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Himachal Pradesh High Court · body

2015 DIGILAW 1973 (HP)

Green View Apartments v. State of H. P.

2015-12-28

TARLOK SINGH CHAUHAN

body2015
JUDGMENT : Tarlok Singh Chauhan J. The petitioner has though claimed various reliefs, in this writ petition, however, during the course of hearing confined his prayer to relief No. (iii), only, which reads thus:- “Issue a writ of mandamus directing the respondents to refund the earnest money deposited by the petitioner along with interest @12% p.a.” 2. Respondent No. 2, Himachal Pradesh State Industrial Development Corporation Limited offered for sale property of M/s Himachal Filament Pvt. Ltd., which had been mortgaged with it by inviting bids for the same. In terms of advertisement, intending buyer/third party was required to deposit 10% of their offer as earnest money on or before the date i.e. 5.8.2008 by way of draft payable to respondent No. 2 on any scheduled bank at Shimla, failing which the offer was stated to be not acceptable. 3. Respondent No. 2 gave maximum bid according to which the value assessed in respect of the unit was Rs.252.18 lacs and whereas the previous maximum bid received was Rs.137.00 lacs. The petitioner company gave its bid for Rs.150.00 lacs and deposited bank draft of Rs.15.00 lacs towards earnest money. Similarly, other participants also gave their respective bids and out of them, one Mr.R.K. Sharma offered highest bid of Rs.167.00 lacs. On the basis of these bids, respondent No. 2 conducted negotiations on the same date with the bidders and finally the petitioner was declared successful being the highest offer of Rs.307.00 lacs. 4. It is contended by the petitioner company that besides giving a draft of Rs.15.00 lacs, it also gave a cheque of Rs.6.30 lacs, thereby a total amount of Rs.21.30 lacs was deposited by it. The petitioner further undertook/offered the respondent Corporation to pay a sum of Rs.95.00 lacs to the Sale Tax Department, which was the outstanding liability of the sick unit. It is then the case of the petitioner that the respondent had already intended to sell out the unit to respondent No. 3 M/s Rubicon Manufacturing Company and therefore, it illegally forfeited the amount deposited by the petitioner. This action of the respondent has been assailed on various grounds, as taken in the memo of the petition. 5. It is then the case of the petitioner that the respondent had already intended to sell out the unit to respondent No. 3 M/s Rubicon Manufacturing Company and therefore, it illegally forfeited the amount deposited by the petitioner. This action of the respondent has been assailed on various grounds, as taken in the memo of the petition. 5. In reply filed by respondent No. 2, certain preliminary objections have been taken, but the sum and substance of the entire reply is that though the petitioner had deposited a sum of Rs.15.00 lacs along with its initial bid, but cheque of Rs.6.30 lacs was not deposited. It is further averred that the offer of the petitioner for Rs.307 lacs was conditional offer, in which the petitioner imposed a condition of depositing the sale tax due of M/s Himachal Filament Pvt. Limited, amounting to Rs.94.00 lacs and considered Rs.9.40 lacs as earnest money without depositing the same. It is further averred that as per the sale notice the sale tax dues were to be paid by the Corporation to the Excise Department and the bidder/petitioner had no justification to have included this issue in offer of Rs.307.00 lacs. It was on account of the failure of the petitioner to have deposited the difference of the balance amount of 10% of the earnest money of its bid by 3.00 P.M. that entailed the forfeiture of deposited amount of Rs.15.00 lacs being the difference of 10% of the earnest money of initial and revised bid. I have heard the learned counsel for the parties and have gone through the records of the case. 6. Clause 2 of the proceedings of the Negotiation Committee dated 5.8.2008 (Annexure R-2/7) reads thus: “2.On conclusion of the inter-se bidding the highest two bidders would be required to deposit difference of the balance amount of the 10% earnest money positively by 3:00 P.M. on 05.08.2008 itself with the Corporation i.e. prior to the meeting of the Sale Sub-Committee of the HPSIDC which was to meet to finalize the sale. In case the highest two bidders are not able to deposit the said amount by 3:00 P.M. with the H.P.SIDC, the earnest money deposited by them with their initial bid shall stand forfeited.” 7. In case the highest two bidders are not able to deposit the said amount by 3:00 P.M. with the H.P.SIDC, the earnest money deposited by them with their initial bid shall stand forfeited.” 7. It is evident from the aforesaid clause that on conclusion of the interse bidding, the difference of the balance amount of 10% earnest money by the highest two bidders was required to be deposited by 3.00 P.M. on 5.8.2008 itself, failing which the earnest money deposited by them with their initial bid would stand forfeited. The highest bid essentially will have to be referred to a lawful and concluded bid, which is unconditionally accepted by the Corporation and therefore, in case the same is not accepted, there would be no question of deposit. 8. Section 74 of the Indian Contract Act reads as under:- "74. Compensation for breach of contract where penalty stipulated for.- When a contract 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 any 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." 9. 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." 9. Though a number of judgments have been cited by Mr.G.D. Verma, learned senior counsel for the petitioner, regarding the scope, ambit and applicability of the aforesaid provision, however, the same need not be referred to, in view of the recent decision of the Hon’ble Supreme Court in Kailash Nath Associates Vs. Delhi Development Authority and another (2015) 4 SCC 136 , wherein after taking into consideration the entire law on compensation for breach of contract under Section 74 of the Contract Act. The following principles were laid down:- “43.1 Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation. 43.2 Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act. 43.3 Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section. 43.4 The Section applies whether a person is a plaintiff or a defendant in a suit. 43.5 The sum spoken of may already be paid or be payable in future. 43.6 The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. 43.5 The sum spoken of may already be paid or be payable in future. 43.6 The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded. 43.7 Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application.” 10. Evidently, it is the case of respondent No. 2 that the offer of the petitioner for Rs.307 Lacs was conditional one, in which the petitioner had illegally imposed condition for depositing the sales tax and other conditions which were not acceptable to the Corporation. Therefore, once respondent No. 2 itself had not accepted the offer made by the petitioner by considering it to be not in accordance with law, the question of forfeiture of earnest money in such circumstances does not arise. It is only if respondent No. 2 had unconditionally accepted the offer, that the petitioner would have been mandatorily obliged to deposit the difference of the balance amount of 10% of the earnest money. In absence of any contract having been come into existence, respondent No. 2 had no jurisdiction or authority to have forfeited the earnest money deposited by the petitioner, more particularly when no material has been placed on record, which may even remotely suggest that respondent No. 2 has suffered any loss for want of deposit of difference of 10% of the earnest money. 11. In view of the aforesaid discussion, the action of respondent No. 2 in forfeiting the earnest money of Rs.15 lacs cannot be sustained and is, therefore, held to be illegal, arbitrary and is accordingly quashed and set aside. The respondents are directed to refund the earnest money deposited by the petitioner along with interest @ 12% per annum from the date of its deposit till its payment. The petition stands disposed of, so also the application(s), if any.