Sushil Kumar Thard vs National Jute Manufactures ...
2023 Latest Caselaw 6555 Cal

                IN THE HIGH COURT AT CALCUTTA
                 Constitutional Writ Jurisdiction
                           Appellate Side


Present :-
The Hon'ble Justice Moushumi Bhattacharya


                       WPA 4751 of 2023
                                  With
                           CAN 1 of 2023

                       Sushil Kumar Thard
                                    vs.
      National Jute Manufactures Corporation Limited & Ors.


For the petitioner                      :   Mr. Tilak Bose, Sr. Adv.
                                            Mr. Suddhasatva Banerjee, Adv.
                                            Mr. P. Kar, Adv.
                                            Mr. Sagnik Majumdar, Adv.



For the respondent nos. 1 and 2     :       Mr. Aniruddha Chatterjee, Adv.
                                            Mr. Rahul Karmakar, Adv.
                                            Mr. Surya Prasad Chattapadhay, Adv.
                                            Mr. Sourav Guchhait, Adv.


For the respondent no. 3            :       Mr. Pourosh Bandyopadhyay, Adv.
                                            Mr. Barnik Ghosh, Adv.



Last Heard on                       :       18.09.2023



Delivered on                        :       27.09.2023
                                        2


Moushumi Bhattacharya, J.

1. The petitioner seeks a mandamus commanding the

respondents to quash an order of withholding pre-bid earnest money

deposit submitted by the petitioner in an e-Auction floated by the

respondent nos. 1 and 2. The petitioner seeks refund of the earnest

money.

The facts in brief:

2. The respondent no. 1 floated a tender for disposal of movable

assets of Khardah Jute Mills by e-Auction. The e-Auction was to start

on 9.2.2023 at about 12.00 P.M. and end on the same date at about

7.26 P.M. Several bidders including the petitioner participated in the

process of auction which was conducted through MSTC Ltd. The

petitioner deposited a sum of Rs. 2.20 crores towards pre-bid earnest

money deposit. By a letter dated 14.2.2023 issued by the respondent

no. 1 the highest bid of the petitioner was accepted and in terms of

Special Terms and Conditions (STC) the petitioner was asked to make

further payment of Rs. 10,60,28,278/- on account of the balance

security being 25% of sale value by 21.2.2023. The demand was made

in terms of clause 3.0 of NIT which states after receipt of the full

security deposit, NJMC will issue sale order.

3. Immediately after the letter dated 14.2.2023 and prior to

making payment of the security deposit for the purpose of issuance of

sale order, the petitioner approached the respondent no. 1 and sought

various clarifications regarding the modalities of the work for removal

of materials and demarcation of assets, without any digging of soil and

also removal of factory shed of the godown. The petitioner states that

no such clarification was provided. The petitioner sought further

clarifications by a letter dated 20.2.2023. By a letter dated 21.2.2023

the petitioner shared the bank accounts screenshot to show that funds

were ready but clarification was required for execution of work. The

petitioner states that the petitioner did not want issuance of a sale

order and deposit any security deposit therefor and felt that the same

would only expose the petitioner to huge loss apart from the loss

already incurred. The petitioner decided not to accept the offer of the

respondent no. 1 or agreement for issuance of a sale order (main

contract) upon providing security deposit and put an end to the

arrangement or agreement and even offered to compensate the

respondent no. 1 for the e-Auction.

Relevant Court orders:

 2.3.2023 - The objection with regard to maintainability of the

writ petition was overruled and the only question which

remained to be adjudicated was the quantification of damages.

 20.3.2023 - Direction was given to serve notice on the second

highest bidder. The respondents submitted that earnest money

has been returned to all unsuccessful bidders.

 27.3.2023 - Respondent no. 1 filed an affidavit with an

assessment of damages on account of failed e-Auction.

 31.3.2023 - The respondents did not file any affidavit. The

respondents were restrained from forfeiting the earnest money

deposited by the petitioner.

 11.4.2023 - The respondent no. 1 filed the second affidavit.

 13.4.2023 - The Appeal Court refused to entertain the appeal

and left all questions to be decided by the learned Single Judge.

The arguments made on behalf of the parties

4. Clause 2.0 of the Special Terms and Conditions in the e-Auction

Catalogue for the bid relating to disposal of the movable assets of NJMC

Ltd. through the platform of MSTC Limited forms the pivot of the

dispute.

5. The material part of the clause relates to forfeiture of the pre-bid

amount put in by the successful bidder on account of its failure to fulfil

any of the terms and conditions of the e-Auction and is set out below.

