Krishna Shbtti vs Gilbert Pinto and Others

Sir John Wallis, Kt., C.J.—This is a letters patent appeal from the decision of Sadasiva Ayyar, J., who held (Bakewell, J., dissenting) that

the Court has power to relieve against a provision in a mulgeni or permanent lease, a form of agricultural lease in use in South Kanara, for re-entry

by the landlord on breach of a covenant or condition against any alienation by the lessee of his mulgeni right except in the manner therein provided.

The lease, which is inartistically drawn, provides in substance that if the lessee or his representatives have to sell or mortgage their mulgeni right,

they are first to give a written notice to the lsssor or his heirs, and, if they fail to act on it or to reply thereto the lessee is to be free to make the

alienation, but that alienations in contravention of these provisions are to be void, and the lessor is to be at liberty to re-enter and enjoy the land

inclusive of improvements. This we read as meaning that the lessee is to give notice to the lessor of the terms of any transaction which he proposes

to effect by way of sale or mortgage of his mulgeni right, and that the lessor is then entitled to become himself the purchaser or mortgagee on those

terms, and as in fact conferring a right of pre-emption.

Two questions arise in the case, whether the Court has any general jurisdiction to relieve in a case of this kind, and if not, whether such

jurisdiction has been conferred upon it by the amendment to Section 74 of the Indian Contract Act.

As regards the first question, it is well settled that a Court of Equity could not relieve against the right of re-entry or forfeiture under any

provision or stipulation in a lease for a breach of any covenant in the lease except the covenant for payment of rent. The history of this question is

most lucidly explained by Kay, L.J., in Barrow v. Isaacs and Son (1891) 1 Q.B. 417

Courts of Equity,"" he says, ""assumed jurisdiction to relieve against forfeitures and penalties where the only object was to secure payment of a

definite sum of money, even though there was no fraud, accident, surprise or mistake. On this principle it relieved against the payment of the whole

penalty on a money hood before the Statutes of 4 & 5 Anne, chapter XVI, Sections 12 and 13 and 8 and 9 Wm, 3, chapter II, which enabled the

Courts of Law to give the same relief. Also against forfeiture for non-payment of rent, and by statute 4 Geo. 2, c. 28, its powers in this respect

were somewhat restricted by limiting the time for their exercise to six months after execution in ejectment. At first there seems to have been some

hesitation whether this relief might not be extended to other cases of forfeiture for breaches of covenants such as to repair, to insure, and the like

where compensation could be made, but it was soon recognized that there would be great difficulty in estimating the proper amount of

compensation and since the decision of Lord Eldon in Hill v. Barclay (1811) 18 Ves. 56 it has always been held that equity would not relieve,

merely on the ground that it could give compensation upon breach of any covenant in a lease except the covenant for payment of rent. But of

course this left unaffected the undoubted jurisdiction to relieve in case of breach occasioned by fraud, accident, surprise or mistake.

The law, as here laid down, has been reproduced in the Transfer of Property Act which provides expressly in Section 111 that a lease of

immovable property determines ""(g) by forfeiture, that is to say (1) in case the lessee breaks an express condition which provides that on breach

thereof the lessor may re-enter, or the lease shall become void"" and only gives power to relieve against such determination by forfeiture for non-

payment of rent (Section 114). It is noteworthy that the Indian Legislature preferred to adhere to the old law in this respect, and did not adopt the

provisions of Section 14 of the Conveyancing Act of 1881 which was followed in several other sections. Section 14 of that Act imposes

restrictions on and confers powers of relief against forfeitures of leases generally and not merely as regards forfeitures for non-payment of rent, but

it leaves the law as it was before with regard to cases such as the present, because it provides in Sub-section (6) that the section does not extend

to a covenant or condition against the assigning, under-letting, parting with the possession or disposing of the land leased; or to a condition for

forfeiture on the bankruptcy of the lessee, or on the, taking in execution of the lessee''s interest.

