Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1998 Supreme(Mad) 1119

High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE C. SHIVAPPA & THE HONOURABLE MR.
JUSTICE K. NATARAJAN
M/s Gemini Foundation rep. by J. Nizar, No. 60, G.N.T. Road, Mad- havaram High Road, Madras 600 110
Versus
V.B. Giri and others
O.S.A.No.38 of 1998 and C.M.P.No.4501 of 1998
Decided On : 24-08-1998

Advocates:
Mr. A.L. Somayaji, Senior Counsel, Advocate for Appellant. Mr. T.K.
Seshadhri, Advocate for Respondents.

The discretion given to the court under Rule 86 of Order 21 CPC to forfeit the deposit of a defaulting auction-purchaser must be exercised judiciously, taking into consideration the circumstances of the case and the reasons for the default.

Headnote:
CIVIL PROCEDURE CODE - ORDER 21 RULE 86 - FORFEITURE OF DEPOSIT - DISCRETION OF COURT - EXERCISE OF - CIRCUMSTANCES TO BE CONSIDERED - UNEXPECTED AND UNFORESEEN CONTINGENCIES - QUANTUM OF AMOUNT TO BE FORFEITED - REASONABLE LOSS INCURRED - ALLOWANCES FOR EXPENSES INCURRED - CALCULATION ON THE BASIS OF GENUINE PRE-ESTIMATE.
Fact of the Case:

The appellant, the highest bidder for the purchase of two suit properties, deposited 25% of the bid amount as required by the court. However, he failed to deposit the remaining amount within the stipulated time, leading to the cancellation of the sale order and forfeiture of the deposited amount. The appellant challenged this order, arguing that the non-deposit was due to unexpected and unforeseen contingencies beyond his control.
Finding of the Court:

The court held that the learned single judge failed to exercise discretion judiciously while ordering forfeiture of the entire amount. The court noted that the rule gives discretion to the executing court to forfeit the deposit after defraying the expenses of the sale, and that the words "if the court thinks fit" imply a certain amount of discretion about the quantum of amount to be forfeited, commensurate with the loss or damage suffered or expenses incurred on account of the breach or default committed by the purchaser.
Issues: 1. Whether the forfeiture of the entire amount of Rs.20,00,000 in deposit is valid in law? 2. What is the reasonable amount to be forfeited from the amount in deposit to meet the expenses, hardship and inconvenience suffered on account of the default in deposit by the appellants?
Ratio Decidendi: 1. The court held that the discretion given to the court under Rule 86 of Order 21 CPC must be exercised judiciously, taking into consideration the circumstances of the case and the reasons for the default. 2. The court held that the appellant's failure to deposit the remaining amount within the stipulated time was due to unexpected and unforeseen contingencies beyond his control, and that it was therefore unreasonable to forfeit the entire amount of the deposit. 3. The court held that the reasonable amount to be forfeited should be calculated on the basis of a genuine pre-estimate of the loss incurred, expenses suffered, and inconvenience caused to the decree-holders and the court.
Final Decision: The court modified the order of the learned single judge and ordered that a sum of Rs.14 lakhs be refunded to the appellant and from out of the balance of Rs.6 lakhs, subject to deductions as are prescribed in the lines suggested above, including the expenses of the sale thereout and loss occasioned to the respondents, the remaining amount to be forfeited to the Government.

Judgment :

C. Shivappa, J.

1. The appellant herein has challenged the order dated 12. 1998, passed on Application No. 321 of 1998 in C.S.No. 201 of 1981, by the learned single Judge on the Original Civil Jurisdiction of this Court, refusing permission to withdraw the amount deposited, as the highest bidder for the purchase of two of the suit properties, viz. (i) House Property bearing Door No. 1/110, III Block, Jaya Nagar, Bangalore-II, for Rs.80 lakhs; and (ii) a landed property situated in Old mahabalipuram Road for Rs 1 lakh. The Court accepted this offer for the above-mentioned properties and also laid down conditions to deposit 25% of the bid amount within four weeks from 30.4.1997 and to deposit the remaining amount within eight weeks thereafter and complete the sale.

2. The appellant on 25. 1997 deposited a sum of Rs. 20,00,000 being the 25% value for the Bangalore property and a sum of Rs. 1,00,000 being the 100% bid amount for the property situated at Old Mahabalipuram Road, He sought for further extension of time till 9. 1997. Since he did not muster the required balance amount within the time granted, the learned Judge was pleased to cancel the sale order, by his order dated 1. 1998.

3. The appellant applied for refund of Rs. 20 lakhs deposited by him, which was resisted by the respondents, stating that the amount has to be forfeited in view of the failure to deposit the balance amount within the time limit stipulated by the Court.

4. The learned single Judge by an order dated 112. 1998, ordered forfeiture of Rs.20 lakhs and dismissed the Application No. 321 of 1998, but, however, directed to keep the forfeiture alone in abeyance for four weeks from 12. 1998.

5. The learned Senior Counsel Mr. Somayaji contended that the learned Single Judge failed to exercise the discretion judiciously while ordering forfeiture of the amount. He also contended that on an earlier occasion when the court sale did not fructify, the entire amount in deposit was returned, along with Rs. 50,000 as solatium to the erstwhile bidder, and the same yard-stick was not applied to the case of the appellant and that the non- deposit was due to unexpected and unforeseen contingencies beyond his control. The counsel appearing for Respondents 1 to 13, though tried to defend the order in its entirety, but claimed that they are entitled for the loss and the expenses they have incurred in the conduct of the sale in terms of Rule 86 of Order 21.

6. The question involved is whether the forfeiture of the entire amount of Rs.20,00,000 in deposit is valid in law?

7. In order to appreciate the question, it is appropriate to set out Rule 86 of Order 21 CPC, which reads thus:

"86. Procedure in default of payment:-In default of payment within the period mentioned in the last preceding rule, the deposit may, if the Court thinks fit, after defraying the expenses of the sale, be forfeited to the Government, and the property shall be re-sold, and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may subsequently be sold."

Where the auction-purchaser failed to deposit the full amount of purchase-money payable by him, then under Rule 86, the sale by which the auction-purchaser purchased the property is automatically cancelled and he can have no interest in the property which was the subject of the sale. Since the sale was nevertheless null and void, the Executing Court was allowed to set it aside and resell the property. The words employed in R. 86, "may, if the Court thinks fit," gives discretion to the Executing Court after taking the circumstances into consideration, to exercise the discretion judiciously in the matter of forfeiture. The words, "if the Court thinks fit" are inserted to remove the hardship caused in certain circumstances. This implies certain amount of discretion about the quantum of amount to be forfeited, commensurate with the loss or damage suffered or expenses incurred on account of

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