Patna High Court
Abdul Rahim Khan vs Union Of India (Uoi) And Ors. on 29 March, 1968
Equivalent citations: AIR1968PAT433, AIR 1968 PATNA 433
JUDGMENT A.B.N. Sinha, J.
1. This appeal by the plaintiff is directed against the judgment and decree passed by the lower appellate Court dismissing his suit for recovery of Rs. 1140/-, representing an initial deposit made under indemnity bond upon an auction sale of certain properties situate within Ranchi Municipality on the 22nd August 1958.
2. The relevant facts are no longer in dispute. Parts of Municipal holding Nos. 586 and 587 of ward No. V of Ranchi Municipality, which had been declared evacuee property in accordance with law and had come to vest in the Custodian of Evacuee Properties, Bihar (defendant No 2), and of which defendant No. 3, the Managing Officer-cum Assistant Custodian, Gaya. was in charge were advertised for sale in accordance with the procedure in that behalf laid down in Chapter XIV of the Displaced Persons (Compensation & Rehabilitation) Rules, 1955 (hereinafter referred to as 'the Rules'). The auction sale was held on the 22nd August, 1958 by the Managing officer-cum-Assistant Custodian, Gaya (defendant No. 3) through an auctioneer, defendant No. 4, and the plaintiff-appellant was declared the highest bidder, his bid being Rs. 11,400/-; and, as permitted by the aforesaid rules under which the auction had been held, the plaintiff executed an indemnity bond (Ext A) for Rs. 1140/-, that is, 10 per cent of the bid amount by way of an initial payment. Sub- Rule (10) of Rule 90 of the Rules read as under:
"The bid in respect, of which the initial deposit has been accepted or in respect of which an indemnity bond has been executed shall be subject to the approval of the Settlement Commissioner or an officer appointed by him for the purpose.
Provided that no bid shall be approved until after the expiry of a period of seven days from the date of auction."
The officer appointed for the purpose of granting approval within the meaning of the above sub-rule, in the instant case, was defendant No. 3. On the 9th February, 1959. when nearly six months had elapsed from the date of the auction, and defendant No. 3 had neither signified his approval or rejection of the bid, the plaintiff served notices (Exts. 6 series) on defendants 3 and 4 revoking and withdrawing his bid and calling upon them to refund the amount representing the initial payment made by him as aforesaid; and, on their failure to refund the amount as claimed, the plaintiff after complying with the provisions of Section 80 of the Code of Civil Procedure instituted the suit out of which this appeal arises for recovery of the said amount of Rs. 1140/- On the 1st May, 1960. during the pendency of the suit, defendant No. 3 signified his acceptance of the bid to the plaintiff (Exts. C and D) and required the plaintiff to deposit the further amount towards the auction purchase. On the plaintiff's failure to make the deposit, the amount deposited by him was forfeited and the auction sale held on the 22nd August, 1958 was cancelled. The property was thereafter resold and was purchased by a third party.
3. The suit was resisted mainly on the ground that the condition of approval of the bid by defendant No. 3 did not imply that there was no effective acceptance of the plaintiff's bid with the fall of the hammer. It was urged that in law there was an acceptance of the bid subject only to a condition subsequent and after the said acceptance, the plaintiff was not entitled to revoke the bid and withdraw his offer and claim refund of the initial deposit.
4. The trial court found in favour of the plaintiff and decreed the suit. On appeal by the defendants to the lower appellate court, the decision of the trial court has been reversed. The case of the plaintiff that at the auction an assurance was given to supply further description and particulars of the property was considered in the light of the evidence on the record and the lower appellate court has come to a clear finding that on the date of the sale the plaintiff did know all the particulars and descriptions necessary to completely identify the premises and had also seen the premises before the auction and that no further particulars had really to be supplied. This finding is a finding of fact and has not been challenged in this Court. On the question whether the plaintiff had a right to withdraw his offer, the lower appellate court has accepted the defence contention that the plaintiff had no right in law to revoke the bid and withdraw his offer. In this connection, it has referred to Sub-rules (8), (10), (11) and (14) of Rule 00 of the Rules and has found as under:
"It is to be noted that in the above quoted rules there is a time specified for making the deposit of the balance of the purchase money with a penalty clause attached to it but there is no time specified for the approval or rejection of the bid. It also appears that the bid has to be approved or rejected by the Settlement Commissioner or an officer appointed by him for that purpose, i.e.. not by the auctioner. It is also apparent from the evidence that the sale is held at the spot but the approving authority's headquarter is somewhere else. The omission of a period for the acceptance or rejection of the bid is therefore intentional. The framers of the rules must be deemed to have been conscious of the fact that it will take some time for the matter to move and for the final acceptance or rejection order to be passed by the authority concerned and communicated to the bidder."
