16 December 1964
Supreme Court


Case number: Appeal (civil) 180 of 1962






DATE OF JUDGMENT: 16/12/1964


CITATION:  1965 AIR 1523            1965 SCR  (2) 630

ACT: Contract  Act,  s. 56-Contract to purchase  plot-Subject  to completion  of  development  work-Government  requisitioning land-Rendering   completion   temporarily   unlawful-Whether contract discharged.

HEADNOTE: In May 1941, the respondent had entered into a contract with the appellant company for the purchase of a plot of land  in a  Colony  Scheme.  He had paid the earnest  money  and  had undertaken to complete the transaction within on month  from the  date of completion of certain development work  by  the appellant.    Thereafter,   the   land   in   question   was requisitioned  by the Government under the Defence of  India Rules and the company was therefore unable to undertake  the development work during the continuance of the war. On  learning that the Government proposed to  de-requisition the  lands taken over by them, in May 1946,  the  respondent approached  the company to ascertain when it would  complete development work after the de-requisitioning of the land, so that  he  might complete the transaction  within  one  month thereafter.   The  company claimed that the  contract  stood cancelled since the respondent had failed to comply with the terms  of a circular letter issued by it in  December  1943, offering  all purchasers an option between accepting  refund of   the  earnest  money  or  completing   the   transaction immediately  by accepting the land in an undeveloped  state. The  respondent denied having received the  circular  letter and  filed a suit in August 1946, which was decreed  by  the trial  court and the decree was upheld by the High Court  in appeal. In  the  Supreme  Court it was contended on  behalf  of  the company  that  the  contract was  discharged  by  reason  of frustration because its performance was rendered unlawful as a   result  of  the  requisitioning  orders  made   by   the Government, and furthermore, that the suit for specific per- formance  was  premature,, because, under the  contract  the respondent did not get the right to obtain a sale deed  till after the development work was complete. HELD   :  (i)  It  cannot  be  said  that  because  of   the requisitioning  orders  which had the effect of  making  the entry  by or on behalf of the company on the  land  illegal,



during the subsistence of the period of requisitioning,  the contract stood discharged by frustration. [637 H] If  time is of the essence of the contract, or if  the  time for the performance is set out in the contract, the contract would stand discharged even though its performance may  have been  rendered unlawful for an indeterminate time,  provided unlawfulness  attached to the performance at the  time  when the contract ought to have been performed. [637 A-C] In  the present case, it could not be said that time was  of the  essence of the contract or that the contract  had  been discharged because it had not been performed in a reasonable time within the meaning of s. 46 of the Contract Act.   When the  parties  entered  into  the  contract,  they  knew  the prevailing  circumstances  and must have borne in  mind  the possibility  of  difficulties  in  obtaining  the  necessary material or the possibility of the land being  requisitioned by the Government. [637 E-H] 631 Denny  Mott  & Dickson Ltd. v. James B. Frasser &  Co.  Ltd. [1944]  A.C. 265 and Satyabrata Ghose and Ors. v.  Mugneeram Bangur & Co. & Anr. [1954] S.C.R. 310. referred to. (ii) The contention that the suit was premature could not be accepted because    the development work had been  completed when the appeal was heard by  the  High  Court.  In  such  a case  the  court  would be justified  in  taking  notice  of subsequent  events in moulding its relief accordingly.  [638 A-B]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 180 of 1962. Appeal  by special leave from the judgment and decree  dated January  28, 1959, of the Calcutta High Court from  original Decree No. 226 of 1952. B. Sen and S. N. Mukherjee, for the appellant. Hem  Chandra  Dhar, S. S. Khanduja and Ganpat Rai,  for  the respondent. The Judgment of the Court was delivered by Mudholkar, J. This appeal, like Satyabrata Ghose v.  Mugnee- ram  Bangur  & Co. and another(1) relates to the  effect  of requisitioning orders made by the Government during the last war  under which they took possession of land  belonging  to the  appellant company which had been divided into  building plots  by  them in pursuance of what is known  as  the  Lake Colony  Scheme,  by  constructing  roads  and  drains.   The plaintiff-respondent was one of the various persons who  had entered  into  contracts with the company  for  purchase  of plots,  in  pursuance  of  the public  offers  made  by  the company.  This he did by addressing the following letter  to the company and paying Rs. 202/- by way of earnest money. "To Mugneeram Bangur and Company         Land Department.                   Russa Road, South,            Tollygunge, Calcutta.                   No. 499, Phone: South 135. Through Babu- Re : Plots Nos.  New Nos. 245 and 246 on 30 feet road in the premises No. Lake Colony Scheme No. 1, Northern: Block. Area measuring-10 ks. x ch. x sqr. ft more or less. (1)  [1954] S.C.R. 310. 632 Dear Sir, I am willing to purchase the above plot of land from you  at



