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Petitioner: RAI BAHADUR JHODHA MAL KUTHIALA VS Respondent: THE ASSOCIATED HOTELS OF INDIA, LTD
P
P. L. D. 1950 Lahore 42
Before Muhammad Sharif and M. R. Kayani, JJ.
Rai Bahadur JHODHA MAL KUTHIALA‑--Defendant--Appellant
Versus
THE ASSOCIATED HOTELS OF INDIA, LTD. Plaintiffs‑Respondents.
Appeal No. 31 of 1949, decided on 24th November 1949, from the decree of Senior Sub‑Judge, Lahore, dated the 14th March 1949.
(a) Specific Relief Act (I of 1877)
S. 25--(b)‑Agreement of sale‑-Development Scheme including property agreed to be sold‑Publication of notice under section 36 Punjab Town Improvement Act 1922, effect of‑Vendor's title free from reason able doubt‑Purchaser whether can rescind contract‑Contract Act (IX of 1872) section 20‑Mistake as to a matter of fact essential of agreement‑Transfer of Property Act (IV of 1882) section 55 (1) (a)‑Duty of seller.
On 2nd October 1946, J agreed to sell to M property situated at Lahore for Rs. 52,75,000 and received Rs. 5,00,000 as earnest money. The sale was to be completed before 2nd December 1946. On 19th November 1946, parties agreed to extend the date of completion and registration of the sale deed to 20th January 1947, M agreeing to increase the price by Rs 25,000 Meanwhile, on 7th December 1946, the Lahore Improvement Trust framed a Develop ment Scheme under sections 24, 28 (2) of the Punjab Town Improvement Act 1922 for the acquisition of a certain area of land including the property agreed to be sold. On the 13th January 1947, J sent a telegram to M demanding money for stamp and registration expenses and calling upon him to fix a date for registration. M refused' to have the sale completed, as the notice issued by the Improvement Trust was " a serious defect in title." lip also asked for the return of the earnest money. On J's refusal M brought a suit for the recovery of the earnest money together with interest at 6 percent per annum from the 6th January 1947 till realisation
Held (1) that the publication of the notice under section 36 of the Punjab Town Improvement Act by itself did not cause any defect in title or property justifying the rescission of the contract of sale.
(2) that there was as no doubt a threat of the acquisition of the property by the Government which might or might not have materialized but the mere communication of the Government's intention that the property might be required for a public purpose did not create any burden or impose any liability.
(3) that the purchaser could not on his own initiation rescind the contract, and as it was done illegally, he was liable to forfeit the amount of the deposit money.
(1927) 2 ch. 379 ; (1941) 1 ch. 503 relied on.
(1942) 1 ch. 349 ; 50 Cal. 615; (1945) I. K. B. 148 ; 63 Cal. 124 distinguished.
1928 All. 469; 59 Born. 83;1940 Sind 58 referred to.
Per Kayani, J.‑Since the defendant can enforce specific per formance of the contract, he is entitled to retain the earnest money.
There is no warrant for the view, and indeed there cannot be, that where an Improvement Trust or other authority notifies its intention to acquire any land, the title of the owner of that land thereafter becomes doubtful. That title, in fact, is recognized until the very day of the acquisition, and it is for that reason that the owner receives compensation.
Section 25 (b) of the Specific Relief Act becomes operative only when circumstances are disclosed which cast some measure of doubt on the title of the seller.
One fundamental distinction between section 20 of the Contract Act and section 55 of the Transfer of Property Act consists in whether both parties to the contract or the seller alone has knowledge of a defect in the property sold, for while in the former case the ignorance of the parties is not dishonest, in the latter the element of fraud necessarily intervenes, and it is for that reason that‑section 55 of the Transfer of Property Act expressly as declares the conduct of the seller to be fraudulent when he fails to disclose to the buyer a material defect in the property.
(b) Interpretation of statutes‑--
Doubtful words and phrases Parallel English cases, how far can be relied on.
Per Kayani J.‑While if is of great advantage to cite parallel English cases for the interpretation of doubtful words and phrases, it does not appear safe to adopt those interpretations in all cases, without being dear to the language of the statute in the two countries is virtually. identical, lest in the adoption we should find our meaning divorced from our own context.
