Holding

Forfeiture of earnest money is not justified where the auction sale has not been finally sanctioned, as a concluded contract does not exist under the Indian Contract Act, 1872.

Summary

The Supreme Court examined the auction of residential properties of the late Harshad Mehta, where Yogesh Mehta was the highest bidder. The Special Court provisionally accepted his bid but, pending a Supreme Court stay, the sale was not finalized. The Special Court later ordered forfeiture of Mehta's earnest money for failing to deposit the balance within 60 days, despite the sale not being sanctioned. The Court held that forfeiture is only permissible after a concluded contract, which did not exist because the sale required final sanction that was stayed. Consequently, the forfeiture order was set aside and the matter remitted to the Special Court for fresh consideration. The appeal was allowed.

Issues considered

Whether the earnest money deposited by the highest bidder can be forfeited when the auction sale has not been finally sanctioned.
Whether a contract is deemed concluded for the purpose of forfeiture under the Indian Contract Act, 1872 in the context of a provisional acceptance subject to a court order.
Whether the terms and conditions of the auction, including the clause that time is of the essence, apply when the sale is stayed by a higher court.

Legislation cited

Indian Contract Acts. 55

Subjects

auctionforfeitureearnest moneycontractSpecial CourtSecurities Actstay ordersale confirmationIndian Contract Act

Judgment

'

A YOGESH MEHTA
v.
CUSTODIAN APPOINTED UNDER THE SPECIAL COURT & ORS.

JANUARY 4, 2007

B [S.B. SINHA AND MARKANDEY KA TJU, JJ.]

Auction-Auction sale-By special Court-Challenged-This court
permitted receiving of bid but stayed acceptance thereof-Provisional
acceptance of highest bid by Special court-Sale not confirmed-Thereafter
order by Special Court of forfeiture of the earnest money on the ground
c that auction purchaser failed to deposit the balance amount within the
period stipulated under terms and conditions of auction-On appeal, held:
Order of forfeiture not justified-Forfeiture is permissible only when
concluded contract has come into being and not prior thereto-In the
present case contract cannot be said to be concluded as the sale was not
D sanctioned in view of the stay order of this Court-Contract Act, 1872.

In the proceedings under Special Court (Trial of Offences Relating
to Transactions in Securities) Act, 1992, properties of commercial and
residential nature was put on auction. The validity of the auction sales were
questioned. This Court allowed the auction sale in respect of commercial
E properties. This Court directed receiving of the two bids in respect of
residential properties but acceptance thereof was stayed. Thereafter special
Court provisionally accepted the bids. The same was not finalized. Thereafter
when the matter came to Special Court, it held that as the auction
purchaser had not deposited the balance amount within the period stipulated
under terms and conditions of the auction, the earnest money deposited by
F the bidder was to be forfeited.

In appeal to this Court against the order of Special Court, appellants

-
(1) highest bidder of the residential property and (2) tenants of a residential
building under auction, questioned the propriety of forfeiture of earnest
G money.

Allowing the Appeal and remitting the matter to Special Court, the
Court,

HELD: 1. Forfeiture of the earnest money, in the facts and
H circumstances of the case, could not have been directed. While directing
62
YOGESH MEHTA v. CUSTODIAN APPOINTED UNDER THE SPECIAL COURT 63

,,, forfeiture of the 'earnest money' the provisions of the Contract Act, 1872 A
are to be kept in mind. Forfeiture is permissible only when a concluded
contract has come into being and not prior thereto. [Paras 31 and 33)
[79-C,E-F)

Chairman of the Bankura Municipality, Bankura v. Lalji Raja and
Sons (1953) SC 248 at 250; Mau/a Bux v. Union of India, [1969] 2 SCC B
554; Saurabh Prakash v. DLF Universal Ltd., 2006 (12) SCALE 531,
referred to.
,
2. The acceptance of the bid herein was subject to order of this Court
which by reason of the order of the Special Court or otherwise did not
result in a concluded contract. The deposit was to be made within sixty days
c
from the date of grant of sanction which would mean final acceptance of the
bid, which was to depend upon the ultimate order which was to be passed
by this Court. [Para 28) [78-H, 79-A]

3. When a sale would be held to be completed would, thus, depend upon D
the fact of each case. Indisputably, it will primarily depend upon the terms and
conditions of the contract. But herein there was another supervening
circumstance i.e. the interim orders passed by this Court. Having regard to
the interim orders passed by this Court, the Judge, Special Court could not
confirm the sale. It is true that the Judge, Special Court, in its order dated
E
22.01.2004 directed the highest bidder to comply with the conditions, but
what escaped the notice of the Judge was that sanction could not have been
granted on a provisional basis. If there could be only one order of sanction, the
same would mean the final one and not the provisional one. That is how the
parties including the Custodian understood the same. [Para 23)
[76-F-H, 77-A] F

