Calcutta High Court
Saraswat Trading Agency vs Union Of India (Uoi) on 4 September, 2001
Equivalent citations: AIR 2002 CALCUTTA 51, (2002) 1 ARBILR 31, (2002) 1 ICC 1038, (2002) CAL WN 432, (2001) 3 CAL HN 528
JUDGMENT
1. This is an appeal from a judgment and order dated the 4th of February, 2000 whereby the application of the Union of India was allowed in respect of an award passed by one H.K. Padhee, an erstwhile Railway employee, the award being dated 25th of August, 1993. The award went in favour of the appellant before us and three items were awarded, of the respective amounts of approximately Rs. 3.13 lakh, 18.96 lakh and 5.64 lakh. The first two amounts were by way of revision of casual labour for the respective periods of February, 1987 to April. 1988 and May, 1988 to January, 1989. The third item was on the head of interest @ 18% per annum.
2. The records show that the feeling amongst the railway officers was that the ward was on the upward side. They sought to negotiate with the appellant, so as to persuade them to accept a lesser sum in satisfaction.
3. The minutes of 4-10-1993 show that the appellant was not agreeable to give up any of the claims under the award, except that they would allow a 2% rebate if the full payments were to be by 26-10-1993.
4. Then something happened in the course of 48 hours, which made the appellant take a radically different stand. Even on 5-10-1993 the appellant had written a letter objecting to giving up its claims.
5. The minutes of 6-10-1993 are relied upon heavily by the respondent before us. The basics of the agreement reached in this meeting are as follows :-
(i) As against the second item of the award, the respondent would pay Rs. 17,07,973/-, the appellant having already received Rs. 1,87,905/-.
(ii) The appellant would be paid latest by 14-10-1993.
(iii) The appellant agreed to accept the said sum of Rs. 17,07,973/- in full and final settlement, giving up other claims under the first and the third Items of the award.
6. A pay order for the said sum of Rs. 17,07,973/- was prepared in the Department but it was not handed over to the appellant within the said time.
7. Instead, a cheque for Rs. 16,56,734/-drawn on the Reserve Bank of India was given to the appellant on 13-10-1993. It was encashed.
8. The receipt granted by the appellant was in the following terms :--
"RECEIVED from South Eastern Railway vide cheque No. 055237 dated 13-10-1993 on the Reserve Bank of India, Calcutta, for Rs. 16,56,734/- against item 1(II) of the Award dated 25-8-1993 published by the Sole Arbitrator Shri H.K. Padhee CFIM-II/ GRC in connection with Goods and parcels handing work at it wards and group of Stations continued up to 2-8-1991".
9. The respondent explained that certain deductions were made by them from the agreed sum of Rs. 17,00,000/- and odd and those are Rs. 34,159/- on account of income tax and Rs. 17,080/- on account of cess. The latter sum has sometimes been described as conservancy charges.
10. The award was filed in Court sometime in the year 1993 but it gathered dust for long three years in the Departments of our Court until sometime in or about 1996, notice under Section 14(2) issued to the respondent.
11. The application made by them in the Court below contained amongst others the following prayers :-
"(b) Award dated 25th August, 1993 of the Arbitrator. Mr. H.K. Padhee be set aside;
"(c) The Award dated 25th August, 1993 of the Arbitrator, Mr. H.K. Padhee be declared to be invalid and/or not existent by reason of compromise/settlement between the parties dated 6th October, 1993 and payment by the petitioner in terms thereof."
12. In the judgment under appeal a finding has been reached that the award has been satisfied by accord and satisfaction between the parties. It has also been opined in the Court below that the award will stand modified to the extent of settlement made by the parties.
