Dismissed

Director, Essen Finance and Investments Ltd. v. City Pulse Theaters Pvt. Ltd.

Gujarat HC24 Mar 2022OJA/3/2021

Case brief

AI extract

What is this about?

Appeal by Official Liquidator against order refunding EMD deposited by a single bidder. Court held e-auction never occurred, no offer or contract formed; EMD refund direction lawful as no forfeiture conditions were triggered.

What did the court decide?

Appeals dismissed; order for refund of EMD to respondent affirmed; Civil Applications connected dismissed. No order as to costs.

Director, Essen Finance and Investments Ltd. Vs City… — Property and Title | Gujarat HC (2022)

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C/OJA/3/2021 ORDER DATED: 24/03/2022

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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

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R/O.J.APPEAL NO. 3 of 2021

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In R/COMPANY APPLICATION NO. 18 of 2021

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With

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CIVIL APPLICATION (FOR STAY) NO. 1 of 2021 In R/O.J.APPEAL NO. 3 of 2021

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With

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COMPANY APPLICATION NO. 18 of 2021

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With

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CIVIL APPLICATION (FOR STAY) NO. 1 of 2021 In R/O.J.APPEAL NO. 4 of 2021

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COMPANY APPLICATION NO. 18 of 2021

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DIRECTOR, ESSEN FINANCE AND INVESTMENTS LTD. Versus

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CITY PULSE THEATERS PVT. LTD.

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============================================================== Appearance:

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Mr. S.N.SOPARKAR, SENIOR ADVOCATE WITH MR B S SOPARKAR(6851) for the Appellant(s) No. 1

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MR JEET J BHATT(6154) for the Opponent(s) No. 2

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MR. MITUL SHELAT, ADVOCATE WITH MS DISHA N NANAVATY(2957) for the Opponent(s) No. 1

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MR. PRATIK ACHARYA, OFFICIAL LIQUIDATOR for the Opponent(s) No. 2

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TIRTH NAYAK(8563) for the Opponent(s) No. 3

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==============================================================

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CORAM: HONOURABLE MR. JUSTICE R.M.CHHAYA

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and

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HONOURABLE MR. JUSTICE HEMANT M. PRACHCHHAK Date : 24/03/2022 ORAL ORDER

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(PER : HONOURABLE MR. JUSTICE R.M.CHHAYA)

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1.0. Both these appeals are directed against the order dated 14.10.2021 passed in Company Application No. 18 of 2021 in Company Petition No. 97 of 1995. The grounds and contentions raised in both the appeals are also similar and hence both the appeals were heard together and are disposed of by this common judgment and

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C/OJA/3/2021 ORDER DATED: 24/03/2022

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order.

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2.0. The following noteworthy facts emerge from the record of these appeals. The company name M/s Essen Computers Limited was ordered to be wound up vide order dated 7.4.1997 passed by this court in Company Petition No.97 of 1995. The matter pertains to the sale proceedings of assets of the company under liquidation situated at Block No.A/10, GIDC, Electronics Estate, Gandhinagar (hereinafter referred to as the “land in question”). The possession of the land in question was ultimately taken over by the Official Liquidator attached to this Court and has averred before us two attempts were made earlier for sale and disposal of the land in question but said attempts did not yield any result. The record indicates that the Official Liquidator filed the Report being OLR No.94 of 2020. The Company Court by an order dated 12.01.2021 was pleased to accept the prayers A & B of the said Report and passed the following order:

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The Official Liquidator has filed present report with following prayers:-

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a) This Hon’ble High Court may be pleased to approve the Upset Price and EMD Price for sale of the assets and properties of the Company in liquidation as stated in para-5 (Table-“A”) of this report or such other upset price, EMD, as may be considered appropriate by this Hon'ble Court.

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b) This Hon’ble High Court may be pleased to permit the Official Liquidator to issue advertisement in newspapers namely “Gujarat Samachar” Gujarati daily in all Gujarat Editions and “Times of India” in Ahmedabad Edition for inviting offers for sale of assets of the company in liquidation or in such other newspapers as may be considered appropriate by this Hon'ble Court and also

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C/OJA/3/2021 ORDER DATED: 24/03/2022

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permit the Official Liquidator to make the payment of advertising agency on receipt of the bill from the common pool fund of various company in liquidation as maintained by the Official Liquidator subject to adjustment against the sale consideration to be received in Company account.

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c) This Hon’ble High Court may be pleased to approve the sale schedule for the assets of the Company in liquidation as stated in para-5 of this report or such other schedule, as may be considered appropriate by this Hon'ble Court;

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d) *********

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1. Learned Advocate Jeet Bhatt for the O/L submitted that earlier advertisement was published in newspapers on 25-03-2019 for sale of Plot No. A/10, GIDC Electronics Estate, Gandhinagar keeping upset price of Rs. 11,00,00,000/- and Earnest Money Deposit (EMD) of Rs. 1,10,00,000/- in terms of order dated 26-022019 passed by this Court (Coram : Hon’ble Mr. Justice C. L. Soni) in Official Liquidator's Report No. 26 of 2019. As no tender was sold and no offer received the Official Liquidators Report No 88 of 2019 was preferred to place the said facts on record.

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The Official Liquidator thereafter carried out fresh valuation of the assets and properties of the Company in liquidation situated at A/10, GIDC Electronic Estate, Gandhinagar through Panel Valuer M/s. Multi Engineers. The valuer had submitted sealed cover valuation report. The Official Liquidator called for the assets sale committee meeting on 22- 07-2020 to take further course of action of sale of assets and properties situated at Plot No. A/10, GIDC Electronics Estate, Gandhinagar on the basis of the valuation report.

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The sealed cover valuation report submitted by M/s. Multi Engineer was placed before the sale committee and it was opened and it was observed that the land Area of Plot No. A/10 is 10,000 Square Meters (approximately) is classified as Lease Hold Land allotted by GIDC for 99 Years Lease. The value of assets and properties of unit of Company in liquidation is given by the Valuer which are below :

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Name Assets	of	Estimated Average Fair Market Value (In Rs.)	Realizable Value (In Rs.)	Distress Sale Value (In Rs.)
Land		9,67,06,556	8,22,00,57 2	6,76,94,589
Building		1,13,83,875	96,76,294	79,68,713

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C/OJA/3/2021 ORDER DATED: 24/03/2022

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Construction
Plant & Machineries and other movables	25,00,000	20,00,000	17,50,000
Total	11,05,90,43 1	9,38,76,86 6	7,74,13,302

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5). In the Sale Committee meeting the matter for fixing the upset price was discussed in detail and it was decided to by the members of sale committee that the Land may be put up for sale at Realizable value i.e. Rs. 8,22,00,572/and Building Structure and Plant & Machineries may be put up for sale on Distress value i.e. Rs. 79,68,713/- and Rs. 17,50,000/- respectively in One Lot (Composite Lot) i.e.: Lot No. I : Land & Civil Construction and Plant & Machineries and other movables (except records) as the Official Liquidator did not get any bidders when the upset price was fixed at market value on earlier occasions. It was also decided that the assets may be sold in One Lot.

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The assets sale committee unanimously decided that the Upset price may be fixed Rs. 9,20,00,000/- (Rs. 8,22,00,572 + Rs. 79,68,713 + Rs. 17,50,000 = Rs. 9,19,19,285) and Rs. 92,00,000/- Earnest Money Deposit (EMD) 10% of upset price may be kept (in round figure) for sale of the assets and properties of the Company in liquidation as is under :

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Sr .N o.	Description of the property	UP set Price (In Rs.)	Earnest Money Deposits (In Rs.
1	10,000 Square Meters (approximately) Leasehold Land alongwith Building Structure/ Civil Construction, Plant & Machineries and other movables (except	9,20,00,000	92,00,000

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C/OJA/3/2021 ORDER DATED: 24/03/2022

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Records) situated at Plot No. A/10, GIDC Electronics Estate, Sector25, Gandhinagar

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1. Learned Advocate Mr Monaal Davawala for Mr. B S Soparkar appeared for the respondent no. 1 and stated that he has no objection if the upset price and EMD is fixed as prayed in the OLR.

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1. Considering the aforesaid facts, Upset price of Rs.9,20,00,000/- as well as EMD of Rs. 92,00,000/- fixed by the Sale Committee is proper and appropriate the same is fixed accordingly.

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The Official Liquidator shall publish an advertisement for sale of the properties of the land (in liquidation) in “Gujarat Samachar” all editions in Gujarat in Gujarati Language and “Times of India” English daily in Ahmedabad edition.

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10)Schedule programme for sale of assets and properties of the Company (In Liquidation) shall be as under: -

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Date of Advertisement : 22/01/2021

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Date of issuance of Tender forms : 27/01/2021 Date of inspection of properties : 08/02/2021 (between 11:30 AM to 4:30 PM)

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Last date of receipt of Offer/ : 15/02/2021 Tender Forms E-Auction : 22/02/2021

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11)The prayers (a) and (b) made in Official Liquidator’s Report is accepted.

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12)The report is accordingly disposed off.”

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2.1 The record indicates that thereafter the Official Liquidator filed a note for speaking to minutes for correction, which came to be allowed by the learned Company Judge vide order dated 21.1.2021 and learned Company Judge passed the following order:

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“The Official Liquidator has filed Speaking to Minutes dated 18th January, 2021 to modify the order dated 12-01- 2021 passed in the matter.

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Heard, Mr. Jeet Bhatt, advocate in the matter.

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C/OJA/3/2021 ORDER DATED: 24/03/2022

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Accordingly, the Official Liquidator is directed to conduct eauction through M/s. RailTel Corporation of India Ltd. empaneled agency of Central Government through Ministry of Corporate Affairs and as per Terms & Conditions issued by the Ministry vide letter No. 51/15/2019 Insolvency dated 24- 11-2020.

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The date of e-auction shall be conducted on 26/02/2021 at 03:30 PM. The order dated 12-01-2021 passed in Official Liquidator's Report No. 94 of 2020 is modified accordingly.

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Rest of the order shall remain the same. The Speaking to Minutes is accordingly, allowed.”

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2.2. As the record unfolds, pursuant to the order dated 12.1.2021 r/w order dated 21.1.2021, the Official Liquidator published public advertisement in Times of India and Gujarat Samachar in different editions on 22.1.2021. The said advertisement indicates that same is for 10,000 sq mtrs approximately for leasehold land along with building structure/ Civil Construction, Plant & Machineries (except Records) situated at Plot No.A/10, GIDC, Electronics Estate, Gandhinagar. The said advertisement further provides that offers were invited for E-auction in respect of said property and that the offer should reach by February 15, 2021 by 4 pm. It was also provided that tender form and terms and conditions can be obtained from this office by depositing Rs.1000/in cash during the office hours from 27.1.2021 to 14.2.2021 upto 1 pm for “participation in E-auction” and the E-auction was fixed on 26.2.2021. The respondent herein vide communication dated 15.2.20221 deposited a sum of Rs.92,00,000/- as EMD informing the Official Liquidator that the respondent wishes to participate in E-auction dated 26.2.2021 at 3.30 pm. After depositing the EMD as aforesaid, the respondent approached the

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office of Official Liquidator vide communication dated 17.2.2021 informing the Official Liquidator that earlier some clarification was sought in regards to the land in question and sought clarity regarding the road for entering into land in question asking the Official Liquidator to provide layout plan and documented proof for the whole land connecting the passage / road as well. In the said communication the respondent also mentioned that the due relating to GIDC and Electricity are to be borne by the respondent and it was made clear that the respondent was not liable to pay any statutory or other dues. As the said letter was not replied to, again reminder was sent making reference to the earlier letters dated 11.2.2021 and 17.2.2021 by the respondent inquiring further as under:

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1.We understand that it we purchase above plot admeasuring 10000 sq mtrs in E-Auction from Official Liquidator, we will get possession of 10000 sq mtrs plot along with absolute ownership of approach road for entering to the plot and if yes then that will be mentioned in proposed sale deed without any additional payment or charges for approach road.

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2.We need some clarity that after sale deed where we are allow to construct commercial Building Consisting offices, Hotel, Restaurant, Theaters, Hospital, School, Colleges etc. on the subject Plot ?

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3.After sale deed can we convert lease hold into free hold land?

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4.How much FSI is permissible in the above mentioned plot ?”

