Betts Warunny vs Franklin D. Nornha and Others

Anand Byrareddy, J.—Heard the learned counsel for the appellant and the respondent.

These appeals are heard and disposed of by this common judgment.

The appellant in R.F.A. No. 49/2009 was the plaintiff and appellant in R.F.A. No. 42/2009 was the defendant. The case of the plaintiff was that he had entered into an agreement with the defendant on 10.5.1996 for purchase of certain standing timber grown in 22.92 acres of land in Sy. No. 313/2p2 belonging to the defendant, situated at Garvale village of Somwarpet Taluk, for a price of Rs. 30,00,000/- shown by the defendant to the plaintiff. The plaintiff is said to have paid an advance of Rs. 15,00,000/- under the said agreement. Clause-12 of the agreement stipulated that the defendant was to provide clear title in respect of trees and that if the assurance given was found to be erroneous, the defendant was liable to pay damages. Clause-13 provided for refund of the advance amount and like sums as liquidated damages if the terms of the agreement are not adhered to. Clause-14 provided that if for any reason, the felling order was not issued by the Competent Authority, due to change in policy and on that account if the plaintiff was unable to fell and remove the standing timber, the defendant was liable to refund the advance amount without interest.

It was alleged by the plaintiff that land did not have as many trees as pointed out by the defendant and most of the trees shown by the defendant were actually standing on the adjacent, unredeemed lands, for which felling permission could not be granted. There was no title for those trees. Therefore, it was not possible for the plaintiff to obtain any permit to fell and transport the trees. The said agreement was not adhered to by the defendant and it was not in the interest of plaintiff to pursue the matter. Therefore, there was exchange of correspondence by the plaintiff in having made efforts to obtain the felling permission, notwithstanding the infirmities as afore stated. The defendant had also co-operated in granting extension of time. However, since it was impossible to obtain the felling permission, the defendant had, by a letter dated 20.3.1999, agreed that the agreement stood cancelled and that he would repay the advance amount in three equal annual installments. The defendant thereafter is said to have paid a sum of Rs. 25,000/- on 20.6.2000 and a further sum of Rs. 25,000/- on 7.3.2001. The balance amount of Rs. 14,50,000/- was to be paid on or before 30.8.2002. Since that was not paid, a legal notice was issued on 4.2.2005 and to which the defendant had replied claiming that the amount paid in advance stood forfeited and that he was also entitled to recover damages, while overlooking the fact that he had repaid a sum of Rs. 50,000/- in partial refund of the advance amount received. It is in this background, that the suit was filed for a judgment and decree for recovery of a sum of Rs. 14,50,000/- with current and future interest at 12% till realization, together with costs of the suit.

The defendant had entered appearance and had filed his written statement denying the plaint averments and alleging that the suit was barred by time and that it was not maintainable in law. He had also averred that the plaintiff had perused the records, title deeds, surveyed the lands and it is only on inspection of the trees, had entered into the agreement and had paid the balance amount of Rs. 15,00,000/- on different dates and that the defendant had executed a power of attorney and also signed other documents required, enabling the plaintiff to secure felling the permission from the department, apart from furnishing other records which the plaintiff had requested for, to enable him to obtain the felling permission. Though the plaintiff had claimed that he had to fell and remove the trees, had failed to obtain the felling permission from the Department on account of negligence and an indifferent attitude which caused irreparable loss to the defendant. The defendant who was awaiting clearance of the trees in order to improve his coffee estate has suffered damages on account of failure on the part of the plaintiff to perform his part of the contract and the loss was estimated at Rs. 25,00,000/-, which the defendant sought to reserve his right to claim. It was further stated that the plaintiff had admitted his failure to perform his part of the contract and requested for refund of the advance amount. Accordingly, it was on such a request that the agreement stood cancelled and on the further promise of the plaintiff that he would arrange alternative buyers for the standing timber. It is on the belief that the plaintiff would secure other customers, and as a mark of gesture and goodwill, the defendant had stated that he would refund the amount. Therefore, the question of refund of the amount does not arise as there was a clear breach on the part of the plaintiff.

