Lala Shanti Swarup vs Munshi Singh & Ors on 3 January, 1967

Supreme Court of India

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.
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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. 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.

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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 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
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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

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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 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 :

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"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.

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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. 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.

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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 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.

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