Chunibhat Patel and Others vs Natha Bhai Patel

Fazl Ali, C.J.—This is an appeal by the defendants in a suit which was instituted by the plaintiff-respondent to recover from them a certain sum of money on the basis of an agreement said to have been entered into between the parties on 19th April 1938. In order to understand the agreement which is relied upon by the plaintiff it is necessary to refer to certain facts. In 1938 one Daha Bhai Patel instituted a money suit (suit No. 18 of 1938) against no less than 11 persons including the present plaintiff for the recovery of arrears of royalty and other dues in respect of a colliery known as Egarkur Colliery. Daha Bhai Patel who had instituted the suit was admittedly the landlord of the mine and defendants 1 to 3 in that suit were lessees in respect of the mine. Defendant 4 was Umed Bhai Patel who had purchased the colliery from defendants 1 to 3 in, 1928. After this purchase Umed Bhai Patel made a gift of the property to his daughter-in-law, Sreemati Dahi Kumari Debi who was defendant 8 in the suit. The present appellants who are the sons of Umed Bhai Patel were impleaded as defendants 5 to 7 and the present plaintiff was impleaded as defendant 9. It appears that defendant 8 had sold the property to the present plaintiff and after some time the property was purchased by defendant 10 of suit No. 18 in a certificate sale held to recover certain dues recoverable from defendant 9. Defendant 10 afterwards sold the property to defendant 11.

It appears that in suit No. 18 of 1938 the case of Daha Bhai Patel was that the various transfers which had made it necessary for him to implead so many defendants were benami and that the colliery had throughout remained the property of defendants 4 to 7 and they were also in possession thereof. This allegation however was controverted by defendants 4 to 7 as well as defendants 9 and 10. These two sets of defendants filed two separate written statements, but their common case was that defendants 5, 6 and 7 had never acquired any right to the property in question and were not liable for any royalty or rent; that there had been no benami transaction with regard to the property; that defendant 4 was a bona fide purchaser of the property from defendants 1 to 3 under a sale deed dated 2nd March 1928 and that the property afterwards had been purchased by defendant 9 (the present plaintiff) and he was in possession thereof till 6th July 1938 when his interest was sold in a certificate case. The point which might be noted at this stage is that on the same day on which these two sets of defendants filed their written statements in the suit, the present plaintiff and defendants 5 to 7 of that suit entered into a private arrangement which was incorporated in a written agreement (EX. 1) to the following effect:

We (defendants 5 to 7) the executants do hereby agree and do declare and do acknowledge that the extent of liability on account of the expected decree in Money Suit No. 18 of 1938 which would be charged upon you Natha Bhai Patel (defendant 9) we take upon ourselves and do hereby exonerate you from all sorts of liabilities inasmuch as you have nothing to do with the property, viz., Egarkur Colliery and we are practically and really the owners of the same and do validly take upon ourselves all sorts of liability. In future when you would be liable for the sum decreed against you we do hereby promise to remove the said liability and also do promise that we will be legally bound to repay you the dues for which you would be liable upon the decree that would be passed against you and we shall further be liable for any cost incurred by you for the realization of the same.

The suit brought by Daha Bhai Patel was heard by the Subordinate Judge of Dhanbad and he came to the conclusion that defendants 4 to 7 were not liable for the royalty and other dues claimed by Daha Bhai Patel but the present plaintiff and the other defendants in that suit were liable for the dues of the period during which they were respectively in possession of the colliery. In other words, the common defence which was raised by the present plaintiff and defendants 5 to 7 of Suit No. 18 of 1938 (the present appellants) succeeded and a decree was passed as against the plaintiff and the suit was dismissed as against defendants 4 to 7. This judgment was delivered on 15th July 1938 and thereafter the present suit was instituted by the plaintiff on 30th January 1939 to recover the sum of money for which a decree had been passed in Suit No. 18 of 1938 together with interest which had accrued thereon up to the date of the suit.

The suit was resisted by the defendants on various grounds, but we are concerned only with three of them which have been pressed in this appeal.

The first of these grounds is that the suit is barred by the principle of res judicata. The reasoning which was put forward in support of this ground is somewhat difficult to follow but in substance it was this: It was said that though the plaintiff and defendants 5 to 7 were arrayed as co-defendants in the previous suit, yet inasmuch as the Court had to decide at their instance whether the present plaintiff was a benamidar for defendants 4 to 7 and whether any royalty could be recovered from defendants 4 to 7 and it was ultimately decided that he could not recover royalty from them, it cannot be held in the present suit that the defendants were "practically the owners of the colliery" and were as such liable for the royalty for which a decree has been passed against the present plaintiff.

In my opinion, there is no substance whatsoever in this contention and speaking for myself I cannot see how the question of res judicata can arise upon the facts and in the form already stated. But assuming that the question does arise, it seems to me to be clear that there can be no res judicata as between co-defendants in the present suit on the facts already stated. In AIR 1931 114 (Privy Council) it was pointed out that a decision would operate as res judicata between co-defendants provided that (1) there was a conflict of interest between them; (2) it was necessary to decide that conflict in order to give the plaintiff the relief which he claimed, and (3) the question between co-defendants was finally decided. In my opinion, none of these requirements has been fulfilled in the present case. As I have already stated, the plaintiff and defendants 5 to 7 had a common defence in the previous suit. There was thus no conflict of interest between them so far as that suit was concerned and if there was no dispute between them, it was not necessary to decide any issue between them in order to give the plaintiff the relief claimed by him and as there was No. conflict at all between them there was no question to be finally decided so far as they were concerned. The first contention which has been raised in this appeal must therefore fail.

