Raj Films Circuit vs M.H.M. Munas

Venkataraman, J.—This suit arises out of a contract exhibit P-1, dated 6th December 1957, entered into between the Plaintiffs and the

Defendant. The Defendant Munas was then producing a film known as Devasundari in his studio in Madras. The Plaintiffs are a firm of seven

partners. They acquired under the contract the right to distribute the Tamil version of the said film in Tamilnad in different centres. As consideration

for the acquisition of the right of distribution they agreed to advance a sum of Rs. 1,30,000 to the Defendant. Actually they advanced a sum of Rs.

5,000 on 16th November 1957 itself before the contract was formally entered into, obviously at the time of the negotiations. The payment of the

balance of Rs. 1,25,000 had to be made in installments before 5th January 1958. As a matter of detail, Rs. 45,000 had to be paid on or before

12th December 1957, Rs. 10,000 on or before 30th December 1957, and the last installment of Rs. 40,000 had to be paid on or before 5th

January 1958. The contract gave them the right of distribution for two years from the date of the agreement itself. It requires some explanation as

to how the contract provided for distribution from the date of the agreement itself when the picture was not yet ready for release. The Plaintiffs

explanation is that the picture was expected to be released in January 1958, itself and, therefore, it was not expected that there would be any delay

in the release of the picture. The Plaintiffs were to get a commission of twelve and half per cent on the collections. Otherwise they had to meet their

own expenses. The repayment of the advance of Rs. 1,30,000 was provided for by payment of Rs. 40,000 every fortnight from the time of the

release of the picture. The Defendant had to make the facilities for publicity available.

Excluding the sum of Rs. 5,000 paid on 16th November 1957, the Plaintiffs paid Rs. 20,000 on 20th December 1957, Rs. 20,000 on 26th

December 1957, Rs. 5,000 on 6th December 1957, and Rs. 40,000 on 22nd January 1958, thus making up a sum of Rs. 90,000. They did not

pay the last installment of Rs. 40,000 (due on 5th January 1958) and even in respect of the second and third installments of Rs. 45,000 and Rs.

40,000 there was some delay, in the payment. The Plaintiffs case is that the Defendants acquiesced in the delay of the payment of the second and

third installments, and so far as the last installment of Rs. 40,000 was concerned, it was not paid because the'' Defendant could not release the

picture in January 1958, as promised. According to the Plaintiffs, the Defendant Was content to take the balance of Rs. 40,000 at or just before

the time when the picture would be ready for release. Actually the Plaintiffs went on writing to the Defendant from time to time urging him to

release the picture but the Defendant did not release the picture. On the faith of the Defendant''s representation that the picture would be released

at least in February 1958, the Plaintiffs set up an establishment in Madurai and Madras. The head office is being at Vijayawada. The Defendant

used to fix some dates for the release of the picture but only to postpone them. The correspondence with the Defendant thus went on from 17th

February 1958 starting with exhibit P-2, and according to the evidence lasted till 24th February 1959, exhibit P-15. It is alleged that with the

consciousness of the guilt m delaying the release of the picture, the Defendant agreed in February 1959, to give interest on the advance of Rs.

90,000 already made by the Plaintiffs at twelve per cent with effect from the dates of the respective payments of the amounts aggregating to Rs.

90,000, though the contract itself had stipulated that the advance was not to carry interest., The Plaintiffs pointed out in their letter exhibit P-15,

dated 24th January 1959, that this promise to pay interest would not be a substitute for the profits which they expected to realize from this venture.

They, therefore, urged him once again by the said letter exhibit P-15, dated 24th February 1959 to make arrangement for the release of the

picture. But as usual the Defendant did not reply. Finally on 2nd May 1961, the Plaintiffs issued a lawyer''s notice, exhibit P-16, reciting all the

facts and making a demand for the return of the sum of Rs. 90,000 with interest, the establishment expenses of Rs. 12,000 and damages of Rs.

25,000 being the estimated loss of commission which they would have earned, had the picture been released. The interest claimed in the notice

was Rs. 35,000 at the rate of twelve per cent.