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2.3. It is matter of record that these letters were not replied by the Official Liquidator. The respondent thereafter sent a communication dated 25.2.2021 informing the Official Liquidator that because of non availability of information

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relating to approach road and documented clarity regarding same, respondent will not be able to participate in the E-auction dated 26.2.2021 and requested for refund of EMD. A similar request was made vide communication dated 17.3.2021 by the respondent. The record indicates that the respondent was the only entity who showed willingness to participate in the E-auction to be held on 26.2.2021. As the record further unfolds the Official Liquidator Report No.54 of 2021 came to be filed by the Official Liquidator wherein following prayers be made:

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“a.This Hon’ble Court may be pleased to take on record aforesaid facts, as stated herein above:

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b.This Hon’ble Court may be pleased to considered the outcome of e-auction and pass appropriate order as may be deemed fit and proper under the circumstance s of the case and as per the Terms and Conditions of sale;

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c.This Hon’ble Court may be pleased to permit the Official Liquidator to pay advertisement bill of Rs.2,07,133/- to advertising agency M/s.Global Network Advertising froms the fund available in Company’s account;

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d.This Hon’ble Court may be pleased to direct successful bidder to pay cost of Rs.30,000/- to e- auction agency if sale is confirmed in their favour, otherwise Official Liquidator may direct to pay an amount of Rs.10000/- to e-auction agency if auction may fails and sale is not confirmed in favour of successful bidder;”

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2.4. In para 3 & 4 of the said OLR clearly mentioned the fact that respondent was the only party who has shown willingness to participate in the E-auction. At this juncture, it would be appropriate to note that said OLR was not on record and therefore, this Court called for the copies of the same from the Official Liquidator which

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C/OJA/3/2021 ORDER DATED: 24/03/2022

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were submitted and are taken on record. It appears from the record that said OLR is dated 18.2.2021. The Company Court vide order dated 26.2.2021 passed the following order:

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“By an order dated 12.1.2021, auction was scheduled to be held today i.e.on 26.2.2021 @ 4.00 pm. This OL Report has been filed bringing on record the fact that only one bidder namely; Citypulse Theater Pvt. Ltd has applied pursuant to the e-auction notice. The auction scheduled to be held today i.e. on 26.2.2021 @ 4 .00 pm is postponed to 26.2.201.

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Issue notice, returnable on 26.3,2021 on which date if the respondent –secured creditor has no objection then appropriate orders pursuant to e- auction notice can be taken.

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The Registry to communicate this order through email.”

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2.5. It appears that the Official Liquidator filed another report in the first week of October 2021 wherein following statements are made:

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“ 4. The Official Liquidator most respectfully submits that in response to the advertisement published in newspaper on 22.01.2021 Six (6) tenders sold and One (1) Bid /offer was received regarding Plot No.A/10, GIDC, Electronics Estate, Gandhinagar upto the closing date i.e.15.2.2021 from prospective buyer M/s. City Pulse Theater Pvt.Ltd. The said Bidder had registered their bid on website https://olucation.enivida.com of M/s. Raitel Corporation of Indian Ltd to participate in e-auction on 26.2.2021.

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That, the Official Liquidator further most respectfully submits that the Applicant M/s.City Pulse Theaters Pvt. Ltd vide letter dated 25.2.2021 informed the Official Liquidator that they are not interested to participate in e-auction on 26.2.2021 and requested to refund their EMD in their bank account.

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That, the Official Liquidator further most respectfully submits that this Hon’ble Court vide

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order dated 26.2.2021 postponed e-auction on 26.3.2021 which was scheduled on 26.2.2021 as only one bidder namely City Pulse Theaters Pvt Ltd had applied pursuant to the e-auction notice. Copy of the order dated 26.2.2021 is annexed herewith and marked as Annexure D.”

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The Official Liquidator in the aforesaid OLR prayed as under:

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In view of the aforesaid facts and circumstances the Official Liquidator most respectfully that since there is only single bidder who is not interested and since the E-auction has been postponed for the further decision of this Hon’ble Court, then if this Hon’ble Court holds the auction to have been failed then the Official Liquidator seeks orders and directions of this Hon’ble Court to permit the Official Liquidator to get re-valuation of assets and properties of the company through the Panel Valuer and further to fresh process of sale.”

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2.6. Thus, vide order dated 26.2.2021 learned Company Judge observed that no E-auction took place and the same stood postponed to 26.3.2021. As the amount of EMD was not refunded, the respondent filed Company Application No.18 of 2021 and inter alia prayed as under:

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“1. That this Hon’ble Court may be pleased to direct the Official Liquidator to refund to the applicant the EMD amount of Rs.92,00,000/- along with interest thereon from 25.2.2021til date of payment.

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That during the pendency of the present application, the Hon’ble Court be pleased to direct the Official Liquidator to deposit the amount paid by the Applicant in a No Lien Account.”

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The said application was heard along with OLR No.54 of 2021 and the learned Company Judge vide impugned order dated 14.10.2021 was pleased to direct the Official Liquidator to obtain a fresh valuation report within a

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period of three weeks from the date of order and convene a meeting of sale committee to fix the upset price on the basis of such valuation report from a registered valuer within a period of two weeks and thereafter file appropriate Official Liquidator Report for auction of the property in question. The learned Company Judge was pleased to observe that in view of the above directions and cancellation of E-auction scheduled on 26.2.2021 and postponment of same to 26.3.2021, the EMD deposited by the respondent was ordered to be refunded within a period of two weeks. Being aggrieved and dissatisfied with the same, both these appeals are filed against the order passed below Company Application No.18 of 2021 only.

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3.0. Heard Mr.S.N.Soparkar, learned Senior Advocate assisted by Mr. Monaal Davawala, learned advocate for Mr. B.S.Soparkar, learned advocate for the appellant in OJ Appeal No.3 of 2021 and Mr. Tirth Nayak, learned advocate for the appellant in OJ Appeal No.4 of 2021 and Mr. Mitul Shelat, learned advocate assisted by Ms. Disha Nanavaty, learned advocate for the respondent in both the appeals and Mr. Pratik Acharya, learned advocate for the Official Liquidator in both these appeals. Learned counsel for the respective parties have made oral submission and in light of the same, written submission were also permitted to be tendered and the same made the basis of this judgment and order.

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4.0. Mr. S.N. Soparkar, learned Senior Advocate for the appellant contended that the learned Company Judge on application filed by the sole bidder being respondent no.1 has allowed the application for refund despite the fact that terms and conditions of the auction document expressly provide that same would be liable to be forfeited. Mr.Soparkar, learned counsel contended that the Official Liquidator filed OLR being no.94 of 2020 for approval of upset price, EMD and sale schedule for sale of assets of the land in question as per the decision taken in the sale committee and specifically invited attention to the minutes of the meeting of the sale committee held on 22.07.2020. It was contended by Mr. Soparkar that the basis of valuation report was as per the report dated 28.5.2020.

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4.1. Mr. Soparkar, learned counsel then contended that vide order dated 12.1.2021 which is referred to above, this Court confirmed the decision of sale committee and fixed the upset price at Rs.9,20,00,000/-with 10% earnest money. Mr. Soparkar also contended that as per the said order the public advertisement was published in the daily newspapers on 22.1.2021 which was the fourth attempt on the part of Official Liquidator for sale of the land in question. Mr. Soparkar contended that in response to the said advertisement, six tenders were sold and one unconditional offer was received from the respondent no.1. Mr. Soparkar referring to the condition no.10 of the terms and conditions of sale further

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contended that the assets were to be sold on “as and where is whatever there is” basis and respondent no.1 instead of carrying out its own due diligence before submitting offer on 15.2.2021, wrote letters to the Official Liquidator seeking clarification with regard to the assets under sale. Mr. Soparkar referring to the communication dated 25.2.2021 addressed by the respondent no.1 contended that by the said communication respondent no.1 informed the Official Liquidator that it is not interested to participate in the e- auction and requested to refund EMD in its bank account. It was then contended that as per the order dated 26.2.2021 passed in OLR No.54 of 2021 as there was only one bidder, auction came to be postponed to 26.3.2021.Mr. Soparkar contended that thereafter respondent filed Company Application No.18 of 2021 seeking refund of EMD deposited with the Official Liquidator on the ground that advertisement for auction did not disclose material facts pertaining to the assets which were the subject matter of auction and also on the ground that no response was forthcoming from the Official Liquidator with respect to its queries regarding the same. Mr. Soparkar again referring to the terms and conditions of sale, more particularly, condition nos.14 & 38 thereof contended that as the respondent no.1has withdrawn its offer, it is not entitled to refund the EMD. Mr. Soparkar has relied upon the following judgment to buttress his arguments. I. Shree Hanuman Cotton Mills & Ors. vs. Tata Air Craft

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Limited reported in ( 1969) 3 SCC 522.

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II. Delhi Development Authority vs. Grihsthapna Cooperative Group Housing Society Ltd reported in (1995) Suppl(1) SCC 751 .

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III. Official Liquidator of Testeels Ltd vs. Central Bank of India and ors reported in 2009 SCC Online Guj 8904.

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IV. National Thermal Power Corporation Limited vs. Ashok Kumar Singh and Ors reported in (2015) 4 SCC 252.

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V. National Highway Authority of India vs. Ganga Enterprise and Anr reported in ( 2003) 7 SCC 410.

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VI. State of Maharashtravs. AP Paper Mills Ltd reported in (2006) 4 SCC 209.

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4.2. Though the present appeal is against the order passed in Company Application No.18 of 2021, Mr. Soparkar, learned counsel for the appellant also further contended that learned Company Judge has erred in law in holding that the auction on the basis of the valuation report of the valuer dated 28.5.2020 was during the peak period of Covid-19 and hence the auction itself was liable to be cancelled. It was contended that after having come to the conclusion that the auction was liable to be cancelled, the learned Company Judge has erred in holding that the sale committee shall not agree to fix upset price less than what was fixed based upon the valuation report dated 28.5.2020. Mr. Soparkar also further contended that the auction was not liable to be cancelled due to the fact that there was only one bidder and the appellant of OJ Appeal No.4 of 2021 which is

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also heard along with this appeal as secured creditors has no objection if the auction is held. Mr. Soparkar on the alternative at last also further contended that in case if the auction is permitted to be held as per the direction issued by the learned Company Judge till such auction is held and the property is sold, amount of EMD of Rs.92,00,000/-deposited by the respondent should be kept with the Official Liquidator and in case if there is any shortfall same may be made good by the respondent no.2. On the aforesaid grounds, Mr. Soparkar contended that the appeal requires consideration and it deserves to be admitted and allowed and the impugned order passed by the learned Company Judge deserves to be quashed and set aside.

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5.0. Mr. Tirth Nayak, learned advocate for the appellant of OJ Appeal No.4 of 2021 has adopted the arguments made by Mr. Soparkar, learned Senior Advocate for the appellant. It was reiterated by Mr. Nayak, learned advocate for the appellant that reserve price for the auction is based on the valuation which is fixed after the same is duly approved by the learned Company Court and the same was not challenged or questioned by respondent no.1. It was also contended by Mr. Nayak that respondent no.1 was fully aware of the terms and conditions of the auction and only thereafter knowingly tendered his bid and therefore, is bound by the terms and conditions of the auction which were agreed by the respondent no.1 without any demur. It was further

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contended by Mr. Nayak that respondent no.1 withdrew his bid after depositing the EMD but before the auction was conducted due to which the auction failed for want of bids, therefore, there was no reason / occasion to cancel the auction or the auction could not have been cancelled and has relied upon the communications dated 25.2.2021 and 17.3.2021 addressed by the Director of City Pulse Theaters Private Limited. It was also contended by Mr. Nayak that earnest money deposit is a guarantee for performance of the contract and is liable to be forfeited on occurrence or happening of a default. Relying upon the judgments of the Hon’ble Supreme Court in the case of Shree Hanuman Cotton Mills & Ors. vs. Tata Air Craft Limited reported in ( 1969) 3 SCC 522 ( para 21), HUDA and Another vs. Kewalkrishan Goel and Ors reported in ( 1996) 4 SCC 249 , Villayatiram Mittal Private Limited vs. Union of India and Ors reported in ( 2010) 10 SCC 532 and OL of Prime Floor Tiles Pvt. Ltd vs. Rajkot Nagrik Sahkari Bank Limited reported in 2010 SCC Online Guj 13770 , Mr. Nayak contended that once the respondent no.1 withdrew from the auction, it is settled law that the EMD is required to be forfeited as respondent no.1 has willingly defaulted, failed or withdrawn from the auction. Referring to Section 5 of the Indian Contract Act, it was contended by Mr. Nayak that the said permits withdrawal from the auction but not refund of the EMD and therefore, respondent no.1 can be permitted to withdraw from the auction, however is not entitled to pay any further

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amount and EMD paid by the respondent no.1 has to be forfeited. Mr. Nayak, learned advocate for the appellant has also relied upon the judgment of the Hon’ble Supreme Court in the case of National Highway Authority of India vs. Ganga Enterprise and Anr reported in ( 2003) 7 SCC 410 and contended that EMD forfeiture is for a breach of the auction / tender conditions at precontractual stage when no right has come into existence and therefore, even if no contract has come into existence EMD of the respondent no.1 is required to be forfeited for breach of Clause 38 of the tender condition. Mr. Nayak has further relied upon the following judgments to buttress his arguments.

