Dolphin Suppliers Pvt. Ltd. V. Union of India and Another

MAT/632/2022

AI Insights

The case involves Dolphin Suppliers Pvt. Ltd., the appellant, who participated in an e-auction conducted by SEBI for the purchase of a property. The appellant defaulted in paying the remaining 75% of the bid amount within the stipulated time, leading SEBI to forfeit the entire EMD of approximately \\u20b91.16 crore and cancel the sale. The appellant challenged this decision, arguing that the forfeiture was arbitrary and not based on actual loss suffered by SEBI, citing various legal precedents. The High Court, after considering the arguments and relevant laws, particularly the SARFAESI Act and the Indian Contract Act, found that the forfeiture was not automatic and required a reasonable assessment of actual loss, leading to the setting aside of the earlier judgment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 800014 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 27-03-2025
• Assessment Year: misc
• Other Referred Cases: Kailash Nath Association vs. Delhi Development Authority & Anr, Shree Coal Enterprises India Private Limited & Anr Vs. Coal India Limited & Ors, MBL Infrastructure Limited Vs Rites Limited & Ors, Security Engineers Private Limited Vs Electro Medical & Allied Industries Limited, Pishorilal Sethi & Anr Vs Tax Recovery Officer & Ors, Manilal Mohanlal Shah v. Sardar Sayed Ahmed Sayed Mahmad, Raghunath Lenka Vs Karunakar Rout and Others, Gemini Foundation Vs V. B. Giri, Authorized Officer, Central Bank of India Vs Shanmugavelu
• Laws Referred To: Indian Contract Act, 1872, SARFAESI Act, Income Tax Act, 1961, Civil Procedure Code
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: RUPAK GHOSH; PRASANTA DUTT; SUSANTA DUTT; SYAMANTAK BANERJEE
• Assessee Lawyers: JISHNU CHOWDHURY; HEMANT TIWARI; SHOUNAK MUKHOPADHYAY; SATRAJEET SEN
• Keywords: Default; E-auction; Earnest Money Deposit; Forfeiture; Liquidated Damages
• Section: 73; 86; 74; 58; 9(5)

Judgement Text

"IN THE HIGH COURT AT CALCUTTA Civil Appellate Jurisdiction Appellate Side Present: The Hon’ble Justice Debangsu Basak and The Hon’ble Justice Md. Shabbar Rashidi MAT No. 632 of 2022 Dolphin Suppliers Pvt. Ltd. Vs. Union of India & Another For the appellant : Mr. Jishnu Chowdhury, Ld. Sr. Adv. : Mr. H emant Tiwari, Adv. : Mr. Shounak Mukhopadhyay, Adv. : Mr. Satrajeet Sen, Adv. For the SEBI : Mr. Rupak Ghosh, Adv. : Mr. Prasanta Kumar Dutt, Adv. : Mr. Susanta Kumar Dutt, Adv. : Mr. Syamantak Banerjee, Adv. Heard on : February 2, 2025 Judgment on : March 27, 2025 2 Md. Shabbar Rashidi, J. 1. The appeal is in assailment of judgment and order dated April 04, 2022, passed in WPA No. 5994 of 2022. By the impugned judgment and order, the writ petition filed by the appellant claiming a writ directing setting aside of the cancellation of sale of landed properties in pursuance of e- auction initiated by SEBI upon acceptance of the remaining consideration money and/or appropriate writ for refund of earnest money was dismissed. 2. Learned senior advocate for the appellant submitted that although, the appellant failed to deposit the remaining 75% of the consideration money which he agreed to pay in the process of e-auction, the respondent did not suffer any loss upon sale of the said property in the subsequent auction. It was contended that in absence of any loss actually incurred, the respondent is not entitled to impose penalty or forfeit the earnest money or the money paid by the appellants, even if 3 such forfeiture was permitted under the terms of e-auction notice. To such proposition, learned senior advocate for the appellant relied upon (2015) 4 Supreme Court Cases 136 (Kailash Nath Association vs. Delhi Development Authority & Anr). 3. Learned senior advocate contended that a party complaining of breach can claim compensation of such liquidated amount which is genuine pre-estimate of damages determined on the basis of the principles enunciated in Section 73 and 74 of Indian Contract Act, 1872. According to learned senior advocate, the decision to forfeit the entire amount of deposited money is wholly arbitrary and illegal, without determining the actual loss or damage suffered on the part of the respondent. Mere existence of a forfeiture clause does not imply that for every breach the earnest money deposit is automatically liable to be forfeited irrespective of actual loss or damage suffered. An authority is under obligation to establish actual loss or damage suffered by it, in order to impose a penalty. In support of such contention, learned senior advocate relied upon the authority of (2018) SCC 4 OnLine Cal 1652 (Shree Coal Enterprises India Private Limited & Anr Vs. Coal India Limited & Ors), AIR 2020 Cal 155 (MBL Infrastructure Limited Vs Rites Limited & Ors) and (2024) SCC OnLine Cal 111 (Security Engineers Private Limited Vs Electro Medical & Allied Industries Limited). 