It was then for the first time that the Defendant came forth with the defence in the reply notice exhibit P-17, dated 13th May 1961, stating that it

was the Plaintiffs who were in default because they had not paid the second and third installments of Rs. 45,000 and Rs. 40,000 in time and Lad

not paid the last installment of Rs. 40,000 at all though the Defendant had been insisting on the payment thereof, that the Defendant had never

agreed to pay interest on the advance and that it was the Plaintiffs who were liable to pay him damages to the tune of Rs. 1,00,000 because it was

on account of the default of the Plaintiffs he was not able to release the picture. In exhibit P-16, 24 hours time was given to the Defendant for

payment of the amount of Rs. 1,62,000 demanded. That time having expired, the Plaintiffs instituted the suit on 9th May 1961, claiming a sum of

Rs. 1,16,500. This sum is made up of Rs. 90.000, the advance actually made, Rs. 18,000 towards interest (interest is claimed only at 6 per cent

instead of 12 per cent) and Rs. 8,500 for the cost of the establishment at Rs. 500 per month from 6th December 1959. The Plaintiffs state that

though they are entitled to claim damages to the extent of Rs. 25,000 for breach of contract on the part of the Defendant, they do not claim that

amount.

The defence of the Defendant is that it was the Plaintiffs who were in breach in not having paid the second and third installments of Rs. 45,000

and Rs. 40,000 in time and in not paying at all the last installment of Rs. 40,000. That was an essential condition of the agreement and it was the

non fullment thereof which was the cause of the Defendant not releasing the picture. His liability to repay would arise only in the first fortnight after

the release, and since the release was rendered impossible by the Plaintiffs, the claim even in respect of the return of Rs. 90,000 is premature. He

did not agree to pay interest and the claim for interest is unsustainable. The Plaintiffs did not incur establishment charges as claimed and in any case

that claim also is not maintainable.

The issues framed in the suit are:

Did the Defendant commit breach of agreement as alleged by the Plaintiffs or were the Plaintiffs guilty of breach of terms of agreement as

contended by Defendant and if so, are the Plaintiffs not entitled to sue for return of monies?

Whether the suit is premature?

Whether the Plaintiffs are entitled to recover the sum of Rs. 90,000 (Rupees ninety-thousand)?

Whether the Plaintiffs are entitled to interest as claimed?

Whether the Plaintiffs are entitled to establishment charges of Rs. 8,500 (Rupees eight thousand and five hundred)?

To what relief are the Plaintiffs entitled ?

On behalf of the Plaintiffs three witnesses have been examined. P.W. 1 is Kamaraj, the husband of one of the seven partners of the Plaintiff firm.

It was he who negotiated this deal and who later contacted the Defendant about the release of the picture, though he did not have any express

written authority for the purpose. He swears that in February 1959, the Defendant agreed to pay interest at twelve per cent on the amount of the

advance, though the contract had stipulated that it was not to carry interest. He reported this to the Plaintiff firm and it was thereupon that the letter

exhibit P-15 was written to the Defendant. He explained generally how the Defendant was postponing release of the picture and agreed to take the

final installment of Rs. 40,000 at the time of the release of the picture and how the Plaintiffs were all along ready and willing to pay that Rs. 40,000.

P.W. 2 is the Manager of the Plaintiff firm at Vijayawada and maintains the accounts. He speaks to the incurring of the expenditure on the

establishment.

P.W. 3. one Mr. Sastri, was a part-time employee of the Plaintiff firm in Madras. Actually he was a permanent employee of Poorna Pictures of

which Kamaraj is the Managing Director and the office of the Plaintiff firm was located in the premises of Poorna Pictures in Thyagarayanagar.

P.W. 3 has been examined to disprove the suggestion of the Defendant that he was making demand for the sum of Rs. 40,000 over the telephone.

P.W. 3 states that there was no such demand to his knowledge.

On the side of the Defendant, the Defendant has examined himself.

I have no doubt on the evidence on record that, it was the Defendant who was in default. The entire correspondence starting with exhibit P-2,

dated 17th February 1958, and ending with exhibit P-15, dated 24th February 1959 and the recital of the facts in the lawyer''s notice exhibit P-16

clearly show that the Plaintiffs had opened an office in Madurai believing the representation of the Defendant that the picture would be ready for

release at least in February 1958, that they were repeatedly asking the Defendant to release the picture and that the Defendant was postponing the

release thereof. On, one occasion, he fixed 20th February 1959, for the date of the release, (vide exhibit P-11, the letter, dated 6th January 1959).