Relying on two decisions cited on behalf of the defendants-appellants one reported in the Rajanagaram Village Co-operative Society v. P. Veerasami Mudaly, AIR 1951 Mad 322 and other reported in Lingo Raoji Kulkarni v. Secy, of State, AIR 1928 Bom 201, the court below has held that the "conditional acceptance", as was in his view in the instant case, had "the effect of binding the highest bidder to the contract if finally there is the approval or confirmation by the superior person indicated in terms of the sale" and that the general provisions of Sections 5 and 6 of the Indian Contract Act stood superseded by the provisions of the Displaced Persons (Compensation and Rehabilitation) Rules, 1955, which was a special later enactment, and, as such, neither Section 5 nor Section 6 of the Indian Contract Act was available to the plaintiff. In conclusion and on the above grounds, it has held that the plaintiff had no right to withdraw the offer and claim refund of the amount deposited as initial advance. It has also held that on the admitted facts of this case, the defendants were within their right to forfeit the initial deposit made by the plaintiff.
5. The only question which arises for determination is whether the lower appellate court has taken a correct view of the law in holding that the plaintiff had no right to revoke the bid and withdraw the offer and claim the refund of the amount deposited as initial deposit. It has been contended on behalf of the appellant that the auctioneer, in the present case, in view of the provisions of Sub-rule (10) of Rule 90 of the Rules was acting merely as a sort of conduit pipe to convey the highest bid to defendant No. 3, the officer appointed for the purpose of granting approval, within the meaning of the above sub-rules and, quite clearly, had no authority to accept the bid himself, and as such, there was only a provisional acceptance. The final and actual acceptance lay with defendant No. 3, and, thus the plaintiff had every right to withdraw his bid and revoke his offer before the final acceptance.
It has been also urged on behalf of the appellant that the maker of a proposal was not bound to keep his offer open for an indefinite time, unless there was a distinct contract for a distinct consideration to keep it open for an indefinite time. There being no such distinct contract in the instant case, the plaintiff was fully entitled to revoke the offer after the lapse of nearly six months from the date when the offer was made. For the respondents, on the other hand, it has been urged that with the fall of the hammer there was an acceptance of the plaintiff's offer -- only the acceptance was conditional, the condition being that it was subject to the approval or confirmation of defendant No. 3. In other words, there was an acceptance of the bid subject to a condition subsequent; and if and when that condition was fulfilled, the contract was complete, but as there was already an acceptance in the eye of law, the plaintiff wan not entitled to withdraw from the bid.
6. It is well settled that a person, who bids at an auction, thereby does not conclude a contract, but merely states an offer and like all other offers it is subject to the ordinary incidents of law, namely, that until it is accepted, it is open to the offerer to withdraw it; the time for withdrawal can however, be always determined by a separate and binding contract for consideration. In auction sales, the acceptance of a bidi may be of three kinds: (1) conditional acceptance, (2) provisional acceptance and (3) absolute acceptance where the auctioneer has full powers to confirm the sale and the sale is complete as soon as the hammer falls. In the instant case, quite clearly, it was not a case of absolute acceptance, as sub-rule (10) of Rule 90 of the Rules provides that the bid shall be subject to the approval of the Settlement Commissioner or an officer appointed by him for the purpose. The controversy, however, in this case is whether the acceptance was of the first kind or of the second, namely, whether it was a conditional acceptance or a mere provisional acceptance. It is quite clear that if it was merely a provisional acceptance, the plaintiff-appellant's contention must be accepted and it must be held that he was entitled in law to revoke the bid and withdraw his offer before the final acceptance.