(c)‑English Law‑--
Principles, how far can be relied on.
Per Kayani, J.‑It is unsafe to adduce principles of English law without trying to discover whether there corresponds to those principles anything in our own law which may be said to constitute a recognition of those principles in ail details.
JUDGMENT
KAYANI, J.‑This is a first appeal from a decree of the Senior Sub‑Judge of Lahore by Which the defendant, Rai Bahadur Jodha Mal Kuthalia of Hoshiarpur, was directed to refund to the second plaintiff, Rai Bahadur Mohan Singh Oberoi, Managing Director of The Associated Hotels of India Ltd., Calcutta, a sum of' Rs. five lacs with interest at s4 per cent, per annum amounting to Rs. ten thousand which the second plaintiff had advanced to the defendant as earnest money for the purchase of Nedou's Hotel and certain adjacent properties ‑in Lahore. The first plaintiff is the Associated Hotels of India, Ltd., and was impleaded by way of abundant caution.
The agreement of sale was executed on the 2nd of October, 1946 and is, in material parts, as follows:‑
1. The purchase money is Rs. 52,75,000.
2, The purchaser has paid Rs. five lacs an earnest money.
4. Registration of the sale deed will" be completed before the 2nd of December, 1946. In case the purchaser refuses to have the sale deed registered and pay the balance price to the vendor, the earnest money shall stand forfeited; and if the vender fails to execute the sale‑deed in favour of the vendee or his nominee, the vendee
will be entitled specifically to enforce the contract.
5. The vendor assures the purchaser that the said property, which he has agreed to sell, was purchased by him from Rai Bahadur Gopal Dass and Brothers and shall satisfy the pur chaser as to the clear title of the aforesaid property before the registration of the sale deed, and also hereby undertakes to indemnify the purchaser for all losses and damage to be suffered by the purchaser on account of any defect in title or other encumbrances thereto.
Subsequently, the date for the completion of the contract was extended to tile 20th) January 1947 and the sale money increased by twenty five thousand. But for this extension of time, the present litigation may not have been born at all, for on the 7th of December, 1946. a notice was issued by the Lahore Improvement Trust under section 36 of the Punjab Town Improvement Act, ‑1922, to the effect that the Trust in question had framed a development scheme for the acquisition of 118.8 acres of land which included the property in suit and objections were invited up to the 7th of March. Nothing happened, however, until the 13th of January, 1947, when the defendant tele graphically asked the second plaintiff to expedite the completion of the sale deed. In reply, the plaintiff sent a refusal the same day on the ground that the property in question was affected by the development scheme, at the same time asking for a refund of the earnest money. The defendant replied on the 14th January that failure to complete the sale by the agreed date would result in forfeiture of the earnest money, and this was followed by replies and counter replies as to whether or not the notice amounted to defect in the defendant's title. Since the parties could not come to a decision themselves, they went to a court of law on the 6th June, 1947.
In the meantime, the defendant had filed objections before the Improvement Trust, requesting for the exclusion of his property from 'the development scheme. The Trust decided on the 23rd of April that there was no case for exclusion, but that " ex emption would be considered at the proper time; if the owner applies for it."
It is of some academic interest to note that the scheme did not fructify. On the 26th June, 1947 there was a resolution 'that the Trust had decided "with regret that in view of the coming partition of the Punjab ,which will considerably affect the position of Lahore, it is necessary to suspend or cancel some of the schemes, but it was not until the 27th of October 1947 that the present scheme, known as the. Council Chamber Scheme was " abandoned and de-notified ".
'The plaintiff alleged that the notice in question constituted a material defect in the property and the title of the defendant defeated the purpose and object of the agreement of sale and prevented the purchaser from obtaining such title to the property as be was led to expect: It was further alleged that while tree defendant was aware of the intended acquisition, the plaintiff was not so aware until January, 1947 and that the defendant's conduct in his failure to disclose the scheme even after its publication was fraudulent. Alternatively, it was pleaded that since the parties were under a mistake as to a matter of fact essential to the agreement, the agreement was void.
