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NON-REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 4882 OF 2014

(Arising out of SLP(C) No. 35139 of 2012)

GIAN CHAND & ORS.                       …APPELLANTS     VERSUS

M/S. YORK EXPORTS LTD. & ANR.      … RESPONDENTS

J U D G M E N T  

V. GOPALA GOWDA, J.

Leave granted.

2. This  Civil  Appeal  is  directed  against  the  

judgment  and  order  dated  14.6.2012  passed  in  

Original Side Appeal No.9 of 2005 by the High Court  

of  Himachal  Pradesh  at  Shimla,  whereby  it  has  

dismissed the appeal of the appellants herein by  

concurring  with  the  judgment  and  decree  dated  

3.10.2005 passed in Civil Suit No. 31 of 1997 by

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the learned Single Judge  in decreeing the suit for  

payment of money at  39,20,000/- with 6% interest  

per annum from the date of institution of the suit  

till the date of payment of decretal amount to the  

respondents  giving  its  reasons  in  the  impugned  

judgment though it did not entirely agree with the  

reasonings provided  by the learned single Judge.  

Correctness of the same with regard to the interest  

from the institution of the suit till the date of  

payment  is  questioned  by  the  appellants,  urging  

various facts and legal contentions.

3. For the sake of brevity and convenience in this  

judgment, the parties are referred to as per the  

rank  assigned  to  them  in  the  original  suit  

proceedings.

4. The plaintiffs (the respondents herein) and the  

defendants  (the  appellants  herein)  executed  an  

agreement to sell 164 bighas, 7 biswas of land in

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question on 2.8.1995. As pre-condition for sale,  

permission  from  the  competent  authority  under  

Section 118 of the Himachal Pradesh Tenancy & Land  

Reforms Act (hereinafter referred to as “the Land  

Reforms Act”) was necessary. The onus to obtain the  

relevant permission was cast on the plaintiffs in  

the agreement to sell. The plaintiffs managed to  

obtain permission only for 145 bighas of land. As  

the stipulated time for obtaining permission for  

the  entire  area  expired,  the  plaintiffs  sought  

extension  of  time  from  the  defendants.  This  

extension was denied which eventually led to filing  

of  the  suit  in  question.  In  the  suit,  the  

plaintiffs  pleaded  frustration  of  contract  and  

sought  refund  of  the  money  already  paid  with  

interest.  The  learned  single  Judge  decreed  the  

suit,  finding  that  there  was  frustration  of  

contract.

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5. Aggrieved by the same, the defendants filed an  

appeal before the Division Bench of the High Court.  

The Division Bench  held that :- (i) the contract  

in question was not “frustrated” as understood in  

Indian law in terms of Section 56 of the Contract  

Act, 1872; (ii) the plaintiffs were at fault for  

their failure to obtain the necessary permission  

for the entire area as the obligation to obtain the  

permission  rested  with  them.  The  plaintiffs  had  

committed  breach  of  the  agreement,  however,  the  

defendants had not committed any breach and (iii)  

permission having been obtained for at least 145  

bighas of land, sale could have been completed with  

regard  to  this  substantial  portion  of  the  suit  

property.  Aggrieved  by  the  same,  the  defendants  

have filed this appeal.

6. This Court vide order dated 3.12.2012 passed  

the following order in the matter:-

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“

We  have  heard  learned  counsel  for the petitioners and perused  the record.  In our view, the  impugned  judgment  as  also  the  judgment of the learned Single  Judge does not suffer from any  legal infirmity insofar as the  decree  for  payment  of  the  principal amount is concerned.

Issue  notice  only  on  the  question of payment of interest  by the petitioners on the amount  which they had received from the  respondent in furtherance of the  main as well as the additional  agreement,  returnable  on  06.02.2013.  Dasti, in addition,  is permitted.

Issue notice on the petitioners’  prayer  for  interim  relief,  returnable  on  06.02.2013.  Dasti,  in  addition,  is  permitted.

In the meanwhile, operation of  the  impugned  judgment  as  also  the  judgment  of  the  learned  Single Judge shall remain stayed

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insofar as they relate to award  of interest to the respondent.

The  petitioners  shall  pay  the  principal  amount    to  the  respondent  within  a  period  of  six weeks from today.