the  average  rate of Rs. 1,075/- (Rupees one  thousand  and seventyfive only) per katta irrespective of the condition of the  soil and I am ready to deposit Rs. 202/- of the  actual value as an earnest money at once.  I undertake to  complete the  transaction within one month from the date  on(?)  (of) completion  of  road  on  payment  of  the  balance  of  the consideration  money and time must be deemed as  essence  of the contract.  If I fail to do so within the said period the earnest money deposited by me will be forfeited and you will be  free  to resell the land and I shall be liable  for  all damages  that  may result thereby.  I also agree to  sign  a formal  agreement  in  the form required by you  if  you  so desire.                                   Yours faithfully,                                    Name, Gurbachan Singh,           Address:  48/ 1, Chakraberia Road, North.             Dated the      19 ....       Witness : (Illegible)       Address ..................               N.B.  I agree to pay half of the value at  the               time  of  registration of the  deeds  and  the               balance within 6 years bearing interest at the               rate of 6 per cent per annum with half  yearly               rests  and  the said plots Nos : 245  and  246               purchased  by me shall remain charged for  the               payment  of the balance of the purchase  money               in  manner  as  aforesaid  and  the  necessary               security  deed charged should be executed  and               registered by me at my own cost.                      Name:    Gurbachan Singh                      Address  :                      Witness  (Illegible)                      4, Baktiar Shah Road, Tollygunge. The  letter  does  not bear any date; but  probably  it  was written  on  May  14, 1941 which is the date  on  which  the company issued a receipt in his favour.  Different  portions of  the  land covered by the scheme  were  requisitioned  by Government between November 12, 1941 and July 25, 1944.  The plots  which the respondents had contracted to purchase  are said  to  form part of the land which was  requisitioned  by virtue  of an order made by the Government on  February  18, 1944. 633 According  to the company, on December 24, 1943, a  circular notice  was sent to all those persons who had  entered  into contracts  for  purchase of plots from them stating  that  a considerable  portion  of  the land comprised  in  the  Lake Colony Scheme area had been requisitioned under the  Defence of  India  Rules  and  was  taken  into  possession  by  the Government.   It  was  not  possible to  say  how  long  the Government   would  continue  to  be  in   possession   and, therefore,  it was not possible for the company to carry  on the work of the construction of roads and drains during  the continuance  of  the war and possibly for  many  years  even after  the  termination  of  the  war.   The  circular  then proceeded to state as follows :-               "In  these  circumstances we have  decided  to               treat the agreement as cancelled and give  you               the  option  of taking of the  refund  of  the               earnest  money  deposited by  you  within  one               month from the receipt of this letter.                In  the  event of your refusal to  treat  the               contract as cancelled, we are offering you, in               the alternative, to complete the  registration               of the conveyance of the sale deed within  one



