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PETITIONER: SRI TARSEM SINGH

       Vs.

RESPONDENT: SRI SUKHMINDER SINGH

DATE OF JUDGMENT:       02/02/1998

BENCH: S. SAGHIR AHMAD, M. JAGANNADHA RAO

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S. SAGHIR AHMAD. J.      Delay condoned.      The defendant  is the  petitioner in this Special Leave Petition before us.      The petitioner,  who  owned  48  kanals  11  marlas  of agricultural land  in village  Panjetha, Tehsil and District Patiala, entered  into a contract for sale of that land with the respondent  on 20.5.1988 @ Rs. 24,000/- per acre. At the time of  the execution  of the  agreement, an  amount of Rs. 77,000/- was  paid to the petitioner as earnest money. Since the petitioner  in  terms  of  the  agreement  although  the respondent was  ready and willing to perform his part of the contract, the  latter, namely, the respondent filed the suit for Specific  Performance against  the petitioner  which was decreed by  the trial  court. The  decree  was  modified  in appeal by  the Additional  District Judge  who  was  of  the opinion that  the parties  to  the  agreement,  namely,  the petitioner and  respondent both  suffered from  a mistake of fact as  to the  area of  the land  which was proposed to be sold as  also the  price (sale-consideration) whether it was to be  paid at  the rate  of per "Bigha" or per "Kanal". The Lower Appellate Court also found that the respondent was not ready and  willing to  perform his  part  of  the  contract. Consequently, the  decree for  Specific Performance  was not passed but  a decree  for refund of the earnest money of Rs. 77,000/- was  passed against the petitioner. This was upheld by the High Court.      Learned counsel  for the  petitioner has contended that since the  Lower Appellate Court was recorded a finding that the respondent was not ready and willing to perform his part of  the  contract  inasmuch  as  the  balance  of  the  sale consideration was  not offered by him to the petitioner, the Lower. Appellate  Court as also the High Court, which upheld the judgment  of the Lower Appellate Court, were in error in passing a  decree for  return of the amount of earnest money particularly as  the parties had expressly stipulated in the agreement for  sale that if the sale was not obtained by the respondent  on   payment  of  the  balance  amount  of  sale consideration, the  amount of earnest money, advanced by the

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respondent, shall stand forfeited.      In order to decide this question, we have to proceed on certain admitted  facts which  are to  the effect that there was an  agreement for  sale between  the parties  concerning agricultural land  measuring 48  kanals 11  marlas which was proposed to be sold at the rate of Rs. 24,000/- per bigha or kanal and that an amount of Rs. 77,000/- was paid as earnest money. The  sale deed  was  to  be  obtained  on  or  before 15.10.1988 by offering the balance of the sale consideration to the  petitioner before  the sub-Registrar, Patiala. There was a  stipulation in  the agreement  that if the respondent failed to  pay the balance amount of sale consideration, the earnest money shall stand forfeited.      During the pendency of the appeal before the Additional District Judge,  respondent made  certain amendments  in the plaint which  have been set out in the judgment of the Lower Appellate Court as under:-      "(a) He  corrected the  area of the      suit land  as 48  bighas 11 biswas,      instead of 48 kanals 11 biswas.      (b) In  para 3  of the  plaint,  he      corrected   the   figure   of   Rs.      1,56,150/- to Rs. 2,35,750/-.      (c) He also added following para 3A      to the amended plaint:-      "The land  is mortgaged with Canara      Bank  by   the  defendent  for  Rs.      20,000/-. The defendant be directed      to deposit  the due  amount to  the      Canara  Ban  or  the  plaintiff  be      authorised to  retain the  mortgage      money."      (d) He  also  added  the  following      lines to para 9 of the plaint:-      "The plaintiff  met Tarsem Singh in      the month  of September,  1988  and      offered him  the money with request      to get  the sale deed registered in      his favour  but he  refused  to  do      so."      (e) He  also  added  the  following      lines to para 19 of the plaint:-      "The value  of  the  suit  for  the      purpose   of    court    fee    and      jurisdiction is  Rs. 2,40,000/-  on      which a  court fee  stamps  of  Rs.      4,686/- is fixed."      The Lower  Appellate  Court  also  recorded  additional evidence. Thereafter, the Lower Appellate Court proceeded to record the findings as under:-      "24. It is rightly submitted by the      learned counsel  for the  appellant      that the  case of  the appellant is      hoisted twice over with his patard.      If  the   total  price  of  as  per      amended  plaint,   them  from   the      original plaint and evidence of the      respondent in  the trial  court, it      is clear  that he  was never of Rs.      2,35,750/- to the appellant for the      land in  contract, and that what he      was ready and willing to pay at all      material points  of time  before he      filed application  for amendment of      the plaint  in this court, was only

