Himachal Pradesh High Court
Amar Singh & Others vs State Of H.P. & Others on 27 September, 2023
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA RSA No. 400 of 2009 Reserved on: 29.08.2023 Date of Decision: 27.09.2023 .
Amar Singh & others .... Appellants
Versus
State of H.P. & others. ....Respondents.
Coram
Hon'ble Mr. Justice Rakesh Kainthla, Judge.
of Whether approved for reporting?1 Yes For the Appellants : Mr. G.R. Palsra, Advocate.
For the Respondents : Mr. Prashant Sen, Deputy Advocate
rt General.
Rakesh Kainthla, Judge
The present appeal is directed against the judgment & decree dated 14.05.2009 passed by the learned District Judge, Mandi, vide which the appeal filed by the respondents (defendants before the learned Trial Court) was partly allowed.
(Parties shall hereinafter be referred to in the same manner as they were arrayed before the learned Trial Court for convenience).
2. Briefly stated, the facts giving rise to the present appeal are that the plaintiffs filed a Civil Suit before the learned Trial Court for seeking recovery of ₹2,80,000/- as damages 1 Whether reporters of Local Papers may be allowed to see the judgment? Yes.
::: Downloaded on - 27/09/2023 20:35:19 :::CIS 2suffered by the plaintiffs for non-operation of the slate quarry till 02.05.2005 and refund of security amount of ₹ 56,250/-. It was pleaded that plaintiffs no. 1, 2 and Shiv Dass, father of plaintiff no. 3 & husband of plaintiff no. 4, had taken the slate .
quarry Silhol situated at Bada Tehsil Chachiot from the Mining Department in an open auction held on 24.08.1999 at Mandi for five years commencing from 03.05.2000 till 02.05.2005 @ of ₹2,25,000/- per year. They deposited ₹ 56,250/- as a security amount on the date of the auction. The plaintiffs started operating the slate quarry on 03.05.2000. The boundary of the rt Demarcated Protected Forest (DPF), Suhalu touches the quarry.
The Forest Department forcibly stopped the operation of the quarry on 15.05.2001. The plaintiffs wrote letters to the defendants about the obstructions caused by the Forest Department. Defendant No.3 wrote a letter to DFO, Mandi on 17.09.2002 seeking clarification regarding the operation of the quarry. Defendant No. 3 again sent a letter on 05.08.2003 to DFO to issue the No Objection Certificate. The plaintiffs waited for the response of the defendants and the Forest Department till 02.05.2005; however, no response was received. The plaintiffs suffered a loss of ₹3,50,000/-@₹1,00,000/- per year. They had paid ₹50,000/- for the purchase of the tools and ₹ 50,000/-
::: Downloaded on - 27/09/2023 20:35:19 :::CIS 3advance to the labourers. The plaintiffs had already paid the royalty to the defendants till 08.05.2001 but they could not operate the quarry; hence, the suit was filed to seek the relief mentioned above.
.
3. The suit was opposed by defendants no. 1 to 3 by filing a written statement taking preliminary objections regarding lack of maintainability and locus standi, the suit being of bad for mis-joinder and non-joinder of necessary parties, the plaintiffs being estopped by their acts and conduct to file the rt present suit and the suit having not been properly valued for the purpose of Court fees and jurisdiction. The contents of the plaint were admitted to the extent that the quarry was allotted to the plaintiffs for 05 years w.e.f. 03.05.2000 till 02.05.2005. It was admitted that there is a forest land adjoining the quarry and that plaintiffs had written a letter on 20.08.2001 regarding the objection raised by the Forest Department. It was asserted that the contract was cancelled on 03.09.2001 for non-payment of instalments as per the terms and conditions of the agreement.
The plaintiffs paid instalments till 03.08.2001 and the contract was cancelled due to the non-payment of the 7th instalment. The defendant no. 3 found a portion of the quarry suitable for mining and requested the Forest Department to issue a No-Objection ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 4 Certificate to protect the interest of the State Exchequer. The plaintiffs had not suffered any damages; hence, the suit was filed to seek the relief mentioned above.
.
4. No replication was filed.
5. Learned Trial Court framed the following issues on 06.03.2006:
1. Whether the plaintiffs are entitled to recover a sum of of ₹2,80,000/- as damage, as alleged? OPP
2. Whether the plaintiffs are also entitled for the refund of the security amount of ₹56,250/- as prayed? OPP
3. Whether the suit is not maintainable? OPD rt
4. Whether the suit is bad for mis-joinder and non-joinder of necessary parties? OPD
5. Whether the plaintiffs have no locus standi to file the present suit? OPD
6. Whether the plaintiffs are estopped to file the present suit by their own acts and conduct? OPD
7. Whether the suit has not been properly valued for the purpose of Court fee and jurisdiction, if so, what is the correct value? OPD
8. Relief.
6. The parties were called upon to produce the evidence and plaintiffs examined Kapoor Singh (PW1), Mohan Singh (PW2), Nagender Pal (PW-3), Karam Singh (PW4), Ram Singh (PW5), Prem Singh (PW-6), and plaintiff no. 1 (PW7). The defendant examined Uma Kant Gupta (DW1).::: Downloaded on - 27/09/2023 20:35:19 :::CIS 5
7. Learned Trial Court held that the Forest Department objected to the operation of the quarry and Kapoor Singh, Forest Guard (PW1) directed the plaintiffs to stop the mining work on 09.05.2001. Permission was not granted by the Forest .