4. As per the terms and conditions of sale, the auction was to be held
at two stages : (i) submission of the bid; and (ii) grant of sanction to the
sale by the Special Court. When the bid was accepted, it was for the Special
Court to confirm the sale. It was only when the sale is confirmed, which
was to be done by way of grant of sanction thereto, the purchaser was to
G
pay the balance of the purchase price. Only on payment of such purchase
price, the auction purchaser would have been entitled to take delivery of
"' possession. [Paras 15, 16 & 18) [74-B-EJ

5. It may be true that whereas in a case where the sanctioning H
64 SUPREME COURT REPORTS [2007] 1 S.C.R.

A authority is the court itself and confirmation of sale would not be subject
to approval from some other authority; acceptance of the sale itself would
amount to sanction thereof. But situation became completely different in
view of the orders passed by this Court. [Para 19) [74-F-G]

Bishan Paul v. Mothu Ram, AIR (1965) SC 1994; State of Uttar
B Pradesh v. Kishori Lal Minocha, [1980) 3 SCC 8 and Union of India and
Ors. v. Messrs. Bhim Sen Walaiti Ram, [1969) 3 SCC 146, referred to.

6. The question whether time was the essence of contract, is required '
to be considered having regard to the fact situation obtaining in each
C case. If the deposit was to be made from the date of final sanction of
the offer, question of applicability of the said proposition of law could not
arise. [Para 34) [79-G]

State of Maharashtra and Ors. v. A.P. Paper Mills Ltd., [2006) 4 SCC
209, distinguished.
D
Mcdermott International Inc. v. Burn Standard Co. Ltd. and Ors.
(2006) 6 SCAI:.E 220, referred to.
t
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4512 of2006. ,I
E From the Final Judgment and Orders dated 22.6.2006 and 31. 7.2006 of
the Special Court (Trial of Offences Relating to Transactions in Securities)
at Bombay in I.A. No. 131/2006 in Misc. Petition No. 4/2001.

Indu Malhotra, Gopal and Vikas Mehta for the Appellant.

F Arvind Kumar Nigam, Kamini Jaiswal, Shomila Bakshi, Sunita Dwivedi
and Arvind Kumar Tewari for the Respondents.

The Judgment of the Court was delivered by

S.B. SINHA, J : Introduction :
G
1. Application of terms and conditions of sale of properties in terms
of the provisions of the Special Court (Trial of Offences Relating to f·
Transactions in Securities) Act, 1992 (for short, 'the Act') is in question in
these appeals which arise out of the judgments and orders dated 22.06.2006,
H 31.07.2006 and 23 .06.2006 passed by the Special Court (Trial of Offences
}·

YOGESH MEHTA 1·. CUSTODIAN APPOINTED UNDER Tiffi SPECIAL COURT [SINHA, J.] 65

Relating to Transactions in Securities) at Bombay in Intervention Application A
No.131 of2006 filed in Misc. Petition No. 4 of2001, Report No. 12 of2006
in Misc. Application No. 131 of 2006; and Misc. Petition No. 41 of 1999
respectively.

2. Before adverting to the questions as also the fact involved in each
of these matters, we may at the outset notice that one Harshad Mehta was B
a person notified under the Act. The private respondents herein being his
relatives were also notified (hereinafter referred to as 'the notified parties').
Apart from late Harshad S. Mehta, the Custodian had notified 29 entities in
terms of Section 3 of the said Act, inter alia, comprising three of his
younger brothers, his wife, wives of two of his younger brothers. c
3. In the proceedings initiated before the Special Court various
ap Jlications were filed. Properties belonging to the said late Harshad S.
M !hta or other notified entities were put on auction. The auctioned properties
cc mprised of commercial as also the residential ones. The residential
pr )perties, inter alia, were situate at Madhuli.
D

Order of this Court :

4. Notified parties questioned the validity and/or legality of the said
auction sales. They ultimately came to this Court. Whereas auction sales E
in respect of the commercial properties were allowed to be completed by
orders passed by this Court from time to time, the auction sale in respect
of the residential properties was the subject-matter of the judgment of this
Court in Ashwin S. Mehta and Another v. Custodian and Others, [(2006) 2
sec 385] wherein, inter alia, it was directed : F
"(viii) The learned Judge, Special Court shall allow the parties
to make brief oral submissions which pointed reference to their
written submissions. Such hearing in the peculiar facts and
circumstances of this case should continue from day to day.
G
(ix) The learned Judge, Special Court while hearing the matter
in terms of this order shall also consider as to whether the auction
sale should be confirmed or not. It will also be open to the learned
Judge, Special Court to pass an interim order or orders, as it may
think fit and proper, in the event any occasion arises therefor.
H
·~
(i6 SUPREME COURT REPORTS [2007] l S.C.R.

