Haryana Financial Corporation And Another v. Rajesh Gupta .

S.S Nijjar, J.— This appeal is directed against the judgment and order dated 26-11-2001 in CWP No. 5725 of 2001 of the High Court of Punjab and Haryana at Chandigarh. The respondent had approached the High Court with a prayer that the order dated 30-9-1998 by which Haryana Financial Corporation (hereinafter referred to as “the appellant Corporation”) had forfeited, an amount of Rs 2.5 lakhs, deposited by the respondent by way of earnest money, be quashed. The respondent had also prayed that the appellant Corporation be directed to refund the amount illegally forfeited along with interest.

2. Shorn of unnecessary details, we may notice here only the relevant facts. On 8-1-1998, the appellant Corporation issued an advertisement for sale of various units, including the land of M/s Unique Oxygen (P) Ltd. (hereinafter referred to as “the defaulting unit”), Old Hansi Road, Jind. On 28-1-1998 the respondent initially made an offer of Rs 25,00,000, which was subsequently during negotiations enhanced to Rs 50,00,000. On that very day the respondent deposited an amount of Rs 2.5 lakhs by way of earnest money.

3. On 29-1-1998 the respondent wrote a letter to the Managing Director of the appellant Corporation as follows:

“Rajesh Gupta578, Automobile

Market, Hisar

Phone 28221-3 lines

Fax No. 01662-31084

29-1-1998

The Managing Director,

Haryana Financial Corporation,

17, 18, 19 Sector 17-A,

Chandigarh 160017.

Kind Attention: Shri Raj Kumar Ji, MD

Sub.: Offer to purchase the assets of Unique Oxygen (P) Ltd., Jind.

Dear Sir,

With reference to your advertisement in ‘The Economic Times’ dated 8-1-1998, we are inclined to submit our bid for purchase of assets of the abovementioned company. With this purpose we visited the factory premises on 21-1-1998. On our visit, it was noticed that the premises do not have an independent appropriate passage from the road. On further inquiry from the branch office concerned, the copy of site plan/building plans were not available and we were told that the same are available at the head office only. Therefore you are requested to kindly apprise us in this matter so that we do not face any problems, if we acquire the unit as per your offer.

We hope to hear soon in this regard.

Thanking you,

Yours faithfully,

Rajesh Gupta”

No response was given by the appellant Corporation to the respondent. However by a letter dated 19-2-1998 the appellant Corporation called the respondent for negotiations. These negotiations resulted in enhancement of the bid from Rs 25 lakhs to Rs 50 lakhs.

4. Again, in the letter dated 7-3-1998, the respondent stated as follows:

“Fax No. 1072-70266578, Automobile

Market, Hisar

Phone 28221 (3 lines)

Fax No. 01662-31084

7-3-1998

The Managing Director,

Haryana Financial Corporation,

Chandigarh.

Sub.: Offer to purchase the unit of Unique Oxygen (P) Ltd., Jind.

Dear Sir,

With reference to the negotiation held on 6-3-1998 at your head office for the sale of assets of the said concern, we are the highest bidder and understand that our bid will be accepted. However, the matter regarding approved/authorised passage for smooth functioning of the factory was discussed in the meeting and the unit-holder, who was also present in the meeting confirmed that such passage exists, at the factory.

In this regard, it is submitted that we have come to know that there is no approved/authorised passage to the factory sufficient to pass a truck through it. The gate/passage presently being used is unauthorised.

In the light of the above you are requested to kindly apprise us in this matter and supply us the copy of approved building plan, site plan for the building mortgaged by HFC so that we may not face any problem in future in running the unit.

Kindly treat it as most urgent.

Thanking you,

Yours faithfully,

Rajesh Gupta”

5. It would appear that by the letter dated 3-4-1998, the Branch Manager brought the objection of the respondent to the notice of the head office of the appellant Corporation. In response to this communication the Branch Manager was informed by the head office of the appellant Corporation, by letter dated 7-4-1998 that a clear-cut passage/rasta has been provided to the unit as per documents submitted by the defaulting unit at the time of availing loan. Reference in this letter was also made to the sale deed, dated 8-9-1994, Mutation No. 5172, Mutation No. 9896, search report and sale deed, rasta, wherein it is mentioned that there is an approach road to the factory site. The Branch Manager was directed to satisfy the respondent with the aforesaid documents.