Department to operate the mine despite various letters. The plaintiffs could not have carried out the operation of the quarry as their act would have constituted an offence punishable under of Section 33 of the Indian Forest Act. The contract was frustrated due to subsequent events and the defendants were liable to compensate the plaintiffs for the loss suffered by them. The rt plaintiffs purchased the implements and tools. They also engaged the labour. Hence, they were held entitled to a compensation of ₹ 1,71,250/-including the refund of the security amount. The learned Trial Court answered issue no. 1 partly in affirmative, issues no. 2 and 7 in affirmative, issues no. 3 to 6 in negative and partly decreed the suit.
8. Being aggrieved from the judgment and decree passed by the learned Trial Court, the defendants filed an appeal, which was decided by learned District Judge, Mandi.
9. An application for additional evidence was filed before the learned First Appellate Court, which was allowed and ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 6 the statements of Uma Kant Gupta (AW-1) and Amar Singh (RW1) were recorded.
10. Learned First Appellate Court held that the plaintiffs .
were to deposit four instalments on 03.05.2000, 03.08.2000, 03.11.2000 and 03.02.2001. The defendants had a right to cancel the contract on failure to deposit the instalment. The plaintiffs failed to pay the instalment of ₹56,250/- due on 03.08.2001. The of defendants cancelled the contract as per its terms and conditions. The plaintiffs were in breach of the agreement and rt they were not entitled to recover the compensation. The plaintiff Amar Singh had written a letter (Ext.PW1/A) to defendant no. 3 stating that he would stop the work in case of any objection from the Forest Department. Hence, the plaintiffs cannot claim any compensation. There was no physical obstruction to the work.
The payment of the money by the plaintiffs was also not proved;
hence, the plaintiffs were held entitled to the refund of the security amount of ₹56,250/- from the defendants and the decree was modified.
11. Being aggrieved from the judgment and decree passed by the learned First Appellate Court, the plaintiffs filed the present appeal asserting that the learned First Appellate Court did not appreciate the evidence properly. Learned First ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 7 Appellate Court had set aside the decree of the learned Trial Court granting ₹ 1,71,250/- which included the refund of the security amount of ₹56,250/-; hence, the decree was contradictory. Learned First Appellate Court erred in holding .
that the plaintiffs were in breach of the agreement, as they had not paid the security amount. It was duly proved on record that the Forest Department had stopped the work; therefore, there of was no breach on the part of the plaintiffs. The plaintiffs had written various letters to the defendants complaining about the obstruction caused by the Forest Department and this fact was rt admitted by Uma Kant Gupta (DW-1). Learned Trial Court rightly held that the contract had frustrated. Learned First Appellate Court erred in setting aside the well-reasoned judgment of the learned Trial Court; therefore, it was prayed that the present appeal be allowed and the judgment and decree passed by learned First Appellate Court be set aside.
12. The appeal was admitted on the following substantial questions of law on 18.11.2010:-
1. Whether the First Appellate Court has misread, misinterpreted and misconstrued the oral as well as the documentary evidence of the parties, especially document letter Ex.PW1/A, letter dated 21.03.2002 Ex. PW5/B, letter Ex. PW-5/C, statement of PW1 Kapoor Singh, PW-2 Mohan Singh, PW-3 Nagender Pal, PW4 Karam Singh, ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 8 and DW1 Uma Kant Gupta, which has materially prejudiced the case of the appellants?
2. Whether the admission made by the respondents in their written statement and in the statement of DW-1 Shri Uma Kanta Gupta amounts to admission U/S 17 of the Indian Evidence Act?
.
13. I have heard Mr. G.R. Palsra, learned counsel for the appellants-plaintiffs and Sh. Prashant Sen, learned Deputy Advocate General, for the respondent-defendants.
14. Mr. G.R. Palsra, learned counsel for the appellants-
of plaintiffs submitted that the learned First Appellate Court erred in reversing the well-reasoned judgment of the learned Trial rt Court. It was duly proved on record that the contract was frustrated due to the obstruction by the Forest Department and the learned Trial Court had rightly awarded the compensation.
The deposit of the amount depended upon the continued operation of the mine. Since the mine was stopped by the Forest Department; therefore, the obligation of the plaintiffs was discharged. Hence, he prayed that the present appeal be allowed and the judgment and decree passed by the learned First Appellate Court be set aside.
15. Mr. Prashant Sen, learned Deputy Advocate General for the respondents-State supported the judgment and decree passed by the learned First Appellate Court. He submitted that learned First Appellate Court had rightly held that the plaintiffs ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 9 had failed to deposit the amount within the time prescribed in the agreement, therefore, the plaintiffs were in breach and were not entitled to any compensation. Learned Trial Court had erred in holding that the plaintiffs had paid money for the purchase of .
the tools and wages. No compensation was payable for loss of profit, in case of frustration of the contract; therefore, he prayed that the appeal be dismissed.
of
16. I have given considerable thought to the rival submissions at the bar and have gone through the records carefully.
rt Substantial questions of law Nos. 1 and 2:
17. These substantial questions of law are interconnected to each other and are being taken up together for convenience.
18. Kapoor Singh (PW1), Forest Officer, stated that the boundary of DPF, Suhalu is located adjacent to the Slate mine Silhol. The plaintiff operated the mine for about one year. When the Forest officials inspected the mine and the adjacent area, they found that the mine had reached the boundary of the DPF, Suhalu and was causing damage to DPF, Suhalu. He directed the plaintiff to stop the work. He also intimated the Range Officer and the contractor vide letter (Ext.PW1/A). He stated in his ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 10 cross-examination that he had only written a letter to the plaintiff Amar Singh and asked him not to operate the mine. He had not caused any physical obstruction to the operation of the mine. His testimony is corroborated by the letter (Ext.PW1/A) in .
which, he had specifically stated that the work was stopped by him on 09.05.2001 because it was causing damage to DPF, Suhalu. He is a public official and the learned Trial Court had of rightly relied upon his testimony.