             month  from  the receipt of this  letter.   In               such  a case you have to take the lands as  it               is now, the road and drain will be made by  us               as soon as circumstance will permit after  the               termination of the War.               If  you do not exercise your option in any  of               the  two  ways mentioned above  the  agreement               will be deemed to have been cancelled and your               earnest money forfeited." On  May  8, 1946 the respondent’s  attorneys,  acting  under instructions,   wrote  to  the  company  saying   that   the respondent  had  learnt from the company’s office  that  the government  would be de-requisitioning lands taken  over  by them  and  inquiring of the company as to when it  would  be possible for the company to deliver possession of the  plots to  the  respondent.  In reply to that  letter  the  company wrote  on  May  29,  1946 drawing  his  attention  to  their circular  letter and said that by reason of the  failure  of the respondent to exercise the options given by them therein the agreement stood cancelled and the earnest money had been forfeited. On June 13, 1946, the respondent’s attorneys expressed  sur- prise at the company’s reply and stated that the  respondent had  not received the circular referred to in the  company’s reply and ended by saying as follows :               "That  my said client, therefore,  now  hereby               asks you as to when you are going to  complete               the  roads, so that he may do the needful  for               completion of the conveyances               634               within one month from such date of  completion               of the roads.               That  my said client hereby calls upon you  to               intimate  to him within seven days  from  date               the expected exact date of completion of roads               to  enable him to complete the  conveyance  as               per agreement, failing which he will be forced               to take legal steps against you in the  matter               as  he may be advised in the  matter,  without               further reference which please note." Apparently the company did nothing with the result that  the present  suit was instituted by the respondent on August  8, 1946  in  the  court  of the  Second  Subordinate  Judge  at Alipore.   The company resisted the suit on various  grounds but  only  two are material for the purpose of  this  appeal because  Mr.  Sen has confined his argument  only  to  those matters.   One is that the contract has been  discharged  by reason  of frustration and the second is that the  suit  was premature.  The suit was decreed and that decree was  upheld by  the High Court in appeal.  A certificate that  the  case was fit for appeal to this Court having been refused by  the High  Court the company sought and obtained from this  court special  leave to appeal.  That is how the matter  comes  up before us. This case would really appear to be covered by the  decision of this court to which we have referred at the outset.   Mr. Sen, however, points out that the question as to whether the contract  could be said to have been discharged  because  of the  fact  that its performance was rendered unlawful  as  a result  of the requisitioning orders made by the  Government which was sought to be raised before this Court in that case was not permitted to be raised by it and has been left open. He  admits  that  certain observations made  by  this  Court towards  the  concluding  portion  of  the  judgment   would indicate that this Court was not prepared to accept the con-



tention  sought  to be urged before it.  But, Mr.  Sen  says that  as the contention was not permitted to be raised,  the observations  of this Court could be said to have been  made merely  in  passing and at best be regarded as  a  tentative expression  of its views.  We think Mr. Sen is right in  the sense that the question has been actually left open by  this Court.   But even so, we will have to consider  whether  the grounds upon which the previous decision rests would not  be relevant  for consideration in connection with the  argument advanced by Mr. Sen. 635 In so far as discharge of contract by reason of  frustration is concerned there is no question of implying a term in  the contract a term fundamental for its performance, as is  done by the courts in England because we have here the provisions of  s.  56 as well as those of s. 32 of  the  Contract  Act. This is what was held by this Court in the earlier case  and that  decision  binds  us.   No doubt,  a  contract  can  be frustrated  either because of supervening  impossibility  of performance  or because performance has become  unlawful  by reason of circumstances for which neither of the parties was responsible.   In the earlier case this Court has held  that where  the  performance  of an essential  condition  of  the contract   has   become  impossible   due   to   supervening circumstances the contract would be discharged.  This  Court has  further  held  that the impossibility need  not  be  an absolute  one  but it is sufficient if  further  performance becomes impracticable by some cause for which neither of the parties  was responsible.  It, however, held that  the  mere fact  that  the  performance of an  essential  term  of  the contract  that is to say, of undertaking development of  the area  under the scheme could not be undertaken  because  the land  had  been requisitioned, did not have  the  effect  of frustrating  the  contract.  For though the  term  regarding development  was  an  essential term of  the  contract,  the requisitioning of the land was only for a temporary  period. Further  the  parties had deliberately not placed  any  time limit  within  which  roads  and  drains  had  to  be   made apparently  because they were aware of the  difficulties  in carrying on the work on account of scarcity of materials and the various restrictions which the Government had placed  on such activities.  This Court also pointed out:               "Another important thing that requires  notice               in this connection is that the war was already               on,   when  the  parties  entered   into   the               contract.    Requisition  orders  for   taking               temporary possession of lands for war purposes               were  normal events during this period."  (pp.               326-327). Though  these observations were made while dealing with  the argument that the contract has been frustrated by reason  of impossibility of performance they would not be wholly out of place  while considering the argument based upon the  ground that continued performance of the contract had been rendered unlawful. What s. 56 speaks of is a contract, the performance of which has become unlawful.  Now, it is true that no order was made under  the  Defence of India Rules prohibiting  the  company from  carrying  on  the work of construction  of  roads  and drains.  The 636 actual  order served upon the company, among  other  things, provides :               "The owner/occupier of the said land:               (a)   shall   place  the  said  land  at   the



