Habib Ali and Another vs Rafikuddin and Others

S.K. Dutta, J.—This second appeal arises out of Title Suit No. 230 of 1958 in the Court of the Munsiff at Silchar. The Plaintiffs'' case is that the Defendants entered into a contract with the Plaintiffs for sale of the suit land and the houses thereon for Rs. 11,000 and that the Defendants took Rs. 1,500 as earnest money from the Plaintiffs. The Defendants executed a ''baianapatra'' (Ex. 1) stipulating to sell they aforesaid properties within three months from the date of the execution of the said document after obtaining necessary guardianship certificate and permission from the District Judge, Cachar, in respect of Defendants Nos. 3, 4 and 5 who were minors. As the Defendants delayed in obtaining the certificate, the Plaintiffs served on them a notice on 2-7-1955 calling upon them to fulfil their part of the contract within the contracted period which was to expire on 9-7-1955. The Defendants sent a reply to the notice wherefrom it transpired that Defendant No. 7 sold her share of the suit land to one Amiruddin and relinquished possession of the same before the date of the execution of the ''baianapatra''. The Defendants also made some new demands in their notice which were outside the contract. Thereafter there was an exchange of notices between the parties and ultimately, the Plaintiffs sent a notice, through their lawyer to the Defendants asking them to refund the earnest money with compensation. The Defendants failed to comply and hence the Plaintiff brought the suit for refund of the earnest money together with compensation of Rs. 375 and interest.

The Defendants contested the suit (SIC) leging inter alia that there was a settlement that a portion of the suit holding would be settled with Defendant No. 1 and that the Plaintiffs were to take steps in the matter of getting the guardianship certificate and permission from District Judge, Cachar. The Defendants further alleged that they came to know only afterwards that these terms were not included in the ''baianapatra'' and added that they applied for permission and the guardianship certificate and after getting the same, asked the Plaintiff''s to fulfil their part of the contract and that it was the Plaintiffs who avoided the contract as they had no money. The trial Court held that the Plaintiffs were entitled to get back the earliest money from the Defendants with compensation, and accordingly decreed the sum of Rs. 1,875 with costs. On appeal, the Subordinate Judge, Cachar, held that it was the Plaintiffs who refused to perform the contract as the Defendants failed to remove some defects in the (SIC) title of Defendant No. 7. Hence, he allowed the appeal and dismissed the suit.

Mr. Chaudhury, appearing on behalf of the Respondents-Defendants, submits that u/s 64 of the Indian Contract Act, there may be restitution to the vendee of the benefit received by the vendor only if there is repudiation of the contract by him. Such repudiation must be unequivocal cancellation of the contract by the vendor. Moreover, such disclaimer or renunciation of a contract to be effective must be communicated to the other party to the contract. In the present case no such communication has been made and there has been no repudiation of the contract and hence the question of restitution does not arise. The contract, according to Mr. Chaudhury, is still subsisting.

It is not necessary to discuss the various cases cited by Mr. Chaudhury in support of (SIC) above contentions. Mr. Dam, the learned Counsel for the Appellants, does not dispute the correctness of the above legal principles. He, however, submits that the question of repudiation is completely irrelevant in the present case. His simple case is that the sum of Rs. 1,500 was paid as earnest money and the contract has not been performed for no fault of the vendee and hence the vendee should get back his money with damages. The principle for refund of earnest money is independent of the consideration laid down in Sections 64, 65 and 74 of the Indian Contract Act. The earnest money (SIC) liable to be forfeited when the contract goes (SIC) for default on the part of the purchaser. Naresh Chandra Guha Vs. Ram Chandra Samanta and Others, ; Jagdishpur Metal Industries and Others Vs. Vijoy Oil Industries Ltd.,