But shortly thereafter he postponed the date to 6th March 1959 (vide the letter exhibit P-12, dated 16th January 1959). Exhibit P-15, dated 24th

February 1959, written by the Plaintiffs rightly points out how the Plaintiffs were put to difficulty on account of this postponement in their

engagements with the owners of the theatres. Theatres had been fixed up on the basis of the picture being released on 20th February 1959, and it

was difficult to persuade the theatre owners to agree to the postponement to 6th March 1959. The entire correspondence as well as the evidence

of P.W. 1 leave no doubt in my mind that the Plaintiffs were very keen on getting the picture released early and it was the Defendant who was

postponing the release. I am also quite satisfied that the Defendant had no grievance about the small delay in the payment of the second and third

installments of Rs. 45,000 and Rs. 30,000 and that he agreed to take the last installment when he himself would be ready to release the picture. It

is very significant that nowhere till the reply notice exhibit P-17, dated 13th May 1961, had the Defendant complained either about the small delay

in the payment of second and third installments or the non-payment of Rs. 40,000. Even when he wrote exhibit P-11, dated 6th January 1959

fixing 20th February 1959, as the date of the release of the picture, and exhibit P-12, dated 16th January 1959, postponing the date to 6th March

1959, he did not refer at all to the non-payment of the last installment of Rs. 40,000. Even more significant is the fact that though exhibit P-15,

dated 24th February 1959, sent by the Plaintiffs by registered post stated that he had agreed not to receive the balance of Rs. 40,000 and agreed

to pay interest to the Plaintiffs on the amount advanced, he did not send a reply ''repudiating the allegations. The Defendant would go to the extent

of saying that he did not peruse the letter exhibit P-15 and that he generally left is to his staff to peruse the correspondence and bring to his notice

only such letters as in the opinion of the staff demanded his personal attention. I find it impossible to accept this evidence. The evidence clearly

establishes that was the Defendant who was somehow delaying releasing the picture, and therefore a matter of probability, it is not surprising that

he was content to receive payment of the last installment of Rs. 40,000 till such time as he would be in a position to release the picture.

In view of the fact that the evidence clearly establishes that it was the Defendant who delayed releasing the picture, it is unnecessary to enquire

into the motive which prompted him to delay the release of the picture. But it looks probable as suggested by the Plaintiffs, that the Malayalam

version of the picture was not quite a success and the Defendant wanted to wait till there was improvement in the reception of the Malayalam

version before releasing the Tamil version. I find on issue 1 that it was the Defendant who committed breach of the agreement and the Plaintiffs are

not guilty of breach as contended by the Defendant. On this finding it follows that the Plaintiffs are entitled to recover the sum of Rs. 90,000 which

was advanced by them (I shall come to the other two amounts later). The plaint, however, has been amended setting forth an alternative case that

even on the footing that the Plaintiffs are in breach they are entitled to recover the advances of Rs. 90,000. That is on the principle of Sections 64

and 65 of the Indian Contract Act which run:

When a person at whose option a contract is avoidable rescinds it, the other party thereto need not perform any promise therein contained in

which he is promissory. The party rescinding a void able contract shall, if he have received any benefit there under from another party to such

contract, restore such benefit, so far as may be, to the person from whom it was received.

When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such

agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.

With regard to the scope of these sections, it is useful to refer to the decision of the Privy Council in Muralidhar Chatterji v. International Film,

Company, Ltd. ILR (1943) 2 cal. 213 (P.C.), which has been followed by Jagadisan and Kailasam JJ., in Lakshmi Talkies v. Tampoe ILR (1961)

Mad. 955. As an interesting detail it may be mentioned that they are also cases relating to distribution of films. In Muralidhar Chatterji v.

