Delhi High Court
M/S Ajay Enterprises P. Ltd. & Anr. vs Mcd & Ors. on 6 May, 2009
Author: Hima Kohli
Bench: Hima Kohli
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 1512/1980
Reserved on : 05.02.2009
Date of decision : 06.05.2009
IN THE MATTER OF :
M/S AJAY ENTERPRISES P. LTD. & ANR. ..... Petitioners
Through: Mr. Harish Malhotra, Sr. Adv. with
Mr. Tanuj Khurana and
Mr. Vipul Gupta, Advs.
versus
MCD & ORS. ..... Respondents
Through: Mr. Ajay Arora and Mr. Kapil Datta, Advs.
for MCD.
CORAM
* HON'BLE MS.JUSTICE HIMA KOHLI
1. Whether Reporters of Local papers may
be allowed to see the Judgment? Yes.
2. To be referred to the Reporter or not? Yes.
3. Whether the judgment should be
reported in the Digest? Yes.
HIMA KOHLI, J.
1. The present writ petition is filed by the petitioners praying inter alia for a declaration that the respondent No.1/MCD has no power and authority to forfeit 25% of the bid amount deposited by the petitioners towards the auction of two commercial plots bearing Nos.D-3 and D-4, at Najafgarh Road Community Centre, Opposite Milan Cinema, Karampura, W.P.(C) 1512/1980 Page 1 of 18 Delhi and declare that the said forfeiture is illegal. In the alternative, a declaration is sought by the petitioners to the effect that there was no proper completed auction for want of approval of the highest bid by the respondent/MCD and hence the amount received by the respondent No.1 has to be refunded to the petitioners with interest payable @ 18% per annum. The petitioners have also sought quashing of notices, including the notice dated 24.10.1980 issued by the respondents, forfeiting the earnest money deposited by the petitioners in respect of the aforesaid plots and for re-auctioning of the said plots. The last relief sought by the petitioners is for directions to the respondent/MCD to carry out development of the Community Centre, in accordance with law before demanding the balance of the premium in respect of the bid amounts for the two plots from the petitioners, or in the alternative, for directions to the respondent/MCD to refund to the petitioners, the earnest money received in respect of the aforesaid plots.
2. At the outset, counsel for the petitioners stated that he did wish to press for the relief of declaration to the effect that there was no proper completed auction for want of approval of the highest bid by the competent authority, as the MCD had been superceded by the Government of India, at the relevant time under the provisions of Section 490 of the Delhi Municipal Corporation Act, on the ground that the said issue had been conclusively W.P.(C) 1512/1980 Page 2 of 18 decided by a judgment of the Division Bench dated 25.07.2008 in two appeals, registered as RFA(OS) Nos.12 & 14 of 1983 arising out of a common judgment and decree dated 9.3.1983 passed in two connected suits instituted by two private parties against the MCD, pertaining to two commercial plots put to auction by MCD in the year 1976, in the very same Commercial Complex, i.e., the Najafgarh Road Community Centre. Vide judgment dated 25.7.2008, the effect of dissolution of the MCD was duly considered and the Division Bench concurred with the findings of the Single Judge to the effect that even though the Corporation stood superceded, the Central Government, by virtue of a Notification, had empowered the Commissioner, MCD to exercise the powers and perform the duties conferred upon the Corporation by or under the Act. This leaves the relief with regard to refund of the earnest money deposited by the petitioners and forfeited by the respondents.
3. The facts of the case, when encapsulated, are that in May 1979, the respondent/MCD issued an advertisement in the National newspapers proposing to auction eight commercial plots situated at Najafgarh Road Community Centre, Opposite Milan Cinema, Karampura, Delhi. The terms and conditions of the auction stipulated that the successful bidder would pay 25% of the bid amount at the fall of the hammer and the balance was to be paid within two months from the date of the receipt of the acceptance letter. W.P.(C) 1512/1980 Page 3 of 18 The relevant extract of the advertisement issued by the respondent/MCD in the press reads as below :
"The MCD will dispose of, on perpetual lease hold basis, the following four storeyed commercial plots in the above noted Community Centre situated on the road connecting main Najaf Garh Road with Punjabi Bagh on Sunday, 10th June, 1979 at 10-30 a.m. in the Municipal Auditorium, Town Hall, Chandni Chowk, Delhi. The centre has a provision of large number of four storeyed commercial shop-cum-office unit plots of various sizes".
