Master of Management Studies (SEM - II)

Project on the topic,

“Contingent Contract” For the subject,

“Legal & Tax Aspect of Business”.

Submitted to: Prof. I.R. Panjwani Submitted By: Krutika Ashtikar

Division: A

Roll No.: 2018004

 INDEX

Sr.
No. Topic Page No.

1 Indian Contract Act,1872 2-3

2 Contingent Contract 4-6

3 Statutory Analysis 7-9

4 Judicial Analysis 10-17

5 Conclusion 18

6 Bibliography 19

7 References 19

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 INDIAN CONTRACT ACT,1872

Introduction to Indian Contract Act, 1872

Indian Contract Act 1872 is the main source of law regulating contracts in Indian law, as
subsequently amended.

It determines the circumstances in which promise made by the parties to a contract shall be legally
binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly.
Each contract creates some right and duties upon the contracting parties. Indian contract deals with
the enforcement of these rights and duties upon the parties.

The Indian Contract Act 1872 sections 1-75 came into force on 1 September 1872. It applies to the
whole of India except the state of Jammu and Kashmir. It is not a complete and exhaustive law on
all types of contracts.

Definition

Section 2(h) of the Act defines the term contract as "any agreement enforceable by law". There are
two essentials of this act, agreement and enforceability.
Section 2(e) defines agreement as "every promise and every set of promises, forming the
consideration for each other."
Again Section 2(b) defines promise in these words: "when the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted. Proposal when accepted becomes a
promise."

Essential Elements of a Valid Contract

According to Section 10, "All agreements are contracts, if they are made by the free consent of the
parties, competent to contract, for a lawful consideration with a lawful object, and not hereby
expressly to be void."

Essential Elements of a Valid Contract are:

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1. Proper offer and proper acceptance. There must be an agreement based on a lawful offer made by
person to another and lawful acceptance of that offer made by the latter. Section 3 to 9 of the
contract act, 1872 lay down the rules for making valid acceptance

2. Lawful consideration: An agreement to form a valid contract should be supported by

consideration. Consideration means “something in return” (quid pro quo). It can be cash, kind, an
act or abstinence. It can be past, present or future. However, consideration should be real and lawful.

3. Competent to contract or capacity: In order to make a valid contract the parties to it must be
competent to be contracted. According to section 11 of the Contract Act, a person is considered to
be competent to contract if he satisfies the following criterion:

 The person has reached the age of maturity.

 The person is of sound mind.

 The person is not disqualified from contracting by any law.

4. Free Consent: To constitute a valid contract there must be free and genuine consent of the parties
to the contract. It should not be obtained by misrepresentation, fraud, coercion, undue influence or
mistake.

5. Lawful Object and Agreement: The object of the agreement must not be illegal or unlawful.

6. Agreement not declared void or illegal: Agreements which have been expressly declared void or
illegal by law are not enforceable at law; hence they do not constitute a valid contract.

7. Intention to Create Legal Relationships: When the two parties enter in to an agreement, there
must be intention must be to create a legal relationship between them. if there is no such intention
on the part of the parties. There is no contracts between them, Agreements of a social or domestic
nature do not contemplate legal relationship; as such they are not contracts.

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 CONTINGENT CONTRACT

Introduction to Contingent Contract

A contract may be either an absolute contract or a contingent contract. An absolute contract is one in
which the promisor binds himself to perform in any event without any conditions. It is also called
unconditional contract.

Example: X agrees to sell his motorcycle to Y for Rs. 10,000. In this contract, X and Y have given
promises to each other, i.e. selling of the motor cycle and making payment of the price. In this
contract, performance of promise by a party depends on the willingness of another party to perform
his part. But in case of default by any party, the other party (injured party) is entitled to have resort
to legal remedies. The contract is therefore absolute (or unconditional).

‘Contingent’ means that which is dependent on something else. In a contingent contract, the
performance becomes due only upon the happening of some event which may or may not happen.
In this contract, performance is dependent upon the happening or non-happening of an uncertain
event, collateral to the contract. It is additional but subordinate in nature and contain a conditional
promise. A promise is ‘conditional’ when performance is due only if an event collateral to the
contract, does or does not happen. ‘Collateral’ means subordinate but from the same source.
Collateral is incidental to the main contract.

Definition

Under Section 31 of the Indian Contract Act, 1872, contingent contracts are defined as follows: “If
two or more parties enter into a contract to do or not do something, if an event which is collateral to
the contract does or does not happen, then it is a contingent contract.”

