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PETITIONER: LALA SHANTI SWARUP

       Vs.

RESPONDENT: MUNSHI SINGH & ORS.

DATE OF JUDGMENT: 03/01/1967

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C.

CITATION:  1967 AIR 1315            1967 SCR  (2) 312

ACT:     Indian  Limitation  Act  (9  of  1908),  Arts.  83   and 116--Sale  of encumbered property--Covenant by purchaser  to pay   off   encumbrance--Failure   by   purchaser--Loss   to vendor--Suit to recover loss--Period of limitation.

HEADNOTE:     The respondents executed a simple mortgage for a sum  of Rs.  12,000  in  1914.   ’Later..  they  sold  half  of  the mortgaged   property   to  the  appellants.   Out   of   the consideration  a sum required to pay the  amount  (principal and  interest)  due  to the mortgagees, was  left  with  the appellants.  The appellants took possession of the  property conveyed,  but did not make any payment to  the  mortgagees. The mortgagees brought a suit for the recovery of the amount due  to them and in 1937, a final decree was passed  against the  respondents.   The respondents then applied  under  the U.P.   Encumbered  Estates  Act,  and  the   liability   was apportioned  between  the appellants  and  respondents.   In 1943, the Collector took proceedings under that Act  for-the liquidation  of  the debt and directed  the  respondents  to execute  a  self-liquidating mortgage  of  three-fourths  of their  half-share  for  a sum of  about  Rs.  20,8000.   The mortgage  was executed on 25th February 1943.  As a  result, the respondents  had to deliver possession of  the  three- fourths share of their property to the mortgagees.  On  30th July  1943, they filed a suit for the recovery of about  Rs. 18000  and  interest, representing the loss  they  sustained owing  to  the failure of the appellants  to  discharge  the original mortgage of 1914. On the question whether the suit was time-barred, HELD : When a conveyance contains a covenant by a  purchaser to pay off an encumbrance on the property sold it is nothing more  than  an implied contract of indeminity.   In  such  a case,  in addition to the right to bring an action  to  have himself  put in a position to meet the liability  which  the purchaser  has  failed to discharge, the vendor has  also  a right to bring a suit on the contract of indemnity if, as  a result of the purchaser’s failure, the vendor incurs a loss. Under Art. 83 of the Limitation Act, 1908 which applies both to express and implied contracts of indemnity, the cause  of actio n  arises  when  the vendor  was  actually  damnified.

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Therefore,  in the present case, as the sale deed in  favour of the appellants was a registered document, the respondents had six years under Art. 83 read with Art. 116, for bringing the suit., from 25th February, 1943, when they were actually damnified,  and so the suit was within time.  The mere  fact that a mortgage decree was passed against the respondents in 1937 was not sufficient to start limitation against them  as time starts running only when there is actual damnification. [314 F, B; 315 D-E; 316 D-E, H) Case law referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 784 of 1964. Appeal  from the judgment and decree dated January 23,  1959 ,of  the  Allahabad High Court in First Appeal  No.  139  of 1946.                             313 B.   C. Misra and P. K Ghose, for the appellant. S.   T.  Desai,  Sardar  Bahadur and Arun  B.  Saharya,  for respondents Nos. 1-9. The Judgment of the Court was delivered by Ramaswami,  J. This appeal is brought, by certificate,  from the  judgment of the High Court of Allahabad  dated  January 23, 1959 in First Appeal No. 139 of 1946. Some  of the plaintiff-respondents and  the  predecessor-in- interest of other plaintiff-respondents owned lands in mahal Narain  Singh village Khetalpur Sahruiya.  They  executed  a simple mortgage of this property on May 9, 1914 in favour of two  persons  Bansidhar  and Khub Chand, for a  sum  of  Rs. 12,000.   Subsequently a sale deed of half of this  property which  had  been mortgaged was executed by the  owners  (now represented  by  the plaintiff-respondents) on  February  9, 1920,  in  favour of Shanti Saran, the first  appellant  and three  others, the remaining appellants.  The  consideration for the sale-deed was a sum of Rs. 16,000 out of which a sum of  Rs. 13,500 was left with the purchasers for  payment  of the amount due to the mortgagees on account of principal and interest  under  the  mortgage  dated  May  9,  1914.    The purchasers entered into possession of the property  conveyed to them but neither they nor the appellants made any payment to  the mortgagees who in due course brought a suit  against the  respondents for the recovery of the amount due to  them under  the mortgage.  On February 4, 1937, a final  mortgage decree  was  passed in their favour for a  little  over  Rs. 26,000.   Thereafter  the respondents  made  an  application under the U.P. Encumbered Estates Act, and by an order dated May  22, 1939, the Special Judge apportioned  the  liability for  the  mortgage  debt between  the  respondents  and  the purchasers  as owners of half the mortgaged property.  As  a result  of  this  apportionment  the  respondents  and   the appellants  were each held to be liable for the sum  of  Rs. 14,307/9/6.  It was further provided in this order that  the respondents would be liable to pay interest at 6 percent per annum  on the amount due by them from August 1,  1933  uptil September 28, 1936, and thereafter at 41 per cent per annum. The Collector subsequently took proceedings for  liquidation of  the debt and on January 30, 1943 the Collector  directed the  execution  by  the respondents  of  a  self-liquidating mortgage of three-fourths. of the half share of the property of which they were the owners.  That mortgage which was  for the sum of Rs. 20,803/4/3 was executed on February 25, 1943, and as a result the respondents had to deliver possession of

