Supreme Court Upholds Forfeiture of Security Deposit in Forest Auction Case: Chief Conservator of Forest & Ors. vs. Virendra Kumar & Ors. (2024) INSC 514 (10 July 2024)

Date of the Judgment: 10 July 2024
Citation: (2024) INSC 514
Judges: Vikram Nath, J., Satish Chandra Sharma, J.
Can a contractor forfeit their security deposit for failing to complete work after a forest auction? The Supreme Court of India recently addressed this question, ruling in favor of the Forest Department. This case clarifies the applicability of different versions of forest auction manuals and the responsibilities of contractors. The judgment was delivered by a two-judge bench comprising Justice Vikram Nath and Justice Satish Chandra Sharma.

Case Background

The Forest Department issued a public notice on 05 March 1998, inviting registered contractors to participate in a sale auction. The auction took place on 27 March 1998, where the Respondents emerged as the highest bidders for various lots, including lot No. 195. An agreement was executed on the same day between the Appellant and the Respondent for lot No. 195. The Divisional Forest Officer sent a proposal to the Conservator of Forests for approval of the auction proceedings, which was granted on 14 May 1998.

On 15 September 1998, the Divisional Forest Officer directed the Respondents to deposit the bid amount of Rs. 2,92,000 by 25 September 1998, obtain work orders, and complete the work by 08 October 1998. The notice also stated that failure to complete the work would result in forfeiture of the security deposit and cancellation of the auction. Despite this, the Respondents did not complete the work. The Forest Department issued further notices on 26 October 1998, and 23 April 1999, extending the deadline to 15 May 1999, with the same forfeiture clause. Finally, on 17 January 2000, the Divisional Forest Officer forfeited the security deposit due to non-compliance.

Timeline

Course of Proceedings

The Respondents challenged the forfeiture of their security deposit by filing a Writ Petition before the High Court of Judicature at Allahabad. They argued that they had applied to withdraw from the auction because the approval was not granted within the stipulated period. They claimed they were not bound by their offer and, therefore, the security deposit should be refunded. The High Court ruled in favor of the Respondents, setting aside the order of forfeiture and directing the refund of the security amount. The High Court based its decision on the 1980-81 Terms & Conditions of Sale which stipulated that if the acceptance or rejection of sale of lots is not informed to the contractor after 40 days, then the contractor will not be bound to take the contract on the accepted bid.

Legal Framework

The case revolves around the interpretation of the Conditions of Sale manuals issued by the Forest Department. Two manuals were presented before the High Court: one from 1980-81 and another from 1987-88. The 1980-81 manual, specifically sub-clause (viii) of Clause 10, stated that if acceptance or rejection of the sale was not communicated within 40 days, the contractor was not bound by the bid. However, the 1987-88 manual, also under sub-clause (viii) of Clause 10, stipulated that if approval was not received within the stipulated period, and the competent authority later approved the bid, it would be deemed that the lot had been approved. The High Court noted that both manuals had cut-over dates, without signatures, and concluded that the 1997-98 version of the 1980-81 manual was applicable.

The 1987-88 manual also contained sub-clause (vii) of Clause 10, which stated that if the buyer does not receive information about the acceptance of the contract within 35 days, they should contact the Deputy Conservator of Forests/Conservator of Forests to get the information. The Forest Department would not bear any responsibility for not receiving timely information.

Arguments

Respondents’ Arguments:

• The Respondents argued that the 1980-81 Conditions of Sale manual, as amended to be applicable in 1997-98, should apply.
• They contended that since they were not informed of the approval or disapproval of the sale within 40 days, they were not bound by their offer and could withdraw from the auction.
• They claimed that the forfeiture of their security deposit was illegal.

Appellants’ Arguments:

• The Appellants argued that the 1987-88 Conditions of Sale manual was the latest edition and should apply.
• They contended that the 1987-88 manual amended Clause 10(viii), removing the 40-day communication requirement and introducing a deemed approval clause.
• They highlighted that the 1987-88 manual under sub-clause (vii) of Clause 10, placed the responsibility on the contractor to enquire about the acceptance of the contract if no information is received within 35 days.
• They emphasized that the Respondents were bound by the agreement dated 27 March 1998, which included a clause (2-D) allowing forfeiture of the security deposit for failure to deposit installments.
• They also pointed out that the Respondents failed to complete the work despite repeated notices.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the High Court was correct in holding that the 1980-81 Conditions of Sale manual, as amended for 1997-98, would apply to the auction held in 1998, and that the Respondents were not bound by their offer due to non-communication of approval within 40 days.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following:

• Conditions of Sale Manual of 1980-81 of the Forest Department.
• Conditions of Sale Manual of 1987-88 of the Forest Department.
• Agreement dated 27.03.1998 between the parties.

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Applicability of the 1987-88 Manual: The Court emphasized that the 1987-88 manual was the latest edition and should be applied, especially given the lack of signatures on the cut-over dates in the manuals.
• Deemed Approval Clause: The Court highlighted that the 1987-88 manual included a deemed approval clause, which meant that the Respondents should have followed up if they did not receive communication within the stipulated period.
• Contractual Obligations: The Court noted that the Respondents were bound by the agreement dated 27 March 1998, which clearly stated the consequences of non-compliance, including forfeiture of the security deposit.
• Non-Diligent Approach: The Court observed that the Respondents did not complete the work despite repeated notices and only approached the court after the forfeiture order was issued, which reflected a lackadaisical approach.

Logical Reasoning

The Court’s reasoning was based on the principle that the latest version of the manual should apply in the absence of any valid reason to consider the earlier version. The Court also emphasized the contractual obligations of the parties and the importance of following due process.

The Supreme Court stated: “In the absence of signatures according any sanction to such over -writing, we believe that the High Court has seriously erred by making a finding that the Manual for Year 1980 -81 will supersede the Manual for Year 1987 -88 and will be applicable for an auction held in the year 1998.”

The Supreme Court also stated: “Once, it has been determined that the Manual of 1987 -88 will be relevant for the instant case, it follows that the liability rested on the shoulders of the Respondents to enquire about the status of approval, and they could not have withdrawn from the auction after executing the agreement without bearing its consequences.”

The Supreme Court further stated: “It reflects on the non -diligent and lackadaisical approach adopted by the Respondents which cannot be overlooked by this Court.”

There were no dissenting opinions in this case.

Key Takeaways

• Contractors participating in forest auctions must be aware of the latest Conditions of Sale manuals.
• It is the contractor’s responsibility to inquire about the status of their bid if they do not receive communication within the stipulated time.
• Agreements executed after auctions are binding, and failure to comply with their terms can lead to forfeiture of security deposits.
• Lack of diligence and non-compliance with contractual obligations will not be overlooked by the courts.

Directions

The Supreme Court set aside the High Court’s order and upheld the notice issued by the Appellants dated 17 January 2000, forfeiting the security deposit.

Development of Law

The ratio decidendi of this case is that the latest version of the Conditions of Sale manual should be applied in the absence of any valid reason to consider the earlier version. The judgment also reinforces the binding nature of contracts and the importance of due diligence by contractors. This case clarifies the interpretation of deemed approval clauses in auction manuals.

Conclusion

In conclusion, the Supreme Court allowed the appeal, setting aside the High Court’s order and upholding the forfeiture of the security deposit by the Forest Department. The Court emphasized the importance of applying the latest version of the Conditions of Sale manual, the binding nature of contractual agreements, and the responsibility of contractors to be diligent in their dealings.