19. The Learned Trial Court had rightly held that he was rt a Forest official and competent to take notice of the commission of an offence punishable under the Forest Act. Any damage to the DPF would have amounted to the commission of an offence punishable under Section 33 of the Indian Forest Act and the plaintiffs could have only operated the mine at the pain of criminal liability. Learned First Appellate Court held that there was no evidence of any physical obstruction and his statement did not show any frustration of the contract. This reasoning of the learned First Appellate Court cannot be accepted. There was no requirement of causing the physical obstruction. When the forest official had asked the plaintiffs not to operate the mine, the plaintiffs could not have operated it as the continued ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 11 operation of the mine would have exposed the plaintiffs to criminal liability.
20. Section 56 of the Contract Act provides that if the .
contract becomes impossible or unlawful because of some event that the promisor could not prevent, it becomes void when the act becomes impossible or unlawful. It was laid down by Jagadish Prosad Pannalal v. Produce Exchange Corporation, Ltd., 1945 SCC of OnLine Cal 90: ILR (1945) 2 Cal 41: AIR 1946 Cal 245, that when an act under the contract becomes unlawful the contract is rt discharged. It was observed:
"Section 56 so far as it relates to the present question is as follows:--
A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the Act becomes impossible or unlawful.
Learned counsel for the plaintiff contends that the contract between the parties became void when the order under the Defence of India Act was passed making it unlawful for anyone to charge a price exceeding the price fixed by the order. He then contends that as the contract became void the defendant who has received an advantage under the contract in the way of the price for the goods in excess of what it was entitled to receive is bound to refund the excess. For this purpose, he relies on s. 65.
Now, did the contract become void on December 16, 1943, when the order was passed fixing the maximum price of the goods at the rate of ₹ 48 per cwt. On that date, it was made unlawful for anyone to charge any ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 12 price in excess of ₹ 48 per cwt inasmuch as the order provided that anyone charging more was liable to be imprisoned. It was argued on behalf of the defendant that the contract was not unlawful but that only a term of it was made unlawful and that the contract could still be performed by the payment of the price fixed by the order.
.
I am not impressed by this argument. The main term of the contract had become unlawful. The contract as entered into between the parties could not be performed without infringing the law. Payment of a lesser sum than that fixed by the contract would amount to the alteration of the contract in its essential term and the substitution of a new contract for the old one. Suppose the defendant company had refused to sell at the new reduced price of could the plaintiff firm have forced it to sell? In my opinion, it could not. The order under the Defence of India Act does not contain any such compelling provision; no statute has been shown to me under which rt the defendant could be so compelled, nor can such compulsion be supported on any principle of justice or equity. The contract as it stood could not be performed without infringing the law and it, therefore, became void on the date of the promulgation of the aforesaid order under the Defence of India Act."
21. It was laid down by the Hon'ble Supreme Court in Naihati Jute Mills Ltd. v. Khyaliram Jagannath, 1967 SCC OnLine SC 10 : (1968) 1 SCR 821 : (1968) 2 SCJ 907: AIR 1968 SC 522, that impossibility of the contract can be inferred by the Court from the nature of the contract and the surrounding circumstances. It was observed:
"5. Section 56 of the Contract Act inter alia provides that a contract to do an act which, after the contract is made becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. It also provides that where one person has promised to do ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 13 something which he knew, or, with reasonable diligence might have known, and which the promisee did not know to be impossible or unlawful, such a promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance. As envisaged by Section 56, the impossibility of .
performance would be inferred by the courts from the nature of the contract and the surrounding circumstances in which it was made that the parties must have made their bargain upon the basis that a particular thing or state of things would continue to exist and because of the altered circumstances the bargain should no longer be held binding. The courts would also infer that the foundation of the contract had disappeared of either by the destruction of the subject matter or by reason of such long interruption or delay that the performance would really in effect be that of a different contract for which the parties had not agreed. rt Impossibility of performance may also arise where without any default of either party the contractual obligation had become incapable of being performed because the circumstances in which performance was called for was radically different from that undertaken by the contract. But the common law rule of contract is that a man is bound to perform the obligation which he has undertaken and cannot claim to be excused by the mere fact that performance has subsequently become impossible. Courts in England have, however, evolved from time to time various theories to soften the harshness of the aforesaid rule and for that purpose have tried to formulate the true basis of the doctrine of discharge of contract when its performance is made impossible by intervening causes over which the parties had no control. One of such theories is what has been called the theory of implied term as illustrated in F.A. Tamplin Steamship Co. Ltd. v. Anglo Mexican Petroleum Products Co. Ltd. [(1916) 2 AC 397] where Lord Loreburn stated:
"A court can and ought to examine the contract and the circumstances in which it was made, not of course to vary, but only to explain it, in order to see whether or not from the nature of it the parties ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 14 must have made their bargain on the footing that a particular thing or a state of things would continue to exist. And if they must have done so, then a term to that effect would be implied; though it be not expressed in the contract."
He further observed:
.
"It is, in my opinion, the true principle, for no court, has an absolving power, but it can infer from the nature of the contract and the surrounding circumstances that a condition which was not expressed as a foundation on which the parties contracted ... Were the altered conditions such that, had they thought of them, they would have taken of their chance of them, or such that as sensible men they would have said, "if that happens, of course, it is all over between us'."