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this   share  of  the  property  to  the  mortgagees.    The respondents  thereafter  filed the suit out  of  which  this appeal arises for the recovery of the sum of Rs. 18,500  and interest  representing the loss they had sustained owing  to the failure of the appellant or 314 of  his predecessors-in-interest to discharge  the  original mortgage  of May 9, 1914.  This suit was instituted on  July 30,  1943.  The case of the plaintiff-respondents  was  that they  had actually suffered loss and injury as a  result  of the  breach of trust by the defendant appellant on  February 25,  1943  when  they were compelled to  execute  the  self- liquidating  mortgage  and  to  deliver  possession  of  the property  in  the proceedings for liquidation of  that  debt which  had been decreed by the Special Judge under the  U.P. Encumbered  Estates  Act.   On  behalf  of  the   defendant- appellant it was pleaded that the suit was time-barred.  The contention  was that the claim of the  plaintiff-respondents was  a claim for compensation for breach of  contract  which was  entered  into  by a registered document,  so  that  the period  of limitation was six years from the date  on  which the breach of contract had been committed.  It was said that the  breach  of  contract  should be  deemed  to  have  been committed  in  the year 1920  when  the  defendant-appellant undertook  to pay the money to the mortgagees and failed  to do so within a reasonable time.  The trial court  over-ruled the  objection of the defendant and decreed the  suit.   The defendant  appealed to the High Court.  The  Division  Bench which  heard the appeal in the first instance  referred  the question of limitation to a Full Bench of five Judges  which held  that the suit was governed by Art. 83 read  with  Art. 116  of the Limitation Act and that time ran  from  February 25, 1943 which was the date upon which the respondents  were compelled  to  execute a self-liquidating mortgage  for  the purpose of satisfying the mortgage debt.  On receipt of  the decision  of the Full Bench, the Division Bench of the  High Court dismissed the appeal and affirmed the judgment of  the trial court. The question to be considered in this appeal is whether  the High  Court  was  right  in taking  the  view  that  in  the circumstances  of the present case the suit is  governed  by Art.  8  3 read with Art.  II 6 of the  Limitation  Act  and whether  the terminus a quo for the limitation was  February 25, 1943 which was the date upon which the respondents  were compelled to execute a self-liquidating mortgage. On  behalf of the appellant Mr. B. C. Misra put forward  the argument  that  a  provision in  a  conveyance  whereby  the purchaser  agrees to pay off an encumbrancer does  not  give rise  to any contract of indemnity and that the  appropriate article  of Limitation Act was Art. 116 and not Art. 83  and time  began to run from the date from which the covenant  to pay off the encumbrancer is broken.  We are unable to accept this  argument  as  correct.  If  a  conveynace  contains  a covenant  by  a purchaser to pay off an encumbrance  on  the property sold the failure of the purchaser to do so may give rise to two different causes of action.  In the first place, the  failure of the purchaser to discharge  the  encumbrance within such time as is provided expressly or by  implication entitles                             315 the  vendor  to  bring an action to have himself  put  in  a position  to  meet  the liability which  the  purchaser  has failed  to discharge.  In such a case, limitation  will  run under Art. 116 of the Limitation Act (or under Art.  II 5 if the  sale deed is unregistered) from the date on  which  the