13. The matter was tried on evidence in the Court below. Evidence from the box was, however, given only by the appellant. It is clear from the documents and the oral evidence that, in the year 1993, the appellant had a still operative handling contract with the railways. This had started sometimes in the late 80's and was continued on an annual extension basis. According to the appellant this handling contract was terminated by the railways sometime in or about the years 1995-96. The appellant has run in the Court below a case of coercion. Mr. Das, appearing for the appellant, has relied on the case of Central Inland Water Transport, and has drawn to our attention to the unequal bargaining powers of the parties. According to him, settlement was forced upon the appellant.
14. We are not impressed by this argument. The appellant is now fighting the respondent in a Court of law. If the appellant did not want to agree to a lesser sum he could easily have refused and fought the respondent, again, in a Court of law, although on different and separate issues.
15. Mr. Das also submitted to us that the agreement, if any, being reached at a stage prior to the making of an application for setting aside of the award, there existed no specific provision in the Arbitration Act, 1940 to enter a compromise of the parties, and thus the award would have to be pronounced upon, and a decree passed, the settlement notwithstanding.
16. Mr. Das relied upon the case of Prafulla Chandra reported at AIR 1946 Cal 427 and the case of Munshi Ram and placed before us the respective judgments of Justice Phani Bhusan Chakravartti and Justice Hidayatullah as their Lordships at the respective times were.
17. We are again not impressed by this argument. Anybody who reads carefully the judgments referred to above, cannot fail to see the eagerness felt by the Judges to give due weight to a solemn agreement reached between the parties. So, if the agreement herein is good, then assuming that no express provision exists in the Arbitration Act of 1940, we would have to evolve a procedure, and a good such procedure would be to pass a decree upon the award with the compromise appended to it. It would be somewhat like a probate with terms of compromise annexed.
18. Even if Mr. Das's point succeeded on this technical issue, it would only put off the day of the real argument, and that day would came in execution proceedings, when the decree upon the award would have to be resisted on the alleged compromise.
19. Look at it as one might, it is the validity or otherwise of the compromise which is decisive of the matter.
20. If there was an accord and satisfaction, then, that is an end of the matter and the appeal must fail.
21. The law of accord and satisfaction is that a person entitled to the performance of a promise might accept; instead of the original promise, something different; this different thing is agreed upon by an accord reached between the promisor and the promisee.
22. Thus accord is a name given to a special agreement which has as its foundation another earlier agreement, sometimes however, the foundation is a debt, otherwise arisen then on an agreement.
23. Satisfaction is the performance of the different promise as per the new agreement of accord and its acceptance by the promisee.
24. If for example, a person has promised to deliver a long red pencil, the promisee might agree after the contract, to take a short blue pencil instead, and in that event the delivery of a short blue pencil and its acceptance will be a discharge of both the original contract and the new contract of accord. The process of accord or satisfaction is permitted both in England and in India. There is, however, at least one important difference in the law of the two countries in this regard, and that is this, that in England the accord to take a lesser sum for a larger sum is not valid, but in India it is. This particular difference has, as it is beginning, a famous dictum of Lord Coke made at the time of James I, that a promisee can take a horse or a hawk or a gown instead of the promisee, but not a lesser sum. The proposition has stuck in England and even in the comparatively recent case of D & C Builders v. Rees reported at (1965) 3 All ER 837, this principle can be seen in its operation.
25. In our country, however, we are not concerned with these niceties of the English law of accord and satisfaction, as the Supreme Court pointed out in the case of the Prince of Berar, reported at . The law in our country in this regard is to be found mainly codified in Section 63 of the Indian Contract Act, 1872.
26. Clearly the English people thought that the law in their country in this regard was archaic and unsatisfactory. But they could do nothing about it in their own country where the legal system is very conservative. But in India they had a free hand. So, the law was changed by enacting Section 63. The said section and the illustration (b) under it are set out below :--
"Section 63. Promisee may dispense with or remit performance of promise - Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him. or may extend the time for such performance or may accept instead of it any satisfaction which he thinks fit.
