Holding

The appellant is entitled to a full refund of the earnest money; the deduction of Rs 30,000 is unsustainable.

Summary

The State of Madhya Pradesh issued a tender for the sale of perishable Tendu leaves. After the highest bid of another bidder (Respondent No.4) was cancelled, Mohammed Gazi was declared the highest bidder and deposited Rs 2,68,217.72 as earnest money. While Gazi was preparing to execute the purchase agreement, Respondent No.4 filed a writ petition challenging the cancellation; Gazi was not impleaded and a stay order prevented him from taking the leaves, which subsequently perished. Gazi filed a writ petition seeking a refund of his earnest money; a Single Judge of the High Court ordered a full refund, but the Division Bench later deducted Rs 30,000 on equitable grounds. The Supreme Court held that Gazi was not at fault, could not be compelled to perform an impossible contract, and therefore must be refunded the entire amount, setting aside the deduction.

Issues considered

Whether a person can be penalised by deduction of earnest money on equitable grounds when he is not at fault and performance is prevented by a stay order.
Whether a party not impleaded in another's litigation can be compelled to forfeit part of his security.
Whether the maxims actus curiae neminem gravabit and lex non cogit ad impossibilia apply to bar the deduction.
Whether the State can be held responsible for the fault leading to the loss of perishable goods.

Legislation cited

Constitution of Indias. Article 226

Subjects

tenderearnest moneyrefundequityperishable goodsstay ordercontract frustrationArticle 226maximsTendu leaves

Judgment

-- ''
MOHAMMED GAZI
v.
A

STATE OF M.P. AND ORS.
-! MARCH 31, 2000

[S. SAGHIRAHMAD AND R.P. SETHI, JJ.] B

Constitution of India, 1950-Article 226-Equity clause-Application
of-Tenders invited for purchase of Tendu leaves-Highest bid of respondent
' No. 4 cancelled on account of complaints made by other bidders and alleged
manipulations on the part of the official-respondents-Fresh notice for tenders c
in which the appellant was declared the highest bidder-Appellant called upon
to execute purchase agreement in pursuance of which he deposited Rs.
2,68,217. 72 as security amount-On account of litigation initiated by respond-
ent No. 4 without impleading the appellant as party and stay order in that
case, the appellant was prevented from collecting the Tendu leaves-Request
of the appellant to refund his security as leaves had already perished and D-
rotten, rejected and direction issued to him to execute the agreement-
Consequently the appellant filing a writ petition for refund of earnest money
which was allowed-However, in appeal, the Division Bench of High Court

- directing that a sum of Rs 30,000 be deducted from the earnest money of the
appellant on the basis of equities by holding that State. was also not
responsible for the fault-Tenability of-Held, such a direction of the High
Court cannot be sustained in view of the findings of fact returned in favour
E

of the appellant-The appellant had not committed breach of any condition
of the tender as he was prepared to accept the Tendu leaves which he could
not lift on account of stay order-Appellant held entitled to refund ofthe whole
amount of the earnest money deposited by him. F

Maxims-Actus curia neminem gravabit-An act ofthe Court shall preju-
dice no man-Lex non cogit ad impossibilia-Law does not compel a man to
do which he cannot possibly perfonn-Applicability of

