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PETITIONER: K.   SIMRATHMULL

       Vs.

RESPONDENT: S.   NANJALINGIAH GOWDER

DATE OF JUDGMENT: 28/02/1962

BENCH: SHAH, J.C. BENCH: SHAH, J.C. DAS, S.K. HIDAYATULLAH, M.

CITATION:  1963 AIR 1182            1962 SCR  Supl. (3) 476

ACT: Contract--Covenant  for reconveyance of property subject  to fulfilment  of  conditions--Failure  or  condition,  whether specific   performance   could  be   demanded--Where   right extinguished--Courts   equitable   jurisdiction   could   be invoked--Transfer  of  Property Act, (4  of  1882)--Specific Relief Act (1 of 1877).

HEADNOTE: By a deed February 19, 1948 the respondent sold his house to the  appellant in consideration of discharging liability  to repay  alone of Rs, 1500/- borrowed by the respondent.   Two other  documents relating to the house were executed on  the same  day II) a deed by the appellant agreeing  to  reconvey the  house  if the respondent paid Rs. 1500/- in  these  two years  ;  (2) a rent note by the respondent and  his  father agreeing to pay Rs. 26-4-0 per mensem as rent for occupation of the house.  Under the of reconveyance the exercise of the right  to   reconveyance  was  subject  to  two  conditions, firstly, that the right must be exercised within 2 years and secondly,  that the rent payable under the rent note  should not remain in arrears for more than six months at any  time. When  that respondent demanded specific performance  of  the agreement of reconveyance, the first condition was fulfilled but  the second was not.  The suit for specific  performance of  the agreement of reconveyance was dismissed, for in  the view of the trial court the conditions of the agreement  had not  been  strictly complied with, and the  agreement  stood cancelled.   The  High Court in second appeal  reversed  the decree and ordered specific performance. Held,  that the covenant for reconveyance was in the  nature of a concession granted by the purchaser. Held,  further that the concession being subject to  certain conditions  were  not fulfilled the right to  demand  recon- veyance  could not be enforced.  The court had no  equitable jurisdiction to relieve against the extinction of the  right to demand reconveyence. Shanmugam Pillai v. Annalakshmi Ammal, A. 1. R. (1950) F. C. 38, followed. John   H.   Kilmer  v.  British   Columbia   Orchard   Lands Ltd.L.R.(1913) A. C. 319, Devendra Prasad Sukul v. Surendra

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477 Prasad  Sukul, (1935) L. R. 63 I.A. 26 and Davis v.  Thomas, (1 980) 39 E. R. 195, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8 of 1960. Appeal  by special leave from the judgment and decree  dated January  30,  1956, of the Madras High Court in  Special  L. Appeal No. 2174 of 1952. Bhawani Lal and P. C. Agarwala, for the appellant R.   Ganapathy lyer, R. ’Thiagarajan and G.  Gopalakrishnan, for the respondent. 1962.  February 28.  The Judgment of the Court was delivered by SHAH,  J.-This is an appeal with special leave  against  the judgment of the High Court of Madras. On  February 18,, 1948, S. Nanjalingiah Gowder herein  after referred  to at; the plaintiff-borrowed Rs. 1,500/- from  K. Simrathmull-hereinafter  called the defendant.  On  February 19, 1948 the plaintiff executed a sale deed conveying to the defendant  certain land at Ootacamund together with a  house standing  thereon and belonging to him for Rs.  700/-.   Two other  documents were executed on the same day : (1) a  deed of  reconveyance (Ext.  A-1) (counterpart of the sale  deed) in  favour  of the plaintiff which contained  the  following covenant:               "If  you  pay the sum of Rs. 1500/.  within  a               period  of two years 1 shall at your cost  and               responsibility  execute a sale in  respect  of               Your-mentioned land and house.  You shall  pay               the assessment for the house and the municipal               tax, you shall if there is any arrears of rent               pay  the same, prior to the sale, as  per  the               rental  deed executed by you and your  father.               If there is arrears of rent for six               478               months,  the aforesaid counterpart deed  shall               become cancelled.", and  (2) a Rent, Note by the plaintiff and his  father  Bora Gowder in favour of the defendant agreeing to pay rent @ Ps. 26/4/- per mensem for occupation of the house and the land. Rent  accruing due was not paid regularly by  the  plaintiff and  his  father, and by April 1949 it was  in  arrears  for seven  months.   The plaintiff sent Rs. 52/8  /-  by  postal money  order being rent for two months, on April  20,  1949, but  it  was not accepted by the defendant.   The  plaintiff then  filed on November 7, 1949 a suit in the Court  of  the Subordinate  Judge, Ootacamund for specific  performance  of the agreement of reconveyance contained in the deed Ext.  A- 1.   The suit was dismissed, for, in the view of  the  trial Court, the conditions incorporated in Ext.  A-1 had not been strictly  complied with, and the agreement stood  cancelled. The decree of the trial Court was affirmed in appeal But  in second  appeal the High Court of Madras reversed the  decree and ordered specific performance. The  sale deed. the deed of reconveyance Ext.  A-1  and  the Rent  Note  Ext.   B-1 were undoubtedly parts  of  the  same transaction.   The plea of the plaintiff that the sale  deed Ext.    A-1  constituted  a  transaction  of   mortgage   by conditional sale is inadmissible, because the sale deed  and the  covenant  for reconveyance are  contained  in  separate documents.  Indisputably, on the findings of the trial Court and confirmed by the Appellate Courts, the plaintiff has not