(b) A owes B 5,000 rupees. A pays to B and B accepts, in satisfaction of the whole debt, 2000 rupees paid at the time and place at which the 5,000 rupees were payable. The whole debt is discharged."
27. The Prince of Berar's case was cited by Mr. Basu appearing for the respondents. He submitted that in that case the Nizam's eldest son had purchased jewellery worth about Rs. 13,00,000 in 1937. It had not been paid for about 12 years. The principal and interest had mounted to Rs. 27,00,000/- when the military operations in Hyderabad were concluded in 1949. The military Governor persuaded the jeweller to agree to take Rs. 20,00,000/- in full satisfaction. They took the said sum in two instalments. They discharged their promissory note in full. But in granting the receipt they made a reservation that they would be free to proceed against Prince of Berar himself personally.
28. When they so proceeded against the prince personally for the balance they failed before the Division Bench in the Bombay High Court and also before the Supreme Court.
29. The Supreme Court has clarified that accord and satisfaction is basically a question of fact in each case. The Court has to find out whether the lesser sum or the different performance has been accepted by the promisee in full satisfaction or not.
30. Before we give our decision on this main point we wish to make it clear, once for all, that the mere encashment of a cheque for a smaller sum given by the debtor to the creditor is not, standing alone, a sufficient proof of accord and satisfaction. The authority in this regard is the case of Day v. McLea reported at (1889) 22 QBD 610. It has been relied upon D & C Builders (1965 (3) All ER 837) (above) and in the Indian Courts also, including in the Prince of Berar's case . Were it otherwise, and were we to hold otherwise, we would be putting in the hands of all debtors a weapon of legal trickery. As a standard practice every debtor would send to the creditor a lesser sum by way of a cheque with appropriate covering documents taking the chance that the cheque might be encashed. If encashed the debtor can then get away without paying the balance sum. The law cannot permit this. Therefore, mere payment and acceptance of a lesser sum without the accord that it will be in extinction of the balance liability, will not be a full satisfaction of the debt.
31. We are convinced here on the facts of the case that the appellant had agreed to take Rs. 17,07,973/-. If paid within 14-10- 1993, as full satisfaction of all claims on the award, the aggregate amount under which was nearly Rs. 26,00,000/-.
32. Thus, the accord between the parties as there, for taking the lesser sum for the larger one. However, when the stage of satisfaction came, i.e. the payment of the lesser sum agreed to be taken for the larger one, the respondent fortunately or unfortunately slipped up. They did not pay Rs. 17,07,973/-, but they paid instead the sum of Rs. 16,56,734/-.
33. The cheque for the said sum of Rs. 16,56,734/- was no doubt encashed. But that, as we have said, is not determinative of the matter. The deduction from Rs. 17,00,000/- plus to make it Rs. 16,00,000/- plus (both figures being approximate) was made on account of Income tax and cess. There is no talk of income tax and cess in the award. There is no talk of income tax and cess in the minutes of 6-10-1993. These deductions for income tax and cess formed a subject matter of a further grievance of the appellant. The appellant's evidence from the box shows this again and again.
34. Therefore, we find that instead of paying Rs. 17,07,973/- within 14-10-1993 for the purpose of discharging the larger debt under the award of nearly Rs. 26,00,000/-, railways paid instead a sum of Rs. 16,56,734/- for achieving the same result, Was this enough?
35. In deciding this issue, we have to look upon the award as if it had already a crystallized into a debt. A decree had not been passed on the award in October, 1993 but parties looked upon the award as a document giving rise to a liability and requiring its satisfaction. Both the parties thought that if things were allowed to rest where those were, if the railway authorities did not seek to challenge the award by handing over their papers to their legal department, the awarded sum would have to be paid. That is why they negotiated in the above manner indicated.
36. We are of the opinion that the payment of Rs. 16,56,734/- was not the same as the stipulated payment of Rs. 17,07,973/-. Although the time was adhered to i.e. the money was paid within 14-10-1993, yet the sum agreed in the accord was not paid. The balance sum of Rs. 50,000/- and odd, although a small amount comparatively speaking, can never be paid now in accordance with the accord because the time for payment has irretrievably gone by.
