1. The facts of the case are as follows :
2. The plaintiff was the owner of the suit properties. He had sold them to different persons but had continued to remain in possession. The defendant purchased the properties in the name of his minor son for Rs. 1,500 from the plaintiff's vendees. On October 29, 1934, there was an agreement, exhibit 42, between the defendant and the plaintiff, under which the defendant agreed to sell the property for Rs. 2,000 to be paid at any time within three years with interest at Rs. 0-14-6 per cent, per month. If the money was not paid, the defendant was at liberty to deal with the property in any manner he liked. On the same day, the plaintiff executed a rent note in defendant's favour in respect of the properties purchased by him, agreeing to pay Rs. 17-8-0 per month. On July 20, 1937, the defendant sent a notice to the plaintiff calling upon him to pay the arrears of rent and give vacant possession within 15 days. On August 14, 1937, the plaintiff replied by exhibit 36, alleging that he had sold to the defendant by conditional sale for Rs. 2,000 and that the defendant was to sell the properties to him if he paid Rs. 2,000 with interest at the rate of Rs. 17-8-0 per month, which amount the defendant was pleased to call as rent, and that he was arranging to return the amount due to him. The defendant sent another notice by exhibit 37 on December 31, 1937, calling upon him to surrender possession immediately and intimating to him that a suit would be filed against him if he failed to vacate. In this notice defendant did not say anything about the allegations made by the plaintiff in exhibit 36. The defendant then filed Regular Suit No. 132 of 1939 against the plaintiff to recover possession of the properties on the strength of the rent note and obtained a decree, and in execution of the decree he got possession in June 1940. On October 26, 1940, the present suit was filed by the plaintiff in forma pauperis for specific performance of the agreement to sell executed on October 29, 1934.
3. The defendant denies the plaintiff's claim and contends that his minor son Chandrakant in whose name the sale deeds stand was a necessary party, that the suit is time-barred, that the time was of the essence of the contract, and as the money was not paid within three months, the plaintiff is not entitled to specific performance and that the agreement to sell, not being registered, was inadmissible in evidence. The trial Court held that Chandrakant was not a necessary party, that the agreement was not required to be registered, and that the suit is neither barred by time or laches and that the plaintiff did not commit the breach of his promise to pay and that it is proved that negotiations with Ghanchi were broken because of defendant's action. The Court therefore decreed the specific performance of the agreement, subject to certain conditions with which we will deal later. Against this decree the defendant comes in appeal.
4. In appeal he concedes that the agreement does not require to be registered and is admissible in evidence and that the suit is within time. His principal contention is that the finding of the lower Court that the plaintiff did not commit the breach of his promise to pay is wrong and that the time was of the essence of the contract and as the payment was not made within three years, he was at liberty to do anything he liked with the property and that the plaintiff is not therefore entitled to specific performance even in equity.
5. We are not convinced that the learned Judge is right in holding that the plaintiff did not commit breach of his promise to pay. It is the plaintiff's case that the defendant had been responsible for the plaintiff's failure to pay in time. According to him he had persuaded one Ghanehi to advance to him Rs. 3,000. It was arranged that the Ghanehi should pay Rs. 3,000 to plaintiff and the plaintiff was to pay the same to defendant and get a sale deed in his favour and the plaintiff then was to pass a mortgage deed in favour of the Ghanehi in respect of those properties. This part of the plaintiff's story is corroborated by entries in the stamp vendor's book which shows that on April 14, 1936, stamps of the value of Rs. 49 were purchased in the name of the defendant and stamps worth Rs. 78-8-0 were purchased in the name of the plaintiff. This amount of Rs. 127-8-0 for the purchase of stamps was advanced to the plaintiff by the Ghanehi and the plaintiff had executed a pro-note for that amount in the Ghanchi's favour. The stamp vendor's book contains the thumb impression of the defendant against the entry of Rs. 49. It is therefore clear that the defendant was a party to this arrangement. But the versions of the plaintiff and the defendant differ with regard to what happened subsequently. According to the plaintiff, the negotiations fell through because the defendant refused to show his title deeds to the Ghanehi. The defendant, on the other hand, says that he showed the title deeds to the Ghanehi but he declined to advance Rs. 3,000 to plaintiff as the sale deeds had been taken in the name of his minor son Chandrakant. We are inclined to hold that the defendant's version is true. The Ghanehi had filed a Small Cause suit to recover Rs. 127-8-0 from the plaintiff on the promissory note. The present plaintiff then contended in his written statement that he was not liable to pay as the Ghanehi committed a breach of agreement by refusing to advance Rs. 3,000. When the plaintiff was asked in his cross-examination about this written statement in the suit on the pro-note, he admitted that what he stated in the written statement was true. In this written statement the present plaintiff has not stated anything about the defendant's refusal to show the title deeds. The plaintiff has therefore not established that the defendant was responsible for the failure of negotiations with the Ghanehi. But this incident only serves the purpose of showing that the plaintiff was attempting to pay the amount to the defendant but he did not succeed as the title deeds were in the name of a minor and the Ghanehi was not willing to risk his money.