The following points follow from the definition:

1. A contingent contract is a contract which is dependent on the happening or non-happening

of some event.

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 2. The performance of a contingent contract becomes due only upon the happening or non-
happening of some future uncertain event.

Nature of Contingent Contract

Contingent contract is a sort of conditional contract in which the performance becomes due only
upon happening or non-happening of some event, which is of uncertain nature. It is a contingent
contract upon an uncertain condition. Events are uncertain. Contingent contracts cannot be enforced
unless and until the contingency happens.

Instances of contingent contracts: Contracts of insurance contracts of indemnity and guarantee are
contingent contracts. But life insurance contract is not a contingent contract because the certain
amount is payable on the completion of the term, either to the nominee or policy holder, as the case
may be.

The Virtues of Contingent Contract

Two parties with common interests fail to reach an agreement--about a sale, a merger, a technology
transfer--because they have different expectations about the future. They are both so confident in
their prediction, and so suspicious of the other side's motives, that they refuse to compromise. Such
impasses are hard to break through.

Fortunately, they can often be avoided altogether by using a straightforward but frequently
overlooked type of agreement called a contingent contract. The terms of a contingent contract are
not finalized until the uncertain event in question--the contingency--takes place.

In some areas of business, such as compensation, contingent contracts are common: a CEO's pay is
tied to the company's stock price, for instance. But in many business negotiations, contingent
contracts are either ignored or rejected out of hand. That's a mistake, according to the authors.

In an increasingly uncertain world, flexible contingent contracts can actually be more rational and
less risky than rigid, traditional ones. In particular, contingent contracts offer six benefits:

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  They enable a difference of opinion to become the basis of an agreement, not an obstacle to
it

 They cancel out the biases of negotiators

 They level the playing field by reducing the impact of asymmetric information;

 They provide a means of uncovering deceitful dealings

 They reduce risk by sharing it among parties and

 They motivate parties to fulfill their promises

While contingent contracts are not appropriate in all instances, they are much more broadly
applicable than managers may think.

Characteristics of a Contingent Contract

A Contingent Contract must have three essential characteristics. There are:
(1) The performance of the contract depends on the happening or non-happening of a certain
event in future. This dependence on a probable future event distinguishes a contingent contract
from an ordinary contract.
(2) This event must be uncertain, that means happening or non-happening of the future event is
not certain, i.e., it may or may not happen. If the event is hundred percent sure to happen, and the
contract in that case has to be performed any way, such a contract is not called a contingent
contract.
(3) The event must be collateral or incident to the contract.
Therefore, contracts of indemnity, guarantee and insurance are the most common instances of a
contingent contract.

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 STATUTORY ANALYSIS

Enforcement of Contingent Contracts

Sections 31– 36 of the Indian Contract Act, 1872, list certain rules for the enforcement of a
contingent contract.

“Contingent contract” defined.

A “contingent contract” is a contract to do or not to do something, if some event, collateral to

such contract, does or does not happen.

Illustration-
A contracts to pay to B Rs.10,000 if B’s house is burnt. This is a contingent contract.

31. Enforcement of Contracts contingent on an event happening.

Contingent contracts to do or not to do anything in an uncertain future event happens, cannot be
enforced by law unless and until that event has happened. If the event becomes impossible, such
contracts become void.

Illustrations-
(a) A makes a contract with B to buy B’s horse if A survives C. This contract cannot be enforced
by the law unless and until B dies in A’s lifetime.

(b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse
has been offered, refuse to buy him. The contract cannot be enforced by law unless and until C
refuses to buy the horse.

(c) A contracts to pay B a sum of money when B marries C. C dies without being married to B.
The contract becomes void.

32. Enforcement of contract contingent on an event not happening.

Contingent contracts to do or not to do anything if an uncertain future event does not happen, can
be enforced when the happening of that event becomes impossible, and not before.

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Illustration-
A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The
contract can be enforced when the ship sinks.

33. When event on which contract is contingent to be deemed impossible, if it

is the future conduct of a living person.
If the future event on which a contract is contingent is the way in which a person will act at an
unspecified time, the event shall be considered to become impossible when such person does
anything which renders it impossible that they should so act within any definite time, or
otherwise than under further contingencies.

Illustration-
A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now
be considered impossible, although it is possible that D may die and that C may afterwards
marry B.