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    Rs. 1,56,150/-.      25. Of  course, with  the advantage      of hind  sight and  as a clever but      clumsy  after   though   Sukhminder      Singh respondent PW1 stated in this      court on  30.4.1993  that  when  he      attended the  offence  of  the  Sub      Registrar for execution of the sale      deed on 30.4.1993 he was having Rs.      one lac  in his possession. However      performance because for the reasons      already stated,  it  is  abundantly      clear that  till before  filing the      application for  amendment  of  the      plaint,   in    this   court,   the      respondent was  only willing to pay      the total sale price Rs. 1,56,150/-      to the  appellant, and not the full      sale    consideration     of    Rs.      2,35,750/-.   Therefore    in   the      peculiar facts and circumstances of      the case,  it would be difficult to      hold that  he had  throughout  been      ready and  willing to  perform  his      part of the contract.      26. An  other forensic  cross which      the respondent  must bear  is  that      even from  his original  pleadings,      and the  amended pleadings,  it  is      clear that  both the  parties  were      under a  mistake of  fact in so far      as the  area of  land agreed  to be      sold was  concerned. As  luck would      have it,  none  of  them  was  sure      whether it was 48 kanals 11 marlas,      or 48  bighas 11 biswas. Therefore,      the  contract   Act.  Besides  this      where  the  description,  area  and      other particulars  of the  property      are   not    absolutely   definite,      precise,  certain   and  exact,  no      decree for  specific performance of      sale can be passed."      The Lower  Appellate Court  further      proceeded to say as under:-      "On the analysis presented above it      is  absolutely   clear   that   the      parties were  never ad-idem  as  to      the exact  area of  the land agreed      to be sold."      It was on account of the above findings that the decree for return  of the earnest money of Rs. 77,000/- paid to the petitioner was  passed particularly  as the  petitioner  was found to  be under  a legal obligation to return that amount together with  interest at the rate of 6% per annum from the date of contract till the date of acutal refund.      The findings  that the  parties were  suffering from  a mistake of  fact as  to the  area and  the rate at which the property was  agreed to  be sold has been upheld by the High Court which  summarily dismissed  the Second Appeal filed by the petitioner questioning the finding  of the courts below.      What is  the effect  and impact of "Mistake of Fact" on the agreement in question may now be examined.      ‘Contract’ is  a bilateral  transaction between  two or more than  two parties.  Every contract  has to pass through