This section gives the English Courts power to relieve against stipulations which were not regarded by Courts of Equity as stipulations by way of

penalty because they were not intended to secure the repayment of money; bat it did not interfere with provisions such as the present, designed to

prevent transfer of the land to third parties against the landlord''s will. As observed by Lord Eldon in Hill v. Barclay (1811) 18 Ves. 56 as regards

a covenant of this kind:

It is sufficient that the lessor insists upon his covenant; and no one has a right to put him in a different situation.

a view to which the legislature has adhered in Sub-Section 6 of Section 14 of the Conveyancing Act.

Such a covenant in my opinion cannot properly be regarded as a stipulation by way of penalty, and it is therefore unnecessary to decide whether

provisions in leases for re-entry for breaches of other covenants in the lease can be regarded as coming within Section 74, Indian Contract Act, as

amended. Section 74 in its present form provides that--

when a contract has been broken if a sum is named in the contract as the amount to be paid in case of such breach or if the contract contains any

other stipulations by way of penalty the party complaining of the breach is entitled, whether or not actual damages or loss is proved to have been

caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or as the

case may be, the penalty stipulated for.

This amendment and the decisions which gave rise to it have been very fully discussed in Natesa, Iyer v. Appavu Padayachi I.L.R (1910) Mad.

375 where it is pointed out that the word ''penalty'' was first inserted in the Contract Act in 1899 by this amendment and is not defined in the Act.

Equity as we have seen, only considered stipulations in contracts penal which were intended to secure the payment of money, and it may be

questioned whether the term has a more extended meaning in this section, which was designed to abolish, so far as India is concerned, the

distinction between stipulations for liquidated damages and stipulations for pecuniary payments by way of penalty, and which speaks of the party

complaining of the breach receiving reasonable compensation not exceeding the amount named or the penalty stipulated for, and whether it can be

construed as affecting the express provisions of Section 111 of the Transfer of Property Act which makes leases determinable by virtue of

provisions for re-entry on breach of covenant.

The fact that agricultural leases such as this one are excepted from the operation of Sections 105 to 116 of the Transfer of Property Act does

not, in my opinion affect the present question. The Act was framed by eminent English lawyers to reproduce the rules of English Law, in so far as

they are of general application and rest on principle as well as authority and its provisions are in my opinion binding on us as rules of justice, equity

and good conscience when we have to deal with agricultural leases in the absence of any special reason for not applying them. The legislature

wisely in my opinion, if I may say so, has refrained from making these sections applicable proprio vigore to agricultural leases for fear of

unnecessarily interfering with settled usages which it is undesirable to disturb. But in the absence of special reasons there is no ground for applying

a different rule in the cases of agricultural leases and there are many decisions to that effect. For these reasons, I would allow the appeal and

modify the decree of the District Judge by giving the Plaintiff possession in addition to the reliefs already granted with costs throughout. Hour

months for removal of superstructure, etc.

Napier, J.

I agree with the learned Chief Justice that Section 74 of the Contract Act does not apply to the terms of the contract in this case. I cannot agree

with Sadasiva Ayyar, J., that we can apply the principle on which the amendment to that section is based, as I think that we should be very careful

in applying statutory provisions that are not in pari materia. For the same reason I would not seek the assistance of the Transfer of Property Act as

a guide when we are applying equitable reliefs especially as in ibis case we are dealing with material that has been excluded from the purview of the

Act by express words: vide Section 117. The provision as to forfeiture in the Transfer of Property Act do not coincide with those enacted in the

Conveyancing Act which does apply to agricultural leases. There is, however, no statutory bar to our seeking guidance from English Law and I

entirely agree with the learned Chief Justice that Courts of Equity would not grant relief in the present case. For these reasons I agree that the

appeal should be allowed.

Kumaraswami Sastri, J.

I agree with the judgment of my Lord and have nothing to add.