Suresh Kumar Wadhwa v. State of M.P., (2017) 16 SCC 757 . Civil Appeal 7665/2009 decided on 25 October 2017.
Judgment Link: https://main.sci.gov.in/supremecourt/2007/5473/5473_2007_Judgement_25-Oct-2017.pdf
Relevant paragraphs: 20 &21. Three questions, basically, arise in this appeal. (1) Whether the appellant-plaintiff committed any breach of the terms and conditions of the public auction. (2) Whether the State was justified in forfeiting the security money deposited by the appellant for the alleged breach said to have been committed by the appellant. (3) Whether the State had power to forfeit the security money in the facts of this case?. These questions need to be answered keeping in view the provisions of Section 74 of the Contract Act, 1872 and some settled legal principles relating to law of contract.
23. Reading of Section 74 would go to show that in order to forfeit the sum deposited by the contracting party as “earnest money” or “security” for the due performance of the contract, it is necessary that the contract must contain a stipulation of forfeiture. In other words, a right to forfeit being a contractual right and penal in nature, the parties to a contract must agree to stipulate a term in the contract in that behalf. A fortiori, if there is no stipulation in the contract of forfeiture, there is no such right available to the party to forfeit the sum.
24. The learned author Sir Kim Lewison in his book The Interpretation of Contracts (6th Edn.) while dealing with subject “Penalties, Termination and Forfeiture Clauses in the Contract” explained the meaning of the expression “forfeiture” in these words: “A forfeiture clause is a clause which brings an interest to a premature end by reason of a breach of covenant or condition, and the court will penetrate the disguise of a forfeiture clause dressed up to look like something else. A forfeiture clause is not to be construed strictly, but is to receive a fair construction.”
25. The author then quoted the apt observations of Lord Tenterden from an old case reported in Doe d Davis v. Elsam wherein the learned Lord while dealing with the case of forfeiture held as under: (ER p. 1127) “… I do not think provisos of this sort are to be construed with the strictness of conditions at common law. These are matters of contract between the parties, and should, in my opinion, be construed as other contracts.”
26. Equally well-settled principle of law relating to contract is that a party to the contract can insist for performance of only those terms/conditions, which are part of the contract. Likewise, a party to the contract has no right to unilaterally “alter” the terms and conditions of the contract and nor they have a right to “add” any additional terms/conditions in the contract unless both the parties agree to add/alter any such terms/conditions in the contract.
27. Similarly, it is also a settled law that if any party adds any additional terms/conditions in the contract without the consent of the other contracting party then such addition is not binding on the other party. Similarly, a party, which adds any such term/condition, has no right to insist on the other party to comply with such additional terms/conditions and nor such party has a right to cancel the contract on the ground that the other party has failed to comply with such additional terms/conditions.
(On facts) 29. In our opinion, a stipulation for deposit of security amount ought to have been qualified by a specific stipulation providing therein a right of forfeiture to the State. Similarly, it should have also provided the contingencies in which such right of forfeiture could be exercised by the State against the bidder. It is only then the State would have got a right to forfeit. It was, however, not so in this case.
Compiled by S.Basavaraj, Advocate, Daksha Legal
Daksha Legal 