Holding

The original highest bidder’s bid lapses upon provisional acceptance of a higher bid under Rule 20(4), and therefore he is not liable for the notional loss.

Summary

The appellant, K.P. Periannan, was the highest bidder for an arrack shop in an auction conducted under the Tamil Nadu Toddy and Arrack Shops (Disposals in Auction) Rules, 1981. His bid of Rs.6550 was deemed inadequate and the shop was re‑auctioned; a higher bid of Rs.6575 by Chellamuthu was provisionally accepted by the Sale Officer but the bidder failed to fulfil the required deposit under Rule 15. The shop was subsequently re‑auctioned again and sold for Rs.3000. The Government sought to recover the notional loss (difference between the original and final sale price) from the original highest bidder under Rule 21. The appellant contended that his bid was never confirmed and that liability should rest on the defaulting higher bidder. The Supreme Court examined Rule 20(4), which provides that once a higher bid is provisionally accepted, the original bid lapses, and held that the appellant’s bid had indeed lapsed. Consequently, he could not be held liable for the loss. The appeal was allowed, relieving the appellant of the liability.

Issues considered

Whether the original highest bidder is liable for the notional loss when a higher bid is provisionally accepted under Rule 20(4) of the Tamil Nadu Toddy and Arrack Shops (Disposals in Auction) Rules, 1981.
Whether the provisional acceptance of a higher bid requires compliance with Rule 15 before the original bid lapses.

Legislation cited

Tamil Nadu Prohibition Acts. 4

Subjects

auctionarrack shopprovisional acceptancenotional lossliabilityRule 20Tamil Nadu Toddy and Arrack Shops Rulesresaledefault

Judgment

K.P. PERIANNAN
v. A
GOVERNMENT OF TAMIL NADU AND ORS.

APRIL 20, 1990

[S. RATNAVEL PANDIAN AND K. JAYACHANDRA B
REDDY, JJ.)

Tamil Nadu Toddy and Arrack Shops (Disposals in Auction
Rules, 19&1: Rules 3-6, 8, JO, 12, 14-16, 20 and 21.Auction of Arrack
shop-Successful bid found inadequate and not confirmed~Shop
re-auctioned and bid provisionally confirmed but bidder failed to
comply with requirements-Shop again re-auctioned-Notional loss: bet- c
ween original sale and resale-Held not recoverable from original suc-
cessful bidder.

The appellant gave the highest bid at the auction of an arrack
shop but his bid was considered inadeqnate. The shop was re-auctioned D
and the bid of 'C' was provisionally accepted. 'C' failed to comply with
certain requirements and the shop was again re-auctioned in which the
bid offered was lower than that offered by the appellant in the original
sale. The respondent sought recovery of the difference between the
original sale amount and the resale amount from the appellant, under
Rule 21 of the Tamil Nadu Toddy and Arrack Shops (Disposal in E
Auction) Rules, 1981. The appellant challenged the recovery by filing a
writ petition in the High Court which was dismissed by a Single Judge
and the decision was confirmed by a Division Bench on appeal.

l
r In the appeal to this Court it was contended on behalf of the
appella~t that since his bid was not confirmed under the rules, no
..._ . recovery can be made from him and that 'C', whose bid was provision-
F

ally accepted, was liable for the notional loss. The respondent however
i,_ contended that since 'C' failed to comply with Rule IS, hi.s bid was not
. provisionally accepted and hence he was not liable for the resultant loss.

Allowing the appeal, this Court, G

HELD: I. Normally it may be correct to say that the sale officer
under Rnle 16 accepts provisionally the bid after there is compliance of
Rule 15; but in the instant case, the Court is concerned with the
- _.,_ re-auction and about the liabiHty of the original highest bidder in the
light of Rule 20(4). [616D-E] H

609
610 SUPREME COURT REPORTS I1990] 2 S.C.R.

A 2. In view of the document dated 19th June, 1981 it must be held
that the bid of 'C' was accepted provisionally by the Sale Officer and by
virtue of Rule 20 sub-Rule (4) when once the bid of 'C' was accepted
provisionally as the highest bid, the bid with which the sale began
namely the hid of the appellant, got lapsed and consequently the appel-
lant cannot be held liable for the resultant loss. [616C-D I
B
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
1932 of 1990.

From the Judgment and Order dated 4.7.1989 of the Madras
High Courtin Writ Appeal No. 1153 of 1983.

R. Mohan and R. Ayyamperumal for the Appellant.

V. Krishnamurthy for the Respondents.

The Judgment of the Court was delivered by
D
K. JAYACHANDRA REDDY, J. Leave granted. Heard both
the sides.

