Bhagavathi Mudaliar vs N. Subramaniam

M. Anantanarayanan, C.J.—The only question which is involved in this revision proceeding is whether an amount of Rs. 500 which was paid

at the initial stage of an agreement to convey properties between the parties, represents an advance simpliciter, or has any tinge of the character of

a deposit for due performance of the contract, or earnest money. If the amount of Rs. 500 is only an advance, the plaintiff (revision petitioner) was

bound to succeed in his suit. If it could be conceivably held that the amount of Rs. 500 could be regarded, notwithstanding the mere nomenclature

in the document the absence of a forfeiture clause, or the absence of any other indication in the evidence, as a deposit for the due performance, or

earnest money, then the plaintiff will have to fail. '''' The Courts below have non-suited the plaintiff, and he is the revision petitioner here.

For an important reason I am not now proceeding into the one question of fact decided by the courts below, that time had to be construed as

the essence of this contract on the facts, and further that it was the plaintiff, the intending Vendee, who committed breach of the contract. Had the

matter been open for my, determination, some probabilities could no doubt be stressed by learned counsel for the petitioner, for an opposite view.

It is a fact that the vendor later sold the properties shortly after the expiry of the period fixed, for a sum of Rs. 20,000 to a third party. But for an

important reason, I am not now proceeding into this aspect at all. Actually, learned counsel for the respondent argues, on the strength of the dicta

of the Supreme Court in Pandurang Dhoni Chougule Vs. Maruti Hari Jadhav, , that it is not even open to me to interfere in revision with the

dismissal of the suit of the plaintiff for recovery of the alleged advance of Rs. 500. The argument is that errors of fact cannot be canvassed in

revision u/s 115 C. P. C. and even errors of law cannot be so canvassed, unless such errors have affected the jurisdiction of the trial court. In any

event, these dicta will certainly inhibit me from any reassessment of the evidence, on the question of who committed the breach and arrival of any

different conclusion after such reassessment. We must therefore take it as established, that time was the essence of the contract in this case, and

that the plaintiff did commit breach of the contract.

Even so, on the facts, it is very difficult to see how there is any legal evidence on which the conclusion could be based that the amount of Rs.

500 was a kind of deposit, or earnest money, or security for performance, and hence liable to be taken in forfeiture by the vendor. As far as the

written statement is concerned, it is significantly silent on this aspect. Most of the written statement is concerned with the facts which would show

that it was the plaintiff the intending purchaser, who committed the breach of the contract. As far as the document itself is concerned, though a

particular nomenclature or the lack of certain words may not be decisive, the document is very unhelpful as regards the hypothesis that the amount

of Rupees 500 could represent any earnest money, or security. Ex facie this amount merely appears to be an advance, in respect of the

consideration. But I am willing to assume, on the authorities placed before me, that mere nomenclature in the document, or the absence of any

forfeiture clause, may not be decisive and that the character of a deposit or earnest money could be spelt out from the circumstances and the

evidence.

Even so, the very great difficulty in this case is the total absence of any circumstances or legal evidence, which would tend to show that the

amount of Rs. 500 was not a mere advance, but was some kind of security for due performance or earnest money. I shall now refer briefly to the

authorities cited by learned counsel on both sides, in order to demonstrate that where there is a total lack of legal evidence the finding cannot be

supported that the amount is really earnest money or deposit for fulfilment and not an advance. Admittedly, there is no legal presumption one way

or other. The issue is purely one of fact.

In Chiranjit Singh v. Har Swarup AIR 1926 P. C. 1, the Judicial Committee pointed out that earnest money becomes part of the purchase price

or consideration when the transaction goes forward, but is liable to forfeiture when the transaction falls, through or by reason of the fault or failure

of the vendee. The decision is not helpful in the present context for the simple reason that it relates to an amount paid which is earnest money, or

which is a deposit for due performance. If that is assumed here it would really be begging the question. The real problem is how is this to be

determined, when the document itself merely treats the amount as an advance, and has no forfeiture clause and there are no other circumstances

from which the inference that the amount is earnest money, could be presumed.

There is a decision of a single Judge of the Calcutta High Court in Naresh Chandra Guha Vs. Ram Chandra Samanta and Others, relied on by

the learned counsel for the respondent. This follows, the idea expressed in the decision of the Judicial Committee, the earnest money has the two

characteristics which I have already referred to, Such earnest money, in the absence of an express or implied contract to the contrary is liable to be

forfeited by the vendor, when the contract goes oft for default of the purchaser. Here again, the nature of the money initially paid is assumed and is

the foundation for the argument. Needless to say, it is of very little help in the present context.

A very helpful precedent for our discussion is Chunnilal Onkarmal Ltd. and Another Vs. Mohanlal Balkrishna Agarwal and Another, . Here the

learned Judge (Krishnan J.) was concerned with the test to be applied with reference to the terms of Section 74 of the Contract Act, and he

pointed out that the nomenclature in the document may not be decisive. But what should be ascertainable with reasonable precision, on the

evidence, is the understanding at the time of the agreement, between the parties, that the specific amount paid was a guarantee for the performance

of the contract, and therefore liable to be retained by the person to whom it is paid, on breach of contract by the other party. The learned Judge

further observed that when the amount was paid at the time of the agreement itself this fact may be of some help to assume that the amount could

possess the character of earnest money.

The decision of a single Judge of the Andhra Pradesh High Court in Rabina Bibi Vs. Pulipaka Satyavathi and Another, does not take the matter

any further, and the decision is really based on the dicta in AIR 1926 PC 1.

On the contrary, there are two decisions relied on by learned counsel for the revision petitioner, which have some relevance to his claim that, on

the fact of this case, the suit should have been decreed. The first is Rattamma v. Krishnamurthi, AIR 1928 Mad 326, where the Division Bench of

Devadoss and Jackson JJ. observed that advances made by a purchaser to a vendor in respect of a sale are recoverable, even if the transaction

falls through owing to the fault of the purchaser. To resist such a claim, the vendor must prove a contract, express or, implied, between the parties,

that the money paid in advance was agreed to be treated as security for the fulfilment by the purchaser of the bargain. In this case it is liable to be

forfeited, for the fault of the purchaser. Where the vendor does not allege or prove this, the amount is merely an advance, and it is recoverable as

such.

The decision of Govinda Menon and Ramaswami JJ. in M.P.V. Sundararama Iyer and Company Vs. V.V.C.R. Murugesa Mudaliar,

approbates these dicta, stressing that the law in this respect in India was somewhat different from the law with regard to contracts before the

English courts.

With these authorities in mind, when we look at the facts of the present case, we find that there is total absence of legal evidence which would

justify any inference that the amount of Rupees 500 was anything more than an advance. As far as the document goes, there is not the slightest him

that it was anything more than an advance towards the sale amount, or that it was a deposit for fulfilment of the contract or earnest money, in any

sense. Even in the written statement, such a plea is not explicitly put forward. There is nothing in the evidence to support it. I can understand an

inference of such an agreement, even as implied and not as an expressed contract, but there must be at least some legal evidence as a foundation

for such a conclusion. There is none.

The only question is whether, nevertheless, this court ought not to interfere in revision, because of the dicta of the Supreme Court earlier

referred to But, when there is total absence of legal evidence, I think it is indisputable that this comes within the scope of Section 115 C. P. C. for

it would amount to an exercise of jurisdiction, illegally or with material irregularity.

Accordingly, I allow the revision and direct that the suit of the plaintiff be decreed with costs in the trial court. Parties will otherwise bear their

own costs.