Lala Shanti Swarup Vs. Munshi Singh
& Ors  INSC 1 (3 January 1967)
03/01/1967 RAMASWAMI, V.
CITATION: 1967 AIR 1315 1967 SCR (2) 312
Indian Limitation Act (9 of 1908), Arts. 83
and 116--Sale of encumbered property--Covenant by purchaser to pay off
encumbrance--Failure by purchaser--Loss to vendor--Suit to recover loss--Period
The respondents executed a simple mortgage
for a sum of Rs. 12,000 in 1914. 'Later.. they sold half of the mortgaged
property to the appellants. Out of the consideration a sum required to pay the
amount (principal and interest) due to the mortgagees, was left with the
appellants. The appellants took possession of the property conveyed, but did
not make any payment to the mortgagees.
The mortgagees brought a suit for the
recovery of the amount due to them and in 1937, a final decree was passed
against the respondents. The respondents then applied under the U.P. Encumbered
Estates Act, and the liability was apportioned between the appellants and
respondents. In 1943, the Collector took proceedings under that Act for-the
liquidation of the debt and directed the respondents to execute a
self-liquidating mortgage of three-fourths of their half-share for a sum of
about Rs. 20,8000. The mortgage was executed on 25th February 1943. As a
result, the respondents had to deliver possession of the three- fourths share
of their property to the mortgagees. On 30th July 1943, they filed a suit for
the recovery of about Rs.
18000 and interest, representing the loss
they sustained owing to the failure of the appellants to discharge the original
mortgage of 1914.
On the question whether the suit was
HELD : When a conveyance contains a covenant
by a purchaser to pay off an encumbrance on the property sold it is nothing
more than an implied contract of indeminity. In such a case, in addition to the
right to bring an action to have himself put in a position to meet the
liability which the purchaser has failed to discharge, the vendor has also a
right to bring a suit on the contract of indemnity if, as a result of the
purchaser's failure, the vendor incurs a loss.
Under Art. 83 of the Limitation Act, 1908
which applies both to express and implied contracts of indemnity, the cause of
action arises when the vendor was actually damnified.
Therefore, in the present case, as the sale
deed in favour of the appellants was a registered document, the respondents had
six years under Art. 83 read with Art. 116, for bringing the suit., from 25th
February, 1943, when they were actually damnified, and so the suit was within
time. The mere fact that a mortgage decree was passed against the respondents
in 1937 was not sufficient to start limitation against them as time starts
running only when there is actual damnification.
[314 F, B; 315 D-E; 316 D-E, H) Case law
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 784 of 1964.
Appeal from the judgment and decree dated
January 23, 1959 ,of the Allahabad High Court in First Appeal No. 139 of 1946.
313 B. C. Misra and P. K Ghose, for the
S. T. Desai, Sardar Bahadur and Arun B.
Saharya, for respondents Nos. 1-9.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought, by certificate, from the judgment of the
High Court of Allahabad dated January 23, 1959 in First Appeal No. 139 of 1946.
Some of the plaintiff-respondents and the
predecessor-in- interest of other plaintiff-respondents owned lands in mahal
Narain Singh village Khetalpur Sahruiya. They executed a simple mortgage of
this property on May 9, 1914 in favour of two persons Bansidhar and Khub Chand,
for a sum of Rs.
12,000. Subsequently a sale deed of half of
this property which had been mortgaged was executed by the owners (now
represented by the plaintiff-respondents) on February 9, 1920, in favour of
Shanti Saran, the first appellant and three others, the remaining appellants.
The consideration for the sale-deed was a sum of Rs. 16,000 out of which a sum
of Rs. 13,500 was left with the purchasers for payment of the amount due to the
mortgagees on account of principal and interest under the mortgage dated May 9,
1914. The purchasers entered into possession of the property conveyed to them
but neither they nor the appellants made any payment to the mortgagees who in
due course brought a suit against the respondents for the recovery of the
amount due to them under the mortgage. On February 4, 1937, a final mortgage
decree was passed in their favour for a little over Rs. 26,000. Thereafter the
respondents made an application under the U.P. Encumbered Estates Act, and by
an order dated May 22, 1939, the Special Judge apportioned the liability for
the mortgage debt between the respondents and the purchasers as owners of half
the mortgaged property. As a result of this apportionment the respondents and
the appellants were each held to be liable for the sum of Rs.
14,307/9/6. It was further provided in this
order that the respondents would be liable to pay interest at 6 percent per
annum on the amount due by them from August 1, 1933 uptil September 28, 1936,
and thereafter at 41 per cent per annum.
