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Sachidananda Patnaik and anr. Vs. G.P. and Co. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtOrissa High Court
Decided On
Case NumberSecond Appeal No. 181 of 1963
Judge
Reported inAIR1964Ori269
ActsTransfer of Property Act, 1882 - Sections 4, 55(1) and 55(2); Contract Act, 1872 - Sections 55 and 65; Specific Relief Act, 1877 - Sections 18 and 25
AppellantSachidananda Patnaik and anr.
RespondentG.P. and Co.
Appellant AdvocateB.M. Patnaik and ;R.C. Mohanty, Advs.
Respondent AdvocateS.C. Roy, ;K.P. Mohanti, ;N.C. Roy and ;R.K. Monapatra, Advs.
DispositionAppeal dismissed
Cases ReferredPyrke v. Waddingham.
Excerpt:
.....the agreement and that without repudiation and rescission of the contract, the plaintiff is not entitled to refund of the earnest money. (ii) even though defendant 1 failed to execute the sale deed by the end of the second week of january 1957, the contract did not become voidable at the option of the plaintiff unless time was of the essence of the contract. 4) the plaintiff rescinded the contract onaccount of the failure on the part of defendant no. law is well settled that notwithstanding thata specific date is mentioned for the completion of a contract, one has not to look at the letter but at the substance of the agreement in order to ascertain the realintention of the parties, that is, whether, in substance,the parties intended that the execution should take placewithin a..........material defect in the seller's title to the property vitiated the contract and the plaintiff is entitled to refund of the earnest money.(b) due to the pendency of the aforesaid proceeding defendant 1 could not complete the execution of the sale deed and could not deliver to the plaintiff an abstract, of her title to the property as provided in condition no. 2, of ex. 1.(c) as defendant 1 failed to perform her part of the contract, the plaintiff repudiated the contract and asked for refund of earnest money.5. the first conclusion of the learned district judge is based upon misconception of law and cannot be supported. section 55(1)(a), transfer of property act, lays, down that in the absence of a contract to the contrary, the seller is bound to disclose to the buyer any material defect.....
Judgment:

G.K. Misra, J.

1. Defendants are the appellants. Defendant 2 is the brother and authorised agent of defendant 1 Plaintiff's case is that the disputed land belongs to defendant 1. She entered into an agreement Ex. 1 with the plaintiff on 7th October 1956 to sell the disputed land for Rs. 10,000/-. Rs. 1000/- was paid as earnest money on the date of the execution of Ex. 1. There was a stipulation that the balance consideration would be paid by 30th October 1956 at the office of the Sub-Registrar, Balasore when the sale would be completed and that the vendor shall, on completion of the sale, deliver to the purchaser an abstract of her title to the property. Possession was also to be delivered on that day. Further terms of agreement are not relevant and need not be mentioned. On the 24th October 1956 the plaintiff was served with a notice (Ex. 2) from the Collector of Balasore prohibiting it from enclosing or possessing the disputed land as it was the subject-matter of a proceeding under Section 5 (1) of the Orissa Estates Abolition Act. The number and year of the proceeding was mentioned in the notice itself.

The plaintiff was not aware prior to Ex. 1 that the disputed land was the subject-matter of such an enquiry. Plaintiff therefore came to Know that defendant 1 had not been recognised as a raiyat of the disputed land by the Anchal and her title was not free from doubt. After the service of the prohibitory notice defendant 1 could not execute a valid sale deed by 30th October 1956, as stipulated, and requested the plaintiff for extension of time. By a further agreement (Ext. 1/a) dated 1-11-1956, Incorporated in the body of Ex. 1, time was extended till the end of second week of January 1957. The contents of Ext. 1/a were to the following effect:

'That the said Samantani Sailarani Das (vendor) and the said M/s. G. P. and Co. (purchaser) for some overlooked circumstances not having been able to perform their part of the contract in time have hereby further agreed respectively to have the sale deed executed and registered and to pay the balance consideration on the date of registration as noted above and also to deliver possession of the land in question and to take possession thereof by the end of second week of January 1957.'

