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PETITIONER: SYED ISRAR MASOOD, FOREST CONTRACTOR, RET GHAT, BHOPAL

       Vs.

RESPONDENT: STATE OF MADHYA PRADESH

DATE OF JUDGMENT01/10/1981

BENCH: ERADI, V. BALAKRISHNA (J) BENCH: ERADI, V. BALAKRISHNA (J) KOSHAL, A.D. MISRA, R.B. (J)

CITATION:  1981 AIR 2010            1982 SCR  (1) 894  1981 SCC  (4) 289        1981 SCALE  (3)1591

ACT:      Right to repudiate a contract and for refund of earnest money in  deposit  arise  when  variation  in  quantity  and quality is  found on  actual count between what was held out at the  auction as  being  available-Non-production  of  the verification of report is hit by the doctrine of ’suppressio veri’-Condition number 3 of the Sale Notice, Value of.

HEADNOTE:      Pursuant to  the notice  dated July 22, 1960, notifying that forest contracts will be settled by public auction, the appellant-plaintiff attended  the said auction on August 17, 1960 after  having deposited  the requisite earnest money of Rs. 1,000 and furnished the solvency certificate for the sum of Rs.  1.5 lakh. At the time of auction, the details of the forest produce available in each coupe was announced. In the said announcement  the total number of trees of each species available in  each  coupe  as  also  their  girth  etc  were furnished and the bids were invited on the basis of the said information given  to the intended bidders. The appellant as the highest bidder in respect of two coupes, namely, Searmau Coupe C/2  "A" and "B" with a bid of Rs 69,000 for these two coupes. Pursuant  thereto, the appellant deposited on August 22,1960,  Rs.   16,250  being   the  balance  of  the  first instalment of  Rs. 17,250,  after adjustment  of the earnest money in deposit. On executing the requisite security bonds, the appellant  was directed, on October 27, 1960, to proceed to the  site and  sign  the  "coupe  boundary  certificate", before the  Range officer  for getting possession of the two coupes.      When the appellant visited the two coupes and conducted a detailed inspection of the trees available for extraction, he found  that the coupes did not contain the forest produce as announced  at the  time of  the auction.  Inasmuch as the number of trees available for cutting in the two coupes were found to  be very  much short of the quantity and quality of the forest produce given out at the time of auction as being available in  the two  coupes, the appellant refused to sign the boundary certificate. The forest authorities, on January 19,1961 served  a  notice  calling  upon  the  appellant  to deposit the  second and  third instalments of the bid amount

