REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.7665 OF 2009

Suresh Kumar Wadhwa  ….Appellant(s)

VERSUS

State of M.P. & Ors.         …Respondent(s)

J U D G M E N T

Abhay Manohar Sapre, J.

1. This appeal is filed by the plaintiff against the

final judgment and order dated 21.11.2006 passed

by  the  High  Court  of  Madhya  Pradesh,  Bench at

Jabalpur in First  Appeal  No.127 of  1998 whereby

the Division Bench of the High Court dismissed the

appeal filed by the appellant herein and affirmed the

judgment and decree dated 23.12.1997 passed by

the  9th  Additional  District  Judge,  Bhopal  in  C.S.

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No.2-A/97  by  which  the  appellant's  suit  for

declaration and refund of security amount deposited

with the respondents was dismissed.

2. Facts  of  the  case  lie  in  a  narrow  compass.

They, however, need mention, in brief, to appreciate

the controversy involved in the appeal.

3. The  appellant  is  the  plaintiff  whereas  the

respondents (State of M.P. and its officials) are the

defendants in a civil suit out of which this appeal

arises.

4.    Respondent  No.  3  (defendant  No.  3)-a  Nazul

Officer,  Bhopal  issued  an  advertisement  on

07.01.1996 in daily newspaper for and on behalf of

State  of  M.P  wherein  it  was  published  that  four

nazul  plots  of  the  State  would  be  sold  in  public

auction on 11.01.1996 on the terms and conditions

set out therein. Anyone  interested could participate

in  the  public  auction  by  following  the  terms  and

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conditions  mentioned  in  the  public  notice.   It  is

apposite to reproduce the public notice including its

terms/conditions hereinbelow:

“All  are  hereby informed that  the  public auction  of  Government  nazul  plots  of situated  at  Mahavir  Nagar,  Arera  Colony, Bhopal  is  to  be  carried  out.  The description of the nazul plots is as follows:

Place Plot No. Area Arera Colony,  Bhopal E 5/5      2880 sq ft

E 5/17      2880 sq ft E 2/12      13251.03 sq ft E 2/12       9600 sq ft

The public  auction of the aforesaid plots will  done  on  11.01.1996  starting  at  11 A.M.  in  the  court  of  the  nazul  officer capital  city  scheme  Bhopal  and  the conditions  of  the  auction  will  be  as follows:

1.  Each plot shall be auctioned separately.

2. Bidder  must  be  Income  Tax  Assessee and  proof  of  Assessment  for  1994-95 shall be necessary.

3. Before  taking  part  in  the  bid,  each bidder  shall  have  to  deposit  a  Bank draft of Rs. 3.00 lacs with Nuzul Officer as a security.  

4. The highest bidder shall have to deposit 1/4th  amount  of  his  bid  immediately after closure of auction for the plot in question.

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 5. Within  7  days  from  the  date  of

acceptance of his bid, the bidder shall have to deposit entire amount of his bid after adjustment of security deposit and one fourth amount already deposited.

 6. After  receipt  of  full  payment,  the

possession  of  plot  after  demarcation shall be delivered to bidder on site and he shall  be granted a permanent lease for 30 years.  

7. Collector,  Bhopal  shall  have  power  to cancel  any  auction/bid  without assigning any reasons.”  

5. The appellant was one of  the participants in

the auction proceedings. The appellant, accordingly,

in  terms of  clauses  2  and  3  of  the  public  notice

deposited  his  Income  Tax  Return  for  the  year

1994-95 and also deposited a sum of Rs. 3 lakhs

vide Bank Draft No. 6858812 dated 10.01.1996 with

respondent No. 3 as security.

6. The  auction  was  held  on  11.01.1996.  The

appellant quoted his bid at Rs.53,80,000/- for plot

No.E-5/5 situated in Mahavir Nagar, Arera Colony,

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Bhopal.  The  appellant's  bid  was  declared  the

highest  amongst  those  who  participated.  The

Respondent  No.  3  accordingly  accepted  the

appellant’s bid for plot No. E-5/5.

7.  The  Respondent  No.  3  then  asked  the

appellant  to  deposit  1/4th  amount  of  the  total

amount on the same day in terms of public notice.

The  appellant  accordingly  deposited  a  sum  of

Rs.10.45  lakhs  by  cheque  No.  309991  dated

11.01.1996 drawn in favour of respondent No. 3.