"Remittance of pre-bid EMD should be done strictly as per the

process detailed above. The Pre-Bid amount will be liable for

forfeiture for any failure of the successful bidder to fulfill any of

the terms and conditions of the E-Auction. No interest is payable

on this pre-Bid EMD."

6. The petitioner sees the above clause as unconscionable and

un-behoving of a public entity with the constitutional mandate to treat

all persons and entities equally. The petitioner is also aggrieved by the

consequence of the impugned forfeiture which the petitioner says is in

the nature of damages. According to the petitioner, damages, if at all,

must arise naturally in the course of things and cannot be assessed on

grounds which are remote and unreasonable.

7. NJMC/respondent no. 1 on the other hand contests the above

position by urging that the petitioner had participated in the tender

being fully aware of the terms and conditions including the fact that no

complaints would be entertained after submission of bids. According to

NJMC, the petitioner cannot argue that the "sale order" was not

finalised or that no right accrued upon NJMC to forfeit the pre-bid

amount as the terms "sale order" and "letter of acceptance" have been

used interchangeably in the bid document.

8. The decision is captioned in accordance with the points argued

by learned counsel on behalf of the parties. The conclusions form part

of the headings.

Decision

NJMC's decision to forfeit the pre-bid earnest money is unfair

9. The respondent no. 1/NJMC is a Government of India

undertaking as stated in the introduction to the e-Auction Catalogue.

The respondent no. 1 would therefore fall within the boundaries of

Articles 12 and 226 of the Constitution of India and must respect and

conform to the benchmark of Article 14 of the Constitution. A public

entity under Article 12 would be answerable for any violation of Article

14 of the Constitution even in the contractual sphere and decisions

taken by such entities would be open to challenge on the charge of

arbitrariness.

10. The Supreme Court in ABL International Ltd. v. Export Credit

Guarantee Corporation of India Ltd.; (2004) 3 SCC 553, held that the

constitutional safeguard of Article 14 would extend to the sphere of

contractual matters for regulating the conduct of the State. The recent

judgment of the Supreme Court in M.P. Power Management Company

Limited, Jabalpur v. Sky Power Southeast Solar India Private Limited;

(2023) 2 SCC 703 held that every State action must be informed with

reason and any infraction thereof would justify interference of the Writ

Court.

11. The facts brought before the Court reveal that the forfeiture

clause in the bid document is unconscionable since the successful

bidder would be visited with the penal effect of the clause even before

signing a formal contract. The clause is hence in deviation of the

principles of equality, fair play and natural justice. Fairness of action is

all the more sacrosanct where one of the contracting parties is the State

and the other party does not have equal bargaining power to negotiate

the terms of the contract.

12. There is a little doubt that the facts involve a public element

since statutory bodies cannot act arbitrarily. The argument of the

petitioner being held to the terms of the contract without recourse to

judicial review is misplaced and now contrary to the recent decisions of

the Supreme Court on that issue.

13. Further, the right to forfeiture of earnest money cannot survive

in the absence of proof of actual loss. Forfeiture of earnest money comes

within the purview of section 73 as opposed to section 74 of the Indian

Contract Act, 1872 where the factum of loss is a sine qua non; that is a

seller can only forfeit a nominal amount on the seller proving that the

seller has suffered loss caused to it on account of breach of contract by

the buyer (Rajesh Gupta v. Ram Avtar; 2022 SCC OnLine Del 1482).

Therefore the right to forfeit earnest money cannot be sustained in

absence of any actual proof of loss.

14. It is also important to note that where the public entity has

discretion whether to forfeit any part of the earnest money, the

discretion must be coupled with a duty to prevent exercise of absolute

power by the repository of such power. Power must necessarily be with

limits and where the concerned authority exercises power, the

discretion must be exercised with a view to promoting fairness and

aiding equity; Maya Devi (Dead) Thorugh LRS. v. Raj Kumari Batra

(Dead) Through LRS.; (2010) 9 SCC 486 and Jagmohan Singh v. State of

Punjab; (2008) 7 SCC 38.

15. Forfeiture can also never be automatic without giving an

opportunity to the concerned party to show-cause. Any forfeiture which

is done contrary to the aforesaid would be impermissible and in

violation of the principles of natural justice; S.R.S. Infra Project Pvt. Ltd.,

Gwalior vs. Gwalior Development Authority; (2010) 2 MP LJ 142.