34. When contracts become void, which are contingent on happening of

specified event within fixed time.
Contingent contracts to do or not to do anything, if a specified uncertain event happens within a
fixed time, become void, if, at the expiration of the time fixed, such event has not happened, or
if, before the time fixed, such event becomes impossible.

Illustrations-
(a) A promises to pay B a sum of money if a certain ship returns within the year. The contract
may be enforced if the ship returns within the year; and becomes void if the ship is burnt within
the year.

35.When contracts may be enforced, which are contingent on specified event

not happening within fixed time.

Contingent contract to do or not to do anything, if a specified uncertain event does not happen
within a fixed time, may be enforced by law when the time fixed has expired and such event has
not happened, or before the time fixed has expired, if it become certain that such event will not
happen.

Illustration-
(a) A promises to pay B a sum of money if a certain ship does not return within a year. The
contract may be enforced if the ship does not return within a year, or is burnt within the year.

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36. Agreements contingent on impossible event void.
Contingent agreements to do or not to do anything, if an impossible event happens, are void,
whether the impossibility of the event is known or not to the parties to agreement at the time
when it is made.

Illustrations-
(a) A agrees to pay B Rs.1,000 if two straight lines should enclose a space. The agreement is
void.

(b) A agrees to pay B Rs. 1,000 if B will marry A’s daughter C. C was dead at the time of the
agreement. The agreement is void.

Difference between Contingent contract and other Contracts

 Contingent Contract and Wagering Contracts

There is a major difference between contingent contract and wagering contracts. A contingent
contract is valid; a wagering contract is void. In a wagering contract, money or its equivalent is
given if the uncertain event is ascertained or determined correctly by the opposite party. The
interest of the parties’ does not lie in happening or non-happening of the event, but they are
solely interested in determining the end result. For instance, A and B enter into a contract that A
will pay B if there is a flood and B’s crops gets spoilt and is valid. In another instance, P and Q
enter into a contract where P will pay money to Q is he correctly ascertains whether the flood
will come or not. This is a wagering contract is void. In the first instance, the parties are
interested in happening or non-happening of the event. But in the second instance, they are
interested only in determining the happening or non-happening of the event and not interested in
the event as a whole.

 Agreement Subject to Contract and Contingent Contract

There is a difference between agreement subject to contract and contingent contract, as
agreement subjected to contract is not a contract at all. In an agreement subject to contract, the
parties are not bound by the contract until and unless a formal contract is executed between the
parties, and such contract is formed by the willingness of the parties. A contract comes into
existence only when an uncertain event happens. But in the case of a contingent event, the
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performance of the obligation is suspended until the happening or non-happening of the event.
For instance, if X and Y agree that they’ll enter into a contract if Y’s house burnt down in a fire,
this will be considered as an agreement subject to contract.

JUDICIAL ANALYSIS

Case on Contingent Contract

Supreme Court of India

In Re: J.P. Builders vs A. Ramadas Rao on 13 November, 2010
Judgement: P. Sathasivam, Anil R. Dave

Case:

1) Leave granted in all the Special Leave Petitions.

2) These appeals seek to challenge the common judgment and order dated 23.02.2010 passed by
the Division Bench of the High Court of Judicature at Madras in A.S. Nos. 708 of 2008 and 946
of 2009 and W.P. No. 23405 of 2009 whereby the High Court partly allowed A.S. No. 708 of
2008 confirming the decree for specific performance granted by the Principal District Court,
Chengalpet in O.S. No. 336 of 2008 and dismissed A.S. No. 946 of 2009 preferred by the
appellants herein. By the same order, the High Court disposed of W.P. No. 23405 of 2009 with
certain directions. By a subsequent order dated 29.04.2010, the High Court dismissed the Review
Application No. 37 of 2010 in A.S. No. 708 of 2008 and Review Application No. 47 of 2010 in
W.P. No. 23405 of 2009 preferred by the appellants herein.

Brief facts:-

3) (a) The subject matter of the suit is a total extent of 30 acres 86 cents of land in
Senthamangalam Village, Sriperumbadur Taluk, Kancheepuram District comprised in 38 items.
M/s J.P. Builders-Appellant No. 1 and Shri J.P. Paramanandam-Appellant No. 2 herein are the
owners of the suit property which they acquired under various sale deeds. The sister concern of
M/s J.P. Builders viz., M/s Anand Agency has availed certain financial assistance from the Indian
Bank, (hereinafter referred to as `the Bank') and for the said assistance Appellant Nos. 1 and 2
herein offered their various properties including the suit property as security for the principal as
well as interest amount payable by M/s Anand Agency of which Appellant No. 2 is the sole
proprietor.