The right to conduct arrack sale in Tamil Nadu was auctioned on
28.5.1981 for the excise year 1981-82. Shop No. 49 in Koneripatti
E village in Sankari Taluk District Salem was auctioned for the excise
year 1981-82. In respect of the auction of this shop, the appellant was
the successful Mdder and the bid amount was Rs.6550 per month. As
per the term~, the appellant paid the caution deposit of Rs. 1000 and a
half month's rent on the same day.

· Since the bid amount was found to be inadequate there was a
re-auction on 11.6.1981 but there was no bidder on that day. Therefore
again on 19.6.1981 the same shop was re-auctioned and one Mr. Che!- ..-<:_
lamuthu was successful bidder at Rs.6575 per II)Onth but he failed to
comply with certain requirements. Therefore it was re~auctioned on
27 .6.81 but there were no bidders and the shop was re-auctioned again
G on 17.8.1981 when the bid was only Rs.3000 by one Doraisamy. The
appellant was called upon by way of a COII)II)unication dated 17.4.82 to
pay the notional loss. It was claimed by the department that the bid of
the appellant was confirmed on 28.6.81 but the appellant refused to ·--* -
receive the confirmed order and consequently the shop was re-
auctioned for Rs.3,000 only and therefore the difference amount is
'H recoverable from the appellant. This impugned order was questioned
K.P. PERIANNAN v. GOVT. OF TAMIL NADU [REDDY, J.) 611

and the learned Single Judge of the High Court dismissed the writ A
petition. It was observed by the learned Judge that records produced
- before him were perused and they show that the bid by the appellant
was confirmed on 28.6.81 and the appellant can not seek any relief in
the writ petition having bidden the auction under certain conditions.
In the writ appeal filed against the order of the Single Judge, the
Division Bench agreed with the learned Single Judge. It was also ci>n- B
tended before the Division Bench that his bid was never confirmed
validly and that auction in favour of Doraisamy alone was the valid
auction.

Learned counsel for the appellant contended before us that the
bid by the appellant was not accepted as per the rules and it was not
confirmed by the Collector and the very fact that there was subsequent
c
two re-auctions obviously on the ground that the bid by the appellant
- , was inadequate, itself shows that the bid was not confirmed as per the
rules and therefore the question of recovery of resultant loss from the
..._' appellant does not arise. It is also submitted that Chellamuthu who was
successful bidder in the auction that was held on 19.6.81 should be D
held responsible for the resultant loss, if any, since he was the highest
bidder because his bid was higher than that of the appellant. To
appreciate these contentions, it becomes necessary to refer to the rele-
vant rules. Some of the relevant rules of the Tamil Nadu Toddy and
Arrack Shops (Disposals in Auction) Rules, 1981 were framed under
------< the powers conferred by Section 4 of the Tamil Nadu Prohibition Act.
E
Rule 3 lays down that the privilege of selling liquor by retail shall be
granted to any person by auction and the period shall be one excise
year. Under Rule 5, a notice has to be given mentioning particulars as
required under Rule 6. The tenders also will be received an hour
before the commencement of the auction. Under Rule 8 every person
:;-. desiring to bid in such open auction shall deposit a sum of Rs.1,000 as F
I 'earnest money and only the bidders who have deposited the earnest
~-' money deposit shall be admitted into the place of auction. Rule 10
provides for refund of such a deposit to the unsuccessful bidders. Rule
12 lays down that the Sale Officer can refuse to accept the bid under
any one of the conditions specified therein. Rule 14 similarly lays
down that highest of the bid shall be taken into consideration for G
acceptance. As per Rule 15 every auction purchaser shall immediately
after the anhouncement or atleast before the close of the day's sale,
• .':..'... deposit half a month's rental with the Sale Officer. If he does not do
so, the earnest money deposit made by him under Rule 8 shall be
forfeited to the State Government. For the purpose of this case Rule
16 is important and it is in the following terms: H
612 SUPREME COURT REPORTS [ 1990) 2 S.C.R.

"Deposit of advance-The Sale Officer, if he accepts provi·
A
sional/y the bid of an auction purchaser, shall issue a notice
to the auction purchaser to pay as advance, in any case
within seven days from the date of the sale, an amount
equal to three months rental in addition to the earnest
money deposit already made under rule 8 but inclusive of
the half a month's rental paid at the close of the sale under
rule 15."
(emphasis supplied)

We will consider the scope of this rule in a detailed manner at a later
stage. Rule 17 lays down that the auction-purchaser shall produce a
c solvency certificate issued by the Tehsildar for the purpose of creating
encumbrances and should also execute a mortgage deed and if does
not own any properties he should deposit additional amount towards
-
three months' rental or should furnish bank guarantee. Under Rule 18,
the Collector should refund the deposits made by the auction·
purchaser in case he refuses to confirm the acceptance of the bid. Rule
D 20 is another important rule and it is necessary that it should be fully
extracted:

"20. Confirmation of sale by the Collector-( 1) Every bid
provisionally accepted by the Sale Officer shall be subject
to confirmation by the Collector and on such confirmation
the orders of the Collector shall be final, unless it is revised
by the Commissioner for special reasons to be recorded in
writing. The Commissioner may on appeal or revision or
suo motu, revise any order of the Collector confirming a
bid provisionally accepted by the Sale Officer, after issuing
a show cause notice to the person affected and considering
F his representations, if any. Any order of the Collector con·
firming the sale of a shop in favour of a·-person may be
cancelled by the Commissioner even subsequent to the
grant of a licence to him for reasons to be recorded by him
and after giving an opportunity to all persons concerned.