A (x) We would, however, request the learned Special Judge,
Special Court to complete the hearings of the matter, keeping in " ,.__
view of the fact that auction sale in respect of the residential
premises is being considered, as expeditiously as possible and not
later than twelve weeks from the date of the receipt of the copy of
this order. Saye and except for sufficient or cogent reasons, the
B learned Judge shall not grant any adjournment to either of the
parties.

(xi) The learned Judge, Special Court shall take up the matter .,
relating to confirmation of the auction sale in respect of the
c commercial properties immediately and pass an appropriate order
thereupon within four weeks from the date of receipt of copy of this
order. If in the meanwhile, the orders of assessment are passed by
the Income Tax Authorities, the Custodian shall be at liberty to
bring the same to the notice of the learned Special Court which
shall also be taken into consideration by the learned Judge, Special
D Court."

Order of the Special Court :
~

5. Pursuant to or in furtherance of the said directions, the question as
to whether the auction sale should be confirmed or not came up for
E consideration before the learned Judge, Special Court. By reason of the
impugned order dated 22.06.2006 passed in Intervention Application No. 131
of 2006 in Misc. Petition No. 4 of 2001, it was held that the as the auction
purchaser had not deposited the balance amount within the period stipulated
under the terms and conditions of the auction, the earnest money deposited
F by the bidder was to be forfeited. By reason of the impugned order dated
23.06.2006 passed in Misc. Petition No. 41 of 1999, with the consent of the
Custodian and the notified parties, a fresh. auction sale was directed to be
held.

Terms and Conditions of Sales :
G
6. In the aforementioned backdrop of events, we may notice the
relevant terms and conditions of sale :

"3. The offers should be submitted in a sealed envelope
superscribed with the words "Bid for sale in respect of
H
j
YOGESH MEIITA 1·. CUSTODIAN APPOINTED UNDER THE SPECIAL COURT [SINHA, J.] 67

Residential Flats/Office Premises (mention the name of the A
property)". There shall be only one consolidated bid in
respect of each of the following properties a) Maduli; b)
Khar; c) Guru Krupa. In respect of other properties, single bid
for a particular flat I property or combined bid for more than
one flat I property is permitted; however, in such cases, the
earnest money for consolidated bid would be 2% of the bid B
amount otherwise, the earnest money to be deposited for each
property shall be as mentioned against respective property in
the schedule. Separate tender form and Agreement will have
to be submitted for each bid property.

4. The offers should reach at the office of the Custodian at I 0th
c
floor, Nariman Bhawan, 227 Vinay K. Shah Marg, Nariman
Po;nt, Mumbai-400 021 by 2.00 p.m. on the dates specified for
each property described in the schedule written hereunder
along with Demand Draft I Banker's cheque I Pay Order of a
Public Sector Bank in favour of the Custodian, the Special D
Court payable at Mumbai towards earnest money for
participating in the said auction for purchase of Residential
Flats I Office Premises as indicated in the schedule written
hereunder. This amount of earnest money will not carry any
interest whatsoever. E
7. If any dispute arises as to the last or highest bidding, the said
property shall be again put up for sale at the last undisputed
bidding and be resold at the discretion of the Custodian
subject to the confirmation by the Special Court.
F
8. The sale is subject to sanction of the Hon'ble Special Court
at Mumbai in the above case. The Court reserves the right
to accept or reject any or all offers without assigning any
reasons. The Court shall not be responsible in any way for
not accepting any or all the offers received by the Custodian.
G
9. Within 60 days from the Hon'ble Special Court granting
sanction to the sale, the Purchaser shall pay the balance of
the purchase price and he/she will have to take possession/
delivery of the said property from the Custodian at his/her
own costs and risks. H
68 SUPREME COURT REPORTS [2007] l S.C.R.

A 12. ff the purchaser does not pay the balance amount of the
purchase price in the manner and within the time provided
herein or the time specified by the Custodian or in any other
respect fails to perform these conditions or any of these, the
Custodian shall be at liberty to forfeit initial deposit made as
per para 4 above and shall then proceed to resell the said
B property by public auction at such time subject to such
conditions and in such manner as the Custodian shall deem
fit and proper without previously giving any notice to the
purchaser and the deficiency in price if any, occasioned by
such resale together with all costs charges and expenses
c pertaining to the resale shall be made good by the defaulting
purchaser and be recovered by the Custodian with interest on
the amount of deficiency at the rate of 18% per annum from
the expiration of the date of the aforesaid sanction of sale till
payment and in the event of non payment of the whole or any
D part or any part thereof such sum, the same shall be recoverable
by the Custodian from the defaulting Purchaser as aad by
way of liquidated damages while any excess on such resale
shall not be available to such defaulting Purchaser as and by
way of liquidated damages while any excess on such resale
shall not be available to such defaulting purchaser. This
E condition shall be without prejudice to Custodian's right and
remedies, which the Custodian shall otherwise have in law
and/or under these conditions.