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(b) On 15.08.2005, the appellants entered into a Memorandum of Understanding (MoU) (Ex. A-
2) with Respondent No. 1 herein for sale of the suit property at a sale consideration of Rs. 14
lakhs per acre and a sum of Rs. 1 lakh was paid as advance by way of cheque on the same day.
Balance sale consideration was to be paid within three months from the date of obtaining
confirmation letter from the Bank.

(c) On 10.10.2005, M/s J.P. Builders, by a letter addressed to the AGM, Indian Bank, Asset
Recovery Management Branch II, offered a sum of Rs. 100 lakhs as full and final settlement of
the dues of its sister concern, M/s Anand Agency, which was declined by the Bank by letter dated
15.10.2005 advising them to revise the offer with substantial improvement. By letter dated
23.01.2006, the Bank stated that Appellant No. 2 herein had not made any improvement in his
One Time Settlement (in short `OTS') proposal of Rs. 100 lakhs and hence the Bank is
proceeding to enforce its rights under the Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interests Act, 2002 (hereinafter referred to as `the Act'). By letter
dated 01.02.2006, Appellant No. 2 offered a sum of Rs. 148 lakhs as one time settlement of the
loans availed by M/s Anand Agency.

(d) On 03.02.2006, Respondent No. 1 entered into a Sale Agreement with the appellants for
purchase of the suit property. The sale price of Rs. 14 lakhs per acre was enhanced to Rs. 18
lakhs per acre and the total sale consideration was fixed at Rs. 5,55,48,000/-. On the same day,
Respondent No. 1 had paid a sum of Rs. 24 lakhs by way of cheque as further advance to
Appellant No.2 in addition to Rs. 1 lakh already paid. On 18.04.2006, a further payment of Rs.
50 lakhs was made by Respondent No. 1.

(e) On 26.04.2006, the Bank rejected the OTS offer of Rs. 148 lakhs stating that since the
amount offered is very low, the Bank has decided to pursue the recovery application filed before
the Debts Recovery Tribunal, (hereinafter referred to as `DRT') Chennai for the recovery of the
dues of the Bank. Again, by letter dated 15.05.2006, the Bank stated that out of court settlement
can be done if an offer of Rs. 629.60 lakhs by working out interest at PLR i.e. 11% compound on
the principal outstanding as on 31.03.1993 be made. However, since the settlement amount was
more than the sale consideration for the suit property, the Appellant No. 2 could not agree to pay
the same.

(f) On 26.07.2006, Respondent No. 1 issued a legal notice to the appellants calling upon them to
liquidate the loans out of the amounts received from him and retrieve the original documents
from the Bank in order to execute the sale deed. By letter dated 27.07.2006, the Appellant No. 1
replied to the notice stating that the first respondent had not paid the balance sale consideration
in spite of repeated requests and raised doubt that the first respondent is no longer interested to
buy the suit property, therefore, a legal notice was sent calling upon Respondent No. 1 to pay a
sum of Rs. 1 crore as liquidated damages.

(g) On 07.08.2006, Respondent No. 1 filed O.S. No. 336 of 2006 before the Principal District
Judge, Chengalpet against the appellants and the Bank. By judgment and decree dated
30.04.2008, the Principal District Judge, Chengalpet decreed the suit partly, granting the relief
of specific performance directing appellant Nos. 1 & 2 herein to specifically perform their part
of the obligations arising out of the agreement for sale (Ex. A-3) dated 03.02.2006 by executing

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the sale deed in favour of Respondent No. 1 on receipt of the balance sale consideration of Rs.
4,80,48,000/- subject to the mortgage of the Bank. Further the relief in respect of permanent
injunction restraining the appellants from alienating or encumbering or dealing with the subject
property was granted. The prayer for mandatory injunction for directing the appellants to
discharge the loan in respect of DRT proceedings pending on the file of DRT-I, Chennai, thereby
retrieve the documents and deliver the same to Respondent No. 1 at the time of execution and
registration of sale deed was refused. Challenging the rejection of the prayer of mandatory
injunction and failure to award costs, Respondent No. 1 filed A.S. No. 708 of 2009 before the
High Court of Madras along with interim applications being M.P. Nos. 1 and 2 of 2008. On
01.02.2009, Respondent No. 1 filed another interim application in M.P. No. 1 of 2009 in A.S. No.
708 of 2008. By order dated 18.04.2009, the Division Bench of the High Court passed an order
of injunction in M.P. No. 1 of 2008 and M.P. No. 1 of 2009 restraining the appellants herein from
alienating, encumbering or dealing with the suit property pending appeal.