4. In response to the aforesaid advertisement, the petitioner No.1 participated in an auction held on 16.6.1979 and was declared the highest bidder in respect of plots No.D-3 and D-4. It is an undisputed position that though the petitioners paid 25% of the bid amount at the fall of the hammer, the balance 75% of the bid amount was not deposited by them within the stipulated time or even thereafter. It is also not disputed by either side that the time for depositing the balance 75% of the bid amount could be extended by a period of 1 year, after a lapse of 2 months from the date of the receipt of the acceptance letter.
5. Counsel for the petitioners referred to the letter dated 15.5.1980 sent by the petitioners to the respondent/MCD to indicate that they did not deposit the balance bid amount for the reason that the Community Centre had not been developed by the respondent/MCD, contrary to its promise. W.P.(C) 1512/1980 Page 4 of 18 In the aforementioned communication, the petitioners pointed out a number of unauthorized shops and tombs that existed right in front of the Community Centre, which were not removed. At the end of the said letter, the petitioners requested the respondent/MCD for permission to make full and final payment by 22.8.1980, along with interest payable in accordance with terms and conditions of the bid.
6. Counsel for the petitioners relied upon Resolution No.63 of the Works Committee of the respondent/MCD dated 5.8.1970 and the Resolution No.641 to contend that it was incumbent for the respondent/MCD to have developed the Community Centre at Karampura before putting the plots in question, to public auction and that having failed to undertake the development, the respondent/MCD could not have taken steps to dispose of the plots by a public auction on a perpetual lease hold basis. He stated that as the respondent/MCD failed to take any steps to develop the community centre, it could neither have demanded the balance bid amount from the petitioners, nor could it have forfeited the amount paid by the petitioners or put the plots for re-auction.
7. In support of his contention that Section 74 of the Contract Act does not permit any forfeiture by the respondent without the loss being proved and the onus to prove such loss or damage on account of breach so W.P.(C) 1512/1980 Page 5 of 18 committed is on the forfeiting party, which option should be exercised as a last resort, counsel for the petitioners relied on the following judgments:
(1) Fateh Chand Vs. Balkrishan Dass AIR 1963 SC 1405 (2) Maula Bux Vs. Union of India AIR 1970 SC 1955 (3) Union of India Vs. Rampur Distillery & Chemical Co.Ltd. AIR 1973 SC 1098 (4) Teri Oat Estates (P) Ltd. Vs. U.T.Chandigargh and others (2004) 2 SCC 130 (5) Kailash Nath and Associates Vs. Delhi Development Authority & Anr. 144(2007) DLT 1 (6) Jagmohan Singh Vs. State of Punjab and others 2008 7 SCC 38
8. Counsel for the respondent/MCD disputed the aforesaid stand of the petitioners and stated that the petitioners were in gross default of the terms and conditions of auction and having failed to pay the balance amount in accordance with the terms and conditions of the auction, the respondent/MCD was well within its right to forfeit 25% of the bid amount deposited by the petitioners. He further stated that even a perusal of the correspondence emanating from the petitioner No.1 establishes that the petitioners did not rely upon Resolution No.63 dated 5.8.1970 or Resolution No.641 to claim that construction of a Community Shopping Centre at Karampura was a pre-condition for the petitioners to deposit the balance bid W.P.(C) 1512/1980 Page 6 of 18 amount and that the said plea is a sheer after-thought. He argued that the tone and tenor of the correspondence between the petitioners and the respondent/MCD reflects that the anxiety of the petitioners was primarily to seek extension of time for paying the balance bid amount and that its claim of non-development of the Community Centre or existence of unauthorized shops and tombs in front of the Community Centre, were only lame excuses to buy time.