8. On 25.01.1996, the appellant received a letter

dated 24.01.1996 from  respondent No. 3 informing

him  that  his  bid  for  plot  No.  E-5/5 is  accepted

subject to   "special terms and conditions".  These

conditions, which are mentioned in the letter, read

as under:

“1.Annual  lease  rent  @  7.5%  will  be charged  from  the  bidders  on  the accepted bid amount.  

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2. If  the  lease  rent  for  10  years  is deposited  in  lumpsum,  then  the remaining 20 years will be free from lease rent.  

3. The lease shall have to be renewed as per rules after 30 years.  

4. All the conditions of auction will be binding on the bidders.”

9. The  appellant,  on  receipt  of  aforesaid  letter,

replied  to  respondent  No.3  on 29.01.1996 stating

that the “special terms and conditions" mentioned

in the letter were neither published nor informed to

him at any point of time earlier and nor was he ever

made aware of any such terms and conditions till he

received the letter dated 25.01.1996.  The appellant,

therefore, declined to accept the “special terms and

conditions"  and  requested  respondent  No.  3  to

return the security amount of Rs.3 lakhs, which he

had deposited at the time of submission of the bid.

10. On  08.02.1996,  respondent  No.  2  issued  a

show cause notice to the appellant stating therein

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as  to  why  the  amount  of  Rs.3  lakhs  be  not

"forfeited" and the plot in question is re-auctioned.

The  appellant,  vide  his  reply  dated  12.02.1996

replied that since he has not accepted the   "special

terms and condition" offered by respondent No. 3 in

their acceptance letter, the appellant is entitled to

ask for refund of the security amount of Rs.3 lakhs

from respondent No. 3 and that   respondent No. 2

has no right to forfeit such amount.  

11.  Respondent  No.  2,  by  his  letter  dated

24.02.1996 informed to the appellant that a sum of

Rs.  3  lakhs  deposited  by  him (appellant)  towards

security has been forfeited.  

12. The appellant,  on 28.02.1996,  then served a

legal notice to the respondents under Section 80 of

the  Code of  Civil  Procedure,  1908 and demanded

refund of Rs. 3 Lakhs. The respondents, however,

did  not  refund  the  money.  The  appellant  was,

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therefore,  constrained to file  the  civil  suit  against

the  respondents  for  a  declaration  that  the  letter

dated 24.02.1996 forfeiting the security amount of

Rs 3 lakhs be declared as bad in law and further

prayed for refund of Rs. 3 lakhs along with interest

at the rate of Rs.18% p.a..

13. In substance, the appellant's suit was founded

on  the  allegations,  inter  alia, that  firstly,  the

appellant  was within his right to refuse to accept

the "special terms and conditions" contained in the

acceptance letter dated 24.01.1996 of  respondent

No.3 because according to the appellant these terms

and conditions were never part of the original public

auction notice pursuant to which he had submitted

his  bid  and  nor  such  terms and  conditions  were

communicated  to  the  appellant  till  his  bid  was

accepted  and  hence  these  conditions  were  not

binding  on him;  Secondly,  in  the  absence  of  any

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terms and conditions published in the public notice

empowering  respondent No. 2 to forfeit the security

amount  (Rs.3  lakhs),   respondent  No.  2  had  no

right/authority  to  forfeit  a  sum  of  Rs.  3  lakhs

deposited by the appellant; and lastly, the appellant

had performed his part by ensuring compliance of

all necessary terms of the public notice whereas it

was the respondents, who committed breach of the

terms.

14. The respondents filed their written statement.

While  denying  the  appellant's  claim,  the

respondents  justified  their  action  in  forfeiting  the

security amount of  Rs. 3 lakhs.  The respondents,

however, contended that firstly, the “special terms

and conditions” were orally told to the appellant at

the  time  of  auction;  secondly,  these  terms  and

conditions  were  applicable  to  the  auction

proceedings because they are part of the Revenue

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Book Circular (RBC) which applies to all the plots in

question;  and  lastly,  the  appellant  committed

breach  of  terms   by  withholding  the  payment  of

1/4th  amount, when he directed "stop payment" of

his  cheque  amount  for  being  paid  to  respondent

No.3. These were essentially the grounds taken in

the  written  statement  to  justify  the  forfeiture  as

being legal and proper.

15. The  Trial  Court  framed  issues.  Parties  led

evidence.  By  judgment/decree-dated  23.12.1997,

the Trial Court  dismissed the suit. It was held that

the  appellant  failed  to  deposit  the  1/4th  amount

immediately as per the terms of  the public notice

inasmuch 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

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conditions"  mentioned  in  the  acceptance  letter

dated 24.01.1996 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.  

