NATESA AIYAR Vs. APPAVU PADAYACHI

JUDGEMENT

(1.) This was a suit by the purchaser against the vendor for specific performance of a contract for the sale of immovable property and in the alternative for the return of the deposit of Rs. 4,000 paid by the purchaser. The purchaser failed to complete within the stipulated time, and the lower Court, finding that time was of the essence of the contract and that the defendant exercised his option of avoiding the contract under Section 55 of the Indian Contract Act on the plaintiffs failure to complete, refused to give the plaintiff specific performance but ordered the defendant to return the deposit of Rs. 4,000 paid by the plaintiff at the time of executing the contract of sale, Exhibit A, although in such contract it is expressly stipulated that the amount was to be forfeited by the plaintiff in the event of his delaying to complete the contract by the 24 May 1903, and he admittedly so delayed. This express provision is overridden, in the opinion of the lower Court, by the provisions of Section 64 of the Indian Contract Act that when a person at whose option a contract is voidable rescinds it, he must restore, so far as may be, any benefit he has received under the contract to the other party.

(2.) The question was argued before us at considerable length. In expressing my own opinion I propose to deal in the first place with the provisions of the Indian Contract Act. Several cases as to the right to recover deposits have been decided in India since the passing of that Act, but in none of them has it been suggested that this question was affected by the provisions of Section 64 or any other section of the Act. As pointed out by the House of Lords in Soper V/s. Arnold (1889) 14 App. Cas. 429 the deposit is primarily a security or guarantee for the performance of the contract, and, as observed by Fry, Lord Justice, in Howe V/s. Smith (1884) 27 Ch. D. 89 at p. 101" creates by fear of its forfeiture a motive in the parties to perform the rest of the contract." If, however, the law will not allow the deposit to be forfeited, this motive ceases to operate and the deposit ceases to be a guarantee or security for the performance of the contract. The learned Lord Justice goes on to observe that "the practice of giving something to signify the conclusion of the contract, sometimes a sum of money, or sometimes a ring or other object, to be re-paid or re-delivered on the completion of the contract, appears to be one of great antiquity and of very general prevalence," and it would further appear from Colebrook's Digest, Vol. 2, page 77 that India may be added to the list of countries in which it prevailed. It was certainly, therefore, not to be anticipated that Section 64 should have the effect of enforcing the return of the deposit to the defaulting party, when, owing to his default, the other party puts an end to the contract, the very case the deposit was intended to meet. Section 64 provides that, where a person at whose option a contract is voidable rescinds it, the rescinding party shall, if he has received any benefit thereunder from another party to such contract, restore such benefit, so far as may be to the person from whom it was received. Now a deposit regarded as a security or guarantee for the performance of a contract must be regarded as outside of and collateral to the main contract, although consisting of money. If the contract be performed it will go in part performance thereof, but it might equally be a ring or some other object which could not go in part performance and would have to be given back on completion of the contract. Where we have a contract and a guarantee for its performance, although they are included in the same instrument it does not seem to me necessary to hold that the provisions of Section 64 requiring the party avoiding the contract to restore any benefit he has received thereunder as far as may be, extend to a deposit regarded as a guaraniee. Even if a section of this kind applied in terms, it would, I think, be open to the parties on the principle quilibet protest renunciare juri pro se introducto to provide, as they have in this case provided, that the deposit should not be returned on the avoidance of the contract; but I prefer to base my judgment on the view that the section does not apply. The opposite construction contended for would involve a serious, not to say uncalled for, alteration in the law, and if the legislature had intended to make any such alteration, it would, I think, have made its intention clear by the use of express terms. I feel further strengthened in the view by the number of Indian cases as to deposit which have since been decided without reference to this section.

(3.) We have also been referred to Secs.73 and 74, but in my opinion, these sections deal with the right to recover compensation for breach of contract, and do not deal with the right of the defaulting party to recover back a deposit he has paid or with the right of the other party to retain it.