Kailashwati v. Ravindra Prakash Mathur — 1986 DIGILAW 923 (ALL)

JUDGMENT Om Prakash, J. - This is a second appeal by the defendant-appellant against the judgment and decree dated 28-7-1980 of the learned District Judge, Saharanpur. 2. The fact, briefly, are that the plaintiff was a member of the Modern Cooperative Housing Society Ltd. (for short, the Society). Under the Low Income Group Housing Scheme, the plaintiff borrowed Rs. 5000/- in the year 1957 from the U.P. Cooperative Bank (Bank, in brief). The loan was taken from the Bank through the medium of the Society. Having taken the loan, the plaintiff constructed the house in the year 1957. The loan was repayable in monthly instalment of Rs. 28.95 with effect from 20th June, 1957. The loan was secured by the mortgage of the house, which the plaintiff constructed on plot no. 9 in Janakpuri Coloney at Saharanpur. The mortgage was executed on 3-2-1966. The mortgagee rights were assigned by the Society in favour of the Bank on 5-3-1956. 3. The plaintiff agreed to sell the said house to defendant under the agreement dated 3-6-1962 (Ex 1) for Rs. 5000/- of which Rs. 500/- were paid as earnest money at the time of the registration of the agreement. The balance was to be paid by the defendant to the Bank to whom the mortgagee rights were assigned. Rs. 400/- were to be paid to the Bank each year for the first six years. In addition to the said payment, instalments of Rs. 28.95 each were due to be paid monthly. The balance of loan was to be paid in the 7th year with interest at the rate of 5% per anum. The sale deed was to be executed by the plaintiff within one month of the discharge of the loan by the defendant of which information was to be sent by the defendant to the plaintiff under registered cover. Pursuant to the agreement to sell, possession of the house was given to the defendant. 4. The defendant, during the period from 3-11-1967 to 12-3-1973 paid instalment to the Bank of the amount aggregating to Rs. 9600/- as under :- Rs. 500/- 3-11-67 Rs. 500/- 26-12-67 Rs. 500/- 22-8-69 Rs. 200/- 23-8-69 Rs. 300/- 11-10-69 Rs. 500/- 8-6-70 Rs. 30/- 9-9-70 Rs. 30/- 21-10-70 Rs. 30/- 17-5-71 Rs. 30/- 7-8-72 Rs. 30/- 12-2-73 5. On 7.9.1972, the Bank gave notice to the plaintiff vide Ex. 9600/- as under :- Rs. 500/- 3-11-67 Rs. 500/- 26-12-67 Rs. 500/- 22-8-69 Rs. 200/- 23-8-69 Rs. 300/- 11-10-69 Rs. 500/- 8-6-70 Rs. 30/- 9-9-70 Rs. 30/- 21-10-70 Rs. 30/- 17-5-71 Rs. 30/- 7-8-72 Rs. 30/- 12-2-73 5. On 7.9.1972, the Bank gave notice to the plaintiff vide Ex. 14 saying that there was no payment made of Rs. 2976.34 for the period from 20-6-1957 to 30-6-1972. There upon the plaintiff wrote to the defendant on 30.11.1973 vide Ex. A-3 asking her to clear up the arrears within the grace period of one month. On failure of the defendant to make any payment, the suit was instituted on 30.4.1974 claiming the relief for possession and Rs. 1200/- as damages at the rate of Rs. 100/- per month. Mesne profits pendentelite and future had also been claimed at the rate of Rs. 100/- per month. The plaintiff claimed possession as provided under clause 9 of the agreement to sell Ext. 1, which reads: "If the second party fails to pay for six months instalments continuously to the Bank or fails to pay Rs. 400/- (Rupees four hundred) in any year or does not pay off the balance of the loan in the last year, then in that case the whole amount paid by the second party either to the first party as earnest money or to the Bank towards loan, will stand forfeited to the first party and this deed of agreement will immediately come to an end and will be deemed to have been cancelled and the second party will have absolutely no right against the first party under this deed. The second party will be liable to deliver back the possession of the said house to the first party and if he fails to do so then the first party will be entitled to get possession through court." 6. The defendant, inter alia, pleaded that the suit was barred by limitation and that clause 9 of the agreement was penal in nature. 7. The trial court held that the defendant committed breach of the agreement Ex. 1. However, the trial court held that the plaintiff is not entitled to possession since he has made a mortgage in favour of the bank and so long as the mortgage was not redeemed, the plaintiff could not be said to have proprietary interest. 7. The trial court held that the defendant committed breach of the agreement Ex. 1. However, the trial court held that the plaintiff is not entitled to possession since he has made a mortgage in favour of the bank and so long as the mortgage was not redeemed, the plaintiff could not be said to have proprietary interest. It was also held that the plaintiff could have no right to make sale without redeeming the mortgage. The suit was, therefore, dismissed. 