6*. On 30-4-1998, the Branch Manager addressed a letter to the head office of the appellant Corporation clearly informing as follows:

“However, the actual rasta which is of three karams and appeared in the papers particularly shown in the sale deed is not connected directly with the unit and to connect the rasta with the rasta of the revenue record party purchased some land where the movement of the vehicles is not possible at all.”

In fact the letter further pointed out as follows:

“It is further stated that the area mentioned in the map approved by the MC is 1130 sq yd whereas the total area in the sale deed and which is mortgaged to the Corporation is 1210 sq yd. It is also not out of place to mention that the land on which the office building is constructed is also not mortgaged to the Corporation and if that area is excluded the main gate of the factory will go behind from the existing place and then the unit will be stripped of independent rasta.”

7. In spite of the aforesaid factual position, the appellant Corporation issued the letter dated 18-5-1998 to the respondent advising him to deposit the balance amount of 25% of the bid amount within 15 days from the date of issue of the letter failing which the amount of the earnest money deposited would be forfeited without further notice. The respondent, however, again raised the issue regarding the passage at the open house held by the appellant Corporation at Hissar on 12-6-1998. According to the appellant Corporation, as per the revenue record and the demarcation report of the revenue officials dated 27-6-1998, therein 16.5 ft rasta is provided in the west of the unit. However, not satisfied, the respondent did not pay the balance amount. Therefore, the appellant Corporation invited fresh tenders for sale of land. On 30-9-1998 the appellant Corporation forfeited the sum of Rs 2.5 lakhs which had been deposited by the respondent as earnest money.

8. It was this action of the appellant Corporation that was challenged by the respondent by way of a writ petition in the Punjab and Haryana High Court.

9. The aforesaid writ petition has been allowed by the Division Bench. The order dated 30-9-1998 by which the earnest money had been forfeited has been quashed and set aside. A further direction has been issued to the appellant Corporation to refund the amount along with interest at the rate of 12% per annum w.e.f 1-2-1998 till the date of payment. The High Court also imposed costs on the appellant Corporation assessed at Rs 5000. Further directions were issued to release the amount to the respondent within two months from the receipt of a copy of the order of the High Court. It is this order which is challenged in the present appeal.

10. We have heard the learned counsel for the parties at length.

11. Mr Amit Dayal, learned counsel for the appellant Corporation submits that the respondent accepted the plots on “as-is-where-is basis”. Therefore, the appellant Corporation cannot now permit the respondent to wriggle out of a confirmed bid, on the ground that there is no independent approach road to the unit. The learned counsel further submitted that it was for the respondent to make necessary enquiry with regard to the existence of the 3 karams rasta, with the Revenue and other authorities. According to the learned counsel the entire documentation which had been provided at the time when the loan was sanctioned clearly indicated that there is a 3 karams rasta leading from the road to the unit.

12. The learned counsel further pointed out that the respondent had visited the site on 21-1-1998. Therefore he would have known the exact situation of the “rasta”. The respondent was aware of the exact nature of the land being purchased by him. In support of his submission learned counsel relies on Section 55 of the Transfer of Property Act, 1882.

13. The learned counsel further submitted that the appellant Corporation is entitled to forfeit the security amount in view of Clause 5 of the terms and conditions for the sale of property as contained in the advertisement dated 8-1-1998. The learned counsel also sought to justify the action of the appellant Corporation by placing reliance on Section 29 of the State Financial Corporations Act, 1951.

14. On the other hand, Mr Vimal Chandra S. Dave, learned counsel for the respondent, submits that the judgment of the High Court is self-speaking and is not open to challenge on any of the grounds pleaded by the appellants. He submitted that the appellants cannot be permitted to take advantage of their own wrong. They have misled the respondent into making a huge deposit for a plot of land which was not suitable. Without an independent passage the land could not have been used as a manufacturing unit. The appellant Corporation ignored all the objections raised by the respondent with regard to the non-existence of the independent approach road.

15. We have considered the submissions made by the learned counsel. We have also perused the judgment of the Division Bench of the High Court.

16. Factually, the appellants have accepted that on 29-1-1998 the respondent had in no uncertain terms informed the appellant Corporation about the non-existence of the independent passage. No denial could possibly be made in the face of the letter dated 29-1-1998 which makes a reference to the visit of the respondent to the factory premises on 21-1-1998. There is a categorical assertion that the premises do not have an independent appropriate passage from the road. When enquiries were made from the branch office, the respondent was simply informed that copies of the site plan and building plan were not available, and would be available at the head office only. Thereafter, there is a studious silence from the appellant Corporation with regard to the aforesaid grievance made by the respondent.