It shall be  the  petitioners'  duty  to  serve  the  respondent  before the next date of hearing  failing   which   the   interim  order  passed today shall stand  automatically vacated.”

After  service  of  notice  in  the  Special  Leave  

Petition,  the  plaintiffs  filed  the  counter  

affidavit and the defendants also filed additional  

documents. Thereafter, the matter was listed before  

this Court for hearing on 31.01.2014. After hearing  

Mr.  Jayant  Bhushan,  the  learned  senior  counsel  

appearing  on  behalf  of  the  defendants  and  Mr.  

Deepak  Sibal,  the  learned  counsel  for  the  

plaintiffs,  this  Court  passed  the  order  by  

assigning the following reasons.

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7. At the time of issuing notice in the Special  

Leave  Petition  on  03.12.2012,  after  hearing  the  

learned counsel on behalf of the defendants, this  

Court issued notice only on the question of payment  

of interest by the defendants and the amount which  

they had received towards the part consideration  

from the plaintiffs in furtherance of the principal  

as well as the additional agreement. The learned  

senior counsel Mr. Jayant Bhushan has questioned  

the  correctness  of  the  impugned  judgment  of  the  

High Court in affirming the award of interest at  

the  rate  of  9%  per  annum  on  the  part  of  

consideration amount paid to the defendants. The  

interest was to be paid at the rate of 9% per annum  

prior to the institution of the suit and 6% on the  

said amount from the date of decree till the date  

of payment. The learned senior counsel contended  

that the defendants are not liable to pay the same

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as  the  plaintiffs  have  committed  breach  of  

agreement entered with them in not purchasing the  

agricultural land to an extent of 145 bighas of  

land in respect of which the State Government in  

exercise of its power under Section 118 of the Land  

Reforms Act granted permission to purchase the same  

by the plaintiffs  for the purpose of establishing  

their  factory,  though  the  agreement  of  sale  was  

intended to purchase 164 bighas 7 biswas of land in  

Khata Khatauni No. 98/105, Khasra No. 245, Mauza  

Beerh  Plassi,  Pargana  Plassi,  Tehsil  Nalagarh,  

District Solan, Himachal Pradesh. The case of the  

plaintiffs is that as per the agreement between the  

parties entered on 2.8.1995, the defendants agreed  

to  sell  the  aforesaid  property  at  the  rate  of  

50,000/-  per  bigha  and  further  agreed  that  the  

sale deed was to be executed on 31.5.1996 but prior  

to that date, the plaintiffs were required to pay a  

sum  of  15,03,500/-  to  the  defendants.

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Undisputedly,  this  amount  was  also  paid  to  the  

defendants on 21.8.1995. The sale deed could not be  

executed  by  the  defendants  in  favour  of  the  

plaintiffs  by  31.5.1996  as  the  State  Government  

granted permission to the plaintiffs for purchase  

of only 125 bighas of land under Section 118 of the  

Land Reforms Act. Thereafter the parties renewed  

the  agreement  on  31.5.1996.  As  per  the  renewed  

agreement,  the  plaintiffs  were  to  pay  

18,00,000/- more which was also paid on 4.6.1996.  

As per this agreement, the sale deed was to be got  

executed by 31.12.1996. The State Government did  

not grant permission to the full extent of land,  

which  is  agreed  to  be  sold  in  favour  of  the  

plaintiffs. On the other hand, the State Government  

allowed only to the extent of 145 bighas of land in  

all  to  be  purchased  by  the  plaintiffs.  The  

plaintiffs did not get the sale deed executed. As  

to  the  extent  of  land  for  which  permission  was

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granted by the State Government, according to the  

plaintiffs, it was not sufficient for establishing  

the  factory.  Therefore,  the  plaintiffs  contended  

that the contract is frustrated and therefore, they  

filed Civil Suit No. 31 of 1997 before the learned  

single Judge of the High Court for recovery of the  

amount paid towards the part consideration along  

with interest at the rate of 9% per annum up to the  

date of finalization of the suit and 6% per annum  

from the date of institution of the civil suit. The  

said claim was opposed by the defendants traversing  

plaint averments contending that the contract is  

not frustrated as pleaded by the plaintiffs under  

Section 56 of the Indian Contract Act, 1872 and the  

plaintiffs are not entitled for the decree of money  

including the interest as claimed by them and hence  

they have prayed for dismissal of the suit.