4. Learned senior advocate for the appellant, submitted that the forfeiture clause in the instant case is guided by Rule 9 (5) of SARFAESI Rule which provides that there cannot be any forfeiture unless loss is actually suffered and quantified. 5. Learned senior advocate also referred to Rule 58 of the Income Tax Rules and Order XXI Rule 86 of the Civil Procedure Code to contend that forfeiture of earnest money deposit is not automatic rather a matter of discretion with the recovery officer which must be exercised reasonably. Such provisions provide for forfeiture of all claims by the defaulting purchaser to the property under sale or any part of the sum for which it may have subsequently been sold. To such proposition, learned senior advocate relied upon (1990) SCC OnLine All 870 (Pishorilal Sethi & Anr Vs Tax Recovery Officer & Ors) and (1954) 1 Supreme Court Cases 724 5 (Manilal Mohanlal Shah v. Sardar Sayed Ahmed Sayed Mahmad) 6. Relying upon AIR 1957 Ori 257 (Raghunath Lenka Vs Karunakar Rout and Others), learned senior advocate appearing for the appellant also submitted that the words “shall be forfeited” appearing in Rule 86 of the old Civil Procedure Code has been replaced with the words “may if the court thinks fit”. Such amendment in the provisions of the Code of Civil Procedure is indicative that forfeiture of the deposit is not automatic rather it is left to the discretion of the court. 7. Learned senior advocate also placed reliance on (1998) SCC OnLine Mad 568 (Gemini Foundation Vs V. B. Giri) to contend that only the amount to the extent of reasonable loss incurred is liable to forfeiture. Blind forfeiture of deposited amount without exercise of discretion is an infraction from of the rules. The court also held that whenever, default occurs and loss is suffered, a calculation must be made with regard to quantum of the amount liable to forfeiture and that it should be based on genuine and reasonable pre-estimate. 6 8. Per contra, learned advocate for the respondent submitted that the appellant agreed for the forfeiture of the earnest money deposit in case of default. He has defaulted in payment of the remaining 75% of the consideration money within the time stipulated in the agreement. As such, the entire money of earnest deposit is liable to forfeiture in terms of the specific terms of agreement entered into between the parties. 9. Relying upon (2024) 6 Supreme Court Cases 641 (Authorized Officer, Central Bank of India Vs Shanmugavelu), learned advocate for the respondent submitted that since the appellant defaulted in payment of the remaining 75% of the consideration money, in terms of Rule 58 of Second Schedule of Income Tax Act, the entire deposit made in terms of Rule 57 thereof is liable to be attached. Therefore, according to the learned advocate for the respondent, the respondent, Securities and Exchange Board of India (SEBI), was quite justified in forfeiting the earnest money deposits made by the appellant at the time of confirmation of sale. 7 10. In pursuance to an e-auction notice dated January 28, 2022, the appellant participated in the e-auction and was declared the highest bidder in respect of the property mentioned at serial No.5 of e-auction notice. Its bid for purchase of the said property for a consideration of ₹. 4, 64, 06, 634/- was confirmed by the respondent upon finalization of the e-auction process. Accordingly, the appellant paid a sum of ₹. 16, 50, 000/- towards earnest money deposit on January 31, 2022. It also deposited ₹. 99, 50, 995/- on February 25, 2022. In this way the appellant made a total payment of ₹. 1, 16, 00, 995/- towards the purchase of the property at serial No.5 of the e-auction notice. 11. However, in the appellant failing to make the payment of remaining amount of consideration money towards such purchase by the stipulated time of March 10, 2022, the respondent issued a letter of reminder to the appellant on March 9, 2022. On its failure to pay up the balance consideration money, the respondent, by its email dated March 11, 2022 informed the appellant of the forfeiture of the entire money of ₹. 1, 16, 00, 995/- paid by the appellant. 8 12. Thereafter, the respondent declared the sale cancelled and put the aforesaid property on a fresh auction on April 21, 2022. The property at serial No. 5 of the e-auction notice dated January 28, 2022 fetched a price of ₹. 4.63 Crore in the fresh auction as against the bid price of ₹. 4, 64, 06, 634/- in the earlier auction. The appellant/writ petitioner challenged the decision of the respondent to forfeit the entire amount paid by the appellant in the writ petition being WPA No. 5994 of 2022 which was dismissed by the impugned judgment and order dated April 04, 2022. 13. Learned Single Judge disbelieved the case of the appellant/writ petitioner to the effect that intervention of COVID 19 thwarted it from depositing the balance amount of consideration money within the stipulated time and held the appellant to be a defaulter in payment of consideration money. 