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Judgment
T.S. Sivagnanam, J.—The petitioner has challenged the order dated 12.02.2010, passed by the respondent, by which a sum of Rs.
10,00,000/- remitted by the petitioner to participate in a tender cum public auction held on 28.10.2009, was forfeited. The respondent conducted
a tender cum auction for sale of the land, building and machinery in the property comprised in survey No. 46/13, Othivakkam village,
Guduvancherry, Chengalpet District. The property was brought for auction for recovery of the dues payable by the borrower M/s. Moolchand
Industries Pvt. Ltd. The petitioner submitted his offer for Rs. 81,00,317/-, along with a deposit of Rs. 10,00,000/-. The respondent by letter dated
05.11.2009, called the petitioner for discussion on 10.11.2009, for enhancing the bid amount. In the said meeting held on 10.11.2009, the
petitioner sought for clarification in respect of the statutory dues such as property tax, commercial tax etc., payable by the borrower and requested
the respondent to disclose the entire facts. The petitioner by letter dated 24.12.2009, informed the respondent that he has come to know that there
are huge sales tax arrears running to several crores of rupees payable by the borrower, M/s. Moolchand Industries Pvt. Ltd and informed the
respondent that only after the full particulars are furnished, he would be in a position to discuss the matter regarding enhancing his offer. The
respondent by letter dated 04.01.2010, invited the petitioner to meet the Deputy General Manager in his office on 07.01.2010. Even in the said
meeting, nothing worthwhile appears to have transpired. The petitioner by letter dated 29.01.2010, expressed his inability to enhance his offer and
in the absence of transparency with regard to the sales tax arrears payable by the borrower, withdrew his offer and requested for refund of the
amounts remitted by him.
It is the further case of the petitioner that the property has no access and the borrower has sold the property to Mohammed Imran Tanners and
the respondent had no valid title over the property to bring the same for tender cum auction. At that juncture, the respondent by the impugned
letter dated 12.02.2010, called upon the petitioner to remit the balance bid amount of Rs. 71,00,370/- within 30 days, failing which the bid amount
of Rs. 10,00,000/- paid by the petitioner will be forfeited without any further intimation. Challenging the said letter dated 12.02.2010, this writ
petition has been filed.
The learned counsel for the petitioner submitted that the tender cum auction was not confirmed in favour of the petitioner as the bid itself was not
finalised and the question of forfeiture of the amount paid by the petitioner does not arise and clause 16 of the tender condition cannot be invoked.
Further, it is submitted that the respondent reserved its right for private negotiation for enhancement of the bid amount by calling the petitioner for
discussion by letter dated 05.11.2009, thereby abdicated their right under the tender conditions and in the absence of any order of confirmation,
the question of forfeiting the amount paid by the petitioner does not arise. It is further submitted that arrears of sales tax payable by the borrower is
more than Rs. 7 crores which was suppressed by the respondent. The learned counsel referred to the information furnished under the Right to
Information Act, from which it is seen that there was wage arrears payable by the borrower to an extent of Rs. 8,12,767/- much prior to the
tender notification and a second charge was held by the State Bank of India. Further, the Surveyor who conducted the survey prior to the tender
notification, has submitted a survey report dated 05.10.2009, stating that the property could be accessed only through other land and the survey
numbers and corresponding entries in the revenue records do not tally with enjoyment as per state on ground and that the property will not fetch
the market value prevailing in the area. The learned counsel further submitted that the property in question namely S.F. No. 46/17, has been sold
by the Recovery Officer Debt Recovery Tribunal by sale deed dated 25.07.2003, to M/s. Mohammed Imran Tanners and the respondent had no
title over the property, on the date when the tender notification was issued. In support of his contention, the learned counsel referred to the
decisions of the Hon''ble Supreme Court in Haryana Financial Corporation and Another Vs. Rajesh Gupta, and Kerala Financial Corporation Vs.
Vincent Paul and Another,
The learned counsel appearing for the respondent referred to clauses 3, 4, 13, 16 & 19 of tender conditions and submitted that the petitioner
was bound by the said conditions and he ought to have inspected the property prior to submitting his offer and the petitioner was called upon to
discuss about enhancing his offer and as per the conditions, it is deemed that the petitioner has verified the title deeds and also physically inspected
the property and he cannot withdraw his offer on his own volition and the respondent was fully justified in forfeiting the amount of Rs. 10,00,000/-
paid by the petitioner.
Heard Mr. K. Chandrasekaran learned counsel for the petitioner and Mr. A. Rameshkumar, learned counsel for the respondent.