(h) On 06.10.2006, the Bank filed OA No. 491 of 1999 withdrawing its OTS offer of Rs. 629.60
lakhs and called upon the appellants to pay the total amount due along with future interest, costs
and charges. By order dated 15.05.2009, the Presiding Officer, DRT-I, Chennai, disposed of O.A.
No. 491 holding that the Bank is entitled to recover a sum of Rs. 11,08,51,875/- from M/s Anand
Agency. Pursuant to the order, the Recovery Officer issued the recovery certificate being D.R.C.
No. 102 of 2009 and also issued the 1st sale notification dated 23.10.2009 bringing to sale the
suit property. The upset price was fixed at Rs. 27 crores and the date of sale was fixed as
25.11.2009.

4) Heard Mr. L. Nageswara Rao and Mrs. Nalini Chidambaram, learned senior counsel for the
appellants and Mr. R.F. Nariman, learned senior counsel for respondent No.1 and Mr. Himanshu
Munshi, learned counsel for respondent No.2-Bank.

5) Mr. L.N. Rao and Mrs. Nalini Chidambaram appearing for the appellants after taking us
through the pleadings, judgment of the trial Court as well as the impugned judgment of the High
Court raised the following contentions:

i) The plaintiff has not established "readiness and willingness" in terms of Section 16(c) of the
Specific Relief Act, 1963, hence the Courts below ought not to have granted discretionary relief
of decree for specific performance.
ii) Inasmuch as the agreement being a contingent contract, which is impossible to fulfil and
cannot be implemented, in such circumstance, whether the Courts below are justified in granting
the relief in favour of the plaintiffs.
iii) Whether the right of marshaling by subsequent purchaser as provided in Section 56 of the
Transfer of Property Act, 1882 (hereinafter referred to as `the T.P. Act') is available to a decree
holder in a suit for specific performance and whether the High Court is justified in granting such
a relief in the absence of any pleading and issue before the trial Court.
iv) Whether the High Court is justified in hearing a writ petition filed under Art.226 of the
Constitution of India along with the regular first appeal filed under Section 96 C.P.C.

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6) On the other hand, Mr. R.F. Nariman, learned senior counsel for the first respondent, by
drawing our attention to all the relevant materials relied on by the trial Court and the appellate
Court supported the ultimate decision of the High Court. He submitted that -

i) The plaintiff has established his readiness and willingness all along and the same was rightly
accepted by the trial Court and confirmed by the High Court.
ii) The contract in question is not a contingent contract in terms of Sections 31 and 32 of the
Indian Contract Act, 1872.

7) The words "ready" and "willing" imply that the person was prepared to carry out the terms of
the contact. The distinction between "readiness" and "willingness" is that the former refers to
financial capacity and the latter to the conduct of the plaintiff wanting performance. Generally,
readiness is backed by willingness.

8) In the light of the above principles, let us consider whether the plaintiff has established his
case for decree for specific performance.

9) We have already adverted to the initial OTS proposal dated 01.02.2006 expressing second
defendant's willingness to pay for Rs. 148 lakhs since the bank has expressed its inability to
consider, by letter dated 15.05.2006, the bank has conveyed that OTS will be accepted if the
offer is given for Rs. 629.60 lakhs by working out compound interest at 11%. In the plaint, there
is a specific averment that the plaintiff even on 18.4.2006 has paid a further advance of Rs. 50
lakhs.

10) In his oral evidence before the Court, the plaintiff - PW-1 had reiterated and in fact asserted
that he was always ready with the money and duly pursuing the OTS along with Defendant Nos.
1 & 2. Insofar as readiness and willingness on the part of the plaintiff is concerned, apart from
the specific plea in the plaint about the payment and advance of substantial amount, he also
placed the relevant materials in the form of letters to show that he was corresponding with the
Bank for early settlement of the dues. In other words, the assertion in the form of specific plea in
the plaint and correspondence in the form of letter, his assertion in the witness box at the time of
trial, the Courts below are right in arriving at a conclusion that the plaintiff has proved and
complied with the mandates provided under Section 16 (c) of the Specific Relief Act.