17. Again, on 7-3-1998 the respondent informed the appellant Corporation as follows:

“In this regard, it is submitted that we have come to know that there is no approved/authorised passage to factory sufficient to pass a truck through it. The gate/passage presently being used is unauthorised.

In the light of the above you are requested to kindly apprise us in this matter and supply us the copy of approved building plan, site plan for the building mortgaged by HFC so that we may not face any problem in future in running the unit.”

It appears that the aforesaid request of the respondent was also never specifically answered by the appellant Corporation.

18. In view of the protests of the respondent, the issue was raised by the Branch Manager of the appellant Corporation through a letter dated 3-4-1998 addressed to the head office. The Branch Manager was informed by the head office, through a letter dated 7-4-1998 that as per the documents submitted by the defaulting unit at the time of availing loan, a clear-cut passage/rasta has been provided to the unit concerned. The letter dated 7-4-1998 reads as follows:

“Please refer to your Letter No. HFC\BO\JD\98\7 dated 3-4-1998 on the subject cited above.

In this connection, you are advised that a clear-cut passage/rasta has been provided to the concern as per the documents submitted by the concern at the time of availing loan.

Enclosed herewith please find photocopy of Sale Deed No. 1494 dated 8-9-1994 and photocopy of Mutation No. 5172, another Mutation No. 9896 and search report and sale deed, rasta, wherein it is clear cut mentioned that there is an approach road to the factory site. So, you may please satisfy the auction-purchaser with these documents and inform us the latest position of the case. It is also added here that you may make clear to the auction-purchaser that the unit has been sold by the Corporation on as and where basis.”

19. A perusal of the aforesaid letter makes it apparent that the appellant Corporation was merely relying on the documents submitted by M/s Unique Oxygen (P) Ltd., Old Hansi Road, Jind i.e the defaulting unit. The appellant Corporation had been informed by the management of the defaulting unit at the time of availing of the loan facility that the unit had the necessary independent approach road. The letter however does not indicate that any independent inquiries were made by the appellant Corporation to verify the authenticity of the statements made by the management of the defaulting unit which had availed of the loan, by mortgaging the assets of the unit.

20. The entire issue seems to be concluded against the appellant Corporation by letter dated 30-4-1998, the relevant parts of which have already been reproduced in the earlier part of this judgment. A perusal of the extracts, reproduced earlier, would clearly show that the Branch Manager had informed the head office in unequivocal language that the independent passage shown in the sale deed is not connected directly with the defaulting unit. It also indicates that the defaulting unit had merely purchased some land to connect the rasta with the revenue record on which movement of the vehicles is not possible at all. This land was not even mortgaged with the appellant Corporation. The letter also clearly states that by exclusion of the aforesaid land the size of the plot would be reduced from 1210 sq yd to 1130 sq yd. That would mean that the main gate of the factory would be outside the land offered for sale.

21. Taking into consideration the aforesaid facts the Division Bench concluded as follows:

“Taking the totality of circumstances into consideration, we are satisfied that the petitioner was not at fault. He was entitled to withhold the money as the respondents had failed to provide a proper passage. Still further, the factual position having been admitted in the letter dated 30-4-1998, a copy of which is at Annexure P-6, and nothing to the contrary having been produced on the file, we find that the action of the respondent Corporation in forfeiting the amount deposited by the petitioner was wholly arbitrary and unfair.”

We see no reason to take any different view.

22. We are also of the opinion that the Division Bench was justified in further concluding that in law the appellant Corporation undoubtedly has the power to forfeit the earnest money provided there was a failure on the part of the respondent to make the deposit. The Division Bench, however, observed that the respondent was dealing with an instrumentality of the State. He was entitled to legitimately proceed on the assumption that the appellant, a statutory corporation, an instrumentality of the State, shall act fairly. The respondent could not have suspected that he would be called upon to pay the amount of Rs 50 lakhs without being given even a proper passage to the unit that he was buying. We are of the considered opinion that the respondent had deposited the sum of Rs 2.5 lakhs on the clear understanding that there would be an independent approach road to the unit. This is understandable. Without any independent passage the plot of land would be not more than an agricultural plot, not suitable for development as a manufacturing unit. We therefore do not find any substance in the submission made by the learned counsel for the appellant Corporation.