The decision of the Supreme Court in M/s. Bombay Salt and Chemical Industries v. L.J. Johnson, AIR 1958 SC 289 appears to me to be decisive on the matter. In that case, certain salt pans, which were evacuee property and which formed part of the compensation pool constituted under the Displaced Persons (Compensation and Rehabilitation) Act, 1954. had been advertised for sale at a public auction. The appellants before the Supreme Court had taken lease of those salt pans on the 7th November, 1950, for a period of three years and the lease was renewed from time to time, the last renewal being on the 2nd February, 1956. for a further period ending on the 15th April, 1956. On the salt pans being advertised for sale by public auction, the appellants had moved the Bombay High Court under Article 226 of the Constitution challenging the validity of the proposed sale on certain grounds and the High Court had stayed the sale pending the hearing of the said application. Their application was, however, ultimately dismissed. Pending an appeal from the said order of dismissal of their application, the salt pans were put up to auction on the 31st March, 1956, and respondents 4 and 5 were declared the highest bidders. The appellants themselves had bid at the auction sale.
Thereafter, having withdrawn their appeal the appellants moved the Chief Settlement Commissioner praying for an order that the property was not liable to be sold and meanwhile obtained a stay of the confirmation of the sale pending the hearing of their application. On the 20th April, 1956, after the lease in favour of the appellant expired on the 15th April 1956, the Chief Settlement Commissioner dismissed the appellants' application and save them fourteen days' time to remove the salt lying in the pans. The order further stated that the sale to respondents 4 and 5 was being confirmed and that the possession of the as it Dans in question should be given to them forthwith The appellants were subsequently ejected from the property, and respondents 4 and 5 were put into possession. In the above circumstances, the appellants obtained leave to appeal under Article 136 of the Constitution from the order of the Chief Settlement Commissioner.
One of the points urged on behalf of the appellants was that under Section 29 of the Displaced Persons (Compensation and Rehabilitation) Act, 1954. the appellants were entitled to continue in possession of the property as tenants of respondents 4 and 5 and were not liable to be ejected for a period of two years, that being the period prescribed by Rule 121 of the Rules made under the said Act. That argument was sought to be repelled on behalf of the respondents on the ground that there had been no transfer of the salt pans and that the appellants were not in lawful possession of them. Their Lordships, accordingly, proceeded to decide- the question whether there was a completed sale of the salt pans in question and in this connection reference was made to the provisions of Section 20 of the Act which dealt with the power to sell. Relying on Section 20. it was urged on behalf of the appellants that the sale could be by auction and that such a sale was complete as soon as respondents 4 and 5 were declared the highest bidders at the auction and thereupon the property stood transferred 10 them. This argument was repelled, and it was held inter alia that "the fact that the bid has to be approved by the Settlement Commissioner shows that till such approval which the Commissioner is not bound to give, the auction-purchaser has no right at all."
'Their Lordships further pointed out that "the correct position is that on the approval of the bid by the Settlement Commissioner a binding contract for the sale of the property to the auction-purchaser comes into existence". It is manifest from the above observation that on a reading of the relevant Sub-rule (10) of Rule 90 of the Rules, the Supreme Court has definitely come to the conclusion that a binding contract for the sale of the property auctioned came into existence only after the approval of the bid by the Settlement Commissioner This clearly implies that with the fall of the hammer there was only a provisional acceptance of the offer of the plaintiff and that a completed contract came into existence only when the offer of the plaintiff in the shape of his bid met the approval of the Settlement Commissioner or of the officer appointed in that behalf. The words in sub-rule (10) of Rule 90 of the Rules quoted above, to the effect that the bid ''shall be subject to the approval of the Settlement Commissioner or an Officer appointed by him for the purpose are in my opinion, quite clear and leave no doubt that the auctioneer has no authority to accept the bid.
In the decision reported in AIR 1951 Mad 322 though the precise question which fell for determination was whether in the case of a conditional acceptance there was any necessity for communicating the fulfilment of the condition, much was said about the nature of the three kinds of acceptance in auction sales holding that in cases of conditional acceptance, there was no need or necessity for a further communication of the fulfilment of the condition, that is, once when the conditional acceptance was made and again when the condition was fulfilled, and the learned Judge observed that that factor constituted the difference between the line of cases of which C. Aderma v. G. Jaggarayudu. AIR 1916 Mad 75 was an example and cases where the acceptance itself was postponed or was entrusted to some other person than the one who received the bids, the receiver of the bids having no authority to accept the bids, and he further pointed out that the latter category of cases were illustrated by the decisions in Muthu Pilial v. Secretary of State, AIR 1923 Mad 582 and Somasundaram Pillai v. Provincial Government of Madras AIR 1947 Mad 366. In C. Adenna's case, AIR 1916 Mad 75, the auctioneer had full authority to accept the bids. The same was the position in R. V. Co-operative Society's case. AIR 1951 Mad 322.
