M/S Ajay Enterprises P. Ltd. & Anr. vs Mcd & Ors.
2009 Latest Caselaw 1906 Del

*               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,

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

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.

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.

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

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

(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

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.

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

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

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.

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

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.

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

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.

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

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

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

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