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2024 Supreme(Kar) 695
KARNATAKA HIGH COURT
KRISHNA S. DIXIT, RAMACHANDRA D. HUDDAR, JJ.
The State of Karnataka and Ors. - Appellants
Versus
Ramaiah Reddy – Respondent
Writ Appeal No. 1640 of 2016 (KLR-RES)
Decided On : 28-05-2024
For the Appellants : Sri. G.S. Aruna, HCGP.
For the Respondent:Sri. K.N. Phaneendra, Sr. Counsel Sri. Yadupathi G., Advocate.
The doctrine of frustration applies when a contract becomes impossible to perform due to unforeseen circumstances, necessitating equitable relief and interest on deposits.
Headnote:(A) Karnataka High Court Act, 1961 - Section 4 - Indian Contract Act, 1872 - Section 56 - Doctrine of frustration of contract - The appeal challenges a Single Judge's order granting relief to a bidder whose auctioned land was restored to its original owner due to a Tribunal's ruling. The court found the State's actions arbitrary and directed the refund of the bid amount with interest. (Paras 1, 3, 4, 5, 6)
(B) Public auction - The contract was frustrated due to the land's forfeiture being voided, necessitating the refund of the bid amount and interest. (Paras 4(a), 5(e))
Facts of the case:
The respondent was the highest bidder in a public auction for land that was later restored to its original owner by a Tribunal, leading to the appeal against the refusal to refund the deposit without interest.
Findings of Court:
The court directed the refund of the bid amount with interest at 10% per annum and additional interest for delays, emphasizing the State's culpability in the auction process.
Issues: The main issues included the validity of the auction given the land's forfeiture status and the entitlement to interest on the deposit.
Ratio Decidendi: The court ruled that the doctrine of frustration applied, and the State's failure to disclose the land's status constituted a legal injury to the respondent, warranting equitable relief.
Result: Appeal succeeds in part; the impugned order is set aside with directions for refund and interest.
JUDGMENT :
(Krishna S. Dixit, J.)
This intra-court appeal filed under Section 4 of the Karnataka High Court Act, 1961, seeks to call in question a learned Single Judge's order dated 17.02.2016, whereby Respondent's W.P.No.2061/2016 (KLR-RES) having been favoured, relief has been granted to him. The operative portion of the order reads as under:
"It is pointed out by the learned Counsel for the petitioner that this is not the only instance and there have been other instances where such bidders have been denied the benefit of the land and further, even without the said bidders having taken recourse to proceedings before this court, the State Government has thought it fit to convey alternative land and therefore, this is one other instance, which would indicate that the State Government is acting arbitrarily insofar as the sale transactions are concerned. Hence, the petitioner would have to be given his due. Therefore, the stand of the learned Government Advocate that the State is not bound to pay interest or not bound to consider grant of alternative land cannot be accepted."
2. After service of notice, the respondent - bidder having entered appearance through his counsel vehemently opposes the appeal making submission in justification of the impugned order and the reasons on which it has been structured. Learned Sr. Advocate Mr. Phanindra contends that the scope for interference in an intra court appeal of the kind is restrictive; his client having suffered legal injury because of the culpable conduct of the appellant, relief needs to be granted to him, by moulding the prayer if need be. Alternatively, he seeks refund of the entire amount with interest at the commercial rates, as obtaining in the realm of banking.
3. Brief Facts:
(i) The subject land was notified for public auction vide Notification dated 16.05.2005. This land accrued to the State by way of forfeiture vide orders dated 22.09.2004 and 16.05.2005 since its owner had bought the same in violation of prohibitory sections 79A & 79B of the Karnataka Land Reforms Act, 1961. These orders were put in challenge by the land owner in Appeal Nos. 633/2005 & 647/2005 before the Karnataka Appellate Tribunal, Bengaluru.
(ii) The public auction was held on 27.05.2005 and the Writ Petitioner who happens to be the Respondent herein being the highest bidder remitted 25% of the bid amount on 28.05.2005, undertaking to pay the remainder in the specified timeline. Nothing was done in the matter presumably because land owner's appeals were pending. The said appeals came to be allowed on 11.06.2013 and the Appellate Tribunal set at naughty the forfeiture orders. As a result, the land was restored to its original owner.
(iii) In view of Tribunal's order whereby the forfeiture of land was set at naughty, the appellants herein had issued an endorsement dated 01.01.2016 telling that the 25% amount in deposit would be refunded to the writ petitioner that too without interest, thereby rejecting his claim for the grant of alternate land. Therefore, the subject writ petition was moved by him. The same having been favoured, a direction for grant of alternate land came to be issued. That is how this appeal against the same is at our hands.
4. Having heard the learned counsel for the parties and having perused the appeal papers, we are inclined to grant indulgence in the matter as under and for the following reasons:
(a) Indisputably the contract brought about by the public auction has been frustrated because of unavailability of the subject land on account of its forfeiture being voided by the Karnataka Appellate Tribunal and the land being restored to its owner. The doctrine of frustration of contract is enacted inter alia in Section 56 of the Indian Contract Act, 1872, which employs the word 'impossible'. The super meaning 'impossibility' in the performance of contract has to be construed in its practical and not literal sense vide Hirji Mulji v. Cheong Uyue Ss Co. Ltd., 1926 All England Reports 51