Tender notice inviting tenders for disposal of Tendu leaves was is- G
sued by the respondent-State. Respondent No. 4 was declared the highest
bidder in respect of one of the lots of Tendu leaves. However, the highest
hid of respondent No. 4 was not accepted and his tender was cancelled on
account of complaints made by other bidders and alleged manipulations
on the part of the official-respondent. Fresh notice for tenders for the H
871
-.
872 SUPREME COURT REPORTS (2000] 2 S.C.R.
A aforesaid lot was issued in which the appellant was declared the highest
bidder. He was called upon by the official-respondent 1 to 3 to execute
.,
purchase agreement as per the tender notice, with the Conservator of
Forests after depositing the balance security. Consequently, the appellant
deposited a sum of Rs. 2,68,217.72 as security amount.
B In the meantime, respondent No. 4 filed writ petition in the High
Court challenging the order of cancellation of tender and the re-tender
notice. The appellant was not impleaded in the said writ petition. The
application filed by the appellant for intervention in the writ petition was
-
rejected. The High Court passed an interim order restrairiing the official-
c respondents from taking any step pursuant to the fresh tender notice.
Ultimately, the writ petition filed by respondent No. 4 was disposed of by a
Single Judge of the High Court by quashing the order of cancellation of
tender to the extent by which the earnest money deposited by respondent
No. 4 had been directed to the forfeited and a direction was issued to
refund the earnest money to respondent No. 4.
D
After disposal of the aforesaid writ petition, the appellant requested
respondents 2 and 3 to refund his security amount of Rs. 2,68,217.72. It
was pleaded that since Tendu leaves, which was a perishable item, had

E
already perished and rotten with the result that its value had become
useless by lapse of time. However, respondent No. 2 sent an ante dated ...
-
letter directing the appellant to execute the agreement and deposit the
remaining tender price. The appellant, then, filed writ petition in the High •
Court praying for quashing of the order of the High Court rejecting his
application for intervention in the writ petition filed by respondent No. 4
and refund of earnest money along with an amount of Rs. 10 lakhs claimed
F as damages. He also prayed that he should not be compelled to enter into
an agreement by respondents. The said writ petition was allowed by a
Single Judge of the High Court with a direction to respondents 1 to 3 to
refund the security amount to the appellant forthwith. Thereafter a Let-
ters Patent Appeal was filed by respondents 1 to 3 before the Division
G Bench of the High Court which was partly allowed on the basis of equities
thereby directing that a sum of Rs. 30,000 be deducted from the earnest
money of the appellant. Hence the present appeal.
...__
Allowing the appeal, this Court

H Held : 1.1. The appellant is entitled to refund of the whole amount of
.
MOHAMMED GAZI v. STATE 873
the earnest money deposited by him. On account of litigation initiated by A
respondent No. 4 without impleading the appellant as party in his litiga-
tion, the appellant was prevented from taking the benefit of the accept-
ance of his tender notice by the official-respondents. It also cannot be
denied that Tendu leaves are a perishable item. For no fault of his the
appellant was prevented from collecting the Tendu leaves for which he
B
had deposited him security amount. The appellant could not be held re-
sponsible for not lifting the Tendu leaves and thereby had not committed
breach of any condition of the tender. There was no fault on his part
because he had offered bid and was prepared to accept the Tendu leaves
which he could not lift on account of stay order. The direction of the
Division Bench of the High Court that a sum of Rs. 30,000 be deducted c
from the earnest money of the appellant, on the ground that the State also
could not be held responsible fur the fault, cannot be sustained in view of
the findings on fact returned in favour of the appellant. [875-F; 876-E]

1.2. In the facts and circumstances of the case, the maxim of equity,
namely, actus curiae neminem gravabit - an act of the Court shall prejudice D
no man, shall be applicable. This maxim is founded upon justice and good
sense which serves a safe and certain guide for the administration of law.
The other maxim is, lex non cogit ad impossibilia - the law does not compel a
man to do which he cannot possibly perform. The law itself and its admin-
istration is understood to disclaim as it does in its general aphorisms, all E
intention of compelling impossibilities, and the administration of law must
adopt that general exception in the consideration of particular cases.
[876-F-G]

Raj Kumar Dey&' Ors. v. Tarapada Dev & Ors., [1987] 4 SCC 398 and
Gursharan Singh & Ors. v. NDMC & Ors., [1996) 2 SCC 459, referred to. F
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2332 of
2000.

From the Judgment and Order dated 1.12.98 of the Madhya Pradesh
High Court in L.P.A. No. 270 of 1998. G
Dinesh Kumar Garg for the Appellant.

Sakesh Ki.umar and Satish K. Agnihotri for the Respondents.