I am of the opinion, and the Supreme Court decision, referred to above, is clearly in favour of that opinion, that the instant case also falls in the category of cases illustrated by the decisions in Muthu Pillai's case, AIR 1923 Mad 582 and Somasundaram Fillai's case, AIR 1947 Mad 366. In the latter case, namely. AIR 1947 Mad 366, the Sub-Collector, who conducted the sale, had no power to accept the bids; and. under the terms of the sale he could only signify a kind of provisional acceptance, but the final and actual acceptance rested with the Collector. It was held that the appellant, who was the highest bidder in that case, did not thereby acquire any rights under the sale as there was no concluded contract in his favour. Really speaking provisional acceptance is no acceptance at all; the real acceptance is yet to come. In Raghunandan Reddy v. State of Hyderabad, AIR 1963 Andh Pra 110, a similar question arose for determination. In that case, the relevant clause gave the final approval of the auction to the Excise Commissioner. Their Lordships referred to the decision in Somasundaram Pillai's case, AIR 1947 Mad 366 and quoted the following observation of the learned C. J. from that decision:
"To have an enforceable contract there must be an offer and an unconditional acceptance. A person who makes an offer has the right of withdrawing it before acceptance, in the absence of condition to the contrary supported by consideration. Does the fact that there has been a provisional acceptance, make any difference? We can see no reason why it should. A provisional acceptance cannot in itself make a binding contract. There must be a definite acceptance or the fulfilment of the condition on which a provisional acceptance is based."
The distinction sought to be made out in the decision reported in R. V. Co-operative Society's case, AIR 1951 Mad 322, between a provisional acceptance and a conditional acceptance was adversely commented upon, and it was pointed out that where the offer and acceptance culminating in a concluded contract were themselves subject to conditions and were not final, there was no contract at all till those conditions were fulfilled and an offer before the fulfilment of those conditions could be withdrawn. Their Lordships proceeded to make the following significant observations:
''The distinction between a condition and an ordinary term of the agreement must not be confused, for, the non-performance of a term would give rise to a right to an action for the breach of the contract while the failure of a condition acts as a release of the corresponding duty. Such a condition is one where the promisor's obligation becomes effective only if some state of facts exists or if and when some future event happens. In other words, it is said to be a condition precedent. Learned editors of Pollock and Mulla's Indian Contract Act classify both these cases and another case of Chitibobu Adenna, AIR 1916 Mad 75, as cases of a condition precedent where the bidder could have retracted his offer before the final acceptance, as in Somasundaram Pillai's case, AIR 1947 Mad 366. It was further submitted by them that the two cases, viz., Chitibobu's case, AIR 1916 Mad 75 and Rajanagaram case, AIR 1951 Mad 322 were wrongly decided. In the first case, it is said that the Court misunderstood the nature of a condition subsequent. With respect to the second case, it is observed that the acceptance is either absolute or conditional and there is no half-way house between the two. If an acceptance is conditional, the offerer can withdraw at any moment until absolute acceptance has taken place."
In regard to the decision in Rajanagaram's case, AIR 1951 Mad 322, their Lordships pointed out that there could be little doubt that where the acceptance was conditional, there was no concluded contract and the offerer could always withdraw, and a condition precedent was a condition which must happen before either party became bound by the contract and since there was in fact no approval, there could be not concluded contract and the Bank was justified in ordering the resale In their view, that decision was not warranted either on principle or on the authority of the Bench decision which had preceded it. In regard to the decision reported in Chitibobu's case, AIR 1916 Mad 75, it was pointed out that decision was based on there being a condition precedent and not a condition subsequent. It was observed that "a condition subsequent is one which arises only on there being a concluded contract." Such a condition was one which follows the performance of the contract, and operates to defeat and annul it, upon the subsequent failure of either party to comply with the condition. It goes to discharge the obligation under the contract. The following statement of Pollock and Mulla at page 44-45 dealing with Chitibabu's case, AIR 1916 Mad 75 was quoted with approval:
"Appropriate wording to impose a condition subsequent would have been to the effect that the bid was accepted, but if V should not approve the contract was to be at an end."