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purchaser  ought  to  have paid off the  mortgage.   In  the second place, it is also open to the vendor to bring a  suit on  the contract of indemnity if as a result of the  failure of  the  purchaser to discharge the encumbrance  the  vendor incurs a loss.  It was contended on behalf of the  appellant that there was no express contract of indemnity in the  sale deed  executed  on  February  9,  1920  in  favour  of   the appellant.   But  the contract of indemnity is  implicit  in this  case  because  of  the covenant on  the  part  of  the purchaser  to  pay  off  the  previous  encumbrance  on  the property  sold.  Under s. 124 of the Indian Contact  Act  "a contract  of  indemnity" is a contract by  which  one  party promises  to save the other from loss caused to him  by  the conduct  of the promisor himself, or by the conduct  of  any other  person.  Under Art. 83 of the Limitation Act  a  suit based  upon  the  contract of indemnity is  required  to  be brought within three years from the time when the  plaintiff was  actually  damnified.  In the present case there  is  no express  contract  of indemnity.  But, in our  opinion,  the provisions  of Art. 83 are also applicable to a  case  where the  contract of indemnity is implied and not  express.   It was observed by the Judicial Committee in Musammat Izzat-un- Nissa  Begam v. Kunwar Pertab Singh (1) that a  contract  of indemnity  may  be express or implied and if  the  purchaser covenants with the vendor to pay the encumbrances, there  is nothing  more than a contract of indemnity.  At page 208  of the  Report  the Judicial Committee  clearly  expressed  the proposition as follows :                "it  seems to depend on a very  simple  rule.               On   the   sale   of   property   subject   to               encumbrances the vendor gets the price of  his               interest,  whatever  it may  be,  whether  the               price   be  settled  by  private  bargain   or               determined  by  public  competition,  together               with  an  indemnity against  the  incumbrances               affecting the land.  The contract of indemnity               may  be express or implied.  If the  purchaser               covenants   with   the  vendor  to   pay   the               incumbrances, it is still nothing more than  a               contract  of indemnity.  The  purchaser  takes               the  property subject to the burthen  attached               to  it.  If the incumbrances turn out  to  the               invalid,  the vendor has nothing  to  complain               of.   He has got what he bargained  for.   His               indemnity is complete.  He cannot pick up  the               burthen  of  which the land  is  relieved  and               seize it as his own property.  The notion that               after  the  completion  of  the  purchase  the               purchaser  is  in some way a trustee  for  the               vendor of the amount by which the existence, (1)  36 1. A. 203. 316                or  supposed existence, of  encumbrances  has               led to a diminution of the price, and  liable,               therefore,  to  account  to  the  vendor   for               anything that remains of that amount after the               encumbrances are satisfied or disposed of,  is               without  foundation.   After the  purchase  is               completed,   the  vendor  has  no claim   to               participate in any benefit which the purchaser               may  derive  from his purchase.  It  would  be               pedantry  to refer at length  to  authorities.               But their Lordships, under the  circumstances,               may perhaps be excused for mentioning  Tweddel               v. Tweddel [(1787) 2 Bro C.C. 151)], Butler v.