The power of forfeiture of the amount remitted by the highest bidder is traceable to clause 16 of the tender condition, which reads as follows:-
In case, the stipulated amounts are not paid within the stipulated time or the land, building and/or plant and machinery are not taken possession
by the successful tenderer/bidder within three months after receipt of the confirmation of sale, the sale confirmation in his favour will be set aside
and the amounts paid till then will be forfeited without reference to the purchaser. In such an event, the Corporation shall have the option of
negotiating with and accepting the offer of the second highest bidder. In such even also, the amount till then paid by the highest bidder will be
forfeited.
From the above condition, it is seen that incase the amounts stipulated is not paid within the time or the land or building or machinery are not
taken possession by the successful tenderer within three months after the receipt of the confirmation of the sale, such confirmation will be set aside
and the amount paid till then will be forfeited without reference to the purchaser. Therefore, the prerequisite is an order of confirmation of sale. It is
not in dispute that no such order was issued in favour of the petitioner. The petitioner submitted his offer of Rs. 81,00,370/- and a sum of Rs.
10,00,000/- was paid as earnest money deposit along with the petitioner''s tender form dated 27.10.2009 and submitted to the respondent on
28.10.2009. If the respondent was satisfied with the petitioner''s offer, then there is a requirement as per the tender condition to issue an order of
confirmation of sale. If within the time stipulated, which appears to be a minimum period of three months, the successful tenderer does not pay the
bid amount in full, then power has been given to the respondent to set aside the sale confirmation and forfeit the amount paid till then without
reference to the purchaser. In the instant case, there is no order of confirmation of sale.
It is submitted by the respondent that the impugned order is an order confirming the same. Perusal of the impugned order does not show that it
is an order confirming the sale in favour of the petitioner, but a vague reference has been made stating that the sale has been confirmed in favour of
the petitioner. Even assuming that the impugned order is an order of confirmation of sale, it is necessary that the petitioner should be given a
minimum of three months to remit the balance amount as per the conditions of tender. Admittedly, this has not been done and the petitioner was
called upon to remit the balance of Rs. 71,00,370/- within one week. It is to be noted that the sale price was never finalised by the respondent, as
the petitioner was called for a discussion on 10.11.2009, to discuss on the enhancement of the bid amount. Thus, it presupposes that there was no
confirmation, since a discussion for enhancement, cannot be done after confirmation and a discussion to enhance the bid amount can be only
before a confirmation. Therefore, it is manifestly clear that the bid submitted by the petitioner was not confirmed and there was no letter of
confirmation issued to the petitioner.
That apart, there was other serious flaws committed by the respondent in bringing the property for sale. It is true that as per terms and
conditions of tender, every bidder should verify the title deeds, inspect the property and principle of caveat emptor will apply. Nevertheless, the
respondent being a State owned corporation cannot suppress the facts within their knowledge, inspite of the petitioner having made a request in
writing on 24.12.2009 to disclose the sales tax arrears payable by the borrower.
Curiously enough the respondent while acknowledging the petitioner''s letter dated 24.12.2009, did not disclose the details, but called the
petitioner to discuss the matter with the Deputy General Manager on 07.01.2010. Thus, it is evident that there was total lack of transparency in the
manner in which the respondent conducted the auction.
The petitioner submitted that he had informed the DGM after inspecting the property stating that there was no access to the property. That
apart, certain startling details were revealed, when the petitioner made certain queries under the RTI Act. The tender notification was issued on
28.10.2009 and from the information furnished under the RTI Act, it is seen that a sum of Rs. 6,94,09,236/- was due and payable by the
borrower M/s. Moolchand Industries Pvt., Ltd., to the Sales Tax Department being arrears of sales tax, as per the demand dated 21.07.2009.
This demand was prior to the date of auction dated 28.10.2009 and the respondent did not disclose the same to the petitioner. That part, a sum of
Rs. 8,12,767/- was wage arrears and a notice has been issued by the Deputy Commissioner of Labour dated 13.09.2004, which is much prior to
the date of auction.
That apart, the second charge held by the State Bank of India, Leather International Branch, Kilpauk, Chennai 600 010 was not disclosed to
the petitioner. Further, the Sales Tax Department has claimed a first charge over the property which was brought for auction and this fact was also
not disclosed to the petitioner. Further, the property had no independent access and had to be accessed only through the other lands. The
Surveyor''s report dated 05.10.2009, (before the auction) reveals that the survey numbers do not correspond to the state on ground and the
surveyor has stated that the property will not fetch the market value prevailing in the area. The copy of the ''A'' register along with the F.M.B.,
sketch has been filed in the typed set of papers. Furthermore, the property has already been sold by the Recovery Officer, Debt Recovery
Tribunal I, Chennai along with the borrower M/s. Moolchand Industries to one M/s. Mohammed Imran Tanners by sale deed dated 21.07.2003
registered as document No. 1820 of 2003, on the file of the Sub-Registrar, Tiruporur. From the above facts, it is evident that there is absolute lack
of transparency in the manner in which the respondent conducted the tender cum auction.