16. In any event, the forfeiture clause states that the earnest money

will be "liable for forfeiture" as opposed to "shall be forfeited". The

Webster's Seventh New Collegiate Dictionary, Chambers Twentieth

Century Dictionary, Shorter Oxford English Dictionary 3rd Edition, have

all construed the word liable to mean merely permissive or directory;

equivalent to "may". In Collins v. Collins and Dove; 1947(1) All England

Reports 793, the Probate, Divorce and Admiralty Division interpreted

the words "liable to pay" as being subject to the conclusion of and to the

extent of any discretionary order passed by the Court. In The State v.

Amru Tulsi Ram; AIR 1957 Punjab 55, the Court likewise interpreted the

word "liable" to mean

"exposed to a certain contingency or casuality, more or less probable, in other

words, a future possibility or probability, happening of which may or may not

actually occur".

17. It is hence arguable whether the words used in the clause would

entitle NJMC to withhold the EMD.

Forfeiture of earnest money is also not permissible before execution of

contract

18. The clause contained in the Special Terms and Conditions states

that the pre-bid amount will be liable for forfeiture on any failure of the

successful bidder to fulfil any of the terms and conditions of the

e-Auction. The forfeiture hence was admittedly pre-contract as no

contract was executed between the petitioner and NJMC. NJMC alleges

that the earnest money was forfeited since the petitioner (successful

bidder) failed to fulfil the terms and conditions of the e-Auction.

19. Clauses H and 2.0 in the e-Auction Catalogue would show that

there was no existing contract between the parties and no sale order

was issued. Clause 2.0/Special Terms provide that NJMC will issue a

sale order. The relevant part of clause 2.0 would also show that the

pre-bid amount is only for online bidding. Clause 3.0 further provides

that NJMC will issue the sale order after receipt of the full security

deposit and clause 5.0 says that the contract shall be treated having

not been entered into until sale order is issued to the successful bidder

by NJMC.

20. Significantly, NJMC's case in the first affidavit-in-opposition is

that the purpose of earnest money is to prevent formation of cartel. This

statement would cast an additional obligation on NJMC to prove that

the earnest money was indeed forfeited as a measure against

cartelisation. Contrary to the statement, there is no evidence before the

Court to show any possibility of cartelisation or that the forfeiture was

required for the reasons stated by NJMC in its affidavit.

NJMC's claim in the nature of damages is contrary to law

21. The entire earnest deposit cannot be forfeited since damages,

under section 73 of the Contract Act, 1872, is assessed on the date of

the complained breach of the contractual terms.

22. More specifically, section 73 of the Contract Act provides for

compensation for loss and damage caused by breach of contract and

the party who suffers is entitled to receive compensation for any loss or

damage caused to him from the party who has broken the contract. The

damages must also naturally arise in the usual course of things from

the breach whether or not the parties knew at the time of making the

contract that damages would result from the breach of the contract.

Section 73 further requires compensation to be for causes which are

direct and foreseeable.

23. In the present case, the breach complained of arises from the

petitioner's refusal to sign the contract. Therefore, NJMC must prove

that it has suffered loss or damage consequent to such refusal and is

entitled to compensation for the loss caused to NJMC by reason of such

alleged breach.

24. Section 73 of the Contract Act requires that compensation is not

to be given for any remote and indirect loss or damage sustained as a

result of the breach. The absence of any disclosed reason for forfeiting

the pre-bid amount leads to the inescapable conclusion that the

damages imposed are speculative and remote. NJMC presumably has

forfeited the pre-bid deposit on the basis of future loss which is in any

event unquantified and lacks a reasonable pre-estimate. In other words,

the damages in the form of forfeiture is unforeseeable.

25. In Karsandas H. Thacker v. M/s. The Saran Engineering Co. Ltd.;

AIR 1965 SC 1981, the Supreme Court explained the illustration to

section 73 of the Contract Act as the person committing breach of

contract having to pay to the other party the difference between the

contract price of the articles agreed to be sold and the sum paid by the

other party for purchasing another article on account of the default of

the first party. The first party however does not have to pay

compensation which the second party had to pay to the third party as

the first party had not been told at the time of the contract that the

second party was making the purchase of article for delivery to such

third party.

26. NJMC's estimation of damages stated in the second affidavit

affirmed on 11.4.2023 contains the details of expenses incurred by

NJMC on account of charges, security service, overhead expenses, legal

expenses and insurance cost. In summary, NJMC has charged Rs. 7.26

lakhs on account of security services, Rs. 2.90 lakhs in overhead

expenses, Rs. 7.5 lakhs as legal expense and Rs. 45,000/- as insurance

cost. The total expense shown for two years is approximately Rs. 1.66

crores.

