REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 829 OF 2003
HARYANA FINANCIAL CORPORATION
& ANR. ....APPELLANT(S)
VERSUS
RAJESH GUPTA ...RESPONDENT(S)
JUDGMENT
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
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
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appellants /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.
4. On 8.1.1998, the appellants/Corporation issued an
advertisement for sale of various units, including the
land of M/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 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:
"RAJESH GUPTA 578, AUTO MOBILE
MARKET HISAR
Phone: 28221 - 3 Lines
Fax No.01662 - 31084
January 29, 1998
The Managing Director
Haryana Financial Corporation
17, 18, 19 Sector 17-A
Chandigarh 160017
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Kind Attention: Sh.Raj Kumar Ji, M.D.
Sub: Offer to purchase assets of Unique Oxygen Private
Limited Jind.
Dear Sir,
With reference to your advertisement in
`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 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 not face
any problems, if we acquire the unit as per your
offer.
We hope to hear soon in this regard.
Thanking you,
Yours faithfully
Sd/-
Rajesh Gupta"
No response was given by the appellants/Corporation to the
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:
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"FAX NO.1072-70266 578, AUTO MOBILE
MARKET HISAR
Phone: 28221 (3 Lines)
Fax No.01662 - 31084
07-03-1998
The Managing Director
Haryana Financial Corporation
Chandigarh.
Sub: Offer to purchase unit of Unique Oxygen Private
Limited Jind
Dear Sir,
With reference to the negotiation held on 6.3.98
at 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 of the factory was discussed in the
meeting and the unit holder, who was 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 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 by H.F.C. so that we may not face any
problem in future in running the unit.
Kindly treat it as most urgent.
Thanking you,
Yours faithfully
Sd/- Rajesh Gupta"
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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
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 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 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 Rasta with the Rasta of the
revenue record party purchased some
land where the movement of the vehicles
is not possible at all."
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6. In fact the letter further pointed out as follows:
"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 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/
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, again raised the issue regarding the
passage at the open house held by the appellants/Corporation
at Hissar on 12.6.1998. According to the appellants/
Corporation, as per the revenue record and the demarcation
report of the revenue officials dated 27.6.1998, therein 16.5 ft.
rasta is provided in the west of the Unit. However, not
7
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 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.
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 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. It is this order which is challenged in the
present appeal.
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10. We have heard the learned counsel for the parties at
length.
11. Mr. Amit Dayal, learned counsel for the appellants
/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 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 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 Transfer of Property Act,
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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 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 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 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.
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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 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. 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 building plan were not available, and would be available
at the Head Office only. Thereafter, there is a studious silence
from the appellants/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 know that there is no
approved/authorised passage to factory
sufficient to pass a truck through it. The
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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 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
was also never specifically answered by the appellants/
Corporation. In view of the protests of the respondent, the
issue was raised by the Branch Manager of the appellants
/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 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.
In this connection, you are advised
that clear cut Passage / Rasta has been
provided to the concern as per
documents submitted by the concern at
the time of availing loan.
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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
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."
16. A perusal of the aforesaid letter makes it apparent that
the appellants/Corporation were merely relying on the
documents submitted by M/s. Unique Oxygen Private Limited,
Old Hansi Road, Jind i.e., the defaulting unit. The
appellants/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 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
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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 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
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
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 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
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position having been admitted in the
letter dated April 30, 1998, a copy of
which is at Annexure P6, and nothing to
the contrary having been produced on the
file, we find that the action of the
respondent/Corporation in forfeiting the
amount deposited by the petitioner was
wholly arbitrary and unfair."
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 respondent was dealing with an instrumentality of state.
He was 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.50 lakhs without being given even a proper passage to the
Unit that he was buying. We are of considered opinion that
the respondent had deposited the sum of Rs.2.5 lakhs on the
clear understanding that there would be an independent
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approach road to the Unit. This is understandable. Without
any independent passage the plot of land would be not more
than 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
benefit of Clause 5 of the advertisement. The appellants
/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
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.
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
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material defect about the non-existence of the independent
3 `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:
(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;
(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;
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/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
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(1) (b) of the aforesaid Section. We are therefore satisfied that
the appellants/Corporation cannot seek to rely on the
aforesaid provision of The Transfer of Property Act, 1882.
21. In our opinion, the reliance on Section 29 of the State
Financial Corporations Act, 1951 is wholly misplaced. The
aforesaid Section pertains to action which the Corporation can
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 purchaser
and therefore cannot be confused with the defaulting unit. We
are also of the considered opinion that the reliance placed on
the judgment of this Court by the counsel for 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
company in liquidation by the official liquidator under the
orders of the Court. Therefore it is observed that the official
liquidator cannot and does not hold any guarantee or
warranty in respect of the property sold. That is because the
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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 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
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."
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.
23. In any event, the facts of this case as narrated above
would clearly indicate that the respondent had made all
19
necessary inquiries. It was the appellants/Corporation that
failed to perform its obligations in giving a fair description of
the 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 development of land and invites application for
allotment 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.
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 of two months of producing the certificate copy of this
order. We also direct that in the event the aforesaid amount is
20
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 assessed as Rs.50,000/-.
........................................J
(J.M. PANCHAL)
......................................
...J
(SURINDER SINGH NIJJAR)
NEW DELHI
DECEMBER 15, 2009