9. Before dealing with the respective contentions of the parties, it would be appropriate to examine the terms and conditions of the auction. As already noted above, the respondent/MCD had proposed to dispose of on a perpetual leasehold basis, the four storeyed commercial plots in the Community Centre by way of auction to be held on 10.6.1979, for which Rs.1,000/- was required to be deposited as an advance security. 25% of the bid amount was to be deposited at the fall of the hammer and the balance amount was to be paid within two months from the date of acceptance letter. Apart from the contents of the terms and conditions of the auction, as contained in the Press Release enclosed with the writ petition as Annexure P-2, both the parties have also referred to the document entitled, "Terms and Conditions for the sale by auction by the Municipal Corporation of Delhi of Commercial Plots on perpetual lease-hold basis", which governed all plots put up for auction by the respondent/MCD at the relevant time. W.P.(C) 1512/1980 Page 7 of 18 Clause II referred to "Bidding at Auction etc.". For the purpose of the present petition, Clauses II (2), (4) and (6) being relevant, are reproduced hereinbelow for ready reference :
"II. Bidding at Auction etc.:
(1) XXXX
(2) The highest bidder shall, at the fall of the hammer, pay to the Municipal Corporation of Delhi through the officer conducting the auction 25% of the bid amount as earnest money either in cash or by Bank draft or cheque guaranteed by a scheduled Bank as "good for payment for three months" drawn in favour of the Municipal Corporation of Delhi. In the event of non-payment as above, the auction in respect of that plot shall stand cancelled.
(3) xxxxxx
(4) In case of breach of or non-compliance with any of
the terms and conditions of the auction or
misrepresentation by the bidder the earnest money shall be liable to be forfeited in whole or in part as the circumstances of the case may warrant.
(5) xxxxxx (6) Within two months of the receipt by him of communication of acceptance of his bid the intending purchaser shall pay to the Municipal Corporation of Delhi the balance amount of the bid in cash or by Bank Draft or cheque guaranteed by a schedule bank as "good for payment for three months" drawn in favour of the Municipal Corporation of Delhi. In appropriate cases, the balance amount of the bid may be accepted upto six months with interest at the rate of 15% per annum and W.P.(C) 1512/1980 Page 8 of 18 beyond six months upto a maximum period of one year with interest at the rate of 18% per annum. "
10. Thus it is clear that not only the terms and conditions of the auction as released in the press, but also the terms and conditions for the sale mandated that 25% of the bid amount was to be paid by the successful bidder at the fall of the hammer. The consequences of non-payment were elaborated in clause II(2) of the terms and conditions of sale which stipulated that in the event of non-payment of the 25% of the bid amount as earnest money, the auction in respect of the plot would stand cancelled. Clause II(4) contemplated that in the case of breach of or non-compliance with any of the terms and conditions of the auction or in the case of misrepresentation by the bidder, the earnest money would be liable to be forfeited in whole or in part as the circumstances of the case may warrant. The respondents relied on the aforesaid terms and conditions of the auction to forfeit the earnest money deposited by the petitioner.
11. The plea of the petitioners that they repeatedly took up the issue of development of the site with the respondents and on account of failure on the part of the respondents to take any steps in that regard, the petitioners did not pay the balance 75% of the bid amount, has to be examined in the light of the correspondence between the parties. The original file produced W.P.(C) 1512/1980 Page 9 of 18 by the respondents shows that the petitioners wrote a number of letters to the respondents, including letters dated 16.8.1979, 10.11.1979, 18.2.1980, 22.3.1980 and 15.5.1980. In all the aforesaid communications, the petitioners mentioned their inability to make necessary arrangement for payment of the balance amount due to "stringent financial conditions and credit squeezed by the banks". In the letter dated 15.5.1980, the petitioners claimed that they had called upon the respondent to remove the unauthorized shops and tombs for proper development of the Community Centre. However, a perusal of the aforesaid letter shows that the same was not issued suo motu by the petitioners, but was written in response to a letter dated 13.5.1980 issued by the respondent/MCD to the petitioners, calling upon them to make full and final payment in respect of the plots in question within three days. It is also relevant to note that even prior thereto, the respondent/MCD had written a letter dated 4.4.1980, followed by a letter dated 28.5.1980, to the petitioner No.1 giving it a final opportunity to pay the balance bid amount and warning it that in case of failure to pay the amount, the earnest money equivalent to 25% of the bid amount would stand forfeited without any further notice and the plots will be put up for re- auction.