11) With the materials placed, specific assertion in the plaint, oral and documentary evidence as
to execution of agreement, part-payment of sale consideration, having sufficient cash and
financial capacity to execute the sale deed, bank statements as to the moneys in fixed deposits
and saving accounts, we are of the view that the plaintiff has proved his "readiness" and
"willingness" to perform his part of obligation under the contract.

Contingent Contracts

12) By pointing out various clauses in the MoU (Ex. A-2), Ms. Nalini Chidambaram, learned
senior counsel for the appellants heavily contended that inasmuch as the contract was depending
upon uncertain events of the Indian Bank, agreeing for OTS, the contract entered is contingent
depending on the move of the Indian Bank. According to her, inasmuch as various clauses insists

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certain impossible conditions at the hands of the Indian Bank, the contract entered into between
the plaintiff and defendants become impossible and void. Though such an argument was
advanced before us, there was no such specific plea in their written statement and the Trial Court
has not framed separate issue and considered the same. Irrespective of the above position, in
view of the assertion made by learned senior counsel, we intend to discuss and give our answer.

13) Chapter III of the Indian Contract Act, 1872 deals with Contingent Contracts. Contingent
contract has been defined in Section 31 and method of enforcement is stated in Section 32 which
reads as under:

"31. "Contingent contract" defined.-- A "contingent contract" is a contract to do or not to do

something, if some event, collateral to such contract, does or does not happen.
32. Enforcement of contracts contingent on an event happening.-- Contingent contracts to do or
not to do anything if an uncertain future event happens, cannot be enforced by law unless and
until that event has happened. If the event becomes impossible, such contracts become void."

It is clear that if the condition prescribed or even described in the contract is impossible,
undoubtedly, such contracts become void and not enforceable in terms of Section 32. The events
enumerated in the contract, according to Ms. Nalini Chidambaram are (a) a letter specifying the
balance due to the bank (b) an undertaking later from the Bank that it will receive the said
balance amount (c) they will handover the original documents directly to the plaintiff. While
elaborating the said points, learned senior counsel highlighted that for executing the sale deed,
getting confirmation or clearance letter from the Indian Bank on payment of the dues to the Bank
and getting original documents have been emphasized in various clauses in the MoU (Ex. A-2).

14) If we accept the above stand and conduct of the parties and fresh terms as mentioned above
in Ex. A-3, the conditions incorporated in Ex. A-2 need not be complied with and it cannot be
contended that the contract was a contingent contract and unless and until a letter of confirmation
issued by the Indian Bank, the same is not enforceable. As rightly pointed out by Mr R. F
Nariman, the vendors have agreed to sell the property but agreed to execute the sale deed after
discharge of the mortgage in favour of the defendants. In other words, it was only the execution
of the sale deed which was postponed to a future date. The clauses referred above in Ex A-3 do
not insist the sale deed is to be executed only after the acceptance of OTS proposal by the Bank.
It is true that the first OTS offered by defendant Nos. 1 and 2 was not acceptable by the Bank.
When the Bank offered OTS for Rs. 629.60 lakhs, it was not acceptable by the defendant Nos 1
and 2. Clause 4 of Ex. A-3, makes it clear that to discharge the loans of the Bank, the vendors are
free to make a request to the purchaser, namely, the plaintiff, to make further advance and after
getting the amount from the plaintiff, defendant Nos. 1 and 2 have to secure documents from the
Bank. The trial Court as well as the High Court held that there is no material to show that the
defendant Nos. 1 and 2 made any attempt to comply with Clause 4 in Ex. A-3 by requiring the
plaintiff to make further advance. In the earlier paragraphs, we have also highlighted the conduct
of the plaintiff in keeping the required money, no doubt, in their SB account for the purpose of
meeting the demand of the defendant Nos. 1 and 2.

15) As stated earlier, merely because the contract insist settlement of a loan of the bank and
handover the title deeds to the plaintiff from the bank are not impossible events in the light of the

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performance made by the plaintiff, the contract in question did not come to an end on this ground
and such contract is not a contingent contract and undoubtedly, the Court has jurisdiction to grant
relief in terms of the contract. Obtaining No Objection Certificate (NOC) from the authority
concerned, clearance of NOC from Income Tax Department or any other State/Central authority,
securing title deeds after clearing certain loans are incidental and implied covenant on the part of
the vendors to do the needful to give effect to the agreement.

