LALA SHANTI SW ARUP

\',

MUNSHI SINGH & ORS.

January 3, 1967

[J.C. SHAH AND V. RAMASWAMI. JJ.)

Indian Limitation Act (9 of 1908), Arts. 83 and 116-Sale of mrn111bered prop.erty--Covnant by purchas.er to pay uff e11cu111rancc-:l;'dl ure by purchaser-Loss to Vf'11dor-Su1t ro recover /oss--Pcnod of lu111tation.

The respondents executed a simple mortgage for a sum of Rs. 12,000 in 1914. Later .. they wld 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 appcil:rnL<.

The oppellants took possession of the property "onveyed, 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 apportioncJ between the appellants and respondents.

In 1943. the Collector took proceed!ngs under that . .\ct for the liquid~1ti0n of the t.lcbt anJ di'reclct.I the respondents to execute a self-liquidating inoneagc uf 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 re; pon<lents had to Jehcr possession of the three-fourths share of their property to the mortg3gc~.

On 30th July 1943, they filed a suit for the recovery of 'bout Rs. 18 .. 000 and interest, representing the loss they sustained owing to the failure of the appellants to discharge the original mortgage of 1914.

On the question \Vhether the suit was time-barred,

HELD : When a conveyan.ce, contains a covenant by a purchaser lo pay off an encumbrance on the property sold it is nothing more than an in1plied contract of indemnity.

In such a case, in addition to the right to bring an action to have himself put in a position to meet the liability \Vhich the purchaser has failed to discharge, the vendor has also

a right to bring a suit on the contract of inden1nity if, as a resuh of the purchaser's failure, the vendor incurs a lo3s.

Under Art. 83 of the Limitation Act, 1908 which applies both to express ond implied contrJc1s of indemnity, the cause of action arises when the vendor was actually damnified.

Therefore, in the present case, as the sale deed in fav.:.ur of the appellants was a registered document, the respondents had six years under Art. 83 read with Art. 116, for brining the suit, ftom :'5ih Feb; uary, 1943, when they were oe'liJolly d"11Jnifid. qfl<l !'1 i!io Si!ifwas within time. The mere fact that a m<>tlJl~!Jll decrw was pqsscd q5qin$t' the rc.>pondent:> in 1937 was .not sufficient to start lirnftntiorl A3<t; ost. ; J?m as tin1e starts running on!y when there is actual dan111ification. [314 F, H;

315 D-E; 316 D-E, HJ

Case law referred to,

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 784 ,1f 1964.

Ar"~,,] frnm the judgment and decrc datd fanuar•; 23, 1959 of the Allainbad High Crnrt in First A;1; inl l\Jn. 139 of 1946.

A 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. 139of1946.

Some of the plaintiff-respondents and the predecessor-ininterest 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-responJents) on February 9, 1920, in favour of Shanti Saran, the first appellant aud 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 forpayr.ient 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, li/37, a final mortgage decree was passed in their favour for a little over Rs. 26,000. Thereafter the respondents made an. appli:ation under the U.P. Encumbered E>tates Act, and by an order dated May 22, 1939, the Special Judge apportioned th liability for the mortgage debt between the respondents and the purchasers as owners of half the mortgage<:! property. As a result of tbis apportionment the respondenls 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 rc>p::mdents would be Ibbie to pay interest at 6 percent per annum on the amount due by them from August !, 1933 uptil

September 28, 1936, and thereafter at 4! per cent per annum.

The Collector subsequently took proceding> fer liquidation of the debt and on January 30. 1943 the Collector directed the execution by the respondents of a self-liqmdating mortgage of threc-fourtl1s. of the half share of the property of which they were tt, e owners.