The same theory in a slightly different form was rt expressed by Lord Watson in Dahl v. Nelson, Donkin & Co. [(1881) 6 AC 38] in the following words:
"The meaning of the contract must be taken to be, not what the parties did intend (for they had neither thought nor intention regarding it), but that which the parties, as fair and sensible men, would presumably have agreed upon if, having such possibility in view, they had made express provision as to their several rights and liabilities in the event of its occurrence."
In the first case the term is a genuine term, implied though not expressed; in the second it is a fiction, something added to the contract by the law [ Anson, Principles of the English Law of Contract, 22nd Edn. 464]. It appears that the theory of implied terms was not found to be quite satisfactory as it contained elements of contradiction. For, if the parties foresaw the circumstances which existed at the date of performance they would provide for them in the contract; if they did not, that meant that they deliberately took the risk and therefore no question of an implied term could really arise. In Russkoe v. John Strik& Sons Ltd. [(1922) 10 ILR 214 (quoted at p. 466 in Anson's Law of Contract, 22nd Edn.)] ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 15 Lord Atkin propounded the theory of disappearance of the foundation of contract stating that he could see no reason why if certain circumstances, which the court would find, must have been contemplated by the parties as being of the essence of the contract and the continuance of which must have been deemed to be .
essential to the performance of the contract, the court cannot say that when these circumstances cease to exist, the contract ceases to operate. The third theory is that the court would exercise power to qualify the absolutely binding nature of the contract in order to do what is just and reasonable in the new situation. Denning, L.J. in British Movietones Ltd. v. London and District Cinemas Ltd. [(1951) 1 KB 190] expounded this theory as follows:
of "Even if the contract is absolute in its term, nevertheless, if it is not absolute in intent, it will rtnot be held absolute in effect. The day is done when we can excuse an unforeseen injustice by saying to the sufferer, 'It is your own folly. You ought not to have passed that form of words. You ought to have put in a clause to protect yourself.' We no longer credit a party with the foresight of a prophet or his lawyers with the draftsmanship of a Chalmers."
This theory would mean that the Court has inherent jurisdiction to go behind the express words of the contract and attribute to the Court the absolving power, a power consistently held not to be inherent in it. The House of Lords in the appeal from that decision [reported in 1952 A.C. 166] discarded the theory. In more recent times the theory of a change in the obligation has come to be more and more generally accepted. Lord Radcliffe, the author of this theory, in Davis Contractors v. Fareham U.D.C. [(1956) AC 166] formulated it in the following words:
"Frustration occurs whenever the law recognises that without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract."::: Downloaded on - 27/09/2023 20:35:19 :::CIS 16
It is not hardship or inconvenience or material loss which brings about the principle of frustration into play. There must be a change in the significance of obligation that the thing undertaken would if performed, be a different thing from that which was contracted for.
6. These theories have been evolved in the main to adopt .
a realistic approach to the problem of performance of a contract when it is found that owing to causes unforeseen and beyond the control of the parties intervening between the date of the contract and the date of its performance it would be both unreasonable and unjust to exact its performance in the changed circumstances. Though none of them was fully accepted of and the court construed the contracts coming before them applying one or the other of them as appearing to be more rational than the other, the conclusions arrived at were the same. The necessity of evolving one or the rt other theory was due to the common law rule that courts have no power to absolve a party to the contract from his obligation. On the one hand, they were anxious to preserve intact the sanctity of contract while on the other the courts could not shut their eyes to the harshness of the situation in cases where performance became impossible by causes which could not have been foreseen and which were beyond the control of parties.
7. Such a difficulty has, however, not to be faced by the courts in this country. In Ganga Saran v. Ram Charan [1951 SCC 1053 : (1952) SCR 36] this Court emphasized that so far as the courts in this country are concerned they must look primarily to the law as embodied in Sections 32 and 56 of the Contract Act.
In Satyabrata Ghose v. Mugneeram [(1954) SCR 310], Mukherjee, J. (as he then was) stated that Section 56 laid down a rule of positive law and did not leave the matter to be determined according to the intention of the parties. Since under the Contract Act a promise may be expressed or implied, in cases where the court gathers as a matter of construction that the contract itself contains impliedly or expressly a term according to which it would stand discharged on the happening of certain circumstances the dissolution of the contract would take ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 17 place under the terms of the contract itself and such cases would be outside the purview of Section 56. Although in English law such cases would be treated as cases of frustration, in India they would be dealt with under Section 32. In a majority of cases, however, the doctrine of frustration is applied not on the ground that .
the parties themselves agreed to an implied term which operated to release them from the performance of the contract. The Court can grant relief on the ground of subsequent impossibility when it finds that the whole purpose or the basis of the contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was not contemplated by the parties at the date of the contract. There would in of such a case be no question of finding out an implied term agreed to by the parties embodying a provision for discharge because the parties did not think about the matter at all nor could possibly have any intention rt regarding it. When such an event or change of circumstances which is so fundamental as to be regarded by law as striking at the root of the contract as a whole occurs, it is the court which can pronounce the contract to be frustrated and at an end. This is really a positive rule enacted in Section 56 which governs such situations."
22. In the present case, the agreement executed between the parties became incapable of performance when the Forest Department objected to the continuous operation of the mine and asked the plaintiffs not to operate it. Hence, the learned Trial Court had rightly held that the contract had become frustrated by subsequent events beyond the control of either of the parties.
23. Learned First Appellate Court relied upon the condition of the agreement requiring deposit of the amount ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 18 periodically and the failure of the plaintiffs to deposit the instalment due on 03.08.2001 and held that since the plaintiff had defaulted in the deposit of the amount; therefore, they were in breach of the agreement. This conclusion is not sustainable.
