REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 829 OF 2003

HARYANA FINANCIAL CORPORATION & ANR.      ....APPELLANT(S)

VERSUS

RAJESH GUPTA          …RESPONDENT(S)

J U D G M E N T

SURINDER SINGH NIJJAR, J.

1. This appeal is directed against the Judgment and Order  

dated 26.11.2001 in C.W.P.5725/2001 of the High Court of  

Punjab and Haryana at Chandigarh.

2. The respondent had approached the High Court with a  

prayer that the order dated September 30, 1998 by which the  

Haryana Financial Corporation (hereinafter referred to as the  

appellants/Corporation),  had  forfeited,  amount  of  Rs.2.5  

lakhs, deposited by the respondent by way of earnest money,  

be  quashed.   The  respondent  had  also  prayed  that  the

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appellants  /Corporation  be  directed  to  refund  the  amount  

illegally forfeited along with interest.   

3. Shorn of unnecessary details,  we may notice here only  

the relevant facts.   

4. On  8.1.1998,  the  appellants/Corporation  issued  an  

advertisement  for  sale  of  various  units,  including  the  

land of M/s. Unique Oxygen Private Limited(hereinafter  

referred to as the defaulting unit), Old Hansi Road, Jind.  

On  28.1.1998  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.  On 29.1.1998 the respondent  

wrote  a  letter  to  the  Managing  Director  of  the  

appellants/Corporation as follows:

“RAJESH GUPTA                       578, AUTO MOBILE                                                   MARKET HISAR

                                                       Phone: 28221 – 3 Lines   Fax No.01662 – 31084

January 29, 1998

The Managing Director Haryana Financial Corporation 17, 18, 19 Sector 17-A Chandigarh 160017

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Kind Attention: Sh.Raj Kumar Ji, M.D.

Sub: Offer to purchase assets of Unique Oxygen Private  Limited Jind.

        Dear Sir,

With  reference  to  your  advertisement  in  ‘ECONOMIC  TIMES’  dated  08.01.98,  we  are  inclined to submit our bid for purchase of assets  of  the  above  mentioned  company.   With  this  purpose  we  visited  the  factory  premises  on  21.01.1998.  On our visit, it was noticed that the  premises do not have an independent appropriate  passage from the road.  On further inquiry from  the  concerned  Branch  office,  the  copy  of  site  plan/ building plans were not  available  and we  were  told  that  the  same  are  available  at  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                      Sd/-

                          Rajesh Gupta”

No response was given by the appellants/Corporation to the  

respondent.  However  by  letter  dated  19.2.1998  the  

appellants/Corporation called the respondent for negotiations.  

These negotiations resulted in enhancement of the bid from  

Rs.25  lakhs  to  Rs.50  lakhs.   Again  in  the  letter  dated  

7.3.1998, the respondent stated as follows:

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 “FAX NO.1072-70266                578, AUTO MOBILE                                                   MARKET HISAR

                                                       Phone: 28221 (3 Lines)   

Fax No.01662 – 31084

07-03-1998

The Managing Director Haryana Financial Corporation Chandigarh.  

Sub: Offer to purchase unit of Unique Oxygen Private  Limited Jind

Dear Sir,

With reference to the negotiation held on 6.3.98  at  your  Head  Office  for  the  sale  of  assets  of  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 exist, at the  factory.   

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 unauthorized.   

In the light of 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  H.F.C.  so  that  we  may  not  face  any  problem in future in running the unit.   

Kindly treat it as most urgent.   

Thanking you,

Yours faithfully                                  Sd/- Rajesh Gupta”

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5. It would appear that by letter dated 3.4.1998, the Branch  

manager brought the objection of the respondent to the notice  

of the head office of the appellants/Corporation.  In response  

to this communication the Branch Manager was informed by  

the head office of the appellants/Corporation, by letter dated  

7.4.1998 that 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.  On 13.4.1998, the  

Branch Manager addressed a letter to the head office of the  

appellants/Corporation clearly informing as follows:

“However, the actual Rasta which is  of 3 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.”

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6. In fact the letter further pointed out as follows:

“It  is  further  stated  that  the  area  mentioned  in  the  map approved  by  the  M.C.  is  1130  sq.  yd.  whereas  the  total  area in the sale deed and 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 appellants/  

Corporation  issued  the  letter  dated  18.5.1998  to  the  

respondent  advising him to deposit balance amount of 25 per  

cent 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 appellants/Corporation  

at  Hissar  on  12.6.1998.   According  to  the  appellants/  

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

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satisfied,  the  respondent  did  not  pay  the  balance  amount.  

Therefore the appellants/Corporation invited fresh tenders for  

sale  of  land.  On  30.9.1998  the  appellants/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 appellants/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  

appellants/Corporation  to  refund  the  amount  along  with  

interest at the rate of 12 per cent per annum w.e.f. 1.2.1998 to  

the date of payment.  The High Court also imposed costs on  

the appellants/Corporation assessed as Rs.5,000/-.  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.

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

length.

11.   Mr.  Amit  Dayal,  learned  counsel  for  the  appellants  

/Corporation submits that the respondent accepted the plots  

on  “as  is  where  is  basis”.   Therefore,  the  appellants/  

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.   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.  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,

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1882.  Learned counsel further submitted that the appellants  

/Corporation are 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.  Learned  

counsel  also  sought  to  justify  the  action  of  the  

appellants/Corporation by placing reliance on Section 29 of  

The State Financial Corporation Act, 1951.  

12. 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  appellants  

/Corporation  ignored  all  the  objections  raised  by  the  

respondent  with  regard  to  the  non-existence  of  the  

independent approach road.

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13. We  have  considered  the  submissions  made  by  the  

learned counsel.  We have also perused the judgment of the  

Division Bench of the High Court.   