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several stages  beginning  with  the  stage  of  negotiation during which the parties discuss and negotiate proposals and counter-proposals  as   also  the   consideration  resulting finally in the acceptance of the proposal. The proposal when accepted gives  rise to  an agreement.  It is  at this stage that the  agreement is  reduced into  writing and  a  formal document is executed on which parties affix their signatures or thumb  impression so  as to  be bound by the terms of the agreement set out in that document. Such an agreement has to be lawful  as the  definition of  contract, as  set  out  in Section 2(h)  provides that "an agreement enforceable by law is a contract". Section 2(9) sets out that "an agreement not enforceable by law is said to be void".      Before  we   proceed  to   consider  what   are  lawful agreements or  what are  voidable or  void contracts, we may point out  that it  is not  necessary under  law that  every contract must be in writing. There can be an equally binding contract between  the parties on the basis of oral agreement unless there  is a law which requires the agreement to be in writing. Section 10 of the Contract Act provides as under:-      "10.    What     agreements     are      contracts.-  All   agreements   are      contracts if  they are  made by the      free consent  of parties  competent      to   contract,    for   a    lawful      consideration  and  with  a  lawful      object,   and    are   not   hereby      expressly declared to be void.      Nothing  herein   contained   shall      affect any  law in  force in  India      and not  hereby expressly repealed,      by which  any contract  is required      to be  made in  writing or  in  the      presence of  witnesses, or  any law      relating  to  the  registration  of      documents."      The essentials  of contract set out in Section 10 above are:-      (1) Free consent of the parties      (2) Competence of parties to contract      (3) Lawful consideration      (4) Lawful object      Competence to  contract is  set out in Section 11 which provides that  every person  is competent to contract who is of the  age of  majority and who is of sound mind and is not disqualified from  contracting by  any law  to which  he  is subject. Section  12 provides  that a person will be treated to be  of sound  mind if,  at the  time when  he  makes  the contract, he  is capable  of understanding  it and forming a rational judgment as to its effect upon his interests.      "Consent" and  "Free Consent", with which we are really concerned in  this appeal,  are defined in Section 13 and 14 of the Act as under:-      "13. Two  or more  persons are said      to consent when they agree upon the      same thing in the same sense."      "14. Consent  is said  to  be  free      when it is not caused by-      (1) coercion, as defined in section      15, or      (2) undue  influence, as defined in      section 16, or      (3) fraud,  as defined  in  section      17, or

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    (4) misrepresentation,  as  defined      in section 18, or      (5)   mistake    subject   to   the      provisions of  sections 20,  21 and      22.      Consent is  said to  be  so  caused      when it  would not  have been given      but  for   the  existence  of  such      coercion, undue  influence,  fraud,      misrepresentation or mistake."      Section 15,  16, 17  and 18  define "Coercion",  "undue Influence", "Fraud" and "Misrepresentation".      Section 19  provides that  when consent to an agreement is caused  by coercion,  fraud  or  misrepresentation,  such agreement is  voidable at  the option  of  the  party  whose consent was  so caused.  So also  is the  agreement to which consent of a party was obtained by undue influence.      Section 20  of the Act lays down as      under:-      "20.  Agreement   void  where  both      parties are  under  mistake  as  to      matter of  fact.-  Where  both  the      parties to an agreement are under a      mistake as  to  a  matter  of  fact      essential  to  the  agreement,  the      agreement is void.      Explanation.- An  erroneous opinion      as to  the value of the thing which      forms  the  subject-matter  of  the      agreement, is  not to  be deemed  a      mistake as to a matter of fact."      This Section  provides that  an agreement would be void if both the parties to the agreement were under a mistake as to a  matter of fact essential to the agreement. The mistake has to  be mutual and in order that the agreement be treated as void, both the parties must be shown to be suffering from mistake of  fact. Unilateral mistake is outside the scope of this Section.      The other  requirement is  that the mistake, apart from being mutual,  should be  in respect  of a  matter which  is essential to the agreement.      Learned counsel  for the  petitioner contended  that  a mistake of  fact with  regard to  the "price"  or the "area" would not  be a  matter essential to the agreement, at least in the instant case, as the only dispute between the parties was with  regard to the price of the land, whether the price to be  paid for  the area calculated in terms of "bighas" or "canals".      "Bigha" and "Kanal" are different units of measurement. In the Northern part of the country, the land is measured in some states  either in  terms of  "bighas" or  in  terms  of "kanals". Both  convey different  impressions regarding area of the  land. The finding of the Lower Appellate Court is to the effect that the parties were not ad-item with respect to the unit  of measurement.  While the  defendant intended  to sell it  in terms  of "kanals",  the plaintiff  intended  to purchase it  in terms of "bighas", the plaintiff intended to purchase it in terms of "bighas". Therefore, the dispute was not with regard to the unit of measurement only. Since these units relate  to the  area of  the land.  Since these  units relate to the area of the land, it was really a dispute with regard to  the area of the land which was the subject matter of agreement for sale, or, to put differently, how much area of the  land was  agreed to  be sold, was in dispute between the parties  and it  was with regard to the area of the land