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complied  with the terms of the agreement for  reconveyance. The  plaintiff,  however  submitted  that  the  court  could relieve him against the forfeiture of his rights in exercise of   the  courts  equitable  jurisdiction.   The   defendant submitted  that  the covenant for reconveyance  was  in  the nature  of a concession granted by the defendant subject  to certain conditions and if the conditions were not 479 fulfilled the right could not be enforced.  On this question the  trial Judge with whom the First Appellate Court  agreed held  that the court had no jurisdiction to relieve  against the extinction of the right to demand reconveyance,  because the  plaintiff  had  failed  to  comply  strictly  with  the conditions  of  the  deed.  The High  Court  held  that  the equitable  jurisdiction  of  the  Court  could  properly  be exercised  in favour of the plaintiff so as to  relieve  him against the extinction of his right. The plaintiff had sold his property to the defendant.  There is  now  no  dispute  that  though  the,sale  deed  was  for Rs.700/-.  it  was in satisfaction of the loan  borrowed  on February  18,  1948 for Rs. 1500/- that the  sale  deed  was executed.   By  the  deed  Ext.   A-1  the  defendant   gave plaintiff a concession: he agreed to reconvey the house, but the  exercise of the right of demanding reconveyance by  the plaintiff  was subject to two conditions (1) that the  right must  be exercised within two years, and (2) that  the  rent payable  under Ext.  B-1 should not be in arrears  for  more than  six months at any time.  When the  plaintiff  demanded specific performance .of the agreement of reconveyance,  the first condition was fulfilled but the second was not.  It is true that equity relieves against penalties when the  inten- tion of the  penalty is to secure payment of a sum of  money or attainment of some other object, and when the event  upon which  the  penalty  is  made  payable  can  be   adequately compensated  by  payment  of interest  or  otherwise.   Thus relief  is granted in equity against the penalty in a  money bond, and also against penal sums made payable on breach  of bonds,  covenants  and agreements for payment  of  money  by installments,  or for doing or omitting to do  a  particular act (see Halsbury’s Laws of England III Edition vol. 14 page 620  Art.  1147).  The cases in John H.  Kilmer  v.  British Columbia  Orchard Lands Ltd. (1) and Devendra  Prasad  Sukul and  others  v.  Surendra Prasad Sukul  and  Another(2)  are illustrations (1) L.R. (1913) A.C. 319. (2) (1935) L.R. 63 I.A. 26. 480 of that principle.  But there is a well recognised exception to  this  rule  which is enunciated in  Halsbury’s  Laws  of England  Vol.  14 TIT Edition page 622  paragraph  1151,  as follows:  "Where  under a contract, conveyance,  or  will  a beneficial  right  is to arise upon the performance  by  the beneficiary  of some act in a stated manner, or at a  stated time,  the  act must be performed accordingly  in  order  to obtain  the  enjoyment of the right, and in the  absence  of fraud, accident or surprise, equity will not relieve against a  breach  of the terms".  The Federal  Court  in  Shanmugam Pillai and others v. Annalakshmi Ammal and others(1) held by a majority of three to two that where under an agreement  an option to a vendor is reserved for repurchasing the property sold  by him the option is in the nature of a concession  or privilege and may be exercised on strict fulfillment of  the conditions   on  the  fulfillment  of  which  it   is   made exercisable.  If the original vendor fails to act punctually according  to  the  terms  of the  contract,  the  right  to

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repurchase will be lost and cannot be specifically enforced. Refusal  to  enforce the terms specifically for  failure  to abide by the conditions does not amount to enforcement of  a penalty and the Court has no power to afford relief  against the  forfeiture  arising  as a result of breach  of  such  a condition.   A majority of the Judges of the Court  in  that case followed the principle set out in Davis. v. Thomas (2). We  accept the view of the majority enunciated in  Shanmugam Pillai’s  case.   The decree passed by the High  Court  must therefore  be set aside and the decree passed by  the  trial Court  restored.  ’But the property in dispute is  valuable. Even  on  the  defendant’s case it was on the  date  of  the institution  of the suit worth Rs. 15000/-.   The  defendant purchased it only about a year and seven months prior to the date  of  the institution of the suit for  Rs.  1500/-.   He appears  to  have  overreached the  plaintiff  and  taken  a document of sale (1)  A.1 R. (1950) C. 38. (2)  (1930) 39 E.R 195.  481 conveying the property when a mere loan was intended on  the security of the property.  It is unfortunate, having  regard to  the provision of s. 58(c) of the ’Transfer  of  Property Act,  that the plaintiff is debarred from proving that  (,he transaction  was  in  the  nature of  a  mortgage.   In  the circumstances  we direct that there will be no order  as  to costs throughout. Appeal allowed.