In paragraph 8 of the plaint, it was averred that the period was extended till the second week of January 1957 to enable defendant 1 to get herself recognised as a raiyat of the land by the Anchal and to obtain rent receipts therefor. As by the second week of January 1957 the proceeding under Section 5 (1) of the Orissa Estates Abolition Act was not disposed of and the defendant 1 could not get recognition as a tenant by obtaining rent receipts, she was unable to execute the sale deed though the plaintiff was ever ready to perform its part of the contract. The plaintiff could not indefinitely wait and so served a registered notice (Ext. 4) dated 23-7-1957 for refund of the earnest money of Rs. 1000/- with interest at the rate of 12 per cent per annum from 7-10-56 and for refund of Rs. 340/- paid towards purchase of stamp. Despite the notice and several requests defendant 1 did not pay back the) amount. The suit was filed on 26-11-1957 for recovery of Rs. 1500/- consisting of Rs. 1000/-towards earnest money, Rs. 340/- towards purchases of stamp and Rs. 160/- towards interest.

2. Defendant 1 filed written statement without challenging most of the facts. She, however, pleaded that the plaintiff examined all her title-deeds and saw the rent receipts granted by the Anchal prior to the execution of Ex. 1. She was always ready to execute and sell the land, but due to the neglect and laches of the plaintiff, she could not do it. She could not give a reply to Ex. 4 as she was at Calcutta attending upon her ailing husband. The plaintiff is not entitled to the claims as laid.

3. The learned trial Court decreed the plaintiff's suit for Rs. 1000/- with interest at 12 per cent per annum from 7-10-56 to 25-11-1957 and rejected the claim for refund of Rs. 340/-. The plaintiff filed no appeal against the decree dismissing the claim for refund of Rs. 340/-The finding of the learned trial court on that matter became conclusive. The defendants filed an appeal against the decree for refund of Rs. 1000/-. The learned lower appellate Court dismissed the appeal. Against the appellate decree the second appeal has been filed.

4. The teamed District Judge recorded the following findings:

(a) Plaintiff was not aware of the pendency of the proceeding under Section 5(i) of the Orissa Estate Abolition Act, and the defendants did not disclose this fact to the plaintiff before execution of Ext. 1. The non-disclosure of the material defect in the seller's title to the property vitiated the contract and the plaintiff is entitled to refund of the earnest money.

(b) Due to the pendency of the aforesaid proceeding defendant 1 could not complete the execution of the sale deed and could not deliver to the plaintiff an abstract, of her title to the property as provided in condition No. 2, of Ex. 1.

(c) As defendant 1 failed to perform her part of the contract, the plaintiff repudiated the contract and asked for refund of earnest money.

5. The first conclusion of the learned District Judge is based upon misconception of law and cannot be supported. Section 55(1)(a), Transfer of Property Act, lays, down that in the absence of a contract to the contrary, the seller is bound to disclose to the buyer any material defect in the property or in the seller's title thereto of which the seller is, and the buyer is not, aware, and which, the buyer could not with ordinary care discover. The, omission to make such disclosure is fraudulent. The materials, necessary to arrive at the conclusion that the seller infringed her duties cast under Section 55(1)(a), are lacking in this case. There is no evidence or finding that the defendants were aware of the pendency of the proceeding under Section 5 (i) on or before the execution of Ex. 1, assuming that it constituted a material defect There is no averment in the plaint that the plaintiff was, not aware of the pendency of the proceeding and could not with ordinary care discover it. The onus is on the plaintiff to establish that there was material defect in the seller's title which the seller did not disclose and that the non-disclosure was fraudulent due to non-fulfillment of the ingredients prescribed in Clause (a) of Sub-section (1) of Section 55. I would hold that the finding of the learned District Judge in this regard is contrary to law-and is unsupported by the pleading and the evidence.

6. Mr. B. M. Patnaik raised two contentions-

(i) The plaint and the registered notice Ex. 4 clearly establish that even, till the date of the suit, the plaintiff was willing to perform its part of the contract and there was no repudiation of the agreement and that without repudiation and rescission of the contract, the plaintiff is not entitled to refund of the earnest money.

(ii) Even though defendant 1 failed to execute the sale deed by the end of the second week of January 1957, the contract did not become voidable at the option of the plaintiff unless time was of the essence of the contract. After the second week of January 1957, the plaintiff did not ask defendant to execute the sale-deed by any specified date so as to entail avoidance of the contract. That contract still subsists and the plaintiff is not entitled to refund.

