was less than the
number of trees which was covered by the assurance given to the B
contractor at the time of the auction. As regards the relief of
permanent injunction, the High Court.held that from the notice (Exh.
P-7) issued by the concerned Divisional Forest Officer to the plaintiff
on April 17, 1961, it was seen that the Government had indicated to
the plaintiff its intention to terminate the contract before the second
instalment had become due and hence the only right which the c
Government thereafter had was to realise from the plaintiff the
deficiency, if any, occasioned by a resale of the two coupes. In this
view, the High Court held that the Government had no longer the
right to claim from the plaintiff the balance of the sale consideration
represented by the second and third instalments and that the decree
for permanent injunction granted by the trial court did not, there- D
fore, call for any interference. Accordingly, the appeal filed by the
defendant was allowed in part by the High Court and the decree
granted to the plaintiff by the trial court for recovery of Rs. 17,500
was set aside. Hence, this appeal by the plaintiff.

E
The facts of the case on which there is no dispute are as
follows. On July 22, 1960, the Forest Department of the State
Government of Madhya Pradesh publist ed in the State Gazette a
notice notifying for general information that forest contracts of East
Bhopal, Forest Division will be settled by public auction to be held
by the Divisional Forest Officer at Sader Manjil, Bhopal on August F
17, 1960. The plaintiff attended the said auction after having
deposited the requisite earnest money. At the time o the auction,
the respective Range Officers announced the details of the quantities
of the forest produce available in each coupe. In the said announce-
ment, the total number of trees of each species available in each
coupe as also their girth etc., were announced by the concerned
G
Range Officers and the bids were invited on the basis of the said
information given out to the intended bidders. The plaintiff was the
highest bidder in respect of two coupes, namely, Searmau Coupe C/2
"A" and "B". The plaintiff's bid of Rs. 69,000 for those two

"'. coupes was accepted by the Auctioning Officer and pursuant thereto
the plaintiff deposited on August 22, 1960 Rs. 16, 250 being th~
H
balance of the first instalment of Rs. 17,250 after adjustment of the
898 SUPREME COURT REPORTS {l 982] l s.c.R.

earnest money already deposited. The plaintiff also produced a
solvency certificate and executed the requisite Security Bonds. On
October 27, 1960, the plaintiff was informed by the concerned
Divisional Forest Officer that the security bonds furnished by the
plaintiff were accepted and that the contract in respect of the two
coupes was sanctioned in his favour by the Chief Conservative
B
Officer of Forests. By the said communication, the plaintiff was
directed to proceed to the site and sign the 'coupe boundary certi-
ficate' before the Range Officer for getting possession of the two
coupes.
•
c The plaintiff's case is that when, in pursuance of the aforesaid
intimation, he visited the two coupes and conducted a detailed
inspection of the trees available for extraction, he found that the
coupes did not contain the forest produce as announced at time of
auction, that a very large number of big trees which had been marked
for felling an.d given serial numbers did not bear hammer marks
D either at the breast height or at the bottom, with the result that the
contractor was debarred under the rules from felling those trees, that
similarly a large number of trees which were hammer marked had
not, however, been given serial numbers and that a large number of
trees situated along the bank of a Nala in Coupe No. 2 "B" which
had been marked for felling and had been serially numbered were
E found to have been subsequently "reserved" with the result that it was
no longer open to the contractor to cut any of those trees. The
plaintiff states that the aforesaid vital discrepancies and irregularities
were pointed out by him to the Range Officer and inasmuch as the
number of trees available for cutting in the two coupes was found
to be very much short of the quantity and quality of the forest
F produce given out at the time of auction as being available in the
two coupes, he. refused to sign the boundary certificate. Thereafter,
correspondence concerning the matter passed between the plaintiff
and the Department, but notwithstanding joint inspections of the site
and <leliberations the parties could not reach any agreement. The
plaintiff took the stand that unless the Department was ready and
G willing to put him in possession of the forest produce conforming to
the quantity and quality of timber announced at the time of the
auction, he was entitled to repudiate the contract and claim a refund
of the amount remitted by him by way of first instalment of the sale
price. The Forest Department issued a notice to the. plaintiff on
H April 17, 1961, calling upon him to show cause why the contract
should not be terminated and the two coupes reauctioned at the
S.I. MASOOD v. M.P. STATE (Balakrishna Eradi, J.) 899

