REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.7665 OF 2009
Suresh Kumar Wadhwa ….Appellant(s)
VERSUS
State of M.P. & Ors. …Respondent(s)
J U D G M E N T
Abhay Manohar Sapre, J.
1. This appeal is filed by the 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.127 of 1998 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, Bhopal in C.S.
1
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 narrow compass.
They, however, need mention, in brief, to appreciate
the controversy involved in the appeal.
3. The appellant is the plaintiff whereas the
respondents (State of M.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 behalf of
State of M.P wherein it was published that four
nazul plots of the State would be sold in public
auction on 11.01.1996 on the terms and conditions
set out therein. Anyone interested could participate
in the public auction by following the terms and
2
conditions mentioned in the public notice. It is
apposite to reproduce the public notice including its
terms/conditions hereinbelow:
“All are hereby informed that the public
auction of Government nazul plots of
situated at Mahavir Nagar, Arera Colony,
Bhopal is to be carried out. The
description of the nazul plots is as follows:
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
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:
1. Each 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 Officer
as a security.
4. The highest bidder shall have to deposit
1/4th amount of his bid immediately
after closure of auction for the plot in
question.
3
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 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 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 10.01.1996 with
respondent No. 3 as security.
6. The auction was held on 11.01.1996. The
appellant quoted his bid at Rs.53,80,000/- for plot
No.E-5/5 situated in Mahavir Nagar, Arera Colony,
4
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.
7. The Respondent No. 3 then asked the
appellant to deposit 1/4th amount of the total
amount on the same day in terms of public notice.
The appellant accordingly deposited a sum of
Rs.10.45 lakhs by cheque No. 309991 dated
11.01.1996 drawn in favour of respondent No. 3.
8. On 25.01.1996, the appellant received a letter
dated 24.01.1996 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:
“1.Annual lease rent @ 7.5% will be
charged from the bidders on the
accepted bid amount.
5
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.
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 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.
10. On 08.02.1996, respondent No. 2 issued a
show cause notice to the appellant stating therein
6
as to why the amount of Rs.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 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. 3 lakhs deposited by him (appellant) towards
security has been forfeited.
12. The appellant, on 28.02.1996, then served a
legal notice to the respondents under Section 80 of
the Code of Civil Procedure, 1908 and demanded
refund of Rs. 3 Lakhs. The respondents, however,
did not refund the money. The appellant was,
7
therefore, constrained to file the civil suit against
the respondents for a declaration that the letter
dated 24.02.1996 forfeiting the security amount of
Rs 3 lakhs be declared as bad in law 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 alia, that firstly, the
appellant was within his right to refuse to 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; Secondly, in the absence of any
8
terms and conditions published in the 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 the
terms.
14. The respondents filed their written 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 appellant at
the time of auction; secondly, these terms and
conditions were applicable to the auction
proceedings because they are part of the Revenue
9
Book Circular (RBC) which applies to all the plots in
question; and lastly, the appellant committed
breach of terms by withholding the payment of
1/4th amount, when he directed "stop payment" of
his cheque amount for being paid to respondent
No.3. These were essentially the 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 1/4th amount
immediately 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
10
conditions" mentioned in the acceptance letter
dated 24.01.1996 was in accordance with the Rules
of RBC and, therefore, such terms and 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 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- M/s Priyanka Builders vs State of MP
decided on 11.11.2006) and the said appeal
having been dismissed, this appeal also deserves
dismissal in the light of judgment rendered in
11
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.
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 1 & 2.
19. Having heard learned counsel for the parties
and on perusal of the record of the case, we are
inclined to allow the appeal, set aside the impugned
judgment and the decree of the two Courts below
and decree the appellant's (plaintiff’s) suit against
the respondents as indicated infra.
12
20. Three questions, basically, arise in this appeal.
First, whether 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 dated 07.01.1996; and third, whether the
State had power to forfeit the security money in the
facts 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 principles relating to
law of contract.
22. Section 74 of the Act reads as under:
“74. Compensation for breach of contract
where penalty stipulated for- When a contract
13
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 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 the
case may be, the penalty stipulated for.