In Haryana Financial Corporation and Another Vs. Rajesh Gupta, a somewhat identical case came up for consideration before the Hon''ble
Supreme Court, wherein challenge was made to the forfeiture of bid amount done by the Haryana Financial Corporation in respect of a property
which did not have a proper access and in the said case, though there was an order of confirmation, the Hon''ble Supreme Court held that the
financial corporation has acted unfairly and is trying to take advantage of its own wrong. The operative portion of the judgment reads as
hereunder:-
Taking into consideration the aforesaid facts the Division Bench concluded as follows:
Taking the totality of circumstances into consideration, we are satisfied that the petitioner was not at fault. He was entitled to withhold the money as
the respondents had failed to provide a proper passage. Still further, the factual position having been admitted in the letter dated 30-4-1998, a
copy of which is at Annexure P-6, and nothing to the contrary having been produced on the file, we find that the action of the respondent
Corporation in forfeiting the amount deposited by the petitioner was wholly arbitrary and unfair. 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 appellant 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 the State. He was entitled to legitimately proceed on the assumption that the
appellant, 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 Rs 50 lakhs without being given even a proper passage to the unit that he was buying. We are of the considered opinion
that the respondent had deposited the sum of Rs 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 do not find any substance in the submission made by the learned counsel for the appellant
Corporation.
In our opinion, the appellants cannot be given the benefit of Clause 5 of the advertisement. The appellant Corporation cannot be permitted to
take advantage of its 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 appellant Corporation which has acted unfairly, and is trying to take advantage of its own wrong.
In view of the aforesaid, we are of the considered opinion that the appellant Corporation cannot be permitted to rely upon Section 55 of the
Transfer of Property Act, 1882. The appellant Corporation failed to disclose to the respondent the material defect about the non-existence of the
independent 3 karams passage to the property. Therefore, the appellant Corporation clearly acted in breach of Sections 55(1)(a) and (b) of the
Transfer of Property Act, 1882.
The aforesaid section provides as under:
(1) The seller is bound
(a) to disclose to the buyer any material defect in the property or in the seller''s title thereto of which the seller is, and the buyer is not, aware, and
which the buyer could not with ordinary care discover;
(b) to produce to the buyer on his request for examination all documents of title relating to the property which are in the seller''s possession or
power;
A mere perusal of the aforesaid provision will show that it was incumbent upon the appellant Corporation to disclose to the respondent about the
non-existence of the independent passage to the unit. It was also the duty of the appellant Corporation to inform the respondent that the passage
mentioned in the revenue record was not fit for the movement of vehicles. The appellant Corporation also failed to produce to the buyer the entire
documentation as required by Section 55(1)(b) of the aforesaid section. We are therefore satisfied that the appellant 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. The respondent herein is an auction-purchaser and
therefore cannot be confused with the defaulting unit.
Further, the manner in which the sale was conducted, the reserve price was fixed and such other procedures to be followed are in violation to
the directions issued by the Hon''ble Supreme Court in Kerala Financial Corporation Vs. Vincent Paul and Another, .
From the above facts, it is clear that there was no order of confirmation issued in favour of the petitioner, consequently the question of
forfeiture does not arise. Surprisingly, the respondent did not have title over the property in question on the date of auction sale as the property
was sold by the Recovery Officer, Debt Recovery Tribunal, as far back as on 2003 and it is not known as to whether the respondent was aware
of the same or they had deliberately suppressed the same from the petitioner. Though a sales tax arrears of Rs. 7 crores was due and payable by
the borrower M/s. Moolchand Industries and the sales tax department exercised first charge over the property and despite the same being fully
within the knowledge of the respondent, deliberately fail to put the purchaser on notice about the same. The wage arrears and the notice issued by
the Labour Commissioner much prior to the date of tender cum auction was not disclosed. The second charge held by the State Bank of India was
not informed to the petitioner. The report of the surveyor which was prepared prior to the tender cum auction, which clearly states that there was
no access to the property was suppressed by the respondent. Thus, the respondent attempted to sell a property over which they had no title on the
date of tender cum auction.
For all the above reasons, the impugned order forfeiting the amount paid by the petitioner is wholly without jurisdiction, illegal and arbitrary. In
the result, the writ petition is allowed, the impugned order is set aside and the respondent is directed to refund the amount of Rs. 10,00,000/- paid
by the petitioner, within a period of four weeks from the date of receipt of a copy of this order. No costs. Consequently, connected miscellaneous
petition is closed.