plaintiff's risk. In the meantime, on January, 19, 1961, the plaintiff A
had been served with a notice requiring him to deposit the second
instalment of Rs. 17,250 and threatening that in the event of failure
to comply with the said demand, the amount will be recovered as
arrears of land revenue. Subsequently, the Forest authorities of the
State initiated action for recovering from the plaintiff the sum of
Rs. 34,500 purporting to be the second and third instalments of the B
sale price, and a notice of demand under Section 146 of the Madhya
Pradesh Land Revenue Code was issued to the plaintiff by the
Tehsildar, Bhopal. Thereupon, the plaintiff instituted the present
suit praying for the relief aforementioned, after serving on the
defendant a due notice under Section 80, Code of Civil Procedure.
G
Admittedly, the auction sale was of the right to cut the trees
which had been marked and numbered in the entire area covered by
the two coupes in question. Details regarding the quantity and
quality of timber available for cutting in the respective coupes were
announced by the concerned Range Officers at the time of auction
and it was on the basis of the said information that the participants D
in the auction were invited to bid. The tnal Court as well as the
High Court have concurrently found that an assurance bad been
given by the Department at the time of the auction that the two
coupes contained the specified quantity of timber of different varieties
and girth and that the details then given were as set out in the tabular
statement appended to paragraph 3 of the written statement of the
defendant. The plaintiff (examined as P.W. 2) and P.Ws. 3 to 6 all
of whom had inspected the coupes subsequent to the auction sale
have sworn that the quantity of the timber that was actually available
for cutting in the two coupes was considerably less than the quantity
announced at the time of the auction. The oral testimony given by
them is corroborated by the statements contained in Exhibits P· l, F
P-3. P-5, P-6 and P-8, which are copies of the various representations
made by the plaintiff to the Offices of the Forest Department after
he found out on inspection of the coupes that there was vast diver-
gence between what was announced at the time of the auction as the
quantity of the timber available for cutting from the two coupes in
question and the quantity that was actually found to be available. G
Even though the then Sub-Divisional Forest Officer, who was
examined as D.W. 2, has stated in the evidence that after receipt of
the plaintiff's complaint, he inspected the coupes and submitted a
detailed inspection report to the Divisional Forest Officer the
•• defendant did not pr\l\IU~ tll~ s;iid report in Court, lt ha~' iilso H
90() SUPREME COURT REPORTS [J 982] I S.C.R.

A come out in the evidence of D. W. 3, who was the Forest Guard in
the area concerned at the relevant time, that he had submi1:ted to the
Range Officer a report containing details of tbe timber available for
cut1ing in the two coupes. The aforementioned two reports would
have been of valuable assistance in determining the extent of
shortfall, if any, in the quantity of timber actually available for
B cutting in the coupes when compared with the particulars given
out al the auction. The non-production of the two reports by the
defendant, who alone was in possession of the documentary evidence
capable of throwing light on the subject-matter of this crucial issue,

-
assumes significance in view of :he admission made by D.W. 3 that
during his inspection of the coupes pursuant to the complaint
c received from the plaintiff he had found that there were some trees
which had been numbered for cutting but had not been hammer
marked, that there were some other trees which contained hammer
marks only at one place instead of at the base as well as at breast
height, as required under the rules, and that there were still some
other trees which had been marked by hammer but had not been
D assigned any number. The inspection report prepared by this
witness which has beeu suppressed is a very material docu·.11ent since
the witness has sworn that he had actually counted and noted the
precise number of trees in respect of which such irregularities were
found to have been committed. Another important admis:;ion made
by this witness is that there was some truth in the complaint of the
E plaintiff with respect to the 'reservation' of the Nala.

The evidence clearly shows that there was a large number of
trees of different varieties situated on the bank of a Nalta in Coupe
No. 2 "B" and they had been hammer marked and serially numbered
F for cutting and removal. At the time of the auction sale, the Depart-
ment had treated these trees as being available for extraction by the
contractor and it was on that basis that the particulars regarding the
total quantity of timber belonging to different species available for
cutting in the two conpes were announced to the bidders. However,
subsequently, the area comprising the bank of the said :llalla was
G declared as "reserved", with the result that there was a pmhibition
against cutting of the trees from the said 'reserved' area. The
plaintiff in his evidence, as P. W.2, has stated that there were about
300 teak trees in the area forming the bank of the Nalla and that
the value of those trees would amount to between Rs. J0,000 and
H Rs. 12,000. Though three Officers of the Forest Departrr,ent were
examined on the side of the defendant, the aforesaid testimony given
by the plaintiff bas not been controverted by them.
s.I. MASOOD v. M.P. iiTAtE (Baiakrishna Eradi, J.) 901

Notwithstanding the aforesaid facts brought out in the A
evidence, the High Court summarily rejected the plaintiff's conten-
tion based on the factum of reservation of the trees standing on the
bank of Nalla by stating as follows:

"But there is nothing in the plaintiff's complaints to
the Department at any stage alleging that this reservation
B
had been made after the auction had taken place. The
idea appears to be an after-thought. The mere oral
statement of the plaintiff and his witnesses that this marking
for reservation had taken place rafter the auction, on the
basis that they did not see these markings about reservation
of the trees near the Nalla when they had gone to that
c
forest on earlier occasions, are wholly insufficient to come
to the conclusion that the Nalla area had been reserved
after the auction."