8. On appeal, the learned District Judge held that "The plaintiff appellant regains the right to regain possession on the defendant's failure to make payment to the bank within the time stipulated or even till long there after and as a result of which the agreement has come to an end on its own terms. "It was also held that. "Upon her failure to make requisite payment to the bank, the agreement is to be deemed to have been cancelled as specifically provide in clause 9........... The basis for the claim is the title to house and the plaintiff is eligible to resume possession as owner thereof having constructed it himself on taking loan from the bank. The Trial Court has grievously erred in being of opinion that the plaintiff cannot be taken to be the proprietor of the house so long as the mortgage to the Bank is not redeemed. It is lost right of that mortgage has conveyed only a portion of the proprietor right carved out and that the plaintiff continues to remain the proprietor of the house as mortgagor despite the amount of the mortgaged money being outstanding to the Bank in whole or in a part." 9. This is how the learned appellate court repelled the contention of the defendant that the suit is for specific performance for which the limitation was only three years. The view taken by the learned District Judge was that the suit was not for specific performance, but the claim for possession was based on title, which remained vested with the plaintiff and no right accrued to the defendant under the agreement, as she failed to discharge the loan as per terms of the agreement. In short, the finding was that the plaintiff being the owner of the house could maintain the suit against the defendant for possession even till long after the period of three years. 10. In short, the finding was that the plaintiff being the owner of the house could maintain the suit against the defendant for possession even till long after the period of three years. 10. I have heard Sri Ravi Kiran Jain, learned counsel for the defendant appellant and Sri Rajesh Tandon, learned counsel for the plaintiff respondent, claim to possession is embedded in clause 9 of the agreement and that the defendant has brought the suit to seek specific performance of clause 9 of the agreement and, therefore, limitation of three years as provided by Article 54 of the Limitation Act, 1963 is applicable to the case. The contention of Sri Tandon, however, is that the agreement has come to an end consequent upon the breach having been made by the defendant, the right to recover possession arises to the plaintiff being owner, as the possession of the defendant after breach, became a wrongful possession and that the defendant lost the right to retain possession after breach in view of clause 9 of the agreement. He, therefore, urged that the limitation of 12 years as provided by Article 64 of the Limitation Act is applicable. He also relied on Article 66 of the Limitation Act providing limitation of 12 years for possession of immoveable property when the plaintiff has become entitled to possession by reason of any failure or breach of condition. 11. The question for consideration, therefore, is whether the case of the plaintiff is governed by Article 54 as contended by Sri Jain or by Article 64 or 66 as contended by Sri Tandon. Specific performance of a contract can be sought only when the contract subsists. If the contract does not subsist, then question of specific performance thereof will not arise. The first point for determination, therefore, is whether the agreement came to an end before the institution of the suit and whether the agreement was inforce, when the suit was filed. Specific performance of a contract can be sought only when the contract subsists. If the contract does not subsist, then question of specific performance thereof will not arise. The first point for determination, therefore, is whether the agreement came to an end before the institution of the suit and whether the agreement was inforce, when the suit was filed. The learned District Judge observed that "The terms of the contract in the present contemplate that upon the failure of the defendant respondent to discharge the liability to the Bank, the deed of agreement will immediately come to an end and will be deemed to have been cancelled and there shall be no right left to the defendant respondent against the plaintiff under the agreement." The question is as to what is the correct interpretation of clause 9 of the agreement and whether the view taken by the learned District Judge is fortified by clause 9, already reproduced above? The gist of the clause 9 is that if the defendant fails to pay the instalment regularly or does not pay off the balance of the loan in the last year, then in that case the whole amount paid by the defendant towards loan will stand forfeited to the plaintiff and that the agreement will immediately come to an end and will be deemed to have been cancelled and that the defendant will be liable to deliver back the possession of the house to the plaintiff. If the defendant fails to deliver the possession, then the plaintiff will be entitled to get possession through the court. So