Haryana Financial Corporation & Anr. Vs. Rajesh Gupta
EmailSale of units which defaulted in loan payment – As per Clause 5 of the advertisement issued, earnest money to be forfieted on failure to comply with the conditions of sale – Respondent’s offer accepted – Earnest money deposited – Respondent complained about non-existence of independent passage to the unit several times – Branch Manager, appellant-corporation also informed the head office – Head Office, in turn informed that as per the documents submitted by the defaulting unit at the time of availing loan, passage was available – Respondent refused to deposit balance amount of 25 per cent of the bid amount – Thereafter fresh tenders invited and earnest money forfeited – Writ filed, allowed and forfieted amount directed to be refunded with interest – Justification. Held appellants-Corporation merely relied upon the documents submitted by the defaulting unit without making independent inquiries to verify their authenticity. Further land purchased by defaulting unit to provide a passage which was not even mortgaged, was not fit for vehicular movement, thus making it difficult to use the unit for manufacture. Appellant, being a Statutory Corporation was expected to act fairly. Having acted in such unfair manner it could not take advantage of its own wrong and claim benefit under clause 5.
Transfer of Property Act, 1882
Section 55(1)a & b – Failure to disclose material facts – Advertisement for sale of various units defaulting in loan payment – – Respondent’s offer accepted – Earnest money deposited – Respondent complained about non-existence of independent passage to the unit, several times – No heed paid – Instead respondent asked to deposit balance amount of 25 per cent of the bid amount – On his refusal to pay, fresh tenders invited and earnest money forfeited – Such forfeiture set aside in writ. Held appellants-Corporation cannot be permitted to rely upon Section 55 as it failed to disclose a material defect about the non-existence of independent passage to the unit. It was also its duty to inform that the passage mentioned in the revenue record was not fit for movement of vehicles and it even failed to make available to the buyer the entire documentation.
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 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. (Para 19)
State Financial Corporations Act, 1951
Section 29 – Sale of units defaulting in loan payment – Advertisement issued in exercise of power under Section 29 to sell mortgaed property – Respondent’s offer accepted – Earnest money deposited – Respondent complained about non-existence of independent passage to the unit, several times – No heed paid – On respondent’s refusal to pay balance, fresh tenders invited and earnest money forfeited – In writ, forfieted amount directed to be refunded with interest – Reliance placed upon United Bank of India v. Official Liquidator and Ors. [JT 1993 (6) SC 116] to contend that official liquidator cannot and does not hold any guarantee or warranty in respect of the property sold as it proceeds on the basis of company’s records and thus purchaser should satisfy himself in all respects as to the title and encumbrances, held was misconceived. The Corporation was exercising the rights of an owner in selling the property and not of an official liquidator. Even otherwise respondent made all necessary inquiries. It was the appellants-Corporation that failed to give proper description of the property.
A perusal of the 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. 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. 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. (Para 16)
Division Bench was justified in 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. Without any independent passage the plot of land would be not more than an agricultural plot, not suitable for development as a manufacturing unit. (Para 17)
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. 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. (Para 18)
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(1) (b) of the aforesaid Section. (Para 20)
Reliance on Section 29 of the State Financial Corporations Act, 1951 is wholly misplaced. The 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. Reliance placed on the judgment of this Court by the counsel for the appellants in the case of Union Bank of India v. 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 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. 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.’ (Para 21)
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. (Para 22)
In any event, the facts of this case would clearly indicate that the respondent had made all necessary inquiries. It was the appellants/Corporation that failed to perform its obligations in giving a fair description of the property offered for sale. (Para 23)
2. United Bank of India v. Official Liquidator and Ors. [JT 1993 (6) SC 116] (Para 21)
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 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
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’
4.1. 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:
‘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’
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 30.4.1998, 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.’
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 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.
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, 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.
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 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. HFCBOJD987 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.
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 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 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 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 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 55(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 United Bank of India v. Official Liquidator and Ors. [JT 1993 (6) SC 116 : 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 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 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. v. Amarjeet Singh and Ors. [JT 2009 (4) SC 135 : 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 certified copy of this order. We also direct that in the event the aforesaid amount is 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/-.
*************