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A. National Thermal Power Corporation Limited vs. Ashok Kumar Singh and Ors reported in (2015) 4 SCC 252 wherein the Hon’ble Supreme Court has observed thus:

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“10. In Ganga Enterprises case (supra) this Court was examining a similar question. The argument in that case, as is the position even before us, was that withdrawal of an offer before it was accepted could not result in forfeiture of the earnest money/security money given by the bidder. Repelling that contention this Court held that while a person may have a right to withdraw his offer at any time before the acceptance is conveyed to him if the offer is itself subject to the condition that the earnest money will be forfeited for not entering into contract or if some other act is not performed, then, even though he may have a right to withdraw his offer he will have no right to claim the refund of the earnest money. Forfeiture of the earnest money, in any such case, does not, observed this Court, infringe any statutory right under the Contract Act, 1872 for earnest/security is given and taken in such cases only to ensure that a contract comes into existence. What is important is that this Court recognised that absence of any term stipulating forfeiture of the earnest money may lead to situations where even those who do not have the capacity or intention of entering into a contract venture

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into the bidding process for at times extraneous reasons. The purpose of such a clause providing for forfeiture of the earnest money clearly was to see that only genuine bids are received….

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13.The upshot of the above discussion is that it is no longer possible for the respondents to contend that the right to withdraw the bid in terms of Section 5 of the Contract Act, 1872 would entitle them to withdraw without suffering forfeiture of the earnest money even in cases where the submission and receipt of bids is itself subject to the condition that in the event of a withdrawal of the bid the earnest money stand forfeited. Inasmuch as the High Court remained totally oblivious of the true legal position while directing refund of the earnest money, it committed an error.”

¶142

B. Official Liquidator of Testeels Ltd vs. Central Bank of India and ors reported in 2009 SCC Online Guj 8904 .

¶143

C. Satish Batra vs. Sudhir Rawal reported in (2013) 1 SCC 345.

¶144

D. State of Maharashtravs. AP Paper Mills Ltd reported in (2006) 4 SCC 209.

¶145

E. Delhi Development Authority vs. Grihsthapna Cooperative Group Housing Society Ltd reported in (1995) Suppl(1) SCC 751

¶146

5.1. Mr. Nayak, learned advocate for the appellant contended that the judgments relied upon by the respondent is also not applicable to the facts of the case and distinguishable. It is lastly contended by Mr.Nayak that if a party is permitted to submit an “unconditional bid” in response to the auction notice with an EMD and thereafter permitted to withdraw his bid and seek refund of the EMD, it will lead to chaos and confusion and there will be no seriousness to the entire process. On the aforesaid grounds, it was contended that the appeal be

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allowed.

¶150

6.0. Per contra, Mr. Mitul Shelat, learned advocate for the respondent no.1 has taken this Court to the factual matrix arising out of these appeals and as the factual matrix has already been discussed herein above, the same are not repeated herein. Mr. Shelat, learned advocate for the respondent no.1 specifically invited attention of this Court to the fact that Official Liquidator did not response to any query raised by the respondent no.1 and therefore, vide communication dated 25.2.2021 the respondent no.1 communicated its inability to participate in the e-auction scheduled on 26.02.2021 and requested for refund of EMD. Mr. Shelat contended that it appears from the averments made in OLR No.54 of 2021 that the Official Liquidator informed the Court that there was only a single bid and therefore, the Hon'ble Court decided not to proceed with the auction vide order dated 26.2.2021 and the auction came to be postponed to 26.03.2021 and notice was issued to the creditors for passing appropriate orders pursuant to the same. Mr. Shelat contended that the scheduled action was thereafter not conducted on 26.02.2021 or on any other date. Referring to the averments made in the page 44@ 47, Mr. Shelat contended that Official Liquidator in its report dated October 2021 has stated that “E-auction could not be held as there was a single bidder”. Mr. Shelat contended that as no communication was received from the Official Liquidator to the plea of the

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respondent no.1 for refund of EMD, present application was filed for refund of EMD in view of the fact that auction was not held. Mr. Shelat further referring to the OLR of October 2021 contended that in the said report, Official Liquidator admitted that the e-auction was not held as there was a single bidder and in the said report, Official Liquidator sought directions to permit revaluation of the assets through the panel valuer and further to initiate fresh process of sale. Mr. Shelat also contended that no reply was made objecting to the said OLR either by the Appellant or Kotak Bank or any other secured creditor and therefore, vide order dated 14.10.2021 the Company Court was pleased to cancel the auction sale in respect of which the answering Respondent had submitted its bid. Mr. Shelat contended that the Company Court found that the exercise of sale was undertake in the time of Covid and therefore, liable to be cancelled as only one bidder has submitted the offer on the basis of the advertisement. Referring to the order passed by the Company Court, it was contended by Mr. Shelat that further directed that the EMD be refunded to the answering Respondent within two weeks and fresh valuation be undertaken within a period of four weeks thereafter and to submit report for re-auction of the property. Mr. Shelat contended that Official Liquidator has not instituted any appeal against the judgment passed by the Company Court and the Official Liquidator as well as Sale Committee have accepted the judgment of the learned Company Judge.

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6.1. Mr. Shelat contended that the Official Liquidator has accepted the Judgment of the Company Court and the sale Committee has accepted the Judgment of the Company Court. Mr. Shelat further contended that members of the Sale Committee cannot seek to espouse any independent right and their interests are represented by the Sale Committee through the Official Liquidaor and therefore, at their instance the Appeal/s may not be entertained. Mr. Shealt contended that The Official Liquidator has submitted an OL Report in the Company Application and accepted the cancellation of Auction and prayed before the Company Court that he may be permitted to get the revaluation done through the Panel Valuer. Mr. Shelat contened that the Company Court while considering the Company Application has allowed the said prayer and permitted the revaluation to be done. The OL Report and the contents therefore had never been disputed or contested by any of the Appellants both of whom were party respondents in the proceedings. Mr. Shelat contended that the Appellants cannot now seek to assail the directions given by the Company Court both regarding cancellation of auction and revaluation of Assets. Mr. Shelat further contended that the present Appeal at the instance of the Appellants are therefore not maintainable in law.

¶157

6.2. Mr. Shelat contended that the auction sale having been cancelled, the answering Respondent is entitled to the

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refund of EMD and the auction scheduled was never conducted and therefore, once the auction is cancelled, the answering respondent is entitled to the refund of EMD. It was contended by Mr. Shelat that there is no decision taken by the Sale Committee to forfeit the EMD of the answering Respondent and the entire bogey of forfeiture is created by one of the secured creditors.It is further contended that once there is no decision to forfeit the EMD, at the instance of the secured creditor/s the EMD cannot be withheld and therefore, the answering Respondent was entitled to the refund of the EMD.

¶161

6.3. Mr. Shelat also contended that the EMD was a condition precedent for participating in the auction. Payment of the EMD did not constitute an offer. The offer was to be made in the auction which was scheduled on 26.02.2021 and the E-auction having been cancelled, there is no question of any offer having been made and consequentially having been withdrawn. It was contended that the terms and conditions of the bid clearly demarcate between participating in an auction and making an offer and the offer is to be made during the auction. It was further contended that withdrawal from participating in an auction before it is held and withdrawing the offer made during an auction are two distinct events. It was further contended that the consequences can never be the same and the terms of the auction do not authorize forfeiture of EMD in the event of withdrawal from participating in the auction.

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6.4. Mr. Shelat contended that the Clause 9 and Clause 10 makes it clear that the bid is to be submitted during the e-auction. It was also contended that the Clause 11 makes it clear that the process was subject to the sanction and confirmation of the Court and, therefore, the acceptance was conditional. Mr. Shelat contended that the Clause 14 refers to the online offer and not the EMD for participating in the scheduled auction. This is amplified by the words “The highest offerer in the inter se bidder shall not be eligible to withdraw”. Clause 15, 16 refer to the word “highest offerer”. It was contended that Clause 19 expressly provides that it is in relation to the purchaser. Clause 28 makes it clear, if the purchaser does not pay the balance amount, then the EMD is to be forfeited. Mr. Shelat further contended that the Clause 38 also relates to “withdrawal or cancellation of offer once submitted” and Clause 39, 42 also relate to the word “bidder”.

¶165

6.5. Mr. Shelat contended that the similar terms and conditions have been considered by this Hon'ble Court in the matter of T.K. Petroleum vs. OL of Prime Floor Tiles Pvt. Ltd., reported in 2012 SCC Online GUJ 4893 wherein Hon’ble Supreme Court observed thus:

¶166

“13. In the case on hand, admittedly, nothing happened on 29.10.2010, and though, the bidders were present before the Court, no order was passed by the concerned Court, except, posting the matter on a subsequent date. Even, the inter se bidding also did not take place. The appellant, herein, therefore send a letter to the Office of the Official Liquidator, on the very same day i.e. on 29.10.2010 to permit him to withdraw his bid. Later on, the appellant also preferred an application being Civil Application No.

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535 of 2010 before this Court, on 25.11.2010. Thus, if, what the learned Company Judge has recorded in Para-9 of the impugned order is correct that the bids were opened on 29.10.2010, then, the appellant has naturally no right whatsoever to seek refund of E.M.D. Admittedly, no bids were opened on 29.10.2010. It, therefore, seems that the learned Company judge committed a factual error, while making observation in this behalf in the impugned order. Considering the said aspect and considering the fact that the matter was adjourned, thereafter, from time to time and in the meanwhile, the appellant filed Civil Application No. 535 of 2010, on 25.11.2010, seeking withdrawal of his E.M.D., we are of the opinion that the appellant is entitled to withdraw his bid and there is no justification in forfeiting the entire E.M.D.

¶170

Here, it may be noted that Clause-10 of the Terms and Conditions of the tender starts with, “ APPLICABLE ONLY ON SALE OF LAND (11 TO 13) ”. Even, Clauses-14 to 16 also appear to be applicable only after the sell of land. In other words, the clauses from Clause-10 onwards, shall be applicable only after sale takes place. Clause-25 pertains to the offer and it provides that the offerer shall not be entitled to withdraw or cancel his offer once submitted, and if, any offerer withdraws or cancels his offer, his Earnest Money Deposit shall be liable to be forfeited and he will also be liable to pay the Official Liquidator the loss, damages suffered consequent upon his backing out of his offer. Clause-25, further, provides that property/assets in question will then be re-sold at the risk and consequences of the offerer. It is, therefore, clear that, in a case where, an offerer's offer is accepted, then, subsequently he cannot withdraw his bid and the property/asset is required to be resold.

¶171

Clause-30 of the conditions, provides that pending confirmation of sale by the High Court, bidders will not be allowed to withdraw their offer. Admittedly, such a condition shall be applicable, only when the bids were opened by the Court and bids of the different bidders were discussed in the Court and in such an eventuality, no bidder can be permitted to withdraw his bid. In the case on hand, admittedly, bids were neither opened nor discussed on 29.10.2010, as mentioned in the public advertisement. The appellant, therefore, send a letter to the Office of the Official Liquidator on the very same day, expressing his desire to withdraw his bid, on the ground of delay. Had the matter been taken up by the concerned

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Judge on 29.10.2010 and the bids were discussed and same was, then, adjourned to subsequent date for increasing the bid, then, as per Clause-25, a bidder could not be permitted to withdraw from fray, at that stage, and his E.M.D. is liable to be forfeited.