It is on these pleadings, the court below had framed the following issues:

"1. Whether the plaintiff proves that the defendant did not perform his part of contract as per the conditions mentioned in the agreement?

Whether the Defendant proves that, he performed his part of contract, but the plaintiff voluntarily caused negligence in getting permission for felling of trees from Government though he executed Power of Attorney and furnished other documents to defendant and then cancelled the agreement at his fault?

Whether the plaintiff is entitled to recover balance amount of Rs. 14,50,000/- with interest at 10% p.a. from the defendant?

Whether the suit is filed well within the time?

What order or decree?"

The trial Court thereafter had answered issue Nos. 1, 2 and 3 partly in the affirmative and issue No. 4 in the affirmative and decreed the suit for a sum of Rs. 14,50,000/- payable by the defendant to the plaintiff within three months from the date of decree and that if the defendant failed to pay the amount as stated, he was liable to pay future interest at 10% p.a. from the date of decree till realization. It is that judgment which is under challenge both by the plaintiff and the defendant.

Insofar as the plaintiff is concerned, it is on the limited ground of the trial court having overlooked his entitlement to interest on the decretal amount, it is pointed out that though the agreement does indicate that if there was failure on the part of the competent authority to grant felling permission, it would result in failure of the contract and therefore, the defendant was liable to refund the advance which would not carry any interest. The transaction being a commercial transaction, the plaintiff was entitled to interest on the decretal amount from the date of the suit at the lending rate of banks in terms of Section 34 of the Code of Civil Procedure, 1908 (hereinafter referred to as ''the CPC, for brevity), which the court below has over looked. It is further pointed out that as on the relevant date, the lending rate of banks is shown to be at 10.50% per annum, which interest ought to have been granted on the decretal amount from the date of the suit till the date of decree and the future interest which the court below has in fact applied. Therefore, there is denial of interest on the suit claim from the date of the suit till the date of decree, which is claimed in the appeal.

Insofar as the appeal by the defendant is concerned, there is a wholesale challenge to the finding of the Court below strictly with reference to the terms of the contract. The Learned Counsel for the appellant/defendant would emphasise and re-emphasise the tenor of the clauses of the contract in asserting that there was a clear failure on the part of the plaintiff in not being able to obtain felling permission. On the other hand, the reasons assigned in the notice with regard to the suit claim is to the effect that the defendant did not have title to the standing timber. In that, the same is elaborated in the plaint wherein it is indicated that the trees which were marked for felling stood on unredeemed lands and therefore not available for being felled. This is in conjunction with the claim of the plaintiff that since the felling permission could not be obtained from the competent authority, there was a failure of the contract. There is no evidence or proof available on record to indicate that the trees were on unredeemed land. Therefore, there was a breach on the part of the plaintiff. There is no evidence on record to indicate that the competent authority had refused permission. In terms of clause 14 of the contract, it is evident that in order to claim refund, the plaintiff was required to first of all issue notice of refusal of felling permission of the State Government to the defendant and it is thereafter that the defendant was liable to refund the advance amount received. In the absence of non-refusal by the competent authority to issue such felling permission, there is no cause of action and there is no liability on the part of the defendant to refund the balance amount. On the other hand, in terms of clause 13, if there is breach of contract by the plaintiff, the amount stood forfeited apart from defendant being entitled to claim and recover damages. Therefore, it is in this background that since the plaintiff had indicated to the defendant that he was unable to perform his part of the contract and he had assured that he would arrange for another buyer to purchase the same standing timber at a higher price and that the advance amount paid by the plaintiff could be refunded, it is as a gesture of goodwill that the defendant undertook to repay the amount in three equal yearly installments apart from repaying the amount of Rs. 50,000/-. Secondly it is pointed out that even if the plaintiff could sustain his claim and his defence set up is negatived, it is pointed out that the period of limitation would commence from the date of breach of the contract. The time for performance was prescribed under the contract. No doubt, the date before which the contract was to be performed was extended on one occasion by the defendant at the request of the plaintiff and that date was fixed as being 30th September 1997. In which event, if it was the claim of the plaintiff that the amount was to be refunded on account of the competent authority not having furnished felling permission on or before 30th September 1997, the cause of action to claim a refund of the advance amount would start running from that date and therefore the time to file a suit as of the present nature expired after three years from 30.9.1997 namely on 29.9.2000, whereas the suit is filed on 1.3.2005 and was hopelessly barred by limitation. This aspect of the matter has been over looked and a different view is taken by the trial court in computing the period of limitation. The exchange of letters whereby there was an assurance of a partial refund of the advance amount would not extend the period of limitation, which is inconsistent with the express terms of the contract. Therefore, the court below having held that the cause of action arose for the plaintiff not from the date prescribed under the contract, but when the defendant issued a reply notice to the plaintiffs claim stating that there was a forfeiture of advance amount in terms of clause 13 of the contract and therefore time would expire on 19.2.2005. The learned Counsel for the defendant would go one step further and contended that even if the assurance on the part of the defendant to repay the amount in three equal installments commencing from 31st August 1999 is to be taken into consideration, the second installment was due on 31st August 2000 and the last installment was due on 31st August 2001. Therefore, the suit having been filed on 1.3.2005, was hopelessly barred by time. Hence, he would submit that the suit ought to have been dismissed on the ground of limitation alone. Learned Counsel for the defendant would insist that there is a clear breach on the part of the plaintiff in performing his part of the contract in terms of clause 13 of the contract. Therefore, the defendant is entitled to forfeit the amount paid in advance apart from providing a right to claim damages.