The aforesaid reasoning is based entirely on the assumption that
D
in one of the complaints preferred by the plaintiff before the
Department Officers, it had been alleged by him, that the reservation
of the trees on the bank of Nalla had been made after the auction
had taken place. A mere reference to Exh. P-1 is sufficient to show
that the aforesaid assumption made by the High Court is wholly
erroneous. Exh. P-1 is a copy of the representation dated December E
28, 1960 submitted by the plaintiff to the Divisional Forest Officer
(East), Bhopal. In paragraph 4 thereof, the plaintiff had stated as
follows:

"That the applicant inspected the coupe in or about
the first week of November 1960 to give the coupe boundary
F
certificate as is required under Clause 2 of the draft agree-
ment deed. During this inspection the applicant was
surprised to know that there were numerous irregularities
committed in the marking of trees and huge area containing
the Forest Produce marked for sale in the said coupe was
subsequently reserved."
G
(underlining supplied)

Thus, the correct factual position is that the plaintiff had categori-
cally complained to the Department that a substantial area con-
taining the forest produce, which had all been originally marked for
H
sale, had been subsequently 'reserved', with the result that the quan-
902 SIJPllllMll colJllt lll!l>ORtS [1982] I s.c.tl

A tity of timber available for extraction bad become substantially
reduced, The criticism made by the High Court that the argument
advanced by the plaintiff was the result of an after-thought, was
therefore not justified.

We may at this stage refer to Condition No. 3 in the sale-
B notice (Exn. D/I) on which strong reliance was placed on behalf of
the respondent, That condition reads:

"The details of quantities of forest produce announced
at the time of auction are correct to the best of the know-
c ledge of the Divisional Forest Officer but are not guaran-
teed to any extent. The intending bidders are, therefore,
advised to inspect on the spot the contract area and the
produce they intend to bid for with a view to satisfy
themselves about its correctness. No claim shall lie against
the State Government for compensation or any other -~·

D relief, if the details of the quantities are subsequently found
to be incorrect".
•
In our opinion, the trial court was perfectly right in its view that,
while the said condition will operate to prevent the Contractor from
claiming any damages or compensation from the State Government
E on the ground that the details of the quantity of the forest produce
were subsequently found to be incorrect, it will not preclude him
from repudiating the contract on its being found that there was
substantial variance between the particulars furnished at the time of
the auction regarding the quantity and quality of timber that will
be available for extraction in the concerned coupes and the quantity
F
etc. of tree growth actually found to be available on the site. It has
been clearly established by the evidence in this case that a very
substantial quantity of timber standing on the bank of Nalla bad
been marked for extraction and numbered and the auction sale had
been held on the basis that the highest bidder would be entitled to
fell and remove all those trees. But by the time the coupes were
G
allowed to be inspected by the auction-purchaser, that area was
declared to be "reserved", with the result that there was a com-
plete prohibition against the felling of any timber therefrom. This
has substantially altered the very foundation of the contract and
hence it was perfectly open to the plaintiff to repudiate the contract
e and claim a refund of the amount deposited by him as a part pay-
ment of the purchase price.
S.I. MASOob V. M.P. STATE (/Jalakrishna Eradi, J.) 903

We are unable to agree with the view expressed by the High A
~-
Court that "the plaintiff cannot succeed unless he proved that, even
after excluding the trees standing on the reserved area, the rest of
the forest did not have sufficient number of trees which would
satisfy the assurance given at the time of the auction". The subject-
matter of the auction sale was the totality of the trees which were
marked for cutting in the two coupes. Since a substantial number B
of the marked trees was contained in the area which was subse-
quently declared as "reserved", it is inevitable that there was a
corresponding diminution in the total quantity of timber which was
announced as available for cutting at the time oft he auction sale.

We do not, therefore, find it possible to agree with the reasons c
stated by the High Court for refusing the plaintiff's prayer for refund
of the amount paid by him by way of the first instalment of the sale
price. The conclusion recorded by the trial court on this issue was
perfectly correct and the High Court was in error in interfering with
the said finding.
D
We notice, however, that a slight mistake has crept into the
judgment and decree of the trial court, inasmuch as the amount of
the first instalment refund has been wrongly mentioned therein as
Rs. 17,500, whereas the amount actually paid by the plaintiff by way
of the first instalment was only Rs. I 7,250. A modification to this
extent is, therefore, called for in the decree passed by the trial
court.

This appeal is accordingly allowed, the judgment and decree
passed by the High Court are set aside and those of the trial court
are restored subject to the modification that the amount recoverable
by the plaintiff from the defendant shall be only Rs. 17,250 and not F
Rs. 17 ,5CO as stated in the trial court decree. In all other respects,
the decree passed by the trial court will remain in tact. The
respondent (defendant) will pay the costs of the piaintiff in this
Court as well as in the High Court.

S.R. G
Appeal allowed.