13. The Purchaser shall not be liable to pay outgoings if any, in
F respect of the said property for the period prior to the date
of confirmation of sale and all such outgoings shall be paid
by the Custodian till such confirmation.

16. Upon payment of the purchase price in full and all costs,
charges and expenses mentioned above, Custodian's
G authorized representative shall sign such papers and
documents as may be necessary for transfer of the said
property in the name of the Purchaser. Such documents of
transfer shall be prepared and executed by and at the cost,
charges and expenses of the Purchaser.
H
YOGESH MEHTA'" CUSTODIAN APPOINTED UNDER THE SPECIAL COURT [SINHA, J.] (f)

20. In case of sale of the said property is not sanctioned by the A
Special Court in favour of the highest bidder or is set aside,
the initial deposit made in terms of para 4 above shall be
refunded to such bidder without interest, other costs, charges
and expenses expended by him/her for the property. Except
as herein above provided, the said initial deposit made in B
terms of para 4 above shall in no event be refunded.

25. The time hereunder fixed for the observance and performance
by the Purchaser of any of the obligations to be observed and
performed by him/her under these conditions is and shall be
deemed to be of the essence of the contract and any C
forbearance by the Custodian of strict observance and
p.:rformance on the part of the Purchaser thereof shall not be
construed as a waiver or relinquishment on the part of the
Custodian who shall have the right at his option thereof to
exercise his right and remedies as are available to him under D
these conditions and under law or in equity as arising from
non-observance and non-performance thereof including the
right to forfeit."

FACT:
E
Re Civil Appeal No. 4512 of 2006

7. The bids were invited on 19.11 :2004. The last date for receipt of the
bids was 06.01.2004. Appeals were filed by the notified parties against the
order dated 17.10.2003 whereby and whereunder the Custodian was directed F
to take all steps to sell the properties mentioned therein, which is the
subject-matter of the present appeals. This Court directed that the bids may
be received; but the same may not be opened till 05.01.2004. On 05.01.2004,
the bids were directed to be opened, but the results were to be placed before
this Court. Pursuant thereto, the bids were opened and the appellant was G
found to be the highest bidder in respect of Flat Nos. 6 lA and 6 lB,
Gulmohar, S.V. Road, Khar, Mumbai. The valuation of the flat had been fixed
at Rs. 60,00,000 (Rupees sixty lakhs), but his bid was of Rs.85,00,000
(Rupees eighty five lakhs). By an order dated 22. 01.2004, the learned Judge,
Special Court while accepting the bid, inter alia, directed :
H
70 SUPREME COURT REPORTS [2007) I S.C.R.

A " .... Accordingly, the bid submitted by Mr. Madhu Suri and Shiv
Kumar Suri of Rs. 16,00,000 (Rupees sixteen lakhs) is provisionally
accepted, subject to final order to be passed by the Hon'ble
Supreme Court. The highest bidder whose bid has been accepted
shall comply with the terms and conditions on which the bid is
submitted. The Highest bidder shall be at liberty to appear before
B the Hon'ble Supreme Court on the appointed date.

The initial deposit made by all the unsuccessful bidders shall
be refunded to the bidders."

c [Emphasis supplied)

8. This Court thereafter by an order dated 30.01.2004 directed :

"The learned counsel for the Custodian brings on record the
result of the bids and the order of the Special Court dated 17.12.2003
D and 20.1.2004. The learned counsel for the Appellants proposes to
offer his comments on the bids and the two orders of the Special
Court. Let it be done within two weeks.

The process offmalizing the bids according to law may be proceeded
ahead by the Special Court. However, the finalization shall be
E
subject to the result of these appeals."

9. It is, however, stated that the learned Judge, Special Court did not
take any further step to finalize the bids pursuant thereto or in furtherance
thereof. As indicated hereinbefore, there being no serious dispute in regard
F to auction sale of the commercial properties, this Court by an order dated
05.05.2004 directed that the interim order dated 31.01.2004 would not apply
to the sale of commercial properties. Pursuant to the directions and/or
observations made by the learned Judge, Special Court, an application was
filed for impleadment by the appellant. An application was also filed for
deposit of the amount in an interest bearing account ofa Nationalized Bank.
G The said applications were allowed. The appeals were finally disposed of
in the manner, as indicated hereinbefore, by an order dated 03.01.2006.
According to the appellant, although he had filed an application for
intervention and addressed _sever!il letters to the Custodian, as to when
payments in terms of the auction sales were required to be made, it did not
H receive any response thereto.
YOGESH MEHTA'" CUSTODIAN APPOINTED UNDER THE SPECIAL COURT [SINHA, J.J 71