6. The next point is whether the time was of the essence of the contract. The answer to it is decisive of the appeal. The law on the point is contained in Section 55 of the Indian Contract Act which provides that:
When a party to a contract promises to do a certain thing at or before a specified time and fails to do any such thing at or before the specified time, the contract becomes voidable at the option of promisee, if the intention of the parties was that time should be of the essence of the contract.
In the leading case of Jamshed Khodaram Irani v. Burjorji Dhunjibhai 18 Bom. L.R. 163 their Lordships observe (p. 31) that they :
do not think that this section lays down any principle which differs from those which obtain under the law of England as regards contracts to sell land. Under that law equity, which governs the rights of the parties is cases of specific performance of contracts to sell real estate, looks not at the letter but at the substance of the agreement in order to ascertain whether the parties, notwithstanding that they named a specific time within which completion was to take place, really and in substance intended more than that it should take place within a reasonable time.
7. Bearing these principles in mind, we have to construe the agreement exhibit 42. It is executed by the defendant in plaintiff's favour. It runs as follows :
this is to execute this Karar to you that the properties as mentioned below have been purchased by me for an amount of Rs. 2,000, and I have got this document registered. But the said properties were originally of your ownership and hence in case you pay me Rs. 2,000, as the sale price and the amount of interest calculated at the rate of Rs. 0-14-6 per cent, per month within a period of three years from today, then I shall transfer the abovementioned property at your cost and risk. But in case you do not pay the said amount within the period of three years mentioned above, then on the expiry of the period we shall deal with the property in the manner I like and the said property shall be mine and you shall have no right therein. But if you pay the amount as mentioned above in the said period, then I shall transfer the said property to your name.
8. On this very day simultaneously with this document, plaintiff executed a rent note exhibit 39 in favour of the defendant. It reads as follows :
You have purchased the properties mentioned below. I have taken on rent the same from you for a period of 11 months and 29 days with rent accruing due from October 22, 1934. That rent for the same is fixed at the rate of Rs. 17-8-0 per month and I shall pay the said rent to you every month as it accrues due and on expiry of the period, I shall hand over possession of the same with the rent which may have accrued due by vacating the said property.
9. In our view these two documents form part of the same transaction and they have to be read together, and we have to gather the intention of the parties whether they regarded the time as of the essence of the contract.
10. At the time when the defendant purchased the properties, the plaintiff was in possession. He was the original owner of the properties. He was unwilling to surrender possession of this property to the defendant. The defendant therefore agreed that he was prepared to sell the property to the plaintiff if he paid Rs. 2,000 with interest at Rs. 0-14-6 per cent, per month within three years. The interest at Rs. 0-14-6 on Rs. 2,000 roughly comes to about Rs. 17-8-0 per month. The plaintiff therefore executed a rent note agreeing to pay Rs. 17-8-0 per month. The intention therefore appears to be this that the defendant's capital of Rs. 2,000 was to earn interest in the form of rent and the plaintiff was to remain in possession. As the defendant's amount was earning interest, time could not have been of the essence of the contract.