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8. The learned single Judge of the High Court vide  

order dated 3.10.2005 in Civil Suit No. 31 of 1997  

framed  9  issues  for  his  adjudication.  After  the  

trial, the contentious issues framed in the civil  

suit were answered in favour of the plaintiffs and  

passed the decree to a sum of 39,20,000/- with 6%  

interest per annum from the date of institution of  

the suit till the date of payment of money. The  

correctness of the reasons and findings answered on  

the  contentious  issues  in  the  judgment  of  the  

learned  single  Judge  was  challenged  before  the  

Division Bench of High Court urging various legal  

contentions. The Division Bench of the High Court,  

on the basis of the rival legal contentions urged  

on behalf of the parties formulated the following  

two points for its adjudication :-

“1. Whether the contract stood  frustrated by the fact that the  plaintiff  did  not  get

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permission  to  purchase  164  bighas 7 biswas of land?

2. Whether the defendants were  entitled  to  retain  the  amount  paid to them by the plaintiff  and if so, to what amount?”

   After examining the correctness of reasons  

recorded  by  the  learned  single  Judge  in  holding  

that  the  non-grant  of  permission  by  the  State  

Government to purchase 164 bighas 7 biswas of land  

in  favour  of  the  plaintiffs  in  terms  of  the  

agreement entered between the parties amounts to  

frustration of contract as provided under Section  

56 of the Contract Act was examined by the Division  

Bench of the High Court. The Division Bench of the  

High Court with reference to the reasons  recorded  

by the learned single Judge in the civil suit, on  

the  question  of  the  frustration  of  the  contract  

between  the  parties,  after  adverting  to  the  

relevant  provisions  of  Section  56  of  the  Indian

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Contract  Act,  by  assigning  its  own  reasons,  has  

answered the same by holding that the decision that  

the contract between the parties stands frustrated  

is erroneous in law.  

    The Division Bench of the High Court held that  

the finding recorded by the learned single Judge on  

non-grant of permission to the entire 164 bighas 7  

biswas of land as agreed between the parties to  

sell in favour of the plaintiffs does not amount to  

the frustration of contract for the reason that the  

State Government at first granted permission to the  

plaintiffs  for  purchase  of  125  bighas  and  

thereafter  granted  permission  to  purchase  145  

bighas of land. Further, the Division Bench of the  

High  Court  has  held  that  there  is  virtually  no  

material on record to show that after the second  

permission was granted, the plaintiff took further  

steps to get permission from the State Government

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for  purchasing  the  remaining  land.  Even  if  such  

permission  was  not  granted  and  permission  was  

specifically  refused,  the  contract  between  the  

parties would not stand frustrated. It is further  

rightly  held  by  the  Division  Bench  of  the  High  

Court that the parties at the time of agreement  

could not have presumed that the permission must be  

granted. Further it has observed that supposing the  

State Government refused to grant permission for  

purchase of land, then obviously, it would be a  

case  of  the  contract  not  being  able  to  be  

performed. But, when the State Government grants  

the permission for a lesser area of land than the  

agreed  upon  area  in  the  agreement  by  the  

defendants, plaintiffs could not have elected to  

purchase  the  lesser  area,  i.e.  145  bighas,  for  

which  the  permission  was  granted.  Further,  the  

learned  Division  Bench  of  the  High  Court  has  

rightly  rejected  the  argument  of  the  plaintiffs

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that permission for purchase of 145 bighas of land  

granted by the State Government in favour of the  

plaintiffs, was not sufficient to set up the plant  

as in this regard no evidence worth the name to  

support  this  plea  of  the  plaintiffs  has  been  

produced before the Court. Further, the High Court  

has rightly assigned its reasons on the basis of  

the project reports of the plaintiffs, the State  

Government and the Department of Industries, taking  

all relevant aspects into consideration has decided  

that permission should be granted in favour of the  

plaintiffs only for purchase of 145 bighas of land.  

This fact would clearly indicate that according to  

the  Industries  Department,  sale  of  land  of  145  

bighas  in  favour  of  the  plaintiffs  by  the  

defendants was sufficient to set up the industry  

for which purpose the plaintiffs have entered into  

an agreement with the defendants. Further, in the  

impugned  judgment  the  High  Court  assigned  its

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reasons stating that the parties may or may not get  

permission  for  the  purchase  of  the  entire  land.  