International Film Company, Ltd. ILR (1943) 2 cal. 213 (P.C.), the Defendant imported films into India and undertook to give films to the Plaintiff

for distribution. The Plaintiff paid certain amounts to the Defendants and put an end to the contract on 12th December 1936, alleging that the

Defendants were in breach. The Defendants denied that they were in breach but anyhow they accepted the Plaintiff''s repudiation of the contract. It

was found at the trial that it was the Plaintiff who was at fault. But even on that footing it was held that the Plaintiff was entitled to recover the sums

advanced under the contract and that the remedy of the Defendants was only to counter claim for damages. Since the correct procedure had not

been properly grasped till then the matter was remanded by the Privy Council to enable the Defendants to plead their cross claim and to have it

tried.

Sri Jagannadha Rao, learned Counsel for the Defendant, tries to distinguish the Privy Council decision by saying that it was a case where the

Defendants had rescinded the contract within the meaning of Section 64 of the Contract Act, and, therefore, it was that they became liable to

return the advance which had been made by the Plaintiff. The learned Counsel contends that that principle would not apply to this case and that so

far as this case is concerned the stand of the Defendant is that he was keeping the contract alive and never wanted to put an end to it. He urges

that on the Assumption that the Plaintiffs were in breach in not paying the last installment of Rs. 40,000 (which of course is the hypothesis for the

alternative claim of the Plaintiffs with which alone I am dealing now), it is not open to the Plaintiffs to insist that the Defendant should rescind the

contract so as to enable the Plaintiffs to take advantage of the provisions of Sections 64 and 65 of the Contract Act and claim recovery of the sum

of Rs. 90,000.

But this argument of the learned Counsel for the Defendant is untenable because the contract expired on 6th December 1959, at the latest and

the Defendant admits that there has been no agreement to extend the period of the contract (vide page 28 of the evidence), and once the period

fixed for the performance of the Plaintiffs obligation of payment of Rs. 40,000 has come to an end under the contract and there has been no

extension of the time for performance, it is not open to the Defendant to avoid the application of Sections 64 and 65 of the Contract Act as

explained in the decision of the Privy Council by saying that he still wants to keep the contract alive. The contract is dead and it is not open to the

Defendant to keep it alive. That in such a situation it is not possible for the Defendant to keep the contract alive is clear from the decision of

Rajamannar C.J., and Venkatarama Ayyar J., in Kumaraswami v. Karuppuswami ILR (1953) mad. 488. The learned Judges say at page 496:

Therefore, the principle that it is open to one party to keep the contract alive can have application only when the contract is executor or where

there is still something to be performed under the contract. It can have no application where the time for performance has arrived and there has

been a breach. When a contract has been broken, it is dead and there is nothing which could thereafter be kept alive. Even if the parties

subsequently come to an agreement in respect of the same subject-matter, it is in law a new contract. Thus there is a fundamental difference

between a refusal to perform a contract before performance has become due and a failure to perform it after it has become due.

In such a situation the only remedy of the Defendant (on the assumption that the Plaintiffs are in breach and not the Defendant) would be to

counterclaim for damages, as pointed out by the Privy Council in the decision cited above. He cannot resist the claim for the return of the sum of

Rs. 90,000. The Defendant has not counter-claimed damages and no such question arises.

Sri Jagannadha Rao has also cited the decision of Madhavan Nair J., in Vairavan Chettiar and Others Vs. Kannappa Mudaliar, In that case

the Defendant had agreed to sell the Plaintiff 500 bags of rice at Rs. 11-11-0 per bag within three weeks. He supplied only 130 bags, and did not

supply the balance. After deducting the value of 130 bags, the Plaintiff sought to recover the excess of the amount paid by him and also damages.

The Defendant pleaded that there was an understanding that the Plaintiff should pay the price of the entire quantity and had committed breach of

that undertaking. It was found as a fact that there was such an understanding and of course the Plaintiff had not offered to pay the entire pries. It

was in such circumstances the dismissal of the suit was confirmed by this Court in second appeal. Madhavan Nair J., observed:

In the present case the contract consists of reciprocal promises to which section 54 of the Indian Contract Act will apply. The option to perform

his part of the contract is always available to the Defendant, but this does not mean that the Plaintiff can insist on the Defendant performing his

promise without himself performing what he has undertaken to do.

As pointed out earlier by me, these observations cannot be availed of in the present case because the contract was at an end on 6th December

1059 itself at the latest, and thereafter the Defendant could not keep the contract} alive. The contract has become void u/s 65 of the Contract Act,

as explained by the Privy Council and the duty of restoration would emerge.