¶175

In the instant case, in spite of clear stipulation in the public advertisement, the bids were neither opened nor were discussed before the Court on 29.10.2010. Even, the report of the Official Liquidator was also not placed before the Court nor any request was made on the part of the learned Counsel for the Official Liquidator for opening the bids. If, the bids were opened on 29.10.2010, and thereafter, the matter was adjourned, the appellant cannot be said to be entitled to get his E.M.D. back. Considering the aforesaid aspect and, more particularly, in view of the fact that no proceedings took place on 29.10.2010, despite the clear stipulation in the public advertisement, and even on the subsequent dates also no auction took place, we are of the opinion that the appellant was well within his right to seek withdrawal of his bid.

¶176

In support of his submissions, learned Counsel for the appellant, Mr. Pahwa, has placed reliance on a decision of the Hon'ble Apex Court in “UNION OF INDIA v. BHIM SEN WALAITI RAM”, reported in (1969) 3 SCC 146, wherein, in Para-4, the Hon'ble Apex Court has observed as under:

¶177

“ 4. On behalf of the appellants it was contended by Dr. Seyid Muhammad that the respondent was under a legal obligation to pay one-sixth of the annual fee within seven days of the auction under cl. 21 of r. 5.34 and it. was due to his default that a resale of the excise shep was ordered. Under cl. 22 of r. 5.34 the respondent was liable for the deficiency in price and all expenses of such resale which was caused by his default. We are unable to accept this argument. The first portion of cl. 21 requires the “person to whom the shop has been sold” to deposit one-sixth of the total annual fee within seven days. But the sale is deemed to have been made in favour of the highest bidder only on the completion of the formalities before the conclusion, of the sale. Clause 16 of r. 5.34 states that “all sales are open to revision by the Chief[Commissioner”. Under cl. 18, the Collector has to make a report to the Chief Commissioner where in his discretion he is accepting a lower bid. Clause 33 of the Conditions,

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Ex. D-28, states that “all final bids will be made subject to the confirmation by the Chief Commissioner who may reject any bid without assigning any reasons.” It is, therefore, clear that the contract of sale was not complete till the bid was confirmed by the Chief Commissioner and till such confirmation the person whose bid has been provisionally accepted is entitled to withdraw his bid. When the bid is so withdrawn before the confirmation of the Chief Commissioner the bidder will not be liable for damages on account of any breach of contract or for the shortfall on the resale. An acceptance of an offer may be either absolute or conditional. If the acceptance is conditional the offer can be withdrawn at any moment until absolute acceptance has taken place. This view is borne out by the decision of the Court of Appeal in Hussey v. Horne Payne(1). In that case V offered land to P and P accepted ‘subject to the title being approved by my solicitors’. V later refused to go on with the contract and the Court of Appeal held that the acceptance was conditional and there was no binding contract and that V could withdraw at any time Until P's solicitors had approved the title. Jessel, M.R. observed at p. 626 of the report as follows:

¶181

“The offer made to the Plaintiff of the estate at that price was a simple offer containing no reference whatever to title. The alleged acceptance was an acceptance of the offer, so far as price was concerned, ‘subject to the title being approved by our solicitors’. There was no acceptance of that additional term, and the only question which we are called upon to decide is, whether that additional term so expressed amounts in law to an additional term or whether it amounts, as was very fairly admitted by the counsel for the Respondents, to nothing at that is, whether it merely expresses what the law would otherwise have implied. The expression ‘subject to the title being approved by our solicitors’ appears to me to be plainly an additional term. The law does not give a right to the purchaser to say that the title shall be approved by any one, either by his solicitor or his conveyancing counsel, or any one else. All that he is entitled to require is what is called a marketable title, or, as it is sometimes called, a good title. Therefore, when he puts in ‘subject to the title being approved by

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our solicitors’, he must be taken to mean what he says, that is, to make a condition that solicitors of his own selection shall approve of the title.” It was submitted on behalf of the appellant that the phrase “person to whom a shop has been sold” in cl. 21 of r. 5.34 means a “‘person whose bid has been provisionally accepted”. It is not possible to accept this argument. As we have already shown the first part of cl. 21 deals with a completed sale and the second part deals with a situation where the auction is conducted by an officer lower in rank than the Collector. In the latter case the rule makes it clear that if any person whose bid has been accepted by the officer presiding at the auction fails to make the deposit of one-sixth of the annual fee, or if he refuses to accept the licence, the Collector may resell the licenee, either by public auction or by private contract and any deficiency in price and all expenses of such resale shall be recoverable from the defaulting bidder. In the present case the first part of cl. 21 applies. It is not disputed that the (1) [1878] 8 Ch. D. 670 at 676. Chief Commissioner has disapproved the bid offered by the respondent. If the Chief Commissioner had granted sanction under cl. 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 resale. As the essential prerequisites 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.”

¶185

20. In the instant case, the bid of the appellant was never opened or discussed on the first date fixed for opening the same i.e. 29.10.2010. Had it been the case, where the bids were opened or discussed on the date appointed for the said purpose and then, the matter was adjourned for further discussion, at such a stage, no offerer can be permitted to withdraw his bid, which is not the case, here. At the most, the expenditure incurred by the Official Liquidator can be deducted while refunding the E.M.D., such as advertisement costs etc. Considering the same, appeal requires to be allowed. ”

¶186

Mr. Shelat contended that in the aforesaid judgment the Hon’ble Supreme Court has held that where the bids were neither opened nor discussed nor request was

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made for opening the bids and no auction took place, the participant was entitled to withdrawal of his bid and the EMD could not be forfeited. In view of the admitted facts that the Auction itself was cancelled, there would be no authority with the Sale Committee to forfeit the EMD.

¶190

6.6. Mr. Shelat further contended that when the acceptance is subject to confirmation, the offer can be withdrawn at any stage prior to confirmation and withdrawal cannot give rise to any liability whatsoever. It was contended that the conditions of the Auction (condition 15) expressly provided that it was subject to confirmation by the Court. and participant is entitled to withdraw from the auction at any point of time prior to the auction having commenced and the bid having been accepted. It was contended that the bid is nothing more than a offer which does not crystalized into any enforceable right or obligation, unless it is accepted by the other side. It was further contended that revocation is possible and effective at any time before acceptance. It was contended that upto this moment, ex hypothesi no legal obligation exists. The doctrine of locus paenitentiae clearly applies. The bidder has neither any right nor can the bidder be imposed the liability of forfeiture. In the instant case even if the bid are submitted and the bid is the only bid , the sale is complete only when the same is accepted by the Court and acceptance is communicated to the bidder.

¶191

6.7. Mr. Shelat relying upon the following judgments of the

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Hon’ble Supreme Court to buttress his arguments:

¶195

I. The Hon’ble Supreme Court in the case of Union of India vs. Bhimsen reported in (1969) 3 SCC 146 has observed thus:

¶196

“It is, therefore, clear that contract of sale was not complete till the bid was confirmed by the Chief Commissioner and till such confirmation, the person whose bid has been provisionally accepted, is entitled to withdraw his bid. When the bid is so withdrawn before the confirmation …… the bidder will not be liable to damages ……… If the acceptance is conditional, offer can be withdrawn at any moment, until absolute acceptance has taken place.”

¶197

II. The Hon’ble Supreme Court in the case of Vishal Builders vs. DDA reported in 1977 SCC Online Delhi 29 observed thus:

¶198

“Questions for consideration

¶199

12. Three points arise for decision. These are:

¶200

(1) Were the Builders entitled to retract their bids as they did on 2nd March, 1973?

¶201

(2) What is the nature of the land for which bids were invited at the auction? Was it Nazul Land as is the case of the Builders; and if so did the Authority have the right to sell it as they purported to do?

¶202

(3) Was the Vice-Chairman of the Authority entitled to accept the bid as he purported to do on February 3, 1973 which acceptance was communicated to the Builders on March 20, 1973.

¶203

The first question: Law of auction

¶204

What is the law of auctions? The public auction sale has long been an established institution. The nature of the contract involved in a sale by auction was much discussed by the Roman lawyers. In England the law was settled long ago.

¶205

The public auction means that it is being held in public, all members of the public having a right to attend, and a valuable element being the competition between the persons who are openly

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bidding for the subject matter of the sale. (Secy. of State v. Sunderji, AIR 1938 P.C. 12) (1).

¶209

In Barlow v. Osborne, (1858) 10 E.R. 1412 (2) Lord Cranworth said:

¶210

“I believe the word auction has been always understood to be derived from “augendo” it means that you are to bid”.

¶211

When an auctioneer presents an article for sale at auction and asks for bids, he is ordinarily not making an operative offer. Instead, he is asking for offers to be made to him; and the bids made in response thereto are themselves offers that can be revoked by the bidders prior to an acceptance by the auctioneer. This is true even though the seller or his representative has issued advertisements or made other statements that the article will be sold to the highest bidder. “Such statements”, says Prof. Corbin “are merely preliminary negotiations, not intended and not reasonably understood to be intended to affect legal relations”. When such is the case, the seller or his representative is as free to reject the bids, highest to lowest, as are the bidders to withdraw them (Corbin on Contracts Vol. I p. 339).

¶212

English cases

¶213

Payne v. Cave, (1789) 100 ER 52 (3) is the leading English case on the subject. The plaintiff alleged that the defendant had bought the plaintiff's goods at an auction sale. The defendant had made the highest bid but had withdrawn it before the hammer fell. Lord Kenyon non-suited the plaintiff and it was held that the non-suit was very proper. The court said:

¶214

“Every bidding is nothing more than an offer on one side, which is not binding on either side till it is assented to. But according to what is now contended for one party would be bound by the offer, and the other not, which can never be allowed.”

¶215

In Routledge v. Grant, (1828) 29 RR 672 (4) this question again arose. The defendant offered to buy the plaintiff's house for a certain sum, a definitive answer to be given within six weeks from March 18,

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On April 9, the defendant withdrew his offer and on April 29, the plaintiff purported to accept it. The Court of Common Pleas held that the defendant could withdraw at any moment before acceptance even though the time limit had not expired. It was ruled that there was no contract. Best CJ said:

¶219

“Here is a proposal by the defendant to take property on certain terms; namely, that he should be let into possession in July. In that proposal he gives the plaintiff six weeks to consider; but if six weeks are given on one side to accept an offer, the other has six weeks to put an end to it. One party cannot be bound without the other.”

¶220

A third decision to which I may helpfully refer is Cooke v. Oxlev, (1790) 100 E.R. 785 (5). A tobacco merchant offered to sell a quantity of tobacco to the plaintiff at a certain price. The plaintiff asked the tobacco merchant for time in which to decide whether he should buy the goods or not. The time for consideration was granted; but before it expired, the tobacco merchant sold the goods to a third party. In a suit for damages by the plaintiff, it was held that the action did not lie, as at the time of entering into the contract the engagement was all on one side. No consideration had passed to bind the seller by his promise to give time and consequently he was entitled to ignore it. Lord Kenyon put it on the true ground by saying:

¶221

“At the time of entering into this contract the engagement was all on one side; the other party was not bound.”

¶222

It has been established ever since the case of Payne v. Cave in 1789 (3) that revocation is possible and effective at any time before acceptance: upto this moment ex hypothesi no legal obligation exists. The offeree to bind the offerer has to prove the formation of contract. He must prove all the elements of a valid contract, including assent and consideration. Unless there is unanimity of mind or meeting of the minds there is no contract. Consideration, offer and acceptance are an indivisible trinity, different facets of the phenomena of agreement.

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It is indisputable that a mere advertisement of an auction, without further qualifications, is “invitation to treat” and not an offer. The auction need not be held and prospective purchasers have no legal complaint if they have wasted their time and money in coming to the sale rooms. An advertisement that specified goods will be sold by auction on a certain day does not constitute a promise to potential bidders that sale will actually be held. This was decided in Harris v. Nickerson, (1873) LR 8 Q.B. 286 (6). In that case the plaintiff failed to recover damages for loss suffered in travelling to the advertised place of sale which was ultimately cancelled. His claim was condemned as “attempt to make a mere declaration of intention a binding contract [Cundy v. Lindsay, (1878) 3 A.C. 459] (7).