16. The appellant, felt aggrieved, filed first appeal

before  the  High  Court.  The  Division  Bench,  by

impugned order, dismissed the appeal and upheld

the judgment/decree of the Trial Court.  The High

Court  held  that  since  the  similar  issue  was  the

subject  matter  of  another  appeal  (F.A.  No.

794/2000- M/s Priyanka Builders vs State of MP

decided  on  11.11.2006)  and  the  said  appeal

having  been  dismissed,  this  appeal  also  deserves

dismissal  in  the  light  of  judgment  rendered  in

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Priyanka Builders' case. The impugned judgment,

however, neither recorded any reason given in the

Priyanka's  case and  nor  mentioned  the  facts  of

Priyanka's  case with  a  view  to  show  similarity

between  both  the  cases  and  nor  recorded  any

independent reasoning for dismissal of the appeal.

17. The  appellant  (plaintiff),  felt  aggrieved,  has

filed this appeal by way of special leave before this

Court.

18. Heard Mr. Prasenjit Keswani, learned counsel

for the appellant and Mr. Mishra Saurabh, learned

counsel for respondents 1 & 2.

19. Having heard learned counsel  for  the parties

and on perusal  of  the  record of  the  case,  we are

inclined to allow the appeal, set aside the impugned

judgment and the decree of  the two Courts below

and decree the appellant's  (plaintiff’s)  suit  against

the  respondents as indicated infra.

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20. Three questions, basically, arise in this appeal.

First,  whether  the  appellant  (plaintiff)  committed

any breach of the terms and conditions of the public

auction notice  dated 07.01.1996; second,  whether

the  State  was  justified  in  forfeiting  the  security

money (Rs.3 lakhs)  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;  and  third,  whether  the

State had power to forfeit the security money in the

facts of this case?

21. These questions need to be answered keeping

in view the provisions of  Section 74 of the Indian

Contract Act, 1872 (hereinafter referred to as "the

Act")  and some settled  legal  principles  relating  to

law of contract.

22. Section 74 of the Act reads as under:  

“74.  Compensation  for  breach  of  contract where penalty stipulated for- When a contract

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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 the 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.”  

23. 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

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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.

24. The  learned  author-Sir  Kim  Lewison  in  his

book "The Interpretation of Contracts" (6th edition)

while  dealing  with  subject  "Penalties,  Termination

and  Forfeiture  clauses  in  the  Contract"  explained

the meaning of the expression "forfeiture" in these

words:

"A forfeiture clause is a clause which brings  an  interest  to  a  premature  end  by reason of a breach of covenant or condition, and the Court will penetrate the disguise of a forfeiture  clause  dressed  up  to  look  like something else. A forfeiture clause is not to be construed strictly, but is to receive a fair construction.”(See page 838)

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25. The author then quoted the apt observations of

Lord Tenterden from an old case reported in (1828)

Moo. & M.189 Doe d Davis vs. Elsam wherein the

learned Lord while dealing with the case of forfeiture

held as under:  

"I do not think provisoes of this sort are to  be  construed  with  the  strictness  of conditions at common law. These are matters of contract between the parties, and should, in  my  opinion,  be  construed  as  other contracts" (see pages 840).  

26. 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.  

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27. 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.   

28. Keeping in view the aforementioned principle

of  law, when we examine the facts of  the case at

hand  then  we  find  that  the  public  notice

(advertisement),  extracted above, 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

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deposited by the bidder (appellant herein) is liable

for  forfeiture  by  the  State  and,  if  so,  in  what

contingencies.  

29. In  our  opinion,  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.   

30. 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

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proceedings  enabling  the  bidders  to  make  their

compliance, in case, their bid is accepted.  

31. In our considered opinion,  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.

32.  Since  these  four  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

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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.

33. Learned  counsel  for  the  respondents  (State),

however, argued that it was not necessary for the

State to specify the condition relating to forfeiture

and four additional terms/conditions in the public

notice  because  they  were  already  part  of  RBC,

which is applicable to the nazul lands in question.  

34. We find no merit in this submission for more

than  one  reason.  First,  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

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in  verbatim  in  the  public  notice  itself.   It  was,

however, not done.

35.  In our considered opinion, 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/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.  

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36. When we read the facts and  law laid down by

this Court in the case of  Maula Bux vs. Union of

India, 1969(2) SCC 354 and Shri Hanuman Cotton

Mills & Ors. Vs. Tata Air Craft Ltd., 1969(3) SCC

522,  we  find  that  there  was  a  specific  clause  of

forfeiture in the contract in both the cases.  Such

clause empowered one party to forfeit  the earnest

money/security  deposit  in  the  event  of

non-performance of the terms of the contract. It is

in the light of such facts, Their Lordships examined

the question of forfeiture in the context of Section

74 of the Contract Act. Such is not the case here.

