2017 (10) TMI 1553 - SC - Indian Laws

Rejection of refund of security amount deposited with the Respondents - Appellant s suit for declaration also rejected - public auction - Section 74 of the Indian Contract Act 1872 - whether the Appellant (plaintiff) committed any breach of the terms and conditions of the public auction notice dated 07.01.1996? - whether the State was justified in forfeiting the security money 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 - whether the State had power to forfeit the security money in the facts of this case? HELD THAT - 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 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 - 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. 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. The public notice (advertisement) only stipulated a term for deposit of the security amount of 3 lakhs by the bidder (Appellant) but it did not publish any stipulation that the security amount deposited by the bidder (Appellant herein) is liable for forfeiture by the State and if so in what contingencies - 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. 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 - 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/public notice then parties are bound by the terms and their rights are accordingly determined in the light of such terms in accordance with law. In the first place the Appellant ensured compliance of the term because he deposited 1/4th amount of 10, 45, 000/- on the same day i.e. 11.01.1996 by cheque. Secondly the Respondents also accepted the cheque from the Appellant because deposit of money by cheque was one of the modes of payment. Had it 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. Thus the Appellant did not commit any breach of the term(s) and condition(s) of the notice inviting bids and on the other hand it was the Respondents who committed breaches. In these circumstances the State had no right to forfeit the security amount and instead it should have been returned when demanded by the Appellant - 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. 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 - Appeal allowed.

Summary

Issues Involved:
1. Whether the Appellant committed any breach of the terms and conditions of the public auction notice dated 07.01.1996.
2. Whether the State was justified in forfeiting the security money (? 3 lakhs) deposited by the Appellant for the alleged breach.
3. Whether the State had the power to forfeit the security money in the facts of this case.

Detailed Analysis:

Issue 1: Breach of Terms and Conditions
The Appellant participated in a public auction for nazul plots, deposited the required security amount, and was declared the highest bidder. The Appellant complied with the initial terms by depositing 1/4th of the bid amount by cheque. However, upon receiving an acceptance letter with "special terms and conditions" not mentioned in the original public notice, the Appellant refused to accept these additional conditions and requested a refund of the security amount. The Court found that the Appellant did not commit any breach of the auction terms, as the additional conditions were unilaterally introduced by the Respondents after the auction and were not part of the original terms communicated to the bidders.

Issue 2: Justification for Forfeiture of Security Money
The Respondents argued that the Appellant breached the terms by stopping the cheque payment and failing to comply with the newly introduced conditions. The Court held that the Appellant's action of stopping the cheque payment was justified as the additional conditions were not part of the original auction notice. The Court emphasized that a party to a contract can only insist on the performance of terms that were part of the original agreement. Since the additional conditions were not communicated at the time of the auction, the Appellant had the right to refuse them and demand a refund of the security deposit.

Issue 3: Power to Forfeit Security Money
The Court examined the provisions of Section 74 of the Indian Contract Act, 1872, which deals with compensation for breach of contract where a penalty is stipulated. The Court noted that for forfeiture to be valid, the contract must explicitly contain a stipulation for forfeiture. In this case, the public auction notice did not include any stipulation regarding the forfeiture of the security deposit. The Court further stated that the right to forfeit is a contractual right and must be explicitly agreed upon by both parties. Since the auction notice did not mention forfeiture and the additional conditions were not part of the original terms, the State had no right to forfeit the security deposit.

Conclusion:
The Court concluded that the State's action of forfeiting the security deposit was unjustified and illegal. The Appellant did not breach any terms of the original auction notice, and the additional conditions introduced unilaterally by the Respondents were not binding. The Court set aside the judgments of the lower courts, decreed the Appellant's suit, and ordered the refund of ? 3 lakhs with interest at 9% p.a. from 01.02.1996 until realization. The Respondents were also ordered to pay the cost of the appeal amounting to ? 10,000/- to the Appellant.