Explanation- A stipulation for increased
interest from the 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 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 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 “security" for the due
14
performance of the contract, it is necessary that the
contract must contain a stipulation of forfeiture. In
other words, a right to forfeit being a contractual
right and penal in nature, the parties to a contract
must agree to stipulate a term in the contract in
that behalf. A fortiori, if there is no stipulation in the
contract of forfeiture, there is no such right
available to the party to forfeit the sum.
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:
"A forfeiture 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)
15
25. The author then quoted the apt observations of
Lord Tenterden 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:
"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).
26. Equally well settled principle of law 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/conditions in the contract.
16
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 party. Similarly, a party, who adds
any such term/condition, has no right 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 the 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 notice
(advertisement), extracted above, only stipulated a
term for deposit of the security amount of Rs.3
lakhs by the bidder (appellant) but it did not
publish any stipulation that the security amount
17
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 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.
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 whisper of such conditions
being ever considered as a part of the auction
18
proceedings enabling the bidders to make their
compliance, in case, their bid is accepted.
31. In our considered opinion, it was mandatory
on the part of the respondents(State) to have
published the four special conditions at the time of
inviting the bids itself because how much
money/rent the bidder would be required to pay to
the State on allotment of plot to him was a material
term and, therefore, the bidders were entitled to
know these material terms at the time of submitting
the bid itself. It was, however, not done in this 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
19
right to insist upon the appellant to accept such
conditions much less to comply and nor it had a
right to cancel the bid on the ground of
non-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 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.
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 the
provisions of RBC will be applicable to the auction
proceedings and second, the relevant clauses of
RBC which, according to the State, were to govern
the auction proceedings ought to have been quoted
20
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 to the
contracting parties/bidders; second,
parties/bidders become aware of their rights,
obligations, liabilities qua each other and also of
the consequences in the event of their
non-compliances; and third, it empowers the State
to enforce any such term against the bidder in the
event of any breach committed by the bidder and
lastly, when there are express terms in the
contract/pubic notice then parties are bound by
the terms and their rights are, accordingly,
determined in the light of such terms in accordance
with law.
21
36. When we read the facts and law laid down by
this Court in the case of Maula Bux vs. Union of
India, 1969(2) SCC 354 and Shri Hanuman Cotton
Mills & Ors. Vs. Tata Air Craft Ltd., 1969(3) SCC
522, we find that there was a specific clause of
forfeiture in the contract in both the cases. Such
clause empowered one party to forfeit the earnest
money/security deposit in the event of
non-performance of the terms of the contract. It is
in the light of such facts, Their Lordships examined
the question of forfeiture in the context of Section
74 of the Contract Act. Such is not the case here.
37. Our reasoning is supported by a recent
decision of this Court in Union of India 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 license money deposited by
22
the licensee, the action of the Union to forfeit the
license fees is held illegal. This is what was held:
“10. Coming to the aforesaid question of
availability of a power to order forfeiture, a
reading of the relevant clauses i.e. Clauses
8(f), 10(d) and 12 extracted above would go to
show that the Union had not
protected/empowered itself to forfeit the
licence fee. The forfeiture contemplated by
the aforesaid clauses are altogether in
different contexts and situations. In the
absence of any such power, the forfeiture
that has taken place in this case will have to
be adjudged as null and void.”
38. Learned counsel for the respondents (State)
then argued that the appellant had committed the
breach of clause 4 of public notice inasmuch as he
failed to pay 1/4th amount and "stopped payment"
of the cheque amount to the respondents.
39. We do not agree to this argument. In the first
place, the appellant ensured compliance of the term
because he deposited 1/4th amount of Rs.
10,45,000/- on the same day, i.e.,11.01.1996 by
cheque. Secondly, the respondents also accepted
23
the cheque from the appellant because deposit of
money by cheque was one of the modes of payment.
Had it not been so, the respondents would not have
accepted the cheque from the appellant. Thirdly, the
stop payment was done when the appellant received
the acceptance letter containing four additional
conditions to which he was not agreeable. He had,
therefore, every right to wriggle out of the auction
proceedings and stop further payment towards the
transaction. Such action on the part of the
appellant (bidder) did not amount to a breach of
clause 4 so as to give right to the State to forfeit the
security deposit.