11. But it is urged by Mr. J.C. Shah, the learned Counsel for the appellant, that in this agreement there is an express condition that if the plaintiff failed to pay Rs. 2,000 with interest within three years, the defendant would be at liberty to sell it to any one he liked and that the plaintiff would have no right in the property and that this case is not therefore affected by the ruling in Jamshed Khodaram Irani v. Burjorji Dhunjibhai. In the Privy Council case the respondent had agreed to sell to the appellant certain leasehold land for Rs. 85,000 of which Rs. 4,000 were paid as earnest money. The agreement provided that the balance should be paid on completion which was to take place in two months and that if the appellant did not pay within the fixed time, he should forfeit the deposit and the respondent should be at liberty to resell the land. On October 6, 1911, when the appellant's reasonable requisitions as to title had not been complied with, the respondent purported to rescind the contract and forfeit the deposit and yet though the agreement provided that in case the appellant failed to pay Rs. 81,000 within two months, the appellant would forfeit his security and the respondent would be at liberty to resell the land, their Lordships held that the contract did not make time of the essence of contract and that the appellant was entitled to specific performance. Their Lordships, after referring to the cases of Tilley v. Thomas (1867) L.R. 3 Ch. 61 and Roberts v. Berry (1853) 3 De G. & G. 284 observe (p. 32):
Their Lordships will add to the statement just quoted these observations. The special jurisdiction of equity to disregard the letter of the contract in ascertaining what the parties to the contract are to be taken as having really and in substance intended as regards the time of its performance may be excluded by any plainly expressed stipulation. But to have this effect the language of the stipulation must show that the intention was to make the rights of the parties depend on the observance of the time limits prescribed in a fashion which is unmistakable. The language will have this effect if it plainly excludes the notion that these time limits were of merely secondary importance in the bargain, and that to disregard them would be to disregard nothing that lay at its foundation. Prima facie, equity treats the importance of such time limits as being subordinate to the main purpose of the parties, and it will enjoin specific performance notwithstanding that from the point of view of a Court of law the contract has not been literally performed by the plaintiff as regards the time limit specified. This is merely an illustration of the general principle of disregarding the letter for the substance which Courts of Equity apply, when, for instance, they decree specific performance with compensation for a non-essential deficiency in subject-matter.
Now, this ease has been followed by our High Court in Kalu v. Narayan (1926) 29 Bom. L.R. 56. The facts in that case are very similar to the facts in the present case. The defendants in that case had agreed to sell their lands to plaintiffs and stipulated that the consideration money was to be paid after four years from the date of the agreement. At the same time, the plaintiffs executed a rent note for a period of four years and continued in possession of the lands. After the expiry of the period, the defendant filed a possessory suit on the rent note and recovered possession and then the plaintiffs sued for specific performance of the contract. There it was held that 'under the circumstances, time was not of the essence of the contract.' Now, in this case, as in our case, the plaintiffs had first filed a suit for redemption of the mortgage, and when that suit was dismissed, he filed the present suit for specific performance of the agreement, and their Lordships observed (p. 58) :
It is quite true that the property in question originally belonged to the plaintiffs' father but it was sold to defendants' father in 1904; and as this contract was entered into in 1917, it is difficult to treat it as connected with the sale of 1904, and as an agreement of re-purchase. In fact, it is an independent transaction. It might have been induced by the consideration that originally the property belonged to the plaintiffs' father, but it cannot, on that account, be treated as connected in any way with the transaction of 1904. The contract in terms purports to be a contract for the sale of immoveable property and certain period is stated, after which the payment contemplated under the contract is to be made. Such % contract is not any the less an ordinary contract of sale simply because the intending purchaser was the original owner of the property some years ago. The contract in terms does not refer to the transaction of 1904. Treating it as an ordinary contract of sale, it seems to us that the lower appellate Court was right in holding that the observations in Jamsfied's case, which have been above referred to, would be applicable to such a contract.