The second point raised on behalf of the appellant was that no decree can be passed in the present suit on the basis of the agreement as there was no consideration for the agreement. The learned District Judge has dealt with this question at great length and it was urged before us that his reasoning was fallacious. In my opinion, however, there can be no difficulty in holding that there was good consideration for the agreement. On the facts which I have already stated, it is quite clear that for some reason or other the appellants did not like that any decree should be passed against them in the suit of 1938 and what they wanted was that a, decree should be passed against the plaintiff on the footing that he was the owner of and had been in possession of the colliery for a certain period. At the same time they were also anxious to secure their own position by obtaining a written admission from the present plaintiff that they were "practically and really the owners of the colliery." The plaintiff accommodated them in the suit of 1938 and allowed a decree to be passed against himself and he further agreed to make the admission. This was in my opinion the consideration for his obtaining from the appellants a promise and undertaking that in the event of a decree being passed against him they would see that he was not made liable upon the decree. The actual words used in the agreement are that the defendants "promise to remove the said liability and also do promise that they will be legally bound to repay the dues for which the plaintiff would be liable upon the decree." In the circumstances which I have already set forth, it is difficult, in my opinion, for any Court to hold that there was no consideration for the agreement.

The next and the last point which was raised on behalf of the appellants was that the suit was premature and no cause of action had yet accrued for it. It was contended that inasmuch as the decree has not been executed, the plaintiff has suffered no loss and therefore the indemnity clause of the agreement upon which he relies cannot yet be operative. Now, there can be no doubt that the contract which is relied upon by the plaintiff is essentially a contract of indemnity. It is also true that the old rule of English Common law was that an indemnifier could not be called on to indemnify, until the person to be indemnified had incurred actual loss. But there is ample authority for the view that this rule has been greatly broadened by equitable principles which now prevail and as has been pointed out in Pollock''s Law of Contract:

Under the present law to indemnify does not merely mean to reimburse in respect of moneys paid but to save from loss in respect of the liability against which indemnity has been given, for if it be held that payment is a condition precedent to recovery, the contract may be of little value to the person to be indemnified who may be unable to meet the claim in the first instance.

The learned Counsel for the respondent has cited in this connexion several cases including the case in Osman Jamal and Sons Ltd. Vs. Gopal Purshottam, which was decided by Lort-Williams J. on the original side. The learned Judge has in that case referred to a number of English decisions and also quoted some valuable observations made by certain eminent Judges. One of them which has been relied upon by the learned Counsel for the respondent is that of Buckley L.J. in In re Richardson Ex parte the Governor of St. Thomas Hospital (1911) 2 K.B. 705 and is to the following effect:

Indemnity is not necessarily given by repayment after payment. Indemnity requires that the party to be indemnified shall never be called to pay...

Reliance has also been placed upon the following observations made by Pickford L.J. in British Union and National Insurance Co. v. Rawson (1916) 2 Ch. 476:

It has been stated in several cases that at common law an indemnity is confined to protecting the indemnified against actual loss and not against liability.... However this may be, the indemnity is not so confined in equity...and in equity the indemnified may call upon the indemnifier to pay the debt either to him or to the principal creditor before having paid himself, and if paid to him the indemnifier has no concern with what he does with the money.

These principles have been reiterated in a number of English eases and have also been applied by the Courts in this country. For example in Shiam Lal Vs. Abdul Salam, it was held by a Division Bench of the Allahabad High Court that where a person contracts to indemnify another in respect of any liability which the latter may have undertaken on his behalf such other person may compel the contracting party, before actual damage is done, to place him in a position to meet the liability that may hereafter be cast upon him. There are a number of other decisions on the same subject, but the principle is so clear that it is unnecessary to refer to them.

It was contended by the learned advocate for the appellants that the view which I have expressed is not borne out by the language of Section 125, Contract Act. This section provides among other things that:

The promisee in a, contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor

(1) all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies.

It is urged that the words "may be compelled to pay" signify that indemnity cannot be claimed unless and until damages have already been paid. I do not, however, see any justification for putting such a narrow construction upon these words. It is significant that while Clause (1) of this section refers to damages which one may be compelled to pay, Clause (3) provides for "sums which have been paid." In my opinion there must be some difference between a case where a person may be compelled to pay a damage and one where he has actually paid certain sums. In my opinion the view which I have already expressed is in no way inconsistent with the language of Section 125.

It was also contended on behalf of the appellants that the words "repay you the dues" which occur in the agreement (Ex. 1) suggest that the liability of the promisor does not arise until the dues have already been realised from the promisee. But in the agreement in question the promisors also undertake "to remove the said liability." In my opinion under the agreement the plaintiff became entitled to claim the amount from the defendants immediately after the decree and even before the decree was realised from him.

The learned ''advocate for the appellants also referred to (1890) 15 A.C. 438, but, in my opinion, that case has no application to the facts of the present case because the damage that was claimed in that case was claimed not on the basis of any contract of indemnity but was claimed on account of loss suffered owing to the detention of a vessel. In my opinion the decree of the Courts below in the present suit is correct and I would dismiss this appeal with costs.

Shearer J.

I agree.