¶226

“This is certainly a startling proposition and would be excessively inconvenient if carried out. It amounts to saying that any one who advertises a sale by publishing an advertisement becomes responsible to everybody who attends the sale for his cab hire or travelling expenses.”

¶227

A contract is formed by offer and acceptance. It is a combination of two ideas of agreement and obligation. Agreement is necessarily the outcome of consenting minds. As Lord Cairns said in a famous case, there must be a “consensus of mind” to lead to a contract [Cundy v. Lindsay, (1878) 3 A.C. 459] (7).

¶228

Two well-established principles of auction sale therefore are these. In the first place it was decided as long ago as 1789 that when an auction sale is held, a bid is only an offer which can be retracted at any time before the fall of the hammer. This rule has now been given statutory force. The Sale of Goods Act, 1930 provides that a sale by auction is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner, and that until such announcement is made any bid may be retracted. (Section 64).

¶229

Secondly, an advertisement by an auctioneer that a sale of certain articles will take place on a certain day does not bind the auctioneer to sell the goods,

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nor docs it make him liable upon a contract to indemnify persons who have been put to expense in order to attend the sale. Such an advertisement is not an offer but merely an invitation to invite offers and do business. An invitation of this nature is not intended to be binding and is known as an invitation to treat.

¶233

Until the auctioneer announces his acceptance by the fall of the hammer, no contract of sale is concluded with the buyer. If, therefore, the auctioneer withdraws the goods prematurely refusing to knock them down to the highest, bidder, there can be no possible action on any contract of sale because none has yet come into existence.

¶234

Take this very case. The executive officer was the auctioneer. He invited offers. The bidders gave offers. The auctioneer placed them before the ViceChairman of the Authority for acceptance. On February 8, 1973, the Vice-Chairman accepted the bid of the Builders. The acceptance was communicated to the Builders on March 20, 1973. But before that the Builders had withdrawn the bid by letter dated March 2, 1973.

¶235

The auctioneer acted as a mere conduit pipe. He was the agent of the seller. The auction was an invitation to the public to make offers. It was an attempt to ascertain whether an acceptable offer can be obtained. The auctioneer in his report dated February 6, 1973 said that the Builder's bids should he accepted as they were much higher than the reserve price of the plots in question. The ViceChairman agreed. But then it was too late. The bid had already been retracted. The bidder was entitled to retract till the Authority communicated the acceptance of the offer. It was open to the Authority to accept or reject the bid. Similarly, the bidder cannot be bound when the seller remains free. Otherwise, as English judges have said, it will be a one-sided engagement. The law therefore insists that one party cannot be bound without the other.

¶236

By the acceptance of the bid the contract conies into existence. After such an acceptance the sale is consummated. Neither party can withdraw and the auctioneer has no power to accept a higher or different bid.

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Indian decisions

¶240

Indian law is no different. S. 5 of the Contract Act says: “A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards……”

¶241

A bid before it is accepted can be withdrawn. In an auction sale a condition stipulating that a bid shall not be retracted has no force unless it is supported by consideration or is founded on a statutory authority. It was so held in Linga Gowder v. State, AIR 1971 Mad. 28 (8). Similarly a bench of the Madras High Court in Somasundaram Pillai v. Prov. Govt., AIR 1947 Madras 366 (9) held that the prohibition against the withdrawal of bids before acceptance had not the force of law and there was no consideration to bind a bidder down to this condition. Payne v. Cave and Cooke v. Oxley (supra) have been followed in this country.

¶242

In another bench decision the High Court of Andhra Pradesh (Raghunandhan v. State of Hyderabad, AIR 1963 Andhra Pradesh 110) (10) has held that if the approval of the auction is not binding on the Government within the stipulated period it is certainly not binding on the bidder also. This decision was overruled by the full bench of that High Court in G. Srinivasa Reddy v. Commr., Excise Board of Revenue, AIR 1973 A.P. 178 (11). But on the point with which we are concerned there is no difference of opinion in the two rulings. The full bench did not agree with the interpretation placed on clause 8 of auction sale by the division bench in Raghunandhan's case (supra). But the general principles of contract were not doubted.

¶243

32. In G. Srinivasa Reddy's case (supra) it was said:

¶244

“There are, however, cases where final bids in the auction are made subject to the confirmation by another superior authority. In other words, unless that superior authority approves or confirms the final bid the offer would not be deemed to have been accepted. In such cases, the auctioning authority acts as a conduit pipe. As agent of the superior authority he receives the offer and transmits to the confirming or approving authority.

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¶247

It is only when the bid in such a case is approved or confirmed by the higher authority that the contract of sale would be deemed to be complete, and until such confirmation or approval is made, the person whose bid has been sent for confirmation to such higher authority is entitled to withdraw his bid. When the bid is so withdrawn before it is accepted by such authority, there would be no concluded contract and as a result, the bidder will not be liable for damages on account of any breach of contract or for the shortfall on the resale.”

¶248

This is exactly the present case. These observations of the full bench squarely apply here.

¶249

As long ago as 1891 Muttusami Ayyar and Best JJ. in Agra Bank v. Hamlin, ILR 14 Mad. 235 (12) held that it was competent for a bidder at a court auction to withdraw his bid. In Union of India v. S. Narain Singh, AIR 1953 Punjab 274 (13) the same principle was applied.

¶250

Counsel for the Authority relied on Secy. of State v. Bhaskar Krishnaji, AIR 1925 Bombay 485 (14). That ruling has no application as that was a case of a statutory condition. In our case the terms of auction were not framed under any statute. The general law applies. The Authority cannot lay down conditions opposed to the general law. S. 6 of the Act says:

¶251

“nothing contained in this Act shall be construed as authorising the disregard by the Authority of any law for the time being in force.”

¶252

Section 5 of the Contract Act is a law in force. It permits the bidder to retract his bid before his offer is accepted. There can be no lawful condition in the auction sale prohibiting the bidder from exercising such a right. Any prohibition against withdrawal has no legal force and there is no consideration to bind the bidder down to this condition. [See Somasundaram Pillai's case (supra)].

¶253

Pollock and Mulla on the Indian Contract Act 9th edition at page 75 have this to say:

¶254

“It is common to insert in conditions of sale a

¶255

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proviso that biddings shall not be retracted, but it seems that such a condition is inoperative in law for a one-sided declaration cannot alter the bidder's rights under the general law, nor is there any consideration for his assenting to it, even if he could be supposed to assent by attending the sale with notice of the conditions.”

¶258

Promissory Estoppel

¶259

Counsel for the Authority argued that the Builders were estopped from retracting the bid. This was a term of the auction sale, he said. It was said that a collateral contract had come into being by the application of the doctrine of promissory estoppel. Let me examine this argument.

¶260

Of recent years there has grown up a doctrine sometimes known as “promissory estoppel” or “quasi-estoppel”, the limits of which are not yet well defined. Under the doctrine, where one party says or implies to the other that their existing legal relations shall be effected in some way, with the intent that the other should act and the result that he does act upon the supposed change in legal relations, the first party must accept those relations subject to the qualifications which he himself has introduced. He is not allowed, except on reasonable notice to the other party, to revert to their previous relationship. It must be noted clearly that the representation does not operate as a contract unless it is duly supported by consideration.

¶261

The doctrine of promissory estoppel is associated with the name of Lord Denning. Sitting as a judge of the High Court he expounded it in Central London Property Trust Ltd. v. High Trees House Ltd., (1947) K.B. 130 (15). The doctrine was foreshadowed in the judgment of Lord Cairns in Hughes v. Metropolitan Rail Co., (1877) 3 A.C. 439 (16). Denning J. tapped this stream of authority which had flowed in equity since 1877. He brought the doctrine into being in its present form; other judges have nourished it. Our Supreme Court applied it in Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Ltd., (1972) 1 SCC 857 : AIR 1972 S.C. 1311 (17).

¶262

The facts of Central London Property Trust case were that in September 1939 the plaintiffs leased a

¶263

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¶265

block of fiats to the defendants at a ground rent of pound 2,500 per annum. In January 1940 the plaintiffs agreed in writing to reduce the rent to pound 1250 plainly because of war conditions, which had caused many vacancies in the flats. No express time limit was set for the operation of this reduction. From 1940 to 1945 the defendants paid the reduced rent. In 1945 the flats were again full, and the receiver of the plaintiff company then claimed the full rent both retrospectively and for the future. He tested his claim by suing for rent at the original rate for the last two quarters of 1945.

¶266

Denning, J. was of opinion that the agreement of January 1940 was intended as a temporary expedient only and had ceased to operate early in 1945. The rent originally fixed by the contract was therefore payable, and the plaintiffs were entitled to judgment. But he was also of opinion that had the plaintiffs sued for arrears for the period 1940 to 1945, the agreement made in 1940 would have operated to defeat their claim.

¶267

As Denning, J. has himself said, promissory estoppel does not do away with the necessity of consideration which is an essential part of the cause of auction. In a later case he said:

¶268

“The doctrine of consideration is too firmly fixed to be over thrown by a side wind —. It shall remain a cardinal necessity of the formation of a contract.” [Comb v. Comb, (1951) 1 All E.R. 767] (18).

¶269

What the Central case decided was that when a promise is given which (1) is intended to create legal relations (2) is intended to be acted upon by the promisee and (3) is in fact acted upon, the promiser cannot bring an action against the promisee which involves the repudiation of his promise or is inconsistent with it.

¶270

The court thought that it will be “inequitable” to allow the promiser to sue on the original contract.

¶271

In the present case there is no equity in favour of the Authority. They were free not to accept the bid. The auctioneer is not bound to accept any bid, and conversely a bidder is entitled to withdraw his bid at any time before acceptance. The Builders were

¶272

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¶274

perfectly entitled to retract their bid. The question is not of equity. It is one of law.

¶275

The doctrine of promissory estoppel applies only to suspend and not to abrogate the promiser's legal rights. The equitable doctrine has been applied when the promisee has been led to suppose that strict legal rights will not be enforced or will be kept in suspense or held in abeyance.

¶276

This equitable doctrine of promisory estoppel is a judicial invention devised on the analogy of estoppel. It affords a defence against the enforcement of otherwise enforceable rights.

¶277

48. About the principle Lord Denning has said:

¶278

“It should not be stretched too far, lest it should be endangered………. It only prevents a party from insisting upon his strict legal rights, when it would be unjust to allow to enforce them, having regard to the dealings that have taken place between the parties”. (Comb v. Comb, supra). I do not quite see how promissory estoppel any thing to do with this case. Promissory estoppel presupposes that there is a concluded contract supported by consideration. Then there is a promise or word not to enforce strict legal rights. In the Central case the right to recover full rent under the lease remained suspended during the war. The principle was only suspensory.

¶279

The noticeable feature of the present case is that there is no contract of sale on which the Authority can bank. There is none which it con enforce. Estoppel cannot override the statute law contained in s. 5 of the Contract Act.

¶280

Counsel for the Authority then argued that the Builders had also purchased plots 35 and 36 and therefore they are estopped from raising objections with regard to plots 39, 40 and 41. I do not agree. The Builders for all we know may be prepared to take risk with regard to plots 35 and 36 if there is any defect in title. That will not prevent them from challenging the action of the Authority in respect of the three plots in question.

¶281

Conclusions 74. My conclusion on the first question is that the

¶282

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¶284

Builders were entitled to retract their bids before acceptance as they did. They are entitled to the refund of the money paid by them at auction. This alone is sufficient to dispose of the suit.”

¶285

III. The Hon’ble Supreme Court in the case of State of Uttar Pradesh reported in 1980) 3 SCC 8 observed thus;

¶286

This appeal by certificate is from a judgment of the Allahabad High Court, Lucknow Bench, dismissing the suit instituted by the appellant. State of Uttar Pradesh, for recovery of a sum of Rs 20,100 from the respondent. The facts stated in the plaint on which the claim is based are these. The annual “excise auctions” for the year 1951-52 for Faizabad district were held at Faizabad on February 22, 1951 “under the Excise Rules”. The respondent offered the highest bid of Rs 73,000 and 48,000 respectively as fees for two groups of country liquor shops but as he did not deposit 1/6th of the aforesaid sum on conclusion of the sales as required under the Excise Rules, the two groups of shops had to be sold again on March 30, 1951. The resale fetched respectively Rs 65,700 and Rs 35,200 for these two groups of country liquor shops. According to the State of Uttar Pradesh it suffered a total loss of Rs 20,100, which is the difference between what the respondent had offered and the sum for which the shops were later sold, and the respondent was liable to compensate the loss. The suit was decreed by the trial court. On appeal the High Court dismissed the suit on the view that there was no valid contract which could be enforced by the plaintiff as the requirements of Article 299(1) of the Constitution had not been complied with. We are also of the view that the suit must be dismissed but for a slightly different reason; in our opinion there was no concluded contract between the parties, nor was there any statutory rule permitting recovery of the deficiency on resale from the respondent.