I find myself in respectful agreement with the view of the law laid down in the Andhra decision, referred to above. To quote the words of Pollock and Mulla at page 45 (8th edition) "The acceptance is either absolute or conditional. There is no half-way house between the two. If the acceptance is conditional, the offerer can withdraw at any moment until absolute acceptance has taken place. Authority, if it be needed, is sup-plied by the English case of Hussey v. Horne Payne, (1878) 8 Ch D 670 "
It follows from the above discussion that in either case, namely, whether the acceptance was provisional or conditional in the sense as has been explained by Pollock and Mulla, referred to above, there was no concluded contract in the present case on the fall of the hammer, and, as such, before the acceptance of the plaintiff's offer, he was fully entitled in law to withdraw his offer and revoke the bid. The decision in Rajanagaram's case, AIR 1951 Mad 322, on which the lower appellate court has placed reliance, is, as discussed above, of no assistance to the defendants.
7. Nothing in my opinion turns on the fact, that while the rules specify certain time for the deposit of the balance of the purchase money with a penalty attached to it, no time is specified for the approval or rejection of the bid, or upon the circumstance which may or may not be always present that the sale will be held at a spot other than where the approving authority's headquarters were situate. There is also nothing, in my opinion, in any of the sub-rules of Rule 90 which can go to suggest that the general provisions of Section 5 and 6 of the Indian Contract Act had been superseded. Chapter XIV of the Rules in which Rule 90 occurs deals with the procedure for sale of property in the compensation pool. Quite clearly, it has nothing to do with the substantive law of contract, as embodied in either Section 5 or Section 6 of the Indian Contract Act. It will also be seen that though no time has been specified during which the authority concerned has to approve or reject the bid. It appears from the tenor of the proviso to Sub-rule (10) quoted above, that generally speaking the approval or rejection of the bid should be forthcoming after the expiry of seven days from the date of the auction. Quite clearly, the framers of the rule have provided seven days' time for the authority or the officer concerned to make up his mind, whether to approve or reject the bid.
It is difficult to conceive that merely because no specified time is mentioned during which the approval or rejection has to come, the authority or officer concerned can sit over the matter as long as he likes; and, though he is at liberty at any time to either reject or approve the offer in the shape of the bid, the offerer has no option in the matter even if the acceptance or rejection, whatsoever it might be, is not forthcoming within a reasonable time. Indeed, there are cases which have laid down that an offer may cease to exist by the lapse of time. In Ramsgate Victoria Hotel Co. v. Montefiore, (1866). 1 Ex. 109, the defendant had applied in June for snares in the plaintiff company and had paid a deposit into the company's bank. He heard nothing more until the end of November, when he was informed that the shares had been allotted to him and that he should pay the balance due upon them. The Court of Exchequer held that his refusal to take them up was justified. It was pointed out that his offer should have been accepted, if at all, within a reasonable time, and the interval between June and November' was excessive.
The American case of Loring v. City of Boston, (1844) 7 Metcalf, 409. offers a further illustration. In that case, a reward was offered in May, 1837, for the apprehension and conviction of incendiaries. The advertisement continued in the papers for a week, and was never followed by any notice of revocation. In January 1841, the plaintiff secured an arrest and conviction for arson, and sued for the reward. The offer was held to have lapsed by the passage of time, and the plaintiff failed. These and other cases justify the view that the plaintiff in this case was not bound to wait for an inordinate time. On the admitted facts, he waited for nearly six months before he revoked the offer. In the circumstances, he was fully justified in revoking. I have, however, already held above that he was in law entitled to revoke on the ground that he did so before acceptance of his offer. It is not a case in which it has been claimed that the plaintiff's offer has lapsed by passage of time. I have only pointed out that in the instant, case there being a great delay on the part of defendant No. 3 in making up his mind whether the auction should be confirmed or not, the plaintiff was justified in withdrawing his offer after waiting for a reasonable time.
8. It follows from the above discussion that the lower appellate court was not correct in law in holding that the plaintiff was not entitled to revoke the bid and withdraw his offer. The judgment and decree of the lower appellate court, in the circumstances, must be set aside and those of the trial court be restored. The appeal is, accordingly, allowed with costs.
B.P. Sinha, J.
9. I agree.