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and threatening  that in  the event  of default,  the amount would be  recovered as arrears of land revenue. Subsequently a distraint  notice was also issues under section 146 of the Madhya Pradesh  Land Revenue Code by the Tehsildar. On April 17,1961, the forest authorities issued a notice calling upon the  appellant  to  show  cause  why  the  contract  be  not terminated and the two 895 coupes re-auctioned  at his  risk. Thereupon  the appellant, after serving  on the, respondent a due notice under section 80 Civil  Procedure Code,  filed a  suit tor recovery of the amount deposited  by way  of first  instalment plus  damages arising out  of the  breach of  contract. The appellant also prayed for  a permanent injunction restraining the State for taking coercive  step to  recover further  instalments.  The Trial Court decreed the suit as prayed for. In appeal by the respondent. State the High Court set aside the decree on the ground that  the appellant  did not prove that the number of trees which  were actually  available for  extraction in the two coupes,  according to  proper marking  was less than the number of  trees which was covered by the assurance given to the contractor at the time of the auction.      Allowing the  appeal by  certificate under  Article 133 (1) (a) of the Constitution, the Court, ^      HELD: 1.  While condition  number 3  in the Sale Notice (Ex. D/D)  will  operate  to  prevent  the  Contractor  from claiming  any   damages  or   compensation  from  the  State Government on the ground that the details of the quantity of the forest  produce were subsequently found to be incorrect, it will  not preclude  him from  repudiating the contract on its being  found that there was substantial variance between the  particulars  furnished  at  the  time  of  the  auction regarding the  quantity and  quality of  timber that will be available for  extraction in  the concerned  coupes and  the quantity etc.  Of tree growth actually found to be available on the site. [902 D-F]      2: 1.  It has  been clearly established by the evidence in this  case that  a very  substantial quantity  of  timber standing on the bank of Nalla had been marked for extraction and numbered and the auction sale had been held on the basis that the highest bidder would be entitled to fell and remove all those  trees. But by the time the coupes were allowed to be  inspected  by  the  auction  purchaser,  that  area  was declared to  be "reserved", with the result that there was a complete prohibition  against  the  felling  of  any  timber therefrom.  This   has  substantially   altered   the   very foundation of  the contract  and hence it was perfectly open to the  plaintiff to  repudiate the  contract  and  claim  a refund of  the amount  deposited by him as a part payment of the purchase price. [902 F-H]      2: 2.  The subject-matter  of the  auction sale was the totality of  the trees  which were marked for cutting in the two coupes.  Since a  substantial number of the marked trees was contained in the area which was subsequently declared as "reserved", it  is inevitable that there was a corresponding diminution  in  the  total  quantity  of  timber  which  was announced as  available for  cutting  at  the  time  of  the auction sale. [903 A-C]      2: 3.  The appellant has fully proved his claim for the refund of  the amount  paid by  him  by  way  of  the  first instalment of  the sale price by examining himself as P.W. 2 and also through P.Ws. 3 to 6, all of whom had inspected the coupes subsequent  to the  auction sale.  The oral testimony given by  them is  further corroborated  by  the  statements

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contained in  Ex. P-l,  P-3, P-5,  P-6 and  P-8. Further the sworn evidence  of respondent’s  own witnesses  (D.W. 2  and D.W. 3)  and the suppression of their two inspection reports from the court confirmed the right to repudiate the contract and ask for a refund. [899 H, 900 A-E] 896      2: 4.  That the  criticism made  by the High Court that the argument by the appellant-plaintiff was the result of an after-thought is  wholly unjustified  and erroneous is clear from a  mere reference  to  Ex.  P-1.  The  correct  factual position is  that the plaintiff had categorically complained to the  department that  a substantial  area containing  the forest produce.  which had  all been  originally marked  for sale, had  been subsequently "reserved" with the result that the quantity  of timber  available for extraction had become substantially reduced. [901D E, H, 902A]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2060 of 1970.      From the judgment and order dated the 26th August, 1969 of the  Madhya Pradesh High Court in First Appeal No. 100 of 1965      Harbans Singh for the Appellant.      Gopal Subramaniam, D.P. Mohanty and R.A. Shroff for the Respondent.      The Judgment of the Court was delivered by      BALARRISHNA  ERADI,   J.  This  appeal  by  certificate granted by  the High  Court of  Madhya Pradesh under Article 133 (1)  (a) arises out of a suit-Regular Civil Suit No. 7-A of 1963-on  the file of the First Additional District Judge, Bhopal instituted  by the appellant herein against the State of Madhya  Pradesh, for recovery of a sum of Rs. 29,500 from the defendant  by way  of refund  of the first instalment of the sale  price deposited  by the  plaintiff with the Forest Department of  the defendant-State pursuant to an auction of two forest  coupes held  on August  17, 1960,  together with damages alleged  to have  been sustained by the plaintiff on account of  alleged breach of contract by the defendant. The plaint contained  a further prayer that the defendant should be restrained  by a  permanent injunction  from  taking  any steps to  recover from  the plaintiff  the second  and third instalments of  the sale  price for which the two coupes had been knocked  down in favour of the plaintiff at the auction sale.      The trial  court held that the plaintiff is entitled to recover from  the defendant  Rs. 17, 500 by way of refund of the first  instalment of  the sale  price of the two coupes, but rejected  the plaintiff’s claim for recovery of damages. Accordingly, a  decree was  passed in the plaintiff’s favour for recovery  of Rs.  17,500 with  proportionate costs.  The plaintiff’s prayer  for the  relief of  permanent injunction was also granted by the trial court. 897      The State  (defendant) carried  the  matter  in  appeal before the High Court of Madhya Pradesh. The High Court took the view  that the plaintiff’s claim for refund of the first instalment of  the sale  price was unsustainable inasmuch as he had  not proved  that the  number  of  trees  which  were actually  available   for  extraction  in  the  two  coupes, according to  the proper  markings, was less than the number of trees  which was  covered by  the assurance  given to the contractor at the time of the auction. As regards the relief