That morlgai:e which was for the sum of Rg. 20,303/4/3 was ex~uted on February 25, 1943, and as a result the respondents had to deliver

possesion of this share of the property to the mortgagees. The respondents thercafcer filed the suit out of which this appeal arhes for the recovery of the sum of Rs. 18,500 and interest repre3cnting the loss they had sustained owing to the failure of the app31lant or

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 defendantappellant on February 25, 1943 when they were compelled to execute the self-liquidating mortgage and to deliver possessionofthe 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-ruleq the objection of the defendant anct 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 gove1ned 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 iu 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. 83 read with Art. 116 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 tho dato from which the covenant to pay off the encumbrancer is broken. We arc unable to accept this argument as correct. If a convcynace 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 discharg~ the encumbrance within such time as is provided expressly or by implication entitles

B •

SHANTI SWARUP v. MUNS!Il SINGH (Ramaswami, /.) 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 Arf. 116 of the Limitation Act (or under Art. 115 if' the sale deed is unregistered) from the date on which the 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 t. 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 lzzat-un-Niss:i 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 incumbrances 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 indemni; y against the incumbrances aifecting 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 veodor of the amount by which the existence,

(I) 36 I. A. 203.

or supposed existence, of incumbrances nas led to a diminution of the price, and liable, therefore, to account to the vendor for anvthing that rem:tins of that amount after the

incumbrares are satisfied or disposed of, is without foundation. After the purchase i< completed, the vendor has no cbim to participate in any benefi, which the purchaser may derive from his purchase. It would be pedantry to refer at length to authorities. But their Lordships, under the circµmstanccs, may perhaps be excused for mentioning Tweddel v. Tiveddel [(1787) 2 Bro C.C. 151)], Butler v.

Butler [(1800) 5 Yes. 534 e.)j, and Waring v. Ward[(l802) 7 Yes. 332)]."

This decision was followed by the Full Bench of the Allahabad Hig!1 Court in Tilak Ram v. Surat Singh(').

Jn our opinion, the rrinciplc applies to the pre>cn'. case and we accorrlingly hold that the covenant undertaken by the predcessor-in-interest of the appellant was not only one to purch:1sc the vendor's property but also one to relieve the vendor from ihc liability of the mortgage, and in that sense there was an im:ilied co•Hract of indemnity in favour of the vendor. It follows therefore that Art. 83 of the Lmil"ltion Act applies to this case and as the sale deed is a registered d0cument the plaintiff has six years for bringing the suit from the time when he is damniftd or actually suffers loss. The vie.v tlrnt we have expressed is borne out by a long catcna of authoritics.--Kumar Nath Bh•J/tacharjee v. Noho Kumar Bhuttacharjee,2 Ratan B:ii v. Gizasiram Gangabisan Wa11i(') lfarakclund Tarachand

v. S11111:11ilal Cl11111ila!(•) Gulabrao Vitlzoh:i v. Sha>nrao Jagoba,(') NainM Kliatzm v. Sardar Basant Sing/z.(6) RamBarai Sing/iv. Sheodeni Singh(?) and Venkatanarayanialz v. Subrama11ia lyer(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 pbintiff aroo.e on February 4, 1937 when the fin1l mor:g1ge de:ree was passed and not on February 25, 1943 whrn the plaintiff was dispossessed. It was argued that the suit must b~ held to be brought

byond the period of limitation and the pbi.ntiff wa; not entitled to succeed. Jt is not possible form to accept thi> argument as correct.

The vcndees, in the present c1se, covenanted to th~ veadors not only to purchase the property mentioned in the s1le deed but also to relieve the vendors from the liability of the m:irtgages and in tht sense there was an imolicd contract to indemnify the vendor,.

The c1use of action in such a case arises when th~ plaintiff-vendors are actually 1lamnified. The mere fact that a mJrt; pgc decree has been obtained ag1inst the plaintiff is not sufficient to put the statute ------ (!) l.L.R Jl938J All. SJO.

(3) t.L.R. SS Bom, S65.

(5) A.l.R. 19481'\SE. 4)1.

(7) 16 C.W.N. IQ4'J.

(2) l.L.R. 26 C1!, 241.

(4) 33 Born, L.R. 12.JO.

(6) 1.L.R. SE All. 766.

(8) 74 ln<lian Cases :IJ9.

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 :iarticular thing; and in either case the proper plea is non damnificatus". (I Wms. Saund . .117, n. I;). 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 distres~, 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 bi.II on account of them. But it was held by the King's Bench that he was not :lamnified till he bad 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 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 medt in

thi~ appeal which is accordingly dismissed with costs.

V.P.S.

Appeal dismissed:

(I) (1839), 9 A. & E.B. 633.