Vs. Gopala & Ors  INSC 66 (18 January 1995)
K. Ramaswamy, K. Venkatachala N. (J)
1995 SCC (2) 528 JT 1995 (2) 513 1995 SCALE (1)824
appeal, by special leave, arises from the judgment of the learned Single Judge
of the High Court of Punjab & Haryana in R.S.A.No.931/1986, dated
11.8.1986. The appellant had entered into an agreement with the respondent on
13.1.78 to purchase 1/3rd share of the land belonging to the respondent for a
total consideration of Rs.78,000/- and paid a sum of Rs.20,000/- as earnest
money. The sale deed was to be executed on or before 30.4.78. Later the
appellant came to know that notification u/s 4(1) of the Land Acquisition Act,
1894 was published on 3.8.77 which fact was concealed to the appellant, so he
had filed the suit for refund of the earnest money. The Trial Court in Suit
No.620/82 decreed the suit for refund of the earnest money with interest at 6%
per annum from 25.1.1980 till the date of realisation of the decree amount.
Feeling aggrieved, the respondent filed Civil Appeal No. 1 10/83. The District
Judge by his Judgment and decree dated 28.9.1985 reversed the decree and
dismissed the suit. In Second Appeal, the High Court dis- missed the same in limine.
Thus this appeal, by special leave.
only question for consideration is whether the appellant is entitled to obtain
refund of earnest money.
the terms of the contract, admittedly entered into between the parties, is that
in the event of acquisition of land by the Government for a public purpose, the
respondent "shall return the earnest money without interest."
Admittedly, since the notification u/s 4(1) of the Land Acquisition Act was
already published, the question arises whether the appellant could get a sale
deed executed and in its absence whether he is entitled to obtain refund of
earnest money paid under the agreement. On publication of notification under
s.4(1) of the Act, though it is not conclusive till declaration u/s 6 was
published, the owner- of the land is interdicted to deal with the land as a
free agent and to create encumbrances thereon or to deal with the land in any
manner detrimental for public purpose.
though notification u/s 4(1) is not conclusive, the owner of the land is
prevented from encumbering the land in that such 515 encumbrance does not bind
the Government. If ultimately, declaration under s.6 is published and
acquisition is proceeded with, it would be conclusive evidence of public
purpose and the Government is entitled to have the land acquired and take
possession free from all encumbrances Any sale transaction or encumbrances
created by the owner after the publication of notification under s.4(1) would
therefore be void and does not bind the State. In this perspective, when 'the
necessary conclusion is that the agreement of sale stands frustrated, the
question of readiness and willingness on the part of the vendor or vendee does
not arise. The appellate court wrongly held that the appellant was not ready and
willing to perform his part of the contract. In the face of the notification
how the appellant could get a valid title? Any attempt on his part would be
futile exercise and avoidable expenditure. Both the courts have concurrently
found that time is not the essence of the con- tract. Under those
circumstances, the plaintiff is entitled to lay the suit for refund of earnest
money within three years from the date of refusal of the performance of the
contract. In this case, declaration under s.6 was published and so it was
conclusive of public purpose and the land was acquired. The contract was,
therefore, frustrated. Since one of the terms of the contract is to return the
earnest money, in the event of acquisition being made by the State, the
vendee-appellant is entitled under s.33 of the Contract Act, as rightly and
legally held by the trial court, to seek refund of the earnest money.
Section 33 of the Contract Act reads thus:- "33. Contingent contracts to
do or not to do anything if an uncertain future event does not happen can be
enforced when the happening of that event becomes impossible, and not before.
contract in question being a contingent contract based on uncertain future
events, (here is a case of suppression of tact even otherwise) that event
having occurred by notification issued under s.6, the contract became
impossible of performance. Therefore, it got frustrated and the contracting
party is entitled to enforce the terms of the contract for- refund of earnest
money. The Trial Court had rightly decreed the' suit for return of the earnest
money. The district Judge refused the relief on the ground that he was not
ready and willing to perform his part of the contract. As stated earlier, his
readiness and willingness is not relevant after the notification under s.4(1)
and declaration under s.6 were published. Under those circum- stances, the
District Judge had taken an erroneous view in reversing the decree of the trial
court. The High Court did not apply its mind nor did it advert to any of these
relevant circumstances. It simply dismissed the second appeal in limine, as if
it was a routine. Therefore, we hold that the decree of the High Court and that
of the District Judge are vitiated by manifest gross errors of law.
are set aside accordingly. The decree of the trial court is restored.
appeal is allowed. In the circumstances, parties are directed to bear their own