40. In the light of foregoing discussion, we are of
the considered opinion, that the appellant did not
commit any breach of the term(s) and condition(s) of
the notice inviting bids and on the other hand, it
was the respondents who committed breaches. In
24
these circumstances, the State had no right to
forfeit the security amount and instead it should
have been returned when demanded by the
appellant.
41. Learned counsel for the appellant, however,
brought to our notice that after cancellation of the
auction proceedings in question, the plot in
question was re-auctioned by the State and the
same fetched Rs.134.00 lakhs as against 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 are of the view that the
action on the part of the respondents(State) in
25
forfeiting the security deposit of the appellant was
wholly unjustified.
42. In this case, it was expected from the State
officials to have acted as an honest person while
dealing with the case of an individual citizen and in
all fairness should have returned the security
amount to the appellant without compelling him to
take recourse to the legal proceedings for recovery of
his legitimate amount which took almost 21 years to
recover.
43. Indeed, this reminds us of the apt observations
made by the Chief Justice M.C. Chagla in a case
reported in Firm Kaluram Sitaram 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:
26
“…..we have often had occasion to
say that when the State deals with a
citizen it should not ordinarily reply on
technicalities, and if the State is satisfied
that the case of the citizen is a just one,
even though legal defences may be open to
it, it must act, as has been said by
eminent Judges, as an honest person.”
44. We are in respectful agreement with the
aforementioned observations as, in our considered
opinion, they apply fully to the case in hand against
the State.
45. We are, therefore, of the considered opinion
that both the Courts below were not justified in
their respective reasoning and the conclusion in
dismissing the 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
27
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 of Rs.3 lakhs is
accordingly passed in favour of the
appellant(plaintiff) 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.
47. Cost of the appeal Rs.10,000/- be payable by
the respondents to the appellant.
………...................................J.
[R.K. AGRAWAL]
…...……..................................J.
[ABHAY MANOHAR SAPRE]
New Delhi;
October 25, 2017
28
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.7665 OF 2009
Suresh Kumar Wadhwa ….Appellant(s)
VERSUS
State of M.P. & Ors. …Respondent(s)
J U D G M E N T
Abhay Manohar Sapre, J.
1. This appeal is filed by the 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.127 of 1998 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, Bhopal in C.S.
1
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 narrow compass.
They, however, need mention, in brief, to appreciate
the controversy involved in the appeal.
3. The appellant is the plaintiff whereas the
respondents (State of M.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 behalf of
State of M.P wherein it was published that four
nazul plots of the State would be sold in public
auction on 11.01.1996 on the terms and conditions
set out therein. Anyone interested could participate
in the public auction by following the terms and
2
conditions mentioned in the public notice. It is
apposite to reproduce the public notice including its
terms/conditions hereinbelow:
“All are hereby informed that the public
auction of Government nazul plots of
situated at Mahavir Nagar, Arera Colony,
Bhopal is to be carried out. The
description of the nazul plots is as follows:
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
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:
1. Each 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 Officer
as a security.
4. The highest bidder shall have to deposit
1/4th amount of his bid immediately
after closure of auction for the plot in
question.
3
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 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 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 10.01.1996 with
respondent No. 3 as security.
6. The auction was held on 11.01.1996. The
appellant quoted his bid at Rs.53,80,000/- for plot
No.E-5/5 situated in Mahavir Nagar, Arera Colony,
4
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.
7. The Respondent No. 3 then asked the
appellant to deposit 1/4th amount of the total
amount on the same day in terms of public notice.
The appellant accordingly deposited a sum of
Rs.10.45 lakhs by cheque No. 309991 dated
11.01.1996 drawn in favour of respondent No. 3.
8. On 25.01.1996, the appellant received a letter
dated 24.01.1996 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:
“1.Annual lease rent @ 7.5% will be
charged from the bidders on the
accepted bid amount.
5
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.
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 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.
10. On 08.02.1996, respondent No. 2 issued a
show cause notice to the appellant stating therein
6
as to why the amount of Rs.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 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. 3 lakhs deposited by him (appellant) towards
security has been forfeited.