G (2) On receipt of the order of confirmation and on receipt
of an application in Form No. 2 the Excise Officer shall
subject to the provisions in rule 17, issue a licence in Form
No. 3 under Section 17·C(2) of the Act.

(3) If the Collector considers any bid to be inadequl\te, he
H may refuse to confirm the provisional acceptance of the
K.P. PERIANNAN v. GOVT. OF TAMIL NADU [REDDY, J.) 613

bid, and immediately direct the resale of the shop from the A
point at which it was last left on such date and at such time
and place as may be fixed by him. The conditions of sale
shall remain unaltered unless otherwise directed by the
Collector. Any order passed by the Collector for resale
shall be given adequate publicity and shall also be notified
at the Taluk Office. B

(4) Any resale ordered to be made under sub· rule (3) shall
-T begin with the bid provisionally accepted by the sale officer
at the original sale and in the name of the individual who
.,.... offered it. If at such sale a higher bid is offered and is
provisionally accepted by the Sale Officer, the bid with
which such sale began shall lapse. But if no higher bid is
c
accepted by the Sale. Officer, the matter shall be reported
~ to the Collector who may pass orders confirming the bid
provisionally accepted at the original sale or may again
L direct that the sale be continued from the point at which it
was left at the original sale, and the order of the Collector D
shall be final unless it is revised by the Commissioner on
appeal or rt!vision.

(5) The provision of sub·rule (4) shall apply to any sale the
re-opening of which is directed under that sub-rule.
E
( 6) No bid which has been provisionally accepted by the
Sale Officer shall be withdrawn before it iapses under sub-
rule (4) or before orders are passed conflttning or refusing
to confirm it, and if the bidder commits any breach of this
~
condition, he shall be liable to make good the difference
between his bid and any lower bid which rnay be finally F
acce_pted,''
l (emphasis suppiied)

Rule 21 lays down that on the failure of any person to make a deposit
or to comply with· any requisition or to comply with any formality like
executing bond etc. the shop may be resold under the orders of the G
Collector on a report from the Assistant Commissioner and the same
shall be re_sold under this rule. It shall be at the risk of the defaulting
•
·~- bidder who sh,illl forfeit all gain, if any, that may secure by the resale in
the event of a loss by resale, the defaulting bidder shall be required to
make good the deficiency between the total amount .payable for the
whole period under the terms of the original sale and by the total H
614 SUPREME COURT REPORTS [ 1990] 2 S.C.R.

A amount payable by the successful bidder at the resale and the deposit
already made by the defaulting bidder shall be forfeited.

As already mentioned it is under this last rule the action is taken
-·-
against the appellant. At this stage it would be useful to refer to some
of the everments in the affidavit and the counter-affidavit putting for-
B ward the rival. The appellant in his affidavit has stated that his bid was
never confirmed and that he has not received any notice and that on
the oth~r hand there was a re-auction and there was a higher bid in the ·\-
re-auction, but the said bidder defaulted. Therefore there was again
another re-auction but on that day there were no bidders but ulti-
mately during the final re-auction on 27.6.1981 the bid was only -~
·Rs.3,000 by one Doraisamy and that was confirmed. The plea ot'the
C appellant has been that his bid was not confirmed by the Collector as
required under Rule 20 and repeated re-auctions would itself go to
show that the bid of the appellant was not confirmed. In the counter- ·-.,-
affidavit filed on behalf of the Government, it is admitted that the
petitioner was the highest bidder on 28.5.1981 but the Collector
D ordered resale as already mentioned and one Chellamuthu wa~ ·the
highest bidder offering Rs.6575 but he failed to comply with the condi-
tions. It is averred that the said Chellamuthu though was the highest
bidder in the said re-auction but did not comply with the conditions
under Rule 15 inasmuch as he failed to deposit half a month's rental
and therfore his bid was not accepted. Therefore subsequent bids were )-.-.
£ held. It is further averred by the Government that the bid offered by
the appellant was confirmed by the Collector as per the proceedings of
the Collector dated 28.6.81 but the appellant refused to receive the
order of confirmation and therefore he has to make good the resultant
loss.