On a close perusal of the pleadings and material on record, it is seen that insofar as obligation on the part of the parties is concerned, the clauses namely clauses 12, 13 and 14 are relevant in examining as to whether there was a breach of contract on the part of the defendant or whether the contract failed on account of other circumstances.

In terms of clause 14, if the plaintiff was unable to secure the felling permission from the competent authority, it required that the amount paid by him in advance should be refunded, without interest, by the defendant. Though there is no document produced of the competent authority having intimated the plaintiff that no felling permission could be issued, it is evident from the exchange of correspondence that felling permission could not be obtained. It is relevant to note that the defendant was fully aware of the fact that he willfully extended the contract in favour of the plaintiff for a period of six months and thereafter he has cancelled the agreement, unconditionally. If it was on account of breach of contract by the plaintiff, it would have been apparent that the defendant would have clearly indicated that the advance amount paid by the plaintiff stood forfeited and that he was also entitled to damages. There is no such indication. On the other hand, the defendant has undertaken that he shall refund the amount in three equal annual instalments. The explanation offered by the defendant for such a conduct on account of variation in the terms of the agreement in contending that the plaintiff had undertaken to procure another purchaser for the standing timber at a better price and the defendant had willfully assured the plaintiff that he would refund the advance amount, cannot be accepted, on a plain examination of the exchange of correspondence which does not indicate any such intention. Therefore, there is a breach of contract on the part of the plaintiff in not getting felling permission on account of negligence and callous attitude, cannot be accepted. The contract failed on account of the competent authorities not affording felling permission as required under clause 14 of the contract.

Clause 14 also requires the plaintiff to put the defendant on notice of such refusal of granting felling permission from the competent authorities. It is also to be found that that the defendant was fully aware of the circumstances and therefore he has willfully cancelled the contract. Hence, in that view of the matter, he has not raised any claim for damages nor as he stated that the advance amount stood forfeited. On the other hand, he has made halfhearted refund of sum of Rs. 25,000/- on two occasions namely, a total of Rs. 50,000/- out of advance amount of Rs. 15,00,000/- and it is the sum of Rs. 14,50,000/- for which the suit was filed.

With regard to the question of suit being barred by limitation, though the trial Court has proceeded to hold that the cause of action for the suit arose on the date when there was a reply dated 19.2.2005 from the defendant claiming refund of advance amount granted, which would clearly bring the suit within the period of limitation, there is another manner in which the period of limitation could be addressed. In that, there is a categorical statement made by the defendant that he would refund the advance amount in three equal annual installment as assured by him in his letter dated 20.3.1999. Therefore, the first installment was due on 31.8.2000 and second installment was due on 31.8.2001 and third installment was due on 31.8.2002. Hence, the suit having been filed in February 2005, was well within time and the suit could not be said to be barred by limitation. The contention otherwise urged by the learned counsel for the defendant cannot be accepted.