The Collector subsequently took proceedings
for liquidation of the debt and on January 30, 1943 the Collector directed the
execution by the respondents of a self-liquidating mortgage of three-fourths.
of the half share of the property of which they were the owners. That mortgage
which was for the sum of Rs. 20,803/4/3 was executed on February 25, 1943, and
as a result the respondents had to deliver possession of this share of the
property to the mortgagees. The respondents thereafter filed the suit out of
which this appeal arises for the recovery of the sum of Rs. 18,500 and interest
representing the loss they had sustained owing to the failure of the appellant
or 314 of his predecessors-in-interest to discharge the original mortgage of
May 9, 1914. This suit was instituted on July 30, 1943. The case of the
plaintiff-respondents was that they had actually suffered loss and injury as a
result of the breach of trust by the defendant appellant on February 25, 1943
when they were compelled to execute the self- liquidating mortgage and to
deliver possession of the property in the proceedings for liquidation of that
debt which had been decreed by the Special Judge under the U.P.
Encumbered Estates Act. On behalf of the
defendant- appellant it was pleaded that the suit was time-barred. The
contention was that the claim of the plaintiff-respondents was a claim for
compensation for breach of contract which was entered into by a registered
document, so that the period of limitation was six years from the date on which
the breach of contract had been committed. It was said that the breach of
contract should be deemed to have been committed in the year 1920 when the
defendant-appellant undertook to pay the money to the mortgagees and failed to
do so within a reasonable time. The trial court over-ruled the objection of the
defendant and decreed the suit. The defendant appealed to the High Court. The
Division Bench which heard the appeal in the first instance referred the
question of limitation to a Full Bench of five Judges which held that the suit
was governed by Art. 83 read with Art.
116 of the Limitation Act and that time ran
from February 25, 1943 which was the date upon which the respondents were
compelled to execute a self-liquidating mortgage for the purpose of satisfying
the mortgage debt. On receipt of the decision of the Full Bench, the Division
Bench of the High Court dismissed the appeal and affirmed the judgment of the
The question to be considered in this appeal
is whether the High Court was right in taking the view that in the
circumstances of the present case the suit is governed by Art. 8 3 read with
Art. II 6 of the Limitation Act and whether the terminus a quo for the
limitation was February 25, 1943 which was the date upon which the respondents
were compelled to execute a self-liquidating mortgage.
On behalf of the appellant Mr. B. C. Misra
put forward the argument that a provision in a conveyance whereby the purchaser
agrees to pay off an encumbrancer does not give rise to any contract of
indemnity and that the appropriate article of Limitation Act was Art. 116 and
not Art. 83 and time began to run from the date from which the covenant to pay off
the encumbrancer is broken. We are unable to accept this argument as correct.
If a conveynace contains a covenant by a purchaser to pay off an encumbrance on
the property sold the failure of the purchaser to do so may give rise to two
different causes of action. In the first place, the failure of the purchaser to
discharge the encumbrance within such time as is provided expressly or by
implication entitles 315 the vendor to bring an action to have himself put in a
position to meet the liability which the purchaser has failed to discharge. In
such a case, limitation will run under Art. 116 of the Limitation Act (or under
Art. II 5 if the sale deed is unregistered) from the date on which the
purchaser ought to have paid off the mortgage. In the second place, it is also
open to the vendor to bring a suit on the contract of indemnity if as a result
of the failure of the purchaser to discharge the encumbrance the vendor incurs
a loss. It was contended on behalf of the appellant that there was no express
contract of indemnity in the sale deed executed on February 9, 1920 in favour
of the appellant. But the contract of indemnity is implicit in this case
because of the covenant on the part of the purchaser to pay off the previous
encumbrance on the property sold. Under s. 124 of the Indian Contact Act
"a contract of indemnity" is a contract by which one party promises
to save the other from loss caused to him by the conduct of the promisor
himself, or by the conduct of any other person. Under Art. 83 of the Limitation
Act a suit based upon the contract of indemnity is required to be brought
within three years from the time when the plaintiff was actually damnified. In
the present case there is no express contract of indemnity. But, in our
opinion, the provisions of Art. 83 are also applicable to a case where the
contract of indemnity is implied and not express. It was observed by the
Judicial Committee in Musammat Izzat-un- Nissa Begam v. Kunwar Pertab Singh (1)
that a contract of indemnity may be express or implied and if the purchaser
covenants with the vendor to pay the encumbrances, there is nothing more than a
contract of indemnity. At page 208 of the Report the Judicial Committee clearly
expressed the proposition as follows :
"it seems to depend on a very simple rule.
On the sale of property subject to
encumbrances the vendor gets the price of his interest, whatever it may be,
whether the price be settled by private bargain or determined by public
competition, together with an indemnity against the incumbrances affecting the
land. The contract of indemnity may be express or implied. If the purchaser
covenants with the vendor to pay the incumbrances, it is still nothing more
than a contract of indemnity. The purchaser takes the property subject to the
burthen attached to it. If the incumbrances turn out to the invalid, the vendor
has nothing to complain of. He has got what he bargained for. His indemnity is
complete. He cannot pick up the burthen of which the land is relieved and seize
it as his own property. The notion that after the completion of the purchase
the purchaser is in some way a trustee for the vendor of the amount by which
the existence, (1) 36 1. A. 203.