¶287

The sale proclamation which is said to have contained the conditions of sale was not produced. The Assistant Excise Commissioner (PW 1) in his testimony referred to Rule 357 of the Excise Manual. The relevant part of the rule is as follows:

¶288

“The following conditions shall apply to all sales under the auction system, and will be inserted at the foot of the sale proclamation if such

¶289

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proclamation is issued by the Excise Commissioner:

¶292

(1) The officer conducting the sales is not bound to accept the highest or any bid. In any case when the highest or any bid is not proposed to be accepted, the next highest bid should also be reported to the Excise Commissioner.

¶293

(2) The final acceptance of any bid is subject to the sanction of the Excise Commissioner.

¶294

(3) Every person bidding will be held to his bid, whether it be the highest or not.

¶295

(4) A sum equal to one-sixth of the annual fees shall be payable immediately on the conclusion of the sales for the day, and the balance by such instalments as are specified in the licence to be granted. If default be made in the payment of the advance instalment, the shop or farm will be resold, and if the price finally bid at the resale be less than that bid at the first sale, the difference will be recovered from the defaulter.”

¶296

Section 77 of the U.P. Excise Act, 1910 states:

¶297

“All rules made and notifications issued under the Act shall be published in the Official Gazette and shall have effect as if enacted in this Act from the date of such publication or from such other date as may be specified in that behalf.”

¶298

The High Court found that the conditions mentioned in Rule 357 had never been published as required and they did not, therefore, have the force of law. The High Court held that Part II of the Excise Manual which includes Rule 357 contained provisions which were “commonly referred to as rules” but were not really statutory rules and that it was “a sort of book of guidance”. Before us it was claimed on behalf of the appellant that some of the conditions contained in Rule 357 had been published in the Official Gazette, but the learned Counsel for the appellant, State of Uttar Pradesh, was not in a position to dispute that at least the last part of the fifth condition providing that in case of default, if the price fetched at the resale was less than the bid at the first sale the difference would be recovered from the defaulter, had not been published. That being so it must be held that there was no law under which the respondent could be asked to make amends for the shortfall.

¶299

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¶301

The question that remains to be answered is, even if there were no statutory provisions, whether there was a concluded contract between the appellant and the respondent under which the respondent was liable to pay 20,100 which represents the difference between the highest bid at the first sale and the price fetched at the resale. The sale proclamation containing the conditions of sale has not been produced. Assuming that the different clauses of 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 between the parties to make the respondent liable for the alleged loss. The point appears to have been decided by this Court in Union of India v. Bhim Sen Walaiti Ram [(1969) 3 SCC 146, 148 : (1970) 2 SCR 594] . This was a case of an auction for the sale of licence for a country liquor shop in Delhi for the year 1949-50. Clause 33 of the conditions of sale provided inter alia: “All final bids will be made subject to the confirmation by the Chief Commissioner who may reject any bid without assigning any reasons.” This condition is similar to clause 2 of Rule 357 in the instant case. Ramaswami, J. speaking for the court in Bhim Sen case [(1969) 3 SCC 146, 148 : (1970) 2 SCR 594] observed: (SCC p. 148, para 4)

¶302

“It is, therefore, clear that the contract of sale was not complete till the bid was confirmed by the Chief Commissioner and till such confirmation the person whose bid has been provisionally accepted is entitled to withdraw his bid. When the bid is so withdrawn before the confirmation of the Chief Commissioner the bidder will not be liable for damages on account of any breach of contract or for the shortfall on the resale. An acceptance of an offer may be either absolute or conditional. If the acceptance is conditional the offer can be withdrawn at any moment until absolute acceptance has taken place.”

¶303

T he appeal is dismissed but in the circumstances of the case we make no order as to costs.

¶304

VENKATARAMIAH, J. (dissenting).— I have had the advantage of perusing the judgment prepared by my learned brother, Gupta, J. I regret my inability to agree with the

¶305

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¶307

conclusion reached by him.”

¶308

IV. The Hon’ble Supreme Court in the case of Uttar Pradesh Avas Evam Vikas Parishad and ors vs. Om Prakash Sharma reported in (2013)5 SCC 182 observed thus:

¶309

38. Further, the unaccepted offer of the plaintiff does not create any right or any obligation on the part of the defendant to execute the lease deed. In fact, this principle is well settled by this Court in BhagwandasGoverdhandas Kedia v. Girdharilal Parshottamdas & Co. [AIR 1966 SC 543] wherein this Court has held that mere making of an offer does not form part of the cause of action for claiming damages for breach of contract. In the case in hand, the aforesaid principle, without recourse, is applicable in the fact situation for the reason that the plaintiff was the highest bidder and his offer was merely accepted but no communication was sent to him as required under Section 3 of the Contract Act. Therefore, no legal right accrued in favour of the plaintiff to invoke remedy available under Section 34 of the Specific Relief Act, seeking declaratory relief as prayed in the original suit filed by the plaintiff. ”

¶310

V. The Hon’ble Supreme Court in the case of Haryana Urban Development Authority and Ors vs. Orchid Infrastructure Developers Private Limited reported in (2017) 4 SCC 243 observed thus:

¶311

“ 13. It is a settled law that the highest bidder has no vested right to have the auction concluded in his favour. The Government or its authority could validly retain power to accept or reject the highest bid in the interest of public revenue. We are of the considered opinion that there was no right acquired and no vested right accrued in favour of the plaintiff merely because his bid amount was highest and had deposited 10% of the bid amount. As per Regulation 6(2) of the 1978 Regulations, allotment letter has to be issued on acceptance of the bid by the Chief Administrator and within 30 days thereof, the successful bidder has to deposit another 15% of the bid amount. In the instant case, allotment letter has never been issued to the petitioner as per Regulation 6(2) in view of non-acceptance of the bid. Thus, there was no concluded contract. Regulation 6 of

¶312

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the 1978 Regulations is extracted hereunder:

¶315

“ 6. Sale of lease of land or building by auction .—(1) In the case of sale or lease by auction, the price/premium to be charged shall be such reserve price/premium as may be determined taking into consideration the various factors as indicated in sub-regulation (1) of Regulation 4 or any higher amount determined as a result of bidding in open auction.

¶316

(2) 10 per cent of the highest bid shall be paid on the spot by the highest bidder in cash or by means of a demand draft in the manner specified in subregulation (2) of Regulation 5. The successful bidder shall be issued allotment letter in Form CC or C-II by registered post and another 15 per cent of the bid accepted shall be payable by the successful bidder, in the manner indicated, within thirty days of the date of allotment letter conveying acceptance of the bid by the Chief Administrator; failing which the 10 per cent amount already deposited shall stand forfeited to the authority and the successful bidder shall have no claim to the land or building auctioned.

¶317

(3) The payment of balance of the price/premium, rate of interest chargeable and the recovery of interest shall be in the same manner as provided in sub-regulations (6) and (7) of Regulation 5.

¶318

(4) The general terms and conditions of the auction shall be such as may be framed by the Chief Administrator from time to time and announced to the public before auction on the spot.”

¶319

We are fortified in our view by a decision of this Court inU.P. Avas Evam Vikas Parishad v.Om Prakash Sharma [U.P. Avas Evam Vikas Parishad v. Om Prakash Sharma, (2013) 5 SCC 182 : (2013) 2 SCC (Civ) 737] , wherein the questions arose for its consideration that : whether there is any vested right upon the plaintiff bidder until the bid is accepted by the competent authority in relation to the property in question? Merely because the plaintiff is the highest bidder by depositing 20% of the bid amount without there being approval of the same by the competent authority and it amounts to a concluded contract in relation to the

¶320

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plot in question; and whether the plaintiff could have maintained the suit in the absence of a concluded contract? Considering the aforesaid questions, this Court has discussed the matter thus : (SCC pp. 195-97, paras 30-31)

¶323

“30. In support of the said proposition, the learned Senior Counsel for the defendant, Mr Rakesh Dwivedi has also placed reliance upon another decision of this Court in State of U.P. v. Vijay Bahadur Singh [State of U.P. v. Vijay Bahadur Singh, (1982) 2 SCC 365] . The learned Senior Counsel has rightly placed reliance upon the judgment of this Court in Rajasthan Housing Board case [Rajasthan Housing Board v. G.S. Investments, (2007) 1 SCC 477] which reads as under : (SCC p. 483, para 9)

¶324

‘9. This being the settled legal position, the respondent acquired no right to claim that the auction be concluded in its favour and the High Court clearly erred in entertaining the writ petition and in not only issuing a direction for consideration of the representation but also issuing a further direction to the appellant to issue a demand note of the balance amount. The direction relating to issuance of the demand note for balance amount virtually amounted to confirmation of the auction in favour of the respondent which was not the function of the High Court.’

¶325

In State of Orissa v. Harinarayan Jaiswal [State of Orissa v. Harinarayan Jaiswal, (1972) 2 SCC 36] case, relevant paragraph of which reads as under : (SCC pp. 44-45, para 13)

¶326

‘13. … There is no concluded contract till the bid is accepted. Before there was a concluded contract, it was open to the bidders to withdraw their bids (see Union of India v. Bhim Sen Walaiti Ram [Union of India v. Bhim Sen Walaiti Ram, (1969) 3 SCC 146] ). [ Ed. : The matter between two asterisks has been emphasised in Avam Evam Vikas Parishad case, (2013) 5 SCC 182.] By merely giving bids, the bidders had not acquired any vested rights [ Ed. : The matter between two asterisks has been emphasised in Avam Evam Vikas Parishad case, (2013) 5 SCC 182.] ’.

¶327

***

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¶330

In view of the law laid down by this Court in the aforesaid decisions, the learned Senior Counsel Mr Rakesh Dwivedi has rightly placed reliance upon the same in support of the case of the first defendant, which would clearly go to show that the plaintiff had not acquired any right and no vested right has been accrued in his favour in respect of the plot in question merely because his bid amount is highest and he had deposited 20% of the highest bid amount along with the earnest money with the Board. In the absence of acceptance of bid offered by the plaintiff to the competent authority of the first defendant, there is no concluded contract in respect of the plot in question, which is evident from letters dated 26-5-1977 and 8-7-1977 wherein the third defendant had rejected the bid amount deposited by the plaintiff and the same was refunded to him by way of demand draft, which is an undisputed fact and it is also not his case that the then Assistant Housing Commissioner who has conducted the public auction had accepted the bid of the plaintiff.”

¶331

(emphasis supplied)

¶332

This Court in Om Prakash Sharma case [U.P. Avas Evam Vikas Parishad v. Om Prakash Sharma, (2013) 5 SCC 182 : (2013) 2 SCC (Civ) 737] has held that in the absence of a concluded contract which takes place by issuance of allotment letter, suit could not be said to be maintainable as there is no vested right in the plaintiff without approval of the bid by the competent authority. Thus, in the wake of the aforesaid decision, in the absence of a concluded contract, the suit could not have been decreed for mandatory injunction. It amounted to enforcing of contract in the absence thereof.

¶333

In the light of the aforesaid discussion, it is evident that in the absence of a concluded contract i.e. in the absence of allotment letter and acceptance of highest bid, the suit filed by the plaintiff was wholly misconceived. Even if non-acceptance of the bid was by an incompetent authority, the court had no power to accept the bid and to direct the allotment letter to be issued. Merely on granting the declaration which was sought that rejection was illegal and arbitrary and by incompetent authority, further relief of mandatory injunction could not have been granted, on the basis of

¶334

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findings recorded, to issue the allotment letter, as it would then become necessary to forward the bid to competent authority—Chief Administrator—for its acceptance, if at all it was required.”

