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

Observing that contractual forfeiture clauses cannot be pressed into service mechanically to penalise a citizen for lapses attributable to the State, the High Court of Jammu & Kashmir and Ladakh has held that where the alleged default itself flows from the failure of the authority, forfeiture of earnest money and denial of allotment would be wholly arbitrary and unsustainable in law.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...

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

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