14. In order to justify the forfeiture of the entire deposit amount, the respondent placed reliance upon decision of the Hon’ble Supreme Court in Shanmugavelu (Supra). It was also contended that the provisions of Section 73 and Section 74 of Indian Contract Act cannot be pressed into service to prevent 9 forfeiture of earnest money deposit made on behalf of the appellant purchaser. Learned advocate for the respondent referred to clause 6 of the e-auction notice which provides that, the successful bidder shall have to deposit 25% of the successful bid amount (inclusive of EMD amount), immediately after the close of the auction and the balance amount with 1% of highest bid amount as poundage fee within 15 (fifteen) days from close of auction. It also provided that if the said amount is not paid with the specified time, the cost of the auction shall be recovered from the deposit money and the balance shall be forfeited. 15. On the contrary, it was contended on behalf of the appellant that the respondent was not justified in forfeiting the entire amount of deposit without quantifying the actual loss incurred by the SEBI on account of default made by the appellant in depositing the consideration money. According to appellant, forfeiture must be limited to the amount of loss actually suffered by the respondent quantified in accordance with the provisions contained in Section 73 and 74 of the Indian Contract Act, 1872. The appellant is ready and willing 10 to make good the loss incurred by SEBI on account of failure of the appellant to pay the balance consideration money within the stipulated time. 16. Shanmugavelu (Supra) was rendered in the context of SARFAESI Act. The Hon’ble Supreme Court observed that, “59.1. It held that as the Sarfaesi Act is a special enactment with overriding effect over other laws by virtue of Sections 35 and 37, the 1872 Act more particularly Sections 73 and 74 will not be applicable to Rule 9(5) of the Sarfaesi Rules especially since the rules framed under a statute become part of the statute : (C. Natarajan case [SBI v. C. Natarajan, (2024) 2 SCC 637 : (2024) 1 SCC (Civ) 724] , SCC pp. 653-55, paras 25-30) “25. In terms of the Contract Act, 1872 (for brevity “the Contract Act”, hereafter), a person can withdraw his offer before acceptance. However, once a party expresses willingness to enter into a contractual relationship subject to terms and conditions and makes an offer which is accepted but thereafter commits a breach of contract, he does so at his own risk and peril and naturally has to suffer the consequences. 11 26. We are not oblivious of the terms of Section 73 and Section 74 of the Contract Act, being part of Chapter VI thereof titled “Of the Consequence of Breach of Contract”. These sections, providing for compensation for breach of contract and for liquidated damages, have remained on the statute book for generations and permit the party suffering the breach to recover such quantum of loss or damage from the party in breach. However, with changing times, the minds of people are also changing. The judiciary, keeping itself abreast of the changes that are bound to occur in an evolving society, must interpret new laws that are brought in operation to suit the situation appropriately. 27. In the current era of globalisation, the entire philosophy of society, mainly on the economic front is making rapid strides towards changes. Unscrupulous people have been inventing newer modes and mechanisms for defrauding and looting the nation. It is in such a scenario that provisions of enactments, particularly those provisions which have a direct bearing on the economy of the nation, must receive such interpretation so that it not only fosters 12 economic growth but is also in tune with the intention of the law-makers in introducing a provision such as sub-rule (5) of Rule 9, which though harsh in its operation, is intended to suppress the mischief and advance the remedy. If indeed Section 73 and Section 74, which are part of the general law of contract, were sufficient to cater to the remedy, the need to make sub-rule (5) of Rule 9 as part of the Rules might not have arisen. Additionally, insertion of sub-rule (5) with such specificity regarding forfeiture must not have been thought of only for reiterating what is already there. It was visualised by the lawmakers that there was a need to arrest cases of deceptive manipulation of prices at the instance of unscrupulous borrowers by thwarting sale processes and this was the trigger for insertion of such a provision with wide words conferring extensive powers of forfeiture. The purpose of such insertion must have also been aimed at instilling a sense of discipline in the intending purchasers while they proceed to participate in the auction-sale process. 