Ambika Varnish vs State of Uttarakhand and Others

Barin Ghosh, C.J.—Divisional Forest Officer, Nainital Forest Division, Bhowali, by his letter dated 17th October, 2007, informed the Appellant that earnest money deposited by him, amounting to Rs. 42,550/-, stands forfeited and in addition thereto, a sum of Rs. 1,63,450/- is recoverable from him. Appellant was asked to pay the said sum of Rs. 1,63,450/- within 15 days. Appellant thus filed a writ petition, challenging the said order and seeking refund of the earnest money. Facts of the case, to which there appears to be no dispute, are that Appellant participated at an auction held on 10th February, 2006, where he was declared the highest bidder for purchase of 100 quintals of Resin at Rs. 4,255/- per quintal. The bid of the Appellant, having been accepted, an allotment order was issued in his favour, which required him to pay 10% of the bid amount as earnest and the balance amount within 30 days. The allotment stipulated that the Appellant would be required to pay late fee, in the event payment is not made within 30 days. Allotment order further stipulated that in the event Appellant fail to pay the bid amount and lift the goods within 90 days, the lot shall be re-sold and, if the re-sale price is less, then the difference would be recovered from the Appellant. Appellant accepted the allotment by paying the earnest money of Rs. 42,550/- and thereby, agreed unconditionally with the terms and conditions of the allotment. Admittedly, Appellant failed to pay the bid amount. The lot in question was re-auctioned on 10th May, 2006. It was claimed and contended in the letter, impugned in the writ petition, that the said re-sale resulted in a loss of Rs. 1,63,450/- after adjustment of earnest, being the difference of the amount of the bid received on re-auction and the bid amount to be given by the Appellant.

The case of the Appellant before the writ Court was that he could not lift the allotted Resin within time in view of financial difficulty and, accordingly, made representation for extension of time, which was not granted to him. It is not the contention of the Appellant that the agreement, pertaining to the allotment, provided extension of time as was sought for. In law, earnest can be appropriated when for the fault on the part of the giver the contract fails, though forfeiture of earnest cannot be by way of penalty.

In the instant case, the Divisional Forest Officer, Nainital Forest Division is contending that by reason of failure on the part of Appellant to perform his part of the contract, there has been a loss in excess of Rs. 1,63,450/-. If that be so, while earnest can be forfeited, but the same should be appropriated towards the loss. In as much as there is an agreement to compensate the loss suffered, and even otherwise, in view of the provisions of the Indian Contract Act, loss suffered in fact may be recovered after appropriating earnest money.

In the circumstances, there is no scope of directing refund of the earnest money. The subject matter of challenge in the writ petition was a mere demand and nothing more than that. In the event the said demand is to be recovered, appropriate action in that regard is required to be taken. However, we make it absolutely clear by substituting the judgment under appeal that in the event by reason of non-performance by the Appellant of his obligations under the contract, as enumerated in the allotment letter, the contract failed, while it shall be lawful to forfeit the earnest, and if such loss exceeds the amount of the earnest, then the remaining amount of the loss may be recovered by initiating appropriate action, as available in law.

This disposes of the appeal.