.
24. Section 54 provides for the default in the performance of reciprocal promises and reads as under:-
"54. Effect of default as to that promise which should be performed, in a contract consisting of reciprocal of promises.
When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its rt 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 nonperformance of the contract."
25. Thus, when the contract consists of reciprocal promises, a promisor is discharged from the performance if the promisee fails to perform his part of the contract. In the present case, the contract consisted of the promise on the part of the department that the mine would be available for operation and the promise on the part of the plaintiffs that they would pay the instalment periodically. These were two sets of promises on the part of each of the parties. The statement of Kapoor Singh shows that he had directed the closure of the operation on 09.05.2001 ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 19 before the turn of the plaintiffs to perform their part of the agreement came. Learned First Appellate Court had held that the instalment of ₹ 56,250/- was paid by the plaintiffs on 03.05.2001. Thus, there was no breach on the part of the .
plaintiffs till they were asked to shut down the operation of the mine. Once the plaintiffs had brought it to the notice of the department that they were required to shut down the mine by of the Forest Department and nothing was done, they were discharged from performing their part of the promise. The contract had become void by the act of the Forest Department.
rt Hence, the plaintiffs cannot be faulted for non-payment of the instalment which fell due on 03.08.2001 and the learned First Appellate Court erred in holding that the plaintiffs were in breach and were not entitled to recover any amount.
26. The plaintiffs filed the suit for seeking damages suffered by them for non-operation of the slate quarry during the contractual period together with the decree of the refund of the security amount of ₹56,250/-. The learned Trial Court awarded the damages for the loss suffered for four years equivalent to ₹ 80,000/-, the cost of the implements and tools ₹ 15,000/- and the cost of removing the debris and soil ₹ 20,000/-. This was impermissible.
::: Downloaded on - 27/09/2023 20:35:19 :::CIS 2027. In State of Rajasthan versus Associate Stone Industries, (1985) 1 SCC 575, the company was permitted to excavate the stone and thereafter, to market it. The contract became void.
The company claimed the loss of profit. It was laid down by the .
Hon'ble Supreme Court that when a contract is found to be void, the person can be asked to restore the advantages but no loss of profit can be awarded. It was observed:
of "3. The second and third submissions of Shri Lodha were that the measure of compensation under Section 65 should be the actual profits derived by the Company and not the royalty which the State might have otherwise rt levied from the Company and that the High Court was in error in ignoring the period subsequent to December 15, 1953. He invited our attention to Section 65 of the Contract Act and urged that when an agreement was discovered to be void or when a contract became void, the person who had received any advantage under such agreement or contract was bound to restore it or to make compensation for it, to the person from whom he received it. According to Shri Lodha, the net profits earned by the Company during the relevant period was the advantage received by the Company under that agreement which under Section 65 he was bound to restore to the Government. It is difficult to agree with this submission. It is not as if all that the Company did was to excavate stone. The Company in order to market the excavated stone had to carry on various other activities besides extracting stone from the quarries, such as polishing, plastering, flooring, painting, cementing, etc. It is not as if the Company was investing funds separately for each one of the activities carried on by it. A huge establishment had to be maintained and the net profits could only be arrived at after the final product was sold and the accounts were taken of all the activities.::: Downloaded on - 27/09/2023 20:35:19 :::CIS 21
Shri D.K. Parikh, Joint Secretary of the Company has filed an affidavit in which he has stated:
"That the respondent Company carries on several other businesses besides the business of excavating rough stone (flooring limestone) viz. polishing of stones, flooring jobs and dealing in paints, cement .
and other building materials. The respondent Company has invested on an average of Rs 30 lakhs during the period from 1950 to 1959. The expenses of all the business activities and the profits accruing to the Company on its investment as given in Balance Sheets and Profits and Loss Accounts relate to all the business activities of the Company.
of The net profits stated in para 9 of the above affidavit do not relate only to the business of the respondent Company of excavating and selling of rt rough stone. These profits are from all the business activities carried on by the Company. The respondent Company has not kept separate accounts of income and expenditure in respect of its various business activities."
We do not have the slightest doubt that net profits realised by the Company as a result of all its various business activities can never be the measure of the compensation to be awarded under Section 65 of the Contract Act. It is not as if Section 65 of the Contract Act works in one direction only. If one party to the contract is asked to disgorge the advantage received by him under a void contract so too the other party to the void contract may ask him to restore the advantage received by him. The restoration of advantage and the payment of compensation has necessarily to be mutual. In Firm Govindram Seksaria v. Edward Radbone [AIR 1948 PC 56: 74 IA 295: 50 Bom LR 561] the Privy Council pointed out that the result of Section 65 Contract Act was that each of the parties became bound to restore to the other any advantage which the restoring party had received under the contract. As a result of the contract being void, the State could at the most recover from the contractor the value of the rough stone excavated from the quarries. But then it would have to make good to the Company the ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 22 expenditure incurred by the Company in the quarrying operations and extraction of the rough stone. It is for that reason that the Court instead of involving the parties and itself in impossible and speculative calculations adopted the basis of royalty as the measure of compensation. Royalty, as is well-known, is, in the .
case of a lease of a mine, the payment reserved by the grantor proportionate to the amount of the demised mineral worked within a certain period. In a case like the present where the grantor is the State and the lease is for the excavation of stone, the measure of the compensation payable to the grantor should be the reasonable royalty which the State would have otherwise received from the grantee. Had the grantee not paid a pie of under the contract on the ground that the contract was void, he would in our opinion be liable to pay a reasonable royalty for the excavated stone. In addition, he would also be liable to pay compensation for the rt exclusive rights granted to him. That was how the High Court proceeded with the matter and we see nothing wrong with the approach of the High Court, which in the circumstances of the case was perhaps the only reasonable way of solving the problem." (Emphasis supplied).
