Suresh Kumar Wadhwa Vs. State of M.P. and Ors. - (Supreme Court) (25 Oct 2017)

If there is no stipulation in contract of forfeiture, there is no such right available to party to forfeit the sum

MANU/SC/1338/2017

Contract

Present appeal is filed by the Plaintiff against the final judgment passed by the High Court of Madhya Pradesh, whereby the High Court dismissed the appeal filed by the Appellant and affirmed the judgment passed by the trial Court, by which the Appellant's suit for declaration and refund of security amount deposited with the Respondents was dismissed. Trial Court held that, the Appellant failed to deposit the 1/4th amount immediately as per the terms of the public notice 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 conditions" mentioned in the acceptance letter dated 24th January, 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.

As per Section 74 of the Indian Contract Act, 1872, 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.

In facts of the case at hand, the public notice (advertisement), 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 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 present case. 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 proceedings enabling the bidders to make their compliance, in case, their bid is accepted.

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. Since, 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 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.

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 in verbatim in the public notice itself. The object behind publishing all material terms is 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.

In Union of India v. Vertex Broadcasting Company Private Limited and Ors. wherein Their Lordships held that, in the absence of any power in the contract to forfeit the license money deposited by the licensee, the action of the Union to forfeit the license fees is held illegal.

In instant case, The Appellant ensured compliance of the term because he deposited 1/4th amount of Rs. 10,45,000/- on the same day, i.e., 11th January, 1996 by cheque. 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. 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 so as to give right to the State to forfeit the security deposit.

The State had no right to forfeit the security amount and instead it should have been returned when demanded by the Appellant. 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. The appeal thus succeeds and is allowed.

Relevant : Union of India v. Vertex Broadcasting Company Private Limited and Ors. MANU/SC/0748/2015: (2015) 16 SCC 198

Tags : POWER TO FORFEIT SECURITY MONEY AUCTION NOTICE CONDITIONS BREACH