Cannot Turn Back On Obligations On Pretext Of Mistake: Calcutta HC Orders Payment Of Compensation For Mistakenly Increasing Intending Bid By 10 Times

The Calcutta High Court has recently observed that a person cannot turn back on his obligations on the pretext of an act mistakenly committed especially where the mistake has resulted in certain irreversible consequences or consequences which may be reversed but at substantial cost to the other party to the act.

Justice Moushumi Bhattacharya was adjudicating upon an application filed by an individual carrying on business under the name and style of Texworth International for an injunction restraining the Official Liquidator from treating the last bid submitted by the applicant for Rs. 418.11 crores as the applicant's bid against an e-auction Sale Notice for Lot-1 of the property mentioned in the concerned Notice.

A direction was also sought on the Official Liquidator for setting aside of the e- auction conducted on March 10 and March 11, 2022 for sale of the properties of Dunlop India Limited, the Company (in liquidation) as it had been stated by the applicant that it had accidentally bid for Rs. 418.11 crores instead of the intended bid of Rs. 41.81 crores.

In the concerned case, the applicant had joined the bidding process and had submitted a bid for Rs. 20.31 crores and thereafter submitted further bids to outbid the highest bidder whose offer was showing on the online portal auction. The second-last bid by the applicant was for Rs. 41.31 crores at 17:54 hours on March 11, 2022 which was outbid by the highest bid received at Rs. 41.71 crores. At 17.54 hours, in order to outbid Rs. 41.71 crores, the applicant intended to submit his bid for Rs. 41.81 crores but added an extra '1' through inadvertence and hence made a bid for Rs. 418.11 crores. The applicant came to know of such error on March, 11 2022 itself and sent an email to the Official Liquidator on the following day to point out the error.

While considering as to whether the applicant had committed a bona fide mistake, the Court observed that it is 'inconceivable' that an intending purchaser who is participating in an e-auction where the entire process is being conducted online, would be careless enough to put in an extra digit and increase the allegedly intending bid by 10 times. 

Furthermore enumerating upon the consequences of such a mistake by applicant, Justice Bhattacharya opined that the applicant's so-called 'mistake' had stalled the bidding before reaching the closing time and more important, capped the price at 41.71 crores (assuming that the last bid of the applicant of Rs. 418.11 crores was through inadvertence). It was also underscored that the mistake had frustrated the entire bidding process and that the entire process for sale of assets of the Company (in liquidation) had been put back in square one after a span of two months from the last e-auction.

Opining further on what constitutes a 'mistake', the Court underscored, 

"A mistake is a misguided or a wrong decision. It signifies an absence of conscious and deliberate thought behind the commission or omission of the act and presumes that the person did not intend to do what he did. A mistake, whether of law or of fact, does not constitute a ground of exemption from liability in tort. In cases of tortious liability, the test is whether a reasonable person would have done what the defendant did."

The Court further noted that Sections 20, 21 and 22 of The Indian Contract Act, 1872, contemplate situations where both the parties to an agreement have proceeded on a mistaken belief of a fact essential to the agreement and contemplate that a contract is not voidable because it was caused by a mistake as to any law in force. 

"Although, the present case is not one of contract, the principle which emerges from the statute and case-law is that a person cannot turn back on his obligations on the pretext of an act mistakenly committed. This is particularly true where the mistake has resulted in certain irreversible consequences or consequences which may be reversed but at substantial cost to the other party to the act", the Court underscored further. 

It was further held that even if the case made out by the applicant is to be accepted, namely that it was an error simpliciter, the applicant would still be liable for negligence. Opining that the applicant was under an obligation to exercise due care while keying-in a number for the bid, the Court remarked, 

"Negligence, in its general and non-tortious sense, is an absence of exercise of due care which results in consequential damage to the party who expected a reasonable standard of care to be taken by the negligent person. The terms and conditions, referred to above, clearly cautioned the applicant to carefully check the bid amount and warned the bidders of the consequences of any wrongful bidding. The applicant was hence under an obligation to exercise due care while keying-in a number for the bid, all the more so since the entire process was being conducted online and the applicant was well aware that it would not have the opportunity to immediately rectify its bid or take corrective measures as in a court sale."

The Court also dismissed the contention of the applicant that there might have been possibilities of computer hacking and cyber crime by observing that pushing a button on the key-board was a manual act undertaken solely by the applicant and/or his representative and there was no scope of any third party intervention or alteration of the numbers on the Internet.

Accordingly, the Court held that the circumstances put together amount to a reasonable apprehension that the 'mistake' was not a bona fide mistake on the part of the applicant and that the applicant is also guilty of negligence in failing to exercise due diligence during the bidding process.

Thus, the Court directed the applicant to compensate for cancellation of the last e- auction by way of the following measures, 

1. The applicant shall bear all expenses for conducting the e-auction including advertising for the same by way of public notices in 1 English, 1 Bengali and 1 Hindi newspaper having wide coverage all over India.

2. The applicant shall also bear the necessary operational expenses for conducting the fresh bid and pay the same to Railtel Corporation and the Official Liquidator of this Court.3. The applicant shall also protect the sale price which was last reached in the e-auction by putting in Rs. 41.81 crores (being the amount which the applicant intended to bid) in the form of a bank guarantee with the Official Liquidator within 7 days for being treated as the base-price of the fresh e- auction. The Official Liquidator shall use the bank guarantee as the starting price/reserve price from which the bids shall be invited. The bank guarantee shall remain valid for 3 months or until further orders of this Court, whichever is later.

4. The Official Liquidator / Railtel Corporation shall prepare the sale notices accordingly. The Official Liquidator and Railtel Corporation shall try their best to hold the e-auction within 3 weeks from today.

5. As suggested by the parties, the Official Liquidator shall indicate the operational/incidental expenses for the e-auction to the advocate-on-record of the petitioner by 12 noon tomorrow, i.e., 5th May, 2022.

6. The Official Liquidator will consider whether the earnest money deposited by the petitioner can be adjusted in the future e-auction.

Case Title: In the matter of Dunlop India Ltd

Case Citation: 2022 LiveLaw (Cal) 163

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