¶337

VI. The Hon’ble Supreme Court in the case of Padia Timber Company Private Limited vs. Board of Trustees of Vishakapatnam through its Secretary reported in (2021) 3 SCC 24 observed thus:

¶338

The trial court relied on Section 4 of the Contract Act, but completely overlooked Section 7. Section 7 of the Contract Act, 1872 is set out hereinbelow for convenience:

¶339

“ 7. Acceptance must be absolute .—In order to convert a proposal into a promise the acceptance must—

¶340

(1) be absolute and unqualified;

¶341

(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but, if he fails to do so, he accepts the acceptance.”

¶342

It is a cardinal principle of the law of contract that the offer and acceptance of an offer must be absolute. It can give no room for doubt. The offer and acceptance must be based or founded on three components, that is, certainty, commitment and communication. However, when the acceptor puts in a new condition while accepting the contract already signed by the proposer, the contract is not complete until the proposer accepts that condition, as held by this Court in Haridwar Singh v. Bagun Sumbrui [Haridwar Singh v. Bagun Sumbrui, (1973) 3 SCC 889] . An acceptance with a variation is no acceptance. It is, in effect and substance, simply a counter-proposal which must be accepted fully by the original proposer, before a contract is made.

¶343

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¶345

In Union of India v. Bhim Sen Walaiti Ram [Union of India v. Bhim Sen Walaiti Ram, (1969) 3 SCC 146] , a three-Judge Bench of this Court held that acceptance of an offer may be either absolute or conditional. If the acceptance is conditional, offer can be withdrawn at any moment until absolute acceptance has taken place.

¶346

In Jawahar Lal Burman v. Union of India [Jawahar Lal Burman v. Union of India, AIR 1962 SC 378] , referred to by the High Court, this Court held that under Section 7 of the Contract Act acceptance of the offer must be absolute and unqualified and it cannot be conditional. However, in the facts and circumstances of that case, on a reading of the letter of acceptance as a whole, the appellant's argument that the letter was intended to make a substantial variation in the contract, by making the deposit of security a condition precedent instead of a condition subsequent, was not accepted.

¶347

The High Court also overlooked Section 7 of the Contract Act. Both the trial court and the High Court overlooked the main point that, in the response to the tender floated by the respondent Port Trust, the appellant had submitted its offer conditionally subject to inspection being held at the Depot of the appellant. This condition was not accepted by the respondent Port Trust unconditionally. The respondent Port Trust agreed to inspection at the Depot of the appellant, but imposed a further condition that the goods would be finally inspected at the showroom of the respondent Port Trust. This condition was not accepted by the appellant. It could not, therefore, be said that there was a concluded contract. There being no concluded contract, there could be no question of any breach on the part of the appellant or of damages or any risk purchase at the cost of the appellant. The earnest deposit of the appellant is liable to be refunded.

¶348

Since we hold that the appellant was neither in breach nor liable to damages, it is not necessary for us to examine the questions of whether the compensation and/or damages claimed by the respondent Port Trust was reasonable or excessive, whether claim for damages could only be maintained subject to proof of the actual damages

¶349

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¶351

suffered, and whether the respondent Port Trust had taken steps to mitigate losses. We also need not embark upon the academic exercise of deciding whether prior approval of the Board of Trustees is a condition precedent for creation of a valid contract for supply of goods, or whether post facto ratification by the Board would suffice.

¶352

The appellant was entitled to refund of earnest money deposited with the respondent Port Trust. The earnest money shall be refunded within four weeks with interest @ 6% p.a. from the date of institution of Suit No. 450 of 1994 till the date of refund thereof.”

¶353

VII. The Hon’ble Supreme Court in the case of TK Petroleum vs. OL of Prime Floor Tiles reported in 2012 SCC Online Guj 4893 observed thus:

¶354

“13. In the case on hand, admittedly, nothing happened on 29.10.2010, and though, the bidders were present before the Court, no order was passed by the concerned Court, except, posting the matter on a subsequent date. Even, the inter se bidding also did not take place. The appellant, herein, therefore send a letter to the Office of the Official Liquidator, on the very same day i.e. on 29.10.2010 to permit him to withdraw his bid. Later on, the appellant also preferred an application being Civil Application No. 535 of 2010 before this Court, on 25.11.2010. Thus, if, what the learned Company Judge has recorded in Para-9 of the impugned order is correct that the bids were opened on 29.10.2010, then, the appellant has naturally no right whatsoever to seek refund of E.M.D. Admittedly, no bids were opened on 29.10.2010. It, therefore, seems that the learned Company judge committed a factual error, while making observation in this behalf in the impugned order. Considering the said aspect and considering the fact that the matter was adjourned, thereafter, from time to time and in the meanwhile, the appellant filed Civil Application No. 535 of 2010, on 25.11.2010, seeking withdrawal of his E.M.D., we are of the opinion that the appellant is entitled to withdraw his bid and there is no justification in forfeiting the entire E.M.D.

¶355

14. Here, it may be noted that Clause-10 of the Terms

¶356

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¶358

and Conditions of the tender starts with, “ APPLICABLE ONLY ON SALE OF LAND (11 TO 13) ”. Even, Clauses-14 to 16 also appear to be applicable only after the sell of land. In other words, the clauses from Clause-10 onwards, shall be applicable only after sale takes place. Clause-25 pertains to the offer and it provides that the offerer shall not be entitled to withdraw or cancel his offer once submitted, and if, any offerer withdraws or cancels his offer, his Earnest Money Deposit shall be liable to be forfeited and he will also be liable to pay the Official Liquidator the loss, damages suffered consequent upon his backing out of his offer. Clause-25, further, provides that property/assets in question will then be re-sold at the risk and consequences of the offerer. It is, therefore, clear that, in a case where, an offerer's offer is accepted, then, subsequently he cannot withdraw his bid and the property/asset is required to be resold.

¶359

In support of his submissions, learned Counsel for the appellant, Mr. Pahwa, has placed reliance on a decision of the Hon'ble Apex Court in “UNION OF INDIA v. BHIM SEN WALAITI RAM”, reported in (1969) 3 SCC 146, wherein, in Para-4, the Hon'ble Apex Court has observed as under:

¶360

“ 4. On behalf of the appellants it was contended by Dr. Seyid Muhammad that the respondent was under a legal obligation to pay one-sixth of the annual fee within seven days of the auction under cl. 21 of r. 5.34 and it. was due to his default that a resale of the excise shep was ordered. Under cl. 22 of r. 5.34 the respondent was liable for the deficiency in price and all expenses of such resale which was caused by his default. We are unable to accept this argument. The first portion of cl. 21 requires the “person to whom the shop has been sold” to deposit one-sixth of the total annual fee within seven days. But the sale is deemed to have been made in favour of the highest bidder only on the completion of the formalities before the conclusion, of the sale. Clause 16 of r. 5.34 states that “all sales are open to revision by the Chief[Commissioner”. Under cl. 18, the Collector has to make a report to the Chief Commissioner where in his discretion he is accepting a lower bid. Clause 33 of the Conditions, Ex. D-28, states that

¶361

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¶363

“all final bids will be made subject to the confirmation by the Chief Commissioner who may reject any bid without assigning any reasons.” It is, therefore, clear that the contract of sale was not complete till the bid was confirmed by the Chief Commissioner and till such confirmation the person whose bid has been provisionally accepted is entitled to withdraw his bid. When the bid is so withdrawn before the confirmation of the Chief Commissioner the bidder will not be liable for damages on account of any breach of contract or for the shortfall on the resale. An acceptance of an offer may be either absolute or conditional. If the acceptance is conditional the offer can be withdrawn at any moment until absolute acceptance has taken place. This view is borne out by the decision of the Court of Appeal in Hussey v. Horne Payne(1). In that case V offered land to P and P accepted ‘subject to the title being approved by my solicitors’. V later refused to go on with the contract and the Court of Appeal held that the acceptance was conditional and there was no binding contract and that V could withdraw at any time Until P's solicitors had approved the title. Jessel, M.R. observed at p. 626 of the report as follows:

¶364

¶365

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¶366

C/OJA/3/2021 ORDER DATED: 24/03/2022

¶367

¶368

In the instant case, the bid of the appellant was never opened or discussed on the first date fixed for opening the same i.e. 29.10.2010. Had it been the case, where the bids were opened or discussed on the date appointed for the said purpose and then, the matter was adjourned for further discussion, at such a stage, no offerer can be permitted to withdraw his bid, which is not the case, here. At the most, the expenditure incurred by the Official Liquidator can be deducted while refunding the E.M.D., such as advertisement costs etc. Considering the same, appeal requires to be allowed.

¶369

6.8. Mr. Shelat contended that the submission of the secured creditors that once a person submits an EMD to

¶370

Page 51 of 63

¶371

C/OJA/3/2021 ORDER DATED: 24/03/2022

¶372

participate in a scheduled auction, in the event of his non-participation, the EMD is to be forfeited, would mean that the participation by and in itself is an offer and the same cannot be withdrawn even before the same is put for consideration in an scheduled auction. Such a provision in an auction notice would be unenforceable being illegal and unconscionable. Section 5 of the Contract Act permits withdrawal of bid before its acceptance. There cannot be any condition prohibiting a bidder from exercising such a statutory right. Any such condition inconsistent with the provisions of the Contract Act has no force and no binding effect. In support of his above submission, Mr. Shelat relied upon the judgment of the Hon’ble Supreme Court in the case of Vishal Builder (supra).

¶373

6.9. Mr. Shelat further contended that the subject matter of proceedings arise out of the sale which is to be conducted in accordance with Rule 272 and 273 of the Company Court Rules read with Section 483 of the Companies Act, 1956. It was contended that the full disclosure is an essential duty in any sale conducted under the Companies Act. Having regard to the same, this Court has in the judgment 17.07.2012 and 19.07.2012 in the matter of Indian Oil Peoples Cooperative Housing Limited (Company Application No.507/2011 in OLR Report No.137 of 2010) reiterated the guidelines to be followed by the Office of the Official Liquidator while dealing with sale of the properties of a

¶374

Page 52 of 63

¶375

C/OJA/3/2021 ORDER DATED: 24/03/2022

¶376

company in liquidation. Para 18 (12) is relevant for consideration:

¶377

“(12) When the advertisement for sale of any property is issued, said advertisement should contain exact description including measurement, location, situation etc. of the property in question and the details as to whether there are any encumbrance, encroachment, attachment order etc., also should be mentioned clearly in the advertisement so as to avoid any subsequent dispute with regard to the possession, and / or measurement and title – ownership of the property in question.”

¶378

6.10. Mr. Shelat lastly contended that the subject advertisement did not disclose the material particulars as required under Section 483 of the Companies Act, 1956 as well as the guidelines issued in the abovereferred judgment. Mr. Shelat also contended that it was not disclosed to the bidders that it was impermissible to use the land for commercial purposes and the land was of a restricted nature. Having regard to the said information being provided by the Gujarat Industrial Development Corporation, the answering Respondent had no option but to withdraw its participation as having regard to the restricted nature of use of the property, it was not possible for the Applicant to make use of the same (industrial purpose). It was also contended that the withdrawal from participation is, therefore, natural and clearly justified and not on account of any oblique object or purpose and the answering Respondent cannot be subjected to the harsh penalty of a forfeiture when the action of the Official

¶379

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¶380

C/OJA/3/2021 ORDER DATED: 24/03/2022

¶381

Liquidator himself is not in accordance with the law and the judgments of this Hon'ble Court. Even otherwise when there is a mistake of fact, the earnest money deposit cannot be forfeited. On the aforesaid grounds, Mr. Shelat, contended that the appeals filed by the appellants are meirtless and deserves to be dismissed.

¶382

7.0. Mr. Pratik Acharya, learned advocate for the Official Liquidator has submitted the copy of the OLR No.54 of 2020 before this Hon’ble Court.

¶383

8.0. No other and further submissions/ contentions/ grounds have been raised by the learned advocates for the respective parties.