The reliance sought to be placed on the judgment of the Supreme Court in the case of Sankar Dastidar Vs. Shrimati Banjula Dastidar and Another, AIR 2007 SC 514 : (2007) 2 CTC 570 : (2007) 147 PLR 232 : (2006) 13 SCALE 598 : (2006) 13 SCC 470 : (2006) 10 SCR 101 Supp , is not relevant. In the said judgment, the Supreme Court while considering Section 22 of the Limitation Act, 1963, in that, judgment of the Division Bench was challenged before the Supreme court, it was opined by the Division Bench that it is the very essence of a continuing wrong that it is an act which creates a continuing source of injury and renders the doer of the act responsible and liable for the continuance of the injury. If the wrongful act causes an injury which is complete, there is no continuing wrong though the damage resulting from the act may continue. On the other hand, the Supreme Court has expressed that a suit for damages stands on a different footing vis-�-vis a continuous wrong in respect of enjoyment of one''s right in a property, when a right of way is claimed whether public or private over a certain land over which the tortfeasor has no right of possession, the breaches would be a continuing one. It is however, indisputable that unless the wrong is a continuing one, the period of limitation does not stop running. Once the period begins to run, it does not stop except where the provisions of Section 22 would apply.

Thus, the learned Counsel would seek to draw sustenance in contending that when there was a breach of contract, the plaintiff not being able to deliver on or before the last date expires and further extended by the defendant, the period of limitation started running and any intervening arrangements made between the parties does not stop the period of limitation running. This argument cannot be accepted. The above judgment of the Supreme Court was rendered in a different context. In the case on hand, there was exchange of correspondence between the parties, wherein the parties had claimed that the contract stood terminated and the defendant would refund the advance amount by a particular date. It is only on a failure to repay the amount on that particular date, that the cause of action arises. Hence, the question of continuing wrong is not relevant in the case on hand. Hence, the suit is not barred by limitation.

Insofar as the claim of interest by the plaintiff is concerned, Section 34 of CPC would apply. Though the contract did indicate the amount to be refunded by the defendant would not carry interest, the term in the contract would not cover the decree passed by the Court insofar as section 34 of CPC is concerned. It is a substantive provision which provides that when there is a decree for payment of money, the court may in the decree order interest at such rate as the court deems reasonable to be paid from the date of the suit to the date of the decree, in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, and with further interest at such rate not exceeding the principal amount. However, insofar as commercial transactions are concerned, the rate of further interest may exceed six percent per annum, but shall not exceed the contractual rate of interest or where there is no contractual rate, the rate at which moneys are lent or advanced by nationalized banks in relation to commercial transactions. Therefore, the learned Counsel for the appellant plaintiff was called upon to ascertain the rate at which monies were lent by nationalised banks at the relevant point of time and according to his search, a notification issued by the R.B.I. for the relevant period of time indicated that the interest rate was 10.50% per annum. Therefore, in terms of section 34, the Court would have been well within its discretion to grant interest on the suit claim from the date of the suit till the date of decree which the court below has failed to do. The basis for the said submission is that if the plaintiff had succeeded in the suit in seeking such refund, the amount being in possession of the defendant from the date of the suit would have generated interest which benefited the defendant. Therefore, he was liable to pay interest on that amount at 10.50% per annum from the date of the suit till the date of decree. Since the court below has already granted future interest at 10% from the date of the decree till realization, that would satisfy the plaintiff.

Accordingly, appeal No. 49/2009 is allowed and the appellant is also held entitled to interest at 10.50% from the date of suit till the date of decree apart from being entitled to future interest as awarded by the trial Court and costs of the suit. Accordingly, the judgment and decree of the Court below is modified in terms as above. The appeal in R.F.A. No. 42/2009 is consequently dismissed.

During the course of this appeal, the defendant has deposited a sum of Rs. 8,09,000/-. The plaintiff was permitted to withdraw the same against furnishing of security to the satisfaction of the Registry. The security so furnished shall stand discharged.