the delivery of possession to the plaintiff in the event of breach of the contract was a condition subsequent. The obligation to deliver the possession back on the part of the defendant to the plaintiff arose only after the breach of the contract or in the phraseology of clause 9 after the agreement "will be deemed to have been cancelled." Therefore, it is wrong to argue that the suit for possession is a suit for specific performance of the contract. Sri Jain argued that the right to recover possession sprang up from the agreement and, therefore, the suit is one for specific performance. I do not see much force in this argument. Under clause 9 of the agreement Ex. Sri Jain argued that the right to recover possession sprang up from the agreement and, therefore, the suit is one for specific performance. I do not see much force in this argument. Under clause 9 of the agreement Ex. 1, the right to recover possession arises only after the agreement has come to an end and was deemed to have been cancelled. So the right to recover possession is dependent on cancellation of the agreement and it is not a right that could be enforced during substance of the contract. 12. In Chapter XIII entitle "Discharge by agreement" Anson's Law of Contract 23rd Edition, the eminent author opined on page 451 in the paragraph, preceded by the heading "provisions for discharge contained in the contract itself" that a contract may contain within itself the element of its own discharge, in the form of provisions, express or implied, for the determination in certain circumstances................................. We have already seen that a contract may be made by the parties subject to a 'condition subsequent'. They may agree that, in the event of a fulfilment or nonfulfilment of a certain condition or upon the occurrence of a certain event, they are to be mutually discharged from their obligations. In some cases, this discharge is automatic, in others it is only to take place at the option of one of the parties ................. but in both cases the provision for discharge is contained in the contract itself." In the instant case, when the defendant failed to discharge her liability i.e. the liability to pay up the loan according to the agreement, the agreement came to an end and the plaintiff was exonerated of his obligation to execute the sale deed on account of the provisions for discharge contained in clause 9 of the agreement itself. There was a condition subsequent in clause 9 of the agreement that if the loan liability was not discharged by the defendant according to the agreement, then the agreement will come to an end immediately and that would be deemed to have been cancelled. It is only after the breach of the agreement and consequently that having come an end, the right to recover possession sprang up and it is incorrect to say that the right to recover possession arose from the subsistence of the contract that could be specifically enforced. It is only after the breach of the agreement and consequently that having come an end, the right to recover possession sprang up and it is incorrect to say that the right to recover possession arose from the subsistence of the contract that could be specifically enforced. The agreement having stood cancelled on account of the provision made in clause 9 itself, the question of filing a suit for specific performance does not arise and, therefore. Article 54 will not apply in any case. 13. Then it was argued by Sri Jain that the contract could not have been rescinded by the plaintiff under Section 39 of the Contract Act, simply because the defendant refused to perform her promise in entirety and that to rescind the contract under Section 39 an overt-act by the party which opts to rescind the contract, is necessary. In my view this argument is fallacious. In the instant case, the agreement came to an end on account of the provisions contained in clause 9 of the agreement Ex. 1 itself and there is noting to put the contract to an end under Section 39 of the Contract Act. Under clause 9, cancellation of the agreement was automatic, if the defendant failed to discharge the loan as per the agreement. In the Commentary on Indian Contract and Specific Relief Act IX Edition, the famous authors Palok and Mulla commented on page 458 thus :- "It is hardly needful to say that recession must be express and unequivocal. The clearest form of it is to bring a suit to set aside the contract." On the analogy of the aforesaid view, it can be said that no further evidence for an overt act than institution of the suit for recovery of possession, is necessary. It is to be made clear that overt act is required only when a contract is rescinded under Section 39 and not when a contract stood discharged owing to a provision or a condition subsequent contained in the agreement itself. It is to be made clear that overt act is required only when a contract is rescinded under Section 39 and not when a contract stood discharged owing to a provision or a condition subsequent contained in the agreement itself. It has already been pointed out above that the agreement came to an end automatically in view of the provisions contained in clause 9 of the agreement and even if the evidence for an overt act within the meaning of Section 39 is required, then by filing the suit for recovery of possession, the plaintiff unequivocally declared that he rescinded the contract, as the defendant refused to fulfil her promise in entirety. 