Mugneeram Bangur & Co. Vs. Sardar
Gurbachan Singh  INSC 296 (16 December 1964)
16/12/1964 MUDHOLKAR, J.R.
CITATION: 1965 AIR 1523 1965 SCR (2) 630
Contract Act, s. 56-Contract to purchase
plot-Subject to completion of development work-Government requisitioning
land-Rendering completion temporarily unlawful-Whether contract discharged.
In May 1941, the respondent had entered into
a contract with the appellant company for the purchase of a plot of land in a
Colony Scheme. He had paid the earnest money and had undertaken to complete the
transaction within on month from the date of completion of certain development
work by the appellant. Thereafter, the land in question was requisitioned by
the Government under the Defence of India Rules and the company was therefore
unable to undertake the development work during the continuance of the war.
On learning that the Government proposed to
de-requisition the lands taken over by them, in May 1946, the respondent
approached the company to ascertain when it would complete development work
after the de-requisitioning of the land, so that he might complete the
transaction within one month thereafter. The company claimed that the contract
stood cancelled since the respondent had failed to comply with the terms of a
circular letter issued by it in December 1943, offering all purchasers an
option between accepting refund of the earnest money or completing the
transaction immediately by accepting the land in an undeveloped state.
The respondent denied having received the
circular letter and filed a suit in August 1946, which was decreed by the trial
court and the decree was upheld by the High Court in appeal.
In the Supreme Court it was contended on
behalf of the company that the contract was discharged by reason of frustration
because its performance was rendered unlawful as a result of the requisitioning
orders made by the Government, and furthermore, that the suit for specific performance
was premature,, because, under the contract the respondent did not get the
right to obtain a sale deed till after the development work was complete.
HELD : (i) It cannot be said that because of
the requisitioning orders which had the effect of making the entry by or on
behalf of the company on the land illegal, during the subsistence of the period
of requisitioning, the contract stood discharged by frustration. [637 H] If
time is of the essence of the contract, or if the time for the performance is
set out in the contract, the contract would stand discharged even though its
performance may have been rendered unlawful for an indeterminate time, provided
unlawfulness attached to the performance at the time when the contract ought to
have been performed. [637 A-C] In the present case, it could not be said that
time was of the essence of the contract or that the contract had been
discharged because it had not been performed in a reasonable time within the
meaning of s. 46 of the Contract Act. When the parties entered into the
contract, they knew the prevailing circumstances and must have borne in mind
the possibility of difficulties in obtaining the necessary material or the
possibility of the land being requisitioned by the Government. [637 E-H] 631
Denny Mott & Dickson Ltd. v. James B. Frasser & Co. Ltd.  A.C.
265 and Satyabrata Ghose and Ors. v. Mugneeram Bangur & Co. & Anr.
 S.C.R. 310. referred to. (ii) The contention that the suit was premature
could not be accepted because the development work had been completed when the
appeal was heard by the High Court. In such a case the court would be justified
in taking notice of subsequent events in molding its relief accordingly. [638
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 180 of 1962.
Appeal by special leave from the judgment and
decree dated January 28, 1959, of the Calcutta High Court from original Decree
No. 226 of 1952.
B. Sen and S. N. Mukherjee, for the
Hem Chandra Dhar, S. S. Khanduja and Ganpat
Rai, for the respondent.
The Judgment of the Court was delivered by
Mudholkar, J. This appeal, like Satyabrata Ghose v. Mugneeram Bangur & Co.
and another(1) relates to the effect of requisitioning orders made by the
Government during the last war under which they took possession of land
belonging to the appellant company which had been divided into building plots
by them in pursuance of what is known as the Lake Colony Scheme, by
constructing roads and drains. The plaintiff-respondent was one of the various
persons who had entered into contracts with the company for purchase of plots,
in pursuance of the public offers made by the company. This he did by
addressing the following letter to the company and paying Rs. 202/by way of
"To Mugneeram Bangur and Company Land
Russa Road, South, Tollygunge, Calcutta.