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of permanent  injunction, the  High Court held that from the notice (Exh.  P-7) issued by the concerned Divisional Forest officer to the plaintiff on April 17, 1961, it was seen that the Government  had indicated to the plaintiff its intention to terminate  the contract  before the second instalment had become due  and hence  the only  right which  the Government thereafter  had  was  to  realise  from  the  plaintiff  the deficiency, if  any, occasioned  by  a  resale  of  the  two coupes.  In   this  view,  the  High  Court  held  that  the Government had  no  longer  the  right  to  claim  from  the plaintiff the  balance of the sale consideration represented by the  second and third instalments and that the decree for permanent injunction  granted by  the trial  court did  not, therefore,  call  for  any  interference.  Accordingly,  the appeal filed  by the  defendant was  allowed in  part by the High Court  and the  decree granted  to the plaintiff by the trial court for recovery of Rs. 17,500 was set aside. Hence, this appeal by the plaintiff.      The facts  of the case on which there is no dispute are as follows.  On July  22, 1960, the Forest Department of the State Government  of Madhya  Pradesh published  in the State Gazette a  notice notifying  for  general  information  that forest contracts  of East  Bhopal, Forest  Division will  be settled by  public auction  to be  held  by  the  Divisional Forest officer  at Sader  Manjil, Bhopal on August 17, 1960. The  plaintiff   attended  the  said  auction  after  having deposited the  requisite earnest  money. At  the time  o the auction, the respective Range officers announced the details of the  quantities of  the forest  produce available in each coupe. In  the said  announcement, the total number of trees of each  species available in each coupe as also their girth etc., were announced by the concerned Range officers and the bids were invited on the basis of the said information given out to  the intended  bidders. The plaintiff was the highest bidder in  respect of  two coupes, namely, Searmau Coupe C/2 "A" and "B". The plaintiff’s bid of Rs. 69,000 for those two coupes was  accepted by  the Auctioning officer and pursuant thereto, the  plaintiff deposited on August 22, 1960 Rs. 16, 250 being  the balance of the first instalment of Rs. 17,250 after adjustment of the 898 earnest money already deposited. The plaintiff also produced a solvency  certificate and  executed the requisite Security Bonds. On  October 27,  1960, the  plaintiff was informed by the concerned  Divisional Forest  officer that  the security bonds furnished  by the plaintiff were accepted and that the contract in  respect of the two coupes was sanctioned in his favour by  the Chief Conservative officer of Forests. By the said communication, the plaintiff was directed to proceed to the site  and sign  the ’coupe  boundary certificate’ before the Range officer for getting possession of the two coupes.      The plaintiff’s  case is that when, in pursuance of the aforesaid  intimation,   he  visited   the  two  coupes  and conducted a  detailed inspection  of the trees available for extraction, he  found that  the coupes  did Dot  contain the forest produce  as announced at time of auction, that a very large number  of big trees which had been marked for felling and given serial numbers did not bear hammer marks either at the breast height or at the bottom, with the result that the contractor was  debarred under  the rules from felling those trees, that  similarly a  large number  of trees  which were hammer marked  had not,  however, been  given serial numbers and that  a large number of trees situated along the bank of a Nala  in Coupe No. 2 "B" which had been marked for felling and had  been serially  numbered were  found  to  have  been