7. Both the contentions are inter-linked. Mr. Patnaik's contention is based on the averments in para 12 of the plaint wherein the cause of action for the suit is mentioned to have arisen with effect from 1-11-56 and 16-1-57 after the expiry of the stipulated period, and in para 9 of the plaint that even at the time of the institution of the suit the plaintiff was ready to perform its part of the contract, and that in the notice Ex. 4 the plaintiff did not call upon defendant 1 to execute She sale-deed by any particular date failing which the agreement would stand rescinded.

Doubtless in para 9 of the plaint the wording runs to the effect--

'Whereas this plaintiff is ever ready to perform hispart of contract.'

indicating present tense. But the plaint and Ex. 4, readas a whole, leave no room for doubt that by the registered notice (Ex. 4) the plaintiff rescinded the contract onaccount of the failure on the part of defendant No. 1 to produce rent receipts from the Anchal in proof of her recognition in the pending proceeding under Section 5(i). Reliance is placed on the statement of P. W. 1 to theeffect--

'We are ever ready to perform our part of the contract and ready to pay money during the period of contract and even two or three months after. Now I claim refund of the money and interest thereon.'

The comment is that the period of contract, according to the plaintiff, landed by the end of second week of January, 1957; and if the plaintiff was willing to perform Its spare of the contract even 2 or 3 months thereafter, thespecific date, that the sale-deed would be executed bythe second week of January, 1957, was not of the essenceof the contract. Even on this statement defendant 1's case is not very much advanced. At the highest, it cantoe argued that breach on the part of defendant 1 to execute the sale-deed by the end of the 2nd week of January 1957, was condoned. The registered notice was however, served on 23-7-1957 about six months after the specified date. By the registered notice the contract was rescinded in clearest terms when the plaintiff asked for refund of the consideration alleging--

'That it appears that you have not acquired an indefeasible saleable right, title and interest in respect of the land agreed to be sold since you have not perfected your title and acquired raiyati right or any title over thesaid land nor rent had been settled for the land by the Collector and, as such, you are not able to sell the landto others. Under the circumstances, my client cannot wait indefinitely. Therefore I hereby demand of you forrefund of the said sum.'

Whether time was of the essence of the contract or not,there cannot be any dispute over the question that thecontract was rescinded by the registered notice (Ex. 4).The learned District Judge correctly recorded the findingthat there was repudiation of the contract by the notice.

It is, however, contended that even if by the subsequent agreement (Ext. 1/a) defendant 1 was to produce rent-receipts from the Anchal in recognition of her status as a tenant by the second week of January 1957, the agreement could not be repudiated in law as time was not of the essence of the contract. Mr. Patnaik rightly did not challenge in second appeal the finding of the learned District Judge that there was agreement between theparties Ex. 1/a that defendant 1 would obtain rent-receipts from the Anchal by the end of the second week of January 1957 and she was unable to produce the same and execute the sale deed, and that in fact she could notnave produced the rent-receipts also from the Anchal as the lease was cancelled under Ex. 6 on 2-1-60 though, in appeal defendant 1 succeeded on 4-11-1960 (Ex. C). Mr. Patnaik's contention that the plaintiff cannot rescind the contract unless time is of the essence of the contract is based on Section 55 of the Indian Contract Act. The relevant portion of it runs as follows--

'When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time, should be of the essence of the contract.'

Section 4 of the Transfer of Property Act prescribes thatthe chapters and sections of the T. P. Act, which relateto contract, shall be taken as parts of the Indian ContractAct. Section 55 of the Contract Act therefore has fullapplication to the contract for sale of immoveable property. Law is well settled that notwithstanding thata specific date is mentioned for the completion of a contract, one has not to look at the letter but at the substance of the agreement in order to ascertain the realintention of the parties, that is, whether, in substance,the parties intended that the execution should take placewithin a reasonable time. The dictum that the letter ofthe contract is to be disregarded and the sub-stance shouldbe looked into may be excluded by any plainly expressedstipulation, The language of the stipulation must, however, show in unmistakeable terms that the intention ofthe parties was to make their rights dependent upon theobservance of the time limit. If the language shows thatthe imposition of time limit was merely of secondary importance, tne disregard of time limit does not amount toanything more than disregarding nothing striking at thevery foundation of the contract. In a contract for sale ofimmoveable property, time limits are ordinarily presumedto be subordinate to the main purpose of the agreement.In commercial contracts, however, time factor goes tothe root of the matter and is of the essence of the contract.

