Report No. 70
51.61. Delivery the crucial date.-
It appears to us that delivery of possession ought to be regarded as the crucial date. The theory is that so long as the vendor can himself receive the income, he has no lien and no right to interest on the amount of the price. If possession of the property is given, he must, in exchange, get something-and that something is interest on the unpaid price. Property corresponds to the price; rents and profits correspond to the interest. If deprived of the right to receive the income by having given delivery of possession, the vendor must have the right to interest on the unpaid money.
In this sense, the time-lag between the delivery of the property to the purchaser and the payment of price by the purchaser plays a part, inasmuch as justice is done to both the parties by providing that after delivery, the purchaser gets the rents and profits, but before delivery, the vendor is entitled thereto; similarly, after delivery, the vendor gets a right to interest on unpaid purchase-money, but no right to rents and profits.
The claim for interest proceeds on the assumption that when the owner loses possession, he is entitled to claim interest in place of the right to claim possession. Case law on acquisition of land presents numerous instances of the application of this principle.1-2 The principle, however, is not different in the case of a private sale. In fact, even in land acquisition references, it is specifically held that so far as interest is concerned, it makes no difference whether the possession is taken under the Act or independently of it.3
1. Satinder Singh v. Umrao Singh, AIR 1950 SC 908.
2. Thrift & Co. v. Board of Trade, AIR 1928 PC 287.
3. Gangaram v. Raghubans, 1948 ILR 27 Pat 898.
51.62. In Ratan Lal v. Municipal Commissioner for the City of Bombay, 1918 PC 129 (134): 45 Ind App 233: 43 Bom 181, the principle was stated by the Privy Council as follows:-
"The Board is of opinion that the right to interest depends upon the following broad and clear consideration. Unless there be something in the contract of parties which necessarily imports the opposite, the date when one party enters into possession of the property of another is the proper date from which interest on the unpaid price should run. On the one hand, the new owner has possession, use and fruits; on the other, the former owner, parting with these, has interest on the price. This is sound in principle, and authority fully warrants it: see especially Sir William Grant's judgment in Fludyer v. Cocker,(1805) 33 ER 10 (11): 12 Ves 25: 8 RR 275. "
51.63. Need for altering the date in section 55(4)(a) and section 55(4)(b), opening words.-
These are essential, though elementary, considerations, but are sometimes unfortunately lost sight of, by reason of the fact that in section 55(4)(a), which speaks of the right to rents and profits, it is provided that the seller is entitled to the rents and profits of the property till the ownership thereof passes to the buyer. The provision should have been framed in terms of the period ending with the delivery of possession. This aspect has, to some extent, been brought out in clause (b) after the 1929 Amendment, which added, as regards interest, the words "from the date on which possession has been delivered".
But this Amendment also did not introduce total symmetry between the two clauses. Such a symmetry is desirable, since they are based on identical considerations, as explained above. Our point is that-(i) the period of terminating of vendor's right to rents and profits, (ii) and the period of commencement of the unpaid vendor's charge and (iii) the period of commencement of the interest on such unpaid vendor's charge ought all to have been identical.
51.64. Passing of ownership.-
The query may be raised why the mention of passing of ownership should be retained in section 55(4), it the event to be regarded as crucial is delivery of possession. The answer is that "purchase money", the expression used in clause (b), is not appropriate if ownership has not passed. Moreover, ordinarily the price does not become due before passing of ownership. The passing of ownership is thus not unimportant, though it is not the only material factor.
51.65. Recommendation to revise section 55(4).-
We recommend that section 55(4) be revised in the light of what we have stated above. Our recommendation is given a concrete shape in the following suggested re-draft:
"(4) The seller is entitled.-
(a) to the rents and profits of the property till the ownership thereof passes to the buyer and the possession thereof is also delivered to the buyer;
(b) where the ownership of the property has passed to the buyer and the possession thereof has also been delivered to the buyer before payment of the whole of the purchase money, to a charge upon the property in the hands of the buyer, any transferee without consideration or any transferee with notice of the non-payment
(i) for the amount of the purchase money, or any part thereof remaining unpaid, and
(ii) for interest on such amount or part from the date on which possession has been delivered".
51.66. Section 55(5).-
The buyer's obligations are principally dealt with in sub-section (5) which reads-
"(5) The buyer is bound-
(a) to disclose to the seller any fact as to the nature or extent of the seller's interest in the property of which the buyer is aware, but of which he has reason to believe that the seller is not aware, and which materially increases the value of such interest;
(b) to pay or tender, at the time and place of completing the sale, the purchase money to the seller or such person as he directs provided that, where the property is sold free from incumbrances, the buyer may retain out of the purchase-money the amount of any incumbrances on the property existing at the date of the sale, and shall pay the amount so retained to the persons entitled thereto;
(c) where the ownership of the property has passed to the buyer,'to bear any loss arising from the destruction, injury or decrease in value of the property not caused by the seller;
(d) where the ownership of the property has passed to the buyer, as between himself and the seller, to pay all public charges and rent which may become payable in respect of the property, the principal moneys due on any incumbrances subject to which the property is sold, and the interest thereon afterwards accruing due".