316 or supposed existence, of encumbrances
has led to a diminution of the price, and liable, therefore, to account to the
vendor for anything that remains of that amount after the encumbrances are
satisfied or disposed of, is without foundation. After the purchase is
completed, the vendor has no claim to participate in any benefit which the
purchaser may derive from his purchase. It would be pedantry to refer at length
But their Lordships, under the circumstances,
may perhaps be excused for mentioning Tweddel v. Tweddel [(1787) 2 Bro C.C.
151)], Butler v. Butler [(1800) 5 Ves. 534 e.)], and Waring v. Ward[(1802) 7
Ves. 332)]." This decision was followed by the Full Bench of the Allahabad
High Court in Tilak Ram v. Surat Singh(1). In our opinion, the principle
applies to the present case and we accordingly hold that the covenant undertaken
by the predecessor-in-interest of the appellant was not only one to purchase
the vendor's property but also one to relieve the vendor from the liability of
the mortgage, and in that sense there was an implied contract of indemnity in
favour of the vendor. It follows therefore that Art. 83 of the Limitation Act
applies to this case and as the sale deed is a regi- stered document the
plaintiff has six years for bringing the suit from the time when he is
damnified or actually suffers loss. The view that we have expressed is borne
out by a long catena of authorities.-Kumar Nath Bhuttacharjee v. Nobo Kumar
Bhuttacharjee,2 Ratan Bai v. Ghasiram Gangabisan Wani(3) Harakchand Tarachand
V. Sumatilal Chunilal(4) Gulabrao Vithoba v. Shamrao Jagoba,(5) Naima Khatun v.
Sardar Basant Singh,(6) Ram Barai Singh v.
Sheodeni Singh(7) and Venkatanarayaniah v. Subramania Iyer(8).
It was then contended by Mr. B. C. Misra that
even if there was a contract of indemnity the cause of action for the plaintiff
arose on February 4, 1937 when the final mortgage decree was passed and not on
February 25, 1943 when the plaintiff was dispossessed. It was argued that the
suit must be held to be brought beyond the period of limitation and the
plaintiff was not entitled to succeed. It is not possible for us to accept this
argument as correct The vendees, in the present case, covenanted to the vendors
not only to purchase the property mentioned in 'the sale deed but also to
relieve the vendors from the liability of the mortgages and in that sense there
was an implied contract to indemnify the vendors. The cause of action in such a
case arises when the plaintiff-vendors are actually damnified.
The mere fact that a mortgage decree has been
,obtained against the plaintiff is not sufficient to put the statute (1) I.L.R.
 All. 500.
(3) I.L.R. 55 Bom, 565.
(5) A.I.R. 1948 Nag. 401.
(7) 16 C.W.N. 1040.
(2) I.L.R. 26 Cal, 241.
(4) 33 Bom, L.R. 1200.
(6) I.L.R. 56 All. 766.
(8) 74 Indian Cases 209.
317 in motion. In other words, the statute
runs not when the event. happens which caused the loss but on the actual
damnification. "Where the covenant is to indemnify or save harmless, no
action can be brought till some loss has arisen; so it is also where the
covenant is to acquit from damage by reasons of a bond or some particular
thing; and in either case the proper plea is non damnificatus". (1 Wms.
Saund. 117, n. 1;). In Collinge v. Heywood
(1) the plaintiff at the request of the defendant prosecuted an action, on
receiving an undertaking to indemnify him from the said distress, actions,
costs, damages, and expenses, which are now, or may be hereafter, commenced or
otherwise incurred by reason of the claim of the distraining party.
The plaintiff incurred costs of the suit, and
his own attorney thereafter delivered him a bill on account of them.
But it was held by the King's Bench that he
was not damnified till he had paid the bill. In the present case, the damage
occurred to the plaintiffs not on February 4, 1937 when the final mortgage decree
was passed in favour of the mortgagees but on February 25, 1943 when the
Collector directed the execution by the plaintiffs of a self- liquidating
mortgage of three-fourths of' the half share of the property of which they were
the owners. We are therefore of the opinion that, 'in the present case, time
runs under Art. 83 of the Limitation Act from February 25, 1943 when the
plaintiffs were compelled to execute the self- liquidating mortgage for the
purpose of satisfying the claim of the mortgagees.
For the reasons expressed we hold that there
is no merit in this appeal which is accordingly dismissed with costs.
V.P.S. Appeal dismissed' (1) (1839),9 A.
& E.B. 633.