28. At the cost of repetition, it must not be forgotten that the Sarfaesi Act was enacted 13 because the general laws were not found to be workable and efficient enough to ensure liquidity of finances and flow of money essential for any healthy and growth-oriented economy. The decision of this Court in Mardia Chemicals Ltd. v. Union of India [Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311] , while outlawing only a part of the Sarfaesi Act and upholding the rest, has traced the history of this legislation and the objects that Parliament had in mind in sufficient detail. Apart from the law laid down in such decision, these are the other relevant considerations which ought to be borne in mind while examining a challenge to a forfeiture order. 29. There is one other aspect which is, more often than not, glossed over. In terms of sub- rule (5) of Rule 9, generally, forfeiture would be followed by an exercise to resell the immovable property. On the date an order of forfeiture is in contemplation of the authorised officer of the secured creditor for breach committed by the bidder, factually, the position is quite uncertain for the former in that there is neither any guarantee of his receiving bids pursuant to a future sale, much to the satisfaction of the 14 secured creditor, nor is there any gauge to measure the likely loss to be suffered by it (secured creditor) if no bidders were interested to purchase the immovable property. Since the extent of loss cannot be immediately foreseen or calculated, such officers may not have any option but to order forfeiture of the amount deposited by the defaulting bidder in an attempt to recover as much money as possible so as to reduce the secured debt. That the immovable property is later sold at the same price or at a price higher than the one which was offered by the party suffering the forfeiture is not an eventuality that occurs in each and every case. Sections 73 and 74 of the Contract Act would not, therefore, be sufficient to take care of the interest of the secured creditor in such a case and that also seems to be another reason for bringing in the provision for forfeiture in Rule 9. Ordinarily, therefore, validity of an order of forfeiture must be judged considering the circumstances that were prevailing on the date it was made and not based on supervening events. 30. Does sub-rule (5) of Rule 9, which is part of a delegated legislation i.e. the Rules, have the 15 effect of diluting Section 73 and Section 74 of the Contract Act? We have considered it necessary to advert to this question as it is one of general importance and are of the considered opinion that the answer must be in the negative. While the Contract Act embodies the general law of contract, the Sarfaesi Act is a special enactment, inter alia, for enforcement of security interest without intervention of court. Rule 9(5) providing for forfeiture is part of the Rules, which have validly been framed in exercise of statutory power conferred by Section 38 of the Sarfaesi Act. Law is well settled that rules, when validly framed, become part of the statute. Apart from the presumption as to constitutionality of a statute, the contesting respondent did not mount any challenge to sub- rule (5) of Rule 9 of the Rules. The applicability and enforcement of sub-rule (5) of Rule 9 on its terms, therefore, has to be secured in appropriate cases.” 17. The Hon’ble Supreme Court, in the aforesaid decision also considered the rationale behind exclusion of the provisions of Section 73 and Section 74 of the Indian Contract Act in SARFAESI proceeding in the following terms: 16 “65. If Sections 73 and 74, respectively of the 1872 Act are interpreted so as to be made applicable to a breach in payment of balance amount by the successful auction-purchaser, it would lead to a chilling effect in the following ways: 65.1. First, it would be quite preposterous to suggest that in an auction which is a process meant for recovery of debt due to default of the borrower, the balance amount if not paid by the successful auction- purchaser, another recovery proceeding would have to be initiated by the secured creditor in terms of Sections 73 and 74 of the 1872 Act to recoup the loss and expenditure occasioned to it by the defaulting successful auction-purchaser. 65.2. Secondly, such an interpretation would allow unscrupulous borrowers being hands-in-glove with the auction-purchasers to use subversive methods to participate in an auction only to not pay the balance amount at the very end and escape relatively unscathed under the guise of Sections 73 and 74 of the 1872 Act, thereby gaming the entire auction process and leaving any possibility of recoveries under the Sarfaesi Act at naught. [See C. Natarajan [SBI v. C. Natarajan, (2024) 2 SCC 637 : (2024) 1 SCC (Civ) 724] at para 24] 17 66. Thus, such an interpretation would completely defeat the very purpose and object of the Sarfaesi Act and would reduce the measures provided under Section 13 of the Sarfaesi Act to a farce and thereby undermine the country's economic interest.” 18. For brevity it would be proper to set out Rule 9 of SARFAESI Rules, 2002, more specifically Rule 9 (5) thereof which deals with default in making payment. 9. Time of sale, Issue of sale certificate and delivery of possession, etc.