28. Similarly, it was held in Jagadish Prosad Pannalal v.
Produce Exchange Corporation, Ltd., 1945 SCC OnLine Cal 90: ILR (1945) 2 Cal 41: AIR 1946 Cal 245, that when the contract became void, the person is entitled for the restoration of the advantages.
It was observed:
"The next question is whether on this account the plaintiff would be entitled to recover the difference between the contract price and the price fixed by the order by invoking the aid of s. 65, which, is in the following terms:--
When an agreement is discovered to be void, or when a contract becomes void, any person who has ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 23 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.
In my opinion, the answer must be in the negative. Section 65 deals with two matters: (a) an agreement .
which is discovered to be void and (b) a contract which becomes void.
The first matter is concerned with an agreement which never amounted to a contract because it was void ab initio, the fact of its being void being discovered at a later stage. The word used is "agreement" and not contract. I would also stress the use of the word "discovered" in the of first part of the section in contradistinction to the word "becomes" in the second part. The word "discover"
connotes the pre-existence of that which is discovered. We are not concerned with such a case. The second rt matter deals with a contract (i.e., with an agreement enforceable at law) which was good at its inception but which becomes void at some later stage by reason of some supervening circumstance. We are concerned with such a case. Now what the section says is that if anybody receives any advantage under such a contract he is bound to restore it or make compensation for it when the contract becomes void. The advantage must have been received under the contract. Now a contract is an agreement enforceable at law: see s. 2(h) of the Indian Contract Act. The advantage must, therefore, have been received under an agreement enforceable at law. If the advantage is received after the agreement ceases to be enforceable at law, i.e., ceases to be a contract, can it be said that it is an advantage received under the contract? I think not. The section applies only if the advantage is received before the contract ceases to be a contract by becoming void. In this case, it was received after and therefore the section does not apply. This view finds support in the decision of the Bombay High Court [Wolf and Sons v. Dadyba, Khimji and Company [(1919) I.L.R. 44 Bom. 631.] ]."
::: Downloaded on - 27/09/2023 20:35:19 :::CIS 2429. A similar view was taken in Kuju Collieries Ltd. v.
Jharkhand Mines Ltd., (1974) 2 SCC 533, wherein it was held:
"6. We are of the view that Section 65 of the Contract Act cannot help the plaintiff on the facts and circumstances .
of this case. Section 65 reads as follows:
"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."
of The section makes a distinction between an agreement and a contract. According to Section 2 of the Contract Act, an agreement which is enforceable by law is a contract and an agreement which is not enforceable by rt law is said to be void. Therefore, when the earlier part of the section speaks of an agreement being discovered to be void it means that the agreement is not enforceable and is, therefore, not a contract. It means that it was void. It may be that the parties or one of the parties to the agreement may not have, when they entered into the agreement, known that the agreement was in law not enforceable. They might have come to know later that the agreement was not enforceable. The second part of the section refers to a contract becoming void. That refers to a case where an agreement which was originally enforceable and was, therefore, a contract, becomes void due to subsequent happenings. In both these cases, any person who has received any advantage under such agreement or contract is bound to restore such advantage or to make compensation for it to the person from whom he received it. But where even at the time when the agreement is entered into both the parties knew that it was not lawful and, therefore, void, there was no contract but only an agreement and it is not a case where it is discovered to be void subsequently. Nor is it a case of the contract becoming void due to subsequent happenings. Therefore, Section 65 of the Contract Act did not apply.
::: Downloaded on - 27/09/2023 20:35:19 :::CIS 257. The Privy Council in its decision in Harnath Kuar v. Inder Bahadur Singh [AIR 1922 PC 403 : (1923) 50 IA 69, 67-77] observed:
"The section deals with (a) agreements and (b) contracts. The distinction between them is apparent by Section 2; by clause (e) every promise .
and every set of promises forming the consideration for each other is an agreement, and by clause (h) an agreement enforceable by law is a contract. Section 65, therefore, deals with (a) agreements enforceable by law and (b) with agreements not so enforceable. By clause (g) an agreement not enforceable by law is said to be void.
of An agreement, therefore, discovered to be void is one discovered to be not enforceable by law, and, on the language of the section would include an rtagreement that was void in that sense from its inception as distinct from a contract that becomes void."
30. The Odisha High Court held in Fakir Chand Seth v.
Dambarudhar Bania, 1986 SCC OnLine Ori 20: AIR 1987 Ori 50 :
(1986) 62 CLT (SN 12) 7 that the restitution of the advantage received under a contract discovered to be void has to be ordered. It was observed:
"7. Sections 65 and 70 of the Act, 1872 are in the following words:
S. 65: 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."
S. 70: Where a person lawfully does anything 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 ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 26 bound to make compensation to the former in respect of, or to restore, the thing so done or delivered."
Section 65 deals both with 'agreement' and 'Contract'. S. 2(e) of the Act defines an 'agreement' as every promise or every set of promises forming the consideration for .
each other. Cl. (h) of the said Section provides that an agreement enforceable by law is a contract. S. 65 of the Act, therefore, deals with (a) agreements which are enforceable by law and (b) agreements not so enforceable. By cl. (g) of the said Section an agreement not enforceable by law is said to be void. This is not a case where the agreement (Ex. 2) becomes subsequently of void. The words "when a contract becomes void" in S. 65 of the Act pre-suppose the enforceability of the contract at the inception on the date of its execution which became illegal thereafter. It is, therefore, required to be rt seen as to whether S. 65 of the Act would embrace an agreement which was void ab initio. Any agreement which is ab initio void may fall under the description "contract discovered to be void" within the meaning of S. 65 of the Act if it was not known to the parties that it was void at the time when it was entered into. S. 65 provides for restitution of any advantage received under a contract or agreement, where the agreement is discovered to be void, or where the contract becomes void.
