Punjab-Haryana High Court
Swaran Singh vs Balwant Singh on 22 April, 2004
Equivalent citations: I(2005)BC567, 2005(1)CTLJ251(P&H), (2004)138PLR54
JUDGMENT M.M. Kumar, J.
1. This order shall dispose of two appeals namely, R.S.A. Nos. 1556 and 1557 of 2004 as common questions of law and facts have been raised. Facts are referred from R.S.A. No. 1556 of 2004. Both the appeals have been filed by the defendant-appellant challenging the judgment and decree dated 19.1.2004 passed by the learned Additional District Judge, Kapurthala, partly accepting the appeal of the plaintiff-respondent. The defendant-appellant has been directed to refund earnest money amounting to Rs. 1,75,000/- with interest at the rate of 12 per cent per annum from the date of execution of the agreement when Rs. 1,50,000/- was paid and with effect from 13.5.1999 on the amount of Rs. 1,75,000/- when further sum of Rs. 25,000/- was paid till the date of the decree. Future interest at the rate of 6 pert cent per annum has also been awarded and the suit of the plaintiff-respondent for possession by way of specific performance has been dismissed.
2. Both the Courts below have found that the agreement to sell Exhibit P-1 dated 12.5.1998 is void as the defendant-appellant belongs to Scheduled Caste and was permanently barred by Section 7 of the Nazool Lands (Transfer) Rules, 1956, as amended in 1991 (hereinafter referred to as 'the Rules') from alienating the Nazool Land as such land could only be inherited. It has further been found that under Section 65 of the Indian Contract Act, 1872. (for brevity, 'the Contract Act') the contract being void or having been discovered to be void, could not be specifically performed by issuing mandatory injunction. The lower Appellate Court has further found that the plaintiff-respondent has always been ready and willing to perform his part of the contract. It is appropriate to mention that the trial Court has dismissed the suit in toto but the lower. Appellate Court came to the conclusion that the plaintiff-respondent was entitled to refund of the earnest money paid along with interest. The view of the learned Additional District Judge in this respect reads as under:-
"In the instant case, the contract was discovered to be void later on, when the certificate of transfer, was issued, in favour of defendant in the year 2001. At the time of the execution of the agreement to sell, by the defendant, in favour of the plaintiff, there was no stipulation in Ex.D-1, copy of the order that he (defendant) was prohibited from alienating the property, in dispute. In such circumstances, the plaintiff was entitled to the refund of the earnest money along with interest. The facts of Orissa State Electricity Board v. Indian Metals and Ferro Alloys Ltd. 1990 C.C.C. 774 (Orissa) are quite similar to the facts of the present case ......."
"In the instant case also, it came to light when the transfer certificate, was issued, in favour of the defendant, that he was prohibited from alienating the land in dispute. The contract became impossible of being performed, as soon as the transfer certificate was issued, in favour of the defendant. He was, thus, liable to refund the amount with interest."
"Even under Section 70 of the Indian Contract Act, the defendant was bound to refund the amount received by him as earnest money with interest, referred to above. The amount was not paid by the plaintiff to the defendant gratis. The defendant enjoyed the benefit of the amount received by him, from the plaintiff, under the agreement. The contract was discovered to be void. Under these circumstances, as per the principle of law laid down in Mulamchand v. State of Madhya Pradesh,, A.I.R. 1968 S.C. 1218, Section 70 imposes upon the defendant the liability to pay compensation to the plaintiff, in respect of, or to restore the things, so done or delivered by him. Even if, it is assumed that the plaintiff was not entitled to the specific performance of the contract or damages for the breach of contract, for the simple reason that there was no legal and valid contract between the parties, right from the very beginning, by invoking the provisions of Section 70 of the Contract Act, the defendant could be made liable to restore the benefit received by him under the said contract with interest. No help, therefore, can be drawn by the counsel for the respondent from the authorities relied upon by him. The findings of the trial Court on issue No. 1, being erroneous, are reversed."
"The findings of the trial Court on issue No. 2 to the effect that the contract being void or having discovered void, could not be specifically performed are correct. However, the findings of the trial Court to the effect that the plaintiff was not entitled to the refund of the amount of earnest money with interest, are erroneous, in view of the reasons recorded above. The findings of the trial Court on issue No. 2, are partly affirmed and partly set aside, as indicated above."