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that the  parties were  suffering from a mutual mistake. The area of  the land  was as much essential to the agreement as the price  which, incidentally,  was to be calculated on the basis of  the area.  The contention  of the  learned counsel that the "mistake" with which the parties the suffering, did not relate  to a matter essential to the agreement cannot be accepted.      Learned counsel  for the  petitioner has contended that Lower Appellate  Court or  the High Court were not justified in passing a decree for the refund of Rs. 77,000/- which was paid as  earnest money  to the  petitioner as  there  was  a specific stipulation  in the  agreement for sale that if the respondent did  not perform his part of the contract and did not obtain  the sale deed after paying the balance amount of sale  consideration   within  the   time  specified  in  the agreement, the  earnest money  would stand  forfeited. It is contended that  since  the  respondent  did  not  offer  the balance amount  of sale consideration and did not obtain the sale deed  in terms  of the agreement, the amount of earnest money was  rightly forfeited  and a  decree for  its  refund could not have been legally passed.      Learned counsel  for the  petitioner  has  invited  our attention to Section 73 and 74 of the Contract Act which, in our opinion, are of no aid to the petitioner.      Section 73  stipulated a  valid  and  binding  contract between the  parties. It  deals with  one  of  the  remedies available for  the breach  of contract.  It is provided that where a  party sustains  a loss  on  account  of  breach  of contract, he  is entitled to receive, from the party who has broken the contract, compensation for such loss or damage.      Under Section  74 of  the Act,  however, the parties to the agreement  stipulate either a particular amount which is to be  paid in  case of breach or an amount may be mentioned to be  paid by  way of penalty. The party complaining of the breach is  entitled, whether or not actual damage or loss is proved to  have been  caused, to  receive from the party who has committed  the  breach  of  contract,  compensation  not exceeding the  amount mentioned  in  the  agreement  or  the penalty  stipulated   therein.   But   this   Section   also contemplates a  valid  and  binding  agreement  between  the parties. Since the stipulation for forfeiture of the earnest money is  part of  the contract,  it is  necessary  for  the enforcement of  that stipulation,  that the contract between the parties  is valid. If the forfeiture clause is contained in an  agreement which  is void  on account of the fact that the parties were not ad-idem and were suffering from mistake of fact  in respect  of a  matter which was essential to the contract, it  cannot be  enforced as the agreement itself is void under  Section 20 of the Contract Act. A void agreement cannot be split up. None of the parties to the agreement can be permitted  to seek  enforcement of  a part  only  of  the contract through  a court  of law. If the agreement is void, all its  terms are  void and  none of  the terms,  except in certain known  exceptions, specially  where  the  clause  is treated to  constitute a separate and independent agreement, severable from the main agreement can be enforced separately and independently.      Since, in  the instance  case, it  has been  found as a fact by  the below  that the  agreement in question was void from its  inception as  the  parties  suffered  from  mutual mistake with  regard to  the area  and price of the plots of land agreed  to be  sold, the  forfeiture clause  would, for that reason,  be also  void and,  therefore, the  petitioner could  not   legally  forfeit   the  amount   and  seek  the enforcement of forfeiture clause, even by way of defence, in