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subsequently "reserved"  with the  result  that  it  was  no longer open to the contractor to cut any of those trees. The plaintiff states  that the aforesaid vital discrepancies and irregularities were  pointed out by him to the Range officer and inasmuch as the number of trees available for cutting in the two  coupes was  found to  be very  much  short  of  the quantity and  quality of the-forest produce given out at the time of  auction as  being available  in the  two coupes, he refused  to   sign  the  boundary  certificate.  Thereafter, correspondence concerning  the  matter  passed  between  the plaintiff and  the  Department,  but  notwithstanding  joint inspections of  the site and deliberations the parties could not reach  any agreement.  The plaintiff took the stand that unless the Department was ready and (; willing to put him in possession of  the forest produce conforming to the quantity and quality  of timber announced at the time of the auction, he was entitled to repudiate the contract and claim a refund of the  amount remitted by him by way of first instalment of the sale price. The Forest Department issued a notice to the plaintiff on  April 17, 1961, calling upon him to show cause why the contract should not be terminated and the two coupes reauctioned at the 899 plaintiff’s risk. In the meantime, on January, 19, 1961, the plaintiff had  been served  with a  notice requiring  him to deposit the  second instalment of Rs. 17,250 and threatening that in the event of failure to comply with the said demand, the amount  will be  recovered as  arrears of  land revenue. Subsequently, the  Forest authorities of the State initiated action for  recovering from  the plaintiff  the sum  of  Rs. 34,500 purporting  to be the second and third instalments of the sale  price, and a notice of demand under Section 146 of the Madhya  Pradesh, Land  Revenue Code  was issued  to  the plaintiff by the Tehsildar, Bhopal. Thereupon, the plaintiff instituted  the   present  suit   praying  for   the  relief aforementioned, after  Serving on the defendant a due notice under Section 80, Code of Civil Procedure.      Admittedly, the  auction sale  was of  the right to cut the trees  which had  been marked and numbered in the entire area  covered   by  the  two  coupes  in  question.  Details regarding the  quantity and  quality of timber available for cutting in  the respective  coupes  were  announced  by  the concerned Range  officers at  the time of auction and it was on the  basis of  the said information that the participants in the  auction were invited to bid. The trial Court as well as the  High Court have concurrently found that an assurance had been  given by the Department at the time of the auction that the  two coupes  contained the  specified  quantity  of timber of different varieties and girth and that the details then given were as set out in the tabular statement appended to paragraph  3 of  the written  statement of the defendant. The plaintiff  (examined as  P.W. 2) and P.Ws. 3 to 6 all of whom had inspected the coupes subsequent to the auction sale have sworn that the quantity of the timber that was actually available for  cutting in  the two  coupes was  considerably less than the quantity announced at the time of the auction. The oral  testimony given  by them  is corroborated  by  the statements contained in Exhibits p 1, P-3, P-5, P-6 and P-8, which are  copies of the various representations made by the plaintiff to  the offices  of the Forest Department after he found out  on inspection  of the  coupes that there was vast divergence between  what was  announced at  the time  of the auction as  the quantity of the timber available for cutting from the  two coupes  in question  and the quantity that was actually found  to be  available. Even  though the then Sub-