27. The estimation of damages as given in a tabulated form in the

second affidavit is neither reasonable nor foreseeable in terms of section

73 of the Contract Act. This is also by reason of the fact that the

petitioner had offered to pay Rs. 25 lakhs for the first auction and Rs.

2.5 lakhs for auction proposed to be held together with legal costs. The

petitioner's offer was based on the first affidavit of NJMC which failed to

state any quantum of losses suffered or expenses incurred for the first

auction. NJMC's only case in the first affidavit was that quantification

of damages was not permissible in writ jurisdiction. It is evident from

the second affidavit of NJMC that the estimation of damages is inflated,

exaggerated, unreasonable and remote, apart from failing to disclose

any basis for the computation.

28. 'Guesstimates' are commonly used to undermine a claim for

damages. The law however is that in admitting proof of such damage,

the amount must be established with reasonable certainty. The

uncertainty of damages is not by reason of the loss sustained being

incapable of proof or that the certainty requires mathematical precision.

The threshold of credibility is that the loss of damage must be as far

removed as possible from speculation so as to create in the minds of

reasonable men the belief that the loss caused is the most likely

consequence from the breach of the contract and was a probable and

direct result thereof.

29. Apart from the mandate of section 73 of the Contract Act which

requires damages to be reasonable and not remote, a statutory body

like the NJMC cannot be allowed to make a windfall.

30. NJMC, despite being given an opportunity to bring on record the

basis for claiming damages, has failed to discharge the burden. The

petitioner has prayed for a writ of certiorari directing the respondents

for producing records so that conscionable justice may be done. The

records produced by NJMC do not disclose any evidence of either the

damages claimed being reasonable compensation of any breach

suffered by NJMC or being specific in respect of the computation.

31. The decisions cited on behalf of the respondent NJMC are

distinguishable. Meerut Development Authority v. Association of

Management Studies; (2009) 6 SCC 171 cited by the petitioner, relies

upon ABL International Ltd. and recognises that the Court can interfere

in contractual matters in case of arbitrariness. State of Maharashtra v.

A.P Paper Mills Ltd.; 2006 0 AIR (SC) 1788 and State of Haryana v. M/s.

Malik Traders; 2011 0 AIR (SC) 3574 are factually not applicable since

in the present case the petitioner was not under any financial

constraints at the relevant point of time. National Highways Authority of

India v. Ganga Enterprises; (2003) 7 SCC 410 and National Thermal

Power Corporation Limited v. Ashok Kumar Singh; (2015) 4 SCC 252 did

not deal with deposit of earnest money but with bid security where the

bid security was to be forfeited if the bidder withdraws from the bid

during the period of validity. Ashok Kumar Singh was also concerned

with revocation of tender. Infotech 2000 India Limited v. State of Punjab;

2007 0 AIR (P&H) 58 did not discuss the question of remoteness or

sufficiency of damages under section 73 of the Contract Act. The

unreported judgment of the Madras High Court in Rubina v. The

Authorised Officer, M/s. Axis Bank Limited held that existence of a

forfeiture clause does not imply that the entire amount deposited has to

be forfeited and that the right to forfeit must be balanced against the

rule of unjust enrichment.

Conclusion

32. The above discussion leads this Court to the considered view

that the respondent NJMC's act of forfeiting the entire pre-bid amount

put in by the petitioner in terms of clause 2.0 of the Special Terms and

Conditions of the e-Auction Catalogue on the alleged non-fulfillment of

the terms and conditions of the e-Auction is unreasonable, arbitrary

and contrary to the statutory mandate of section 73 of the Contract Act.

Further, the assessment of damages which NJMC has put on record is

unreasonable and remote and lacks any factual or logical basis. NJMC

simply seeks to make a windfall at the expense of the petitioner. As a

Government of India undertaking, the act of forfeiture is also

discriminatory and in breach of equality and fair play.

33. WPA 4751 of 2023 is accordingly allowed and disposed of by

directing the respondent nos. 1 and 2, i.e. NJMC and its General

Manager, to quash the order withholding the pre-bid earnest money

deposited by the petitioner and refund the same to the petitioner within

21 days from the date of this judgment. The petitioner shall provide the

mechanism for facilitating the refund to NJMC within 7 days from the

date of this judgment.

Urgent photostat certified copies of this judgment, if applied for,

be supplied to the parties upon fulfillment of requisite formalities.

(Moushumi Bhattacharya, J.)