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a  suit   instituted  for   Specific  Performance   by   the respondent.      We may  also refer  to Section  65 of  the Contract Act with, mirus the illustrations, is as follows:-      "65. Obligation  of person  who has      received   advantage   under   void      agreement or  contract that becomes      void.-   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."      This Section,  which is  based on  equitable  doctrine, provides for the restitution of any benefit received under a void agreement or contract and, therefore, mandates that any "person" which  obviously  would  include  a  party  to  the agreement, who has received any advantage under an agreement which is  discovered to  be void  or under  a contract which becomes void,  has to  restore  such  advantage  or  to  pay compensation for  it, to  the person  from whom  he received that advantage or benefit.      Learned counsel  for the  appellant has  contended that Section            65 would  apply to  a situation where the agreement is  "discovered to  be void" or where the contract "becomes void"  and not  to an  agreement which is void from its inception.  This argument cannot be allowed to prevail.      Mutual consent, which should also be a free consent, as defined in Section 13 and 14 of the Act, is the sine qua non of a valid agreement. One of the essential elements which go to constitute  a free  consent is that a thing is understood in the  same sense  by a party as is understood by the other party. It  may often  be that the parties may realise, after having entered into the agreement or after having signed the contract, that one of the matters which was essential to the agreement, was  not understood by them in the same sense and that  both   of  them   were  carrying   totally   different impressions of  that matter at the time of entering into the agreement or  executing the document. Such realisation would have the  effect of invalidating the agreement under Section 20 of  the Act.  On such realisation, it can be legitimately said that  the agreement  was "discovered  to be  void". The words "discovered  to  be  void",  therefore,  comprehend  a situation in which the parties were suffering from a mistake of fact from the very beginning but had not realised, at the time of  entering into  the  agreement  or  signing  of  the document, that they were suffering from any such mistake and had, therefore,  acted bona  fide  on  such  agreement.  The agreement in  such a  case would be void from its inception, though discovered to be so at a much later stage.      The Privy  Council in Thakurain Harnath Kuar vs. Thakur Indar Bahadur  Singh, AIR  1922 PC  403 = ILR (1922) 45 All. 179 =  27 CWN  949 =  44  MLJ  489,  while  considering  the provisions of Section 65 held that:-      "The   section   deals   with   (a)      agreements and  (b) contracts.  The      dinstinction   between    them   is      apparent from  section 2. By clause      (e) every  promise and every set of      promises forming  the consideration      for each other is an agreement, law      is   a    contract.   Section   65,      therefore,    deals     with    (a)

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    agreements enforceable  by law  and      (b)   with    agreements   not   so      enforceable.  By   clause  (g)   an      agreement not enforceable by law is      said to be void.      An agreement, therefore, discovered      to br  void is one discovered to be      not enforceable by law, and, on the      language  of   the  section   would      include an  agreement that was void      in that sense from its inception as      distinct  from   a  contract   that      becomes void."      This case before the Privy Council also related to sale of certain  villages for  which some  money had been paid in advance. The sale was found to be inoperative as there was a misapprehension as  to the  rights of  the transferor in the villages which he purported to sell and that the true nature of  those   rights  was   discovered  much  later.  In  this background, the  Privy Council  held the  agreement to  have been "discovered  to be void". The Privy Council, therefore, passed a decree for compensation in favour of the vendee and in assessing  that compensation, the sum of money, which was advanced, was included in the amount of compensation decreed with 6% interest payable from the date of suit.      To the  same effect  is an old decision of the Calcutta High Court  in Ram  Chandra  Misra  and  others  vs.  Ganesh Chandra Gangopadhya  and others.  AIR 1917  Calcutta 786, in which it  was held  that an  agreement entered  into under a mistake  and   misapprehension  as   to  the   relative  and respective rights of the parties thereto is liable to be set aside as  having proceeded  upon a  common mistake.  In this case, there  was  an  agreement  for  lease  of  the  mogoli brahmatter rights  of the  defendants in  certain  plots  of land. Both  the parties  were under  the impression that the brahmatter rights  carried with  them the mineral rights. It was subsequently  discovered that  brahmatter rights did not carry mineral rights. The High Court held that the agreement became void  under Section 20 of the Contract Act as soon as the mistake  was discovered  and, therefore,  the plaintiffs were entitled  to refund  of money advanced under a contract which was subsequently discovered to be void.      We may  point out  that there  are many  facets of this question, as for example (and there are many more examples), the agreement  being void  for any of the reasons set out in Section 23  and 24,  in which  case even  the refund  of the amount already paid under that agreement may not be ordered. But, as pointed out above, we are dealing only with a matter in which  one party  had  received  an  advantage  under  an agreement which  was "discovered  to be  void" on account of Section 20  of the Act. It is to this limited extent that we say that,  on the  principle contained  in Section 65 of the Act, the  petitioner having received Rs. 77,000/- as earnest money from the respondent in pursuance of that agreement, is bound to  refund the said amount to the respondent. A decree for refund  of this amount was, therefore, rightly passed by the Lower Appellate Court.      For the  reasons stated  above, we see no force in this Special Leave Petition which is dismissed.