YOGESH MEHTA versus CUSTODIAN APPOINTED UNDER THE SPECIAL COURT & ORS.

Citation: [2007] 1 S.C.R. 62 · Decided: 04-01-2007 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Appeal(s) allowed

Judgment (excerpt)

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YOGESH MEHTA 
v. 
CUSTODIAN APPOINTED UNDER THE SPECIAL COURT & ORS. 
JANUARY 4, 2007 
[S.B. SINHA AND MARKANDEY KA TJU, JJ.] 
Auction-Auction sale-By special Court-Challenged-This court 
permitted receiving of bid but stayed acceptance thereof-Provisional 
acceptance of highest bid by Special court-Sale not confirmed-Thereafter 
order by Special Court of forfeiture of the earnest money on the ground 
that auction purchaser failed to deposit the balance amount within the 
period stipulated under terms and conditions of auction-On appeal, held: 
Order of forfeiture not justified-Forfeiture is permissible only when 
concluded contract has come into being and not prior thereto-In the 
present case contract cannot be said to be concluded as the sale was not 
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sanctioned in view of the stay order of this Court-Contract Act, 1872. 
In the proceedings under Special Court (Trial of Offences Relating 
to Transactions in Securities) Act, 1992, properties of commercial and 
residential nature was put on auction. The validity of the auction sales were 
questioned. This Court allowed the auction sale in respect of commercial 
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properties. This Court directed receiving of the two bids in respect of 
residential properties but acceptance thereof was stayed. Thereafter special 
Court provisionally accepted the bids. The same was not finalized. Thereafter 
when the matter came to Special Court, it held that as the auction 
purchaser had not deposited the balance amount within the period stipulated 
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under terms and conditions of the auction, the earnest money deposited by 
the bidder was to be forfeited. 
In appeal to this Court against the order of Special Court, appellants 
(1) highest bidder of the residential property and (2) tenants of a residential 
building under auction, questioned the propriety of forfeiture of earnest 
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money. 
Allowing the Appeal and remitting the matter to Special Court, the 
Court, 
HELD: 1. Forfeiture of the earnest money, in the facts and 
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circumstances of the case, could not have been directed. While directing 
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YOGESH MEHTA v. CUSTODIAN APPOINTED UNDER THE SPECIAL COURT 
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forfeiture of the 'earnest money' the provisions of the Contract Act, 1872 
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are to be kept in mind. Forfeiture is permissible only when a concluded 
contract has come into being and not prior thereto. [Paras 31 and 33) 
[79-C,E-F) 
Chairman of the Bankura Municipality, Bankura v. Lalji Raja and 
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Sons (1953) SC 248 at 250; Mau/a Bux v. Union of India, [1969] 2 SCC 
554; Saurabh Prakash v. DLF Universal Ltd., 2006 (12) SCALE 531, 
referred to. 
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2. The acceptance of the bid herein was subject to order of this Court 
which by reason of the order of the Special Court or otherwise did not c 
result in a concluded contract. The deposit was to be made within sixty days 
from the date of grant of sanction which would mean final acceptance of the 
bid, which was to depend upon the ultimate order which was to be passed 
by this Court. [Para 28) [78-H, 79-A] 
3. When a sale would be held to be completed would, thus, depend upon 
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the fact of each case. Indisputably, it will primarily depend upon the terms and 
conditions of the contract. But herein there was another supervening 
circumstance i.e. the interim orders passed by this Court. Having regard to 
the interim orders passed by this Court, the Judge, Special Court could not 
confirm the sale. It is true that the Judge, Special Court, in its order dated 
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22.01.2004 directed the highest bidder to comply with the conditions, but 
what escaped the notice of the Judge was that sanction could not have been 
granted on a provisional basis. If there could be only one order of sanction, the 
same would mean the final one and not the provisional one. That is how the 
parties including the Custodian understood the same. [Para 23) 
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[76-F-H, 77-A] 
4. As per the terms and conditions of sale, the auction was to be held 
at two stages : (i) submission of the bid; and (ii) grant of sanction to the 
sale by the Special Court. When the bid was accepted, it was for the Special 
Court to confirm the sale. It was only when the sale is confirmed, which 
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was to be done by way of grant of sanction thereto, the purchaser was to 
pay the balance of the purchase price. Only on payment of such purchase 
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price, the auction purchaser would have been entitled to take delivery of 
possession. [Paras 15, 16 & 18) 
[74-B-EJ 
5. It may be true that whereas in a cas

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