Jharkhand High Court Quashes Arbitrary Forfeiture Of Earnest Money By CCL, Orders Release

The Jharkhand High Court has taken a strong stance against the arbitrary cancellation of a contract and the subsequent forfeiture of earnest money by Central Coalfields Limited, a public sector coal supplier, and declared the forfeiture of earnest money by a public sector coal supplier as "indefensible" and "arbitrary."Justice Gautam Kumar Choudhary observed, “It was not that the coal value had not been paid within the stipulated time. The only fault for which the purchase order was cancelled was not paying the amount through designated account. No opportunity, no notice to make amend and pay the amount through designated account was given. The coal was not supplied and the full coal value was returned only after the intervention of the writ Court. The petitioner was running a sponge iron factory and cannot be said to be a speculator.” “Is this the manner, in which Public Sector coal supplier is supposed to deal with industries? Can the manner in which the contract was cancelled be said to be conducive to foster industrial growth? It should not be lost sight of the object of Contract law, which is to further and not to siffle trade, commerce and business activities. There is nothing on record to suggest that Respondent Company suffered any loss on account of non-payment by the designated account. The entire episode appears to be a callous attempt to make capital out of a default in a peripheral part of agreement regarding the mode of payment,” Justice Choudhary added while criticizing the Respondent authorities.The above observations came in the Writ Petition filed by Atibir Industries Company Limited against the forfeiture of the earnest money Rs.23,80,000/- towards earnest money deposited by the petitioner.The petitioner's company is involved in the production of sponge iron and had participated in an E. Auction conducted by the Respondents - Central Coalfields Limited (CCL) - in October 2011. Following their successful bid, the petitioner received a communication via email on October 31, 2011, confirming their success in the auction.In accordance with the terms outlined in the bid notice, the payment was to be made through two specific accounts designated by the petitioner. However, on November 9, 2011, the petitioner made a payment of Rs. 1,33,67,700/- for the coal via RTGS, but this payment was made from an account that was not one of the designated accounts stipulated for the transaction. Consequently, due to the payment originating from a non-designated account, the coal was neither delivered nor was the payment refunded.In response, the petitioner approached the court seeking the delivery of the coal as per the terms of the agreement. The Respondents, Central Coalfields Limited (CCL), took the position that the non-payment from the designated account constituted a breach of the contract's terms and conditions. As a result, they did not supply the coal and proceeded to forfeit the earnest money. Subsequently, they refunded an amount of Rs. 1,33,67,700/- representing the value of the coal, while Rs. 23,80,000/- was retained as earnest money, utilizing the forfeiture clause. In light of the aforementioned events, the petitioner has now filed the present Writ Petition (Civil) before the Court, expressing their dissatisfaction with the forfeiture of the earnest money.VERDICTAfter thoroughly considering the arguments presented by both sides, the court initially acknowledged that it was evident that the payment for the coal's value had not been made from the specified account(s). Subsequently, the court noted that this had led to the contract falling through. The primary dispute revolved around the forfeiture of the earnest money. The Division Bench of this Court had previously ruled, in L.P.A. No. 291 of 2012, that the Single Judge in W.P.(C) No. 124 of 2012 had not resolved the issue concerning the entitlement of the petitioner to a refund of the earnest money. Consequently, the question of refund remained open.The central matter before the court was whether the forfeiture of the earnest money deposit, as outlined in Clauses 6.1 & 6.2 along with Clause 9 of the Spot E. Auction Scheme, 2007, was justified.Upon analyzing the terms and conditions of the 2007 Spot E-auction scheme, the court concluded that the earnest money deposit served as a security deposit. It could be forfeited if there was non-payment of the coal value or failure to adhere to the terms of the agreement, such as failure to lift the coal.Noting that there were some unique features of the present case, which deserved to be considered for just and equitable adjudication in the matter, the court observed:“Firstly, indisputably the scheme for making payment through designated accounts by RTGS was a new scheme introduced in March 2011 when RespondentCentral Coalfield Ltd amended its policy of payment. The time for making payment was for seven working days and the same was to expire on 11.11.2011.Secondly, the petitioner being sponge iron...

Jharkhand High Court Quashes Arbitrary Forfeiture Of Earnest Money By CCL, Orders Release

Bhavya Singh

Tags