Sri Jagannadha Kao has also cited the decision of Ramabhadran J.C, in Ram Chandar Vs. Jagan Nath and Another, . There one Ram

Chandar took on lease a bamboo forest from the Forest Department. He transferred his right to Jagan Nath who paid Rs. 250 as earnest money

and Rs. 1,000 for the first installment but did not pay the subsequent installments. The result was that the licence was cancelled. Jagan Nath sued

to recover inter alia the sums paid by him. It was held that he having failed to perform his part of the contract by not paying the second installment

in time it was not open to him to turn round and accuse Ram Chandar of breach of contract. It was pointed but that the provisions of Section 54 of

the Contract Act were attracted. This was all that was decided in that case and the matter does not seem to have been argued with reference to

sections 64 and 65 of the Contract Act. Hence that decision cannot be taken as authority for the question we are now considering.

I find, therefore, on issue 1 that the Plaintiffs are entitled to the return of Rs. 90,000.

The next question is about the interest of Rs. 18,000. Under the provisions of the Interest Act (Act XXXII of 1839) interest would be payable

from the date of demand made by the notice exhibit P-16. This must have reached the Defendant about 4th May 1961, and interest can

accordingly be claimed at six per cent from 4th May 1961. As for the claim prior to that period, Sri N.C. Raghavachari, learned Counsel for the

Plaintiffs, admitted that in view of the decision of the Privy Council in Bengal Nagpur Railway Company Limited v. Ratanji Ramji ILR (1938) Cal.

72 (P.C.), the claim for interest could not be sustained by way of damages but could be sustained only on foot of the oral Agreement spoken to by

Kamaraj (P.W. 1). I am prepared to accept the evidence of P.W. 1 on that point, particularly because it was brought to the notice of the

Defendant in exhibit P-15, dated 24th February 1959 and there was no reply by the Defendant. Though the notice exhibit P-15 does not mention

that the rate of interest agreed upon was twelve per cent, I am prepared to accept the evidence of P.W. 1 about the rate of interest, particularly

because as early as in exhibit P-4, the Plaintiffs had stated that they were losing twelve per cent interest on the capital. But I am afraid it is not

possible to give effect to the agreement because of two reasons. Firstly, P.W. 1 was not authorized to enter into such an agreement, and secondly,

there does not appear to have been any consideration for the contract to pay interest. According to the plaint, the Defendant offered to pay interest

in consideration of the Plaintiffs giving him a short time. It is not clear how much time the Defendant wanted, and whether the Plaintiffs agreed to

give that time P.W. 1 has not given any positive evidence about it and his replies, such as they are, suggested that the Plaintiffs were not willing to

give further time (see page 15 of the evidence), though questions were put specifically only with reference to the request for time made in August

1959. I hold, therefore, that the Plaintiffs are not entitled to interest prior to 4th May 1961, but from that date they will be entitled to interest under

the provisions of the Interest Act. Section 34, CPC is an additional reason for giving them interest from the date of the plaint as pointed out by the

Privy Council in Bengal Nagpur Railway Company, Limited v. Ratanji Ramji ILR (1938) Cal. 72 (P.C.).

As for the claim of Rs. 8,500 for establishment, it may be noted that it is claimed only in respect of the period after 6th December 1959. But

by that date the period fixed in the contract was at an end and it is not the Plaintiffs case that there was any agreement to extend it. Hence, at least

after that date, the Plaintiffs had no right to keep any establishment for the distribution of this picture. This claim, therefore, fails.

My answer, to the issues are as follows:

Issue 1.--It was the Defendant who committed breach. There was no breach by the Plaintiffs. The Plaintiffs are entitled to the return of Rs. 90,000,

and interest thereon at six per cent per annum from 4th May 1961.

Issue 2.--The claim is not premature.

Issue 3.--The issue is answered in the affirmative.

Issue 4.--Plaintiffs are entitled to interest at six per cent from 4th May 1961.

Issue 5.--This issue is answered in the negative.

Issue 6.--In the result there will be a decree in favour of the Plaintiffs for Rs. 90,000 with interest thereon at 6 per cent from 4th May 1961, with

proportionate costs. The Defendant is given one month''s time to pay the amount, but the attachment will continue.