16) It is also relevant to point out that though defendant Nos. 1 and 2, at the first instance offered
OTS for Rs. 148 lakhs, the Bank, after taking note of various aspects claimed Rs. 629.60 lakhs as
their proposal. As rightly pointed out by Mr. R.F. Nariman, it was not an impossible performance
considering the amount borrowed by the sister agency of the Ist defendant and various properties
possessed by defendant Nos. 1 and 2 in prime localities of Chennai and in and around the sub-
urban areas of Chennai.

17) We are satisfied that the contract in question is capable of performance and the contention of
the learned senior counsel for the appellants that it is a contingent contract and is incapable of
performance cannot be accepted. We have already pointed out that this was not an issue before
the trial Court and such plea was not raised in the written statement. We have also pointed out
that defendant Nos. 1 and 2 did not bother to explain all salient features by entering the witness
box in support of their claim. We have already highlighted that the plaintiff has established that
he has partially performed his part of obligations by paying the advance amount of Rs. 25 lakhs
and another Rs. 50 lakhs in addition to the initial deposit of Rs. 1 Lakh. We also hold that
plaintiff has proved his readiness and willingness and financial ability to complete the sale
transaction. Accordingly, we reject the second contention also.

18) Mrs. Nalini Chidambaram strongly contended that in the absence of any plea the claim of
marshalling cannot be applied to the plaintiff. In support of her stand she relied on Anathula
Sudhakar vs P. Buchi Reddy (Dead) By Lrs. And Ors. (2008) 4 SCC 594 wherein this Court held
"no amount of evidence or arguments can be looked into or considered in the absence of
pleadings and issues, is a proposition that is too well settled." Absolutely, there is no dispute
about the said proposition. In the said decision, the High Court in a Second Appeal arising from a
suit for bare injunction while reversing the decision of the first Appellate Court, examined
various aspects relating to title and recorded findings and proceeded to discuss and grant relief in
the absence of pleadings and issues regarding title. Similar view has been expressed in Bachhaj
Nahar vs. Nilima Mandal and Anr (2008) 17 SCC 491.

19) We have already demonstrated the relief prayed in the plaint by paying substantial court fee
of Rs. 41,66,326.50. In such circumstance, when a party is able to secure substantial relief,
namely, decree for specific performance with clearance of mortgage amount, it is the duty of the
Court to mould the relief so as to render substantial justice between the parties. In this regard, we
accept the course adopted by the High Court in granting relief to the plaintiff.

20) We are also satisfied that merely because for recovery of the loan secured by banks, a special
Act, namely, Recovery of Debts due to Banks and Financial Institutions Act, 1993 has been
enacted which is not a bar for the civil Court to apply to other relief such as Section 56 of the T.P.
Act. We are also satisfied that by issuing such direction on the application of Section 56 of the

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T.P. Act, the Division Bench has not modified or eroded the order passed by the DRT. On the
other hand, it is an admitted fact that the Bank has accepted the impugned verdict of the High
Court and did not challenge the same before this Court by filing an appeal. We are also satisfied
that by granting such a relief, the Bank is not prejudiced in any way by bringing other properties
for sale first to satisfy the mortgage debt payable by defendant Nos. 1 and 2. In fact, the High
Court was conscious and also observed that if sale proceeds of other items of properties are not
sufficient to satisfy the debt payable to the Bank by defendant Nos. 1 and 2, in that event, Bank
can proceed against the suit properties.

21) We are also conscious of the fact that the said doctrine cannot be permitted to become a
device for destructing the sanctity of contract. The court will also not apply the doctrine of
impossibility to assist a party which does not want to fulfill its obligations under the contract.