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             Butler [(1800) 5 Ves. 534 e.)], and Waring  v.               Ward[(1802) 7 Ves. 332)]." This  decision  was  followed  by  the  Full  Bench  of  the Allahabad High Court in Tilak Ram v. Surat Singh(1).  In our opinion,  the principle applies to the present case  and  we accordingly  hold  that  the  covenant  undertaken  by   the predecessor-in-interest of the appellant was not only one to purchase  the vendor’s property but also one to relieve  the vendor from the liability of the mortgage, and in that sense there was an implied contract of indemnity in favour of  the vendor.  It follows therefore that Art. 83 of the Limitation Act  applies  to this case and as the sale deed is  a  regi- stered document the plaintiff has six years for bringing the suit from the time when he is damnified or actually  suffers loss.   The  view that we have expressed is borne out  by  a long catena of authorities.-Kumar Nath Bhuttacharjee v. Nobo Kumar  Bhuttacharjee,2  Ratan  Bai  v.  Ghasiram  Gangabisan Wani(3)   Harakchand  Tarachand  V.  Sumatilal   Chunilal(4) Gulabrao  Vithoba  v.  Shamrao Jagoba,(5)  Naima  Khatun  v. Sardar Basant Singh,(6) Ram Barai Singh v. Sheodeni Singh(7) and Venkatanarayaniah v. Subramania Iyer(8). It was then contended by Mr. B. C. Misra that even if  there was  a  contract of indemnity the cause of  action  for  the plaintiff arose on February 4, 1937 when the final  mortgage decree  was  passed and not on February 25,  1943  when  the plaintiff  was  dispossessed.  It was argued that  the  suit must  be held to be brought beyond the period of  limitation and  the plaintiff was not entitled to succeed.  It  is  not possible  for  us  to accept this argument  as  correct  The vendees, in the present case, covenanted to the vendors  not only  to purchase the property mentioned in ’the  sale  deed but  also to relieve the vendors from the liability  of  the mortgages and in that sense there was an implied contract to indemnify  the vendors.  The cause of action in such a  case arises  when the plaintiff-vendors are  actually  damnified. The  mere  fact that a mortgage decree  has  been  ,obtained against the plaintiff is not sufficient to put the statute (1)  I.L.R. [1938] All. 500. (3)  I.L.R. 55 Bom, 565. (5)  A.I.R. 1948 Nag. 401. (7)  16 C.W.N. 1040. (2)  I.L.R. 26 Cal, 241. (4)  33 Bom, L.R. 1200. (6)  I.L.R. 56 All. 766. (8)  74 Indian Cases 209.                             317 in  motion.  In other words, the statute runs not  when  the event.  happens  which  caused the loss but  on  the  actual damnification.  "Where the covenant is to indemnify or  save harmless,  no  action  can be brought  till  some  loss  has arisen;  so it is also where the covenant is to acquit  from damage by reasons of a bond or some particular thing; and in either  case the proper plea is non damnificatus".  (1  Wms. Saund.  117,  n.  1;).   In  Collinge  v.  Heywood  (1)  the plaintiff  at  the request of the  defendant  prosecuted  an action,  on receiving an undertaking to indemnify  him  from the  said distress, actions, costs, damages,  and  expenses, which  are now, or may be hereafter, commenced or  otherwise incurred  by reason of the claim of the  distraining  party. The  plaintiff  incurred  costs of the  suit,  and  his  own attorney thereafter delivered him a bill on account of them. But  it  was  held  by the King’s  Bench  that  he  was  not damnified  till he had paid the bill.  In the present  case, the  damage  occurred to the plaintiffs not on  February  4, 1937 when the final mortgage decree was passed in favour  of

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the  mortgagees but on February 25, 1943 when the  Collector directed  the  execution  by  the  plaintiffs  of  a   self- liquidating mortgage of three-fourths of’ the half share  of the  property  of  which  they  were  the  owners.   We  are therefore  of the opinion that, ’in the present  case,  time runs  under Art. 83 of the Limitation Act from February  25, 1943 when the plaintiffs were compelled to execute the self- liquidating mortgage for the purpose of satisfying the claim of the mortgagees. For the reasons expressed we hold that there is no merit  in this appeal which is accordingly dismissed with costs. V.P.S.                      Appeal dismissed’ (1) (1839),9 A. & E.B. 633. 318