3. Mr. Padam Jain, learned counsel for the defendant-appellant, has argued that once an agreement has been found to be void being opposed to Section 7(1) of 1956 Rules, then it has to be concluded that it violates public policy under Section 23 of the Contract Act. According to the learned counsel, neither under Section 65 nor under Section 70 of the Contract Act, refund and interest could be ordered to be paid to the plaintiff-respondent. In support of his submission, the learned counsel has placed reliance on the judgments of the Supreme Court in the cases of Sri Manchegowda etc. v. State of Karnataka and Ors., A.I.R. 1984 S.C. 1151, D,N. Venkatarayappa and Anr. v. State of Karnataka and Ors., J.T. 1997(6) S.C. 155, R. Chandevarppa and Ors. v. State of Karnataka and Ors., (1995)6 Supreme Court Cases 309 and Tarsem Singh v. Sukhminder Singh, 1999(2) R.C.R. (Civil) 185 (S.C.). According to the learned counsel, in such like cases. Section 65 and 70 of the Contract Act have no application. Specific reliance has been placed on paragraph 36 of the judgment in Tarsem Singh's case (supra) to argue that even in cases where the agreement has been found to be void for any of the reasons set out in Section 23, the refund of the amount already paid as earnest money, may not be ordered.
4. I have thoughtfully considered the submissions made by the learned counsel and am of the view that this appeal is liable to be dismissed because it has been concurrently found by both the Courts below that there is valid execution of the agreement Ex.P1 on 12.5.1998 between the parties. It has also been found by both the Courts below that the total sale consideration fixed in the agreement was Rs. 2 lacs and an amount of Rs. 1,50,000/- was paid as earnest money to the defendant-appellant on 12.5.1998. Later on the date of execution of the sale-deed was extended and on 13.5.1999 another sum of Rs. 25,000/- was paid as is evident from the endorsement Ex.P2 of the instant date which was executed by the defendant-appellant. The date of execution of the sale-deed was extended to 21.5.2000.
5. It is significant to notice that on 18.5.1968 vide Ex.D1 the entitlement of the defendant-appellant with regard to transfer of Nazool land was assessed by the Collector and the Tehsildar was directed to fix the amount of compensation payable by him. The certificate of sale Ex.P3 was issued on 5.2.2001. When the agreement to sell was executed on 12.5.1998, the document Ex.D1 dated 18.5.1968 constituted the basis of that agreement. However, Ex.D1 did not lay down any terms and conditions which were disclosed for the first time in the sale certificate Ex.P3 dated 5.2.2001 i.e. after the agreement to sell was executed. In the sale certificate, for the first time, the defendant-appellant was restrained from alienating the suit land in favour of any one. The plaintiff-respondent had agreed to purchase the suit land on a bona fide belief and representation of the defendant-appellant which was based on Ex.D1 dated 18.5.1968. The stipulation in the certificate Ex.P3 dated 5.2.2001 is in accordance with Rule 7 of the Rules. Rule 7 of the Rules reads as under:-
"7. Bar of alienation.- (1) No Co-operative Society or the individual member of Scheduled Castes, as the case may be shall alienate or sell or mortgage the Nazool Land and such land shall go down only in inheritance:
Provided that a Co-operative Society or a member of a Scheduled Castes to whom such land has been transferred under these rules may temporarily alienate such land in favour of the Punjab Scheduled Castes Land Development and Finance Corporation and Scheduled Banks for securing a loan with a view to improving this land provided the extent of area so alienated shall not exceed the proportion of the land for which price has been paid to the Government.
(2) Whenever the State Government permits a co-operative Society to permanently alienate the Nazool land transferred to the society, the provisions of Rule 4 shall not apply in respect of such land."
A perusal of the above rule shows that an allottee of Nazool land is not permitted to transfer the same and it has to devolve upon his heirs by inheritance. On the afore mentioned basis, the agreement to sell dated 12.5.1998 was found to be against Rule 7 of the Rules. It was further held that its specific performance could not be directed.