The rule is, however, subject to some well recognised exceptions : Those exceptions are--

(i) When one party is guilty of undue delay in performing his part of the contract and the other party has given reasonable notice that the contract is to be completed within reasonable time:

(ii) When the character of the property is such thatthe Court would not exercise jurisdiction in allowing, specific performance;

(iii) When from other circumstances it would appearto the Court that decreeing specific performance is likelyto result in injustice.

In such cases, apart from any question of expressed intention, the , circumstances themselves exclude the exercise of jurisdiction for specific performance. These principles are based on the leading decision reported in Jamshed Khodaram v. Burjorji Dhunjibhai, AIR 1915 PC 83. Mr. Patnaik places reliance on Dominion of India v. Seth Bhikhraj Jaipuria, AIR 1957 Pat 586 Kutumba Rama Sastry v. Dakshina Murthy, AIR 1960 Andh-Pra 173, Amarnath Nikkuram v. Mohan Singh Surjan Singh, AIR 1954 Madh-B. 134, and Kalidas Ghosh v. Mugneeram Bangur and Co., (S) AIR 1955 Cal 298 which merely follow, AIR 1915 PC 83.

8. Mr. Patnaik's argument suffers from serious infirmity in overlooking the aforesaid exceptions. His argument only lays emphasis on Exception No. (i). Theonus is undoubtedly on the plaintiff to plead and provethat time was of the essence of the contract. There isno such averment in the plaint. Exs. 1 and 1/a do not show that time was of the essence of the contract. Theregistered notice (Ex. 4) does not also 'specify a particular date by which defendant 1 was to execute the sale deed, on the failure of which the plaintiff would put an end to the contract. The plaintiff's case would not therefore come within the first exception. This finding that time was not of the essence of the contract would only take out plaintiff's case from the benefit of Exception No. 1.

9. The plaintiff-Company can, however, take resort to Exceptions (ii) and (iii), and on the strength of the registered notice (Ex. 4) can make out a case that the character of the property and other circumstances were such that the Court would refuse to exercise its jurisdiction for granting relief of specific performance to the vendor, and accordingly the vendee is entitled to refund of the earnest money. There is no dispute that proceeding under Section 5 (i) of the Estate Abolition Act was pending even after the expiry of the second week of January, 1957.

Section 5 (i) prescribes that where the Collector is satisfied, in respect of the settlement of lease of n land made or created at any time after the 1st day ofJanuary 1946, that such settlement or lease was made with the object of defeating any of the provisions of that Act, or obtaining higher compensation thereunder, he shallhave power to make enquiries in respect of such settlement or lease, and may, after giving reasonable noticeto the parties concerned to appear and to be heard, set aside any such settlement or lease, dispossess the person claiming under it and take possession of such property in the manner provided in Clause (h) on such terms as may appear to him to be fair and equitable. Subsequent to the execution of Ex. 1, when the Collector served the registered notice (Ext. 2) on the plaintiff for not encroaching or possessing the disputed land, the agreement Ext. 1/a was entered into to enable defendant 1 to obtain a title free from reasonable doubt by production of rent receipts from the Anchal in recognition of her status as a raiyat.

When defendant 1 failed to obtain a marketable title even until 4-11-1960, she could not have executed a registered sale-deed in favour of the plaintiff even if the plaintiff in the registered notice Ex. 4 would have in clearest terms rescinded the contract and specified a particular date for execution of a sale-deed by defendant 1, failing which the contract would have been determined. This fact that defendant 1 was not in a position to give a title free from reasonable doubt is fundamental and goes to the root of the matter and entitled the plaintiff to repudiate the contract on a basis independent from time being of the essence of the contract. Such cases come within the purview of second and third exceptions.

This principle gets recognition in Sections 18 and 25 of the Specific Relief Act and Section 55 of the Transfer of Property Act. Section 25 of the S. R. Act, so far as relevant, enacts as follows:

'A contract for the sale of letting of property whether movable or immovable, cannot be specifically enforced in favour of a vendor or lessor--

XX XX XX XX XX XX XX XX XX XX(b) who, though he entered into the contract believing that he had a good title to the property cannot at the time fixed by the parties or by the Court for the completion of the sale or letting, give the purchaser or lessee a title free from reasonable doubt.

