K. Simrathmull Vs. S. Nanjalingiah
Gowder  INSC 76 (28 February 1962)
28/02/1962 SHAH, J.C.
CITATION: 1963 AIR 1182 1962 SCR Supl. (3)
Contract--Covenant for reconveyance of
property subject to fulfilment of conditions--Failure or condition, whether
specific performance could be demanded--Where right extinguished--Courts
equitable jurisdiction could be invoked--Transfer of Property Act, (4 of
1882)--Specific Relief Act (1 of 1877).
By a deed February 19, 1948 the respondent
sold his house to the appellant in consideration of discharging liability to
repay alone of Rs, 1500/borrowed by the respondent. Two other documents
relating to the house were executed on the same day II) a deed by the appellant
agreeing to reconvey the house if the respondent paid Rs. 1500/in these two
years ; (2) a rent note by the respondent and his father agreeing to pay Rs.
26-4-0 per mensem as rent for occupation of the house. Under the of
reconveyance the exercise of the right to reconveyance was subject to two
conditions, firstly, that the right must be exercised within 2 years and
secondly, that the rent payable under the rent note should not remain in
arrears for more than six months at any time.
When that respondent demanded specific
performance of the agreement of reconveyance, the first condition was fulfilled
but the second was not. The suit for specific performance of the agreement of
reconveyance was dismissed, for in the view of the trial court the conditions
of the agreement had not been strictly complied with, and the agreement stood
cancelled. The High Court in second appeal reversed the decree and ordered
Held, that the covenant for reconveyance was
in the nature of a concession granted by the purchaser.
Held, further that the concession being
subject to certain conditions were not fulfilled the right to demand reconveyance
could not be enforced. The court had no equitable jurisdiction to relieve
against the extinction of the right to demand reconveyence.
Shanmugam Pillai v. Annalakshmi Ammal, A. 1.
R. (1950) F. C. 38, followed.
John H. Kilmer v. British Columbia Orchard
Lands Ltd.L.R.(1913) A. C. 319, Devendra Prasad Sukul v. Surendra 477 Prasad
Sukul, (1935) L. R. 63 I.A. 26 and Davis v. Thomas, (1 980) 39 E. R. 195,
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 8 of 1960.
Appeal by special leave from the judgment and
decree dated January 30, 1956, of the Madras High Court in Special L.
Appeal No. 2174 of 1952.
Bhawani Lal and P. C. Agarwala, for the
appellant R. Ganapathy lyer, R. 'Thiagarajan and G. Gopalakrishnan, for the
1962. February 28. The Judgment of the Court
was delivered by SHAH, J.-This is an appeal with special leave against the
judgment of the High Court of Madras.
On February 18,, 1948, S. Nanjalingiah Gowder
herein after referred to at; the plaintiff-borrowed Rs. 1,500/from K. Simrathmull-hereinafter
called the defendant. On February 19, 1948 the plaintiff executed a sale deed
conveying to the defendant certain land at Ootacamund together with a house
standing thereon and belonging to him for Rs. 700/-. Two other documents were
executed on the same day : (1) a deed of reconveyance (Ext. A-1) (counterpart
of the sale deed) in favour of the plaintiff which contained the following
"If you pay the sum of Rs. 1500/. within
a period of two years 1 shall at your cost and responsibility execute a sale in
respect of Your-mentioned land and house. You shall pay the assessment for the
house and the municipal tax, you shall if there is any arrears of rent pay the
same, prior to the sale, as per the rental deed executed by you and your
If there is arrears of rent for six 478
months, the aforesaid counterpart deed shall become cancelled.", and (2) a
Rent, Note by the plaintiff and his father Bora Gowder in favour of the
defendant agreeing to pay rent @ Ps.
26/4/per mensem for occupation of the house
and the land.
Rent accruing due was not paid regularly by
the plaintiff and his father, and by April 1949 it was in arrears for seven
months. The plaintiff sent Rs. 52/8 /by postal money order being rent for two
months, on April 20, 1949, but it was not accepted by the defendant. The
plaintiff then filed on November 7, 1949 a suit in the Court of the Subordinate
Judge, Ootacamund for specific performance of the agreement of reconveyance
contained in the deed Ext. A
1. The suit was dismissed, for, in the view
of the trial Court, the conditions incorporated in Ext. A-1 had not been
strictly complied with, and the agreement stood cancelled.
The decree of the trial Court was affirmed in
appeal But in second appeal the High Court of Madras reversed the decree and
ordered specific performance.
The sale deed. the deed of reconveyance Ext.