37. Our  reasoning  is  supported  by  a  recent

decision of this Court in Union of India vs. Vertex

Broadcasting  Company Private  Limited & Ors.,

(2015)  16 SCC 198 wherein  Their  Lordships  held

inter alia that in the absence of any power in the

contract  to  forfeit  the license money deposited by

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the licensee, the action of the Union to forfeit  the

license fees is held illegal. This is what was held:  

“10. Coming  to  the  aforesaid  question  of availability of a power to order forfeiture, a reading  of  the  relevant  clauses  i.e.  Clauses 8(f), 10(d) and 12 extracted above would go to show  that  the  Union  had  not protected/empowered  itself  to  forfeit  the licence fee.  The forfeiture contemplated by the  aforesaid  clauses  are  altogether  in different  contexts  and  situations.   In  the absence  of  any  such  power,  the  forfeiture that has taken place in this case will have to be adjudged as null and void.”  

38. Learned  counsel  for  the  respondents  (State)

then argued that the appellant had committed the

breach of clause 4 of public notice inasmuch as he

failed to pay 1/4th  amount and "stopped payment"

of the cheque amount to the respondents.  

39. We do not agree to this argument. In the first

place, the appellant ensured compliance of the term

because  he  deposited  1/4th amount  of  Rs.

10,45,000/-  on  the  same  day,  i.e.,11.01.1996  by

cheque.  Secondly,  the  respondents  also  accepted

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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.  

40. In the light of foregoing discussion, we are of

the considered opinion, that 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

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these  circumstances,  the  State  had  no  right  to

forfeit  the  security  amount  and instead  it  should

have  been  returned  when  demanded  by  the

appellant.

41. Learned  counsel  for  the  appellant,  however,

brought to our notice that after cancellation of the

auction  proceedings  in  question,  the  plot  in

question  was  re-auctioned  by  the  State  and  the

same fetched Rs.134.00 lakhs as against appellant’s

bid amount of Rs.53,50,000/-. Learned counsel for

the respondents did not dispute this fact. In such

circumstances, we find that the respondent did not

suffer any monetary loss in the transaction and on

the other hand earned more money as against what

they would have got from the appellant. It is for this

additional reason also, we are of the view that the

action  on  the  part  of  the  respondents(State)  in

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forfeiting the security deposit of the appellant was

wholly unjustified.  

42. 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.

43. Indeed, this reminds us of the apt observations

made by the Chief  Justice M.C. Chagla in a case

reported  in  Firm Kaluram  Sitaram  vs.  The

Dominion  of  India (AIR  1954  Bombay  50).  The

learned  Chief  Justice  in  his  distinctive  style  of

writing  while  deciding  the  case  between  an

individual citizen and the State made the following

pertinent observations in para 19:  

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“…..we have often had occasion to say  that  when  the  State  deals  with  a citizen  it  should  not  ordinarily  reply  on technicalities, and if the State is satisfied that the case of the citizen is a just one, even though legal defences may be open to it,  it  must  act,  as  has  been  said  by eminent Judges, as an honest person.”

44. We  are  in  respectful  agreement  with  the

aforementioned observations as, in our considered

opinion, they apply fully to the case in hand against

the State.

45. We  are,  therefore,  of  the  considered  opinion

that  both  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.

We hereby do so.

46. The appeal thus succeeds and is allowed with

cost throughout. Impugned judgment and decree of

the High Court and the Trial Court are set aside and

the appellant’s (plaintiff) suit is decreed against the

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respondents (defendants).  It  is declared that letter

dated 24.02.1996 of the respondents forfeiting the

security deposit of the appellant is illegal and bad in

law.  A  money  decree  for  refund  of  Rs.3  lakhs  is

accordingly  passed  in  favour  of  the

appellant(plaintiff)  and  against  the  respondents

(defendants)  along  with  interest  payable  on  Rs.3

lakhs  at  the  rate  of  9% p.a.  from 01.02.1996 till

realization.  

47.   Cost of the appeal Rs.10,000/- be payable by

the respondents to the appellant.                

               ………...................................J.

[R.K. AGRAWAL]             

                                                   …...……..................................J. [ABHAY MANOHAR SAPRE]

New Delhi; October 25, 2017  

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