No. 499, Phone: South 135.
Through BabuRe : Plots Nos. New Nos. 245 and
246 on 30 feet road in the premises No. Lake Colony Scheme No. 1, Northern:
Area measuring-10 ks. x ch. x sqr. ft more or
(1)  S.C.R. 310.
632 Dear Sir, I am willing to purchase the
above plot of land from you at the average rate of Rs. 1,075/(Rupees one
thousand and seventyfive only) per katta irrespective of the condition of the
soil and I am ready to deposit Rs. 202/of the actual value as an earnest money
at once. I undertake to complete the transaction within one month from the date
on(?) (of) completion of road on payment of the balance of the consideration
money and time must be deemed as essence of the contract. If I fail to do so
within the said period the earnest money deposited by me will be forfeited and
you will be free to resell the land and I shall be liable for all damages that
may result thereby. I also agree to sign a formal agreement in the form
required by you if you so desire.
Yours faithfully, Name, Gurbachan Singh,
Address: 48/ 1, Chakraberia Road, North.
Dated the 19 ....
Witness : (Illegible) Address
N.B. I agree to pay half of the value at the
time of registration of the deeds and the balance within 6 years bearing
interest at the rate of 6 per cent per annum with half yearly rests and the
said plots Nos : 245 and 246 purchased by me shall remain charged for the
payment of the balance of the purchase money in manner as aforesaid and the
necessary security deed charged should be executed and registered by me at my
Name: Gurbachan Singh Address :
Witness (Illegible) 4, Baktiar Shah Road,
The letter does not bear any date; but
probably it was written on May 14, 1941 which is the date on which the company
issued a receipt in his favour. Different portions of the land covered by the
scheme were requisitioned by Government between November 12, 1941 and July 25,
1944. The plots which the respondents had contracted to purchase are said to
form part of the land which was requisitioned by virtue of an order made by the
Government on February 18, 1944.
633 According to the company, on December 24,
1943, a circular notice was sent to all those persons who had entered into
contracts for purchase of plots from them stating that a considerable portion
of the land comprised in the Lake Colony Scheme area had been requisitioned
under the Defence of India Rules and was taken into possession by the
Government. It was not possible to say how long the Government would continue
to be in possession and, therefore, it was not possible for the company to
carry on the work of the construction of roads and drains during the
continuance of the war and possibly for many years even after the termination
of the war. The circular then proceeded to state as follows :"In these
circumstances we have decided to treat the agreement as cancelled and give you
the option of taking of the refund of the earnest money deposited by you within
one month from the receipt of this letter.
In the event of your refusal to treat the
contract as cancelled, we are offering you, in the alternative, to complete the
registration of the conveyance of the sale deed within one month from the
receipt of this letter. In such a case you have to take the lands as it is now,
the road and drain will be made by us as soon as circumstance will permit after
the termination of the War.
If you do not exercise your option in any of
the two ways mentioned above the agreement will be deemed to have been
cancelled and your earnest money forfeited." On May 8, 1946 the
respondent's attorneys, acting under instructions, wrote to the company saying
that the respondent had learnt from the company's office that the government
would be de-requisitioning lands taken over by them and inquiring of the
company as to when it would be possible for the company to deliver possession
of the plots to the respondent. In reply to that letter the company wrote on
May 29, 1946 drawing his attention to their circular letter and said that by
reason of the failure of the respondent to exercise the options given by them
therein the agreement stood cancelled and the earnest money had been forfeited.
On June 13, 1946, the respondent's attorneys
expressed surprise at the company's reply and stated that the respondent had
not received the circular referred to in the company's reply and ended by
saying as follows :
"That my said client, therefore, now
hereby asks you as to when you are going to complete the roads, so that he may
do the needful for completion of the conveyances 634 within one month from such
date of completion of the roads.