IO. By reason of the impugned judgment the learned Judge, Special A
Court, however, directed the Custodian to consider as to whether the
earnest money deposited by the appellant was to be forfeited, stating :

",. ... But in my opinion, this basic premise itself does not exist. The
right in relation to residential properties of the Harshad Mehta
group would have been created in favour of the Applicant, had the B
applicant complied with the Order passed by this Court accepting
his bid. Essential condition of that Order was that the Applicant
complies with all the terms and conditions of the bid. One of the
most essential condition of the bid was that within 60 days of the
acceptance of the bid, he deposits the balance amount of c
consideration. Failure of the Applicant to deposit the balance
amount of consideration resulted in rejection of his bid and therefore,
the Applicant lost all his rights in relation to the property which
could have been created in his favour by the Order passed by this
Court, The submission of the learned Counsel appearing for the
D
Applicant that because the Supreme Court had prevented the
custodian from handing over of possession, the Applicant was not
obliged to deposit the balance amount of consideration, in my
opinion, has no substance. For getting possession, the Applicant
will have to create an entitlement in him to get possession. For
creating that entitlement, he has to deposit full amount of E
consideration. The learned Counsel for the Applicant then submitted
that the Supreme Court has observed that the question of
confirmation of the bid should be considered by the Court after
deciding the main application. In my opinion, that question will
arise only in relation to those bidders who have complied with the F
Order accepting their bids and not in case like the Applicant, who
has lost the rights that may have been created in his favour
because of his default in complying with the terms of the bid. The
Applicant, therefore, has no right in relation to the property which
is the subject matter of the main application filed by the custodian.
Therefore, the Applicant has no right to intervene. As I find that G
the Applicant was liable to deposit the balance amount of
consideration as per the terms of the bid, the custodian is directed
to consider whether the amount of earnest money deposited by the
Applicant is to be forfeited or not and submit a report to the Court
seeking appropriate orders. Application disposed of." H
12 SUPREME COURT REPORTS [2007] 1 S.C.R.

A 11. Pursuant to the said order, the Custodian submitted its report on
21. 07 .2006, recommending forfeiture of earnest money deposited by the
appellant, whereupon the learned Judge, Special Court by reason of the
impugned order dated 31.07 .2006 directed :

"3. Both submissions made on behalf of the bidder Y ogesh
B Mehta have no substance. So far as bidders in relation to
commercial properties are concerned, though they did not
deposit the amount immediately because there was stay order
from the Supreme Court operating, they deposited the amount
immediately after the Supreme Court vacated the stay on sale
c of commercial properties. Therefore, it was open to the bidder
Mr. Yogesh Mehta to deposit the amount at least immediately
after the Supreme Court decided the appeals by its judgment
dated 03.01.2006. That there was a stay of all sale of the
residential properties of Harshad ·Mehta, does not appear to
D be correct, because the Supreme Court in clear term has said
in its judgment dated 03.01.2006 that the Supreme Court is
concerned with those appeals only which relate to sale of
eight residential flats in a building known as Madhuli. The
flat in relation to which the said Y ogesh Mehta had submitted
the bid admittedly is not in the building called Madhuli.
E
4. In these circumstances, therefore, in my opinion, the earnest
money deposited by the bidder has to be forfeited. In this
view of the matter, the report is disposed of with a direction
to the Custodian to forfeit the earnest money deposited by
F Mr. Yogesh Mehta Report disposed of.

The Custodian is, directed to issue a fresh advertisement for
sale of the properties in accordance withlaw."

Re Civil Appeal No. 4513 of 2006 :
G
Appellants herein are tenants of various flats in the building known as
'Gurukrupa'. They were also put on public auction. The said properties also
stood attached in terms of Section 3(3) of the Act. In response to the bids
invited for sale of the said flats, an offer was made by the appellants. By
H an order dated 28.01.2004, the learned Judge, Special Court considered it
YOGESH MEHTA,.. CUSTODIAN APPOINTED UNDER THE SPECIAL COURT [SINHA, J.] 73

appropriate to tentatively accept the highest bid, subject to the final order A
passed by this Court, stating :

" ..... Therefore, both the bidders increased their bids. The highest
bid is of Rs.170,00,000 (Rupees One crore seventy lakhs) from the
occupants of the building. The learned counsel for occupants is
present and she states that occupants are not in a position to B
increase the bid. The other bidder namely West Cost Exim Pvt. Ltd.
is absent.