12. The appellant, on 28.02.1996, then served a
legal notice to the respondents under Section 80 of
the Code of Civil Procedure, 1908 and demanded
refund of Rs. 3 Lakhs. The respondents, however,
did not refund the money. The appellant was,
7
therefore, constrained to file the civil suit against
the respondents for a declaration that the letter
dated 24.02.1996 forfeiting the security amount of
Rs 3 lakhs be declared as bad in law 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 alia, that firstly, the
appellant was within his right to refuse to 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; Secondly, in the absence of any
8
terms and conditions published in the 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 the
terms.
14. The respondents filed their written 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 appellant at
the time of auction; secondly, these terms and
conditions were applicable to the auction
proceedings because they are part of the Revenue
9
Book Circular (RBC) which applies to all the plots in
question; and lastly, the appellant committed
breach of terms by withholding the payment of
1/4th amount, when he directed "stop payment" of
his cheque amount for being paid to respondent
No.3. These were essentially the 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 1/4th amount
immediately 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
10
conditions" mentioned in the acceptance letter
dated 24.01.1996 was in accordance with the Rules
of RBC and, therefore, such terms and 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 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- M/s Priyanka Builders vs State of MP
decided on 11.11.2006) and the said appeal
having been dismissed, this appeal also deserves
dismissal in the light of judgment rendered in
11
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.
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 1 & 2.
19. Having heard learned counsel for the parties
and on perusal of the record of the case, we are
inclined to allow the appeal, set aside the impugned
judgment and the decree of the two Courts below
and decree the appellant's (plaintiff’s) suit against
the respondents as indicated infra.
12
20. Three questions, basically, arise in this appeal.
First, whether 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 dated 07.01.1996; and third, whether the
State had power to forfeit the security money in the
facts 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 principles relating to
law of contract.
22. Section 74 of the Act reads as under:
“74. Compensation for breach of contract
where penalty stipulated for- When a contract
13
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 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 the
case may be, the penalty stipulated for.
Explanation- A stipulation for increased
interest from the 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 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 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 “security" for the due
14
performance of the contract, it is necessary that the
contract must contain a stipulation of forfeiture. In
other words, a right to forfeit being a contractual
right and penal in nature, the parties to a contract
must agree to stipulate a term in the contract in
that behalf. A fortiori, if there is no stipulation in the
contract of forfeiture, there is no such right
available to the party to forfeit the sum.
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:
"A forfeiture 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)
15
25. The author then quoted the apt observations of
Lord Tenterden 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:
"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).
26. Equally well settled principle of law 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/conditions in the contract.
16
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 party. Similarly, a party, who adds
any such term/condition, has no right 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 the 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 notice
(advertisement), extracted above, only stipulated a
term for deposit of the security amount of Rs.3
lakhs by the bidder (appellant) but it did not
publish any stipulation that the security amount
17
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 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.
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 whisper of such conditions
being ever considered as a part of the auction
18
proceedings enabling the bidders to make their
compliance, in case, their bid is accepted.
31. In our considered opinion, it was mandatory
on the part of the respondents(State) to have
published the four special conditions at the time of
inviting the bids itself because how much
money/rent the bidder would be required to pay to
the State on allotment of plot to him was a material
term and, therefore, the bidders were entitled to
know these material terms at the time of submitting
the bid itself. It was, however, not done in this 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
19
right to insist upon the appellant to accept such
conditions much less to comply and nor it had a
right to cancel the bid on the ground of
non-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 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.
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 the
provisions of RBC will be applicable to the auction
proceedings and second, the relevant clauses of
RBC which, according to the State, were to govern
the auction proceedings ought to have been quoted
20
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 to the
contracting parties/bidders; second,
parties/bidders become aware of their rights,
obligations, liabilities qua each other and also of
the consequences in the event of their
non-compliances; and third, it empowers the State
to enforce any such term against the bidder in the
event of any breach committed by the bidder and
lastly, when there are express terms in the
contract/pubic notice then parties are bound by
the terms and their rights are, accordingly,
determined in the light of such terms in accordance
with law.
