2007 Supreme(SC) 6

2007(1) Supreme 207
SUPREME COURT OF INDIA
(From Special Court (Trial of Offences Relating to Transactions in Securities) at Bombay)
S.B. Sinha and Markandey Katju, JJ.
Yogesh Mehta—Appellant
versus
Custodian Appointed under the Special Court & Ors.—Respondents
Civil Appeal No. 4512 of 2006
With
Civil Appeal No. 4513 of 2006
Decided on 4-1-2007
Counsel for the Parties :
For the Appellant : Ms. Indu Malhotra, Gopal and Vikas Mehta, Advocates.
For the Respondents : Arvind Kumar Nigam, Ms. Kamini Jaiswal, Ms. Shomila Bakshi, Mrs. Sunita Dwivedi and Arvind Kumar Tewari, Advocates.

IMPORTANT POINTS
1. Having regard to the interim orders passed by the Supreme Court, the Special Court could not confirm the auction sale of properties of notified persons.
2. Forfeiture of earnest money is permissible only when a concluded contract has come into being and not prior thereto.

Headnote:(i) Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992—Section 3—Auction sale—Acceptance of bid subject to order of the Supreme Court—Whether having regard to interim orders passed by the Supreme Court, the Special Court could confirm the sale—(No)—Acceptance of auction by the Special Court was a provisional one—It was subject to the order of the Supreme Court—Confirmation of sale and sanction of auction connote two different things in such a case.

       Held : When a sale would be held to be completed would, thus, depend upon 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. The core question in this case would, thus, be whether having regard to the interim orders passed by this Court, the learned Judge, Special Court could confirm the sale. The answer thereto must be rendered in the negative. It is true that the learned Judge, Special Court, in its order dated 22.01.2004 directed the highest bidder to comply with the conditions, but what escaped the notice of the learned 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 20)

       If there had been a stay in regard to acceptance of the bid, it could not have been sanctioned. It could be sanctioned subject to the final order of this Court. Moreover, when this Court issued direction in regard to confirmation of sale, the matter ought to have been considered afresh.(Para 22)

       (ii) Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992—Section 3—Indian Contract Act, 1872—Auction sale of properties—Forfeiture of earnest money—Validity—Harshad Mehta case—Apart from late Harshad S. Mehta, the Custodian had notified 39 entities in terms of Section 3 of the Act, inter alia, comprising three of his younger brothers, his wife, wives of two of his younger brothers—Properties belonging to Harshad Mehta or other notified entities were put on auction—Notified parties challenged validity of auction sales—Auction sales in respect of commercial properties were allowed to be completed by orders passed by the Supreme Court from time to time—Various interim orders passed—Pursuant to or in furtherance of the said direction, question as to whether the auction sale in respect of residential premises should be confirmed or not came up for consideration before the Special Court—Order of forfeiture of earnest money holding that the auction purchaser had not deposited the balance amount within the period stipulated under the terms and conditions of the auction—Special Judge not having taken any further step to finalize the bids—Whether having regard to interim orders passed by the Supreme Court, Special Court could confirm the sale—(No)—Forfeiture of earnest money is permissible only when a concluded contract has come into being and not prior thereto.

       Held : 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. The word sanction has been used in clause 9 as also in clause 20. Evidently, the terms and conditions set out hereinbefore did not contemplate a situation of this nature. When the bid was accepted, it was for the Special Court to confirm the sale. It was only when the sale is confirmed, which 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 price, the auction purchaser would have been entitled to take delivery of possession.(Paras 15 and 16)

       Whether confirmation of sale and sanction of auction connote two different things was not in issue. Parties also construed the terms of the auction in the same manner. As noticed hereinbefore, acceptance of auction by the Special Court was a provisional one. It was subject to the order of this Court. It may be true that whereas in a case where the sanctioning authority is the court itself and confirmation of sale would not be subject to approval from some other authority; acceptance of the sale itself would amount to sanction thereof. But situation became completely different in view of the orders passed by this Court.(Para 17)

       In the peculiar facts and circumstances of this case, it is difficult to accept the submission of the learned counsel for the respondents that the bid was accepted finally, but only possession was to be taken by the purchasers at their own risk.(Para 23)

       There is another aspect of the matter which also cannot be lost sight of. Forfeiture of the earnest money, in our opinion, in the aforementioned situation, could not have been directed.(Para 27)

       While directing forfeiture of the earnest money the provisions of the Indian Contract Act, 1872 are to be kept in mind. Forfeiture is permissible only when a concluded contract has come into being and not prior thereto.(Para 29)

       For the reasons aforementioned, the impugned judgments cannot be sustained. They are set aside accordingly and the matter is remitted to the learned Judge, Special Court for consideration of the matter afresh in the light of the observations made hereinbefore. The appeals are allowed. We may, however, hasten to add that it will be open to the learned Judge, Special Court, to pass an appropriate order in accordance with law. (Para 32)

       (iii) WORDS AND PHRASES—Word ‘forfeiture’—Means losing or becoming liable to deprivation of goods in consequence of a crime, offence or breach of engagement.(Para 28)