I have perused the valuation report dated 24.1.2004. As
per the valuation report, value of the property is about c
Rs. 1,60,00,000. Considering that the bid offered by the highest
bidder is above the valuation given in the valuation report, as also
considering that the bidders are the occupants of that building
itself, in my opinion, it would be appropriate to accept the highest
bid. The highest bid of the occupants as per the report is therefore
tentatively accepted D

Learned Counsel for the highest bidder states that the bid was
given on behalf of the occupants, and therefore, Conveyance
should be executed in favour of the Nominees nominated by the
joint occupants/highest bidders. The custodian is accordingly so E
directed.

In the Order dated 5.1.2004 passed in Civil Application No. D.
No. 255575/03, D. No. 25620/03, D. No. 25644/03 andD. No. 25815/
03, the Supreme Court has directed this Court to open the bid and
place the result thereof before the Hon'ble Supreme Court. F
Therefore, the highest bid given by the highest bidder is tentatively
accepted subject to final order to be passed by the Hon'ble
Supreme Court in the above said proceedings."

[Emphasis supplied]
G
13. Appellants herein in that case also filed applications for intervention
before the Court.

14. The impugned order was passed ex parte. Appellants were not
given any notice. The fact that the building had already been put on sale H
74 SUPREME COURTREPORTS [2007] I S.C.R.

A by way of auction and the bids had tentatively been accepted by the learned
Judge, Special Court by an order dated 28.01.2004 was not brought to its
notice.

Question :

B 15. The short question which, therefore, arises for consideration is as
to what would be the interpretation of the said terms and conditions of sale.

Findings :

C 16. The auction was to be held at two stages : (i) submission of the
bid; and (ii) grant of sanction to the sale by the Special Court.

I 7. The word 'sanction' has been used in clause 9 as also in clause
20.

D 18. Evidently, the terms and conditions set out hereinbefore did not
contemplate a situation of this nature. When the bid was accepted, it was
for the Special Court to confirm the sale. It was only when the sale is
confirmed, which was to be done by way of grant of sanction thereto, the
purchaser was to pay the balance of the purchase price. Only on payment
E of such purchase price, the auction purchaser would have been entitled to
take delivery of possession.

19. Whether confirmation of sale and sanction of auction connote two
different things was not in issue. Partfos also construed the terms of the
F auction in the same manner. As noticed hereinbefore, acceptance of auction
by the Special Court was a provisional one. It was subject to the order of
this Court. It may be true that whereas in a case where the sanctioning
authority is the court itself and confirmation of sale would not be subject
to approval from some other authority; acceptance of the sale itself would
amount to sanction thereof. But situation became completely different in
G view of the orders passed by this Court. We would deal with the matter a
little later, but we may at this juncture notice some decisions operating in
the field at this juncture.

20. In Bishan Paul v. Mothu Ram, AIR (1965) SC 1994, this Court laid
H down the law in the following terms :
)- '

YOGESH MEHTA r. CUSTODIAN APPOINTED UNDER THE SPECIAL COURT [SINHA, J.] 75

"8. The rules which we have earlier reproduced show that the A
auction is held on a date fixed and is subject to a reserve price
which is confidential. The officer conducting the sale declares at
the fall of hammer who is the highest bidder. The highest bid is
subject to the approval of the Settlement Commissioner or an
officer appointed by him. A period of seven days must elapse
before the bid is approved and there is also a limitation of seven B
days from the acceptance of the bid for making an application to
set aside the sale. If the bid is approved and if no application
meanwhile for setting aside the sale is made, the highest bidder is
recognised as the auction purchaser and he is required to produce
a treasury challan in respect of the balance of the purchase money c
within a period of fifteen days (which period may be extended
without limit of time) before the Settlement Commissioner or the
officer appointed by him. When the full purchase price is paid a
certificate issues in Form No. XXII and is sent to the Sub-Registrar
for registration. If the balance of the price is not paid, the amount
D
of advance in deposit is forfeited and the auction purchaser has no
claim to the property.

9. The passing of title thus presupposes the payment of price
in full and the question is at what stage this takes place. Obviously,
there are several distinct stages in the sale of property. These are: E
(a) the fall of the hammer and the declaration of the highest bid;
(b) the approval of the highest bid by the Settlement Commissioner
or officer appointed by him; (c) payment of the full price after
approval of the highest bid; (d) grant of certificate; and (e)
registration of the certificate."
F
21. Yet again in State of Uttar Pradesh v. Kishori Lal Minocha, [1980]
3 SCC 8, this Court held :

"The question that remains to be answered is, even if there
was no statutory provisions, whether there was a concluded G
contract between the appellant and the respondent under which the
respondent was liable to pay 20, l 00 which represents the difference
between the highest bid at the first sale and the price fetched at
-r the resale. The sale proclamation containing the conditions of sale
has not been produced. Assuming that the different clauses of
H
76 SUPREME COURT REPORTS [2007] l S.C.R