             disposal and under the control of the Military               Estates Officer Bengal Circle on and from  the               14th  November,  1941 at 1  P.M.  Bengal  time               until six months after the termination of  the               present war unless relinquished earlier." In consequence of this order the company lost possession  of the  land  and automatically lost access  thereto.   Without getting  on to the land the company could not carry out  its obligation  to the purchasers of constructing the roads  and drains.   If, in disobedience of this order,  the  company’s servants, agents or contractors were to carry on the work of construction of the roads and drains by entering on the land of which the possession was with the government, they  would have been liable to punishment under sub r. (7) of r. 75 (a) of the Defence of India Rules and also the company.  We were informed  that  the  land was used  by  the  Government  for military purposes.  It is, therefore, possible that the land might have been declared as a protected place under r. 7  of the  Defence of India Rules.  Even, however, without such  a declaration,  we agree with Mr. Sen that it would  not  have been  possible  for  the company, its  agents,  servants  or contractors  to  go on the land during  the  continuance  in force  of  the order of requisition without  being  rendered liable at law. Even so it is clear that all that had become unlawful was to construct  roads and drains while the land was bound  to  be given up by the Government sometime or other and, therefore, in essence the activities which were rendered unlawful  were not forbidden for all time but only temporarily.  It may  be that  the  duration  of the embargo was  uncertain  but  not permanent.   It  would, therefore, be  relevant  to  enquire whether  a contract could properly be held to be  frustrated because  for  a certain period of time its  performance  has become unlawful.  According to Mr. Sen the moment it  became unlawful for one of the parties to the contract to  continue with  the  performance, the contract was discharged  and  in this  connection he referred us to certain  observations  of Lord Wright in Denny Mott & Diskson Ltd. v. james B.  Fraser & Co. Ltd.,() and certain other portions of the report.   We put to him the question as to what would be the. effect of a requisitioning, say, for a period of one month.  Would  that operate as &charge of the (1)  [1944] A.C. 265, 274. 637 contract  ?  To that his answer was in the negative  and  we think that the answer was right.  The question then would be : would it make any difference if unlawfulness would  attach to  the  performance of the contract  for  an  indeterminate period  ? In our judgment if time is of the essence  of  the contract  or  if  time for performance is  set  out  in  the contract it may be that the contract would stand  discharged even though its performance may have been rendered  unlawful for an indeterminate time provided unlawfulness attached  to the  performance  of  the  contract at  the  time  when  the contract  ought  to have been performed.   Thus,  where  the performance  of  a contract had been  rendered  unlawful  by reason  of  some subsequent event the contract  would  stand discharged   but   such  discharge  will  take   place   not necessarily  from the date on which the further  performance was  rendered  unlawful,  unless  further  performance   was rendered  unlawful for all time.  If the performance of  the contract  is  rendered  unlawful either  for  a  determinate period  of time or for an indeterminate period of  time  the contract  would not stand discharged unless the ban  on  its performance  existed on the day or during the time in  which



it  has to be performed.  Here it is pointed out by Mr.  Sen that  the  respondent  had  made time  the  essence  of  the contract  but that only applies to the grant  of  conveyance after  the completion of the roads and drains.   As  already pointed  out,  parties  were wholly silent as  to  the  time within  which  the roads and drains were  to  be  completed. Therefore,  in  so  far as this aspect of  the  contract  is concerned  time  was  in no sense made the  essence  of  the contract.  According to Mr. Sen, however, where the  parties have failed to specify in the contract time within which  it has  to be performed s. 46 of the Contract Act comes in  and the parties may be presumed to have agreed that the contract will  be  performed  within reasonable time.   To  that  the answer would-be the same as that given in the earlier  case, that  is, the parties when they entered into  the  contract, knew the prevailing circumstances and must have home in mind the  possibility that something like what actually  happened may  happen and, therefore, did not specify the time  within which  the  land had to be developed.  In other  words,  the parties   intended  to  exclude  from  the  computation   of reasonable  time such time as was taken up in procuring  the necessary material which was not easy to obtain and such  as may   be  taken  up  if  the  land  were  requisitioned   by government.   Thus,  in  our view it  cannot  be  said  that because of the requisitioning orders which had the effect of making the entry by or on behalf of the company on the  land illegal   during   the   subsistence  of   the   period   of requisitioning the contract stood discharged. p.55-7 638 Then remains the other point argued by Mr. Sen. He said that the  suit  for specific performance  was  premature  because under  the agreement the respondent did not get a  right  to obtain  a sale deed till after the development of  the  land comprised  in the scheme was completed.  That  is  perfectly true.   But  the  fact  remains  that  this  work  had  been completed when the appeal was heard by the High Court.   The Court would in such a case be justified in taking notice  of subsequent events in moulding its relief accordingly. In our judgment the courts below were right in upholding the respondent’s claim.  The apeal is dismissed with costs. Appeal dismissed. 639