51.67. Section 55(5), clause (a).-
Clause (a) imposes an obligation on the buyer to disclose to the seller any fact as to the nature or extent of the seller's interest in the property of which the buyer is aware but of which the seller is not aware and which materially increases the value of such interest. The words "nature or the extent of the seller's interest" have reference to the title of the seller to the property sold. Consequently apart from facts relating to title, the buyer is not bound to disclose to the seller any facts which may make it desirable for him to purchase the property.1
It has been held in England that a purchaser is not bound to disclose to the seller a coal mine existing under the land sold of which he is, but the seller is not aware.2 This would also be the law under this clause for, the fact of the existence of the coal mine, cannot be said to have reference to the title of the seller of the property.
1. Dolman v. Nokes, (1856) III RR 414 (417): 4 WR (Eng) Dig 53.
2. Fox v. Mackreth, (1788) 29 ER 224 (234).
51.68. But, though the no.-
Disclosure of a fact not relating to title would not be a breach of the obligation under this paragraph, the same may nevertheless be a material factor in considering whether a court could enforce specific performance of the contract. In Ellard v. Lord Landaff, (1810) 12 RR 22 (27): 1 Ball&B 341, a tenant obtained an agreement for lease in consideration of an old lease and suppressed the fact that the life on which the old lease depended was in extremis. In refusing specific performance of the contract, Lord Eldon, L.C. observed as follows:
"All the material facts must be known to both parties; and is it not against all principles of equity, that one party, knowing the material ingredient in an agreement, shall be permitted to suppress it, and still call for specific performance"?
The principle of Ellard's case appears to have been followed by the Indian Legislature in section 22 of the Specific Relief Act, 1877, illustration (a), which is based on the facts of that case (now section 20 of the Act of 1963 which, however, has omitted the illustration).
51.69. Section 55(5) clause (b).-
Where there is a contract for sale, it is the obligation of the buyer under the contract to pay the purchase money. The obligation of the seller is to execute the conveyance. Section 55(5)(b) enacts that this obligation to pay the purchase money, in cases not covered by the proviso, is to be discharged at the time and place of completing the sale, and that such payment must be made to the seller or to such person as he directs.
In cases coming within the proviso, it is provided that the amount of any incumbrance existing at the date of the sale, may be retained by the buyer and paid to the person entitled thereto. But the clause does not say anything as to when such payment is to be made. Under section 46 of the Contract Act, where no time for the performance of the contract is specified, the engagement must be performed within a reasonable time, the question "what is a reasonable time" being, in each particular case, a question of fact.
In cases covered by the proviso, therefore, the buyer must pay the amount retained by him to the persons entitled to it within a reasonable time from the date of the sale. In some case,1-3 however, it has been held that the payment must be made forthwith on the date of the sale deed. In the undermentioned cases,4 it was held that there is no breach of contract until the payment by the buyer becomes impossible. The buyer is, however, in any case not bound to pay or tender the purchase money unless the seller is ready and willing to perform his part of the bargain by executing the conveyance.5
1. AIR 1936 All 598 (599) (DB).
2. AIR 1929 All 121 (123) (DB).
3. AIR 1925 All 488 (490).
4. AIR 1927 Oudh 455 (456).
5. AIR 1923 Sind 50 (52).
The position has been explained by Patnjali Sastri, J. in Subba Row v. Varadiah, AIR 1943 Mad 482 (484). as follows:
"On the sale of property subject to incumbrances, the bargain relates to the vendor's interest in the property such as it is, that is to say, his equity of redemption and the discharge of the incumbrances is the sole concern of the purchaser as between himself and the vendor who is only entitled to be indemnified against the incumbrances; while in the case of a sale free from incumbrances; the price is fixed with reference to the full value of the property, the liability to discharge all the incumbrances being thrown on the vendor, the vendee, however, being given the right to retain out of the price an amount sufficient to clear the incumbrances.
But as the liability to pay them off is that of the vendor who has to implement his sale by providing a clear title, the vendee must be regarded as paying the amount retained to the Incumbrancer on behalf of the vendor out of the purchase-money payable to the latter under the contract of sale. In other words, the vendee acts as the agent of the vendor as regards the disposal of the sum retained, although the agency is one which cannot be revoked as the vendee has himself an interest in the money being applied in the manner indicated, (see section 202, contract Act).
If this is the position, as we apprehend it is, where immovable property is sold free from incumbrances, it follows that the vendor is entitled to call upon the buyer to account to him for any portion of the purchase money which it has become no longer necessary to apply in accordance with the stipulation in that behalf"