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2009 (12) TMI 995 - SC - Indian LawsAdvertisement for sale of manufacturing units - Non-existence of the independent approach road - Refund of the Earnest money illegally forfeited along with interest - subsequently during negotiations enhanced to ₹ 50,00,000 - deposited an amount of ₹ 2.5 lakhs by way of earnest money - appellants/Corporation called the respondent for negotiations - resulted in enhancement of the bid from ₹ 25 lakhs to ₹ 50 lakhs. The respondent, however, again raised the issue regarding the passage at the open house held by the appellants/Corporation. 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 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 ₹ 2.5 lakhs which had been deposited by the respondent as earnest money. HELD THAT - 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 ₹ 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 ₹ 2.5 lakhs on the clear understanding that there would be an independent approach road to the Unit. This is understandable. Without any independent passage the plot of land would be not more than 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. 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. 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. 1993 (10) TMI 231 - SUPREME COURT is wholly misconceived. 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. 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. 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 (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. 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. 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 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 ₹ 50,000/-.
Issues Involved:
1. Legality of the forfeiture of earnest money by the Haryana Financial Corporation. 2. Existence of an independent passage to the property in question. 3. Compliance with Section 55 of The Transfer of Property Act, 1882. 4. Applicability of Section 29 of the State Financial Corporations Act, 1951. 5. Justification of the High Court's decision to quash the forfeiture and direct the refund with interest. Detailed Analysis: 1. Legality of the Forfeiture of Earnest Money: The respondent challenged the forfeiture of Rs. 2.5 lakhs deposited as earnest money, arguing that the forfeiture was illegal due to the non-existence of an independent passage to the property. The High Court quashed the forfeiture, directing the appellants to refund the amount with interest. The Supreme Court upheld this decision, noting that the respondent had raised valid concerns about the passage, which were ignored by the appellants. 2. Existence of an Independent Passage: The respondent pointed out the lack of an independent passage to the property, which was crucial for its use as a manufacturing unit. Despite several communications, the appellants failed to provide satisfactory proof of an independent passage. The Branch Manager's letter dated 13.4.1998 confirmed the non-existence of a direct passage, which was crucial for the respondent's decision to withhold further payments. The Supreme Court agreed with the High Court's finding that the appellants acted unfairly by not addressing this issue adequately. 3. Compliance with Section 55 of The Transfer of Property Act, 1882: The appellants failed to disclose the material defect regarding the non-existence of an independent passage, violating Section 55 (1) (a) and (b) of The Transfer of Property Act, 1882. This section mandates the seller to disclose any material defect in the property and to produce all documents of title. The Supreme Court found that the appellants did not fulfill these obligations, thereby acting in breach of the Act. 4. Applicability of Section 29 of the State Financial Corporations Act, 1951: The appellants' reliance on Section 29, which pertains to actions against defaulting units, was deemed misplaced. The respondent, being an auction purchaser, could not be equated with the defaulting unit. The Supreme Court noted that the appellants, as sellers, had a duty to act fairly and transparently, which they failed to do. 5. Justification of the High Court's Decision: The High Court's decision to quash the forfeiture and order a refund with interest was upheld. The Supreme Court agreed that the respondent was not at fault and was misled by the appellants. The appellants' actions were found to be arbitrary and unfair, justifying the High Court's directions for a refund with 12% interest from 1.2.1998 until payment, and additional costs assessed at Rs. 50,000. Conclusion: The Supreme Court dismissed the appeal, directing the appellants to refund the forfeited amount with 12% interest from 1.2.1998 until payment, within two months of the order. Failure to comply within the stipulated period would result in an increased interest rate of 18% per annum. The respondent was also awarded costs of Rs. 50,000.
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