W.P.(C) 1512/1980 Page 10 of 18
12. Once the petitioners participated in the auction process, they bound themselves to the terms and conditions thereof. Hence, the petitioners cannot urge that they were assured by the respondent/MCD that as the Community Centre in question was not developed by the MCD, the petitioners could not be expected to pay the balance 75% of the bid amount. An oral assurance, even if given, cannot override the terms and conditions of the auction/sale. Fact of the matter is that there was no such stipulation contained in the terms and conditions of the auction to the effect that the Community Centre was required to be developed by the respondents before disposing of the same on perpetual leasehold basis. The condition stipulated in the advertisement inserted by the respondent/MCD inviting bids, bears out the aforesaid position. Hence, there is no force in the argument advanced on behalf of the petitioner that based on an assurance of the respondent/MCD that it would develop the Community Centre, the petitioners did not pay the balance 75% of the bid amount.
13. The other plea of the counsel for the petitioners that Resolution No.63 dated 5.8.1970 and Resolution No.641 of the respondent/MCD had made it incumbent upon the respondent/MCD to develop the Community Centre at Karampura before putting up the plots in question for public auction and having failed to undertake development work, the respondent W.P.(C) 1512/1980 Page 11 of 18 could not dispose of the plots on a perpetual leasehold basis, can only be treated as an attempt on the part of the petitioners to wriggle out of their obligation to make the payment of the balance amount either within the stipulated period, or within the extended period as allowed by respondent/MCD in accordance with the terms and conditions of the auction. It is not as if the petitioners participated in the auction bid on the basis of the Resolutions passed by the respondent. It is not even the case of the petitioners that such was the position. There is no mention of the said Resolution in the communications addressed by the petitioners at the relevant time to the respondent No.1. It is apparent that the petitioners were unaware of the existence of the said Resolution at the relevant time and as an after thought, they have sought to take cover of the aforesaid Resolutions when they found themselves financially in a tight spot and unable to pay the balance 75% of the bid amount to the respondent/MCD. The said payment was not linked in any manner with the purported development work to be undertaken by the respondent, nor was any such assurance given by the respondents to the public at large, in the advertisement inserted before putting the plots to public auction. Hence, any reliance placed by the petitioners on the aforesaid Resolutions is misconceived.
W.P.(C) 1512/1980 Page 12 of 18
14. Thus, the counsel for the respondents is justified in arguing that the contention of the petitioners that the respondents had not undertaken the development work, was a mere attempt to camouflage their own breach and gloss over the default committed by them of the terms and conditions of the auction, governing the plots in question. The respondents cannot be faulted in issuing the impugned letters dated 3.12.1979, 3.5.1980 and 24.10.1980 to the petitioners intimating them that the earnest money of Rs.1,92,000/-, in respect of Block No.D-3 and Rs.1,90,000/-, in respect of Block No.D-4 were forfeited and the plots were being put up for re-auction. Forfeiture was not done in a haste by the respondent/MCD. Rather, the petitioners were given ample opportunity, as the 75% balance amount was due and payable by August 1980, whereas forfeiture was ordered only in the end of October, 1980.
15. This leaves the last plea taken by the counsel for the petitioners that forfeiture by the respondent/MCD without proving the loss suffered by them was not permissible and that such an option of forfeiture ought to have been exercised as a last resort.
16. It may be noted that the aforesaid plea was not taken by the petitioners either after receipt of notice of forfeiture from the W.P.(C) 1512/1980 Page 13 of 18 respondent/MCD or for that matter, in the writ petition itself and has been taken by the counsel for the petitioner only in the course of arguments. Certain case law was cited to support the aforesaid proposition. However, a closer look at the aforesaid judgments reveals that the cases of Maula Bux, Fateh Chand and Kailash Nath (supra) referred to by the counsel for the petitioner were based on civil suits claiming either compensation, or specific performance of contract or, liquidated damages, wherein the effect of the provision of Section 74 of the Contract Act was discussed. Section 74 deals with the measure of damages in case of compensation for breach of contract, where a penalty is stipulated for. The said provision curtails right of the party complaining of the breach to receive from the defaulting party who has broken the contract, reasonable compensation not exceeding the amount so named in the contract, or the penalty stipulated in the contract depending on the circumstances. Such an eventuality would have arisen in the present case, had the petitioners instituted civil proceedings against the respondent/MCD, wherein for the purpose of adjudication, evidence would have had to be led to establish the actual damage suffered by the respondent/MCD on account of breach of contract on the part of the petitioners. However, the petitioners having chosen not to invoke such a remedy against the respondents, cannot place reliance on the aforesaid judgments, rendered by the courts after sifting the evidence on the record. W.P.(C) 1512/1980 Page 14 of 18