It is enough to say that the defendant traversed these pleading; whereupon the following issues were framed:‑
1. (a) Whether .the property in suit or any portion thereof was ever notified to be acquired by the Improvement Trust or was affected by a scheme prepared by the Lahore Improvement Trust for the compulsory acquisition of it?
(b) If so, when and what is its effect on the obligations arising out of the contract? O. P;
2. Did the Lahore, Improvement Trust withdraw the scheme of the compulsory acquisition of this property? If so, when and what is its effect on the right, of the parties in this case? O‑ P‑ Defendants.
3. Whether on the date of the agreement for sale the defendant was in the know of the acquisition scheme of the Lahore Improvement Trust? If so, what is its effect on the legality of the contract? O. P. Plaintiff
4. Whether the contract of sale was vitiated by reason of the ignorance of both parties as to the contemplated scheme of the Improvement Trust for the compulsory acquisition o= this property, on the ground of a mistake of fact? O. P Plaintiff.
5. Was the purchaser justified in law to put an end to the contract by reason of the scheme of the Improvement Trust? If so, when did he do so? O. P. Plaintiff.
6. If the ‑ above issue is held in favour of at plaintiffs, are they not entitled to the refund of Rs. 5 lacs from the defend ants? O. P. Defendants.
7. Are the plaintiffs entitled to any interest? If so, at what rate? O. P: Plaintiff.
8. Was the contract in question entered into by plaintiff No. 2 for and on behalf of plaintiff No. 1? O. P. Plaintiff.
9. If the above issue is not established, cannot plaintiff No. 2 pursue this claim in his own personal right? O. P. Defendants.
10. Relief.
The findings of the learned Senior Subordinate Judge on points material to this appeal are that at the date of the agreement both parties were ignorant of any contemplated acquisition of the property in suit by the Trust (and this finding is now accepted), that such ignorance, however, had bearing on the result " because it is the mutual mistake of a fact which renders the contract void ", and that even apart from this con sideration, on the scheme had not been proved to have existed at the time of the agreement, there was no question of any mistake of fact such .as was contemplated by section 20 of the Contract Act. On the fifth issue, however, he held in one place that the notice under section 36 of the Punjab Town Improve ment Act had the effect of creating in the purchaser's mind a reasonable apprehension that he would not get what he had contracted to buy, and, in another place, that such notice could create a legitimate apprehension that the vendor was not in a position to convey a title free from reasonable doubt. "Inasmuch as the former conclusion, namely, that the purchaser would not be getting what he had contracted to buy, car flow only from a mistake of fact, which the learned judge has already held rot to exist, it is clear that his inferences are contradictory on this point. However, he should he regarded as having held that the purchaser was entitled to repudiate the contract because the seller could not convey to him a title free from reason able doubt.
Contracts and agreements in this country are regulated by the Contract Act as supplemented by the Specific Relief Act and the Transfer of Property Act. Under section 2, clause (g) of the Contract Act, agreement not enforceable by law is said to be void. Under clause (72) an agreement enforceable by law is a contract and under cl, use (i) an agreement which is enforceable by law at the option of one party thereto but not at the option or the other is a voidable contract. In other words, there is no such thing as a void contract, for an, agreement, in order to be a contract, must be enforceable in law, and as such, it cannot be void.
Under section 37, " the parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law." We have, there fore, to see whether in the circumstances of the present case either the Contract Act or the two other Acts supplementary thereto excuse any of the parties from the performance of their respective promises.
The relevant provisions in these Acts may be shortly stated:‑
Contract Act, section '70. ' Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void."
Specific Relief Act, section 25, clause (b) ‑A contract for the sale or letting of property, whether movable or immovable, cannot be specifically enforced in favour of a vendor or lessor who, though he entered into the contract believing that he had a good title to the property, cannot, at the time fixed by the parties or by the Court for the completion of the sale or letting, give the purchaser a title free from reasonable doubt.
