'State Cannot Forfeit Money For Its Own Lapses': J&K&L High Court Pulls Up JDA For Auctioning Encroached Land, Imposes ₹50K Cost

Delivering the judgment, Justice Wasim Sadiq Nargal emphasised that public authorities are under a corresponding obligation to act fairly and transparently once they accept and retain substantial consideration from a citizen, and cannot take advantage of their own inaction to defeat legitimate rights.

“Forfeiture clauses, though contractual in nature, cannot be invoked mechanically or arbitrarily, particularly when the alleged default itself is attributable to the authority,” the Court held.

Background:

The case arose out of an auction conducted by the Jammu Development Authority (JDA) in January 2011 for allotment of land in Jammu. The petitioner, Changa Ram, emerged as the highest bidder and deposited earnest money of ₹5 lakh, followed by the first instalment of ₹20.50 lakh pursuant to a Letter of Intent issued in February 2011.

Soon after making the payment, the petitioner discovered that the auctioned land was not free from encumbrances and was under encroachment, with pucca structures, lanes and a gate existing on the site. He immediately approached the JDA and requested removal of encroachments and fresh demarcation before depositing the balance amount. Despite repeated representations over several years, the encroachments were not removed and possession was never handed over, while the petitioner's money remained with the JDA.

Apprehending cancellation of the allotment and forfeiture of earnest money, the petitioner approached the High Court in 2016, where interim protection against cancellation was granted and continued till final adjudication.

Appearing for the petitioner, Advocate Himanshu Beotra contended that the petitioner could not be compelled to pay the balance amount for land which was admittedly encroached at the time of auction. It was argued that the JDA was aware of the encroachment since 2008–09, yet proceeded to auction the land and accept substantial consideration. The withholding of the balance amount, it was submitted, was legally justified until the land was made encroachment-free.

On the other hand, counsel for the JDA, Advocate Sachin Dogra, argued that the petitioner had violated the terms of the Letter of Intent by failing to deposit the revised installments. According to the JDA, the Letter of Intent stood automatically cancelled due to default, attracting forfeiture of earnest money. It was also contended that a substantial portion of the land was available and could have been handed over on proportionate payment.

Court's Analysis And Findings:

After an exhaustive examination of the record, including official notings of the JDA, the Court found that the land put to auction was encroached and that this fact was within the knowledge of the authority even prior to issuance of the auction notice. The Court noted that the existence of pucca structures on the site stood acknowledged in the JDA's own records and affidavits.

“A duty was cast upon the JDA to inform the petitioner about the encroached status of the plot so that he could have made a conscious choice regarding participation in the auction,” the Court observed.

The Court rejected the JDA's attempt to shift the burden onto the petitioner by branding him a defaulter, holding that once encroachment came to light and was promptly reported, the petitioner could not be compelled to pay further amounts for an encumbered property.

Emphasising the obligations of public authorities, the Court held that acceptance and retention of ₹25.50 lakh for over fifteen years without handing over possession or refunding the amount amounted to arbitrary exercise of power and unjust enrichment.

“A public authority, having accepted and retained substantial amounts from a citizen, is under a corresponding obligation to act fairly, transparently and within a reasonable time,” the Court underscored.

Dealing squarely with the issue of forfeiture, the Court held that contractual clauses cannot be enforced in isolation from constitutional principles of fairness and reasonableness.

“For any inaction or lapse on the part of the JDA in auctioning an encroached plot, the petitioner cannot be penalized,” the Court held, adding that forfeiture of earnest money was wholly unjustified when the default was attributable to the authority itself.

Relying on Supreme Court precedent, the Court reiterated that forfeiture must satisfy the test of reasonableness and cannot be sustained where breach is not attributable to the allottee.

Strong Disapproval Of JDA's Conduct:

The Court expressed strong disapproval of the inconsistent and contradictory stands taken by the JDA regarding the date and extent of encroachment, observing that such conduct was aimed at misleading the Court and frustrating the petitioner's rights.

“The respondents have played hide and seek with the petitioner regarding the actual date of encroachment, with a view to defeat his right to obtain possession of the plot,” the Court remarked.

Holding that the petitioner had been made to suffer for no fault of his, the Court found the case fit for imposition of costs on the authority. It stated,

“… the respondents JDA have unjustly enriched itself by retaining the money of the petitioner unauthorizedly for more than fifteen years, and no offer was even made to give an alternate plot to the petitioner in case, there was any impediment in handing over the said plot to him. Both the eventualities have not occurred, and the petitioner has been put in a disadvantageous position for no fault of his. Thus, it is a fit case where the JDA should be burdened with costs for such arbitrary use of power”.

Allowing the writ petition, the Court directed the JDA to recalculate the sale consideration strictly on the basis of 2011 rates, prepare separate calculations for the available and encroached portions, and communicate the same to the petitioner. Upon payment of the balance amount, the JDA was directed to hand over possession of 5.01 kanals free from encumbrances along with equivalent alternate land for the remaining portion.

The Court further imposed costs of ₹50,000 on the JDA for misleading the Court and for unjustified retention of the petitioner's money for over fifteen years.

Case Title: Changa Ram Va State of J&K

Citation: 2026 LiveLaw (JKL)

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