About Writ Petition:

22) It is relevant to note that during the pendency of the appeals before the High Court, the very
same plaintiff filed Writ Petition No. 23405 of 2009, impleading defendant Nos. 1 and 2, M/s
Anand Agency which is a sister concern of defendant No. 1 and 3rd defendant-Bank apart from
Union of India, praying for issuance of a writ of Mandamus forbearing the respondents from
bringing the scheduled property forming the subject matter of the decree in his favour in O.S. No
336 of 2006 on the file of the Principal District Judge, Chengalpet by way of auction. He also
prayed for certain other directions. Objections were raised by the appellants about the hearing of
the writ petition along with the appeals. We have already adverted to the facts leading to the
filing of two regular First Appeals before the High Court. It is not in dispute that the parties in
those appeals as well as in the writ petition are one and the same except Union of India against
whom the writ petitioner has not sought any relief. It is also not in dispute that the subject matter
of the lis and properties are one and the same in both the appeals and the writ petition. There is
no bar for the Division Bench which has jurisdiction to hear appeal, to hear writ petition when
the same is connected with the main issue. In fact, no serious objection was raised before the
High Court for hearing the writ petition along with the appeal. On the other hand, on the earlier
occasion, when the parties have filed special leave petitions against certain interim orders, this
Court requested the High Court to dispose of all the matters together. It is relevant to point out
that no clarification or direction was sought in respect of the said order passed by this Court.

23) Mr. R.F. Nariman, learned senior counsel has pointed out that the writ petitioner has
highlighted the applicability of the principle of marshalling.

Cost

24) Though no serious argument was advanced about the award of cost, in the grounds raised in
the appeal, the appellants have agitated the award of cost by the High Court in favour of the
plaintiff. Section 35 of the CPC speaks about Cost. Inasmuch as the plaintiff after valuing the
suit paid a substantial court fee of Rs. 41,66,326.50 and ultimately he secured a decree for
specific performance though he could not secure a relief in its entirety, the plaintiff is entitled for
his cost. It is not in dispute that the court has granted the major relief, namely, decree for specific
performance subject to clearance of the mortgage debt. In those circumstances, the High Court

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having noticed the payment of substantial court fee ordered cost payable by the contesting
defendant Nos. 1 and 2 to the plaintiff. We agree with the said direction. Direction to the
Recovery Officer/Tribunal

Conclusion

In the light of the above discussion, more particularly, the factual findings rendered by the trial
Court and the Appellate Court-High Court in respect of grant of decree for specific performance
and application of principle of marshalling under Section 56 of the Transfer of Property Act, we
are in entire agreement with the conclusion arrived by the High Court. We have also gone
through the elaborate order of the High Court in review petitions filed by the appellants. As a
matter of fact, after highlighting the jurisdiction under review, the Division Bench of the High
Court had taken pains to discuss once again and rendered a finding on all aspects with which we
fully agree. Inasmuch as we are confirming the impugned judgment of the High Court in toto,
there is no need to refer the affidavit of undertaking filed by the first respondent herein and the
objection raised by the appellants as to the contents of the same. Since we confirm the
conclusion and ultimate decision of the High Court, we grant further time of three months from
today for deposit of the balance amount as directed by the High Court. In case defendant Nos. 1
and 2 fail to comply with the said directions in executing the sale deed, the trial Court is directed
to execute the sale deed incorporating all the directions and observations made in the judgment
of the High Court. Consequently, all the appeals are dismissed as devoid of any merit with no
order as to costs.

J. (P. SATHASIVAM), J. (ANIL R. DAVE) NEW DELHI;

NOVEMBER 13, 2010.

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 CONCLUSION

A contract is an agreement enforceable by law. For every contract, there should be an agreement
which is made by the free consent of parties competent to contract, for a lawful consideration
and with a lawful object. The agreement should not be declared void hereby to form a contract.
Every contingent contract is a contract primarily. Like any other contract, it is also a contract to
do or not to do something. It is not, however, an absolute and unconditional one, without any
reservations or conditions, which is to be performed under any event. Its performance is
dependent on some event’s happening or not happening- the contingency.

For a contract to be a contingent contract, certain essential elements have to be there. These
elements form a contingent contract and without them, a contract will not be contingent. There
must be a valid contract to do or not to do something. The performance of the contract must be
conditional. The said event must be collateral to such contracts and the event should not be at the
discretion of the promisor. These are some rules that have to be followed for a contingent
contract to be enforceable. For instance, on the happening of an event, on the event not
happening and on the event not happening within a specified time. There are some situations
when a contingent contract becomes void. Some of them are: the event being impossible, not
happening of event within fixed time, agreements contingent on impossible events and on the
conduct of a living person.

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 BIBLIOGRAPHY

 Indian Contract Act,1872 by Frederick Pollock, Dinshah Fardunji Mulla

 Indian Contract Act 1872 by N.D. Kapoor

REFERENCES

 https://indiankanoon.org

 https://www.lawctopus.com/academike/contingent-contracts/

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