17. In the present case, the forfeiture clause entitles the respondent/MCD to forfeit the earnest money either in whole or in part depending on the circumstances of the case. The respondent/MCD invoked the said clause to forfeit the entire earnest money deposited by the petitioners in respect of the two commercial plots in question, which was only 25% of the bid amount. As to whether the said forfeiture can be treated as a reasonable compensation or in the nature of penalty has to be examined in the light of the factual matrix of each case. As observed by the Supreme Court in the case of Jagmohan Singh (supra), while taking note of the factual matrix of the case, on rare occasions, the Court can take into consideration subsequent events. In the present case, it is relevant to take note of the fact that rule was issued in the writ petition on 21.7.1981, on which date, on the interim application filed by the petitioners, praying for an order restraining re-auction of the plots in question and restraining forfeiture of the amounts deposited with the respondent, a stay was granted in favour of the petitioners. As a result, ever since, i.e. for the past 28 years, the aforesaid two commercial plots could not be put to re-auction by the respondents. It is also pertinent to note that when the present petition came up for hearing on 7.3.2002, as none was present on behalf of the petitioners, though the respondents were represented, the same was dismissed in default. An application for restoration of the said writ petition came to be filed by the petitioners after a period of over five years, in W.P.(C) 1512/1980 Page 15 of 18 October 2007. Subject to payment of costs, the writ petition was restored to its original position vide order dated 27.3.2008.
18. The present case can certainly not stated to be one where the respondent/MCD has not suffered any loss. Two valuable pieces of commercial properties have been lying unutilized and have remained unproductive for the past 28 years, on account of the stay operating in favour of the petitioners. None of the judgments relied upon by the petitioners, advance their case for refund of the forfeited amount. In the case of Maula Bux (supra), the Supreme Court observed that in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree, and the court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. In the case of Rampur Distillery & Chemical Co.Ltd.(supra), which arose out of an arbitration award, the Supreme Court, following the decision in the case of Maula Bux (supra), held that a party taking security deposit from the other party to ensure due performance of the contract, is not entitled to forfeit the deposit on the ground of loss, when no loss is caused to him in consequence of such a default. In the present case, the amount forfeited by the MCD was not W.P.(C) 1512/1980 Page 16 of 18 offered as security deposit by the petitioner, but as earnest money. As far as loss caused to the respondent is concerned, they were not required to prove that they had suffered actual loss to claim forfeiture, particularly considering the fact that the two plots in question have remained blocked and commercially unexploited for almost three decades, on the strength of an unconditional interim order granted in favour of the petitioners.
19. The present case is also quite unlike the case of Kailash Nath (supra), where the defendant/DDA therein while continuing to enjoy the earnest money of the plaintiff, sold the disputed plot to a third party at three times of the price at which the plot was to be purchased by the plaintiff therein. In the said case, the Court also took note of the conduct of defendant/DDA in takings its own time in the decision making process and the exchange of communications with the parties, to ultimately hold that the plaintiff therein was entitled to refund of the earnest money.
20. The conduct of the respondent herein has neither been irresponsible, casual, or lackadaisical. Rather, as noted above, the respondent/MCD gave a long rope to the petitioners herein before invoking the forfeiture clause. It is not as if the petitioners paid or offered to pay any part of the outstanding 75% of the bid amount to the respondent at any stage to show their bona fides. Instead, under the garb of non-development W.P.(C) 1512/1980 Page 17 of 18 of the Community Centre, they kept seeking extension of time for making the payments, when in reality, they were facing a major cash crunch. Examining the factual background of the present case, the action of the respondent/MCD in invoking the forfeiture clause, cannot be faulted. This Court has therefore no hesitation in holding that the said option of forfeiture was exercised by the respondent/MCD as a last resort, in view of failure on the part of the petitioners to abide by the terms and conditions of the contract, by making payment of the balance 75% of the bid amount within the stipulated time or for that matter, within the extended time, as per the terms and conditions of the contract governing the parties. In such circumstances, the respondent was under no obligation to prove the losses suffered by them before exercising the forfeiture clause.
21. In view of the foregoing discussion, the present writ petition is dismissed as being devoid of merits with costs quantified at Rs.30,000/-, payable by the petitioners to the respondents within four weeks.
( HIMA KOHLI ) JUDGE MAY 06, 2009 sk/mk W.P.(C) 1512/1980 Page 18 of 18