Transfer of Property Act section 55.‑In the absence of a con tract to the contrary, the buyer and the seller of immovable property respectively or subject to the liabilities, and have the rights, mentioned in the rules next following, or such of them as are applicable to the property sold
Rule I (a) the seller is bound to disclose to the buyer any material defect in the property or in the seller's title thereto of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover.
An omission to make such disclosure ..is fraudulent.
It is not necessary to examine the incidents and consequences of the notice which was issued by the Lahore Improvement Trust in respect of the property in: suit. Under section 24 of the Punjab` Town Improvement Act of 1922, the Trust may, for the purpose of developing any locality, prepare a development scheme ", and when such a scheme has been framed, the Trust prepares under section 36, a notice stating that the scheme has been framed, giving the boundaries of the localities comp rised in the scheme, and publishes such notice in the Gazette and another paper, inviting objections within a specified time. The next step is that during the thirty days following the publication of the notice, separate notices are served on the owners and occupiers of the premises proposed to be acquired inviting objections within sixty days (section 38). After hearing objections, the Trust either abandons the scheme or applies to the Provincial Government for sanction to the Scheme (section 40). Under section 41, the Government may sanction or refuse to sanction the scheme, or send it back for reconsideration. If it is sanctioned, the Government issues a notification to that effect under section 42.
Under section 2 of the Schedule to this Act, a notice under section 36 has the same effect as publication in the Gazette of a notification under subsection (1) of section 4 of the Land Acquisition Act, 1894, while the publication of a notification by the Government under section 42 has the same effect as a declaration by the Government under section 6 of the Land Acquisition Act.
Under section 4 of the Land Acquisition Act, whenever it appears to the Provincial Government that land in any locality is needed or is likely to be needed for any public purpose; a notification to that effect shall be published in the Official Gazette ". This is merely preparatory, or perhaps "explo ratory, for the object of the notification, is to enable an officer to enter upon, survey and take levels of any land in such locality, to dig or bore into the subsoil to do all other acts necessary to ascertain whether the land is adapted for such purpose". The Collector next hears objections under section 5 A, and under section 6, the Government when " satisfied " after considering, the Collector's report, " that any particular land is needed for a public purpose, makes a " declaration to that effect under the signature of a Secretary or other authorised official. This declaration is then published and the Collector is authorized under section 7 to take order for the acquisition of the land. While, thus, section 4 contemplates the possibility of land in a certain locality being acquired, at the stage when section 6 becomes operative, the Government has decided to acquire it and also to specify the extent of its requirements. And since sections 36 and 42 of the, Punjab Town Improve ment Act have respectively been made to correspond to sections 4 and 6 of the Land Acquisition Act, it is fairly reasonable to assume that when notice of a projected development scheme appears in the Gazette under section 36 it merely entails a possibility of acquisition which is removed from ultimate fulfillment by several hurdles, not the least of which is the sanction of Government. That the scheme had remained at the initial stage before it was dropped in October 1947 is evident from the fact that not even a notice of acquisition was served on the owners and occupiers as required by section 38 of the Act. It will be seen from the letter Ex. P. 18 which the defendant wrote to the Trust on the 5th of March, 1947, that his "objections were made to the notice which had been published in the press under section 36; and that they were not based on any notice which he ought to have received under section 38.
To these facts may now applied the law which regulates contracts and agreements and which has already been noticed. Under section 20 of the Contract Act, an agreement is void where both parties, thereto are under a mistake as to a matter of fact essential to the agreement. What mistake could there be in the mind of the parties as to any matter connected with the agreement which the parties did not know at the time but which has been disclosed to then now? It is possible that if the plaintiff had known, on the 2nd of October, 1946, the date of the agreement, that a development scheme existed, he may not have contracted to by the property and in that view of the cage his mistake should be regarded as relating to a matter essential to the agreement, but on this important matter, namely, that such a scheme was under contemplation on the 2nd of October, we have no evidence.