When the contract is not performed for no (SIC) of the purchaser, the earnest money must refunded. Thus, in Ibrahimbhai v. Fletcher (SIC) ILR 21 Bom 827 (FB), the Defendant (SIC) an agreement in favour of the Plaintiff (SIC) sell his bungalows together with the (SIC), out-houses, etc., in a Cantonment area and received Rs, 5,000 as earnest money and undertook to transfer the said properties to the name of the Plaintiff in the Brigade-Major''s office. When a notice about the proposed sale was published, the Poona Cantonment Committee wrote to the Plaintiff saying that the Government possessed certain rights over the property. The Plaintiff then demanded that the Defendant should give a good title by getting the notice of the Cantonment Committee cancelled or withdrawn. The Defendant refused and prepared a draft deed transferring the ordinary Cantonment tenure, which was a mere occupancy right and sent the same to the Plaintiff. The Plaintiff declined to accept it. A Full Bench of the Bombay High Court held, upon the evidence, that the knowledge that the property in question was held upon Cantonment tenure was riot brought to the notice of the Plaintiff and that the Court could not impute such knowledge to him. The Defendant agreed to sell the land and having done so, the onus was upon him to show that he was entitled to sell only Cantonment occupancy right. The Defendant being in default, and being unable to give the title contracted for, should return the earnest money to the Plaintiff.

In Naturam Barman alias Nutu Adhikari Vs. Ulluk Chand Barman and Others, the Plaintiff brought a suit for recovery of the earnest money paid to the Defendants for an agreement to sell some land. The Plaintiff alleged that the Defendant did not agree to perform their part of the contract. It was held by a Division Bench of the Calcutta High Court that, where the Defendants were not willing to perform the contract, the Plaintiff might very well say that he did not want to have the contract specifically performed but that would be satisfied if he got the earnest money with proper damages.

Mr. Dam submits that u/s 55(2) of the Transfer of Property Act there is an implied warranty of title on the part of the seller in favour of the buyer. Where a seller''s title would be doubtful and where there is reasonable probability of litigation in respect of the property agreed to be purchased, the buyer would be quite justified in declining to carry through the transaction of sale and to accept the delivery, and the Court will not, in such a case, force a doubtful title upon the purchaser : Sohan Lal and Others Vs. Bal Kishan Ghanu Mal,

This brings us to the construction of the ''Baianapatra'' (Ex. 1). It may be noted that the sum of Rs. 1,500 paid to the Defendant was described as "earnest money". A deposit made by a purchaser to the vendor has two characteristics: (i) it is earnest money or security; (ii) it is part-payment of the price. Until the contract of sale is performed, it remains earnest money or security for performance of the contract of sale but it becomes a part-payment of the price immediately op. such performance. It was thus observed by their Lordships of the Privy Council in Chhanjit Singh v. Har Swamp AIR 1920 PC 1:

Earnest money is part of the purchase price when the transaction goes forward; it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee.

Mr. Choudhury points out that in two places in the "Baianapatra" the words (original in Bengali omitted) � trnwj lEHko lrc � appear and they literally mean "whatever little is possible" and thus the vendors undertook to soll only whatever little they had. Mr. Dam submits that the word � lrc � should have been � lrc � (soon) and what was meant was that the transaction should be completed within three months as soon as possible. If we read the whole document, Mr. Dam''s submission appears to be correct. But that apart, it is clear from the "Baianapatra" that there was a stipulation by the Defendant to give khas possession of the land. It was also staled that if the purchaser did not take khas possession of the land by paying the balance of Rs. 9,500 and executing the sale deed, the amount paid in advance would be forfeited. But the vendor was not in a position to give khas possession as" admittedly Defendant No. 7 Asa Bibi sold her interest in the suit land to one Amiruddin and relinquished her possession thereof. Even if the Plaintiffs knew about the sale of her share by Defendant No. 7 Asa Bibi, the Defendants are not free from blame for entering into an Agreement which could not be executed. Therefore, the Plaintiffs are entitled to get back their earnest money. The contract came to an end not by repudiation by any of the parties or by breach. It became frustrated as it was unexecutable for the fault of both the parties. Hence, the question of compensation does not arise. It is decreed that the Plaintiffs will get back their earnest money of Rs. 1,500 only. Parties will bear their own costs throughout.