¶384

9.0. Upon considering the submission made, it emerges from the fact that land in question belonging to the company in liquidation was put to sell by the Official Liquidator and vide order dated 12.1.2021 the Company Court approved the upset price as well as EMD price for sale of assets and property in question and also further permitted to give advertisement in daily newspapers – Gujarat Samachar in all Gujarat Edition and the Time of India in Ahmedabad Edition for inviting attention for sale of assets of the company in liquidation. The order clearly stipulates that the sale programme in para 8 therein the Company Judge has fixed the upset price of the property in question i.e. Rs.9,20,00,000/- and EMD at Rs.92,00,000/-. The sale scheduled as fixed by the

¶385

Page 54 of 63

¶386

C/OJA/3/2021 ORDER DATED: 24/03/2022

¶387

Company Court provides that the date of advertisement would be 22.1.2021, last date of receipt of offer / tender forms 15.2.2021 and the E auction was to be held on 22.2.2021. It was thereafter modified to 26.2.2021 vide order dated 21.1.2021 passed below note for speaking to minutes. The terms and conditions were also approved and accordingly public advertisement was given in Gujarat daily as well as Time of India which stipulates that tender forms and terms and conditions can be obtained from the office of the Official Liquidator by depositing Rs.1000/- for participation in E-auction to be conducted on 26.2.2021 at 3.30 pm onwards. The terms and conditions which are relevant for deciding the issue involved in this appeal are as under:

¶388

“4.The sale is on “AS IS WHERE IS AND WHATEVER TEHRE IS BASIS.

¶389

9. The e-auction will be conducted through the website https://olauction.enivida.com on 26.2.2021 at 3.30. pm onwards with auto time extension of 10 minutes each time if the bid is made in the last minutes before close of e-auction till sale is concluded.

¶390

10. The Tenderers prior to submitting their online offer for assets put for e-auction are expected to visit and examine the assets / properties at the site and related documents at their own expenses as the assets / properties is being offered on “AS IS WHERE IS AND WHATEVER THERE IS BASIS”. They should ascertain on their own responsibility all information, technical data, market study etc. including actual conditions existing services etc. The tenderer shall be deemed to have full knowledge of the assets / properties whether he / she / they inspect it or not.

¶391

The sale of the properties of the company shall be on “As is where is and whatever there is basis” and subject to confirmation of the Hon’ble High Court of Gujarat. The intending purchaser must satisfy themselves in all respects as regards the assets and properties of the company on “as is where is and whatever there is basis”. The purchaser shall not be

¶392

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¶393

C/OJA/3/2021 ORDER DATED: 24/03/2022

¶394

entitled to claim any compensation or deduction in price on any account whatsoever after confirmation of sale in his / her / their favour.

¶395

The tenders shall not be entitled to withdraw or cancel e-tender (s) online offer once submitted. The highest offeror in the inter-se bidding shall not be eligible to withdraw his / her / their offer till the finalization of sale proceedings by the Hon’ble High Court.

¶396

The offeror shall not be entitled to withdraw or cancel his offer once submitted. If the offeror withdraw or cancel his offer the Earnest Moeny Deposit (EMD) shall be liable to be forfeited and he will also be liable to pay to the Official Liquidator the loss, damage suffered consequent upon his backing out of their offer. The property / assets in question will then be re-sold at the risk and consequences of the offeror.

¶397

Pending the confirmation of sale by the Hon’ble High Court of Gujarat bidders will not be allowed to withdraw their offer.”

¶398

It is an admitted position that though six tender forms were sold only respondent no.1 deposited the EMD for participation in the E-auction to be held on 26.2.2021. It is also matter of fact that respondent no.1 after depositing amount of EMD approached the office of the Official Liquidator vide communications dated 17.2.2021 and 23.2.2021 by three different communications. However, the office of the Official Liquidator did not respond to the same. It appears from the record that after respondent no.1 depositing EMD, OLR No.54 of 2021 came to be filed by the Official Liquidator wherein the Official Liquidator did disclose on 18.2.2021 that respondent no.1 is the only bidder. The said OLR was heard on 26.2.2021. However, the fact that respondent no.1 has withdrawn participation and has prayed for refund of EMD was not made known to the Company Court and it is matter of fact that no

¶399

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¶400

C/OJA/3/2021 ORDER DATED: 24/03/2022

¶401

auction took place on 26.2.2021 and the same was postponed to 26.3.2021. The advertisement in question speaks of deposit of EMD for participation and the offer quoting particulars price is to be given by such bidder at the time of E-auction which has never taken place till date. Therefore, as such there was no offer by the respondent no.1 which being accepted would constitute a concluded contract. The terms and condition no.38 provides that offeror shall not be entitled to withdraw or cancel his offer once submitted and in case if the offeror withdraws or cancels his offer the EMD shall be liable to be forfeited and he also be liable to pay to the Official Liquidator the loss, damage suffered consequent upon his backing out of their offer. In opinion of this Court, apart from the other conditions which are relied upon by the respective learned counsel for the respective parties, condition no.38 touches core issue involved in this appeal. Even at the cost of repetition, it deserves to be observed that it is E-auction and therefore, actual offer was to be given when an offeror bids in the E-auction and such an occasion has not arisen at all this case. It is no doubt true that originally auction was fixed on 26.2.2021 and the same was postponed to 26.3.2021 not on the ground that respondent no.1 has withdrawn the offer but on the ground that the respondent no.1 was the single bidder and the said order is not challenged by any party before the appellate forum and the fact remains that till date no E-auction has taken place. Therefore, the order passed by the learned

¶402

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¶403

C/OJA/3/2021 ORDER DATED: 24/03/2022

¶404

Company Judge for refunding the EMD cannot be faulted and therefore, no occasion has arisen for the respondent no.1 to make its offer at the E-auction. Considering the judgment of the Hon’ble Supreme Court in the case of National Highway Authority of India (supra) relied upon by the learned advocate for the appellant, in the said case, the Hon’ble Supreme Court has considered the fact situation, which is quite different and distinct from the case on hand. The said case relating to the government contract the bidder withdrew the bid after bids were opened whereas in this case it being E-auction and offer is yet to be made and auction proceedings were only at the stage of participation stage and therefore, the said decision would not be applicable to the facts of the present case. Similarly, in the case of State of Maharashtra and others (supra), the offer was sought to be withdrawn after the bids were opened and therefore, the Hon’ble Supreme Court has held that no bid could be withdrawn during the said period of 45 days and interpreting clause 7 of tender document, the Hon’ble Supreme Court has held that the as per the clause provisional result has to be declared as early as possible and withdrawal was made while tender was under consideration. The said judgment also would not take the case of the appellant any further. In the case of National Thermal Power Corporation Limited (supra), withdrawal was sought for after the offer was made and bids were opened and therefore, the Hon’ble Supreme

¶405

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¶406

C/OJA/3/2021 ORDER DATED: 24/03/2022

¶407

Court in fact situation referring to the Section 5 of the Contract Act, 1972 came to be conclusion that the Earnest Money stand forfeited and hence said judgment would not be applicable to the facts of the case on hand. In the case of Official Liquidator of Testeels Ltd (supra) was a case where inter-se bidding was made before sale committee and having participated in such inter-se bid, offer came to be withdrawn. However, in the instant case, such event has not occurred as E-auction has not taken place at all and therefore, judgment is of no avail to the appellant. Similarly judgment of the Hon’ble Supreme Court in the case of Delhi Development Authority (supra), in the case of Shree Hanuman Cotton Mills & Ors (supra) as well as in the case of the Satish Batra(supra), also would not be applicable to the facts of the present case. Similarly, in the case of Huda and Another (supra), the Hon’ble Supreme Court has considered the condition attached to the sale of the residential plots of Haryana Urban Development Authority and condition thereof wherein the allottee has accepted the allotment and having paid some payment on installment it is then request made to surrender the land which was considered to be default on his part and therefore, it was held that forfeiture has to follow. The said would not be applicable to the facts of the present case. Similarly, reliance placed upon the judgment of the Hon’ble Supreme Court in the case of OL of Prime Floor Tiles Pvt. Ltd (supra) is also on a different fact situation wherein the offer was made in a seal cover

¶408

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¶409

C/OJA/3/2021 ORDER DATED: 24/03/2022

¶410

along with EMD of Rs.47 lakhs wherein in the instant case it is being E-auction Earnest Money was deposited only to participate in the E-auction which has never taken place and therefore, the said decision would also not be applicable.

¶411

As held by this Court in the case of T.K. Petroleum (supra), in the instant case no auction has taken place and therefore, there was no offer of price made by the respondent no.1. Even considering the provisions of Contract Act not only acceptance is missing but even stage of offer could not be availed as auction has not taken place and in such situation directions issued by the Company Court to refund the EMD to respondent no.1 is not hit by any provision of the Contract Act or any of the terms and conditions of the auction, more particularly, condition no.38. As far as other limb of arguments made as regard direction issued for revaluation and re-sell of the property in question is concerned, as such appeals are directed only against the order passed in Company Application No.18 of 2021 filed by the respondent no.1 for refund of the EMD. It is the duty of the Court to see that best price is available and only because the fourth attempt also failed, is of no consequence. The contention raised by Mr. Soparkar, learned counsel for the appellant in OJ Appeal No. 3 of 2021 that the amount of Earnest Money Deposit by the respondent no.1 be retained till the procedure is undertaken by the Official Liquidator as per the

¶412

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¶413

C/OJA/3/2021 ORDER DATED: 24/03/2022

¶414

directions issued by this Court also without any merits. Only because Earnest Money was deposited for participation in the E-auction which has never taken place the amount of EMD cannot be forfeited in peculiar facts arising in this case. Mr. Shelat has rightly relied upon the judgment of the learned Single Judge of this Court rendered in Company Application No.507 of 2011 in OLR No.137 of 2010, more particularly para 18 wherein below mentioned directions are passed:

¶415

“5. After the details regarding all properties and assets of the company are collected the OL must recognize or cross check the said details with the revenue record or municipal record and collect the copy of the relevant Forms of the revenue record e.g. form No. 6, 8, 7 x12 etc. or municipal property card or municipal tax.

¶416

When the advertisement for sale of any property is issued, said advertisement should contain exact description including measurement, location, situation etc. of the property in question and the details as to whether there are any encumbrances, encroachment, attachment order etc. also should be mentioned clearly in the advertisement so as to avoid any subsequent dispute with regard to the possession and / or measurement and title- ownership of the property in question.”

¶417

The details regarding property in question and the encumbrance upon the property in question is to be made known to all and when specific request was made by the respondent no.1 before the Official Liquidator that please furnish details of the land in question in view of the guidelines issued by this Court, therefore, this judgment is applicable in the facts of the present case. Even considering the decisions relied upon by Mr.

¶418

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¶419

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¶420

Shelat, learned advocate for the respondent no.1 in peculiar facts and circumstance as the respondent no.1 as a bidder in fact asked for certain details which were admittedly not provided by the Official Liquidator and additionally as the auction has not taken place, had no occasion to make an offer of a price which could be examined at the time of E-auction and as no auction has taken place, there was no occasion to give an offer, the question of acceptance does not arise. The contention that the appellant as secured creditors have no objection if the property in question is put to sell and in the meanwhile the EMD by the respondent no.1 be retained by the office of the Official Liquidator and in case of any loss, the same may be recovered from such EMD amount, deserves to be negatived outright.

¶421

Resultantly, both the appeals fail and are hereby dismissed. As both the appeals are dismissed, connected Civil Applications are also dismissed. However, there shall be no order as to costs.

¶422

sd /- (R.M.CHHAYA,J)

¶423

sd/(HEMANT M. PRACHCHHAK,J)

¶424

FURTHER ORDER

¶425

After pronouncement of the judgment, Mr. Tirth Nayak, learned advocate on behalf of Mr. Monaal Davawala, learned advocate for the appellant prays that stay

¶426

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¶428

granted by this Court vide order dated 27.10.2021 be continued for a period of 8 weeks to enable the appellant to approach the higher forum. Such request is objected to by Mr. Mitul Shelat, learned advocate for the respondent.

¶429

In facts of this case, the stay granted by this Court vide order dated 27.10.2021 is extended for a period of three weeks from today.

¶430

sd/(R.M.CHHAYA,J)

¶431

sd/- ( HEMANT M. PRACHCHHAK,J)

¶432

KAUSHIK J. RATHOD

¶433

Page 63 of 63

Director, Essen Finance and Investments Ltd. v. City Pulse Theaters Pvt. Ltd.

Case brief

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Director, Essen Finance and Investments Ltd. v. City Pulse Theaters Pvt. Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

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Cases cited

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