A Rule 357 barring the last part of the fifth clause embody the
conditions of sale, it is clear from the second clause that in the
absence of the final sanction of the Excise Commissioner, the bid
cannot be said to have been finally accepted. It is not claimed by
the appellant that the bid offered by the respondent was sanctioned
by the Excise Commissioner. There was thus no concluded contract
B between the parties to make the respondent liable for the alleged
loss .... "

22. Mr. Arvind Kumar Nigam, the learned counsel appearing on behalf "'·
of th~ notified parties has, however, placed strong reliance upon a decision
C of this Court in Union ofIndia and Others v. Messrs. Bhim Sen Walaiti Ram,
[1969] 3 sec 146 wherein a distinction had been made between a situation
where auction sale is conducted by an officer lower than the authority
competent to approve the same and the acceptance of a bid by the officer.
presiding at the auction and holding that in the event the transaction is
complete, failure on the part of the auction purchaser to deposit the
D prescribed amount, the Collector would be entitled to resell the licence,
stating :

" ...... It is not disputed that the Chief Commissioner has disapproved
the bid offered by the respondent. If the Chief commissioner had
E granted sanction under Clause 33 of Ex. D-23 the auction sale in
favour of the respondent would have been a completed transaction
and he would have been liable for any shortfall on the re-sale. As
the essential pre-requisites of a completed sale are missing in this
case there is no liability imposed on the respondent for payment
of the deficiency in the price."
F
23. When a sale would be held to be completed would, thus, depend
upon the fact of each case. Indisputably, it will primarily depend upon the
terms and conditions of the contract. But herein there was another
supervening circumstance i.e. the interim orders passed by this Court. The
G core question in this case would, thus, be whether having regard to the
interim orders passed by this Court, the learned Judge, Special Court could
confirm the sale. The answer thereto must be rendered in the negative. It
is true that the learned Judge, Special Court, in its order dated 22.01.2004
directed the highest bidder to comply with the conditions, but what escaped
the notice of the learned Judge was that sanction could not have been
H
YOGESH MEIITA 1•. CUSTODIAN APPOINTED UNDER THE SPECIAL COURT [SINHA, J.] Tl

granted on a provisional basis. If there could be only one order of sanction, A
the same would mean the final one and not the provisional one. That is how
the parties including the Custodian understood the same. It his report the
Custodian stated :

"The Supreme Court has further directed at page 50 that "the
learned Special Court shall proceed to pass appropriate orders as
B
regard confirmation of the auction sales in respect of commercial
properties". The Custodian states that commercial properties are
reflected at Serial Nos. I to 13 of Exhibit 'A'. In respect of these
properties, where sale had been sanctioned by this Hon'ble Court
subject to the orders of the Hon'ble Supreme Court, full payments c
have been received and possession of the properties has also been
handed over to the purchasers.

The Custodian therefore prays that this Hon'ble Court may be
pleased to confirm the sale of commercial properties as listed at SI.
Nos. 1 to 13 in the table annexed hereto as Exhibit 'A'. D

The Custodian also states that this Hon'ble Court had also
confirmed sale of the properties at Serial Nos. 14 to 17 which were
not described as commercial properties, subject to orders of the
Hon'ble Supreme Court. However, in these cases only earnest E
money was received from the successful purchasers and possession
could not be handed over in view of orders of the Hon'ble Supreme
Court. No bids were, however, received in respect of properties at
Serial Nos. 18 to 25 (various flats at Madhuli), Separate proceedings
in respect of properties at S. No. 26 are being adopted."
F
24. Before us a chart has been submitted, from a perusal whereof it
appears that even the purchasers of commercial properties made final
payments within the period 14.07.2004 and 05.01.2005. No payment, therefore,
(
was said to have been made within a period of sixty days from the date of
auction i.e. 05.04.2005. G

25. If there had been a stay in regard to acceptance of the bid, it c0uld
not have been sanctioned. It could be sanctioned subject to the final order
of this Court. Moreover, when this Court issued direction in regard to
confirmation of sale, the matter ought to have been considered afresh.
H
78 SUPREME COURT REPORTS (2007] I S.C.R.

A 26. In the peculiar facts and circumstances of this case, it is difficult
to accept the submission of the learned counsel for the respondents that the
bid was accepted finally, but only possession was to be taken by the
purchasers at their ovm risk.