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Divisional Forest  officer, who  was examined as D.W. 2, has stated in the evidence that after receipt of the plaintiff’s complaint, he  inspected the coupes and submitted a detailed inspection report  to the  Divisional  Forest  officer,  the defendant did  not produce  the said report in Court, it has also 900 come out in the evidence of D.W. 3, who was the Forest Guard in the  area concerned  at the  relevant time,  that he  had submitted to  the Range  officer a report containing details of the  timber available  for cutting in the two coupes. The aforementioned two  reports  would  have  been  of  valuable assistance in  determining the  extent of shortfall, if any, in the  quantity of timber actually available for cutting in the coupes  when compared  with the particulars given out at the auction.  The non-production  of the  two reports by the dependant, who  alone was  in possession  of the documentary evidence capable  of throwing light on the subject-matter of this crucial  issue, assumes  significance in  view  of  the admission made  by D.W.  3 that during his inspection of the coupes pursuant to the complaint received from the plaintiff he had  found that  there were  some trees  which  had  been numbered for  cutting but  had not  been hammer marked, that there were  some other  trees which  contained hammer  marks only at  one place  instead of  at the  base as  well as  at breast height,  as required  under the rules, and that there were still  some other trees which had been marked by hammer but had  not been assigned any number. The inspection report prepared by this witness which has been suppressed is a very material document  since the  witness has  sworn that he had actually counted  and noted  the precise  number of trees in respect of which such irregularities were found to have been committed. Another  important admission made by this witness is that  there was  some  truth  in  the  complaint  of  the plaintiff with respect to the ’reservation’ of the Nala.      The evidence  clearly shows  that  there  was  a  large number of  trees of different varieties situated on the bank of a  Nalla in  Coupe No.  2 "B"  and they  had been  hammer marked and serially numbered for cutting and removal. At the time of  the auction  sale, the Department had treated these trees as  being available  for extraction  by the contractor and it  was on that basis that the particulars regarding the total quantity  of timber  belonging  to  different  species available for  cutting in  the two  coupes were announced to the bidders.  However, subsequently, the area comprising the bank of  the said Nalla was declared as "reserved", with the result that  there was  a prohibition against cutting of the trees from  the said  ’reserved’ area.  The plaintiff in his evidence, as  P.W.2, has  stated that  there were  about 300 teak trees  in the  area forming  the bank  of the Nalla and that the  value of  those trees  would amount to between Rs. 10,000 and  Rs. 12,000.  Though three officers of the Forest Department were  examined on  the side of the defendant, the aforesaid testimony  given by  the plaintiff  has  not  been controverted by them, 901      Notwithstanding the  aforesaid facts brought out in the A  evidence,   the  High   Court  summarily   rejected   the plaintiff’s contention based on the factum of reservation of the trees  standing on  the bank  of  Nalla  by  stating  as follows:           "But  there   is  nothing   in   the   plaintiff’s      complaints to the Department at any stage alleging that      this reservation  had been  made after  the auction had      taken place.  The idea  appears to be an after-thought.

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    The mere  oral  statement  of  the  plaintiff  and  his      witnesses that  this marking  for reservation had taken      place after the auction, on the basis that they did not      see these  markings about reservation of the trees near      the Nalla  when they had gone to that forest on earlier      occasions, are  wholly  insufficient  to  come  to  the      conclusion that  the Nalla area had been reserved after      the auction.’’ The aforesaid  reasoning is based entirely on the assumption that in  one of  the complaints  preferred by  the plaintiff before the  Department officers, it had been alleged by him, that the  reservation of  the trees on the bank of Nalla had been  made  after  the  auction  had  taken  place.  A  mere reference to  Exh.  P-l  is  sufficient  to  show  that  the aforesaid assumption  made  by  the  High  Court  is  wholly erroneous. Exh.  P-l is  a copy  of the representation dated December  28,   1960  submitted  by  the  plaintiff  to  the Divisional Forest  officer (East),  Bhopal. In  paragraph  4 thereof, the plaintiff had stated as follows:           "That the  applicant inspected  the  coupe  in  or      about the first week of November 1960 to give the coupe      boundary certificate  as is  required under Clause 2 of      the draft  agreement deed.  During this  inspection the      applicant  was   surprised  to  know  that  there  were      numerous irregularities  committed in  the  marking  of      trees and  huge  area  containing  the  Forest  Produce      marked for  sale in  the said  coupe  was  subsequently      reserved."                                       (underlining supplied) Thus, the correct factual position is that the plaintiff had categorically  complained   to   the   Department   that   a substantial area  containing the  forest produce,  which had all been  originally marked  for sale, had been subsequently ’reserved’, with the result that the quan- 902 tity  of   timber  available   for  extraction   had  become substantially reduced,  The criticism made by the High Court that the  argument advanced  by the plaintiff was the result of an after-thought, was therefore not justified.      We may  at this  stage refer  to Condition No. 3 in the sale notice  (Exn. D/l)  on which strong reliance was placed on behalf of the respondent. That condition reads:           "The  details  of  quantities  of  forest  produce      announced at  the time  of auction  are correct  to the      best of  the knowledge of the Divisional Forest officer      but are  not guaranteed  to any  extent  The  intending      bidders are,  therefore, advised to inspect on the spot      the contract  area and  the produce  they intend to bid      for  with  a  view  to  satisfy  themselves  about  its      correctness. No  claim  shall  lie  against  the  State      Government for compensation or any other relief, if the      details of  the quantities are subsequently found to be      incorrect". In our  opinion, the  trial court was perfectly right in its view that,  while the said condition will operate to prevent the Contractor  from claiming  any damages  or  compensation from the  State Government on the ground that the details of the quantity  of the  forest produce were subsequently found to be  incorrect, it  will not preclude him from repudiating the contract  on its  being found that there was substantial variance between  the particulars  furnished at  the time of the auction  regarding the  quantity and  quality of  timber that will  be available  for  extraction  in  the  concerned coupes and  the quantity  etc. Of tree growth actually found to be available on the site. It has been clearly established