F Learned counsel for the appellant submits that Chellamuthu was
the highest bidder and he should be held to be a defaulter and conse-
quently be liable for the resultant loss.

In order to see wh~ther the appellant's liability in any manner
continued consequently making him liable for the resultant loss, we
G have to examine Rules 20(3) and 20(4) carefully, in the context of the
facts of this case. As extracted above Rule 20(3) states that if the
Collector considers any bid to be inad"'luate, he may refuse to confirm
the provisional acceptance of the bid and immeditely direct the resale
of the shop from the point it was last left. As per sub-Rule 4 any resale
ordered to be made under sub-rule (3) shall begin with the bid provi-
H sionally accepted by the Sale Officer at the original sale and if at such
K.P. PERIANNAN v. GOVT. OF TAMIL NADU (REDDY, J.] 615

sale a higher bid is offered and is provisionally accepted by the Sale
A
Officer, the bid with which such sale began shall lapse. This part of the
rule is very significant. If the record shows that the bid offered by
Chellamuthu has been provisionally accepted by the Sale Officer, the
bid with which the sale began, i.e. the bid offered by the appellant
lapses bu.t if, on the other hand, such a bid during the re-auction is nor'''
accepted by the Sale Officer then the subsequent steps for further re- B
auction or for confirmation of the original bid i.e. that of the appellant
would take place. In this context it is once again necessary to note that
-,'. as per the Department, bid of Chellamuthu was not·even provisionally
accepted. As laid down in Rule 16 if the record shows that his bid has
been provisionally accepted by the Sale Officer then as provided under
"'!' Rule 20(4) the bid of the'appellant gets automatically lapsed. For our
own satisfaction we called for the record and perused the file concern-
c
ing the auction. So far as the bid made by Chellamuthu is concerned,
we find a document in the record which authentically shows that his
bid being highest was provisionally accepted and announced by the
Sale Officer. This document reads as under:
D
"Second resale of toddy/arrack shops in Sankari Taluk.

(1.7.1981to30.6.1982)

Shop No. 49 Place : Koneripatti E

Name and full address of Tender amount
the tenderer.
Nil

Highest tender amount Rs. nil by Thiru F

Highest bid amunt Rs.6575 by Thiru

The highest of these two, that is Rs.6575 (Rupees
Six Thousand five hundred seventy five only) by
Thiru Sellamuthu s/o Nachimuthu of Kumarnpa- G
layn Village the highest bidder/tenderer is provi-
sionallv accepted and announced.
Sd/-19/6/81
Sale Officer
&
H
Sub Collector/Sankari."
616 SUPREME COURT REPORTS [1990] 2 S.C.R.

A As per Rule 16 when there is such provisional acceptance then the Salt;
Officer issues a notice to the highest bidder to pay as advance three
months rental. But according to the respondents namely the Depart- · - -
ment, the said Chellamuthu though was the highest bidder, did not
deposit half a month's rental as required under Rule 15, therefore the
B question of accepting his bid did not arise even provisionally.
Consequently the highest bid of the appellant was subsequently
confirmed. Since we find a genuine doubt about the liability of the
\_
appellant, we went through the rest of the file also. No doubt there is a
note here and there to the effect that Chellamuthu did not deposit the
15 days rental on that day. But in view of the document mentioned y
C above it must be deemed that the Chellamuthu's bid was accepted
provisionally by the Sale Officer and by virtue of Rule 20, sub-rnle (4)
when once the bid of Chellamuthu was accepted provisionally as the
highest bid, the bid with which such sale began namely the bid of the
appellant, got lapsed. We do not want to go into the question whether
under Rule 16 the provisional acceptance of the bid by the Sale Officer
D should necessarily be preceded by the fulfilment of the condition of
deposit of half a month's rental by the auction-purchaser under Rule
15. Perhaps normally it may be correct to say that the Sale Officer
under Rule 16 accepts provisionally the bid after there is compliance of
Rule 15; but in the instant case we are concerned with the re-auction
and about the liability of the original highest bidder in the light of Rule
E 20(4). The document mentioned al'Jove clearly shows that the Chel-
lamuthu's bid was provisionally accepted and therefore Sub-Rule (4)
of Rule 20 comes into force and consequently the bid of the appellant
lapsed. At any rate after a due consideration of the contents of the
declaration issued by the Sale Officer accepting the bid of Chella-
muthu provisionally, a genuine doubt arises about the liability of the _...,
F appellant. Having given our earnest consideration, we are of the view
that the bid by the appellant got lapsed by virtue of the acceptance of
the bid by Chellamuthu provisionally by the Sale Officer and conse- -\
quent!y the appellant cannot be held liable for the resultant loss. The
appeal is accordingly allowed.

T.N.A. Appeal allowed.