- (1) No sale of immovable property under these rules, in first instance shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) of rule 8 or notice of sale has been served to the borrower: Provided further that if sale of immovable property by any one of the methods specified by sub rule (5) of rule 8 fails and sale is required to be conducted again, the authorized officer shall serve, affix and publish notice of sale of not less than fifteen days to the borrower, for any subsequent sale.] (2)……………………………………………. 18 (3)…………………………………………… (4)……………………………………………. (5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited to the secured creditor and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold. (6)……………………………………………………. (7)……………………………………………………. (8)……………………………………………………. (9)……………………………………………………. (10)……………………………………………………. 19. Therefore, from the purport of Rule 9 (5) of SARFAESI Rules, 2002, it is explicit that in case of default in payment within the period mentioned in sub-rule (4), the deposit shall be forfeited to the secured creditor. The property shall be resold and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may be subsequently sold. The provision does not leave any discretion 19 with the authorities to determine and quantify the actual loss or damages incurred. 20. Section 28A of the Securities and Exchange Board of India Act, 1992 provides that if a person fails to pay the penalty imposed, it shall be recovered by resorting to any of the methods specified in such provision like attachment and sale of the moveable or immoveable properties belonging to such person. The provision also provides that such recovery shall be taken up in accordance with the provisions of sections 220 to 227, 228A, 229, 232, the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time, in so far as may be, apply with necessary modifications as if the said provisions and the rules made thereunder were the provisions of the Act of 1961 and referred to the amount due under the Act of 1961 instead of the income-tax under the Income-tax Act, 1961. 21. Rule 57 and 58 of the Second Schedule of the Income Tax Act deal with the deposit by purchaser and procedure in 20 default of payment. Rule 57 and 58 of the Second Schedule of the Income Tax Act, 1961 read as follows: Deposit by purchaser and resale in default. 57. (1) On every sale of immovable property, the person declared to be the purchaser shall pay, immediately after such declaration, a deposit of twenty-five per cent on the amount of his purchase money, to the officer conducting the sale; and, in default of such deposit, the property shall forthwith be resold. (2) The full amount of purchase money payable shall be paid by the purchaser to the Tax Recovery Officer on or before the fifteenth day from the date of the sale of the property. Procedure in default of payment. 58. In default of payment within the period mentioned in the preceding rule, the deposit may, if the Tax Recovery Officer thinks fit, after defraying the expenses of the sale, be forfeited to the Government, and the property shall be resold, and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may subsequently be sold. 21 22. A plain reading of such provisions shows that unlike Rule 9(5) of SARFAESI Rules, Rule 58 of the Second Schedule of the Income Tax Act uses the words, “if the Tax Recovery Officer thinks fit, after defraying the expenses of the sale be forfeited to the Government, and the property shall be resold”. Such words used in Rule 58 patently indicate that the Tax Recovery Officer retains the option to exercise discretion in forfeiture of the deposited amount. He may or may not order forfeiture of the entire deposit and limit it to the extent of actual loss incurred by the authorities in putting the property for resale and the difference of consideration money actually fetched on such resale in relation to the quantum of consideration for which default was made. 23. In Kailash Nath Associates (Supra), the Hon’ble Supreme Court laid down that, 43. On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be as follows: 43.1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the 22 party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the court cannot grant reasonable compensation. 43.2. Reasonable compensation will be fixed on well- known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act. 43.3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the section. 43.4. The section applies whether a person is a plaintiff or a defendant in a suit. 23 43.5. The sum spoken of may already be paid or be payable in future. 43.6. The expression “whether or not actual damage or loss is proved to have been caused thereby” means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded. 43.7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application. 