Material defect disclosure in auction sales bars forfeiture of earnest money where the seller concealed unusable access to the property.

Forfeiture of earnest money was unjustified where the seller failed to disclose a material defect affecting the property's usability, namely the absence of a proper independent approach road. The seller's duty under Section 55(1)(a) and (b) of the Transfer of Property Act required disclosure of material defects, and that obligation was not met because the purchaser had raised the issue before bid confirmation and the seller's own correspondence showed the passage was not fit for vehicle movement. Section 29 of the State Financial Corporations Act did not assist the seller, as the purchaser was an auction buyer and the forfeiture clause could not be used to profit from the seller's own non-disclosure. Refund of earnest money with interest was warranted.

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Issues: Whether the forfeiture of earnest money deposited by the auction purchaser was justified when the Corporation had not disclosed the absence of a proper independent approach road to the unit and had relied on the sale conditions and statutory powers to retain the amount.

Analysis: The respondent had repeatedly raised the issue of the non-existent or unusable passage before the bid was confirmed, and the Corporation's own correspondence showed that the alleged rasta was not directly connected with the unit and was not fit for vehicle movement. The Corporation relied only on the documents furnished by the defaulting unit and did not establish that it had fairly disclosed the real condition of the property. The duty of a seller under Section 55(1)(a) and (b) of the Transfer of Property Act, 1882 is to disclose material defects and to produce title documents on request, and that duty was not satisfied. Section 29 of the State Financial Corporations Act, 1951 did not assist the Corporation because the respondent was an auction purchaser, not the defaulting borrower. The forfeiture clause could not be invoked to profit from the Corporation's own failure to disclose a material defect.

Conclusion: The forfeiture was unjustified and the respondent was entitled to refund of the earnest money with interest. The issue is decided in favour of the respondent.

Final Conclusion: The appeal had no merit and the High Court's relief was upheld, with consequential directions for refund, interest, and costs.

Ratio Decidendi: A seller who withholds a material defect affecting the usability of the property cannot enforce forfeiture of earnest money against the purchaser, and a statutory sale condition cannot be used to take advantage of the seller's own wrong.

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