It may be noted that in this ease the plaintiff had executed a rent note for a period of four years and continued in possession of the lands as tenants, and under the circumstances the Court came to the conclusion that the intention of the parties was that time was not of the essence of the contract. Now, applying these principles to the facts of our case, we hold that as the amount of the defendant was allowed to earn interest, the parties regarded that time was not of the essence of the contract. If that be so, the present suit, which has been filed within three years from the expiry of the period within which the amount was to be paid, is in time, and there is no reason why the agreement to sell should not be specifically enforced.
12. The learned trial Judge has passed a decree in favour of the plaintiff in these terms :
It is declared that plaintiff is entitled to recover possession of the property mentioned in the plaint after he pays in Court a sum of Rs. 2,000 and interest on Rs. 2,000 from 29th October 1934 to the date the defendant got possession by Civil Darkhast No. 884 of 1989 in execution of the decree in Civil Suit No. 132 of 1939 if the defendant expresses his intention in writing not to claim the amount of rent and mesne profits given to him by the aforesaid decree. The defendant, if he wants this relief, must make the election within two months from this date and inform the Court of it within that period.
Now, with regard to this latter part of the decree, it is contended by Mr. J.C. Shah that the defendant was the owner of the property and he was therefore entitled to recover the income of the property which was let to the plaintiff, and in addition to this, as the plaintiff had agreed to pay interest on 11s. 2,000 at any time when he exercised the option within three years of purchasing the property, he is entitled both to the rent as well as interest on the property. But we are not prepared to accept this contention. The real intention appears to be that the defendant was to be paid interest in the form of rent. The consideration for purchase was not to increase as time went on. Only interest on Rs. 2,000 was to be paid, and this interest took the form of the rent of the land which the plaintiff had taken under the rent note. We therefore hold that the defendant must be put to his election. Either he should receive the interest on Rs. 2,000 or he should be prepared to execute the decree which he had obtained. We therefore confirm this part of the decree.
13. Then there are certain other observations made by the learned. Judge with regard to the exact form of the decree. He says that as the sale deeds stand in the name of the defendant's minor son Chandrakant, the defendant should obtain the consent of the minor for the sale of this property, and until that is done, he is not entitled to recover the amount paid by the plaintiff in Court. We, however, think that this arrangement is not at all necessary, because the defendant has stated in his own evidence that he purchased the property in the name of his minor son and that the money belonged to his wife. That means that he concedes that Chandrakant was only a benamidar for him and further the defendant himself, as owner of the property, entered into the agreement with the plaintiff for the sale of the property and defendant in his own name took the rent note from the plaintiff. These circumstances show that Chandrakant was only a benamidar for the defendant, and it is not necessary that the defendant should produce a consent of the. minor in writing before he is entitled to withdraw the amount deposited by the plaintiff.
14. The result is that we substitute in place of the decree passed by the lower Court the decree in the following terms :
1. That it is declared that the plaintiff is entitled to have the agreement of sale dated October 29, 1934, set out in exhibit 42 in the suit specifically enforced, and it is directed that the defendant do convey within two months from the date-of receipt of record and proceedings in the lower Court the properties mentioned in the said agreement to the plaintiff and put him in possession of the same. In case the defendant makes default, the plaintiff may get the conveyance executed through the Court and recover possession in execution.
2. That the plaintiff do deposit the sum of Its. 2,000 with interest thereon in Court within one month of the receipt of the record by the trial Court if he has not already deposited the amount.
3. That the defendant will be entitled to interest on the said sum of Us. 2,000 at the rate agreed upon from October 29, 1934, up to October 23, 1940, on which date he recovered the possession of the whole property in execution of the decree in suit No. 132 of 1939, Any amount recovered by the defendant for rent in execution of the said decree to be set off against the amount of interest. The said amount shall be deposited by the plaintiff within one month of the receipt of the record by the trial Court. On such deposit being made, the decree for rent in Suit No. 132 of 1939 shall be deemed to be satisfied.
4. That the defendant will pay the costs of the appeal to the plaintiff. The plaintiff is entitled to the costs of the suit. The order regarding the payment of the court-fee to Government as framed by the lower Court will stand.
5. In the event of the plaintiff's failure to deposit the amount in Court as mentioned above, his suit shall stand dismissed with costs and there will be no order of costs in appeal.