27. Strong reliance has been placed by Mr. Nigam upon a decision of
B this Court in State of Maharashtra and Others v. A.P. Paper Mills Ltd.,
(2006] 4 SCC 209, wherein this Court in a case where the bidder had
withdrawn its offer before the expiry of the period itself during which the
bid was to remain operative, held :

c " ...... Stand of the learned Counsel for the respondent that another
request was made after the expiry of the 45 days period does not
change the situation. Clause 5(v) clearly spells that once a tender
is tendered the offer shall be considered valid for a period of 45
days from the date of tender sale in case of tenders which are under
consideration. If this clause is read with Clause 5(iv) the position
D
is clear that once a tender is tendered no changes can be made and
no tender can be withdrawn. We are not concerned with a case of
consequences after acceptance of the tender by the successful
bidder. In such a situation Joss sustained in the re-sale and the
amount realized Jess, shall be recovered from the bidder while
E adjusting the amount paid by him towards earnest money deposit.
In this case the acceptance of the tender was after the validity of
the period. Therefore, this is not a case which could authorize the
Government to recover the loss from the respondent. But it is a
case of withdrawal of tender and the effect of it is to be considered.
F Since the tender is valid for a period of 45 days and withdrawal is
before expiry of the period the earnest money is to be forfeited. The
stand of the respondent that because of delay in declaration of the
final sale results there was no bar on withdrawal of the tender is
clearly untenable. Once the tender is withdrawn the result is that
the tenderer who withdraws the tender cannot take the stand that
G since the final sale result has not been declared there is no bar on
the withdrawal."

28. The said decision cannot be said to have any application whatsoever
to the fact of the present case. The acceptance of the bid herein was subject
H to order 0f this Court which, in our opinion, thus, by reason of the·order
}-
YOGESH MEHTA 1·. CUSTODIAN APPOINTED UNDER TI-IE SPECIAL COURT [SINHA, J.] 79

of the Special Court or otherwise did not result in a concluded contract. The A
deposit was to be made within sixty days from the date of grant of sanction
which would mean final acceptance of the bid, which was to depend upon
the ultimate order which was to be passed by this Court.

29. We, therefore, are of the opinion that the impugned order cannot
be sustained. B
30. In Misc. Petition No. 41 of 1999, evidently a consent order had been
passed behind the back of the appellants. The said order, therefore, cannot
also be sustained.

31. There is another aspect of the matter which also cannot be lost
c
sight of. Forfeiture of the earnest money, in our opinion, in the
aforementioned situation, could not have been directed.

32. In Chairman of the Bankura Municipality, Bankura v. Lalji Raja
& Sons, [1953] SC 248 at 250, this Court noticed the definition of the word D
'forfeiture' in the following terms :

"The word 'forfeiture' is defined in Murray's Oxford Dictionary The
fact of losing or becoming liable to deprivation of goods in
consequence of a crime, offence, or breach of engagement" .. "the
penalty of the transgression" or a "punishment for an offence". E
33. While directing forfeiture of the 'earnest money' the provisions of
the Indian Contract Act, 1872 are to be kept in mind. Forfeiture is
permissible only when a concluded contract has come into being and not
prior thereto. [See Mau/a Bux v. Union ofIndia, AIR (1970) SC 1955: [1969]
F
2 SCC 554 & Saurabh Prakash v. DLF Universal Ltd, [2006] 12 SCALE 531].

34. The learned counsel appearing for the Custodian submitted that the
time was of the essence of contract. It may or may not be so. This question
is required to be considered having regard to the fact situation obtaining in
each case. If the deposit was to be made from the date of final sanction G
of the offer, question of applicability of the said proposition of law could
not arise.

35. We may, however, notice that in Mcdermott International Inc. v.
Burn Standard Co. Ltd & Ors., [2006] 6 SCALE 220, this Court observed
H
80 SUPREME COURT REPORTS (2007] 1 S.C.R.

A that in a case of this nature, time was not of the essence and, therefore,
Section 55 of the Contract Act was not attracted, noticing :

"This Court in Hind Construction v. State of Maharashtra,
[ 1979] 2 sec 70 stated:

B "7. The question whether or not time was of the essence of the
contract would essentially be a question of the intention of the
parties to be gathered from the terms of the contract. [See Halsbury's
Laws of England, 4th ed., Vol.4, para 1179]."

c "8. Even where the parties have expressly proided that time is of
the essence of the contract such a stipulation will have to be read
along with other provisions of the contract and such other
provisions may, on construction of the contract, exclude the
inference that the completion of the work by a particular date was
intended to be fundamental. [See Lamprell v. Billericay Union,
D (1949) 3 Exch 283, 308; Webb v. Hughes, [1870] LR 10 Eq 281;
Charles Rickards Ltd. v. Oppenheim, [1950] I KB 616].""

Conclusion :

36. For the reasons aforementioned, the impugned judgments cannot
E
be sustained. They are set aside accordingly and the matter is remitted to
the learned Judge, Special Court for consideration of the matter afresh in the
light of the observations made hereinbefore. The appeals are allowed. We
may, however, hasten to add that it will be open to the learned Judge,
Special Court, to pass an appropriate order in accordance with law. We
F must also observe that we have not gone into the question in regard to the
validity or otherwise of the auction sale. In the facts and circumstances of
the case, there shall be no order as to costs. ,_
K.K.T. Appeals allowed.