8. Section 70 of the Act enables the court to do substantial justice where a person lawfully does anything for another person or delivers anything to him, not intending to do so gratuitously and such other person enjoys the benefit thereof, by directing the latter to make compensation to the former in respect of or to restore, the thing so done or delivered. In order that S. 70 of the Act would apply, the necessary conditions are that: (1) a person should lawfully do something for another person or deliver something to him, (ii) in doing so he must not act gratuitously, and (iii) the person for whom it is done must have enjoyed the benefit thereof. S. 70 of the Act is not founded on contract but embodies the equitable ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 27 principles of restitution and prevention of unjust enrichment.
It has, therefore, to be examined in this case as to whether the plaintiff was entitled to restitution of the money which he advanced under the void contract (Ext.
2) applying S. 65 of the Act and if he is entitled to the .
same relief u/s. 70 of the Act.
9. In the case of Kulu Collieries Ltd. v. Jharkhand Mines Ltd. reported in AIR 1974 SC 1892 the Hon'ble Supreme Court clearly defined the scope of Section 65 of the Act in the following words:
"The section makes a distinction between an agreement and a contract. According to S. 2 of the of Contract Act, an agreement which is enforceable by law is a contract and an agreement which is not enforceable by law is said to be void. Therefore, when the earlier part of the section speaks of an rt agreement being discovered to be void it means that the agreement is not enforceable and is, therefore, not a contract. It means that it was void. It may be that the parties or one of the parties to the agreement may not have, when they entered into the agreement, known that the agreement was in law not enforceable. They might have come to know later that the agreement was not enforceable. The second part of the section refers to a contract becoming void. That refers to a case where an agreement which, was originally enforceable and was, therefore, a contract becomes void due to subsequent happenings. In both these cases, any person who has received any advantage under such agreement or contract is bound to restore such advantage, or to make compensation for it to the person from whom he received it."
This, however, does not mean that S. 65 of the Act can be taken advantage of by the parties who knew from the beginning that the agreement was void. If the plaintiff had entered into an agreement under the belief that it was a legally enforceable agreement without the knowledge that the same was forbidden by law, he can claim restitution or compensation under the said ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 28 Section. In this case, there has been no pleading or proof that the plaintiff on the date of execution of Ext. 2 was aware that the agreement in question was in violation of law, namely the Orissa Rice and Paddy Control Order, 1965. It would, therefore, be a case where the agreement was not known to the plaintiff to be one in violation of .
law and, which was subsequently discovered to be void."
31. Similarly, the Hon'ble Supreme Court of India held in Tarsem Singh v. Sukhminder Singh, (1998) 3 SCC 471 that damages under Sections 73 and 74 of the Contract Act can be awarded when there is a valid and binding contract between the of parties. These sections have no applications, in case of a contract which is discovered to be void by the parties. It was rt observed:
"26. Learned counsel for the petitioner has invited our attention to Sections 73 and 74 of the Contract Act which, in our opinion, are of no aid to the petitioner.
27. Section 73 stipulates a valid and binding contract between the parties. It deals with one of the remedies available for the breach of contract. It is provided that where a party sustains a loss on account of a breach of contract, he is entitled to receive, from the party who has broken the contract, compensation for such loss or damage.
28. Under Section 74 of the Act, however, the parties to the agreement stipulate either a particular amount which is to be paid in case of breach or an amount may be mentioned to be paid by way of penalty. The party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused, to receive from the party who has committed the breach of contract, compensation not exceeding the amount mentioned in the agreement or the penalty stipulated therein. But this section also contemplates a valid and ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 29 binding agreement between the parties. Since the stipulation for forfeiture of the earnest money is part of the contract, it is necessary for the enforcement of that stipulation, that the contract between the parties is valid. If the forfeiture clause is contained in an agreement which is void on account of the fact that the parties were .
not ad idem and were suffering from mistake of fact in respect of a matter which was essential to the contract, it cannot be enforced as the agreement itself is void under Section 20 of the Contract Act. A void agreement cannot be split up. None of the parties to the agreement can be permitted to seek enforcement of a part only of the contract through a court of law. If the agreement is void, all its terms are void and none of the terms, except in of certain known exceptions, specially where the clause is treated to constitute a separate and independent agreement, severable from the main agreement, can be enforced separately and independently. rt
29. Since, in the instant case, it has been found as a fact by the courts below that the agreement in question was void from its inception as the parties suffered from mutual mistake with regard to the area and price of the plots of land agreed to be sold, the forfeiture clause would, for that reason, also be void and, therefore, the petitioner could not legally forfeit the amount and seek the enforcement of forfeiture clause, even by way of defence, in a suit instituted for specific performance by the respondent.
30. We may also refer to Section 65 of the Contract Act which, minus the illustrations, is as follows:
"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."
31. 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 ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 30 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 person from whom he received that advantage or benefit.
.
32. 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 argument cannot be allowed to prevail.
33. Mutual consent, which should also be free, as defined of in Sections 13 and 14 of the Act, is the sine 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 rt 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 different impressions 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.