6. The question then is as to whether the defendant-appellant is entitled to retain the earnest money received by him? According to Sections 65 and 70 of the Contract Act, a contract which has been discovered to be void or when it becomes void, then any person who has received any advantage under such contract/agreement is bound to restore it and under Section 70 to pay compensation for it. Sections 65 and 70 of the Contract Act read as under:-
"65. Obligation of person who has received advantage under void agreement or contract that becomes void.- When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.
70. Obligation of person enjoying benefit of non-gratuitous act.- Where a person lawfully does any thing for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered."
Section 65 and 70 of the Contract Act have been subject matter of interpretation by the Supreme Court in the cases of Tarsem Singh (supra); Mulamchand v. State of M.P., A.I.R. 1968 S.C. 1218; State of Rajasthan v. Associated Stone Industries, (1985)1 S.C.C. 575 and Kuju Colleries Ltd. v. Jharkhand Mines Ltd., A.I.R. 1974 S.C. 1892. In Tarsem Singh's case (supra) it has been held that Section 65 of the Contract Act is based on equitable doctrine of restitution of any benefit received by a person under a void agreement or a contract. The views of their Lordships in this regard read as under:-
"This section, which is based on equitable doctrine, provides for the restitution of any benefit received under a void agreement or contract and, therefore, mandates that any "person" which obviously would include a party to the agreement, who has received any advantage under an agreement which is discovered to be void or under a contract which becomes void, has to restore such advantage or to pay compensation for it, to the persons from whom he received that advantage or benefit.
Learned counsel for the appellant has contended that Section 65 would apply to a situation where the agreement is "discovered to be void" or where the contract "becomes void" and not to an agreement which is void from its inception. This agreement cannot be allowed to prevail.
Mutual consent, which should also be a free consent, as defined in Sections 13 and 14 of the Act, is the since qua non of a valid agreement. One of the essential elements which go to constitute a free consent is that a thing is understood in the same sense by a party as is understood by the other party. It may often be that the parties may realise, after having entered into the agreement or after having signed the contract, that one of the matters which was essential to the agreement, was not understood by them in the same sense and that both of them were carrying totally different impression of that matter at the time of entering into the agreement or executing the document. Such realisation would have the effect of invalidating the agreement under Section 20 of the Act. On such realisation, it can be legitimately said that the agreement was "discovered to be void". The words "discovered to be void", therefore, comprehend a situation in which the parties were suffering from a mistake of fact from the very beginning but had not realised, at the time of entering into the agreement or signing of the document that they were suffering from any such mistake and had, therefore, acted bona fide on such agreement. The agreement in such a case would be void from its inception, though discovered to be so at a much later stage."
When the principles laid down in Tarsem Singh's case (supra) are applied to the facts of the present case, it becomes obvious that the agreement to sell was discovered to be void on account of Rule 7 of the Rules. Moreover, on the basis of Ex.D1 dated 18.5.1968, it could not be discovered by the plaintiff-respondent that the defendant-appellant would be debarred from alienating the suit property to the plaintiff-respondent. It was only after the agreement to sell was executed that a certificate Ex.P3 dated 5.2.2001 was issued restraining the defendant-appellant from alienating the suit land. Therefore, it has to be held that the agreement to sell was discovered to be void within the meaning of Section 65 of the Contract Act and, hence the view taken by the learned Additional District Judge deserves to be affirmed. .