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by the  evidence  in  this  case  that  a  very  substantial quantity of  timber standing  on the  bank of Nalla had been marked for  extraction and numbered and the auction sale had been held  on the  basis that  the highest  bidder would  be entitled to fell and remove all those trees. But by the time the coupes  were allowed  to be  inspected by  the  auction- purchaser, that area was declared to be "reserved", with the result that  there was  a complete  prohibition against  the felling of  any timber  therefrom.  This  has  substantially altered the very foundation of the contract and hence it was perfectly open  to the  plaintiff to  repudiate the contract and claim  a refund of the amount deposited by him as a part payment of the purchase price. 903      We are  unable to  agree with the view expressed by the High A  Court that  "the plaintiff  cannot succeed unless he proved that,  even after excluding the trees standing on the reserved  area,   the  rest  of  the  forest  did  not  have sufficient number of trees which would satisfy the assurance given at the time of the auction". The subject matter of the auction sale was the totality of the trees which were marked for cutting in the two coupes. Since a substantial number of the marked  trees  was  contained  in  the  area  which  was subsequently declared  as "reserved",  it is inevitable that there was  a corresponding  diminution in the total quantity of timber  which was  announced as  available for cutting at the time of the auction sale.      We do  not, therefore,  find it  possible to agree with the reasons  stated by  the  High  Court  for  refusing  the plaintiff’s prayer  for refund  of the amount paid by him by way  of   the  first  instalment  of  the  sale  price.  The conclusion recorded  by the  trial court  on this  issue was perfectly correct  and  the  High  Court  was  in  error  in interfering with the said finding.      We notice,  however, that  a slight  mistake has  crept into the judgment and decree of the trial court, inasmuch as the amount  of the  first instalment refund has been wrongly mentioned therein as Rs. 17,500, whereas the amount actually paid by  the plaintiff  by way  of the  first instalment was only  Rs.   l7,250.  A   modification  to  this  extent  is, therefore, called  for in  the decree  passed by  the  trial court.      This appeal  is accordingly  allowed, the  judgment and decree passed  by the  High Court are set aside and those of the trial  court are  restored subject  to the  modification that the  amount  recoverable  by  the  plaintiff  from  the defendant shall  be only  Rs. 17,250  and not  Rs. 17,500 as stated in the trial court decree. In all other respects, the decree passed  by the  trial court  will remain in tact. The respondent (defendant)  will pay  the costs of the piaintiff in this Court as well as in the High Court. S.R.                                   Appeal allowed, 904