In support of the argument that a mistake of fact existed in this case, learned counsel for the plaintiff strongly relied on Narsing Dass Kothari v. Chuttoo Lali Missar (I. L. R. 5C Cal. 615). In that case the respondent leas a Court Receiver who held a sale of certain properties by auction and entered into an agreement of sale with the appellant on the 29th November 1919. Subsequently, the appellant discover the existence of a notice under section 63 of the Calcutta Improvement Act which had been published on the 18th of December 1918, that is to say, prior to the date of the agreement. That section relates to the preparation of a plan of a proposed public street, and with that d stinguishing feature, is identical in substance with section 3i6 of the Punjab Town Improvement Act in so far as it relates o the publication of a notice and the inviting of objections. The date fixed for the hearing of objections was the 3.lst of March 1919, and this date, as expressly noticed by Sanderson, C. J., had expired before the date of the agreement of sale. Upon this discovery the appellant filed a suit for the refund of the initial deposit, Buckland, J., dismissing the suit, came to the conclusion that under section 63 of the Calcutta Improvement Act nothing more had been done than to prepare a plan of a proposed public street and to publish the ‑requisite notices, but that even if the further step of application to Government for sanction had been taken, it would have made no difference. In his view, the land sold was, notwithstanding the notice, " subject to no disabilities or burden or restriction on the owner's use, whatever might be the most appropriate expression." Such notice " in fact might not, and did not in law, as a neces sary consequence, result in detriment to the purchaser of property by curtailing his right as owner."
The argument was apparently based on section 55 of the Transfer of Property Act, which requires the seller to disclose to the buyer any material defect in the property of which the seller alone is aware. In appeal, the judgment of Buckland J. was reversed, but not on this ground. Sanderson C. J., writing the main judgment observed that section 55 was inapplicable, as the Receive: himself‑ was not, in fact, aware of the existence of a notice. and as under the same section an omission to make such disclosure is fraudulent, the .question of a constructive notice should not arise, for a man cannot commit fraud except with a conscious mind. The case, however, in his opinion fell under section 20 of the Contract Act, for although it was true that nothing further might happen in pursuance of the notice, it was equally true that the Trust might eventually carry out street improvements which would affect these premises. This was evidently a matter of fact essential to the agreement. Richardson J., agreeing, added that "the notice in the Gazette did crystallize the general liability to which this property in common with other properties in Calcutta is subject in such a way as to entitle the buyer to say that he would not be getting a property of the description which at the time of the sale he thought, he was getting He might, in the result be entitled merely to a sum of money by way of compensation." I respectfully agree with these valuable observations, but cannot apply them to the present case for the reason already noticed, namely, that at the date of the agreement the notice was not in existence, and that perhaps, even the scheme itself was not under contemplation. On the other hand, these are clearly an authority in favour of the defendant for the view that section 55 of the Transfer of Property Act is not applicable as the defendant himself was not aware of the " material defect in the property " assuming that a notice of this nature constitutes such defect, though Buckland J., was clearly opposed to that view and as, quite obviously, he was not in fraud.
For the same reason, Ramlal Sen v. Suradhanisundaree Pal Chaudhurani (I. L R. 63 Calcutta 124), which was again cited for the plaintiff, may be distinguished. In that case also a sale took place in a Court auction on the 31st July 1931. It was subsequently found that the entire frontage of one of the pro perties sold was cut off by an alignment made by the Calcutta Corporation in 1910. Under section 302 of the Calcutta Municipal Act the Corporation may prescribe for a public street a building line or street alignment. Section 302 requires that no portion of any building or boundary wall shall be erected or added to within a street alignment. Derbyshire C J., citing Narsing Dass Kothari v. Chuttoo Loll Misser (I. L. R. 50 CAI. 615) merely as showing the trend of judicial opinion in that Court, observed that this was " a very material burden or liability on this property ". At any time the premises might be cut down and until then the occupier would be restricted in the use and development of the property. But for such 'misdescrip tion ", the purchaser would have never entered into the agree ment. Costello J. agreeing, referred to Lallubhai Rupchand v. Chimanlal Manilas (I. L. R. 59 Bombay 83) and observed that the buyer was getting something different from what he had bargained for. The Bombay case, which will be noticed later in this judgment, considered only the provisions of section 25 of the Specific Relief Act and section 55 of the Transfer of Property Act. It will be noticed that…
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