7. It has also been found as a fact that the plaintiff-respondent had paid Rs. 1,50,000/- to the defendant-appellant on 12.5.1998 and Rs. 25,000/- on 13.5.1999 when the date of execution of the sale-deed was extended. The defendant-appellant has been using the amount and compensation under Section 70 of the Contract Act deserves to be awarded. The Additional District Judge has committed no wrong by awarding compensation in the form of interest at the rate of 12% per annum on the amount of Rs. 1,50,000/- w.e.f. 12.5.1998 and on an amount of Rs. 1,75,000/- w.e.f. 13.5.1999 till the date of decree when a further sum of Rs. 25,000/- was paid. Future interest at the rate of 6% per annum has also been awarded till the date of payment. This view is fully supported by the observations of the Supreme Court in the case of Mulamchand (supra). In the case of Mulamchand (supra) the agreement to sell was found to be void as it contravened Article 291(1) of the Constitution which is mandatory in character. Even then the principle of compensation envisaged by Section 70 of the Contract Act was applied and restitution was ordered. The observations of their Lordships in this regard read as under:-
"The important point to notice is that in a case falling under Section 70 the person doing something for another or delivering something to another cannot sue for the specific performance of the contract nor ask for damages for the breach of the contract, for the simple reason that there is no contract between him and the other person for whom he does something or to whom he delivers something. So where a claim for compensation is made by one person against another under Section 70, it is not on the basis of any subsisting contract between the parties but on a different kind of obligation. The juristic basis of the obligation in such a case is not founded upon any contract or tort but upon a third category of law, namely, quasi-contract or restitution,"
The argument of the learned counsel that the agreement to sell is against the public policy as envisaged by Section 23 of the Contract Act and, therefore, it is void ab initio and no restitution of earnest money could be ordered, cannot be accepted because it would result into unconscionable gains to the defendant-appellant besides being against the principles of equity. Moreover, the expression "public policy" is a unruly horse and it is not proper to devise hew heads of public policy. The Supreme Court in Gherulal Parakh v. Mahadeodas Maiya, A.I.R. 1959 S.C. 781 has observed that public policy is an illusive concept and untrustworthy guide. Similarly, it has been advised not to devise new head of public policy. Reference in this regard may be made to Nai Lata Jute Mills Ltd. v. Khajaliram Nagannath, A.I.R. 1968 S.C. 522. In the present case the agreement has been discovered to be void on account of Rule 7 of the Rules. Enforcement of that part has been declined by both the Courts below. The agreement has. been held to be void to that extent. In any case by ordering restitution, the court is not enforcing any part of the agreement to sell which might be against public policy as envisaged by Section 23 of the Contract Act.
8. The other argument based on the observation made in Tarsem Singh's case (supra) that in certain cases even the refund of the amount already paid in the agreement may not be ordered, would not require any detailed consideration in view of the finding that the agreement has been discovered to be void within the meaning of Section 65 of the Contract Act. It is well settled that no new heads of "public policy" should be devised as it is a unruly horse.. It is pertinent to mention that specific reliance was placed by learned counsel for the defendant-appellant on the following observations of the Supreme in Tarsem Singh's case (supra) which read as under:-
"There are many facets of this question, as for example (and there are many more examples) the agreement being void for any of the reasons set out in Sections 23 and 24, in which case even the refund of the amount already paid under that agreement may not be ordered. But in the present case one party had received an advantage under an agreement which was "discovered to be void" on account of Section 20 of the Act. It is to this limited extent that on the principle contained in Section 65 of the Act, the petitioner having received the earnest money from the respondent in pursuance of that agreement, is bound to refund the said amount to the respondent. A decree for refund of this amount was, therefore, rightly passed by the lower appellate court."
9. The afore mentioned observations could not be applied to this case unless it is held that the agreement to sell is pulpably against the "public policy" and was void ab initio. The findings of the lower Appellate Court that the agreement dated 12.5.1998 was discovered to be void would certainly attract application of Sections 65 and 70 of the Contract Act. Even otherwise, if such a principle is laid down that a person can retain advantages received under an agreement or a contract which has been discovered to be void, then it would amount to unconsciouable gains and would be inequitable. Such an approach would defeat the equity which is the soul of law. Therefore, I do not find any ground to interfere with the just and fair judgment and decree passed by the learned Additional District Judge.
10. The judgment of the Supreme Court in Sir Manchegowda's case (supra) on which reliance has been placed by learned counsel for the defendant-appellant does not advance his case because in that case, the constitutional validity of Karnataka Scheduled Castes and Scheduled Tribes (Prohibition of Transfer of Certain Lands) Act, 1979 was upheld. It has further been held that the transfers which have already taken place before commencement of the Act in respect of the granted lands would not be hit by the prohibition created by Sections 4 and 5 of that Act. Therefore, there is nothing in the afore mentioned judgment which, may help to conclude that restitution and order under Section 65 or compensation under Section 70 of the Contract are not payable, For the reasons recorded above, these appeals fail and the same are dismissed.