That my said client hereby calls upon you to
intimate to him within seven days from date the expected exact date of completion
of roads to enable him to complete the conveyance as per agreement, failing
which he will be forced to take legal steps against you in the matter as he may
be advised in the matter, without further reference which please note."
Apparently the company did nothing with the result that the present suit was
instituted by the respondent on August 8, 1946 in the court of the Second
Subordinate Judge at Alipore. The company resisted the suit on various grounds
but only two are material for the purpose of this appeal because Mr. Sen has
confined his argument only to those matters. One is that the contract has been
discharged by reason of frustration and the second is that the suit was
premature. The suit was decreed and that decree was upheld by the High Court in
appeal. A certificate that the case was fit for appeal to this Court having
been refused by the High Court the company sought and obtained from this court
special leave to appeal. That is how the matter comes up before us.
This case would really appear to be covered
by the decision of this court to which we have referred at the outset. Mr. Sen,
however, points out that the question as to whether the contract could be said
to have been discharged because of the fact that its performance was rendered
unlawful as a result of the requisitioning orders made by the Government which
was sought to be raised before this Court in that case was not permitted to be
raised by it and has been left open.
He admits that certain observations made by
this Court towards the concluding portion of the judgment would indicate that
this Court was not prepared to accept the contention sought to be urged before
it. But, Mr. Sen says that as the contention was not permitted to be raised,
the observations of this Court could be said to have been made merely in
passing and at best be regarded as a tentative expression of its views. We
think Mr. Sen is right in the sense that the question has been actually left
open by this Court. But even so, we will have to consider whether the grounds
upon which the previous decision rests would not be relevant for consideration
in connection with the argument advanced by Mr. Sen.
635 In so far as discharge of contract by
reason of frustration is concerned there is no question of implying a term in
the contract a term fundamental for its performance, as is done by the courts
in England because we have here the provisions of s. 56 as well as those of s.
32 of the Contract Act.
This is what was held by this Court in the
earlier case and that decision binds us. No doubt, a contract can be frustrated
either because of supervening impossibility of performance or because
performance has become unlawful by reason of circumstances for which neither of
the parties was responsible. In the earlier case this Court has held that where
the performance of an essential condition of the contract has become impossible
due to supervening circumstances the contract would be discharged. This Court
has further held that the impossibility need not be an absolute one but it is
sufficient if further performance becomes impracticable by some cause for which
neither of the parties was responsible. It, however, held that the mere fact
that the performance of an essential term of the contract that is to say, of
undertaking development of the area under the scheme could not be undertaken
because the land had been requisitioned, did not have the effect of frustrating
the contract. For though the term regarding development was an essential term
of the contract, the requisitioning of the land was only for a temporary
Further the parties had deliberately not
placed any time limit within which roads and drains had to be made apparently
because they were aware of the difficulties in carrying on the work on account
of scarcity of materials and the various restrictions which the Government had
placed on such activities. This Court also pointed out:
"Another important thing that requires
notice in this connection is that the war was already on, when the parties
entered into the contract. Requisition orders for taking temporary possession
of lands for war purposes were normal events during this period." (pp. 326-327).
Though these observations were made while
dealing with the argument that the contract has been frustrated by reason of
impossibility of performance they would not be wholly out of place while
considering the argument based upon the ground that continued performance of
the contract had been rendered unlawful.
What s. 56 speaks of is a contract, the
performance of which has become unlawful. Now, it is true that no order was
made under the Defence of India Rules prohibiting the company from carrying on
the work of construction of roads and drains. The 636 actual order served upon
the company, among other things, provides :
"The owner/occupier of the said land:
(a) shall place the said land at the disposal
and under the control of the Military Estates Officer Bengal Circle on and from
the 14th November, 1941 at 1 P.M. Bengal time until six months after the
termination of the present war unless relinquished earlier." In
consequence of this order the company lost possession of the land and
automatically lost access thereto. Without getting on to the land the company
could not carry out its obligation to the purchasers of constructing the roads
and drains. If, in disobedience of this order, the company's servants, agents
or contractors were to carry on the work of construction of the roads and
drains by entering on the land of which the possession was with the government,
they would have been liable to punishment under sub r. (7) of r. 75 (a) of the
Defence of India Rules and also the company. We were informed that the land was
used by the Government for military purposes. It is, therefore, possible that
the land might have been declared as a protected place under r. 7 of the
Defence of India Rules. Even, however, without such a declaration, we agree
with Mr. Sen that it would not have been possible for the company, its agents,
servants or contractors to go on the land during the continuance in force of
the order of requisition without being rendered liable at law.