14. In Ranchhoddas Chhagan Lal v. Devaji Supdu Dorik & others, (A.I.R. 1977 S.C. 1517), there was an oral agreement for sale of agricultural land for Rs. 17000/-. The respondent paid time to time the amount aggregating to Rs. 12000/- and he was also given possession. The appellant called upon the respondent to pay full amount of the purchase price and when the latter failed to do so, the former filed a suit for possession of the property. The counsel for the respondent contended that the suit was not maintainable. It was said that the appellant was not competent to maintain the suit by reason of provisions, contained in Section 39 of the Indian Contract Act. The Supreme Court rejecting the contention said : "The submission is fallacious, The case of the appellant has always been that the respondent refused to perform the agreement. The appellant all along asserted that the agreement was that the property was agreed to be sold for a sum of Rs. 17000/-. The respondent refused to perform the agreement. The suit, therefore, was competent and valid." 15. Assuming but not accepting that the contract was not terminated by operation of clause 9 of the agreement. I relying on the case of Ranchhoddas Chhagan Lal (supra) held that in the event of refusal of the defendant to perform his promise, the plaintiff was entitled to rescind the contract and that for rescission no more overt act than filing the suit is necessary. 16. I relying on the case of Ranchhoddas Chhagan Lal (supra) held that in the event of refusal of the defendant to perform his promise, the plaintiff was entitled to rescind the contract and that for rescission no more overt act than filing the suit is necessary. 16. The learned District Judge has rightly held that on breach of agreement by the defendant, the plaintiff immediately became entitled to recover possession being the owner and such a right was inhibited by the mortgage having been made by the plaintiff in favour of the Society, which in turn assigned the mortgage right to the Bank. To enforce the right of possession, redemption of the mortgage was not necessary. Whether or not the plaintiff would have entered into an agreement to sell with the defendant in the presence of the mortgage this question could have been raised at the instance of the mortgagee or the Bank to whom the mortgagee right was assigned. So far as parties to the suit are concerned, admittedly, the plaintiff was the owner of the house and he would have been divested of such a right only when the defendant discharged her liability as per agreement, No right was vested in the defendant, as she failed to pay the loan under the terms of the agreement. 17. Sri Jain relied on several authorities in support of his view that the suit was for specific performance and, therefore, it is barred by limitation as provided by Article 54 of the Limitation Act. I do not consider it necessary' to discuss all those authorities and it will suffice to say that none of the authorities cited by Sri Jain, establishes the point that the suit was for specific performance. Rather, it is abundantly clear that the right to recover possession arose only after the contract was terminated and that in the words of clause 9 of the agreement, was deemed to have cancelled. Therefore, Article 54 has no application to the suit. 18. The learned appellate court already ordered the plaintiff to reimburse the defendant the amount aggregating to Rs. 2650/- which he had paid towards instalments. In regard to Rs. Therefore, Article 54 has no application to the suit. 18. The learned appellate court already ordered the plaintiff to reimburse the defendant the amount aggregating to Rs. 2650/- which he had paid towards instalments. In regard to Rs. 500/- representing earnest money that was paid by the defendant at the time of execution of the agreement, the appellate court, however, observed that "...............since on account of breach committed by the defendant in the performance of the agreement, the plaintiff becomes clearly entitled to forfeit that amount." In my view, performance of earnest money on breach of a contract is not automatic. It is only when the plaintiff has suffered some loss, earnest, money can be forfeited or other damages can be awarded. I, therefore, held that the plaintiff would refund Rs. 500/- also to the defendant. 19. In the result, the appeal is partly allowed, inasmuch as, the appellant will be entitled to get Rs. 500/- representing earnest money back from the respondent. No order as to the costs of this appeal.