Section 18, Clause (d) is to be read with Section 25(b). It lays down--

Where a person contracts to sell or let certain property having only an imperfect title thereto the purchaser or lessee (except as otherwise provided by this Chapter) has the following rights :-

XX XX XX XX XX XX XX XX XX XX(d) where the vendor or lessor sues for specific performance of the contract, and the suit is dismissed on the ground of his imperfect title, the defendant has a right to return of his deposit (if any) with interest thereon, to his costs of the suit and to a lien for such deposit, interest and costs on the interest of the vendor or lessor in the property to be sold or let.'

The fact that in both the sections reference is made to the specific performance or the institution of a suit by' the vendor, does not affect the principle on the basis of which the vendee is entitled to refund of earnest money. The same principle is to be found in Section 55(6)(a) of the Transfer of Property Act. It lays down that in the absence of any contract, the buyer is entitled to, when he properly declines to accept the delivery, also for the earnest (if any) land for the costs (if any) awarded to him of a suit to compel specific performance of the contract or to obtain a decree for its rescission. This suit is clearly to obtain a decree for refund of earnest money on the basis of rescission of the contract. The position is indisputable that defendant 1 was not in a position to give to the plaintiff a title free from reasonable doubt until 4-11-60. Even though time was not of the essencs of the contract, the plaintiff was entitled to repudiate the contract, decline delivery of possession and ask for refund of consideration. Fry on Specific Performance puts the matter in an admirable manner that where the probability of limitation ensuing against the purchaser in respect of the matter in doubt is considerable, or where there is a reasonable decent probability of litigation, the Court will not compel the purchaser to buy a law suit. What would be the result of the enquiry by the Collector under Section 5 (i), nobody could predicate, particularly where the lease was settled on defendant 1 by her husband. In fact the Collector under Section 5 (i) cancelled the lease on 2-1-60 and directed that possession of the land was to be taken according to the procedure mentioned in Section 5(h). The mere fact that after full judicial investigation, the title of the vendor is ultimately found to be clear, does not disentitle the vendee to claim refund of the earnest money-- (see Tulsidas Ramchand v. Pritbai, AIR 1943 Sind 92).

Section 55(2) of the Transfer of Property Act also leads to the same conclusion. Under it, in the absence of a contract to the contrary, the seller shall be deemed to contract to the buyer that the interest, which the seller professes to transfer to the buyer, subsists, and that he has power to transfer the same. The seller is to guarantee and convey marketable title to the buyer which, in the language of Section 25(b) of the Specific Relief Act, is a title free from reasonable doubt.

10. It is only necessary to give a clear analysis of the concept of 'marketable title' or 'a title free from reasonable doubt.' It is indeed very difficult to lay down any hard and fast rule with regard to the requirement of such a title. Each case must be decided on its own facts and circumstances. In J.N. Duggan v. K. M. Talyarkhan, AIR 1938 Bom 77, Kania, J. (as he then was) defined 'marketable title' as one which could be forced on an unwilling purchaser under a contract for sale made without special conditions, at all times and under all circumstances. Unless the marketable title is proved, or where the rectitude of the title depends upon facts, capable of being disputed, specific performance of contract for sale cannot be granted. Reliance was placed on the ratio In the leading decision on the subject reported in (1352) 10 Hare 1, Pyrke v. Waddingham.

Judged by the aforesaid test, the title of defendant 1 in the disputed property was afflicted with doubt on facts and law under Section 5 (i). The doubt so created was not merely a frivolous or idle one but which a Court of law can regard as serious and rational. In such circumstances, the court is not to exercise its jurisdiction to force the purchase on the unwilling purchaser.

11. The conclusion resulting from the aforesaid discussions may be summarised as that though time was not of the essence of the contract, the character of the property, which constituted the subject of the contract, was such that the Court would not exercise its jurisdiction to allow specific performance by compelling the plaintiff to purchase such a property, and the decree for specific performance is likely to result in injustice. As the Court would not compel the plaintiff to purchase such a property, the relief for refund of earnest money must be decreed.

Mr. Patnaik's argument is bereft of clear analysis inasmuch as it concentrates on the sole factor that time was not of the essence of the contract. I would accordingly, confirm the ultimate conclusion of the learned District Judge though he was not alive to the considerations discussed above.

12. In the result the appeal fails and is dismissed with costs.


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