34. The Privy Council in Thakurain Harnath Kuar v. Thakur Indar Bahadur Singh [AIR 1922 PC 403: ILR (1922) 45 All 179: 27 CWN 949: 44 MLJ 489], while considering the provisions of Section 65 held that:
::: Downloaded on - 27/09/2023 20:35:19 :::CIS 31"The section deals with (a) agreements and (b) contracts. The distinction between them is apparent from Section 2. By clause (e) every promise and every set of promises forming the consideration for each other is an agreement, and by clause (h) an agreement enforceable by law is a .
contract. Section 65, therefore, deals with (a) agreements enforceable by law and (b) with agreements not so enforceable. By clause (g) an agreement not enforceable by law is said to be void.
An agreement, therefore, discovered to be void is one discovered to be not enforceable by law, and, on the language of the section, would include an of agreement that was void in that sense from its inception as distinct from a contract that becomes void."
35. This case before the Privy Council also related to the rt sale of certain villages for which some money had been paid in advance. The sale was found to be inoperative as there was a misapprehension as to the rights of the transferor in the villages which he purported to sell and the true nature of those rights was discovered much later. In this background, the Privy Council held the agreement to have been "discovered to be void". The Privy Council, therefore, passed a decree for compensation in favour of the vendee and in assessing that compensation, the sum of money, which was advanced, was included in the amount of compensation decreed with 6% interest payable from the date of suit.
36. To the same effect is an old decision of the Calcutta High Court in Ram Chandra Misra v. Ganesh Chandra Gangopadhya [AIR 1917 Cal 786: 21 CWN 404], in which it was held that an agreement entered into under a mistake and misapprehension as to the relative and respective rights of the parties thereto is liable to be set aside as having proceeded upon a common mistake. In this case, there was an agreement for the lease of the mogolibrahmatter rights of the defendants in certain plots of land. Both parties were under the impression that the brahmatter rights carried with them the mineral rights. It was subsequently discovered that brahmatter ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 32 rights did not carry mineral rights. The High Court held that the agreement became void under Section 20 of the Contract Act as soon as the mistake was discovered and, therefore, the plaintiffs were entitled to a refund of money advanced under a contract which was subsequently discovered to be void.
.
37. We may point out that there are many facets of this question, 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, as pointed out above, we are dealing only with a matter in which one of 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 we say that, on the principle contained in Section 65 of the Act, the rt petitioner having received ₹ 77,000 as 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."
32. Therefore, the learned Trial Court erred in assessing the compensation for the loss of the profit, that the plaintiffs would have made by operating the mines.
33. The plaintiffs asserted that they were unable to operate the mine and they are entitled to the labour charges and the cost of equipment purchased by them for clearing the mine.
First, the expenses incurred on clearing the mine and purchasing equipment for the said purpose will not fall within the definition of advantage to the department which can be ordered to be paid. Second, Kapoor Singh (PW1) specifically ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 33 stated that plaintiffs had dug and cleared the mine. Forest Department found that the work had reached the boundary of Sohalu, DPF which was causing loss to the DPF. This clearly shows that the plaintiffs had operated the mine and carried out .
the digging; therefore, their plea that no digging was carried out is not acceptable.
34. Mohan Singh (PW-2) stated in his examination-in-
of chief that the plaintiff had removed some of the slates from the mine but the department stopped the operation. This also shows rt that plaintiffs were operating the mine and carrying out the digging. Similarly, Amar Singh (PW-7) stated that the plaintiffs had started the work of extracting the slates, which was to continue till 02.05.2005. Hence, it cannot be said that the money used for clearing the mine and purchasing the equipment was solely used for clearing the mine and no benefit was taken by the plaintiffs. Therefore, in such a situation, the plaintiffs cannot be held entitled to the recovery of the amount paid by them for the purchase of the equipment and employing the labour.
35. Learned First Appellate Court relied upon the statement of Uma Kant Gupta that plaintiff Amar Singh had written a letter to the department stating that he would not claim any compensation for the objection raised by any ::: Downloaded on - 27/09/2023 20:35:19 :::CIS 34 department to hold that the plaintiffs are precluded from claiming the compensation. This letter will not be of any assistance to either of the parties because the contract was found to be void and will have the consequence of restitution .
and not the payment of damages.
36. Therefore, the learned Trial Court had erred in awarding the damages of ₹80,000/- + 15,000/- + 20,000/- for of the loss suffered by the plaintiffs for four years, for the purchase of the equipment and payment of the labour.
37. rt The plaintiff had paid a security of ₹56,250/-. They were unable to operate the mine due to the objection of the Forest Department. This was an advantage derived by the Department and the plaintiffs were entitled to the recovery of the amount. Both the learned Courts below had rightly ordered the refund of this amount.
38. Therefore, the learned Trial Court erred in awarding the damages and the learned First Appellate Court erred in holding that the plaintiffs were not entitled to damages due to breach of contract on their part. The plaintiffs are not entitled to damages, not because of the breach but because frustration of the agreement.
::: Downloaded on - 27/09/2023 20:35:19 :::CIS 3539. Hence, the learned First Appellate Court has misread, misinterpreted and misconstrued the oral and documentary evidence; however, that will not have any effect on the case of the plaintiffs.
.
40. No other point was urged.
41. In view of the above, the conclusion drawn by the learned First Appellate Court that plaintiffs are only entitled to of the refund of the security amount is correct but the reasoning for coming to this conclusion is not correct; hence, these rt substantial questions of law are answered accordingly.
Final Order:
42. In view of the aforesaid discussions, the present appeal fails and the same is dismissed. Pending miscellaneous applications, if any, shall also stand disposed of.
(Rakesh Kainthla) Judge 27th , September 2023 (saurav pathania) ::: Downloaded on - 27/09/2023 20:35:19 :::CIS