A-1 and the Rent Note Ext. B-1 were undoubtedly parts of the same transaction.
The plea of the plaintiff that the sale deed Ext. A-1 constituted a transaction
of mortgage by conditional sale is inadmissible, because the sale deed and the
covenant for reconveyance are contained in separate documents. Indisputably, on
the findings of the trial Court and confirmed by the Appellate Courts, the
plaintiff has not complied with the terms of the agreement for reconveyance.
The plaintiff, however submitted that the
court could relieve him against the forfeiture of his rights in exercise of the
courts equitable jurisdiction. The defendant submitted that the covenant for
reconveyance was in the nature of a concession granted by the defendant subject
to certain conditions and if the conditions were not 479 fulfilled the right
could not be enforced. On this question the trial Judge with whom the First
Appellate Court agreed held that the court had no jurisdiction to relieve
against the extinction of the right to demand reconveyance, because the
plaintiff had failed to comply strictly with the conditions of the deed. The
High Court held that the equitable jurisdiction of the Court could properly be
exercised in favour of the plaintiff so as to relieve him against the
extinction of his right.
The plaintiff had sold his property to the
defendant. There is now no dispute that though the,sale deed was for Rs.700/-.
it was in satisfaction of the loan borrowed on February 18, 1948 for Rs. 1500/that
the sale deed was executed. By the deed Ext. A-1 the defendant gave plaintiff a
concession: he agreed to reconvey the house, but the exercise of the right of
demanding reconveyance by the plaintiff was subject to two conditions (1) that
the right must be exercised within two years, and (2) that the rent payable
under Ext. B-1 should not be in arrears for more than six months at any time.
When the plaintiff demanded specific performance .of the agreement of
reconveyance, the first condition was fulfilled but the second was not. It is
true that equity relieves against penalties when the intention of the penalty
is to secure payment of a sum of money or attainment of some other object, and
when the event upon which the penalty is made payable can be adequately
compensated by payment of interest or otherwise. Thus relief is granted in
equity against the penalty in a money bond, and also against penal sums made
payable on breach of bonds, covenants and agreements for payment of money by
installments, or for doing or omitting to do a particular act (see Halsbury's
Laws of England III Edition vol. 14 page 620 Art. 1147). The cases in John H.
Kilmer v. British Columbia Orchard Lands Ltd. (1) and Devendra Prasad Sukul and
others v. Surendra Prasad Sukul and Another(2) are illustrations (1) L.R.
(1913) A.C. 319.
(2) (1935) L.R. 63 I.A. 26.
480 of that principle. But there is a well
recognised exception to this rule which is enunciated in Halsbury's Laws of
England Vol. 14 TIT Edition page 622 paragraph 1151, as follows: "Where under
a contract, conveyance, or will a beneficial right is to arise upon the
performance by the beneficiary of some act in a stated manner, or at a stated
time, the act must be performed accordingly in order to obtain the enjoyment of
the right, and in the absence of fraud, accident or surprise, equity will not
relieve against a breach of the terms". The Federal Court in Shanmugam
Pillai and others v. Annalakshmi Ammal and others(1) held by a majority of
three to two that where under an agreement an option to a vendor is reserved
for repurchasing the property sold by him the option is in the nature of a
concession or privilege and may be exercised on strict fulfillment of the
conditions on the fulfillment of which it is made exercisable. If the original
vendor fails to act punctually according to the terms of the contract, the
right to repurchase will be lost and cannot be specifically enforced.
Refusal to enforce the terms specifically for
failure to abide by the conditions does not amount to enforcement of a penalty
and the Court has no power to afford relief against the forfeiture arising as a
result of breach of such a condition. A majority of the Judges of the Court in
that case followed the principle set out in Davis. v. Thomas (2).
We accept the view of the majority enunciated
in Shanmugam Pillai's case. The decree passed by the High Court must therefore
be set aside and the decree passed by the trial Court restored. 'But the
property in dispute is valuable.
Even on the defendant's case it was on the
date of the institution of the suit worth Rs. 15000/-. The defendant purchased
it only about a year and seven months prior to the date of the institution of
the suit for Rs. 1500/-. He appears to have overreached the plaintiff and taken
a document of sale (1) A.1 R. (1950) C. 38.
(2) (1930) 39 E.R 195.
481 conveying the property when a mere loan
was intended on the security of the property. It is unfortunate, having regard
to the provision of s. 58(c) of the 'Transfer of Property Act, that the
plaintiff is debarred from proving that (,he transaction was in the nature of a
mortgage. In the circumstances we direct that there will be no order as to