24. Relying upon the ratio laid down in Kailash Nath Associates (Supra), this High Court in Shree Coal Enterprises (Supra) held that, “7. In the facts of the present case, although Coal India Limited has pleaded that, it suffered loss and damages by reason of the cancellation of the contract by the petitioner, it has not quantified the loss and damage that it suffered. It has not stated in the 24 affidavit, as to what it did with the coal allotted to the petitioner, under the subject contract. These facts are material, for the purpose of considering the quantum of compensation, to be paid to Coal India Limited, for the cancellation of the contract by the petitioner, and the so-called breach of such contract by the petitioner. Moreover, it is the contention of the Coal India Limited that, the forfeiture happened as and by way of penalty. The word “penalty” is very wide. It would be harsh to allow Coal India Limited, a public authority, to impose a penalty which is in the nature of punishment, on a defaulting party to a contract, without any loss and damage, suffered by such public authority being established, even at a rudimentary level. The allegation of sufferance of loss and damage of Coal India Limited in the affidavit-in- opposition remains unsubstantiated with any other material to suggest, even remotely that, Coal India Limited suffered any loss and damage by reason of cancellation of the contract by the petitioner.” 25. Similarly, in MBL INFRASTRUCTURE LIMITED (Supra), a Division Bench of this High Court observed the following: 26. In a claim for damages there is first the factum that has to be established before the quantum of damages can be assessed. When the breach is of 25 the kind as complained in the present case - of non-disclosure of material facts or concealment thereof - the extent of damages that may have been suffered would depend on how far the bid had progressed and at what stage the discovery of the breach was made or at what stage such discovery could be made upon exercise of ordinary diligence. The legal issue has to be answered with reference to Sections 73 and 74 of the Act of 1872 and cannot be seen to be beyond the pale of such provisions. Notwithstanding the stray lines in some of the judgments cited that there may not have been any concluded contract for Section 74 of the Act of 1872 to come into play, it has already been discussed above that there was an enforceable agreement in place upon there being a notice inviting tender and a bid being deposited in terms thereof. The breach is established and unquestionable but it would not necessarily follow that the breach would result in the entire quantum of the earnest deposit being forfeited. If such interpretation were to be given, the clause would be penal and fall foul of Section 74 of the Act. 27. It is, thus, that the quantum of damages suffered has to be assessed with reference to how the bid was received, how it was processed, the 26 extent to which it progressed, the nature of the work involved and like factors. It is inconceivable that in processing the bid, the respondents here would have expended an amount of Rs.50 lakh or even a substantial part of such amount. It would seem that it is for such reason that the respondents suggest at paragraph 20 of their affidavit that once the amount was quantified they were not required to prove the quantum of loss actually suffered. 28. Several principles must be kept in mind while making the assessment. Merely because such a clause is included in the tender documents does not attach any level of sanctity to it than any other clause which is required to pass the test of reasonableness in the context in which it is applied. That a sum is specified as security deposit or earnest deposit does not imply that upon the breach, such amount is liable to be forfeited and the party forfeiting is entitled to the windfall without there be any loss or damage suffered by such party. Indeed, that is the exact reasoning in Kailash Nath where the court was satisfied that DDA did not suffer any loss since the subsequent auction fetched a price of more than three times what the previous auction had. If, 27 on the other hand, the subsequent auction had fetched a lower price, the previous highest bidder could have been proceeded against for the difference as that would have been the quantum of damages suffered as a consequence of the previous bidder failing to honour its bid. 27. Again in Security Engineers Private Limited (Supra), it was stressed that the respondents were definitely duty-bound to give an opportunity of hearing to the petitioner by issuing a show-cause before forfeiting the EMD of the petitioner. In such context the Calcutta High Court held that the action of the respondents in forfeiting the EMD was utterly unjustified. There is no conceivable justification for the respondents to forfeit the EMD of the petitioner for the entire tender. 