MANAGING DIRECTOR, KERALA STATE SMALL INDUSTRIES DEVELOPMENT AND EMPLOYMENT CORPORATION LTD. Vs. CANARA BANK

JUDGEMENT

(1.) THE provisions of Sections 51 - 54 of the Indian Contract Act, 1872, embody a code of principles about contracts involving reciprocal promises. Section 52 only postulates that if the order of performance is fixed in the contract itself, such order has necessarily to be followed because that is the order which the parties wanted and agreed to be followed. If no such order is fixed, the reason of the thing or the nature of the transaction shall furnish the guidelines regarding the order of performance. Section 54 deals with the effect of default as to that promise which should be first performed in contracts consisting of reciprocal promises. If the promises are such that one of them cannot be performed or its performance cannot be claimed until the other has been performed and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim performance of the reciprocal promise and he must make compensation to the other for all loss that the other party may have sustained by the non -performance of the contract. It is not every breach that will entitle a promisor to be excused from the performance of his own promise. The promisee's default should be such as goes to the whole of the transaction. Further, if a promisor or promisee seeks equity, he must also do equity. These are the principles relied on by the first defendant who is the appellant. By virtue of Section 4 of the Transfer of Property Act, the chapters and sections thereof which relate to contracts are to be taken as part of the Indian Contract Act If obligations are to be performed in a certain sequence, one of the parties cannot require compliance with the obligations by the other without, in the first instance, performing his own part which is performable earlier (Nathulal v. Phoolchand, AIR 1970 SC 546).

(2.) THE appellant is the Kerala State Small Industries Development and Employment Corporation Ltd. (for short 'the corporation') which was established to promote small scale industries. The corporation established industrial estates in various places for starting, small scale industrial units.

(3.) THE machinery was in the premises of the second defendant on whose behalf the appellant took up the responsibility. Plaintiff -bank was not having physical possession or custody of the machinery. It had only a charge or a lien on the basis of the hypothecation. It was that charge which necessitated its release in order to enable the machinery to be handed over to the manufacturer for repairs or replacement. By Clause (1) of exhibit A -3, in consideration of the appellant agreeing to pay the amount with interest due from the second defendant on the basis of the hypothecation, the bank released the machinery from the charge created by the hypothecation and by Clause (2), in consideration of the bank releasing the machinery from the charge, the appellant bound itself to pay the amount unconditionally with interest within three months from the date of exhibit. A -3. Under exhibit A -3 there was nothing further to be done by the bank to performits promise. The promise of the bank was only to release the security. That promise was already performed and nothing remained to be performed. There is thus no question of any reciprocal promise on the part of the bank on the performance of which alone the obligation of the appellant to perform his part of the promise will arise. Under exhibit A -3, what remained to be done was only performance on the part of the appellant of its promise to pay the amount. The question of application of Section 52 or 54 of the Contract Act does not arise. The suit was, therefore, rightly decreed.