14. Factually the appellants have accepted that on 28.1.1998  

the  respondent  had  in  no  uncertain  terms  informed  the  

appellants/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 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 copy 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 appellants/Corporation with regard to the aforesaid  

grievance made by the respondent.   Again, on 7.3.1998 the  

respondent informed the appellants/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

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gate/passage  presently  being  used  is  unauthorized.   

In  the  light  of  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 H.F.C. so that we  may  not  face  any  problem in  future  in  running the unit.”

15. It appears that the aforesaid request of the respondent  

was  also  never  specifically  answered  by  the  appellants/  

Corporation.   In view of the protests of the respondent,  the  

issue  was  raised  by  the  Branch  Manager  of  the  appellants  

/Corporation through letter dated 3.4.1998 addressed to the  

Head Office. The Branch Manager was informed by the Head  

Office,  through  letter  dated  7.4.1998  that  as  per  the  

documents  submitted  by  the  defaulting  unit  at  the  time  of  

availing loan, clear cut passage/rasta has been provided to the  

concerned Unit. The letter dated 7.4.1998 reads as follows:  

“Please  refer  to  your  letter  No.  HFC\BO\JD\98\7  dated  3.4.98  on  the  subject cited above.

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

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Enclosed  herewith  please  find  photocopy  of  the  Sale  Deed  No.1494  dated  8.9.94  and  photocopy  of  the  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  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 as and where basis.”

16.   A perusal of the aforesaid letter makes it apparent that  

the  appellants/Corporation  were  merely  relying  on  the  

documents submitted by M/s. Unique Oxygen Private Limited,  

Old  Hansi  Road,  Jind  i.e.,  the  defaulting  unit.   The  

appellants/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  appellants/  

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.   The  entire

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issue  seems  to  be  concluded  against  the  appellants/  

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 has 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  vehicle  is  not  

possible at all.  This land was not even mortgaged with the  

appellants/Corporation. The letter also clearly states that by  

exclusion of the aforesaid land the size of the plot would be  

reduced from 1210 sq. yards to 1130 sq. yards.  That would  

mean that the main gate of the factory would be out side the  

land offered for sale. 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

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position  having  been  admitted  in  the  letter  dated  April  30,  1998,  a  copy  of  which is at Annexure P6, 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.”

17. We see no reason to take any different view.  We are also  

of the opinion that the Division Bench was justified in further  

concluding  that  in  law  the  appellants/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 state.  

He was entitled to legitimately proceed on the assumption that  

the appellants, 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 considered opinion that  

the respondent had deposited the sum of Rs.2.5 lakhs on the  

clear  understanding  that  there  would  be  an  independent

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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 don’t find any substance in  

the  submission  made  by  the  learned  counsel  for  the  

appellants/Corporation.   

18.     In  our  opinion,  the  appellants  cannot  be  given  the  

benefit  of  Clause  5  of  the  advertisement.   The  appellants  

/Corporation cannot be permitted to take advantage of their  

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 appellants/Corporation  

which has acted unfairly, and is trying to take advantage of its  

own wrong.   

19. In view of the aforesaid, we are of the considered opinion  

that the appellants/Corporation cannot be permitted to rely  

upon Section 55 of The Transfer of Property Act, 1882.  The  

appellants/Corporation failed to disclose to the respondent the

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material  defect  about  the  non-existence  of  the  independent  

3 ‘Karam’ passage to the property.  Therefore, the appellants/  

Corporation clearly acted in breach of Section 55 (1) (a) and (b)  

of The Transfer of Property Act, 1882.  The aforesaid Section  

provides as under:   

(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;  

20. A mere perusal of the aforesaid provision will show that it  

was incumbent upon the appellants/Corporation to disclose to  

the  respondent  about  the  non-existence  of  the  independent  

passage  to  the  Unit.   It  was  also  the  duty  of  the  

appellants/Corporation  to  inform  the  respondent  that  the  

passage  mentioned  in  the  revenue  record  was  not  fit  for  

movement of vehicles.  The appellant also failed to produce to  

the buyer the entire documentation as required by Section 51

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(1) (b) of the aforesaid Section.  We are therefore satisfied that  

the  appellants/Corporation  cannot  seek  to  rely  on  the  

aforesaid provision of The Transfer of Property Act, 1882.  

21. 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. Respondent herein is an auction purchaser  

and therefore cannot be confused with the defaulting unit.  We  

are also of the considered opinion that the reliance placed on  

the judgment of this Court by the counsel for the appellants in  

the case of  Union Bank of India vs.  Official Liquidator and  

Ors. (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

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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.  The judgment clearly goes on to  

further hold as follows:

“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.”  

22. The aforesaid observation would be clearly applicable to  

the Corporation as it is exercising the rights of an owner in  

selling the property.  The appellants/Corporation is not selling  

the property as an official liquidator.  

23.   In any event,  the facts of  this  case as narrated above  

would  clearly  indicate  that  the  respondent  had  made  all

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necessary inquiries.   It  was the appellants/Corporation that  

failed to perform its obligations in giving a fair description of  

the property offered for sale.  Learned counsel had also relied  

on  another  judgment  in  the  case  of  U.T.  Chandigarh  

Administration  and  Anr.  vs.   Amarjeet  Singh  and  Ors.   

(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  application  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.

24. 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 per cent 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 certificate copy of this  

order.  We also direct that in the event the aforesaid amount is

20

not paid within the stipulated period the respondent shall be  

entitled to interest at the rate of 18 per cent per annum till  

payment.  We also direct the respondent shall be entitled to  

costs which are assessed as Rs.50,000/-.  

  ..……….……………………….J      (J.M. PANCHAL)

      ..……………………………… …J

  (SURINDER SINGH NIJJAR)

NEW DELHI DECEMBER 15,  2009