The Judgment of the Court was delivered by H
874 SUPREME COURT REPORTS [2000] 2 S.C.R.
. '
A ~ SETHI, J. Leave granted.

Whether a person can be penalised for no fault of his merely by
resorting to equity clause in favour of the respondent-State particularly when
such person is found to have not been benefitted or the State deprived of
the benefits on account of the stay order issued by the Court? is the question
B of law_ -to be decided in this appeal. Another related question requiring
determination-is as to whether on account of the pendency of the writ petition
filed by another party without impleading the affected person as a party in
which the stay order granted by the Court, such person can be directed to
forfeit a part of the security amount deposited by him particularly when the
c court itself found that even the equities were equally balan1:;ed between the
State and such person.

The facts of the case giving rise to the determination of the questions
of law formulated hereinabove are that a tender notice inviting tenders for
disposal of Tendu leaves for 1995 session was issued by the respondent-State
D
on 20th November, 1995. Respondent No.4 offered his tender in respect of
different lots including Lot No.597 and was declared the highest bidder for
the said lot on 20th December, 1995. On account of some complaints made
by other bidders and on account of alleged manipulations on the part of the
official-respondents the highest bid of the respondent No.4 was not accepted
E and his tender cancelled by order dated 27th January, 1996. Fresh notice for
tenders for the aforesaid lot were issued on 20th May, 1996 in which the
appellant herein was declared the highest bidder. In the meantime, the
respondent No.4 filed writ petition No.2147/96 in the High Court challenging
the order of cancellation of tender dated 27th January, 1996 and re-tender
notice dated 23rd May, 1996. He also prayed for interim relief to the extent
F
that pursuant to the fresh tender notice dated 20th May, 1996 the official-
respondents be restrained from executing any fresh agreement. The High
Court vide order dated 18.6.1996 issued an interim direction restraining the
official-respondents from taking any step pursuant to the fresh tender notice.
It is pe1tinent to note that the appellant herein was not impleaded as a party-
G respondent in the aforesaid writ petition. He received a letter from official-
respondents 1 to 3 calling upon him to execute purchase agreement as per
Clause 7(2) of the tender notice with the Conservative of Forests after
depositing the balance security as shown in the letter dated l.9.1996. Conse-
quently, the appellant deposited a sum of Rs.2,68,217 .72 as security amount.
H The appellant also filed an application for intervention in the writ petition
MOHAMMED GAZI v. STATE [SETHI, J.] 875

- filed by respondent No.4 which was rejected on 1.4.1997. The writ petition
filt!d by the respondent No.4 was disposed of by a learned Single Judge of the
High Court by quashing order dated 27.1.1996 to the extent by which the
A

earnest money deposited by respondent No.4 had been directed to be forfeited
and a direction was issued to refund the earnest money to respondent No.4.
After disposal of the aforesaid writ petition the appellant requested the
B
respondents 2 and 3 to refund his security amount of Rs.2,68,217 .72 vide his
letter dated 24.4.1997. He pleaded that since Tendu leaves, which was a
perishable item, had already perished and rotten with the result that its value
had become useless by lapse of time. He also prayed for 18% interest on the
security amount which w~ alleged to have illegally been detained by official-
respondents for no fault of the appellant. It is contended by the appellant that c
after his letter dated 24.4.1997 the respondent No.2 sent an ante letter dated
10.4.1997 directing the appellant to execute the agreement by 10.5.1997 and
deposit the remaining tender price in four instalments as detailed therein.
Apprehending that the authorities might proceed to forfeit his earnest money
and blacklist him, the appellant was constrained to file writ petition No.1934/
D
97 in the High Court praying for quashing of order dated 1.4.1997 and refWld
of earnest money along with an amount of Rs. IO lakhs claimed as damages.
He further prayed that he should not be compelled to enter into an agreement
in pursuance to letter dated 19.6.1996. The writ petition was allowed by a
learned Single Judge of the High Court on 10.12.1997 with a direction to the
respondents 1 to 3 to refund the security amount to the appellant forthwith. E
Not satisfied with the order of the learned Single Judge, the respondents 1 to
3 filed a Letters Patent Appeal before the Division Bench of the High Court
which was partly allowed vide the order impugned in this appeal.