21
36. When we read the facts and law laid down by
this Court in the case of Maula Bux vs. Union of
India, 1969(2) SCC 354 and Shri Hanuman Cotton
Mills & Ors. Vs. Tata Air Craft Ltd., 1969(3) SCC
522, we find that there was a specific clause of
forfeiture in the contract in both the cases. Such
clause empowered one party to forfeit the earnest
money/security deposit in the event of
non-performance of the terms of the contract. It is
in the light of such facts, Their Lordships examined
the question of forfeiture in the context of Section
74 of the Contract Act. Such is not the case here.
37. Our reasoning is supported by a recent
decision of this Court in Union of India 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 license money deposited by
22
the licensee, the action of the Union to forfeit the
license fees is held illegal. This is what was held:
“10. Coming to the aforesaid question of
availability of a power to order forfeiture, a
reading of the relevant clauses i.e. Clauses
8(f), 10(d) and 12 extracted above would go to
show that the Union had not
protected/empowered itself to forfeit the
licence fee. The forfeiture contemplated by
the aforesaid clauses are altogether in
different contexts and situations. In the
absence of any such power, the forfeiture
that has taken place in this case will have to
be adjudged as null and void.”
38. Learned counsel for the respondents (State)
then argued that the appellant had committed the
breach of clause 4 of public notice inasmuch as he
failed to pay 1/4th amount and "stopped payment"
of the cheque amount to the respondents.
39. We do not agree to this argument. In the first
place, the appellant ensured compliance of the term
because he deposited 1/4th amount of Rs.
10,45,000/- on the same day, i.e.,11.01.1996 by
cheque. Secondly, the respondents also accepted
23
the cheque from the appellant because deposit of
money by cheque was one of the modes of payment.
Had it not been so, the respondents would not have
accepted the cheque from the appellant. Thirdly, the
stop payment was done when the appellant received
the acceptance letter containing four additional
conditions to which he was not agreeable. He had,
therefore, every right to wriggle out of the auction
proceedings and stop further payment towards the
transaction. Such action on the part of the
appellant (bidder) did not amount to a breach of
clause 4 so as to give right to the State to forfeit the
security deposit.
40. In the light of foregoing discussion, we are of
the considered opinion, that the appellant did not
commit any breach of the term(s) and condition(s) of
the notice inviting bids and on the other hand, it
was the respondents who committed breaches. In
24
these circumstances, the State had no right to
forfeit the security amount and instead it should
have been returned when demanded by the
appellant.
41. Learned counsel for the appellant, however,
brought to our notice that after cancellation of the
auction proceedings in question, the plot in
question was re-auctioned by the State and the
same fetched Rs.134.00 lakhs as against 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 are of the view that the
action on the part of the respondents(State) in
25
forfeiting the security deposit of the appellant was
wholly unjustified.
42. In this case, it was expected from the State
officials to have acted as an honest person while
dealing with the case of an individual citizen and in
all fairness should have returned the security
amount to the appellant without compelling him to
take recourse to the legal proceedings for recovery of
his legitimate amount which took almost 21 years to
recover.
43. Indeed, this reminds us of the apt observations
made by the Chief Justice M.C. Chagla in a case
reported in Firm Kaluram Sitaram 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:
26
“…..we have often had occasion to
say that when the State deals with a
citizen it should not ordinarily reply on
technicalities, and if the State is satisfied
that the case of the citizen is a just one,
even though legal defences may be open to
it, it must act, as has been said by
eminent Judges, as an honest person.”
44. We are in respectful agreement with the
aforementioned observations as, in our considered
opinion, they apply fully to the case in hand against
the State.
45. We are, therefore, of the considered opinion
that both the Courts below were not justified in
their respective reasoning and the conclusion in
dismissing the 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
27
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 of Rs.3 lakhs is
accordingly passed in favour of the
appellant(plaintiff) 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.
47. Cost of the appeal Rs.10,000/- be payable by
the respondents to the appellant.
………...................................J.
[R.K. AGRAWAL]
…...……..................................J.
[ABHAY MANOHAR SAPRE]
New Delhi;
October 25, 2017
28