23. In our opinion, the appellants cannot be given the benefit of Clause 5 of the advertisement. The appellant Corporation cannot be permitted to take advantage of its own wrong. Clause 5 undoubtedly permits the forfeiture of the earnest money deposited. But this can only be if the auction-purchaser fails to comply with the conditions of sale. In our opinion, the respondent has not failed to comply with the conditions of sale. Rather, it is the appellant Corporation which has acted unfairly, and is trying to take advantage of its own wrong.

24. In view of the aforesaid, we are of the considered opinion that the appellant Corporation cannot be permitted to rely upon Section 55 of the Transfer of Property Act, 1882. The appellant Corporation failed to disclose to the respondent the material defect about the non-existence of the independent 3 “karams” passage to the property. Therefore, the appellant Corporation clearly acted in breach of Sections 55(1)(a) and (b) of the Transfer of Property Act, 1882.

25**. The aforesaid section provides as under:

“55. (1) The seller is bound—

(a) to disclose to the buyer any material defect in the property or in the seller's title thereto of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover;

(b) to produce to the buyer on his request for examination all documents of title relating to the property which are in the seller's possession or power;

A mere perusal of the aforesaid provision will show that it was incumbent upon the appellant Corporation to disclose to the respondent about the non-existence of the independent passage to the unit. It was also the duty of the appellant Corporation to inform the respondent that the passage mentioned in the revenue record was not fit for the movement of vehicles. The appellant Corporation also failed to produce to the buyer the entire documentation as required by Section 55(1)(b) of the aforesaid section. We are therefore satisfied that the appellant Corporation cannot seek to rely on the aforesaid provision of the Transfer of Property Act, 1882.

26. In our opinion, the reliance on Section 29 of the State Financial Corporations Act, 1951 is wholly misplaced. The aforesaid section pertains to action which the Corporation can take against the unit which had defaulted in payment of loan. In such circumstances the Corporation has the power to sell the property that has been hypothecated or mortgaged with the Corporation. The respondent herein is an auction-purchaser and therefore cannot be confused with the defaulting unit.

27. We are also of the considered opinion that the reliance placed on the judgment of this Court by the counsel for the appellants in United Bank of India v. Official Liquidator (1994) 1 SCC 575 is wholly misconceived. The aforesaid judgment relates to sale of the property and assets of a company in liquidation by the Official Liquidator under the orders of the court. Therefore it is observed that the Official Liquidator cannot and does not hold any guarantee or warranty in respect of the property sold. That is because the Official Liquidator proceeds on the basis of what the records of the company in liquidation show. Therefore it is for the intending purchaser to satisfy himself in all respects as to the title and encumbrances and so forth of the immovable property that he proposes to purchase. In those circumstances it is held that the purchaser cannot after having purchased the property on such terms then claim diminution in the price on the ground of defect in the title or description of the property.

28. The judgment clearly goes on to further hold as follows: (Official Liquidator case (1994) 1 SCC 575)

“14. … The case of the Official Liquidator selling the property of a company in liquidation under the orders of the court is altogether different from the case of an individual selling immovable property belonging to himself.”

The aforesaid observation would be clearly applicable to the Corporation as it is exercising the rights of an owner in selling the property. The appellant Corporation is not selling the property as an Official Liquidator.

29. In any event, the facts of this case as narrated above would clearly indicate that the respondent had made all necessary inquiries. It was the appellant Corporation that failed to perform its obligations in giving a fair description of the property offered for sale.

30. The learned counsel had also relied on another judgment in UT Chandigarh Admn. v. Amarjeet Singh (2009) 4 SCC 660. In our opinion, the aforesaid judgment is wholly inapplicable to the facts and circumstances of this case as it relates to the duties of a developer who carries on activities of development of land and invites applications for allotment of sites in a developed layout. In our opinion, the aforesaid judgment is not applicable to the facts of this case. We see no merit in any of the submissions, or the grounds of appeal. The appeal is accordingly dismissed.

31***. It appears that the judgment of the High Court had been stayed by this Court on 2-9-2002. In view of the dismissal of the appeal, we direct that the forfeited amount be refunded to the respondent with 12% interest w.e.f 1-2-1998 till payment. The amount be paid to the respondent within a period of two months of producing the certified copy of this order. We also direct that in the event the aforesaid amount is not paid within the stipulated period, the respondent shall be entitled to interest at the rate of 18% per annum till payment. We also direct that the respondent shall be entitled to costs which are assessed as Rs 50,000.