37. Mr. Basu argued on the authority of the case of Smt. Periyakkal reported at that the Court would have jurisdiction to extend time even now and allow the railways to make the balance payment to the appellant. They would be agreeable to make the balance payment as directed by the Court and if that is done the justice of the case requires that the railways be relieved from the injustice which would otherwise be brought to bear upon them.
38. In the Supreme Court case we find that the time for payment as agreed by the parties was made an order of Court. The judgment of Justice O. Chinappa Reddy, especially the portion appearing in the left column of page 431 clarifies that because the time had become a part of the order of the Court the Court retained jurisdiction to extend such time. Even when laying down this ratio his Lordship (with respect) was careful to add. that the Court cannot rewrite the contract between the parties.
39. The contract between the parties here was that Rs. 17,07,973/- would be paid within 14-10-93 and in that event the award would not be further enforced. Even if we do not look upon this as a strict example of accord and satisfaction, there being no earlier contract or debt in existence, but only an award, even then we reach the same result. Under Section 47 of the Contract Act the time for performance of a promise on a certain day is that day itself: the section is set out below :--
"Section 47. Time and place for performance of promise, where time is specified and no application to be made. When a promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed".
40. Accordingly when a promise is to be performed within a certain time it has to be performed on any day before the lapse of that time.
41. Again under Section 54 of the Contract Act a promisor who does not perform his part of the promise cannot claim performance of the reciprocal promise :--
Section 54. Effect of default as to that promise which should be first performed, contract consisting of reciprocal promises. When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract.
Illustration (d). A promises B to sell him one hundred bales of merchandise, to be delivered next day, and B promises A to pay for them within a month. A does not deliver according to his promise. B's promise to pay need not be performed, and A must make compensation.
42. Looked at from this angle, the promisor Union of India has not kept of its promise of payment of Rs. 17,07,973/- within 14-10-93 and therefore, cannot insist upon the reciprocal promise of the appellant that he will not insist upon the whole award being made a decree of Court and fully paid.
43. The essence of these matters is that in situations of accord and satisfaction and similar situations, strict performance of the promisor's obligation is insisted upon by the Courts. After all, a sum of Rs. 26,00,000/-was being given up for Rs. 17,00,000/-. The payment of that sum was also to be made within a certain time. This agreement offered the Union a chance to pay a smaller sum, thereby satisfying their entire liability.
44. It was not open to the Union of India to find out another sum, yet smaller, which suited them, and to pay that sum and yet insist upon full discharge of their liability. A contract of accord and satisfaction is not like a mortgage debt, that the Court retains its power to do equity and extend time so that the debtor is not harshly treated. Here the debtor seeks to drive home an advantage against the creditor. The driving home of such an advantage might not amount to legal coercion. Still it creates a situation where the Court will insist upon strict performance or relegate the parties to their original rights and liabilities.
45. In our opinion, in the facts and circumstances of this case the payment of Rs. 16,50,734/- on 13-10-93 had no more effect than extinguishing the liability of the Union of India pro tanto under the Award.
46. The rest of the Award remains enforceable and the appellant cannot be prevented from obtaining a decree upon the Award and proceeding thereupon in accordance with law.
47. The appeal is, therefore, allowed with costs.
48. The judgment and order passed in the Court below is set aside. The application made by the Union of India there is dismissed.
49. There will be a judgment upon the Award of H. R. Padhee dated 25th August, 1993. Interest on judgment as from today at the rate of 12% per annum, but only on the balance sum after deducting Rs. 16,50,734/-.
50. Stay of operation of this order and judgment upon Award is prayed for but such prayer is refused.
51. All parties, the department and all others concerned to act on an authenticated (signed) copy of this judgment.