Even so it is clear that all that had become
unlawful was to construct roads and drains while the land was bound to be given
up by the Government sometime or other and, therefore, in essence the
activities which were rendered unlawful were not forbidden for all time but
only temporarily. It may be that the duration of the embargo was uncertain but
not permanent. It would, therefore, be relevant to enquire whether a contract
could properly be held to be frustrated because for a certain period of time
its performance has become unlawful. According to Mr. Sen the moment it became
unlawful for one of the parties to the contract to continue with the
performance, the contract was discharged and in this connection he referred us
to certain observations of Lord Wright in Denny Mott & Diskson Ltd. v.
james B. Fraser & Co. Ltd.,() and certain other portions of the report. We
put to him the question as to what would be the. effect of a requisitioning,
say, for a period of one month. Would that operate as &charge of the (1)
 A.C. 265, 274.
637 contract ? To that his answer was in the
negative and we think that the answer was right. The question then would be :
would it make any difference if unlawfulness would attach to the performance of
the contract for an indeterminate period ? In our judgment if time is of the
essence of the contract or if time for performance is set out in the contract
it may be that the contract would stand discharged even though its performance
may have been rendered unlawful for an indeterminate time provided unlawfulness
attached to the performance of the contract at the time when the contract ought
to have been performed. Thus, where the performance of a contract had been
rendered unlawful by reason of some subsequent event the contract would stand
discharged but such discharge will take place not necessarily from the date on
which the further performance was rendered unlawful, unless further performance
was rendered unlawful for all time. If the performance of the contract is
rendered unlawful either for a determinate period of time or for an
indeterminate period of time the contract would not stand discharged unless the
ban on its performance existed on the day or during the time in which it has to
be performed. Here it is pointed out by Mr. Sen that the respondent had made
time the essence of the contract but that only applies to the grant of
conveyance after the completion of the roads and drains. As already pointed
out, parties were wholly silent as to the time within which the roads and
drains were to be completed.
Therefore, in so far as this aspect of the
contract is concerned time was in no sense made the essence of the contract.
According to Mr. Sen, however, where the parties have failed to specify in the
contract time within which it has to be performed s. 46 of the Contract Act
comes in and the parties may be presumed to have agreed that the contract will
be performed within reasonable time. To that the answer would-be the same as
that given in the earlier case, that is, the parties when they entered into the
contract, knew the prevailing circumstances and must have home in mind the
possibility that something like what actually happened may happen and,
therefore, did not specify the time within which the land had to be developed.
In other words, the parties intended to exclude from the computation of
reasonable time such time as was taken up in procuring the necessary material
which was not easy to obtain and such as may be taken up if the land were
requisitioned by government. Thus, in our view it cannot be said that because
of the requisitioning orders which had the effect of making the entry by or on
behalf of the company on the land illegal during the subsistence of the period
of requisitioning the contract stood discharged.
p.55-7 638 Then remains the other point
argued by Mr. Sen. He said that the suit for specific performance was premature
because under the agreement the respondent did not get a right to obtain a sale
deed till after the development of the land comprised in the scheme was
completed. That is perfectly true. But the fact remains that this work had been
completed when the appeal was heard by the High Court. The Court would in such
a case be justified in taking notice of subsequent events in moulding its
In our judgment the courts below were right
in upholding the respondent's claim. The apeal is dismissed with costs.