28. In Pishori lal Sethi (Supra), Allahabad High Court noted that since Rule 86 of Order XXI, Civil Procedure Code and Rule 58 in Schedule II to the Act are identically worded, the principle of the said decision applies squarely therein. If so, it must be held that the forfeiture was not automatic but that it was a matter of discretion with the Tax Recovery Officer. A perusal of the impugned order shows that the Tax Recovery 28 Officer proceeded on the footing as if the forfeiture is automatic. On such considerations, the High Court directed the Tax Recovery Officer to consider afresh whether, in the facts and circumstances of the case, it was a proper case where the amount deposited by the petitioners should be forfeited and if it is to be forfeited to what extent. While determining the said question, the Tax Recovery Officer was also directed to take into consideration the objection/explanations filed by the petitioners and any further representation that the petitioners may make hereafter within three weeks from today addressed to him. 29. Monni Aidruz (Supra) was rendered by the Madras High Court where it said that, “It seems to me that under O. 21, R. 86, if there is default in payment of the balance of the purchase money as required by O. 21, R. 85, it is obligatory on the Court to re-sell the property. The language of the rule is \"the property shall be sold\". The discretion vested in the Court is only as regards the forfeiture of deposit. The language used in connexion therewith 29 is, \"the deposit may, if the Court thinks fit, be forfeited\". 30. Raghunath Lenka (Supra) noted that the words “shall be forfeited” appearing in Order XXI Rule 86 of the Civil Procedure Code was consciously replaced with the words “may if the court thinks fit” which is sufficient to indicate that the legislature intended to empower the authorities with discretion to decide on the necessity of forfeiture of earnest money deposit and extent thereof. 31. In Gemini Foundation (Supra), the High Court of Madras observed that, “11. Wherever default had occurred and a stipulation is there to procure the sale completed, having regard to the inconvenience, loss suffered including making the allowances for expenses incurred, a calculation can be made regarding the quantum of amount to be forfeited on the basis of a genuine pre-estimate which appears reasonable. When on an earlier occasion the deposit had been refunded, after adding Rupees 50,000 as solatium, then there is no justification to forfeit the entire amount.” 30 32. Therefore, we have noted that Rule 9 (5) of SARFEASI Rule is not pari materia to Rule 58 of the Second Schedule of Income Tax Act. We have also held that the proceeding whereby e-auction of the properties, confirmation and cancellation of the auction sale was taken in accordance with relevant provisions of the Rules contained in the Second Schedule of Income Tax Act with necessary modifications. We have also come to conclusion that Rule 58 of the Second Schedule of Income Tax Act and the provision contained in Order XXI Rule 86 of the Civil Procedure Code has extended a discretion upon the tax recovery officer/authorities to decide whether to forfeit the EMD or not and if so to what extent. 33. The facts and circumstances obtaining in the case at hand, no such discretion was exercised by the respondent and the respondent proceeded to forfeit the entire deposit amount in a manner as if it was automatic. Needless to say, no opportunity of hearing was afforded to the appellants. The entire EMD was directed to be forfeited without taking into consideration the loss and damage suffered by the respondent 31 owing to the default on the part of the appellants in making the payment of balance consideration money. 34. In course of hearing of the instant appeal, the appellants never endeavored to challenge the finding of learned Single Judge whereby learned Single Judge disbelieved the case of the appellant to the effect that he was prevented by the intervention of COVID-19 in making payment of the balance consideration money within time specified in the contract. We, therefore, have no justification to interfere with such finding of learned Single Judge. Accordingly, we uphold the same. 35. In the light of discussions made hereinbefore, we, however, set aside the impugned judgment and order so far as it relates to the rejection of the prayer of the appellant for return of EMD. The respondent shall proceed to determine the nature and extent of forfeiture of the EMD amount afresh. In doing so, the respondent shall provide sufficient opportunity of being heard to the appellant. The respondent is at liberty to hear any other parties and consult any document as it deems necessary. The respondent shall take a decision in this regard 32 within 8 weeks from date and communicate its decision to the party it heard forthwith thereafter. 36. In the result, the appeal being MAT 632 of 2022 is accordingly disposed of. 37. Urgent photostat certified copy of this order, if applied for, be supplied to the parties on priority basis upon compliance of all formalities. [MD. SHABBAR RASHIDI, J.] 38. I agree. [DEBANGSU BASAK, J.] 33 Later on: Prayer for stay made on behalf of SEBI is considered and rejected. [MD. SHABBAR RASHIDI, J.] [DEBANGSU BASAK, J.] "