It is not disputed that on accoWlt of litigation initiated by respondent
F

- No.4 without irnpleading the appellants as party in his litigation, he was
prevented from taking the benefit of the acceptance of his tender notice by
the official-respondents. It also cannot be denied that Tendu leaves are a
perishable item. For no fault of his the appellant was prevented from
collecting the Tendu leaves for which he had deposited his security amoWlt.
It is worth noticing that when the writ petition filed by respondent No.4 was G
partly allowed by a learned Single Judge of the High Court, the official-
respondents had not filed a Letters Patent Appeal.

In the writ petition No.1934/97 filed by tlle appellant, the learned
Single Judge of the High Court held on facts: H
876 SUPREME COURT REPORTS [2000) 2 S.C.R.
A "In view of these circumstances, this Court has no hesitation in
holding that the contract between the parties has frustrated. The
respondents are not entitled to_ compel the petitioner to purchase or
-
lift the Tendu leaves at the price quoted by him.. The respondents are
duty bound to return the money received from the petitioner at the
time of submission of the tender. If the respondents suffer any losses
B
because of the acts of the respondent No.4 they are free to take proper
legal proceedings before the competent court of law for recovery of
damages if the laws permit them. The petition is allowed. No costs."

The Division Bench, while disposing of the LPA, also found that the
c appellant could not be held responsible for not lifting the Tendu leaves and
thereby had not committed breach of any condition of the tender. Finding that
the State was also not responsible for any breach, the Division Bench decided
to pass the order impugne~ on the basis of equities. The arguments advanced
on behalf of the appellant before the Division Bench that there was no fault
on his part because he had offered bid and was prepared to accept the Tendu
D leaves which he could not lift on account of stay order were found by the
Division Bench to be not erroneous. The Division Bench held that "the
silbmisson of the learned counsel does not appear to be erroneous. As the
State also could not be held responsible for the fault, the Division Bench
directed that a sum of Rs.30,000/- be deducted from the earnest money of the
E appellant. Such a direction of the High Court cannot be sustained in view of
the findings on fact returned in favour of the appellant.

In the facts and circumstances of the case, the maxim of equity, namely,
actus curiae neminem gravabit - an act of the Court shall prejudice no man,
shall be applicable. 111is maxim is founded upon justice and good sense which
F serves a safe and certain guide for the administration of law. The other maxim
-...
is, lex non cogit ad impossibilia - the law does not compel a man to do which
he cannot possibly perform. The law itself and its administration is under-
stood to disclaim as it does in its general aphorisms, all intention of
compelling impossibilities, and the administration of law must adopt that
-
G general exception in the consideration of particular cases. The applicability of
the aforesaid maxims has been approved by this Court in Raj Kumar Dey &
Ors. v. Tarapada Dey & Ors., [1987] (4) SCC 398 and Gursharan Singh &
Ors. v. NDMC & Ors., [1996] 2 SCC 459.

Keeping in view the facts and circumstances of the case we are of the
H opinion that the Division Bench of the High Court wits not justified in
MOHAMMED GAZI v. STATE [SETIIl, J.] 877
directing the deduction of the sum of Rs.30,000/- from the security amount A
deposited by the appellant We find that the learned Single Judge had assigned
cogent reasons for return of the earnest money to the appellant and those
findings could not be disturbed by the Division Bench allegedly on the
ground of equities. The appeal is allowed by setting aside the impugned order
dated 1.12.1998 passed by the Division Bencb of the High Court of M.P. in
B
LPA No.270/98. The order of the learned Single Judge is restored and the
appellant held entitled to refund of the whole amount of the earnest money
deposited by him. No costs.

M.P. Appeal allowed.

·-