However, in the absence of such condition expressed  

in the agreement, the contract between the parties  

does  not  frustrate  particularly,  when  the  

plaintiffs had alternative to purchase 145 bighas  

of land from the defendants. The Division Bench of  

the  High  Court  on  the  issue  of  frustration  of  

contract  has  relied  upon  the  decisions  of  this  

Court and various High Courts in support of its  

reasons  which  are  adverted  in  the  impugned  

judgment, which need not be referred to in this  

judgment.

9. The Division Bench of the High Court did not  

accept the finding of the learned single Judge who  

had  conducted  the  trial  of  the  suit,  who  has  

erroneously  held  that  the  contract  stands  

frustrated under Section 56 of the Contract Act.

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10. The Division Bench of the High Court has also  

examined  the  said  aspect  of  the  matter  by  

adverting to the provisions of Sections 73, 74 and  

75 in Chapter VI of the Indian Contract Act and  

also  taken  into  consideration  the  decisions  of  

various High Courts and this Court has held that  

the defendants have not proved that they sustained  

losses on account of the non performance of the  

contract by the plaintiffs. The Division Bench of  

the High Court with reference to the allegation  

made by the defendants in their written statement  

that they suffered loss in the liquor business is  

not relatable to the contract and the same is not  

supported by material evidence on record. It was  

further  submitted  by  the  learned  senior  counsel  

for  the  defendants  that  due  to  the  breach  of  

contract on the part of the plaintiffs, the sum of  

4,00,000/- in the agreement which is the earnest

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money and advance of 4,00,000/- shall be forfeited  

towards loss of compensation. The Division Bench  

after  proper  evaluation  of  the  pleadings  and  

evidence on record has rightly rejected the said  

contention  and  decreed  the  suit  for  sum  of  

39,20,000/- with 6% interest per annum from the  

date of institution of the suit till the date of  

payment of money and it has rightly recorded the  

concurrent  finding   for  grant  of  the  decree  in  

favour of the plaintiff directing the defendants  

for  repayment  of  the  consideration  amount  with  

interest  as  mentioned  above  after  holding  that  

there  is  no  frustration  of  contract   entered  

between the parties though the sale of the land  

could not take place for non grant of permission  

to the entire extent of 165 bighas 7 biswas of  

land, the said finding of fact is accepted by this  

Court at the time of issuing notice and therefore,  

the correctness of the same has attained finality

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for  the  reason  that  this  Court  at  the  time  of  

issuing  notice  to  the  plaintiffs  has  clarified  

that  this  appeal  is  confined  on  the  issue  of  

payment of interest awarded on  decreetal amount  

from  the  date  of  institution  of  the  civil  suit  

till the payment to be made by the defendants to  

the  plaintiffs.  The  money  being  paid  as  part  

consideration to the defendants has been utilised  

by them in its liquor business. Therefore, award  

of interest in the judgment against the principal  

amount  upto  the  date  of  the  institution  of  the  

suit  at  9%  and  6%  thereafter  from  the  date  of  

institution of case till the date of payment is  

legal  and  valid  as  the  said  amount  has  been  

utilized by the defendants in the liquor business  

but they have failed to prove not obtaining the  

sale deed in respect of the land agreed upon to be  

sold in favour of the plaintiffs to the extent of  

area for which permission was granted by the State

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Government.  For  the  reasons  stated  supra,  the  

award  of  interest  on  the  principal  amount  and  

decreetal  amount  in  the  impugned  judgment  is  

perfectly justifiable on the basis of the facts  

and circumstances of the case.        

11. In view of the reasons stated supra, we do not  

find any reason whatsoever to interfere with the  

impugned judgment and decree wherein the award of  

interest at the rate of 6% per annum on the amount  

decreed by the learned single Judge from the date  

of institution of the suit need not be set aside by  

this  Court.  Accordingly,  the  Civil  Appeal  is  

dismissed, but with no order as to costs.

                           ………………………………………………………………………J.

            [GYAN SUDHA MISRA]

              ………………………………………………………………………J.             [V. GOPALA GOWDA]

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New Delhi, April 25, 2014